<PAGE>
As filed with the Securities and Exchange Commission on April 13, 1998
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
______________________
COMPASS INTERNATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
DELAWARE 7322 22-3540815
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
ONE PENN PLAZA, SUITE 4430 NEW YORK, NEW YORK 10119; (212) 967-7770
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Michael J. Cunningham
One Penn Plaza
Suite 4430
New York, New York 10119
(212) 967-7770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
HOWARD S. LANZNAR, ESQ.
MARGUERITE M. ELIAS, ESQ.
KATTEN MUCHIN & ZAVIS
525 WEST MONROE STREET, SUITE 1600
CHICAGO, ILLINOIS 60661-3693
(312) 902-5200
______________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [x].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [_].
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_].
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed
Amount Maximum Amount of
Title of Each Class of to be Proposed Maximum Aggregate Registration
Securities to be Registered Registered Offering Price/(1)/ Offering Price/(1)/ Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 par value per share...... 3,000,000 shares/(2)/ $14.5625 per share $43,687,500 $12,888
===================================================================================================================================
</TABLE>
/(1)/ Calculated in accordance with Rule 457(c) on the basis of the average of
the high and low sale prices of the Common Stock on April 9, 1998, as
reported on the Nasdaq National Market.
/(2)/ Such number of shares are also registered hereunder for resale, with the
consent of the Registrant, by persons who receive shares covered by this
Registration Statement and who may wish to sell such shares under
circumstances requiring or making desirable use of the Prospectus
contained herein.
________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 13, 1998
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
3,000,000 Shares
LOGO
COMPASS INTERNATIONAL SERVICES CORPORATION
COMMON STOCK
The 3,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), covered by this Prospectus may be offered and issued from time to time
by Compass International Services Corporation (the "Company") in connection with
acquisitions of other businesses, real or personal properties or securities in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"), or otherwise under Rule 415. This Prospectus may also be used, with the
Company's prior consent, by persons who have received or will receive shares of
Common Stock in connection with acquisitions and who wish to offer and sell such
shares under circumstances requiring or making desirable its use. See
"Securities Covered by this Prospectus" and see the inside back cover page
hereof for the identity of such persons, if any.
The Common Stock is traded on the Nasdaq National Market under the symbol
"CMPS." On April 9, 1998, the closing sale price of the Common Stock, as
reported in the Wall Street Journal, was $14.50 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ________ __, 1998.
<PAGE>
PROSPECTUS SUMMARY
IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING OF A TOTAL OF 4,715,000
SHARES OF COMMON STOCK FOR NET PROCEEDS OF APPROXIMATELY $41.5 MILLION, WHICH
CLOSED IN MARCH 1998 (THE "IPO"), COMPASS INTERNATIONAL SERVICES CORPORATION
ACQUIRED IN SEPARATE TRANSACTIONS (THE "ACQUISITIONS"), IN EXCHANGE FOR CASH AND
SHARES OF ITS COMMON STOCK, FIVE BUSINESS SERVICES OUTSOURCING COMPANIES (EACH A
"FOUNDING COMPANY" AND, COLLECTIVELY, THE "FOUNDING COMPANIES"). UNLESS
OTHERWISE INDICATED, ALL REFERENCES HEREIN TO THE "COMPANY" INCLUDE THE FOUNDING
COMPANIES AND ALL REFERENCES HEREIN TO "COMPASS" MEAN COMPASS INTERNATIONAL
SERVICES CORPORATION PRIOR TO THE CONSUMMATION OF THE ACQUISITIONS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL SUCH
FINANCIAL INFORMATION AND SHARE AND PER SHARE DATA IN THIS PROSPECTUS GIVE
EFFECT TO THE 112.1846-FOR-1 STOCK SPLIT THAT WAS EFFECTED ON DECEMBER 3, 1997.
THE COMPANY
Compass was organized to create a leading provider of outsourced business
services to public and private entities throughout the sales cycle (as
illustrated below, the "Sales Cycle"). The five Founding Companies collectively
provide accounts receivable management services, mailing services and
teleservices to clients in a broad range of sectors including
telecommunications, financial services, insurance, healthcare, education,
government and utilities. In addition, through its proprietary Accelerated
Payment Systems ("APS") process, one of the Founding Companies is a leading
provider of telephonic check drafting services which enable clients to accept
payments through checks authorized by phone. The Founding Companies, each of
which has been in business for more than ten years, have collectively achieved
substantial growth in recent years. On a pro forma combined basis, the Founding
Companies' revenues increased from $34.2 million in 1992 to $87.2 million in
1997, representing a compound annual growth rate of 20.6%.
The Company's accounts receivable management services include the recovery
of traditional delinquent accounts from both consumer and commercial debtors and
the management of early stage delinquencies. Mailing services include lead
generating direct mail, often to prompt inbound sales calls, and direct mail for
billing, payment processing or collection purposes. Mailing services also
include presorting, freight and drop shipping, data processing, laser printing,
mailing list rental and order fulfillment. Teleservices include outbound
telemarketing, inbound customer service and inbound sales. Each of the services
provided by the Company, including APS, can be utilized at various stages of the
Sales Cycle. The Company is one of the largest providers of its services in the
United States in terms of revenues, servicing clients from 12 call centers in
ten states equipped with a total of approximately 900 workstations, a mail
processing center in Texas, four sales centers in the United States and one
sales center in the United Kingdom.
Companies are increasingly outsourcing to third party experts a variety of
non-core business functions throughout the Sales Cycle, and the Company
believes, although there can be no assurance, that this trend toward outsourcing
will continue. In addition to the general trend toward outsourcing, management
believes that a number of significant factors and trends are creating
opportunities in the Company's businesses. Both the accounts receivable
management industry and the direct marketing industry have experienced
significant growth in recent years. According to a recent report concerning the
accounts receivable management industry, receivables outsourced to third parties
for management and recovery in the United States increased from approximately
$79.0 billion in 1994 to approximately $84.3 billion in 1995, an increase of
approximately 6.7%.
2
<PAGE>
The Direct Marketing Association estimates that direct marketing
advertising expenditures in the United States for telemarketing increased from
approximately $42.4 billion in 1991 to $57.8 billion in 1996, a compound annual
growth rate of 6.4%, while direct mail advertising expenditures increased from
approximately $24.5 billion to $34.6 billion during the same period, a compound
annual growth rate of 7.1%. Each of the accounts receivable management, direct
mail and teleservices industries is highly fragmented, includes a large number
of small, independent businesses and is currently experiencing consolidation.
The Company believes significant opportunities are available to a well
capitalized company providing a broad offering of outsourced business services
with a high level of customer service.
Compass believes that companies are increasingly seeking partners who can
provide a comprehensive set of outsourced services, spanning the entire Sales
Cycle, while maintaining a high level of client service. The diagram below
illustrates the processes that comprise the Sales Cycle, from direct marketing
through accounts receivable collection, and the services provided by the Company
that can be utilized at various stages throughout the Sales Cycle.
[DIAGRAM OF SALES CYCLE]
The Company's goal is to become a leading, single-source provider of
outsourced business services throughout the Sales Cycle. In order to achieve
this goal, the Company intends to: (i) provide a broad array of complementary
business services; (ii) focus on high quality client service; (iii) leverage and
expand its technology and operational infrastructures; and (iv) operate with a
decentralized management structure.
The Company intends to implement a focused internal growth strategy and
pursue an aggressive acquisition program.
INTERNAL GROWTH STRATEGY. While the Company intends to acquire additional
outsourcing services companies, strong internal growth remains the core of the
Company's growth strategy. A key element of the internal growth strategy is to
capitalize on significant cross-selling opportunities. Each of the Founding
Companies is a specialist in the services it provides and has many long standing
relationships with large clients that have multiple outsourcing needs.
Combining the Founding Companies will enable the Company to capitalize on
existing clients' desires for a single point of service, and to offer bundled
services by leveraging the Founding Companies' client relationships and
reputations for quality. The Company expects to use the expertise of the
Founding Companies as a point of entry with new clients. In addition, the
Company intends to: (i) implement an aggressive, coordinated marketing program;
(ii) selectively expand its service offerings with the goal of providing
integrated "end-to-end" services to clients throughout the Sales Cycle; (iii)
3
<PAGE>
implement best practices throughout the Company's operations; (iv) achieve
economies of scale; and (v) pursue opportunities in the growing international
market.
ACQUISITION STRATEGY. Compass believes that industry trends toward
consolidation and increased acceptance of outsourcing create opportunities for
expansion of the Company's business. The Company intends to capitalize on the
highly fragmented nature of the industries in which it competes by implementing
an aggressive strategic acquisition program. Using the Founding Companies as
platforms for growth and consolidation, the Company will pursue acquisitions
within the industry segments and markets currently served by the Founding
Companies to add to the growth of its existing businesses and gain market share.
In addition, the Company plans to acquire additional companies that broaden and
complement its menu of services and the markets it serves.
The Company's ability to successfully execute its internal growth and
acquisition strategies is subject to certain risks and will depend on certain
factors including, without limitation, the absence of a combined operating
history and the Company's ability to: (i) effectively manage growth; (ii) market
and cross-sell its services while maintaining high quality and expanding the
services offered; (iii) recruit and retain qualified personnel; (iv) identify,
acquire and integrate new businesses; and (v) access additional capital. See
"Risk Factors" beginning on page 10 of this Prospectus.
THE ACQUISITIONS
On March 4, 1998, Compass acquired all of the outstanding capital stock of
each of the Founding Companies. The aggregate consideration paid by Compass
consisted of approximately $17.9 million in cash and 5,435,691 shares of Common
Stock, plus the assumption by Compass of certain liabilities of the Founding
Companies. Certain executives of the Founding Companies entered into employment
agreements with their respective Founding Companies upon consummation of the
Acquisitions. One executive from each of the Founding Companies was appointed to
Compass' Board of Directors following the consummation of the IPO. See "The
Company," "Management -- Executive Compensation; Employment Agreements;
Covenants Not to Compete" and "Certain Transactions."
RECENT DEVELOPMENTS
On April 7, 1998, Compass entered into an Agreement and Plan of
Reorganization with Bender Direct Mail Services, Inc. ("Bender"), a Tulsa,
Oklahoma based provider of mail services. Compass will acquire the outstanding
capital stock of Bender for cash and Common Stock totalling approximately $5.8
million. The transaction is expected to close in April 1998.
The Company's executive offices are located at One Penn Plaza, Suite 4430,
New York, New York 10119, and its telephone number is (212) 967-7770.
4
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Compass acquired the Founding Companies simultaneously with the IPO. For
financial statement presentation purposes, The Mail Box, Inc., one of the
Founding Companies, was designated as the accounting acquiror. The following
unaudited summary pro forma combined financial data present certain data for the
Company as adjusted to give effect to (i) the consummation of the Acquisitions,
(ii) certain pro forma adjustments to the historical financial statements,
including adjustments for an acquisition completed by Bomar (as defined below
under the heading "The Company") in September 1997, and (iii) the consummation
of the IPO and the application of the net proceeds therefrom. See the Unaudited
Pro Forma Combined Financial Statements and the notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
Combined
----------------
Year Ended
December 31,1997
----------------
<S> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues............................................ $ 87,153
Operating expenses.................................. 53,353
----------------
Gross profit....................................... 33,800
Selling, general and administrative expenses (2).... 23,229
Amortization of goodwill and other intangibles (3).. 1,528
----------------
Income from operations............................. 9,043
Other expense, net (4).............................. 625
Income before income taxes.......................... 8,418
Provision for income taxes (5)..................... 3,978
----------------
Net income.......................................... $ 4,440
----------------
Net income per share................................ $0.42
Shares used in computing net income per share (6)... 10,460,931
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Pro Forma As
Combined (7) Adjusted (8)
------------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)..................... $ (20,123)(9) $ 15,323
Total assets.................................. 85,224 90,356
Total long-term debt, net of current portion.. 8,106 2,010
Stockholders' equity.......................... 33,739 75,281
</TABLE>
__________________
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the IPO were consummated on January 1, 1997, are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be construed
as representative of future operating results. The summary pro forma
combined statement of operations data should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the notes thereto and
the historical financial statements of Compass and the Founding Companies
and the notes thereto included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data reflect reductions in
salaries, bonuses and benefits to the stockholders of the Founding Companies
to which they have agreed in employment agreements entered into upon
consummation of the IPO (the "Compensation Differential"). The Compensation
Differential was approximately $4.1 million for the year ended December 31,
5
<PAGE>
1997. Additionally, the pro forma combined statement of operations data
reflect the elimination of a compensation charge of approximately $1.3
million associated with the issuance of NCMC shares to certain key employees
and a director of NCMC.
(3) Reflects (i) the amortization of goodwill of $51.2 million to be recorded as
a result of the Acquisitions over periods ranging from 15 to 40 years; and
(ii) the amortization of $1.0 million in intangible assets over a period of
15 years.
(4) Reflects a reduction of interest expense associated with long term debt
repaid from the proceeds of the IPO of $547,000 for the year ended December
31, 1997 and a reduction of interest income of $75,000 for the year ended
December 31, 1997, relating to stockholder notes paid off after consummation
of the IPO.
(5) Assumes that all income is subject to a corporate income tax rate of 40% and
that all goodwill is non-deductible.
(6) Includes: (i) 1,682,769 shares issued to BGL Capital Partners, L.L.C.
("BGL"), and management of Compass; (ii) 5,435,691 shares issued to owners
of the Founding Companies in connection with the Acquisitions; and (iii)
3,342,471 shares representing the number of shares sold in the IPO necessary
to pay the cash portion of the consideration for the Acquisitions, to pay
the underwriting discount and estimated expenses of the Acquisitions and the
IPO, and to repay certain indebtedness assumed by Compass in the
Acquisitions, net of repayment of stockholder receivables. See "Certain
Transactions."
(7) The pro forma combined balance sheet data assume that the Acquisitions were
consummated on December 31, 1997, are not necessarily indicative of the
financial position that would have been achieved had these events actually
then occurred and should not be construed as representative of future
financial position. The summary pro forma balance sheet data should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the notes thereto and the historical financial statements of Compass and
the Founding Companies and the notes thereto included elsewhere in this
Prospectus.
(8) Adjusted to reflect the sale of the 4,715,000 shares of Common Stock sold in
the IPO and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(9) Includes $17.9 million payable to stockholders of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions paid
from the net proceeds of the IPO. See "Use of Proceeds" and "Notes to
Unaudited Pro Forma Combined Financial Statements."
6
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary operating data for each of the
Founding Companies (see "The Company" for the complete names of each Founding
Company) on a historical basis for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,(1)
------------------------------
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
MAIL BOX:
Revenues...................................... $ 17,370 $ 26,156 $ 32,566
Operating expenses............................ 12,402 17,953 21,493
-------- -------- --------
Gross profit.................................. 4,968 8,203 11,073
Selling, general and administrative expenses.. 4,370 5,891 7,824
-------- -------- --------
Income from operations........................ $ 598 $ 2,312 $ 3,249
======== ======== ========
NCMC(2):
Revenues...................................... $ 12,287 $ 13,579 $ 15,620
Operating expenses............................ 6,322 7,945 9,433
-------- -------- --------
Gross profit.................................. 5,965 5,634 6,187
Selling, general and administrative expenses.. 4,328 4,798 6,340
-------- -------- --------
Income (loss) from operations................. $ 1,637 $ 836 $ (153)
======== ======== ========
BOMAR:
Revenues...................................... $ 7,416 $ 9,597 $ 14,266
Operating expenses............................ 4,229 5,814 8,208
-------- -------- --------
Gross profit.................................. 3,187 3,783 6,058
Selling, general and administrative expenses.. 2,934 3,458 5,078
-------- -------- --------
Income from operations........................ $ 253 $ 325 $ 980
======== ======== ========
MID-CONTINENT:
Revenues...................................... $ 8,763 $ 9,038 $ 9,451
Operating expenses............................ 2,851 2,875 3,105
-------- -------- --------
Gross profit.................................. 5,912 6,163 6,346
Selling, general and administrative expenses.. 5,974 6,054 6,239
-------- -------- --------
Income (loss) from operations................. $ (62) $ 109 $ 107
======== ======== ========
IMPACT(3):
Revenues...................................... $ 8,748 $ 8,869 $ 12,870
Operating expenses............................ 6,108 6,961 9,725
-------- -------- --------
Gross profit.................................. 2,640 1,908 3,145
Selling, general and administrative expenses.. 2,590 2,108 2,823
-------- -------- --------
Income (loss) from operations................. $ 50 $ (200) $ 322
======== ======== ========
</TABLE>
_________________
(1) Selling, general and administrative expenses for the Founding Companies for
each of the years in the three-year period ended December 31, 1997 do not
include a reduction for the Compensation Differential as indicated below.
The historical Compensation Differential shown for Bomar does not include
$73,000, $169,000, and $64,000, for the years ended December 31, 1995, 1996
and the eight months ended August 31, 1997, respectively, related to Bomar's
acquisition of FCCI which was completed in September 1997.
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1996 1997
--------- -------- -------
<S> <C> <C> <C>
Mail Box............................... $ 310 $ 875 $ 1,776
NCMC................................... 169 210 124
Bomar.................................. 658 986 822
Mid-Continent.......................... 1,057 1,161 1,313
Impact................................. -- -- --
------- ------- -------
Total $ 2,194 $ 3,232 $ 4,035
======= ======= =======
</TABLE>
__________________
(2) NCMC's operating data for the year ended December 31, 1997 include a
compensation charge of approximately $1.3 million associated with the
issuance of NCMC shares to certain key employees.
(3) Impact's operating data for the year ended December 31, 1995 reflect the
operating results for the year ended September 30 for its affiliate, Impact
Tele-marketing, Inc.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following factors should be considered carefully before
purchasing any of the shares of Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
Compass was formed in 1997 but conducted no operations and generated no
revenues prior to the closing of the Acquisitions on March 4, 1998. The
Founding Companies operated as separate independent entities prior to the IPO,
and there can be no assurance that the Company will be able to integrate the
operations of these businesses successfully or to institute the necessary
systems and procedures including accounting and financial reporting systems to
manage the combined enterprise on a profitable basis and to report the results
of operations of the combined entities on a timely basis. Currently, the
Company has no centralized financial reporting system and is initially relying
on the existing reporting systems of the Founding Companies. The success of the
Company will depend, in part, on the Company's ability to integrate the
operations of the Founding Companies, including centralizing certain functions
to achieve cost savings and developing programs and processes that will promote
cooperation and the sharing of opportunities and resources among the Founding
Companies. The Company's management group has been assembled only recently and
there can be no assurance that the management group will effectively be able to
oversee the combined entity and implement the Company's operating or growth
strategies. Further, to the extent that the Company is able to implement its
acquisition strategy, the resulting growth of the Company will place significant
demands on management and on the Company's internal systems and controls. There
can be no assurance that the newly assembled management group will effectively
be able to direct the Company through a period of significant growth.
A number of the Founding Companies offer different services, employ
different technologies and operating systems and target different markets and
client segments. These differences increase the risk inherent in successfully
completing integration of the Founding Companies. Further, there can be no
assurance that the Company's integration strategy will be successful, or that
the clients of the Founding Companies will accept the Company as a provider of a
variety of outsourced business services. In addition, there can be no assurance
that the operating results of the Company will match or exceed the combined
individual operating results achieved by the Founding Companies prior to the
IPO.
POTENTIAL ADVERSE EFFECT IF COMPANY IS UNABLE TO MANAGE GROWTH
The Company expects to grow internally and through acquisitions. The
Company expects to expend significant time and effort in expanding existing
businesses and identifying, completing and integrating acquisitions. The
Company's ability to manage growth successfully will require the Company to
continue to improve its operations, management and financial systems and
controls as well as expand its employee workforce. Any future growth can be
expected to place significant additional responsibilities on the Company's
management, operations, employees and resources. There can be no assurance the
Company will be able to maintain or accelerate its current growth, effectively
manage its expanding operations or achieve planned growth on a timely or
profitable basis. To the extent that the Company is unable to manage its growth
efficiently and effectively, the Company's business, financial condition and
results of operations could be materially adversely affected. See "Business --
Growth Strategy" and "Management."
NO ASSURANCE OF SUSTAINED INTERNAL GROWTH; POTENTIAL ADVERSE EFFECT OF
DECENTRALIZED OPERATING STRATEGY
A key element of the Company's strategy is to generate internal growth by
capitalizing on cross-selling opportunities, generating new clients through
aggressive marketing and expanding its service
9
<PAGE>
offerings. Internal growth will depend upon factors including the effective
initiation, development and maintenance of client relationships; the expansion
of marketing operations; the Company's ability to maintain the high quality of
the services and products it offers and to expand such services and products;
and the recruitment, motivation and retention of qualified management and other
personnel. Sustaining growth will also require continued access by the Company
to capital, the successful cross-selling of products and services among the
Founding Companies and realization by the Company of economies of scale. There
can be no assurance that the Company's strategies will continue to generate
internal growth or that it will be able to generate cash flow adequate for its
operations and to support growth. A key component of the Company's strategy is
to operate the Founding Companies and subsequently acquired businesses on a
decentralized basis, with local management retaining responsibility for day-to-
day operations, profitability and the growth of the business. If proper overall
business controls are not implemented, this decentralized operating strategy
could result in inconsistent operating and financial practices at the Founding
Companies and subsequently acquired businesses and the Company's overall
profitability could be adversely affected. See "Business -- Growth Strategy."
DEPENDENCE ON ACQUISITIONS; POTENTIAL INABILITY TO CONSUMMATE ACQUISITIONS AND
INTEGRATE ACQUIRED BUSINESSES
A significant element in the Company's growth strategy is the acquisition
of additional outsourced business services companies that will add to the growth
of or complement its existing businesses. There can be no assurance that the
Company will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that the Company will be able to
profitably manage additional businesses or successfully integrate such
additional businesses into the Company without substantial costs, delays or
other problems. The Company has obtained a commitment from a bank for a $35.0
million three-year revolving credit facility which is expected to contain
provisions restricting the Company's ability to engage in certain acquisitions.
There can be no assurance that the credit facility will be obtained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma Combined Liquidity and Capital Resources."
In addition, acquisitions may involve a number of special risks, including
adverse short-term effects on the Company's reported operating results;
diversion of management's attention; dependence on retention, hiring and
training of key personnel; unanticipated problems or legal liabilities; and
amortization of acquired intangible assets. Some or all of these risks could
have a material adverse effect on the Company's operations and financial
performance. In addition, increased competition for attractive acquisition
candidates may develop, in which case there may be fewer acquisition
opportunities available to the Company as well as high acquisition prices. There
can be no assurance that the Founding Companies or other businesses acquired in
the future will achieve anticipated revenues or earnings.
POTENTIAL NEED FOR ADDITIONAL FINANCING TO FUND FUTURE ACQUISITIONS
The Company currently intends to finance future acquisitions by using its
Common Stock for all or a portion of the consideration to be paid. In the event
that the Common Stock does not maintain sufficient value, or potential
acquisition candidates are unwilling to accept Common Stock as consideration for
the sale of their businesses, the Company may be required to utilize more of its
cash resources, if available, in order to continue its acquisition program. If
the Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain capital through additional debt or equity
financings. There can be no assurance that such debt or equity financings will
be obtained or that, if obtained, such financing will be on terms that are
favorable to the Company or sufficient for the Company's needs. If the Company
is unable to obtain sufficient financing, it may be unable to fully implement
its acquisition strategy.
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MATERIAL AMOUNT OF INTANGIBLE ASSETS
Approximately $51.2 million, or 56.6%, of the Company's pro forma as
adjusted total assets as of December 31, 1997 represents goodwill subsequent to
the Acquisitions. Goodwill is an intangible asset that represents the
difference between the aggregate purchase price for the assets acquired and the
amount of such purchase price allocated to such assets for purposes of the
Company's pro forma balance sheet. The Company will amortize the goodwill from
the Acquisitions over periods ranging from 15 to 40 years with the amount
amortized in a particular period constituting an expense that reduces the
Company's net income for that period. The amount amortized, however, will not
give rise to a deduction for tax purposes. In addition, the Company will be
required to amortize the goodwill, if any, from any future acquisitions. Under
accounting rules, the Company is required to periodically evaluate if goodwill
has been impaired by reviewing the cash flows of acquired companies and
comparing such amounts with the carrying value of the associated goodwill. If
goodwill is impaired, the Company would be required to write down goodwill and
incur a related charge to its income. A reduction in net income resulting from
the amortization or writedown of goodwill could have an adverse impact upon the
market price of the Common Stock.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Results for any quarter are not necessarily indicative of the results that
the Company may achieve for any subsequent quarter or a full fiscal year.
Quarterly results may vary materially as a result of the timing and structure of
acquisitions, the timing and magnitude of costs related to such acquisitions or
the gain or loss of material client relationships. Since a significant portion
of the Company's revenues are generated on a project-by-project basis, the
timing or completion of material projects could result in fluctuations in the
Company's results of operations for particular quarterly periods. Because the
anticipated financial benefits of the combination of the Founding Companies may
not be generated immediately, if at all, the Company's initial results as a
combined company may reflect corporate overhead that exceeds the realized
benefits. Unexpected variations in quarterly results could also adversely affect
the price of the Common Stock, which in turn could limit the ability of the
Company to make acquisitions.
PATENT LITIGATION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
The success of the Company's APS business is dependent in part upon a
patent covering the APS process (the "APS Patent") that was purchased by and
assigned to the Company in 1996. NCMC is currently engaged in several disputes
with respect to the APS Patent. NCMC has filed suit against the former owner
and inventor of the APS Patent (collectively, the "Defendants"), alleging that
the Defendants have breached the agreement between NCMC and the Defendants and
violated NCMC's exclusive rights to the APS Patent and related intellectual
property used in the APS portion of NCMC's business. The Defendants have filed
a counterclaim that seeks, among other things, rescission of the agreement under
which NCMC purchased the APS Patent, restoration of a prior agreement pursuant
to which the Defendants licensed the APS Patent to NCMC, return of the APS
Patent to the Defendants and unspecified damages. There can be no assurances
that Defendants will not prevail with respect to some or all of their
counterclaims. If the purchase agreement is rescinded and the prior license
agreement restored, the royalties payable by NCMC would be higher than those
currently being paid, damages could be assessed and the ownership of the APS
Patent would be transferred to the Defendants. In addition, the inventor has
recently alleged (although no claim has been filed) that NCMC has misused the
APS Patent, thereby rendering it unenforceable. While management believes that
these allegations are without merit, if such claims are litigated, a decision
adverse to NCMC could have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Litigation."
NCMC is currently a plaintiff in two other lawsuits in which NCMC is
alleging that a competitor and a former customer are infringing the APS Patent.
These defendants have denied any infringement
11
<PAGE>
and filed counterclaims seeking a declaration that the APS Patent is invalid.
There can be no assurances that NCMC will prevail in these or other patent
infringement actions it may pursue, that the APS Patent will not be declared
invalid or that the loss of either of these two lawsuits or the defendants'
counterclaims will not have a material adverse effect on the Company's business,
results of operations or financial condition. See "Business -- Litigation." In
addition, there can be no assurances that the Company's competitors will not be
able to develop similar or better technology than the APS Patent.
DEPENDENCE ON LABOR FORCE
The Company's success depends in part on its ability to recruit, hire,
train and retain qualified employees. The Company's operations are very labor
intensive and have experienced high personnel turnover. A significant increase
in the Company's employee turnover rate could increase the Company's recruiting
and training costs and decrease operating efficiencies and productivity. If the
Company's growth strategy is successful, the Company will be required to
recruit, hire and train qualified personnel at an accelerated rate. There can be
no assurance that the Company will be able to hire, train and retain a
sufficient labor force of qualified employees. Because a significant portion of
the Company's operating costs consist of wages to hourly workers, an increase in
wages, costs of employee benefits or employment taxes could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, certain of the Company's facilities are located in
geographic areas with relatively low unemployment rates, thus potentially making
it more difficult and costly to hire qualified personnel.
DEPENDENCE ON CERTAIN SECTORS; CONTRACT RISKS
Most of the Company's revenues are derived from clients in the
telecommunications, financial services, education, healthcare, retail and
commercial, insurance, government and utilities sectors. A significant
reduction in expenditures in these sectors or trends to reduce or eliminate the
use of third-party services could have a materially adverse impact on the
Company's business, results of operations and financial condition. The Company
enters into contracts with most of its clients which define, among other things,
general fee arrangements, the basic scope of services and termination
provisions. Clients may usually terminate such contracts on short notice.
Accordingly, there can be no assurance that existing clients will continue to
use the Company's services at historical levels, if at all. In 1997, the
Company's 10 largest clients accounted for approximately 45.5% of the Company's
revenues on a pro forma combined basis. VarTec Telecom, Inc. ("VarTec")
accounted for 17.9% of the Company's 1997 revenues on a pro forma combined
basis. The Company's contract with VarTec allows for termination on short
notice. A significant reduction in business from VarTec could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Client Relationships."
COMPETITION
The markets in which the Company competes are highly competitive, and the
Company expects competition to persist and intensify in the future. The
Company's competitors include small firms offering specific business services,
divisions of large entities, large independent firms and, most significantly,
the in-house operations of clients or potential clients. Some of the Company's
competitors have substantially greater financial, marketing and other resources,
offer more diversified services and operate in broader geographic areas than the
Company. There can be no assurance that additional competitors with greater
resources than the Company will not enter the Company's markets. All of the
services offered by the Company may be performed in-house. Many larger clients
retain multiple service providers which exposes the Company to continuous
competition in order to remain a preferred vendor. There can be no assurance
that outsourcing of the services performed by the Company will continue or that
existing Company clients will not bring some or all of such services in-house.
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RELIANCE ON MANAGEMENT
The Company's operations are dependent on the efforts of Michael J.
Cunningham, its Chief Executive Officer, Mahmud U. Haq, its President and Chief
Operating Officer, and Richard A. Alston, its Chief Financial Officer, as well
as the senior management of the Founding Companies. Furthermore, the Company
will likely be dependent on the senior management of any businesses acquired in
the future. If any of these individuals becomes unable to continue his role, the
Company's business or prospects could be adversely affected. There can be no
assurance that such individuals will continue in their present capacities for
any particular period of time. The Company does not intend to obtain key man
life insurance covering any of its executive officers or members of senior
management of the Founding Companies. See "Management -- Executive Officers and
Directors" and "-- Executive Compensation; Employment Agreements; Covenants Not
to Compete."
DEPENDENCE ON TELEPHONE AND POSTAL SERVICE
The Company's business is materially dependent upon service provided by
various local and long distance telephone companies and the United States Postal
Service. Rate increases imposed by telephone companies would increase the
Company's operating expenses and adversely affect its operating results to the
extent that the Company is unable to pass the increases through to its clients.
A significant increase in postage rates could adversely affect the demand for
the mailing services provided by the Company. Any significant interruption or
capacity limitation in either service would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Services Offered."
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. The Company is subject to
the Fair Debt Collection Practices Act (the "FDCPA") and various state debt
collection laws, which, among other things, establish specific guidelines and
procedures debt collectors must follow in communicating with consumer debtors,
including the time, place and manner of such communications. The accounts
receivable management business is also subject to state regulation, and some
states require that the Company be licensed as a debt collection company. The
Company is also subject to the Fair Credit Reporting Act (the "FCRA"), which
regulates the consumer credit reporting industry and which may impose liability
on the Company to the extent that the adverse credit information reported on a
consumer to a credit bureau is false, inaccurate or outside of the scope of the
Company's transactions with such consumers. With respect to the other
teleservices offered by the Company, including telemarketing, the Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the
Federal Trade Commission (the "FTC") to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's telemarketing sales rules,
among other things, limit the hours during which telemarketers may call,
prohibit misrepresentations of the cost, terms, restrictions, performance or
duration of products or services offered by telephone solicitation and
specifically address other perceived telemarketing abuses in the offering of
prizes and the sale of investment opportunities. In addition, the Telephone
Consumer Protection Act of 1991 (the "TCPA") restricts the use of automated
telephone equipment for telemarketing purposes, including limiting the hours
during which telemarketers may call consumers and prohibiting the use of
automated telephone dialing equipment to call certain telephone numbers. A
number of states also regulate telemarketing and some states have enacted
restrictions similar to the TCPA. The failure to comply with applicable
statutes and regulations could have a materially adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that additional federal or state legislation, or changes in regulatory
implementation, would not limit the activities of the Company in the future or
significantly increase the cost of regulatory compliance.
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<PAGE>
Several of the industries served by the Company are also subject to varying
degrees of government regulation. Although compliance with these regulations is
generally the responsibility of the Company's clients, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations.
RISK OF BUSINESS INTERRUPTION
The Company's operations are dependent upon its ability to protect its call
centers, computer and telecommunications equipment and software systems against
damage from fire, power loss, telecommunications interruption or failure,
natural disaster and other similar events. In the event the Company experiences
a temporary or permanent interruption through casualty, operating malfunction or
otherwise, the Company's business could be materially adversely affected and the
Company may be required to pay contractual damages to some clients or allow some
clients to terminate or renegotiate their contracts with the Company. The
Company's property and business interruption insurance may not adequately
compensate the Company for all losses that it may incur.
DEPENDENCE ON ABILITY TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY
The Company's business is highly dependent on its computer and
telecommunications equipment and software systems. The Company's failure to
maintain its technological capabilities or to respond effectively to
technological changes could have a material adverse effect on the Company's
business, results of operations or financial condition. The Company's future
success also will be highly dependent upon its ability to enhance existing
services and introduce new services to respond to changing technological
developments. There can be no assurance that the Company can successfully
develop and bring to market any new services in a timely manner, that such
services or products will be commercially successful or that competitors'
technologies or services will not render the Company's products or services
noncompetitive or obsolete.
CONTROL OF THE COMPANY BY INITIAL STOCKHOLDERS
As of the date of this Prospectus, the directors and executive officers of
the Company and their affiliates, the former stockholders of the Founding
Companies and BGL's members (collectively, the "Initial Stockholders")
beneficially own approximately 60.2% of the outstanding shares of Common Stock.
These persons, if acting in concert, have the ability to exercise substantial
control over the Company's affairs and are likely be able to elect a sufficient
number of directors to control the Board and to approve or disapprove any matter
submitted to a vote of stockholders. The Initial Stockholders have agreed, for
the five years following the IPO, to vote all shares of Common Stock held by
them (i) for the nomination and reelection of the directors serving at the time
of the IPO or such successors as shall be nominated in accordance with the
agreement and (ii) as to any other matter brought to a stockholder vote, in
accordance with the recommendation of the then-incumbent Board of Directors.
The ownership position of the Initial Stockholders may have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Certain Transactions," "Principal Stockholders" and "Description of Capital
Stock -- Stockholders' Agreement."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of Common Stock of the Company in
the public market following the IPO. The 4,715,000 shares of Common Stock sold
in the IPO are freely tradeable unless acquired by affiliates (as that term is
defined under the rules and regulations of the Securities Act of 1933, as
amended (the "Securities Act")) of the Company, which shares are subject to the
resale limitations of Rule 144 ("Rule 144") promulgated under the Securities
Act.
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<PAGE>
As of the date of this Prospectus, the holders of Common Stock who did not
purchase shares in the IPO own 7,118,460 shares of Common Stock, including (i)
the stockholders of the Founding Companies who received, in the aggregate,
5,435,691 shares in connection with the Acquisitions and (ii) BGL, members of
BGL and members of management who own 1,682,769 shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with Compass not to sell, transfer or otherwise dispose
of any of these shares of Common Stock for a one-year period following the IPO.
Such stockholders have certain piggyback registration rights beginning one year
after the IPO and one demand registration right for the six month period
beginning twenty months after the IPO with respect to their shares of Common
Stock.
The Company and the holders of all shares outstanding prior to the IPO
(including the holders of shares issued in connection with the Acquisitions)
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of the
IPO without the prior written consent of NationsBanc Montgomery Securities LLC
except for: (i) in the case of the Company, Common Stock issued pursuant to any
employee or director plan described herein or in connection with acquisitions;
(ii) in the case of all such holders, the exercise of stock options pursuant to
benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts; and (iii) in the case of BGL, distributions of Common Stock to its
members, subject, in each case, to any remaining portion of the 180-day period
applying to any shares so issued or transferred. See "Shares Eligible for
Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the IPO, there had been no public market for the Common Stock, and
there can be no assurance that an active public market for the Common Stock will
develop or continue. The market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including variations
in the annual or quarterly financial results of the Company or its competitors,
changes by financial research analysts in their estimates of the earnings of the
Company or the failure of the Company to meet such estimates, conditions in the
economy in general or in the industries in which the Company competes,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the
industries in which the Company competes. From time to time, the stock market
experiences significant price and volume volatility, which may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized to issue preferred
stock in one or more series without stockholder action. The Board of Directors
of the Company serve staggered terms. The existence of this "blank-check"
preferred stock and the staggered Board of Directors could render more difficult
or discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Management -- Board of Directors" and
"Description of Capital Stock."
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FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere relate to future
events and expectations and as such constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, the Risk Factors
discussed herein. The Company undertakes no obligation to release publicly any
revisions to any such forward-looking statements that may reflect events or
circumstances after the date of this Prospectus or to reflect the occurrence of
unanticipated events. See "Risk Factors."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the NASDAQ National Market since
February 27, 1998. On April 9, 1998, the last reported sale price of the Common
Stock was $14.50 per share and there were approximately 83 holders of record
of the Common Stock. The following table sets forth the range of high and low
closing sale prices for the Common Stock for the period from the date of the IPO
through April 8, 1998.
HIGH LOW
------ -------
February 27, 1998 - April 9, 1998........ $16.50 $10.875
------ -------
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THE COMPANY
Compass was formed to create a leading provider of outsourced business
services to public and private entities throughout the Sales Cycle. In
furtherance of this goal, Compass acquired the five Founding Companies on March
4, 1998. A brief description of each Founding Company is set forth below.
THE MAIL BOX, INC.
The Mail Box, Inc. (together with its subsidiary, "Mail Box"), founded in
1971, provides direct mailing services, billing services, mail presorting,
freight and drop shipping, data processing, laser printing, mailing list rental
and other related services to companies located principally in the southwest
United States. Mail Box also provides order fulfillment services and sells
printed materials such as letterhead, envelopes and business forms. Mail Box is
headquartered in Dallas where its operations are housed in four buildings
containing approximately 338,000 square feet. In the twelve months ended
December 31, 1997, Mail Box processed approximately 830 million pieces of mail,
utilizing sophisticated technology in its lettershop, data processing and
presort facilities. Mail Box has received the Mail Advertising Service
Association's Award for Excellence in Education in 1996 for establishing the
industry's first full-time training facility. In addition, Kenneth W. Murphy,
Mail Box's chief executive officer, received in 1992 the United States Postal
Service Industry Excellence Award which recognizes individuals who set standards
for excellence in the mailing industry. Mail Box's clients include VarTec
Telecom, Inc., Medic Computer Systems, Inc., Sears Roebuck & Co., Advantis
Business Services, Inc., The Army and Air Force Exchange Services and
Southwestern Bell Mobile Systems, Inc. Mail Box's revenues were $26.2 million in
1996 and $32.6 million in 1997.
NATIONAL CREDIT MANAGEMENT CORPORATION
National Credit Management Corporation (together with its subsidiary,
"NCMC"), founded in 1984, provides accounts receivable management services and,
through its patented Accelerated Payment Systems ("APS") technology, telephonic
check drafting services. NCMC is based in Hunt Valley, Maryland (a suburb of
Baltimore), where it operates a call center and sales office, and operates an
additional call center and sales office in Las Vegas. NCMC provides traditional
delinquency collection services, as well as an early receivables management
service, primarily to clients in the education, utilities, government and
healthcare industries and its APS check drafting services primarily to clients
in the financial services and utilities sectors. NCMC's clients include EduCap,
Inc., MBNA America Bank, N.A., the State of Maryland and General Electric
Capital Services, Inc. NCMC's revenues were $13.6 million in 1996 and $15.6
million in 1997.
B.R.M.C. OF DELAWARE, INC.
B.R.M.C. of Delaware, Inc. (together with its subsidiaries, "Bomar"),
founded in 1984, provides accounts receivable management services, primarily for
clients in the telecommunications, insurance, financial services and healthcare
industries. Bomar is based in Destin, Florida, and conducts operations in
Atlanta, Phoenix, Houston and Tampa. Since August 1996, Bomar has acquired
three accounts receivable management companies. In August 1996 Bomar acquired a
75% interest in Advanced Credit Services, Inc. ("ACS"), in November 1996 it
acquired Clayton-Parker & Associates ("CPA") and in September 1997 it acquired
Financial Claims Control, Inc. ("FCCI"). Bomar will acquire the remaining 25% of
ACS simultaneously with the Acquisitions. Bomar derives the substantial majority
of its revenues from primary, secondary and tertiary consumer collections. In
addition, Bomar collects subrogated accounts for insurance companies and
recently began providing early receivables management services. Bomar's clients
include Bellsouth Telecommunications, Inc., AT&T Wireless Services, MD Anderson
Cancer Hospital, The FACS Group (Federated Department Stores, Inc.) and Capital
One Financial Corporation. Bomar's revenues were $9.6 million in 1996 and $14.3
million in 1997.
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MID-CONTINENT AGENCIES, INC.
Mid-Continent Agencies, Inc. (together with its subsidiaries, "Mid-
Continent"), founded in 1932, provides accounts receivable management services
primarily to companies in the manufacturing, insurance, wholesale distribution
and commercial sectors. Mid-Continent was one of the first companies in its
industry to provide early receivables management services. It derives the
substantial majority of its revenues from commercial collections with the
balance derived from consumer collections. Mid-Continent is based in Rolling
Meadows, Illinois (a suburb of Chicago) where it operates a call center, and has
additional call centers in Louisville and Buffalo. Mid-Continent also has an
office in the United Kingdom which specializes in commercial debt recovery and
international credit reporting services. In a December 1996 survey prepared by
the Institute of Management & Administration, Inc., an independent industry
trade publication, Mid-Continent was ranked first by companies comparing the
services and results provided by commercial collection agencies. Mid-
Continent's clients include Beverly Enterprises, Inc., CNA Insurance, Reynolds
and Reynolds, Sentry Insurance and eight state workers' compensation funds.
Mid-Continent's revenues were $9.0 million in 1996 and $9.5 million in 1997.
IMPACT TELEMARKETING GROUP, INC.
Impact Telemarketing Group, Inc. and Impact Tele-marketing, Inc.
(collectively, "Impact"), founded in 1984, provides primarily outbound
telemarketing services to national and regional companies in the insurance,
financial services, telecommunications and utilities industries. To a lesser
extent, Impact also provides inbound telemarketing and ancillary services.
Impact is based in Woodbury, New Jersey (a suburb of Philadelphia), and operates
approximately 260 call stations from its two New Jersey call centers. In
addition, Impact has an arrangement to use 160 additional call stations located
in North Dakota, as needed. Impact has been named one of Telemarketing
Magazine's Top Fifty Service Agencies every year since 1991. Impact's clients
include MemberWorks, Inc., Gerber Life Insurance Co. and MBNA America Bank, N.A.
Impact's revenues were $8.9 million in 1996 and $12.9 million in 1997.
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes and therefore does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant. In addition, the Company's Credit
Facility is expected to include restrictions on the Company's ability to pay
dividends without the consent of the lender.
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of other businesses, real or personal properties or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under Rule
415. Such acquisitions may be made directly by the Company or indirectly
through a subsidiary, may relate to businesses or securities of businesses
providing services or products similar or dissimilar to the Company's services
and products, and may be made in connection with the settlement of litigation or
other disputes. The consideration offered by the Company in such acquisitions,
in addition to the shares of Common Stock offered by this Prospectus, may
include cash, debt or other securities (which may be convertible into shares of
Common Stock covered by this Prospectus), or assumption by the Company of
liabilities of the business, properties or securities being acquired or of their
owners, or a combination thereof. It is contemplated that the terms of
acquisitions will be determined by negotiations
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<PAGE>
between the Company and the owners of the businesses, properties or securities
to be acquired, with the Company taking into account such factors as the quality
of management, the past and potential earning power, growth and appreciation of
the businesses, properties or securities acquired, and other relevant factors,
and it is anticipated that shares of Common Stock issued in acquisitions will be
valued at a price reasonably related to the market value of the Common Stock
either at the time the terms of the acquisition are tentatively agreed upon or
at or about the time or times of delivery of the shares.
The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or Rule 145(d) under the Securities Act, and certain persons
party to such agreements may not otherwise be subject to such Securities Act
requirements.
With the consent of the Company, this Prospectus may also be used by
persons who have received or will receive from the Company Common Stock covered
by this Prospectus and who may wish to sell such stock under circumstances
requiring or making desirable its use. This Prospectus may also be used, with
the Company's consent, by pledgees, donees, or assignees of such persons. The
Company's consent to any such use may be conditioned upon such persons' agreeing
not to offer more than a specified number of shares following supplements or
amendments to this Prospectus, which the Company may agree to use its best
efforts to prepare and file at certain intervals. The Company may require that
any such offering be effected in an organized manner through securities dealers.
Sales by means of this Prospectus may be made from time to time privately
at prices to be individually negotiated with the purchasers, or publicly through
transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of sale
or at negotiated prices. Broker-dealers participating in such transactions may
act as agent or as principal and, when acting as agent, may receive commissions
from the purchasers as well as from the sellers (if also acting as agent for the
purchasers). The Company may indemnify any broker-dealer participating in such
transactions against certain liabilities, including liabilities under the
Securities Act. Finders' fees may be paid from time to time with respect to
specific business combinations. Profits, commissions and discounts on sales by
persons who may be deemed to be underwriters within the meaning of the
Securities Act may be deemed underwriting compensation under the Securities Act.
Stockholders may also offer shares of Common Stock covered by this
Prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities Act,
including sales which meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act, and stockholders should seek the advice of their own counsel
with respect to the legal requirements for such sales.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for whom
the Company has consented to the use of this Prospectus in connection with
resales of such shares. See the inside back cover pages of this Prospectus for
the identity of any such persons.
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at December 31, 1997: (i) on a pro forma combined basis to give
effect to the Acquisitions; and (ii) as further adjusted to give effect to the
IPO and the application of the estimated net proceeds therefrom. This table
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
December 31, 1997
---------------------
Pro As
Forma(1) Adjusted
---------- ---------
(In thousands)
<S> <C> <C>
Short-term debt (2).................................................................... $ 10,269 $ 1,021
======== ========
Long-term debt, net of current portion (2)............................................. $ 8,106 $ 2,010
Stockholders' equity:
Preferred Stock, par value $0.01 per share, 10,000,000 shares......................... -- --
authorized; none issued or outstanding..........
Common Stock, par value $0.01 per share, 50,000,000 shares............................ 71 118
authorized; 7,118,460 shares issued and outstanding, pro forma;
11,833,460 shares issued and outstanding, as adjusted (3)...........................
Additional paid-in-capital............................................................ 30,537 72,032
Retained earnings...................................................................... 3,131 3,131
-------- --------
Total stockholders' equity............................................................ 33,739 75,281
Total capitalization................................................................. $ 41,845 $ 77,291
======== ========
</TABLE>
__________________
(1) Combines the respective accounts of Compass and the Founding Companies at
December 31, 1997 and gives effect to the reclassification of the capital
structures of NCMC, Bomar, Mid-Continent and Impact as additional paid-in-
capital.
(2) For a description of the Company's debt, see Notes to the Financial
Statements of the Founding Companies.
(3) Does not include: (i) up to 2,000,000 additional shares reserved for
issuance pursuant to the Incentive Plan, of which options to purchase
approximately 720,000 shares of Common Stock were granted concurrently with
the IPO at an exercise price of $10.50 per share; (ii) 500,000 additional
shares reserved for issuance under the Company's Employee Stock Purchase
Plan; or (iii) 100,000 shares of Common Stock issuable upon the exercise of
warrants issued concurrently with the IPO. See "Management -- Employee
Incentive Compensation Plan" and "-- Employee Stock Purchase Plan" and
"Certain Transactions."
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Compass acquired the Founding Companies simultaneously with the
consummation of the IPO. For financial statement presentation purposes, Mail
Box was identified as the accounting acquiror. The following selected
historical financial data of Mail Box as of December 31, 1996 and 1997 and for
the years ended December 31, 1995, 1996 and 1997 have been derived from the
audited financial statements of Mail Box included elsewhere in this Prospectus.
The selected historical financial data of Mail Box as of December 31, 1995 and
for the year ended December 31, 1994 have been derived from the audited
financial statements of Mail Box not included in this Prospectus. The following
selected historical financial data for Mail Box as of December 31, 1993 and 1994
and for the year ended December 31, 1993 have been derived from unaudited
financial statements of Mail Box, which have been prepared on the same basis as
the audited financial statements and, in the opinion of Mail Box, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data. The selected unaudited pro forma combined
financial data present data for the Company, adjusted for (i) the consummation
of the Acquisitions; (ii) certain pro forma adjustments to the historical
financial statements, including adjustments for an acquisition completed by
Bomar in September 1997; and (iii) the consummation of this Offering and the
application of the net proceeds therefrom. See the Unaudited Pro Forma Combined
Financial Statements and the notes thereto and the historical Financial
Statements of Mail Box and the other Founding Companies and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
MAIL BOX
Revenues...................................... $14,314 $15,354 $17,370 $26,156 $32,566
Operating expenses............................ 11,286 11,168 12,402 17,953 21,493
------- ------- ------- ------- -------
Gross profit................................. 3,028 4,186 4,968 8,203 11,073
Selling, general and administrative expenses.. 2,957 3,442 4,370 5,891 7,824
------- ------- ------- ------- -------
Income from operations....................... 71 744 598 2,312 3,249
Other expense................................. 128 212 302 337 382
------- ------- ------- ------- -------
Income (loss) before income taxes............. (57) 532 296 1,975 2,867
Provision (benefit) for income taxes......... (13) 206 134 700 985
Net (loss) income............................. $ (44) $ 326 $ 162 $ 1,275 $ 1,882
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C>
PRO FORMA COMBINED (1):
Revenues........................ $ 87,153
Operating expenses.............. 53,353
----------
Gross profit................... 33,800
Selling, general and administrative expenses (2) 23,229
Goodwill and intangible amortization (3) 1,528
----------
Income from operations......... 9,043
Interest and other expense, net (4) 625
----------
Income before income taxes...... 8,418
Provision for income taxes (5). 3,978
----------
Net income...................... 4,440
----------
Net income per share............ $ 0.42
==========
Shares used in computing net income per share (6) 10,460,931
==========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Mail Box Combined Companies
------------------------------------------ ------------------------
December 31, December 31, 1997
------------------------------------------ -------------------------
Pro Forma As
1993 1994 1995 1996 1997 Combined Adjusted (8)
------- ------- ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....... $ (597) $ (218) $ 36 $ 272 $ 294 $ (20,123)(9) $ 15,323
Total assets.................... 4,374 5,481 7,425 12,539 11,290 85,224 90,356
Long-term debt, net of current 582 871 1,485 1,266 1,576 8,106 2,010
portion.......................
Stockholders' equity............ 191 642 995 2,206 3,184 33,739 75,281
</TABLE>
__________________
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the IPO were closed on January 1, 1997, are not necessarily
indicative of the operating results that would have been achieved had these
events actually then occurred and should not be construed as representative
of future operating results. The summary pro forma combined statement of
operations data should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and the notes thereto and the historical
financial statements of Compass and the Founding Companies and the notes
thereto included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data reflect reductions in
salaries, bonuses and benefits to the stockholders of the Founding Companies
to which they have agreed in employment agreements entered into upon
consummation of the IPO (the "Compensation Differential"). The Compensation
Differential was approximately $4.1 million for 1997. Additionally, the pro
forma combined statement of operations data reflect the elimination of a
compensation charge of approximately $1.3 million associated with the
issuance of NCMC shares to certain key employees and a director of NCMC.
(3) Reflects: (i) the amortization of goodwill of $51.2 million to be recorded
as a result of the Acquisitions over periods ranging from 15 to 40 years;
and (ii) the amortization of $1.0 million in intangible assets over a period
of 15 years.
(4) Reflects a reduction of interest expense associated with long term debt
repaid from the proceeds of the IPO of $547,000 for the year ended December
31, 1997 and a reduction of interest income of $75,000 for the year ended
December 31, 1997 relating to stockholder notes paid off after consummation
of the IPO.
(5) Assumes that all income is subject to a corporate income tax rate of 40% and
that all goodwill is non-deductible.
(6) Includes: (i) 1,682,769 shares issued to BGL and management of Compass; (ii)
5,435,691 shares issued to owners of the Founding Companies in connection
with the Acquisitions; and (iii) 3,342,471 shares representing the number of
shares sold in the IPO necessary to pay the cash portion of the
consideration for the Acquisitions, to pay the underwriting discount and
estimated expenses of the Acquisitions and the IPO, and to repay certain
indebtedness assumed by Compass in the Acquisitions, net of repayment of
stockholder receivables. See "Certain Transactions."
(7) The pro forma combined balance sheet data assume that the Acquisitions were
closed on December 31, 1997, are not necessarily indicative of the financial
position that would have been achieved had these events actually then
occurred and should not be construed as representative of future financial
position. The summary pro forma balance sheet data should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements and
the notes thereto and the historical financial statements of Compass and the
Founding Companies and the notes thereto included elsewhere in this
Prospectus.
(8) Adjusted to reflect the sale of the 4,715,000 shares of Common Stock offered
in the IPO and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(9) Includes $17.9 million payable to stockholders of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions paid
from a portion of the net proceeds of the IPO. See "Use of Proceeds" and
"Notes to Unaudited Pro Forma Combined Financial Statements."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Financial Data"
and the Financial Statements and related Notes thereto of Compass and the
Founding Companies appearing elsewhere in this Prospectus.
INTRODUCTION
General
The Company was established to create a leading provider of outsourced
business services to public and private entities throughout the Sales Cycle.
The Company provides accounts receivable management services, mailing services
and teleservices to clients in a broad range of sectors including
telecommunications, financial services, insurance, healthcare, education,
government and utilities.
Compass was formed in April 1997 and conducted no operations and generated
no revenues prior to March 4, 1998. Unless otherwise indicated, all references
to the "Company" in the following discussion include the Founding Companies as
if the Acquisitions had occurred during all periods discussed and references to
"Compass" shall mean Compass International Services Corporation prior to the
effectiveness of the Acquisitions.
The Company's revenues are derived from the recovery of delinquent accounts
receivable and providing mailing services and teleservices. The Company
generally charges its clients for accounts receivable management services on a
contingency fee basis, with the amount of the fee determined by the length of
the delinquency of the accounts and the extent to which prior collection efforts
have been made. Revenue is earned and recognized upon collection of accounts
receivable. The Company provides a variety of mailing services including the
mailing of direct marketing materials, billing services, mail presorting,
freight and drop shipping, data processing, mailing list rental, and other
services related to mail handling. Typically, the Company charges a fixed fee
per piece for processing mail. These fees are earned and recognized as revenue
upon delivery to the United States Postal Service. Postage expenses are passed
directly through to the Company's clients and are not recognized as revenues or
expenses on the Company's financial statements. Revenues for outbound and
inbound teleservices consist of hourly rate charges and incentive based
commissions that are recognized as these services are provided. The Company
also generates revenue from APS which enables clients to accept payments through
checks authorized by phone. Clients are typically charged an initial setup fee
and a transaction fee for each usage of the APS service. Revenues are
recognized for APS when services are provided.
The Company and most of its clients enter into contracts which define,
among other things, fee arrangements, scope of services and termination
provisions. In most cases, clients may terminate contracts with 30 or 60 days
notice.
The Company's operating expenses consist primarily of payroll,
telecommunications expense and postage expense (other than client postage
relating to mailing services). Payroll consists of wages and salaries,
commissions, bonuses and benefits for all employees of the Company directly
involved in providing services to clients. Telecommunications expense includes
telephone costs associated with inbound and outbound teleservice and collection
activities. Postage expense is related primarily to the mailing of collection
notices and APS check confirmation letters. Selling, general and administrative
expenses include management salaries, selling commissions, occupancy and other
facilities costs, equipment maintenance and depreciation, and data processing
costs.
The Company expects to realize certain savings as a result of: (i)
consolidation of telecommunications, postage, systems and other operating
expenses; (ii) consolidation of insurance,
23
<PAGE>
employee benefits and other administrative expenses; and (iii) the Company's
ability to borrow at interest rates lower than those at which most of the
Founding Companies have borrowed historically. Because the Acquisitions were
consummated only recently, the Company has not and cannot quantify these
savings. The Company also expects to incur additional costs associated with
public ownership and the new management team. These costs cannot be quantified
precisely. Accordingly, neither the expected savings nor the expected costs have
been included in the pro forma combined financial information of the Company.
Since August 1996, Bomar has made three acquisitions, two in 1996 and one
in the third quarter of 1997. As a result of these acquisitions, the Company
has: (i) expanded its geographic presence in the accounts receivable collection
market; (ii) gained access to new information systems and customer service
capabilities; and (iii) expanded its secondary and tertiary collection
capabilities. The acquisitions have been accounted for using the purchase method
of accounting with the results of the acquired companies included in Bomar's
statements of income beginning on the respective dates of the acquisitions. The
Unaudited Pro Forma Combined Financial Statements give effect to the 1997
acquisition as if it had occurred on January 1, 1997.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires the application
of purchase accounting when three or more substantive operating entities combine
in a single business combination effected by the issuance of stock just prior to
or contemporaneously with an initial public offering and the combination does
not meet the pooling-of-interests criteria of Accounting Principles Board
Opinion No. 16. In accordance with SAB 97, Mail Box has been designated as the
accounting acquiror. Accordingly, the excess purchase price over the fair value
of the net assets acquired from NCMC, Bomar, Mid-Continent and Impact of
approximately $33.2 million, goodwill of $14.0 million attributable to the
1,682,769 shares of Common Stock issued to BGL and management, and existing
goodwill of approximately $4.1 million recorded with respect to Bomar, will be
amortized over periods ranging from 15 to 40 years as a non-cash charge to the
Company's income statement. This amortization, including the amortization of an
intangible asset associated with a patent at NCMC over a 15-year period, is
approximately $1.5 million per year. See "Certain Transactions -- The
Acquisitions."
The Compensation Differential
The Founding Companies operated as independent, privately-owned entities
throughout the periods presented. Their results from operations reflect varying
historical levels of owners' compensation. The owners and key employees of the
Founding Companies agreed to certain reductions of their salaries, bonuses, and
benefits in connection with the Acquisitions (the "Compensation Differential").
Members of senior management of the Founding Companies have entered into
employment agreements with their respective Founding Companies that provide for
specified annual salaries in addition to certain benefits including vacation,
health and insurance benefits. Such agreements also provide for the payment of
annual bonuses if specified performance criteria are achieved. See "Management--
Executive Compensation; Employment Agreements; Covenants Not to Compete." In
addition, two non-management employees of one of the Founding Companies have
agreed to salary reductions. The Compensation Differential was approximately
$4.1 million in 1997. Additionally, the results for 1997 include a compensation
charge of $1.3 million for NCMC associated with the issuance of NCMC shares to
certain key employees and a director of NCMC. These amounts have been reflected
as a pro forma adjustment in the Unaudited Pro Forma Combined Statement of
Operations. The Unaudited Pro Forma Combined Statement of Operations includes a
provision for income tax as if all Founding Companies had been subject to
applicable federal and state statutory tax rates.
24
<PAGE>
Amortization of Intangible Assets
Approximately $51.2 million, or 56.6%, of the Company's pro forma as
adjusted total assets as of December 31, 1997 consists of goodwill subsequent to
the Acquisitions. Goodwill is an intangible asset that represents the difference
between the aggregate purchase price for the assets acquired and the amount of
such purchase price allocated to such assets for purposes of the Company's pro
forma balance sheet. The Company is required to amortize the goodwill from the
Acquisitions over a period of time, with the amount amortized in a particular
period constituting an expense that reduces the Company's net income for that
period. The amount amortized, however, will not give rise to a deduction for tax
purposes. In addition, the Company will be required to amortize the goodwill, if
any, from any future acquisitions.
The Company plans to amortize goodwill associated with the acquisitions of
the Founding Companies over periods ranging from 15 to 40 years. The Company
plans to evaluate continually whether events or circumstances have occurred that
indicate that the remaining useful life of goodwill may warrant revision.
Additionally, in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," the Company will
evaluate any potential goodwill impairments by reviewing the future cash flows
of the respective acquired entities' operations and comparing these amounts with
the carrying value of the associated goodwill.
Recently Issued Accounting Standards
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128 "Earnings Per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly held common stock or potential common
stock. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted. SFAS No.
128 requires restatement of all prior-period EPS data presented. The
implementation of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share as determined under current accounting rules.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company intends to
adopt SFAS No. 130 in 1998.
25
<PAGE>
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following table provides the pro forma operating results of the Company
for the years ended December 31, 1996 and 1997. For a discussion of the pro
forma adjustments, see the Unaudited Pro Forma Combined Financial Statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1997
----------------- -------------------
<S> <C> <C> <C> <C>
Revenues...................................... $71,783 100.0% $87,153 100.0%
Operating expenses............................ 44,474 62.0 53,353 61.2
------- ----- ------- -----
Gross profit.................................. 27,309 38.0 33,800 38.8
Selling, general and administrative expenses.. 20,169 28.1 23,229 26.6
Goodwill and intangible amortization.......... 1,528 2.1 1,528 1.8
------- ----- ------- -----
Income from operations........................ $ 5,612 7.8% $ 9,043 10.4%
======== ===== ======= =====
</TABLE>
PRO FORMA COMBINED RESULTS FOR 1997 COMPARED TO 1996
Revenues. Revenues increased $15.4 million, or 21.4%, from $71.8 million in
1996 to $87.2 million in 1997. The increase was primarily attributable to
increased business from existing clients of Mail Box, Impact, NCMC and Bomar.
Operating expenses. Operating expenses increased $8.9 million, or 20.0%,
from $44.5 million in 1996 to $53.4 million in 1997. Operating expenses
decreased as a percentage of revenues from 62.0% in 1996 to 61.2% in 1997 as a
result of improved operating efficiency at Mail Box, Bomar and Impact.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.1 million, or 15.2%, from $20.2 million in
1996 to $23.2 million in 1997. Selling, general and administrative expenses
decreased as a percentage of revenues from 28.1% in 1996 to 26.6% in 1997 as the
costs of management and administrative personnel were spread over a larger
revenue base.
Income from operations. Income from operations increased $3.4 million, or
61.2%, from $5.6 million in 1996 to $9.0 million in 1997 as a result of the
factors discussed above.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that conducts all of its operations
through its subsidiaries. Accordingly, the primary internal source of the
Company's liquidity is the cash flow of its subsidiaries. Based upon the cash
balances of the Founding Companies as of December 31, 1997, after the
application by the Company of the net proceeds from the IPO and the closing of
the Acquisitions, the Company had approximately $11.7 million of cash.
In January 1998, the Company obtained from a bank a commitment for a $35.0
million three-year revolving credit facility (the "Credit Facility"). Amounts
outstanding under the Credit Facility will bear interest, at the Company's
option, at the bank's base rate plus an applicable margin of up to 0.50% or a
reserve adjusted offshore borrowing rate plus an applicable margin of 1.25% to
1.75%. The Company's obligations under the Credit Facility will be guaranteed by
the Company's subsidiaries, and will be secured by a pledge of the capital stock
of the Company's subsidiaries and all inter-company notes from any subsidiary to
the Company. In addition, if the Company fails to maintain specified financial
ratios, the bank will obtain a first priority security interest in all assets of
the Company and its subsidiaries. The Credit Facility is expected to contain
certain covenants, including (i) limitations on asset sales; (ii) restrictions
on other indebtedness; (iii) limitations on liens, restricted payments,
dividends
26
<PAGE>
and restricted investments; and (iv) maintenance of certain financial ratios
including a minimum net worth. In addition, the Credit Facility will contain
certain limitations on mergers and acquisitions including without limitation:
(i) limiting the maximum cash and assumed debt portion of acquisition
consideration to a multiple of 6.0 times the acquiree's earnings before
interest, taxes, depreciation and amortization for the 12 months preceding the
acquisition, (ii) requiring lender approval of acquisitions with cash
consideration in excess of $10.0 million; and (iii) requiring that acquisitions
be in the Company's general lines of business and non-hostile. The Company will
be obligated to pay an underwriting fee of 0.75% of the total amount of the
Credit Facility, an annual administration fee of $15,000 and an annual
commitment fee of 0.35% to 0.45% on the unutilized portion of the Credit
Facility. Execution of the Credit Facility is expected to occur in April 1998
following completion of definitive documentation. There can be no assurance that
the Credit Facility will be obtained.
The Company believes that its cash flow from operations will provide cash
in excess of the Company's expected working capital needs, debt service
requirements and planned capital expenditures. The Company made capital
expenditures of $2.0 million in 1996 and $3.9 million in 1997. Each of the
Founding Companies has upgraded its information systems over the past two years.
In addition, Mail Box has invested in new intelligent inserting and sorting
equipment to upgrade and expand its mail services capabilities. As a result, the
Company does not expect to have significant capital expenditures for information
systems in the next two years, other than as may be required to integrate the
systems of the Founding Companies and to upgrade and integrate companies that
are acquired in the future. The Company intends to study the feasibility of
integrating the systems of the Founding Companies. Consequently, the Company has
not yet established its capital needs for such integration, which capital
requirements are likely to change as the Company acquires other companies in the
future.
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition efforts is unpredictable.
Accordingly, the Company is unable to accurately estimate its expected capital
commitments. Funding for future acquisitions will likely come from a combination
of proceeds of the IPO, cash flow from operations, borrowings under the proposed
credit facility and the issuance of additional equity.
RESULTS OF OPERATIONS -- MAIL BOX
Mail Box provides direct mailing services, billing services, mail
presorting, freight and drop shipping, data processing, laser printing, mailing
list rental and order fulfillment to companies located principally in the
southwest United States.
The following table sets forth certain selected financial data for Mail Box
on a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1996 1997
------------------ ---------------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $17,370 100.0% $26,156 100.0% $32,566 100.0%
Operating expenses 12,402 71.4 17,953 68.6 21,493 66.0
--------- ----- ------- ----- ------- -----
Gross profit 4,968 28.6 8,203 31.4 11,073 34.0
Selling, general and administrative expenses 4,370 25.2 5,891 22.6 7,824 24.0
--------- ----- ------- ----- ------- -----
Income from operations $ 598 3.4% $ 2,312 8.8% $ 3,249 10.0%
========= ===== ======= ===== ======= ======
</TABLE>
27
<PAGE>
RESULTS FOR 1997 COMPARED TO 1996 -- MAIL BOX
Revenues. Revenues increased $6.4 million, or 24.5%, from $26.2 million in
1996 to $32.6 million in 1997, primarily due to new mailing programs initiated
by existing customers. Mail volume increased in 1997 compared to 1996 primarily
due to increased volume with existing clients.
Operating expenses. Operating expenses increased approximately $3.5
million, or 19.7%, from $18.0 million in 1996 to $21.5 million in 1997,
primarily as a result of higher wage expenses associated with the mailing and
freight businesses and increased list rental costs. As a percentage of revenues,
operating expenses decreased from 68.6% in 1996 to 66.0% in 1997, primarily due
to improved efficiency in mailing operations and revenue mix changes, with
higher margin list rental revenues growing as a percentage of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.9 million, or 32.8%, from $5.9 million in
1996 to $7.8 million in 1997. The increase was primarily attributable to higher
management salaries and increases in depreciation and rent expenses. As a
percentage of revenues, selling, general and administrative expenses increased
from 22.6% in 1996 to 24.0% in 1997. Excluding Compensation Differential of
$875,000 in 1996 and $1.8 million in 1997, selling, general and administrative
expenses decreased from 19.2% of revenues to 18.6% of revenues.
RESULTS FOR 1996 COMPARED TO 1995 -- MAIL BOX
Revenues. Revenues increased $ 8.8 million, or 50.6%, from $17.4 million in
1995 to $26.2 million in 1996, primarily due to expanded volume with existing
customers. In addition, Mail Box generated an additional $2.3 million in
revenues from a new client in the medical claims industry. Mail volume increased
from approximately 500 million pieces in 1995 to approximately 840 million
pieces in 1996.
Operating expenses. Operating expenses increased approximately $5.6
million, or 44.8%, from $12.4 million in 1995 to $18.0 million in 1996,
primarily as a result of higher wage expenses in the mailing business and
increased list rental costs. As a percentage of revenues, operating expenses
decreased from 71.4% in 1995 to 68.6% in 1996, primarily due to improved
efficiency in mailing operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.5 million, or 34.8%, from $4.4 million in
1995 to $5.9 million in 1996. The increase was primarily attributable to higher
sales and management salaries, as well as increased systems, rent and
depreciation expenses. As a percentage of revenues, selling, general and
administrative expenses decreased from 25.2% in 1995 to 22.6% in 1996. Excluding
Compensation Differential of $310,000 in 1995 and $875,000 in 1996, selling,
general and administrative expenses decreased from 23.4% of revenues to 19.2% of
revenues, respectively. This decrease as a percentage of revenues was the result
of spreading fixed expenses over a larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES -- MAIL BOX
Mail Box provided $2.9 million and $246,000 of cash from operating
activities in 1996 and 1997, respectively. The decrease in 1997 was due to
timing differences in operating accounts, specifically postage on hand and
postage deposits and advances. Net cash provided by operations is primarily
comprised of net income, non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily routine
fluctuations in trade accounts receivable and payable, postage on hand and
postage advances and deposits). Capital expenditures for the purchase of
property and equipment totaled $1.0 million and $1.5 million in 1996 and 1997,
respectively. Mail Box used cash of $473,000 and $146,000 for financing
activities during 1996 and 1997, respectively, primarily in
28
<PAGE>
connection with the net repayment of various borrowings and, in the latter
period, the repurchase of treasury stock in the amount of $1.0 million.
RESULTS OF OPERATIONS -- NCMC
NCMC provides accounts receivable management services primarily to clients
in the education, utilities, government and healthcare industries. NCMC also
provides APS check drafting services initiated by telephone instruction
primarily to clients in the financial services and utilities sectors.
The following table sets forth certain selected financial data for NCMC on
a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1995 1996 1997
---------------- --------------------- -----------------
(Dollars in thousands)
<S> <S> <C> <C> <C> <C> <C>
Revenues...................................... $12,287 100.0% $13,579 100.0% $15,620 100.0%
Operating expenses............................ 6,322 51.5 7,945 58.5 9,433 60.4
------- ----- ------- ----- ------- -----
Gross profit.................................. 5,965 48.5 5,634 41.5 6,187 39.6
Selling, general and administrative expenses.. 4,328 35.2 4,798 35.3 6,340 40.6
------- ----- ------- ----- ------- -----
Income (loss) from operations................. $ 1,637 13.3% $ 836 6.2% $ (153) (1.0)%
======= ===== ======= ===== ======= ======
</TABLE>
RESULTS FOR 1997 COMPARED TO 1996 -- NCMC
Revenues. Revenues increased approximately $2.0 million, or 15.0%, from
$13.6 million in 1996 to $15.6 million in 1997, primarily due to increased
transaction volume with existing APS customers and increased collections
business from existing customers. APS check transaction volume increased from
5.5 million checks in 1996 to 9.4 million checks in 1997. While transaction
volume grew 70.9%, per check prices decreased 30.9% as a result of increased
competition.
Operating expenses. Operating expenses increased approximately $1.5
million, or 18.7%, from $7.9 million in 1996 to $9.4 million in 1997. As a
percentage of revenues, operating expenses increased from 58.5% in 1996 to 60.4%
in 1997, primarily due to a $650,000 increase in mailing costs associated with
APS check confirmation letters without a commensurate increase in revenues.
Costs were also unfavorably impacted by certain special charges including
$160,000 of compensation related expenses, $119,000 of relocation expenses and
executive search fees, and $76,000 of legal expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $1.5 million, or 32.1%, from
$4.8 million in 1996 to $6.3 million in 1997. The increase was almost entirely
attributable to a one-time compensation expense recognized in the third quarter
of 1997 relating to shares issued to key employees. As a percentage of revenues,
selling, general and administrative expenses increased from 35.3% in 1996 to
40.6% in 1997. Excluding the $1.3 million of compensation expense recognized in
the third quarter of 1997 relating to shares issued to key employees, selling,
general and administrative expenses as a percentage of revenues decreased from
35.3% in 1996 to 32.0% in 1997.
RESULTS FOR 1996 COMPARED TO 1995 -- NCMC
Revenues. Revenues increased $1.3 million, or 10.5%, from $12.3 million in
1995 to $13.6 million in 1996, primarily due to expanded APS check volume with
existing customers. APS transaction volume increased from approximately 3.6
million checks in 1995 to approximately 5.5 million checks in 1996. This 52.8%
increase was partly offset by a 21.2% average APS per check price decrease
during 1996 as a result of increased competition. Receivables management
revenues grew slightly during 1996 as NCMC restructured its operations and sales
management.
29
<PAGE>
Operating expenses. Operating expenses increased approximately $1.6
million, or 25.7%, from $6.3 million in 1995 to $7.9 million in 1996. As a
percentage of revenues, operating expenses increased from 51.5% in 1995 to 58.5%
in 1996, primarily due to increased mailing costs associated with APS check
confirmation letters and growth in direct payroll. As a percentage of revenues,
mailing costs increased from 10.7% in 1995 to 12.3% in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $470,000, or 10.9%, from $4.3 million in 1995
to $4.8 million in 1996. The increase was primarily attributable to increased
legal, rent, systems and insurance expenses. As a percentage of revenues,
selling, general and administrative expenses increased slightly from 35.2% in
1995 to 35.3% in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- NCMC
NCMC provided $566,000 and $1.2 million of cash from operating activities
in 1996 and 1997, respectively. Net cash provided by operations is primarily
comprised of net income, non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily routine
fluctuations in trade accounts receivable and payable and prepaid expenses). For
1997, net cash provided by operations included a $256,000 increase in trade
payables relating to the purchase of systems equipment. Net cash used for
purchases of property and equipment totaled $164,000 and $2.1 million for the
years ended December 31, 1996 and 1997, respectively. NCMC used cash of $420,000
for financing activities during 1996, primarily for the payments under its line
of credit and capital leases. NCMC received $956,000 from financing activities
in 1997, primarily in connection with borrowings under its term loan.
RESULTS OF OPERATIONS -- BOMAR
Bomar provides accounts receivable management services primarily for
clients in the telecommunications, insurance, financial services and healthcare
industries.
The following table sets forth certain selected financial data for Bomar on
a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1995 1996 1997
-------------- -------------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $7,416 100.0% $9,597 100.0% $14,266 100.0%
Operating expenses...... 4,229 57.0 5,814 60.6 8,208 57.5
------ ----- ------ ----- ------- -----
Gross profit............ 3,187 43.0 3,783 39.4 6,058 42.5
Selling, general and
administrative expenses. 2,934 39.6 3,458 36.0 5,078 35.6
------ ----- ------ ----- ------- -----
Income from operations.. $ 253 3.4% $ 325 3.4% $ 980 6.9%
====== ===== ====== ===== ======= =====
</TABLE>
RESULTS FOR 1997 COMPARED TO 1996 -- BOMAR
Revenues. Revenues increased $4.7 million, or 48.7%, from $9.6 million in
1996 to $14.3 million in 1997, primarily due to the acquisitions of ACS in
August 1996, CPA in November 1996 and FCCI in September 1997 which added
revenues of $1.4 million, $1.3 million and $1.2 million, respectively, in 1997.
Additionally, revenues grew as a result of increased business from existing
clients.
Operating expenses. Operating expenses increased approximately $2.4
million, or 41.2%, from $5.8 million in 1996 to $8.2 million in 1997. The
increase was primarily attributable to increased
30
<PAGE>
collector salaries and incentives as well as operating expenses associated with
FCCI and CPA which were acquired in September 1997 and November 1996,
respectively. As a percentage of revenues, operating expenses decreased from
60.6% for 1996 to 57.5% for 1997, primarily due to a decrease as a percentage of
revenues in collector salaries and incentives and telephone expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.6 million, or 46.8%, from $3.5 million in
1996 to $5.1 million in 1997. The increase was primarily attributable to
increased depreciation, insurance and rent expenses as well as expenses
associated with FCCI and CPA which were acquired in September 1997 and November
1996, respectively. As a percentage of revenues, selling, general and
administrative expenses decreased from 36.0% in 1996 to 35.6% in 1997. This
decrease as a percentage of revenues was primarily the result of selling,
general and administration expenses of FCCI that were lower as a percentage of
revenues than Bomar's operations.
RESULTS FOR 1996 COMPARED TO 1995 -- BOMAR
Revenues. Revenues increased $2.2 million, or 29.4%, from $7.4 million in
1995 to $9.6 million in 1996, due in part to the acquisitions of ACS and CPA,
which together contributed over $300,000 of revenues in 1996, and in part to
business from new clients.
Operating expenses. Operating expenses increased approximately $1.6
million, or 37.5%, from $4.2 million in 1995 to $5.8 million in 1996. As a
percentage of revenues, operating expenses increased from 57.0% in 1995 to 60.6%
in 1996, primarily due to higher collector salaries which increased $1.1 million
from $2.1 million to $3.2 million as a result of an increase in full time
employees in the second half of 1996. The acquired companies also had higher
operating expenses as a percentage of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $524,000, or 17.9%, from $2.9 million in 1995
to $3.5 million in 1996. The increase was primarily attributable to higher rent
expenses as well as expenses associated with CPA and ACS which were acquired in
November 1996 and August 1996, respectively. As a percentage of revenues,
selling, general and administrative expenses decreased from 39.6% in 1995 to
36.0% in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- BOMAR
Bomar provided $359,000 and $887,000 of cash from operating activities in
1996 and 1997, respectively. Net cash provided by operations is primarily
comprised of net income, non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily routine
fluctuations in commissions receivable and trade accounts payable). Net cash
used in investing activities totaled $1.4 million and $3.8 million in 1996 and
1997, respectively (including $791,000 and $3.7 million for acquisitions in 1996
and 1997, respectively). Bomar had cash inflows of $920,000 and $3.3 million for
financing activities during 1996 and 1997, respectively, primarily in connection
with the net borrowings under Bomar's line of credit and issuances of long-term
debt.
RESULTS OF OPERATIONS -- MID-CONTINENT
Mid-Continent provides accounts receivable management services primarily to
companies in the manufacturing, insurance, wholesale distribution and commercial
sectors. Mid-Continent's business is comprised of contingency fee collections
and outsourced collection services.
31
<PAGE>
The following table sets forth certain selected financial data for Mid-
Continent on a historical basis and as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1995 1996 1997
-------------- ------------------------ ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $8,763 100.0 % $9,038 100.0% $9,451 100.0%
Operating expenses............. 2,851 32.5 2,875 31.8 3,105 32.9
------ ----- ------ ----- ------ -----
Gross profit................... 5,912 67.5 6,163 68.2 6,346 67.1
Selling, general and
administrative expenses....... 5,974 68.2 6,054 67.0 6,239 66.0
------ ----- ------ ----- ------ -----
Income (loss) from operations.. $ (62) (0.7)% $ 109 1.2% $ 107 1.1%
====== ===== ====== ====== ====== =====
</TABLE>
RESULTS FOR 1997 COMPARED TO 1996 -- MID-CONTINENT
Revenues. Revenues increased $413,000, or 4.6%, from $9.0 million in 1996
to $9.5 million in 1997, primarily due to increased volume from new clients.
Operating expenses. Operating expenses increased $230,000, or 8.0%, from
$2.9 million in 1996 to $3.1 million in 1997, primarily due to increased
collector costs. As a percentage of revenues, operating expenses increased from
31.8% in 1996 to 32.9% in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $185,000, or 3.1%, from $6.1 million in 1996
to $6.2 million in 1997. The increase was primarily attributable to increased
management compensation expenses. As a percentage of revenues, selling, general
and administrative expenses decreased from 67.0% in 1996 to 66.0% in 1997.
RESULTS FOR 1996 COMPARED TO 1995 -- MID-CONTINENT
Revenues. Revenues increased $275,000, or 3.1%, from $8.8 million in 1995
to $9.0 million in 1996, primarily due to increased contingency fee business
from existing clients.
Operating expenses. Operating expenses were $2.9 million in 1995 and 1996.
As a percentage of revenues, operating expenses decreased from 32.5% in 1995 to
31.8% in 1996, as a result of an increase in revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased slightly by $80,000, or 1.3%, from $6.0
million in 1995 to $6.1 million in 1996. As a percentage of revenues, selling,
general and administrative expenses decreased from 68.2% in 1995 to 67.0% in
1996. Excluding the Compensation Differential in both years, selling, general
and administrative expenses as a percentage of revenues decreased from 56.1% in
1995 to 54.1% in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- MID-CONTINENT
Mid-Continent provided $176,000 of cash from operating activities in 1996.
In 1997, Mid-Continent used $36,000 of cash from operating activities. Net cash
provided by operations is primarily comprised of net income, non-cash expenses
(primarily depreciation and amortization) and changes in operating assets and
liabilities (primarily routine fluctuations in trade accounts receivable and
payable and accrued expenses). Net cash used for purchases of property and
equipment totaled $49,000 and $65,000 in 1996 and 1997, respectively. Mid-
Continent used cash of $131,000 and received cash of $266,000 for financing
activities during 1996 and 1997, respectively, primarily in connection with
borrowing activity and advances to stockholders.
32
<PAGE>
RESULTS OF OPERATIONS -- IMPACT
Impact provides primarily outbound telemarketing services to national and
regional companies in the insurance, financial services, telecommunications and
utilities industries.
The following table sets forth certain selected financial data for Impact
on a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1997
--------------- ----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Revenues...................................... $8,869 100.0% $12,870 100.0%
Operating expenses............................ 6,961 78.5 9,725 75.6
------ ----- ------- -----
Gross profit.................................. 1,908 21.5 3,145 24.4
Selling, general and administrative expenses.. 2,108 23.8 2,823 21.9
------ ----- ------- -----
Income (loss) from operations................. $ (200) (2.3)% $ 322 2.5%
====== ===== ======= =====
</TABLE>
RESULTS FOR 1997 COMPARED TO 1996 -- IMPACT
Revenues. Revenues increased $4.0 million, or 45.1%, from $8.9 million in
1996 to $12.9 million in 1997, primarily due to increased business from existing
clients.
Operating expenses. Operating expenses increased approximately $2.8
million, or 39.7%, from $7.0 million in 1996 to $9.7 million in 1997. As a
percentage of revenues, operating expenses decreased from 78.5% in 1996 to 75.6%
in 1997, primarily due to higher revenues per hour due to changes in customer
mix.
Selling, general, and administrative expenses. Selling, general and
administrative expenses increased $715,000, or 33.9%, from $2.1 million in 1996
to $2.8 million in 1997. The increase was primarily attributable to increased
rent, depreciation, and systems expenses associated with Impact's call center
expansion in 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 23.8% in 1996 to 21.9% in 1997. This
decrease as a percentage of revenues was the result of spreading fixed expenses
over a larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES -- IMPACT
Impact provided $96,000 of cash from operating activities in 1996. In 1997,
Impact used $306,000 of cash from operating activities primarily as a result of
increased accounts receivable. Net cash provided by operations is primarily
comprised of net income (loss), non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily routine
fluctuations in trade accounts receivable and payable and accrued liabilities).
Net cash provided by investing activities totaled $2,000 in 1996 and net cash
used in investing activities totaled $52,000 in 1997. Impact used cash of
$90,000 and received cash of $337,000 for financing activities during 1996 and
1997, respectively, primarily in connection with the net repayment of various
borrowings and distributions to stockholders.
33
<PAGE>
BUSINESS
INTRODUCTION
Compass was organized to create a leading provider of outsourced business
services to public and private entities throughout the Sales Cycle. The five
Founding Companies collectively provide accounts receivable management services,
mailing services and teleservices to clients in a broad range of sectors
including telecommunications, financial services, insurance, healthcare,
education, government and utilities. In addition, through its proprietary
Accelerated Payment Systems ("APS") process, one of the Founding Companies is a
leading provider of telephonic check drafting services which enable clients to
accept payments through checks authorized by phone. The Founding Companies, each
of which has been in business for more than ten years, have collectively
achieved substantial growth in recent years. On a pro forma combined basis, the
Founding Companies' revenues increased from $34.2 million in 1992 to $87.2
million in 1997, representing a compound annual growth rate of 20.6%.
The Company's accounts receivable management services include the recovery
of traditional delinquent accounts from both consumer and commercial debtors and
the management of early stage delinquencies. Mailing services include lead
generating direct mail, often to prompt inbound sales calls, and direct mail for
billing, payment processing or collection purposes. Mailing services also
include presorting, freight and drop shipping, data processing, laser printing,
mailing list rental and order fulfillment. Teleservices include outbound
telemarketing, inbound customer service and inbound sales. Each of the services
provided by the Company, including APS, can be utilized at various stages of the
Sales Cycle. The Company is one of the largest providers of its services in the
United States in terms of revenues, servicing clients from 12 call centers in
ten states equipped with a total of approximately 900 workstations, a mail
processing center in Texas, four sales centers in the United States and one
sales center in the United Kingdom.
Compass believes that companies are increasingly seeking partners who can
provide a comprehensive set of outsourcing services, spanning the entire Sales
Cycle, while maintaining a high level of client service. The diagram below
illustrates the processes that comprise the Sales Cycle, from direct marketing
through accounts receivable collection, and the services of the Company that can
be utilized at various stages throughout the Sales Cycle.
[DIAGRAM]
The Company's goal is to become a leading, single source provider of
outsourced business services throughout the Sales Cycle. The Company intends to
leverage the strong client relationships developed by the Founding Companies to
cross-sell additional services to existing clients and to use the expertise of
the Founding Companies as a point of entry with new clients. In addition, the
Company intends to pursue an aggressive acquisition program to broaden the
services it offers, expand its client base and gain access to new markets.
INDUSTRY OVERVIEW
Companies are increasingly outsourcing to third party experts a variety of
non-core business functions throughout the Sales Cycle. The Company believes,
although there can be no assurance, that this trend toward outsourcing will
continue due to a number of factors. Outsourcing allows companies to focus on
strategic issues and redirect resources to core business activities while having
operational details assumed by a third party provider. In addition, by
partnering with specialized outsourcing providers, a company gains access to new
technology, tools and techniques that it may not possess internally. By
outsourcing functions previously performed in-house, companies can convert the
fixed costs associated with investments in equipment, processes, technology and
personnel into variable costs incurred only when such functions are needed, and
can perform these functions more cost effectively.
34
<PAGE>
In addition to the general trend toward outsourcing, management believes
that a number of significant factors and trends are creating opportunities in
the Company's businesses. In particular, both the accounts receivable management
industry and the direct marketing industry have experienced significant growth
in recent years.
According to a recent report concerning the accounts receivable management
industry, receivables outsourced to third parties for management and recovery in
the United States increased from approximately $79.0 billion in 1994 to
approximately $84.3 billion in 1995, an increase of approximately 6.7%. The
Company believes that this growth results in large part from a combination of
increasing delinquent consumer debt and the increasing trend of companies and
government entities to outsource collection of such debt to third parties.
According to the Federal Reserve Board, consumer debt increased from
approximately $3.6 trillion in 1990 to nearly $5.0 trillion in 1995. As debt
levels have increased, companies are outsourcing more as a result of the (i)
increased investment associated with large-scale collection efforts, (ii)
ability to use a third party agency to collect funds thereby minimizing the
negative impact on customer relations and (iii) increasing complexity of the
collection process. Based on ACA estimates and industry assumptions that three
percent of consumer debt becomes delinquent, the percentage of delinquent debt
referred for collection increased from 41.5% in 1990 to 57.0% in 1995. The
Company also believes, based on its recent experience, that companies are
beginning to utilize third party service providers earlier in the collection
cycle.
According to the Direct Marketing Association ("DMA"), a trade association,
overall media spending for direct marketing initiatives totalled $144.5 billion
in 1996, a 6.3% increase from 1995. The DMA estimates that direct marketing
advertising expenditures in the United States for telemarketing (the largest
component of total direct marketing expenditures) increased from approximately
$42.4 billion in 1991 to $57.8 billion in 1996, a compound annual growth rate of
6.4%. Direct mail advertising expenditures, which constitute the second largest
(after telemarketing) component of total direct marketing expenditures,
increased from approximately $24.5 billion in 1991 to $34.6 billion in 1996, a
compound annual growth rate of 7.1%. Management believes that direct marketing
will continue to grow, due in part to the increasing cost effectiveness of
direct marketing as compared to other marketing methods, increased competition
in the telecommunications industry and rapidly changing, complex technology.
Although a very small percentage of teleservices and direct mail business is
currently being outsourced, the Company believes that the percentage of the
market that is outsourced will also increase as businesses continue to recognize
the benefits of outsourcing.
Each of the accounts receivable management, direct mail and teleservices
industries is highly fragmented, includes a large number of small, independent
businesses and is currently experiencing consolidation. As companies seek to
focus on their core competencies and maximize asset utilization, they are
increasingly turning to outside parties who have the technological expertise,
service focus and full range of capabilities necessary to efficiently perform
complex or large projects on a multi-regional or national basis. In addition,
management believes that companies are increasingly seeking to limit the number
of vendors that satisfy their outsourcing needs by finding vendors that can
provide multiple outsourcing services. Compass believes that outsourcing
companies will require significant capital to grow and to deploy state-of-the-
art technology in order to meet the demands of their clients. As a result, the
Company believes significant opportunities are available to a well-capitalized
company providing a broad offering of outsourced business services with a high
level of customer service.
BUSINESS STRATEGY
The Company's goal is to become a leading, single-source provider of
outsourced business services throughout the Sales Cycle. In order to achieve
this goal, the Company intends to pursue the following strategy:
35
<PAGE>
Provide Broad Array of Complementary Services. Each of the Founding
Companies has developed extensive expertise and a strong reputation with respect
to the services it provides. The Company is able to provide clients with a broad
range of services. The Company expects to offer bundled and complementary
services to companies that are currently outsourcing to multiple vendors or
performing such functions in-house. In response to the particular needs of each
client, the Company will develop customized, coordinated solutions, such as a
package of direct marketing, mail fulfillment, billing, customer service and
accounts receivable management services. Management believes that companies that
can provide a broad array of complementary business services are well positioned
for growth as clients are increasingly demanding strategic business partnerships
with their vendors, including a single point of contact for many services. In
addition, management believes that the Company's reputation for and focus on
creating individual business solutions will help it to compete on a basis other
than price.
Focus on High Quality Client Service. The Company believes that maintaining
high levels of service and satisfaction is integral to attracting and retaining
clients. In addition to the importance of customized, value-added solutions,
client and end-user satisfaction is an important differentiating factor in
vendor selection. Each Founding Company has a strong commitment to quality and
satisfaction, and conducts regular client performance reviews. For example,
Impact has dedicated account teams who implement an extensive quality process
that includes validation of the data sent by a client, constant monitoring of
the phone conversations done on-site or at the client's location to ensure that
scripts are properly executed, and an internally designed verification process
to ensure that all of the client's requirements have been fulfilled.
Leverage and Expand Technology and Operational Infrastructures. A key
element of the Company's strategy will be to capitalize on the investments made
by the Founding Companies in technology and the development of operational
processes in order to deliver the most effective client solutions. The Company
intends to continue to invest in sophisticated telecommunications, mail center
and information technology. Continued investment in technology will facilitate
the Company's ability to integrate its existing service offerings and expand its
menu of services. In addition, the Company will review technology and
operational practices across its businesses with the goal of leveraging the best
platforms and processes, optimizing MIS capabilities and sharing technologies.
Operate with Decentralized Management Structure. Compass believes that the
experienced local management teams at the Founding Companies have a valuable
understanding of their respective markets and businesses and strong client
relationships upon which they may capitalize. Accordingly, the Company operates
with a decentralized management strategy. Senior management at the Founding
Companies continues to make day-to-day operating decisions and is responsible
for the profitability and growth of their business. The Company's executive
management team works closely with the Founding Companies to coordinate,
integrate and expand their service offerings. The Company intends to utilize
stock ownership, as well as appropriate incentive compensation, to ensure that
the objectives of local management are aligned with those of the Company.
GROWTH STRATEGY
The Company believes that there are significant opportunities to expand its
business and to further penetrate the market for outsourced business services.
The key elements of its growth strategy are as follows:
Implement Internal Growth Strategy. While the Company intends to acquire
additional outsourcing services companies, strong internal growth remains the
core of the Company's growth strategy. The key elements of the Company's
internal growth strategy include the following:
36
<PAGE>
Capitalize on Cross-Selling Opportunities. Each of the Founding
Companies is a specialist in the services it provides, and each has many
long standing relationships with large clients who have multiple
outsourcing needs. Combining the Founding Companies enables the Company to
capitalize on clients' desires for a single point of service, and to offer
bundled services by leveraging the Founding Companies' client relationships
and reputations for quality. For example, the Company will offer follow-up
teleservices to its direct mailing services clients, utilizing identical
databases for both processes. The Company also intends to offer accounts
receivable management services to its billing services clients.
Generate New Clients Through an Aggressive Marketing Program. The
Company intends to expand its client base by capitalizing on the breadth of
its services, its size, financial resources and geographic scope. The
Company will establish a coordinated marketing strategy to effectively
market and sell the services of all Founding Companies on a national basis.
Expand Service Offerings. The Company expects to continue to
selectively expand its service offerings, with the goal of providing
integrated "end-to-end" services to clients throughout the Sales Cycle. New
services will be complementary to and further leverage the Company's
current offerings.
Implement Best Practices. The Company will identify best practices at
each of the Founding Companies that can be implemented throughout the
Company. For example, the Company intends to identify and utilize the most
effective call center management programs, collection techniques, mail
services and technologies. In addition, the Company intends to focus on the
most effective hiring, training, benefits and employee retention programs
of the Founding Companies and implement those practices throughout its
operations.
Achieve Economies of Scale. The Company believes that it can achieve
significant cost savings as a result of the Acquisitions, as well as future
acquisitions. The Company expects to benefit from greater purchasing power
in such key expense areas as telecommunications, postage, credit bureau
reports, insurance and employee benefits. The Company believes that it can
reduce the total operating expenses of the Founding Companies and other
acquired businesses by eliminating or consolidating certain duplicative
administrative functions. In addition, the Company expects to realize cost
savings and maximize capacity utilization by shifting work among its
locations as appropriate.
Pursue International Opportunities. Management believes that
international markets for accounts receivable management and teleservices
are growing rapidly in conjunction with the growth of overall credit card
spending and the expansion of the business of major credit card issuers
overseas. Management also believes that the United States is significantly
more advanced in outsourcing technology and procedures than the rest of the
world. Accordingly, the Company intends to pursue opportunities in
international markets in order to provide services to its multinational
clients. In addition, the Company may pursue other expansion overseas as
attractive opportunities arise. Where appropriate, the Company may enter
into a strategic partnership with an existing local business to facilitate
entry into a new international market. The Company believes that it is
well-positioned to capitalize on international opportunities through its
existing relationships with multinational clients as well as the expertise
and reputations of the Founding Companies.
Pursue an Aggressive Acquisition Program. Compass believes that industry
trends toward consolidation and increased acceptance of outsourcing create
opportunities for expansion of the Company's business. The Company intends to
capitalize on the highly fragmented nature of the
37
<PAGE>
industries in which it competes by implementing an aggressive strategic
acquisition program following the Offering. Using the Founding Companies as
platforms for growth and consolidation, the Company will pursue acquisitions
within the industry segments and markets currently served by the Founding
Companies to add to the growth of its existing businesses and gain market share.
In addition, the Company plans to acquire additional companies that broaden and
complement the Company's menu of services and the markets it serves. In
analyzing acquisition candidates, the Company will look for profitable companies
with strong management teams and a reputation for high quality client service.
The Company may also consider acquiring companies that possess technology or
proprietary rights to functions or services that would significantly enhance the
value provided by the Company to its clients.
The Company believes that the opportunity to be acquired by Compass will be
attractive to many specialized outsourcing companies. The Company offers owners
of potential acquisition candidates: (i) significant opportunities to enhance
the growth of their businesses through cross-selling the Company's wide range of
outsourced services; (ii) access to sophisticated technology and operational
processes; (iii) the Company's financial strength and visibility as a public
company; (iv) a decentralized management structure; and (v) near-term liquidity.
In selecting the Founding Companies, Compass analyzed significant data on
outsourced business services companies and met with owners of many individual
companies. In addition, the owners of the Founding Companies have extensive
industry knowledge and strong reputations and have developed relationships with
other companies in their industry sectors, and the Company believes that this
will be of significant value in the Company's acquisition program. The Company
continues to review various strategic acquisition opportunities. As
consideration for future acquisitions, the Company intends to use various
combinations of Common Stock, cash and notes.
The Company's ability to successfully execute its growth strategy is
subject to certain risks. See "Risk Factors" beginning on page 9 of this
Prospectus.
SERVICES OFFERED BY THE COMPANY
The Company provides a broad array of complementary business services which
can be utilized by its clients throughout the Sales Cycle. These services
include accounts receivable management services, mailing services and
teleservices. In addition, the Company provides telephonic check drafting
services through its APS service bureau. The services related to accounts
receivable management include recovery of early and later stage delinquent
consumer and commercial accounts. Mailing services include data processing,
printing, addressing, inserting, presorting and other aspects of mail handling.
Teleservices include telemarketing, customer service, market research and lead
generation activities. Several of the Company's services, such as customer
service and APS, can be utilized at multiple stages of the Sales Cycle.
Accounts Receivable Management Services
The Company, through NCMC, Bomar and Mid-Continent, provides a wide range
of accounts receivable management services with respect to the collection of
both consumer and commercial accounts. The Company primarily provides services
related to the recovery of traditional delinquent accounts which can be
categorized as primary (generally 90 to 360 days past due), secondary (generally
12 to 18 months past due with some previous collection efforts) and tertiary
(generally more than 18 months past due with extensive previous collection
efforts). The Company also provides recovery services for early stage
receivables (generally less than 90 days past due) at either the client's
location or the Company's location, sometimes on an outsourced basis. The
Company charges a fee per account or a contingency fee (generally 2% to 25% of
the amount collected) for early stage receivables. With respect to traditional
delinquent receivables, the Company generally charges its clients on a
contingency fee basis at various
38
<PAGE>
rates depending on the category of debt. Generally, the Company charges 25% to
35% of the amount collected for primary accounts, 35% to 50% for secondary
accounts and 50% to 70% for tertiary accounts.
Recovery activities begin with the Company working with a client to design
a customized recovery solution based upon various factors including age and size
of the account, type and source of debt, and the client's specific requirements
and standards. After the Company and the client have determined the approach,
the Company electronically or manually transfers data provided by the client
onto its system. The Company then searches various databases, public records and
other sources to locate customers whose telephone numbers or addresses are not
available from the client. Once the customer is located, the Company forwards a
past due notification letter which serves as official notification to the
customer under the FDCPA. The Company continues the recovery process through
notifications by mail and/or telephone, based on the nature of the account,
during which time the Company's telephone representatives continue the dialogue
with customers to seek immediate payment or develop a payment program. At the
client's request, the Company will report delinquent accounts to one or more of
the national credit bureaus. Payments collected by the Company are either
remitted to the client net of the Company's fee or remitted in full, with the
Company billing the client for its services. The Company also provides
litigation management services for clients with respect to certain accounts.
Such services include managing the attorney relationships and facilitating the
transfer of necessary documentation. Throughout this process, the Company
provides activity reports to the client.
Mailing Services
The Company, through Mail Box, provides direct mailing services and billing
services, mail presorting, freight and drop shipping, data processing, laser
printing, mailing list rental and other services related to mail handling.
Mailing services involve the high speed inserting, addressing and stamping of
mail. Utilizing the Company's inserting machines and addressing and stamping
systems, the Company processed approximately 830 million pieces of mail during
the twelve months ended December 31, 1997. The Company also provides mail
presorting services (i.e., combining volumes of like mail and presorting and bar
coding it to United States Postal Service specifications), which are designed to
generate significant postal discounts for its customers. Utilizing the Company's
sophisticated technology, mail can be presorted to the walk sequence of a
specific mail carrier. The mail which is presorted includes both mail processed
by other vendors and mail processed by the Company. Fees charged for mailing and
presorting are based on the number of pieces processed. Another service offered
by the Company which is designed to generate postage savings is drop shipping,
whereby the Company, instead of sending mail from its Dallas location,
transports the mail to other locations in order to be mailed. The fee charged
for drop shipping is a percentage of the postal savings realized by the client.
Data processing and laser printing services include converting data sent by
the client and processing it to produce a letter or a bill. For example, if a
client transfers billing information and a corresponding mailing list, the
Company standardizes the mailing list in order to reduce postage costs (e.g.,
deleting duplicative addresses, correcting street names and obtaining current
addresses through its change-of-address technology) and merges the list with the
bills to be mailed. Data processing services also include state of the art
predictive modeling and analysis for market segmentation to achieve higher
response rates for direct marketing campaigns. The fee charged for data
processing is based on the number of pieces processed. The Company also rents
mailing lists, which the Company customizes for a particular client utilizing
lists purchased from other sources. Other services of the Company include order
fulfillment and sales of printed material such as letterhead, envelopes and
forms.
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<PAGE>
Teleservices
The Company, through Impact, provides primarily outbound business-to-
consumer teleservices where telephone representatives place calls to parties
targeted by the client to offer products or services or to obtain information.
The Company currently has a total of approximately 260 call stations, all of
which are available for outbound telemarketing. The Company has an arrangement
to use 160 additional call stations located in North Dakota, as needed. The
Company outsources additional business during peak periods. At the beginning of
a typical outbound program, the Company receives customer data files that the
client has selected to match the demographic profile of the targeted customer
for the product or service being offered. These files contain each targeted
customer's name, address, phone number and other relevant data. The Company's
data management system checks the files for duplicate information, updates for
recent area code changes and otherwise modifies the information as needed. Prior
to the beginning of the calling effort, the Company works with the client to
develop a script appropriate to the specific program.
Actual telephone calling at the centers is controlled by computerized call
management systems that utilize a predictive dialing system to automatically
dial the telephone numbers in the files. The call management system then
forwards all connected calls, along with the customer's name and other
information, to the workstation of a telephone representative who has been
trained for the client's program. The telephone representative uses the
customized script to solicit an order for the product or service or to request
information that will be added to the client's database. Information regarding
sales and other aspects of the program is captured, processed and verified by
software systems and made available to clients in customized report formats. The
Company charges its outbound teleservices clients on a commission basis, at an
hourly rate or through a combination of both.
Inbound teleservices account for a small percentage of the Company's
teleservices revenues, although the Company intends to expand this business.
Forty of the Company's call stations may be used for inbound teleservices which
involve the processing of incoming calls, often placed by customers using toll-
free numbers, to a customer service representative for service, order
fulfillment or product information. Inbound teleservices include activities such
as customer care services, credit card and loan application processing and
catalog sales. More sophisticated inbound programs assist clients in responding
to customer inquiries, offering technical and product support services and
assessing overall customer satisfaction. Inbound teleservices are normally
billed at an hourly or cost-per-minute rate.
Accelerated Payment Systems
Accelerated Payment Systems ("APS") was introduced to the market by NCMC in
1992 and patented in 1996. It was originally developed to service the "urgency
payment" market in the collections industry by allowing consumers to resolve
delinquencies on mortgage, telephone, utility, credit card or other recurring
bills through telephonic authorization of a payment by check. The use of APS has
since expanded to retail, telecommunications, utilities, banking, sales and
other industries as clients have begun to appreciate the advantages of
telephonically authorized payments by check as compared to other methods of
immediate payment such as wire transfers, money orders, overnight mail, credit
cards and debit cards. Compass believes that the advantages include the
following: (i) APS does not require written authorization; (ii) APS checks can
be printed at the client's location for same day deposit; and (iii) credit cards
are not a payment option in the urgency payment market for certain receivables
such as credit card debt.
The APS procedure begins when the client's representative obtains verbal
authorization and checking account, bank and other information from the
customer. The client enters such information into the computer where the APS
software has been installed, and transmits the data to the APS service bureau.
APS receives the transmission and either prints the checks on site for overnight
delivery to the
40
<PAGE>
client or a designated bank or provides the client access to print the checks at
the client's location for same day deposit.
The Company charges its APS clients a one-time setup fee as well as a per
transaction fee. APS includes a license to use its proprietary software, bank
and zip code database updates, software upgrades, data backup and service bureau
support including a client help desk and consumer hotline. Management believes
that the combination of the Founding Companies creates a significant opportunity
to apply APS beyond the urgency payment market. For example, the Company intends
to offer APS to its clients as a payment option to improve response rates on
outbound telemarketing calls.
CLIENT RELATIONSHIPS
The Company provides its services to clients in a broad range of sectors
including telecommunications, financial services, insurance, healthcare,
education, government and utilities. In 1997, the Company's 10 largest clients
accounted for approximately 45.5% of the Company's revenues on a pro forma
combined basis. VarTec Telecom, Inc. ("VarTec") accounted for approximately
17.9% of the Company's 1997 revenues on a pro forma combined basis. Other than
VarTec, no client accounted for more than 10% of the Company's revenues on a pro
forma combined basis in 1997.
The Company enters into contracts with most of its clients which define,
among other things, fee arrangements, scope of services and termination
provisions. Clients may usually terminate such contracts on short notice.
The following table sets forth a list of certain of the Company's
representative clients:
<TABLE>
<CAPTION>
Financial Services Education Healthcare
------------------ --------- -----------
<S> <C> <C>
Capital One Financial Columbia University Beverly Enterprises, Inc.
Corporation DeVRY, INC. MD Anderson Cancer Hospital
Fleet Bank EduCap, Inc. Medical Resource Systems, Inc.
General Electric Capital Roosevelt College Medic Computer Systems,Inc.
Services, Inc.
MBNA America Bank, N.A.
Government and Utilities Telecommunications Retail and Commercial
- -------------------------- ------------------ ---------------------
The Army and Air Force AT&T Wireless Services Advantis Business Services, Inc.
Exchange Services Bellsouth Circuit City, Inc.
Baltimore Gas & Electric Telecommunications, The FACS Group (Federated
Company Inc. Department Stores, Inc.)
Georgia Power Co. Southwestern Bell Mobile MemberWorks, Inc.
State of Maryland Systems, Inc. Sears Roebuck & Co.
Nevada Power Company VarTec Telecom, Inc.
</TABLE>
QUALITY ASSURANCE AND CLIENT SERVICE
The Company's reputation for quality service is critical to acquiring and
retaining clients and the Company has a strong commitment to quality and client
satisfaction. With respect to the Company's telephone representatives, the
Company and its clients monitor such representatives for compliance with the
clients' specifications and the Company's policies. The Company regularly
measures the quality of its services by capturing and reviewing such information
as the amount of time spent talking with clients' customers, level of customer
complaints and a variety of other operating measures. In order to provide
ongoing improvement in the performance of the Company's telephone
representatives and to assure compliance with the Company's policies and
standards, quality assurance personnel monitor each telephone representative on
a regular basis and provide ongoing training to the representative based on
41
<PAGE>
this review. The Company's information systems enable it to provide clients with
reports as to the status of their accounts. In some cases, clients can choose to
network with the Company's computer system to access such information directly.
The Company believes that extensive training of employees is essential in
providing high quality service. For example, Mail Box established the Mail Box
Academy, a dedicated training facility at which all new mailing service
employees must complete a six-week program that includes training in United
States postal regulations, data processing and operation of inserting and
presorting machines.
SALES AND MARKETING
Each Founding Company has dedicated sales personnel who work directly with
clients and potential clients to develop solutions to satisfy their outsourcing
needs and cultivate successful, long term relationships. Historically, the
Founding Companies have acquired new clients and marketed services by pursuing
client referrals, responding to requests for proposals, attending trade and
industry conferences and using targeted direct marketing efforts. As of December
31, 1997, the Company's sales force included 39 direct sales employees and five
independent contractors.
The Company intends to continue the Founding Companies' emphasis on
developing and maintaining long-term client relationships. The Company will
implement a marketing strategy which: (i) provides a broad range of high
quality, complementary services; (ii) expands service offerings; and (iii)
enables the cross-selling of services to existing and new clients. Marketing
strategies will be coordinated to optimize the sales force efforts and
prioritize new client acquisitions of major national accounts.
TECHNOLOGY AND INFRASTRUCTURE
Accounts Receivable Management Services
The Company has made a substantial investment in its client/server and
local- and wide-area networks which run its collection agency software and call
management systems such as predictive dialers, automated call distribution
systems and digital switching.
The Company utilizes predictive dialers to address its low balance, high
volume accounts. These systems scan the Company's database and simultaneously
initiate calls on all available telephone lines and determine if a live
connection is made. Upon determining that a live connection has been made, the
computer immediately switches the call to an available representative and
instantaneously displays the associated account record on the telephone
representative's workstation. Calls that reach other signals, such as a busy
signal, telephone company intercept or no answer, are tagged for statistical
analysis and placed in priority recall queues or multiple-pass calling cycles.
The system also automates virtually all recordkeeping and follow-up activities
including letter and report generation. The Company's automated operations
improve the productivity of the Company's collection staff.
Mailing Services
The Company utilizes software and technology in its lettershop, presort,
and data processing facilities. For data processing, the Company utilizes an IBM
mainframe and sophisticated letter processing and database management systems to
provide high speed data manipulation, flexibility in letter text setup and
predictive modeling and analysis. In addition, the Company is able to use its
data processing technology to reduce postage costs for clients by deleting
duplicative addresses, correcting street names and obtaining current addresses
through its change-of-address technology. In the lettershop, the Company has 64
inserting machines, including intelligent inserting machines which burst, fold,
select, match or handle multiple page inserts, and 20 addressing and stamping
systems which allows the Company to process high volumes of mail in a short
period of time. For mail presorting, the Company
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<PAGE>
utilizes multiline optical character readers which read the address, cross
reference the National Postal Database and encode the corresponding bar code.
Teleservices
The Company provides its teleservices through call stations which utilize
sophisticated call management systems including a predictive dialing system,
automated call distribution systems and digital switching which are integrated
with database management systems and local and wide area networks. In addition,
the Company uses proprietary software for customizing scripts used by its
telephone representatives. The Company's predictive dialing system was designed
to be used in conjunction with its scripting and data capture software, while
allowing for the import of data in any standardized format. This system can run
up to 128 campaigns simultaneously and was designed to allow the Company to
increase capacity rapidly and cost effectively.
The Company has implemented procedures to protect the loss of data against
power loss, fire and other casualty. In addition, the Company has installed a
security system to protect the integrity and confidentiality of its computer
system and data.
COMPETITION
The markets in which the Company competes are highly competitive, and the
Company expects competition to persist and intensify in the future. As a result,
the Company faces aggressive price competition in most of its businesses and
expects price competition to continue. The Company's competitors include small
firms offering specific applications, divisions of large entities, large
independent firms and, most significantly, the in-house operations of clients or
potential clients. Some of the Company's competitors have substantially greater
financial, marketing and other resources, offer more diversified services and
operate in broader geographic areas than the Company. There can be no assurance
that additional competitors with greater resources than the Company will not
enter the Company's markets. All of the services offered by the Company may be
performed in-house. Many larger clients retain multiple accounts receivable
management providers which exposes the Company to continuous competition in
order to remain a preferred vendor. There can be no assurance that outsourcing
of the services performed by the Company will continue or that existing Company
clients will not bring some or all of such services in-house. The Company
competes primarily on performance, client service, range of services offered and
price.
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. The Company is subject to
the FDCPA and various state debt collection laws, which, among other things,
establish specific guidelines and procedures debt collectors must follow in
communicating with consumer debtors, including the time, place and manner of
such communications. The accounts receivable management business is also subject
to state regulation, and some states require that the Company be licensed as a
debt collection company. The Company is also subject to the FCRA, which
regulates the consumer credit reporting industry and which may impose liability
on the Company to the extent that the adverse credit information reported on a
consumer to a credit bureau is false, inaccurate or outside of the scope of the
Company's transactions with such consumers. With respect to the other
teleservices offered by the Company, including telemarketing, the Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the FTC
to issue regulations prohibiting misrepresentations in telemarketing sales. The
FTC's telemarketing sales rules, among other things, limit the hours during
which telemarketers may call, prohibit misrepresentations of the cost, terms,
restrictions, performance or duration of products or services offered by
telephone solicitation and specifically address other perceived telemarketing
abuses in the offering of prizes and the sale of business opportunities or
investments. In addition, the TCPA restricts the use of automated telephone
equipment for telemarketing
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<PAGE>
purposes, including limiting the hours during which telemarketers may call
consumers and prohibiting the use of automated telephone dialing equipment to
call certain telephone numbers. A number of states also regulate telemarketing
and some states have enacted restrictions similar to the TCPA. The failure to
comply with applicable statutes and regulations could have a materially adverse
effect on the Company's business, results of operations and financial condition.
There can be no assurance that additional federal or state legislation, or
changes in regulatory implementation, would not limit the activities of the
Company in the future or significantly increase the cost of regulatory
compliance.
Several of the industries served by the Company are also subject to varying
degrees of government regulation. Although compliance with these regulations is
generally the responsibility of the Company's clients, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations.
The Company devotes significant and continuous efforts, through training of
personnel and monitoring of compliance, to ensure that it is in compliance with
all federal and state regulatory requirements. The Company believes that it is
in material compliance with all such regulatory requirements.
EMPLOYEES
As of December 31, 1997, the Founding Companies employed a total of 1,032
full-time and 438 part-time employees, of whom 626 were employed in connection
with accounts receivable management services, 473 were employed in connection
with teleservices and 371 were employed in connection with mailing services. In
addition, the Company uses independent contractors and hires temporary employees
as needed. None of the Company's employees is represented by a labor union.
The Company believes that its relations with its employees are good.
FACILITIES
The Company currently operates 15 leased facilities. The chart below sets
forth certain information regarding such facilities.
<TABLE>
<CAPTION>
Approximate
Location of Facility Company and Operations Conducted Square Feet
- -------------------- -------------------------------- -----------
<S> <C> <C>
Atlanta, GA Bomar -- Accounts receivable management 3,000
Buffalo, NY Mid-Continent -- Accounts receivable management, 7,700
sales
and administrative
Destin, FL Bomar -- Administrative 1,200
Dallas, TX Mail Box -- Mailing services and administrative 338,000
Houston, TX Bomar -- Accounts receivable management 2,800
Hunt Valley, MD NCMC -- Accounts receivable management and 18,600
administrative
Las Vegas, NV NCMC -- Accounts receivable management 3,000
Louisville, KY Mid-Continent -- Accounts receivable management, 5,500
sales
and administrative
New York, NY Compass -- Corporate headquarters 4,500
Norcross, GA Bomar -- Accounts receivable management and sales 22,700
Phoenix, AZ Bomar -- Accounts receivable management 4,000
Rolling Meadows, Mid-Continent -- Accounts receivable management, 17,000
IL sales
and administrative
Tampa, FL Bomar -- Accounts receivable management 8,000
Voorhees, NJ Impact -- Outbound telemarketing 16,000
Woodbury, NJ Impact -- Telemarketing, data processing and 8,500
administrative
</TABLE>
44
<PAGE>
LITIGATION
Disputes Relating to the APS Patent
The Company is engaged in certain disputes concerning a patent (the "APS
Patent") owned by the Company and used in its APS process to provide telephonic
check drafting services. The following is a summary of such disputes:
In January 1994, NCMC entered into an Intellectual Property Licensing
Agreement (the "1994 Agreement") with Autoscribe Corporation ("ASC") and Robert
E. Pollin (the "Inventor"). Pursuant to the 1994 Agreement, NCMC was granted,
with certain exceptions, the exclusive right to use certain intellectual
property that was at the time the subject of a patent application. In March
1996, NCMC purchased the intellectual property from ASC and the Inventor
pursuant to an Intellectual Property Purchase and License Agreement (the "1996
Agreement") that superseded the 1994 Agreement. The APS Patent was issued in
April 1996 and assigned to NCMC.
NCMC is a plaintiff in two lawsuits (the "Patent Infringement Lawsuits")
alleging that a competitor and a former customer willfully infringed the APS
Patent. In June 1996, NCMC filed a lawsuit (the "Western Union Lawsuit")
against Western Union Financial Services, Inc. in the United States District
Court for the Southern District of New York, and in January 1998, NCMC amended
its complaint to add Affiliated Computer Services, Inc., a software provider, as
a defendant. In December 1996, NCMC filed suit (the "Discover Lawsuit") against
Discover Card Services, Inc., Novus Services, Inc. and Dean Witter, Discover &
Co. in the United States District Court for the District of Maryland. NCMC's
claims against the defendants in the Patent Infringement Lawsuits seek lost
profits, damages, attorneys' fees and costs, treble damages for willful
infringement and punitive damages. The defendants in the Patent Infringement
Lawsuits have denied infringing the APS Patent and have challenged the validity
of the APS Patent in a counterclaim. Management believes that the counterclaim
is without merit. The parties to the Western Union Lawsuit are currently
engaged in discovery. In the Discover Lawsuit, on March 5, 1998, following
motions by both parties, the judge granted defendants' motion for summary
judgment. NCMC has appealed the ruling. Compass has entered into an agreement
with NCMC and its stockholders with respect to the allocation of damages, if
any, awarded to NCMC in the Patent Infringement Lawsuits. See "Certain
Transactions."
In April 1997, ASC and the Inventor filed an arbitration claim against NCMC
seeking rescission of the 1996 Agreement and certain monetary damages. In May
1997, NCMC filed a lawsuit against ASC and the Inventor in the Circuit Court for
Montgomery County, Maryland alleging that ASC and the Inventor have violated
NCMC's ownership rights to the APS Patent and exclusive rights to use the
intellectual property by continuing to solicit maintenance customers and provide
maintenance services in contravention of the 1996 Agreement. NCMC seeks
unspecified damages and injunctive relief. ASC and the Inventor have denied
NCMC's claims and have filed a counterclaim seeking rescission of the 1996
Agreement, reassignment of the APS Patent to the Inventor, reinstatement of the
1994 Agreement, the ability to participate as a plaintiff in the Patent
Infringement Lawsuits, unspecified damages and other relief. ASC and the
Inventor allege that the 1996 Agreement should be rescinded because the Inventor
lacked the capacity to sign the 1996 Agreement and because the 1996 Agreement
was the product of misrepresentations and duress and is not supported by
adequate consideration. ASC and the Inventor also allege that (i) NCMC was and
is required under the 1996 Agreement to pay royalties at a rate equal to 7.25%
of NCMC's APS-related revenues rather than the 4.5% rate at which they have been
paid; (ii) NCMC improperly offset against the royalties certain litigation
expenses incurred by it in the Patent Infringement Lawsuits; (iii) NCMC failed
to properly prosecute the Patent Infringement Lawsuits; and (iv) NCMC was
required under the 1994 Agreement to pay royalties at the rate of 7.25% for the
period between March 1, 1995 and March 1, 1996, rather than the 4.5% rate at
which they were paid during such period. NCMC has denied these allegations.
The litigation is currently in the discovery phase.
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<PAGE>
While NCMC believes that the counterclaims are without merit, there can be no
assurance that ASC and the Inventor will not prevail with respect to some or all
of their counterclaims. In the event that ASC and the Inventor are successful in
their counterclaims, both an award of damages and rescission of the 1996
Agreement could occur, with the future rights of the parties being determined by
the 1994 Agreement. If the 1994 Agreement were reinstated, NCMC would be
required to pay royalties at the rate of 7.25% of its APS-related revenues
rather than the 4.5% rate at which royalties are being paid under the 1996
Agreement. Management does not believe that a decision adverse to NCMC in this
dispute would have a material adverse effect on the Company's business, results
of operations or financial condition.
On February 18, 1998, the Inventor sent NCMC a notice of claim which
alleges that NCMC, by attempting to enforce the non-competition provisions of
the 1996 Agreement, has misused the APS Patent thereby rendering the APS Patent
unenforceable. The notice states that ASC and the Inventor intend to hold NCMC
liable for any losses or damages arising from such alleged misuse. On February
24, 1998, NCMC sent the Inventor a notice of claim in which NCMC denied the
allegations of patent misuse, alleged breaches by the Inventor of certain
warranties and covenants set forth in the 1996 Agreement and stated that NCMC
intends to hold the Inventor and ASC liable for any damages caused by the
position taken by the Inventor in the February 18 notice. Should these recent
claims result in additional litigation, NCMC intends to vigorously pursue its
breach of contract claims and vigorously defend against the allegations of
patent misuse and unenforceability. While management believes that the
Inventor's allegations are without merit, if such claims are litigated, a
decision adverse to NCMC with respect to these claims could have a material
adverse effect on the Company's results of operations and financial condition.
Other Disputes
In October 1997, Mid-Continent and its New York subsidiary filed a lawsuit
in the State of New York, Supreme Court, County of Erie (the "New York Supreme
Court") against Vincent S. Burgio, Eric R. Main and Michael Luksch (all of whom
are former employees of Mid-Continent's subsidiary), as well as Continental
Commercial Group of New York, Inc. and L.A. Commercial Group, Inc. The
complaint alleges (i) breach of employment agreement; (ii) breach of the duty of
loyalty; (iii) interference with business relationships; (iv) conversion of
confidential information; and (v) misappropriation of trade secrets, and seeks
injunctive relief and unspecified damages. The litigation is currently in the
discovery stage.
In February 1998, the defendants in the above-described lawsuit filed two
lawsuits in the New York Supreme Court. The first lawsuit, filed by Mr. Burgio,
names as defendants Mid-Continent, its New York subsidiary and William
Vallecourse, an employee of the subsidiary, and alleges (i) breach of contract;
(ii) breach of contract and constructive discharge; (iii) fraud; (iv) tortious
interference with employment contract; and (v) unjust enrichment. The complaint
seeks aggregate damages in excess of $1.3 million. The second lawsuit, filed by
Messrs. Burgio, Main and Luksch, names as defendants Mid-Continent, its New York
subsidiary, Les J. Kirschbaum, Mr. Vallecourse and Michelle Helmer (an employee
of the New York subsidiary), alleges defamation of Messrs. Burgio, Main and
Luksch and seeks aggregate compensatory damages of $1.5 million in addition to
punitive damages. Mid-Continent believes that the allegations against it and
its co-defendants are without merit; however, because this litigation is at an
early stage, its outcome cannot be predicted. Mid-Continent's stockholders have
agreed to indemnify the Company for losses and damages, if any, arising from
these lawsuits.
The Company is not involved in any other legal proceedings material to the
business, financial condition or results of operations of the Company.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the Company's
directors, executive officers and certain key employees.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael J. Cunningham.. 40 Chairman of the Board and Chief
Executive Officer
Mahmud U. Haq.......... 38 President and Chief Operating Officer;
Director
Richard A. Alston...... 42 Chief Financial Officer
Kenneth W. Murphy...... 58 Chief Executive Officer -- Mail Box;
Director
Leeds Hackett.......... 57 Chief Executive Officer -- NCMC;
Director
John Maloney........... 52 Chief Operating Officer -- Bomar;
Director
Les J. Kirschbaum...... 55 Chief Executive Officer --
Mid-Continent;
Director
Edward A. DuCoin....... 32 Co-President -- Impact; Director
Howard L. Clark, Jr.... 54 Director
Scott H. Lang.......... 51 Director
Tomasso Zanzotto....... 56 Director
Gene Collins........... 55 Chief Executive Officer -- Bomar
David T. DuCoin........ 39 Co-President -- Impact
</TABLE>
MICHAEL J. CUNNINGHAM joined Compass in June 1997 and has served as a
director since September 1997. Prior to joining the Company, Mr. Cunningham
held various senior executive positions at American Express Company ("American
Express"). From 1992 until June 1997, Mr. Cunningham was Vice President --
Operations of the Travel Related Services division of American Express where he
was responsible for management of the billing and payment processes for all
domestic credit card holders, as well as the collection agency management
function. He also chaired the steering committee and managed the group that
develops and enhances the global system that generates Travel Related Services
customer statements throughout the world. From 1988 to 1992, Mr. Cunningham was
the Vice President of Finance of the Travel Related Services division and from
1984 to 1988 he served as Director of Corporate Financial Analysis for American
Express. Mr. Cunningham formerly served on the Advisory Council for the
National Foundation for Consumer Credit.
MAHMUD U. HAQ joined Compass in April 1997 and has served as a director
since October 1997. From December 1996 until joining the Company, Mr. Haq was
the Executive Vice President of Global Business Development at Nationwide
Credit, Inc., one of the nation's largest accounts receivable management
companies. From 1985 to 1996, Mr. Haq held various senior executive positions at
American Express, including Vice President -- Risk Management of Global
Collections for the Travel Related Services division (1994-1996) and Vice
President and Controller -- Consumer Card Group Operations for the Travel
Related Services division (1992-1994). Mr. Haq formerly served on the Board of
Directors of the Consumer Credit Association.
RICHARD A. ALSTON joined Compass in June 1997. From December 1994 to March
1997, Mr. Alston served as the Executive Vice President -- Finance and Corporate
Development at National Processing, Inc., the nation's second largest credit
card processing company. From 1991 to 1994, Mr. Alston was the President of
Alston Associates which provided strategic and operations consulting services to
Fortune 500 clients. From 1986 to 1991, Mr. Alston was a Senior Vice President
at Sealy, Inc. where he oversaw the implementation of new manufacturing and
financial systems throughout the Company and was responsible for the Company's
international licensing activities and contract sales.
47
<PAGE>
KENNETH W. MURPHY became a director of the Company after the closing of the
IPO. Mr. Murphy has served as the President and Chief Executive Officer of Mail
Box since its founding in 1971. Mr. Murphy was the Chairman of the Board of
Directors of The Mail Advertising Service Association, International ("MASA"), a
mailing industry trade association, from 1987 to 1993. He is currently a member
of the Board of Directors of MASA-Southwest and a member of the Advertising Mail
Marketing Association, the Direct Marketing Association of North Texas and the
Dallas-Fort Worth and Austin Postal Customer Councils.
LEEDS HACKETT became a director of the Company after the closing of the
IPO. Mr. Hackett has served as the Chairman and Chief Executive Officer of NCMC
since 1991. From 1989 to 1991, Mr. Hackett was Executive Vice President and
Chief Financial Officer of The Union Corporation, a New York Stock Exchange
company, which has subsidiaries in the debt collection business. From 1987 to
1989, he was the President and Chief Executive Officer of The Park Avenue Bank,
N.A. and from 1965 to 1986, he held various management positions at Marine
Midland Bank.
JOHN MALONEY became a director of the Company after the closing of the IPO.
Mr. Maloney has served as the Chief Operating Officer of Bomar since its
founding in 1986. In such position, Mr. Maloney manages all of Bomar's
operations and production processes. He has played an integral role in Bomar's
strategic planning and development since its formation.
LES J. KIRSCHBAUM became a director of the Company after the closing of the
IPO. Mr. Kirschbaum has served as President of Mid-Continent since 1974 and
became Chief Executive Officer in 1995. Mr. Kirschbaum served as the Chairman
of the Commercial Agency Section ("CAS") of the Commercial Law League of America
("CLLA") from 1986 to 1988, and was the CAS representative on the Board of
Governors of the CLLA from 1991 to 1994. The CLLA is a trade association of
commercial attorneys and commercial collection agencies with approximately 6,000
members.
EDWARD A. DUCOIN became a director of the Company after the closing of the
IPO. Mr. DuCoin founded Impact in 1984 and serves as its Co-President with his
brother, David T. DuCoin. He was a member of the Board of Directors of the
American Telemarketing Association from 1992 to 1993 and has been a national
speaker on the subject of telemarketing.
HOWARD L. CLARK, JR. became a director of the Company after the closing of
the IPO. Mr. Clark has served as Vice Chairman of Lehman Brothers Inc. since
1993. He was Chairman, President and Chief Executive Officer of Shearson Lehman
Brothers Holdings, Inc. from 1990 until he assumed his current position. Prior
thereto, Mr. Clark was Executive Vice President and Chief Financial Officer of
American Express, having held various positions with that firm since 1981. He
is also a director of Lehman Brothers Inc., Fund American Enterprises Holdings,
Inc., The Maytag Corporation, Walter Industries, Inc. and Plasti-Line Inc.
SCOTT H. LANG became a director of the Company in April 1997. Since 1996,
Mr. Lang has been a managing member of BGL Management Company, LLC, which is the
managing member of BGL Capital Partners, LLC ("BGL"), a merchant banking firm
which originates and finances industry consolidations. Mr. Lang is also a
Managing Director and Principal of Brown, Gibbons, Lang & Company, L.P., an
investment banking firm, a position he has held since 1995. From 1985 to 1995,
he served as Executive Vice President and Managing Director of Investment
Banking at Rodman & Renshaw, Inc., a Chicago-based securities firm.
TOMMASO ZANZOTTO became a director of the Company after the closing of the
IPO. Mr. Zanzotto is the President of Toscana Ville E. Castelli, a real estate
development company which owns and operates residential and commercial
properties in the lodging and hotel industry. From 1994 to 1996,
48
<PAGE>
he was the Chairman and Chief Executive Officer of Hilton International. From
1969 to 1993, Mr. Zanzotto held various positions with American Express Travel
Related Services including President International, American Express Financial
and Travel Services (1990-1993); President, American Express Corporate Card
Division (1987-1990); and President, American Express Travelers Cheques (Europe,
Africa, Middle East). He is also a director of Travel Services International,
Inc., a distributor of specialized leisure travel services.
GENE COLLINS has served as the Chief Executive Officer of Bomar since its
founding in 1986. In such position, he manages the marketing efforts and
business development of the organization. In addition, Mr. Collins is
responsible for Bomar's financial planning and works closely with Mr. Maloney in
determining the company's strategic plan.
DAVID T. DUCOIN became actively involved with Impact in 1986 and has served
as its Co-President since 1993. He has been instrumental in the development of
Impact's proprietary predictive dialing system as well as the integration of
inbound and outbound technology in a shared database environment. Prior to
joining Impact, Mr. DuCoin was involved in television production and was the
Senior Editor and Chief Engineer for a variety of programs including major
league sports broadcasts.
MANAGEMENT OF THE COMPANY
The Company operates with a decentralized management strategy. Messrs.
Cunningham, Haq and Alston manage the Company's operations and are responsible
for areas including strategic planning, resource allocation, capital financing,
financial reporting, marketing efforts and human resources. They work closely
with the Founding Companies to coordinate, integrate and expand their service
offerings. Messrs. Murphy, Hackett, Maloney, Kirschbaum, Collins, Edward A.
DuCoin and David T. DuCoin continue to make day-to-day operating decisions and
are primarily responsible for the operations of their respective Founding
Companies.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of ten directors divided
into three classes. At each annual meeting of stockholders commencing in 1999,
directors will be elected to three-year terms by the holders of the Common Stock
to succeed those directors whose terms are expiring. Directors whose terms will
expire in 1999 are: Mahmud U. Haq, Les J. Kirschbaum, Edward A. DuCoin and
Tomasso Zanzotto; directors whose terms will expire in 2000 are: John Maloney,
Scott H. Lang and Howard L. Clark, Jr.; directors whose terms will expire in
2001 are: Leeds Hackett, Kenneth W. Murphy and Michael J. Cunningham. The
Initial Stockholders have entered into an agreement with respect to nominating
and electing directors in the five years following the Offering. See
"Description of Capital Stock -- Stockholders' Agreement." The Board of
Directors has established an Audit Committee comprised of Messrs. Clark and
Zanzotto and will establish a Compensation Committee and such other committees
as the Board may determine. Directors elected by the Company's stockholders may
be removed only for cause.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive compensation for serving as directors. Each director who is not
an employee of the Company or one of its subsidiaries receives a fee of $2,000
for attendance at each Board of Directors' meeting and $1,000 for each committee
meeting (unless held on the same day as a Board of Directors' meeting).
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof or otherwise incurred
in their capacity as directors. Upon the consummation of the IPO, each non-
employee director was granted options to purchase 10,000 shares of Common Stock
49
<PAGE>
at an exercise price equal to the initial public offering price. See "--Employee
Incentive Compensation Plan."
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
Messrs. Cunningham, Haq and Alston have entered into three-year employment
agreements with the Company, that provide for annual base salaries of $225,000
for Mr. Cunningham and $200,000 for each of Mr. Haq and Mr. Alston. Each
agreement provides that the executive is eligible to earn an annual bonus of up
to 100% of his salary based upon specified performance criteria. Unless
terminated or not renewed by the Company or the executive, the term of each such
employment agreement will continue thereafter on a year-to-year basis on the
same terms and conditions existing at the time of renewal. Each employment
agreement contains a covenant not to compete with the Company for a period of
one year following termination of employment. Under this covenant, the executive
is prohibited from: (i) engaging in any business in competition with the Company
anywhere in the United States; (ii) enticing a managerial employee of the
Company away from the Company; (iii) soliciting or selling any competitive
products or services to any person or entity which is, or has been within one
year prior to the date of termination, a customer of the Company, or that was
actively solicited by the Company during such period; or (iv) calling upon a
prospective acquisition candidate which the employee knew was approached or
analyzed by the Company, for the purpose of acquiring the entity. The covenant
may be enforced by injunctions or restraining orders and shall be construed in
accordance with the changing activities, business and location of the Company.
Each employment agreement requires the executive to devote his full time to the
Company.
Each of these employment agreements provides that, in the event of a
termination of employment by the Company without cause during the term of the
agreement, the Company will pay to the executive, as severance compensation, (i)
his then current salary plus the bonus paid to him the last fiscal year for a
period of two years following the date of termination and (ii) his bonus for the
current year prorated through the termination date. Payment is due in equal
installments on the Company's normal payroll payment dates during the severance
period. The employment agreements further provide that in the event of a change
in control of the Company (as defined in the employment agreements), the
executive will have the right, following such change in control, to terminate
his employment for Good Reason (or, in the 60 days immediately following such
change in control, for any reason) and be entitled to receive severance benefits
as described above. So long as the executive does not engage in conduct giving
rise to the right to terminate employment for cause, Good Reason includes (i)
the failure to elect the executive to the office previously held, the removal of
the executive from his position or the assignment to the executive of any
additional duties or responsibilities or a reduction in executive's duties or
responsibilities which, in either case, are inconsistent with those customarily
associated with such position and (ii) a relocation by the Company of the
executive's place of employment beyond a specified area.
The Company has entered into supplemental compensation agreements with each
of Messrs. Cunningham, Haq and Alston with respect to possible income tax
liabilities. See "Certain Transactions -- Other Transactions."
The Founding Companies entered into five-year employment agreements with
certain of their executive officers, including Messrs. Murphy, Hackett, Maloney,
Kirschbaum, Collins, Edward A. DuCoin and David T. DuCoin. Each agreement
requires the executive to devote his full time to the Founding Company,
specifies an annual base salary and provides that the executive is eligible to
earn an annual bonus of up to 100% of salary upon specified performance
criteria. The Founding Companies entered into employment agreements with other
key employees for terms ranging from one to five years. Unless terminated or
not renewed by the Founding Companies or the employee, the term of each
employment agreement will continue thereafter on a year-to-year basis on the
same terms and conditions existing at the time of renewal. Each employment
agreement contains a covenant not to compete
50
<PAGE>
whereby, for a two-year period following termination of employment (one year
with respect to employees other than executive officers), the employee is
prohibited from (i) engaging in any business in competition with the business in
which the applicable Founding Company engages anywhere in the United States,
(ii) enticing a managerial employee of the Founding Company away from the
Founding Company, (iii) soliciting or selling any competitive products or
services to any person or entity which is, or has been within one year prior to
the date of termination, a customer of the Founding Company, or that was
actively solicited by the Founding Company during such period, or (iv) calling
upon a prospective acquisition candidate which the employee knew was approached
or analyzed by the Company, for the purpose of acquiring the entity. Each
agreement provides that upon termination of employment by the Founding Company
without cause, the employee will be entitled to receive from the Company his or
her annual salary for a period of two years following termination (one year with
respect to employees other than executive officers) plus his or her bonus for
the current year prorated through the termination date.
Certain of the executive officers of the Company were granted options to
purchase Common Stock at an exercise price equal to $10.50, the initial public
offering price. See "-- Employee Incentive Compensation Plan."
EMPLOYEE INCENTIVE COMPENSATION PLAN
The Board of Directors and the Company's stockholders approved the
Company's Employee Incentive Compensation Plan (the "Plan"). The purpose of the
Plan is to provide directors, officers, employees, consultants and independent
contractors with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of: (i) either incentive stock options ("ISOs") or non-qualified stock
options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or
deferred stock; (iv) dividend equivalents; and (v) cash awards or other awards
not otherwise provided for, the value of which is based in whole or in part upon
the value of the Common Stock. The Compensation Committee will administer the
Plan and generally select the individuals who will receive awards and the terms
and conditions of those awards.
The Company has reserved 2,000,000 shares of Common Stock for use in
connection with the Plan. It is the policy of the Company that the number of
shares of Common Stock subject to options granted under the Plan will not exceed
10% of the number of shares of Common Stock then outstanding. Shares of Common
Stock which are attributable to awards which have expired, terminated or been
canceled or forfeited are available for issuance or use in connection with
future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the IPO, NQSOs to purchase a total of approximately
690,000 shares of Common Stock were granted to employees of Compass and the
Founding Companies. Of this amount, options to purchase 350,000 shares of Common
Stock were granted to management of the Company, including 150,000 options to
Mr. Cunningham and 100,000 options to each of Messrs. Haq and Alston, an
aggregate of approximately 65,000 options were granted to other employees of the
Company and an aggregate of approximately 275,000 options were granted to
certain employees of the Founding Companies. The grants of all of the foregoing
options were effective as of the date of the IPO and each option has an exercise
price equal to $10.50, the initial public offering price per share. Options
granted to management of the Founding Companies will vest in three equal annual
installments commencing on the first anniversary of the grant while options
granted to non-management employees will vest entirely
51
<PAGE>
on the first anniversary of the grant. These options will expire 10 years from
the date of grant or three months following termination of employment.
The Plan also provides for: (i) the automatic grant to each non-employee
director (a "Participant") serving at the commencement of the IPO of an option
to purchase 10,000 shares of Common Stock; and thereafter (ii) the automatic
grant to each Participant of an option to purchase 10,000 shares upon such
person's initial election as a director. In addition, the Plan provides for an
automatic annual grant to each Participant of an option to purchase 5,000 shares
at each annual meeting of stockholders following the IPO, provided, however,
that if the first annual meeting of stockholders following a person's initial
election as a non-employee director is within three months of the date of such
election or appointment, such person will not be granted an option to purchase
5,000 shares of Common Stock at such annual meeting. These options will have an
exercise price per share equal to the fair market value of a share at the date
of grant. Options granted under the Plan will expire at the earlier of 10 years
from the date of grant or one year after termination of service as a director,
and options were immediately exercisable.
The Plan affords the Compensation Committee discretion to fashion
performance awards for eligible participants with incentives the Compensation
Committee deems appropriate. It permits the issuance of awards based on the
satisfaction of specific performance criteria in cash or Common Stock. The
performance goals for any year may be based on a broad array of performance
measures as selected by the Compensation Committee, including financial results
on a consolidated basis or an operating unit basis depending on the
responsibility of the participant, as well as achievement of personal
performance goals. The maximum value of such awards for any participant in any
year is 100% of such participant's salary. In addition, the Compensation
Committee has discretion to pay, cancel or provide for the substitution or
assumption of such bonus awards.
EMPLOYEE STOCK PURCHASE PLAN
Prior to the IPO, the Company adopted the Employee Stock Purchase Plan (the
"Stock Purchase Plan"), pursuant to which a total of 500,000 shares of Common
Stock were reserved for issuance. The Stock Purchase Plan, which is intended to
qualify under Section 423 of the Code, permits eligible employees of the Company
to purchase Common Stock through payroll deductions with all such deductions
credited to an account under the Stock Purchase Plan. Payroll deductions may
not exceed $25,000 for all purchase periods ending with any Plan Year (as
hereinafter defined).
The Stock Purchase Plan operates on a twelve-month basis (the "Plan Year"),
as established by the Board of Directors. To be eligible to participate during
a Plan Year, an employee must file all requisite forms prior to a specified due
date known as the "Grant Date." Generally the first day of each Plan Year will
be the Grant Date and the last day of each Plan Year will be an Exercise Date
(the "Exercise Date"). The determination of the Grant Date and the Exercise
Dates are completely within the discretion of the Plan Committee. On each
Exercise Date, participants' payroll deductions credited to their accounts will
be automatically applied to the purchase price of Common Stock at a price per
share which is the lesser of eighty-five percent (85%) of the fair market value
of the Common Stock on the Grant Date or on the Exercise Date. Employees may end
their participation in the Stock Purchase Plan at any time during an offering
period, and their payroll deductions to date will be refunded. Participation
ends automatically upon termination of employment with the Company.
Employees are eligible to participate in the Stock Purchase Plan if they
are customarily employed by the Company or a designated subsidiary for at least
20 hours per week and for more than five months in any calendar year. No person
will be able to purchase Common Stock under the Stock Purchase Plan if such
person, immediately after the purchase, would own stock possessing 5% or more of
the total combined voting power or value of all outstanding shares of all
classes of stock of the Company.
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<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was formed in April 1997. The Company was initially
capitalized by BGL and Messrs. Cunningham, Haq and Alston. Mr. Lang, a director
of the Company, is a managing member of BGL Management Company, LLC, which is
the managing member of BGL. Following the 112.1846-for-one stock split effected
on December 3, 1997, the 15,000 shares of Common Stock initially issued by the
Company to its founders total 1,682,769 shares. Shortly after the closing of
the IPO, BGL distributed its shares of Common Stock to its members.
THE ACQUISITIONS
The aggregate consideration paid by Compass in the Acquisitions consisted
of approximately $17.9 million in cash and 5,435,691 shares of Common Stock.
The following table sets forth the consideration paid to the stockholders of
each of Founding Companies and the debt of each Founding Company assumed by
Compass in the Acquisitions.
<TABLE>
<CAPTION>
Shares of
Common Debt
Founding Company Cash Stock Assumed(1)
- ------------------ -------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Mail Box.......... $ 8,616 2,461,85 2 $ 3,967
NCMC.............. 3,169 965,801 1,467
Bomar............. 4,031 1,151,78 7 5,340
Mid-Continent..... 1,635 467,127 4,535
Impact............ 427 389,124 1,378
-------- -------------- ---------
Total............ $17,878 5,435,69 1 $16,687
======== ============== =========
</TABLE>
__________________
(1) Reflects: (i) debt of the Founding Companies, including capital leases and
lines of credit; and (ii) debt incurred by Mid-Continent in connection with
a stock redemption.
The consideration for each Founding Company was determined through arm's
length negotiations between Compass and representatives of each Founding
Company, and based on a uniform formula, applied to each of the Founding
Companies in the same manner reflecting primarily their respective operating
incomes, as adjusted to reflect long-term debt assumed, contractually agreed
upon compensation adjustments, to eliminate the effects of certain non-recurring
expenses, and to reflect certain other agreed upon matters. No independent
appraisals of any Founding Company were obtained. Each Founding Company was
represented by independent counsel in the negotiation of the terms and
conditions of the Acquisitions.
Each Acquisition Agreement contains standard representations and warranties
of each party as well as indemnification provisions in the event of a breach of
any representations and warranties made by any party to the agreement.
Pursuant to each Acquisition Agreement, the principal stockholders of the
Founding Companies have agreed not to compete with the Company for five years
following the closing of the Acquisitions wherever the Company conducts
business.
In connection with the Acquisitions, and as consideration for their
interests in the Founding Companies, certain officers, directors and holders of
more than 5% of the outstanding shares of Common Stock received cash and shares
of Common Stock as follows:
53
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common
Name Cash Stock
- ----------------------------------------------- ---------- -----------
<S> <C> <C>
Kenneth W. Murphy(1)........................... $6,214,9 81 1,586,911
Leeds Hackett.................................. 971,754 393,329
Gene Collins................................... 1,734,49 4 532,334
Mary Maloney................................... 1,734,49 4 532,334
Les J. Kirschbaum.............................. 1,634,94 5 467,127
Edward A. DuCoin............................... 213,419 194,562
David T. DuCoin................................ 213,419 194,562
</TABLE>
__________________
(1) Includes cash and shares of Common Stock received by a trust established
for the benefit of Mr. Murphy's children.
The Founding Companies entered into employment agreements with certain
officers, directors and holders of more than 5% of the outstanding Common Stock.
See "Management -- Executive Compensation; Employment Agreements; Covenant Not
to Compete."
The Company repaid or will repay certain indebtedness of the Founding
Companies from the net proceeds of the IPO, including approximately $5.3 million
of indebtedness that was personally guaranteed by certain stockholders of the
Founding Companies. As of December 31, 1997, the approximate aggregate amount
of such guarantees for each of such individuals was as follows: Kenneth W.
Murphy - $2.0 million of Mail Box indebtedness; Gene Collins and Mary Maloney -
$1.6 million of Bomar indebtedness; Les J. Kirschbaum - $928,000 of Mid-
Continent indebtedness; and Edward A. DuCoin and David T. DuCoin - $766,000 of
Impact indebtedness.
The Company paid a finders' fee of approximately $440,000 from the net
proceeds of the IPO to an unaffiliated business broker in connection with the
Company's acquisition of Bomar.
OTHER TRANSACTIONS
As of December 31, 1997, BGL had incurred $3.9 million in expenses in
connection with Compass' formation, the IPO and the Acquisitions. This amount
includes (i) payment of certain expenses and (ii) payment of consulting fees to
Messrs. Cunningham, Haq and Alston under their consulting agreements. See
"Management." Additional amounts were advanced by BGL on Compass' behalf prior
to the consummation of the IPO. All amounts advanced by BGL to Compass and paid
by BGL under the consulting agreements, together with interest thereon at 8% per
annum from the date of payment by BGL, were repaid by Compass from the net
proceeds of the IPO.
In connection with the proposed Credit Facility, BGL and Compass have
agreed, jointly and severally, to indemnify the bank and its affiliates against
claims incurred by them in connection with the Credit Facility, and to reimburse
the bank and an affiliate for all costs and expenses incurred by them in
connection with the Credit Facility.
Mail Box owns a 50% interest in MB Strategic, Ltd. ("MBS"), a database
management company which commenced operations in February 1997. Mail Box
provided MBS with $20,000 in start-up capital and an additional $165,000 to
cover compensation paid to the president of MBS. Mail Box provides MBS space
within its facilities and the use of data management systems, and pays the
salaries and benefits of MBS' clerical employees. In addition to its ownership
interest, Mail Box is entitled to receive 20% of gross monthly revenues of MBS.
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<PAGE>
Since 1982, Mail Box has leased its corporate headquarters and certain of
its mailing facilities from TDC #12, Ltd. ("TDC") pursuant to a lease which
expires in October 2002. Mr. Murphy is a 50% limited partner of TDC. The
annual rent under this lease was approximately $290,000 in 1995 and 1996 and
$321,000 in 1997.
From April 1996 through August 1996, Mail Box leased certain inserting
machines from a partnership, the partners of which include certain stockholders
of Mail Box. The cost of the equipment was $223,000 and in August 1997, Mail
Box exercised its option to purchase the equipment for $130,000.
In connection with the Patent Infringement Lawsuits, Compass has entered
into an agreement with NCMC and its former stockholders whereby any monetary
settlement or judgement in NCMC's favor will be allocated: first, to the Company
in an amount necessary to pay income or other taxes arising therefrom; second,
to the Company in an amount necessary to reimburse it for all fees and costs
incurred in pursuing the litigation; third, to certain individuals in amounts to
be determined by Leeds Hackett with the approval of the Company (such
individuals are expected to include Mr. Hackett and other former stockholders of
NCMC) to the extent that the amounts remaining are paid with respect to
infringement occurring prior to the closing of the Acquisitions; and fourth, all
remaining amounts to the Company. Mr. Hackett, a director of the Company and a
former stockholder of NCMC, is a party to this agreement. See "Business --
Litigation."
Impact leases office space on a month to month basis from a partnership
owned by Edward and David DuCoin. Total rent expense was $131,000, $139,000 and
$110,000 for 1995, 1996 and 1997, respectively. Effective July 1, 1997, the
annual rent was reduced to $84,000.
At December 31, 1997, the outstanding balance of advances made by Impact to
Edward and David DuCoin and to Eastern Shore Travel, a partnership owned by the
DuCoins, was $105,000. These advances were repaid in full simultaneously with
the closing of the Acquisitions on March 4, 1998.
At December 31, 1995, 1996 and 1997, the outstanding balance of loans made
by Mid-Continent to Les J. Kirschbaum totaled $710,000, $751,000 and $808,000,
respectively. These loans accrue interest at the short-term annual Applicable
Federal Rate prescribed by the Internal Revenue Service, with the balance of
principal and interest due upon demand. Immediately prior to the closing of the
Acquisitions, Mid-Continent redeemed certain of Mr. Kirschbaum's shares in
retirement of his loans.
Mid-Continent Agencies of New York, Inc. ("MCNY"), a subsidiary of Mid-
Continent, leases office space from William J. Vallecourse, a stockholder of
MCNY, pursuant to a lease that expires in May 2004. Annual rent under this
lease is approximately $90,000.
The Company has entered into supplemental compensation agreements with each
of Messrs. Cunningham, Haq and Alston. Pursuant to such agreements, should any
of these executives become liable for income taxes with respect to the shares of
Common Stock purchased by the executive at the time of Compass' initial
capitalization, the Company would pay the executive a bonus in an amount such
that after paying taxes on the bonus, the net amount remaining would be
sufficient to compensate the executive for any income taxes attributable to the
stock purchase.
Concurrently with the closing of the IPO, the Company issued warrants (the
"Warrants") to purchase an aggregate 100,000 shares of Common Stock to Catamount
Capital, L.L.C. as a fee for consulting services in connection with the
acquisition of NCMC. The Warrants will be exercisable for a period of five
years commencing on the first anniversary of the IPO at a price of $12.60 per
share of
55
<PAGE>
Common Stock, subject to adjustment in certain events. Each Warrant contains
certain piggyback registration rights relating to the shares issuable
thereunder.
COMPANY POLICY
Certain related-party transactions described above under "Other
Transactions" were not negotiated on an arm's-length basis. It is the Company's
policy that any future transactions with officers, directors and affiliates will
be approved by a majority of the Board, including a majority of the
disinterested members of the Board, and will be made on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 1, 1998
(following BGL's distribution of its shares of Common Stock to its members) by:
(i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each director and person who is a
director; (iii) each executive officer; and (iv) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
Shares of Percentage
Name and Address of Beneficial Owner(1) Common Stock Owned
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Kenneth W. Murphy(2)............................. 1,586,911 13.4%
Leeds Hackett.................................... 393,329 3.3%
Gene Collins..................................... 532,334 4.5%
Mary Maloney..................................... 532,334 4.5%
John Maloney(3).................................. 532,334 4.5%
Les J. Kirschbaum................................ 467,127 3.9%
Edward A. DuCoin................................. 194,562 1.6%
David T. DuCoin.................................. 194,562 1.6%
Michael J. Cunningham............................ 262,415 2.2%
Mahmud U. Haq.................................... 196,323 1.7%
Richard A. Alston................................ 112,385 *
Howard L. Clark, Jr.(4).......................... 10,000 *
Scott H. Lang(4)(5)(6)........................... 608,439 5.1%
Tomasso Zanzotto(4).............................. 10,000 *
BGL Capital Partners, L.L.C.(5)(6)............... 593,152 5.0%
All directors and officers as a group (thirteen 5,100,721 43.0%
persons)(2)(3)(4)(5)............................
</TABLE>
__________________
* Less than 1.0%.
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
Compass, One Penn Plaza, Suite 4430, New York, New York 10119.
(2) Certain of these shares are owned by the Kenneth W. Murphy Children's Trust.
(3) Includes 532,334 shares of Common Stock owned by Mr. Maloney's spouse, of
which he may be deemed the beneficial owner.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of vested
options.
(5) Includes 593,152 shares held by BGL and 5,287 shares held by BGL Management
Company, L.L.C. Mr. Lang is a managing member of BGL Management Company,
L.L.C., which is the managing member of BGL.
(6) The address of each of Mr. Lang and BGL is 225 W. Washington Street, 16th
Floor, Chicago, Illinois 60606.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, and 10,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Stock").
COMMON STOCK
Of the 50,000,000 shares of Common Stock authorized, 11,833,460 shares are
currently outstanding. Subject to the rights of the holders of Preferred Stock,
the holders of outstanding shares of Common Stock are entitled to share ratably
in dividends declared out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time lawfully
determine. Each holder of Common Stock is entitled to one vote for each share
held. Subject to the rights of holders of any outstanding Preferred Stock, upon
liquidation, dissolution or winding up of the Company, any assets legally
available for distribution to stockholders as such are to be distributed ratably
among the holders of the Common Stock then outstanding. All shares of Common
Stock currently outstanding are, and all shares of Common Stock offered hereby
when duly issued and paid for will be, fully paid and nonassessable. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management -- Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of Directors whose
terms are then expiring.
PREFERRED STOCK
The Amended and Restated Certificate of Incorporation of the Company
authorizes the Board of Directors to issue preferred stock in classes or series
and to establish the designations, preferences, qualifications, limitations or
restrictions of any class or series with respect to, among other things, the
rate and nature of dividends, the price, terms and conditions on which shares
may be redeemed, the terms and conditions for conversion or exchange into any
other class or series of the stock and voting rights. The Company will have
authority, without approval of the holders of Common Stock, to issue preferred
stock that has voting, dividend or liquidation rights superior to the Common
Stock and that may adversely affect the rights of holders of Common Stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of the holders of Common Stock and could have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company currently has no plans to issue any shares of Preferred
Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
57
<PAGE>
STOCKHOLDERS' AGREEMENT
In connection with the Acquisitions, the Initial Stockholders entered into
an agreement (the "Stockholders' Agreement") with respect to nominating and
electing Directors to the Board of Directors of the Company. The Stockholders'
Agreement sets forth the manner and terms by which the stockholders of the
Founding Companies and founders of Compass may nominate Directors in each of the
Classes. Each of the parties to the Stockholders' Agreement has agreed to vote
its Common Stock (i) for the reelection of the incumbent directors of the
Company or their successors as described below and (ii) with respect to any
matter put to a stockholder vote, in accordance with the recommendation of the
incumbent Board of Directors. In the event that an incumbent director who is a
former shareholder of a Founding Company is unable to or does not stand for
reelection, the former shareholders of such Founding Company may designate his
successor for nomination. Should Mr. Lang be unable to or not stand for
reelection, BGL may designate his successor. Nominees for other vacancies will
be selected by a majority of the then-incumbent Board of Directors. The
Stockholders' Agreement terminates immediately following the Company's annual
meeting of stockholders relating to fiscal year 2002 (but occurring in fiscal
year 2003). The Stockholders' Agreement may be amended by the holders of a
majority of the aggregate number of shares of outstanding Common Stock then held
by the Initial Stockholders.
CERTAIN PROVISIONS AFFECTING STOCKHOLDERS
Delaware, like many other states, permits a corporation to adopt a number
of measures through amendment of the corporate charter or bylaws or otherwise,
which may have the effect of delaying or deterring any unsolicited takeover
attempts. In addition, Section 203 of the Delaware General Corporation Law
restricts certain "business combinations" with "interested stockholders"
(generally a holder of 15% or more of the Company's voting stock) for three
years following the date that person becomes an interested stockholder. By
delaying or deterring unsolicited takeover attempts, these provisions could
adversely affect prevailing market prices for the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 11,833,460 shares of Common Stock. The
4,715,000 shares sold in the IPO are freely tradable without restriction unless
acquired by affiliates of the Company. None of the remaining outstanding shares
of Common Stock has been registered under the Securities Act, which means that
they may be resold publicly only upon registration under the Securities Act or
in compliance with an exemption from the registration requirements of the
Securities Act, including the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of the Prospectus relating to the IPO, a number of shares
that does not exceed the greater of one percent of the then outstanding shares
of the Common Stock, or the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the proposed sale is sent to the Commission. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. If two
years have elapsed since the later of the date of the acquisition of restricted
shares of Common Stock from the Company or any affiliate of the
58
<PAGE>
Company, a person who is not deemed to have been an affiliate of the Company at
any time for 90 days preceding a sale would be entitled to sell such shares
under Rule 144 without regard to the volume limitations, manner of sale
provisions or notice requirements.
The holders of Common Stock who did not purchase shares in the IPO own
7,118,460 unregistered shares of Common Stock, including the stockholders of the
Founding Companies who received, in the aggregate, 5,435,691 shares in
connection with the Acquisitions and founders and executive officers of Compass
and members of BGL who own 1,682,769 unregistered shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with the Company not to sell, transfer or otherwise
dispose of any of these shares for a one-year period following the IPO. Such
stockholders have certain piggyback registration rights beginning one year after
the IPO and one demand registration right for the six-month period beginning
twenty months after the IPO with respect to these shares.
The Company and the holders of all shares outstanding prior to the IPO
(including the holders of shares issued in connection with the Acquisitions)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of the
IPO without the prior written consent of NationsBanc Montgomery Securities LLC
except for: (i) in the case of the Company, Common Stock issued pursuant to any
employee or director plan described herein or in connection with acquisitions;
(ii) in the case of all such holders, the exercise of stock options pursuant to
benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts; and (iii) in the case of BGL, distributions of Common Stock to its
members, subject, in each case, to any remaining portion of the 180-day period
applying to any shares so issued or transferred. In evaluating any request for
a waiver of the 180-day lock-up period, NationsBanc Montgomery Securities LLC
will consider, in accordance with their customary practice, all relevant facts
and circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance.
No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability of substantial amounts of the Common Stock in the public market
could adversely affect prevailing market prices and the future ability of the
Company to raise equity capital and complete any additional acquisitions for
Common Stock.
CERTAIN LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Katten Muchin & Zavis, Chicago, Illinois. Certain
partners of Katten Muchin & Zavis are holders of Common Stock.
EXPERTS
The balance sheet of Compass as of December 31, 1997 included in this
Prospectus has been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
59
<PAGE>
The consolidated financial statements of The Mail Box, Inc. as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The audited consolidated financial statements of National Credit Management
Corporation and Subsidiary as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The consolidated financial statements of B.R.M.C. of Delaware, Inc. at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report, given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Mid-Continent Agencies, Inc. as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The combined financial statements of Impact Telemarketing Group, Inc. as of
December 31, 1996 and 1997 and for the years then ended included in this
Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph relating to Impact Telemarketing Group, Inc.'s ability to
continue as a going concern as described in Note 1 to the financial statements)
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
S-1 (which term shall encompass any and all amendments thereto) under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or any other document are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information
60
<PAGE>
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to the Registration Statement and such exhibits and schedules filed
as a part hereof.
61
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
COMPASS INTERNATIONAL SERVICES CORPORATION UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Combined Financial Statements.. F-3
Unaudited Pro Forma Combined Balance Sheet......................... F-4
Unaudited Pro Forma Combined Statement of Operations............... F-5
Notes to Unaudited Pro Forma Combined Financial Statements......... F-6
COMPASS INTERNATIONAL SERVICES CORPORATION:
Report of Independent Accountants................................. F-11
Balance Sheet F-12
Notes to Financial Statement...................................... F-13
THE MAIL BOX, INC.:
Report of Independent Accountants................................. F-15
Consolidated Balance Sheet........................................ F-16
Consolidated Statement of Operations.............................. F-17
Consolidated Statement of Stockholders' Equity.................... F-18
Consolidated Statement of Cash Flows.............................. F-19
Notes to Consolidated Financial Statements........................ F-20
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY:
Report of Independent Public Accountants.......................... F-29
Consolidated Balance Sheets....................................... F-30
Consolidated Statements of Operations............................. F-31
Consolidated Statements of Stockholders' Equity................... F-32
Consolidated Statements of Cash Flows............................. F-33
Notes to Consolidated Financial Statements........................ F-34
B.R.M.C. OF DELAWARE, INC.:
Report of Independent Auditors.................................... F-42
Consolidated Balance Sheets....................................... F-43
Consolidated Statements of Income................................. F-44
Consolidated Statements of Stockholders' Equity................... F-45
Consolidated Statements of Cash Flows............................. F-46
Notes to Consolidated Financial Statements........................ F-47
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES:
Report of Independent Accountants................................. F-54
Consolidated Balance Sheet........................................ F-55
Consolidated Statement of Operations.............................. F-56
Consolidated Statement of Stockholders' Equity.................... F-57
Consolidated Statement of Cash Flows.............................. F-58
Notes to Consolidated Financial Statements........................ F-59
</TABLE>
F-1
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS---(Continued)
<TABLE>
IMPACT TELEMARKETING GROUP, INC.:
<S> <C>
Report of Independent Accountants................................. F-67
Combined Balance Sheet............................................ F-68
Combined Statement of Operations.................................. F-69
Combined Statement of Stockholders' Equity........................ F-70
Combined Statement of Cash Flows.................................. F-71
Notes to Combined Financial Statements............................ F-72
</TABLE>
F-2
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Compass International Services Corporation ("Compass") of
the outstanding capital stock of The Mail Box, Inc. ("Mail Box"), National
Credit Management Corp. ("NCMC"), B.R.M.C. of Delaware, Inc. ("Bomar"), Mid-
Continent Agencies, Inc. ("Mid-Continent") and Impact Telemarketing Group, Inc.
("Impact") (together, the "Founding Companies"). These acquisitions (the
"Acquisitions") occurred simultaneously with the closing of Compass's initial
public offering (the "Offering") and were accounted for using the purchase
method of accounting. In accordance with the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 97, Mail Box was deemed to be
the accounting acquiror as the stockholders of Mail Box will receive the largest
portion of the voting rights in the combined corporation.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering including the exercise of the over-allotment
option granted to the Underwriters, as if they had occurred on December 31,
1997. The unaudited pro forma combined statement of operations gives effect to
the Acquisitions as if they had occurred on January 1, 1997, reflects reductions
in salaries, bonuses and certain benefits to the owners of the Founding
Companies to which they have agreed prospectively, reflects reductions in
interest expense associated with reductions in debt and gives effect to an
acquisition by Bomar as if it had occurred on January 1, 1997.
Compass has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries and certain benefits to the owners. It is
anticipated that these savings will be offset by costs related to Compass' new
corporate management and by the costs associated with being a public company.
However, these costs, like the savings they offset, cannot be accurately
quantified at this time. Neither the expected savings nor the anticipated costs
have been included in the pro forma combined financial information of Compass.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma combined financial data do not purport to represent
what Compass' financial position or results of operations would actually have
been if such transactions in fact had occurred on those dates and are not
necessarily representative of Compass' financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors" included elsewhere herein.
F-3
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Acquisition Pro Offering
Mid- Adjustments Forma Adjustments As
ASSETS Compass Mail Box NCMC Bomar Continent Impact (See Note 3) Combined (See Note 3) Adjusted
- --------------------------- ------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.. $ -- $ 16 $1,214 $ 429 $ 165 $ 145 $ 697 $ 2,666 $ 9,074 $11,740
Cash held for clients...... -- -- -- 727 -- -- -- 727 -- 727
Commissions/accounts
receivable, net........... -- 4,481 2,969 1,125 603 2,688 -- 11,866 -- 11,866
Due from related parties
and stockholders.......... -- -- -- -- 1,517 105 (1,590) 32 -- 32
Inventories................ -- 733 -- -- -- -- -- 733 -- 733
Postage on hand............ -- 1,231 -- -- -- -- -- 1,231 -- 1,231
Prepaid expenses and other. -- 198 730 85 350 22 -- 1,385 -- 1,385
Deferred offering costs.... 3,942 -- -- -- -- -- -- 3,942 (3,942) --
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total current assets..... 3,942 6,659 4,913 2,366 2,635 2,960 (893) 22,582 5,132 27,714
Property and equipment, net -- 4,327 2,486 823 159 775 -- 8,570 -- 8,570
Goodwill, net.............. -- -- -- 4,018 -- -- 47,140 51,158 -- 51,158
Other assets............... -- 304 420 960 208 22 1,000 2,914 -- 2,914
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total assets............. $3,942 $11,290 $7,819 $8,167 $3,002 $3,757 $47,247 $85,224 $ 5,132 $90,356
======= ======== ====== ====== ========= ======= ============ ======== ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------
Short-term debt $1,045 $ 2,391 $ 364 $4,587 $ 928 $ 954 $ -- $10,269 $ (9,248) $ 1,021
Accounts payable and
accrued expenses 2,747 2,608 1,781 959 659 2,177 440 11,371 (3,187) 8,184
Collections due to clients -- -- 522 727 -- -- -- 1,249 -- 1,249
Checks issued in excess of
cash balance -- -- -- 260 -- -- -- 260 -- 260
Postage allowances and
deposits -- 950 -- -- -- -- -- 950 -- 950
Income taxes payable -- 416 -- 311 -- -- -- 727 -- 727
Payable to Founding Company
stockholders -- -- -- -- 51 -- 17,828 17,879 (17,879) --
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total current
liabilities 3,792 6,365 2,667 6,844 1,638 3,131 18,268 42,705 (30,314) 12,391
Long-term debt -- 954 945 406 -- -- 4,250 6,555 (6,096) 459
Capital lease obligations -- 622 158 347 -- 424 -- 1,551 -- 1,551
Deferred income taxes -- 165 241 51 -- -- -- 457 -- 457
Other -- -- -- 40 177 -- -- 217 -- 217
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total liabilities 3,792 8,106 4,011 7,688 1,815 3,555 22,518 51,485 (36,410) 15,075
Minority interest in
subsidiary -- -- -- 6 -- -- (6) -- -- --
Stockholders' equity:
Common stock 17 14 2 1 10 91 (64) 71 47 118
Additional paid-in
capital 133 1,126 2,097 60 73 -- 27,048 30,537 41,495 72,032
Retained earnings -- 3,131 1,709 412 1,114 111 (3,346) 3,131 -- 3,131
Unrealized loss on
securities -- -- -- -- (10) -- 10 -- -- --
Less: Treasury stock -- (1,087) -- -- -- -- 1,087 -- -- --
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total stockholders'
equity 150 3,184 3,808 473 1,187 202 24,735 33,739 41,542 75,281
------- -------- ------ ------ --------- ------- ------------ -------- ------------ --------
Total liabilities and
stockholders' equity $3,942 $11,290 $7,819 $8,167 $3,002 $3,757 $47,247 $85,224 $ 5,132 $90,356
======= ======== ====== ====== ========= ======= ============ ======== ============ ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-4
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Other Pro Forma
Mid- Acquisitions Adjustments Pro Forma
Mail Box NCMC Bomar Continent Impact (See Note 4) (See Note 5) Combined
-------- ------- ------- --------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $32,566 $15,620 $14,266 $9,451 $12,870 $2,380 -- $ 87,153
Operating expenses.......... 21,493 9,433 8,208 3,105 9,725 1,389 -- 53,353
-------- ------- ------- --------- -------- ------------ ------------ ----------
Gross profit............. 11,073 6,187 6,058 6,346 3,145 991 -- 33,800
Selling, general and administrative
expenses................... 7,824 6,340 4,951 6,239 2,823 522 $(4,099)(A) 23,229
-- -- -- -- -- -- (1,345)(B) --
-- -- -- -- -- -- (26)(C) --
Goodwill and intangible
amortization............... -- -- 127 -- -- 10 1,391 (D) 1,528
-------- ------- ------- --------- -------- ------------ ------------ ----------
Income (loss) from operations...... 3,249 (153) 980 107 322 459 4,079 9,043
Other (income) expense:
Interest expense........... 382 77 310 81 163 1 (547)(E) 467
Interest income............ -- (46) -- (70) -- -- 75 (F) (41)
Other, net................. -- 199 -- -- -- -- -- 199
-------- ------- ------- --------- -------- ------------ ------------ ----------
Income (loss) before income taxes... 2,867 (383) 670 96 159 458 4,551 8,418
Provision (benefit) for income
taxes..................... 985 (128) 302 14 -- 187 2,618 (G) 3,978
-------- ------- ------- --------- -------- ------------ ------------ ----------
Net income (loss)........... $ 1,882 $ (255) $ 368 $ 82 $ 159 $ 271 $ 1,933 $ 4,440
======== ======= ======= ========= ========= ============ ============ ==========
Net income per share........ $0.42
Shares used in computing pro forma
basic and diluted net income per
share (See Note 6)......... 10,460,931
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-5
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL
Compass International Services Corporation ("Compass") was organized to
create a leading provider of outsourced business services to public and private
entities. Compass had conducted no operations prior to March 4, 1998, on which
date it acquired the Founding Companies concurrently with the closing of its
initial public offering (the "Offering").
The historical financial statements reflect the financial position and
results of operations of Compass and the Founding Companies and were derived
from the respective financial statements. The periods included in these
financial statements for all of the individual Founding Companies and Compass
are for the year ended December 31, 1997. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 80.
NOTE 2 -- ACQUISITION OF FOUNDING COMPANIES
Concurrently with the closing of the Offering, Compass acquired all of the
outstanding capital stock of the Founding Companies. The Acquisitions will be
accounted for using the purchase method of accounting with Mail Box treated as
the accounting acquiror.
The following table sets forth the consideration paid in cash and in shares
of Common Stock to the common stockholders of each of the Founding Companies, as
well as finders' fees payable in cash and warrants to purchase Common Stock as
described elsewhere in this Prospectus under "Certain Transactions." For
purposes of computing the estimated purchase price for accounting purposes, the
value of shares is based upon the initial public offering price of $10.50, less
a 20% discount of the offering price due to the restrictions on the
transferability of the Common Stock acquired by the stockholders of the Founding
Companies.
<TABLE>
<CAPTION>
Shares of Value Broker Total
Cash Common Stock of Shares Warrants Fee Consideration
-------- -------------- ------------ ----------- --------- ---------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
Mail Box....... $ 8,616 2,461,852 $20,680 $29,296
NCMC........... 3,169 965,801 8,113 $50 11,332
Bomar.......... 4,031 1,151,787 9,675 $440 14,146
Mid-Continent.. 1,635 467,127 3,924 5,559
Impact......... 427 389,124 3,269 3,696
-------- ------------- ----------- ---------- ------- --------------
Total.......... $17,878 5,435,691 $45,661 $50 $440 $64,029
======== ============= =========== ========== ======= ==============
</TABLE>
The above purchase price consideration has been allocated to the assets and
liabilities acquired based on their respective carrying values, with the
exception of a patent developed at one of the entities, as these carrying values
are deemed to represent fair market value of these assets and liabilities. The
fair market value of the patent was determined based on the present value of the
incremental revenue stream that is estimated to be realized over the 15 year
life of the patent.
F-6
<PAGE>
The following allocation of the purchase price is considered preliminary.
The Company does not anticipate that the final allocation of purchase price will
differ significantly from that presented.
<TABLE>
<CAPTION>
Intangible Net
Total Identifiable Assets
Consideration Assets Acquired Goodwill
--------------- -------------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
NCMC........... $11,332 $1,000 $ 3,808 $ 6,524
Bomar.......... 14,146 473 13,673
Mid-Continent.. 5,559 (3,905) 9,464
Impact......... 3,696 202 3,494
--------------- -------------- ---------- ----------
$34,733 $1,000 $ 578 $33,155
=============== ============== ========== ==========
</TABLE>
F-7
<PAGE>
NOTE 3 -- UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance
sheet adjustments (in thousands):
<TABLE>
<CAPTION>
TOTAL
ASSETS ACQUISITION ACQUISITION TOTAL
------ ADJUSTMENTS ADJUSTMENTS OFFERING ADJUSTMENTS OFFERING
----------------------- ------------ ----------------------
(A) (B) (C) (D) (E) ADJUSTMENTS
----- ----- ----- ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents....................... $ -- $ -- $ 697 $ 697 $41,692 $(32,618) $ 9,074
Due from stockholders........................... (842) -- (748) (1,590) -- -- --
Deferred offering costs......................... -- -- -- -- (3,942) -- (3,942)
----- ------- ----- ----------- -------- ---------- ------------
Total current assets........................ (842) -- (51) (893) 37,750 (32,618) 5,132
Goodwill, net................................... -- 47,140 -- 47,140 -- -- --
Other assets.................................... -- 1,000 -- 1,000 -- -- --
----- ------- ----- ----------- -------- ---------- ------------
Total assets................................ $(842) $48,140 $ (51) $47,247 $37,750 $(32,618) $ 5,132
===== ======= ===== =========== ======== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Short term debt................................. $ -- $ -- $ -- $ -- $(1,045) $ (8,203) $ (9,248)
Accounts payable and accrued expenses........... -- 440 -- 440 (2,747) (440) (3,187)
Payable to Founding Company stockholders........ -- 17,879 (51) 17,828 -- (17,879) (17,879)
----- ------- ----- ----------- -------- ---------- ------------
Total current liabilities................... -- 18,319 (51) 18,268 (3,792) (26,522) (30,314)
Long-term debt.................................. -- 4,250 -- 4,250 -- (6,096) (6,096)
----- ------- ----- ----------- -------- ---------- ------------
Total liabilities........................... -- 22,569 (51) 22,518 (3,792) (32,618) (36,410)
Minority interest in subsidiary................. -- (6) -- (6) -- -- --
Stockholders' equity:...........................
Common stock.................................. -- (64) (64) 47 -- 47
Additional paid-in capital.................... -- 27,048 -- 27,048 41,495 -- 41,495
Retained earnings............................. (842) (2,504) -- (3,346) -- -- --
Unrealized loss on securities................. -- 10 -- 10 -- -- --
Treasury stock................................ -- 1,087 -- 1,087 -- -- --
----- ------- ----- ----------- -------- ---------- ------------
Total stockholders' equity.................. (842) 25,577 -- 24,735 41,542 -- 41,542
----- ------- ----- ----------- -------- ---------- ------------
Total liabilities and stockholders' equity.. $(842) $48,140 $ (51) $47,247 $37,750 $(32,615) $ 5,132
===== ======= ===== =========== ======== ========== ============
</TABLE>
__________________
(A) Reflects the exclusion of a note receivable from a stockholder of Mid-
Continent which will be retained by the stockholder.
(B) Records the Acquisitions of the Founding Companies including: (i)
establishment of the liability for the cash portion of the consideration
paid to the stockholders of the Founding Companies of $17,879,000 and a
broker fee of $440,000; (ii) the issuance of 5,435,691 shares of Common
Stock to the stockholders of the Founding Companies; (iii) the assumption of
$4,250,000 of debt as part of the consideration for Mid-Continent; (iv) the
allocation of the purchase price to the Company's historical assets and
liabilities based on their respective carrying values and to an identifiable
intangible associated with a patent at NCMC of $1,000,000; (v) the
recognition of $33,155,000 of goodwill representing the excess of the
purchase price over the fair value of net assets acquired; and (vi) goodwill
of $13,985,000 recorded attributable to the 1,682,769 shares of Common Stock
issued to BGL and management. The Common Stock consideration was valued at
$8.40 per share, which represents a 20% discount from the offering price of
$10.50 due to the restrictions on the transferability of the Common Stock
acquired by the stockholders of the Founding Companies and BGL.
(C) Represents the settlement of certain stockholder receivables and payables
pursuant to the Acquisition Agreements (comprised of a $643,000 stockholder
receivable at Mid-Continent, a stockholder receivable of $105,000 at Impact
and a stockholder payable of $51,000 at Mid-Continent).
(D) Records the cash proceeds from the issuance of 4,715,000 shares of Common
Stock, net of estimated Offering costs. Offering costs primarily consisted
of the underwriting discount, accounting, legal and consulting fees and
printing expenses.
(E) Records the use of Offering proceeds to pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Acquisitions, including the $4,250,000 of debt assumed
as part of the consideration for Mid-Continent, to repay certain long-term
and short-term debt of the Founding Companies (comprised of $2,463,000 at
Mail Box, $1,103,000 at NCMC, $4,792,000 at Bomar, $928,000 at Mid-Continent
and $763,000 at Impact) and to pay certain Acquisition-related liabilities.
NOTE 4 -- OTHER ACQUISITIONS
Gives effect to the acquisition by Bomar of Financial Claims
Control, Inc. ("FCCI") consummated in September 1997, as if this
acquisition was consummated on January 1, 1997, including the
amortization of approximately $3.2 million of goodwill over 40 years.
F-8
<PAGE>
NOTE 5 -- UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(A) Reflects the reduction in salaries, bonuses and benefits to the owners
of the Founding Companies to which they have agreed prospectively pursuant
to agreements and, in nearly all cases, as a condition of the Acquisitions,
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
(IN THOUSANDS)
<S> <C>
Mail Box...................................... $1,776
NCMC.......................................... 124
Bomar......................................... 822
Mid-Continent................................. 1,313
Impact........................................ --
Other Acquisitions............................ 64
------------
$4,099
============
</TABLE>
Pursuant to the terms of employment agreements entered into upon
consummation of the Acquisitions, the owners of the Founding Companies will
be eligible for performance-based bonuses of up to 100% of their respective
annual base salaries. Bonuses under the employment agreements will be
awarded based upon substantial improvement in the operating performance of
both the Founding Companies and Compass. The bonuses paid historically to
the owners of the Founding Companies were not awarded based upon the same
performance criteria and compensation expense has been reduced accordingly
in the pro forma adjustments. Whether the bonuses that may be awarded
under the new employment agreements will be earned cannot be determined at
this time and therefore are not reflected in the pro forma adjustments. If
bonuses are awarded, compensation expense would increase.
(B) Reflects elimination of NCMC compensation expense recognized during the
third quarter of 1997 in connection with the issuance of shares of common
stock to certain employees in connection with the termination of a stock
option plan. The termination of the stock option plan was done in
preparation for the planned Acquisitions.
(C) Reflects a reduction in rent expense related to a lease on a building
controlled by a stockholder of Impact which has been agreed to
prospectively as a condition of the Acquisition.
(D) Reflects (i) the amortization of $47.1 million of goodwill to be recorded
as a result of the Acquisitions and the 1,121,844 shares issued to BGL over
the respective goodwill lives, as follows: NCMC, 40 years; Bomar, 40 years;
Mid-Continent, 40 years; Impact, 15 years; Compass, 40 years and (ii) the
amortization of a $1.0 million intangible asset associated with a patent at
NCMC amortized over 15 years.
F-9
<PAGE>
(E) Reflects the net reduction in interest expense associated with long-term
debt to be paid from the proceeds of the Offering, as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
(IN THOUSANDS)
<S> <C>
Mail Box.......................... $157
NCMC.............................. 22
Bomar............................. 228
Mid-Continent..................... 81
Impact............................ 59
----
$547
====
</TABLE>
(F) Reflects a net reduction of interest income on stockholder loans of Mid-
Continent.
(G) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments and for income
taxes on S Corporation income.
NOTE 6 -- NET INCOME PER SHARE
The shares used in computing net income per share include: (i) 1,682,769
shares issued to BGL Capital Partners, L.L.C. and management of Compass; (ii)
5,435,691 shares issued to the stockholders of the Founding Companies in
connection with the Acquisitions; and (iii) 3,342,471 shares representing the
number of shares sold in the Offering necessary to pay the $17.9 million cash
portion of the consideration for the Acquisitions; to pay the estimated
underwriting discount and other acquisition and offering related costs; and to
repay certain indebtedness assumed by Compass in the Acquisitions, net of
repayments from stockholder receivables.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Compass International Services Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Compass International Services
Corporation at December 31, 1997, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 28, 1998, except as to Note 1,
which is as of March 25, 1998
F-11
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-----------
ASSETS
------
<S> <C>
Deferred offering costs................................................. $3,942
-----------
Total assets........................................................... $3,942
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accrued expenses........................................................ $2,747
Notes payable........................................................... 1,045
Stockholders' equity:
Preferred Stock, 10,000,000 shares authorized, no shares issued or
outstanding;
Common Stock, 50,000,000 authorized, $.01 par value, 1,682,769 shares
issued and outstanding................................................ 17
Additional paid-in-capital............................................ 133
-----------
Total stockholders' equity........................................... 150
-----------
Total liabilities and stockholders' equity........................... $3,942
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-12
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENT
NOTE 1 -- BUSINESS AND ORGANIZATION
Compass International Services Corporation, a Delaware corporation
("Compass" or the "Company") was founded in April 1997 to create a leading
provider of outsourced business services to public and private entities
throughout the United States upon consummation of an initial public offering
(the "Offering") of its common stock.
In connection with the organization and initial capitalization of Compass,
in April 1997 the Company issued 1,570,584 shares (post split) of common stock
for $140,000 and in May 1997 issued 112,185 shares (post split) for $10,000. Of
these shares issued, 560,925 were issued to management of the Company for a
total price of $50,000.
On October 1, 1997, the Board of Directors approved several actions in
connection with the Offering. These actions included the approval of a
112.1846-for-1 stock split which was effected on December 3, 1997. All common
stock related information included in the financial statement has been adjusted
to reflect this split.
On March 4, 1998, Compass acquired all of the outstanding capital stock of
five companies ("Founding Companies") contemporaneously with the Offering. The
Founding Companies are The Mail Box, Inc. (Mail Box), National Credit Management
Corp. (NCMC), BRMC of Delaware, Inc. (Bomar), Mid-Continent Agencies, Inc. (Mid-
Continent) and Impact Telemarketing Group, Inc. (Impact). The aggregate
consideration paid by Compass to acquire the Founding Companies was
approximately $17.9 million in cash and 5,435,691 shares of Common Stock.
The following table reflects the consideration paid in cash and shares of
Common Stock:
<TABLE>
<CAPTION>
Shares of
Common
Founding Company Cash Stock
-------------------------------------- --------- --------------
(Dollars in thousands)
<S> <C> <C>
Mail Box.......... $ 8,616 2,461,85 2
NCMC.............. 3,169 965,801
Bomar............. 4,031 1,151,78 7
Mid-Continent..... 1,635 467,127
Impact............ 427 389,124
Total............. $17,878 5,435,69 1
========= =============
</TABLE>
Compass had not conducted any operations prior to March 4, 1998, and all
activities prior to such date have related to the Offering and the Acquisitions.
Accordingly, the statements of operations and of cash flows for this period
would not provide meaningful information and have been omitted. Expenditures
have been funded by advances from BGL Capital Partners, which are payable upon
consummation of the Offering, with interest at 8%. As of December 31, 1997,
costs of approximately $3,942,000 have been incurred in connection with the
Offering and the Company has capitalized these costs as Deferred Offering Costs.
These costs include legal, accounting and miscellaneous other fees which will be
offset against the proceeds of the Offering at closing. There is no assurance
that Compass will be able to generate future operating revenues.
F-13
<PAGE>
On October 6, 1997, Compass filed a registration statement on Form S-1 for
the Offering. In March 1998, Compass completed the Offering, including the
exercise of the overallotment option granted to the Underwriters. In connection
with such Offering, the Company issued 4,715,000 shares of common stock
resulting in proceeds of approximately $41,542,000, net of Offering expenses.
NOTE 2 -- NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a fair value
based method of accounting for employee stock options or similar equity
instruments and the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"). Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma disclosures
of net income and earnings per share as if the fair value method of accounting
has been applied. The Company will provide pro forma disclosure of net income
and earnings per share, as applicable, in the notes to future consolidated
financial statements.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share." For the Company, SFAS No. 128 will be
effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS excludes
dilution and is determined by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. Diluted EPS is computed similarly to fully diluted earnings per share
under current accounting rules. The implementation of SFAS No. 128 is not
expected to have a material effect on the Company's earnings per share as
determined under current accounting rules.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. The Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
1998.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
The Mail Box, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Mail
Box, Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc. (the
"Company") at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 17, 1998
F-15
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash............................................................................... $ 1,419 $ 16
Accounts receivable, net of allowance for doubtful accounts of
$81 and $125, respectively........................................................ 3,419 4,481
Inventories........................................................................ 708 733
Postage on hand.................................................................... 3,593 1,231
Prepaid expenses and other current assets.......................................... 69 154
Deferred income taxes.............................................................. 26 44
------- -------
Total current assets.............................................................. 9,234 6,659
Property and equipment, net......................................................... 3,205 4,327
Other assets........................................................................ 100 304
------- -------
Total assets...................................................................... $12,539 $11,290
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit..................................................................... $ 569 $ 1,168
Note payable, current portion...................................................... -- 329
Secured equipment financing facilities, current portion............................ 327 471
Capitalized lease obligations, current portion..................................... 450 423
Accounts payable................................................................... 1,450 1,373
Accrued expenses and other liabilities............................................. 824 1,235
Income taxes payable............................................................... 524 416
Postage advances and deposits...................................................... 4,818 950
------- -------
Total current liabilities......................................................... 8,962 6,365
Long-term liabilities:
Note payable, net of current portion............................................... -- 384
Secured equipment financing facilities, net of current portion..................... 616 570
Capitalized lease obligations, net of current portion.............................. 650 622
Deferred income taxes.............................................................. 105 165
------- -------
Total liabilities................................................................. 10,333 8,106
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares authorized,
132,900 and 138,900 shares issued, and 129,300 and 102,900 shares outstanding at
December 31, 1996 and 1997, respectively.......................................... 13 14
Additional paid-in-capital......................................................... 947 1,126
Treasury stock, at cost, 3,600 and 36,000 shares at
December 31, 1996 and 1997, respectively.......................................... (100 (1,087)
Retained earnings.................................................................. 1,346 3,131
------- -------
Total stockholders' equity........................................................ 2,206 3,184
------- -------
Total liabilities and stockholders' equity........................................ $12,539 $11,290
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues...................................... $ 17,370 $ 26,156 $ 32,566
Operating expenses............................ 12,402 17,953 21,493
-------- -------- --------
Gross profit................................ 4,968 8,203 11,073
Selling, general and administrative expenses.. 4,370 5,891 7,824
-------- -------- --------
Income from operations...................... 598 2,312 3,249
Other expense:
Interest expense............................ 302 337 382
-------- -------- --------
Income before income taxes.................... 296 1,975 2,867
Provision for income taxes.................... 134 700 985
-------- -------- --------
Net income.................................... $ 162 $ 1,275 $ 1,882
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional Unearned
---------------
Paid-in- Treasury ESOP Retained
Shares Amount Capital Stock Compensation Earnings Total
------ ------ ---------- --------- ------------ ----------- ---------
102,90
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995....... 0 $10 $ 692 $ (49) $ (45) $ 33 $ 641
Net income................... 162 162
ESOP compensation............ 32 45 77
Capital contribution......... 86 86
Purchases of treasury stock.. (51) (51)
Cash dividends, $.50 per
share....................... (60) (60)
Sale of common stock......... 30,000 3 137 140
------ ------ --------- -------- ----------- ---------- ---------
132,90
Balance, December 31, 1995..... 0 13 947 (100) -- 135 995
1,27
Net income................... 1,275 5
Cash dividends, $.50 per
share....................... (64) (64)
------ ------ --------- -------- ----------- ---------- ---------
132,90 2,20
Balance, December 31, 1996..... 0 13 947 (100) -- 1,346 6
1,88
Net income................... 1,882 2
Purchases of treasury stock.. (987) (987)
Cash dividends, $1.00 per
share....................... (97) (97)
Common stock issued on
exercise of options......... 6,000 1 179 180
------ ------ --------- -------- ----------- ---------- ---------
138.90 $ 3,1
Balance, December 31, 1997..... 0 $14 $1,126 $(1,087) $ -- $ 3,131 84
====== ====== ========= ======== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 162 $ 1,275 $ 1,882
Adjustments to reconcile net income to net cash provided
by operating
activities:
Depreciation and amortization........................... 616 768 980
ESOP compensation....................................... 77 -- --
Employee stock compensation............................. 86 -- --
Provision for doubtful accounts......................... 60 82 70
Change in deferred taxes................................ (48) 114 42
Changes in operating assets and liabilities:
Accounts receivable..................................... (862) (104) (1,131)
Inventories............................................. (322) (218) (25)
Postage on hand......................................... (65) (2,706) 2,362
Prepaid expenses and other assets....................... 47 18 (290)
Accounts payable and accrued expenses................... 340 566 332
Postage advances and deposits........................... 1,328 2,778 (3,868)
Federal income taxes payable............................ 107 310 (108)
------ ------- -------
Net cash provided by operating activities.............. 1,526 2,883 246
Cash flows from investing activities:
Purchases of property and equipment....................... (810) (1,007) (1,541)
Proceeds from disposal of property and equipment.......... -- -- 38
------ ------- -------
Net cash used in investing activities.................. (810) (1,007) (1,503)
Cash flows from financing activities:
Net borrowings (payments) on line of credit............... (725) 130 600
Repayments of capital lease obligations................... (321) (439) (654)
Proceeds from long-term debt.............................. 692 161 1,517
Repayment of long-term debt............................... (360) (261) (705)
Proceeds from issuance of common stock.................... 140 -- 180
Repurchases of treasury stock............................. (51) -- (987)
Cash dividends paid....................................... (85) (64) (97)
------ ------- -------
Net cash provided by (used in) financing activities.... (710) (473) (146)
Net increase (decrease) in cash........................... 6 1,403 (1,403)
Cash at beginning of period............................... 10 16 1,419
Cash at end of period..................................... $ 16 $ 1,419 $ 16
====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 302 $ 338 $ 382
Cash paid for taxes...................................... 74 276 1,051
Noncash investing and financing activities:
Equipment acquired under capital leases.................. 551 592 600
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The Mail Box, Inc. and its wholly owned subsidiary Mail Box Data Services,
Inc. (collectively the "Company") provide direct mailing services, billing
services, mail presorting, freight and drop shipping, data processing, laser
printing, mailing list rental and order fulfillment to companies based primarily
in the southwestern United States. The Company operates from a single location
in Dallas, Texas.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowance for doubtful accounts, inventories,
depreciation and amortization and income taxes.
Principles of Consolidation
The consolidated financial statements include the accounts of The Mail Box,
Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc. All
significant inter-company transactions have been eliminated.
Revenue Recognition
Revenues are recognized when services are rendered and are presented in the
financial statements net of sales allowances. The Company's services are
considered rendered when all printing, sorting, labeling and ancillary services
have been provided and the mailing material has been received and accepted by
the United States Postal Service.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation
and amortization. Depreciation, and amortization of assets recorded under
capital leases, is provided using the straight-line method over estimated useful
lives of each class of assets, or, if shorter, the terms of leases for capital
leases. Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated useful life of the asset or the term of the lease.
Average useful lives range from 5 to 7 years. Expenditures for maintenance and
repairs are charged to expense as incurred.
Inventories
Inventories consist of work in progress, spare parts, and paper and
envelope stock, recorded at cost not to exceed market. The cost of work in
process includes the costs of completed but unmailed production.
F-20
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company records income taxes using the liability method, under which
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, using enacted tax rates.
Accounting for Stock Based Compensation
The Company accounts for its employee stock options under Accounting
Principles Board Opinion No. 25 (APB 25).
Earnings Per Share
Earnings per share for the Company have not been presented in the
accompanying financial statements because such disclosure is not deemed
meaningful considering the proposed transaction discussed in Note 14.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable. The Company
performs ongoing credit evaluations of its customers' financial condition and
requires no collateral from its customers. The allowance for doubtful accounts
is maintained based upon the expected collectability of the accounts receivable.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
cash, accounts receivable, accounts payable and long-term debt, approximate fair
value .
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1996 1997
------ ------
<S> <C> <C>
(In thousands)
Work in progress............... $ 466 $ 390
Spare parts.................... 130 253
Paper and envelope stock....... 112 90
$ 708 $ 733
====== ======
</TABLE>
F-21
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
--------- -------
(In thousands)
<S> <C> <C>
Furniture and fixtures..................... $ 552 $ 665
Plant equipment............................ 3,996 5,495
Computer equipment and software............ 3,654 3,745
Leasehold improvements..................... 70 470
--------- -------
8,272 10,375
Accumulated depreciation and amortization.. (5,067) (6,048)
--------- -------
$ 3,205 $ 4,327
========= =======
</TABLE>
Depreciation and amortization expense was $616,000, $768,000 and $980,000
for the years ended December 31, 1995, 1996 and 1997.
NOTE 5 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Accrued compensation.......................... $ 314 $ 357
Accrued vacation.............................. 214 278
Other liabilities............................. 296 600
------- -------
Total accrued expenses and other liabilities.. $ 824 $1,235
======= =======
</TABLE>
F-22
<PAGE>
THE MAIL BOX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 -- NOTE PAYABLE AND CREDIT FACILITIES
Obligations under long term note payable and credit facilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Note payable to financial institution,
interest at 30 day commercial
rate plus 2.8% (8.4% at December 31, 1997),
principal payment of $27,000 due monthly,
balance due on January 1, 2000..................................... $ -- $ 713
Secured equipment financing facilities payable to
financial institutions.
Monthly fixed payments ranging from $1,000 to
$14,000. Interest rates ranging from 8.98%
to 10.95%. Maturity dates ranging from 1998 to 2001.............. 943 1,041
Less: Current portion............................................... (327) (800)
-------- --------
$ 616 $ 954
======== ========
</TABLE>
The Company's note payable to a financial institution is secured by the
personal guarantee of its principal stockholder.
As of December 31, 1997, approximately $459,000 of these balances may not
be prepaid prior to February 27, 1998; thereafter, such balances may be prepaid,
subject to declining prepayment penalties. Other balances may be prepaid at any
time subject to a 2% prepayment penalty.
The following summarizes the Company's required annual principal payments
under note payable and secured equipment financing facilities at December 31,
1997 and for the next four years:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
1998........................................... $ 800
1999........................................... 648
2000........................................... 275
-------
2001........................................... 31
-------
$ 1,754
=======
</TABLE>
Revolving Credit Facility
The Company has a revolving credit facility with a financial institution
which provides for borrowings of $2,250,000 at December 31, 1996 and 1997 to be
utilized for working capital purposes. The facility matures on October 31, 1998.
The line of credit is collateralized by certain property and equipment, and
accounts receivable of the Company. Borrowings outstanding are also secured by a
pledge of all of the Company's common stock owned by the principal stockholder.
Borrowings outstanding from time to time bear interest at a short term floating
interest rate (8.6%, 8.8% and 8.4% at December 31, 1995, 1996 and 1997,
respectively.)
F-23
<PAGE>
THE MAIL BOX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The revolving credit facility contains, among other provisions,
requirements to maintain defined levels of working capital, net worth, various
financial ratios, limit capital expenditures, and restricts distributions to
stockholders. At December 31, 1997, the Company was in compliance with all
covenants.
The Company leases certain equipment under agreements which are classified
as capital leases. The following is a schedule of capital leases by asset class:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures.......................... $ 71 $ 155
Plant equipment................................. 799 1,119
Computer equipment and software................. 959 530
-------- --------
1,829 1,804
Accumulated amortization........................ (669) (565)
Total.......................................... $1,160 $1,239
</TABLE>
The following is a schedule of future annual minimum lease payments due
under capital lease obligations at December 31, 1997, together with the present
value of the future minimum lease payments for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
1998................................................. $ 499
1999................................................. 415
2000................................................. 172
2001................................................. 85
2002................................................. 7
------
Total future minimum lease payments................ 1,178
Less: Amount representing interest................... (133)
------
Present value of future minimum lease payments..... $1,045
======
</TABLE>
F-24
<PAGE>
THE MAIL BOX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also leases certain facilities and equipment under non-
cancelable operating leases. The facilities leases provide that the Company pay
the taxes, insurance and maintenance expenses related to the leased facilities.
Certain of the facilities are leased from a related party as discussed more
fully in Note 9. Future annual minimum payments, by year and in the aggregate,
under these non-cancelable operating leases with initial or remaining terms of
one year or more consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
1998.............................................. $2,082
1999.............................................. 1,662
2000.............................................. 1,264
2001.............................................. 903
2002.............................................. 396
Thereafter........................................ 85
------
$6,392
======
</TABLE>
Rent expense was $1,390,000, $1,534,000 and $1,695,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
NOTE 7 -- INCOME TAXES
The Company's provision for income taxes is comprised of the following for
the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense.............................. $ 182 $ 586 $ 943
Deferred tax expense (benefit)................... (48) 114 42
------ ----- -----
Total provision for income taxes................. $ 134 $ 700 $ 985
====== ===== =====
</TABLE>
The effective income tax rate for the years ended December 31, 1995, 1996
and 1997 varied from the federal statutory rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision computed at statutory rate of 35%.. $ 104 $ 694 $ 970
Nondeductible expenses and other................. (1) 6 15
Employee stock compensation expense.............. 31 -- --
$ 134 $ 700 $ 985
====== ===== =====
</TABLE>
F-25
<PAGE>
THE MAIL BOX, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Deferred compensation........................... $ -- $ --
Allowance for doubtful accounts................ 26 44
Other.......................................... 4 4
------ ------
30 48
DEFERRED TAX LIABILITIES:
Depreciation and amortization.................. (109) (169)
------ ------
Net deferred tax asset (liability)............ $ (79) $(121)
====== ======
</TABLE>
NOTE 8 -- EMPLOYEE BENEFIT PLANS
The Company sponsors a savings plan under Section 401(k) of the Internal
Revenue Code (the "Plan"), which was adopted in 1996 to provide employees an
opportunity to rollover their vested accounts received in connection with the
termination of the Company's leveraged employee stock ownership plan ("ESOP"),
as discussed below. The Plan allows all eligible employees to defer up to 8% of
their base salary on a pretax basis through contributions to the Plan, and the
Company will match on a discretionary basis, 25% of the first 5% of such
employee contributions. The Company made contributions to the Plan of $0 and
$64,000 for the years ended December 31, 1996 and 1997, respectively.
During 1995 and 1996, the Company sponsored the ESOP, which covered all
full time employees. The Company made contributions to the ESOP equal to
scheduled debt payments plus discretionary contributions based on results of
operations. As services were rendered by plan participants, the Company recorded
compensation expense equal to the average fair value of the shares allocated to
participant accounts during the period. ESOP compensation expense was $215,000
and $108,000 for 1995 and 1996, respectively. The ESOP was terminated in 1996
and all shares (32,400) were repurchased by the Company for $987,000 in the
first quarter of 1997. The Company funded the termination with a three-year
amortizing loan from a financial institution in the amount of $987,000 and
recorded the reacquisition of shares as treasury stock.
F-26
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9 -- RELATED PARTIES
The Company leases its main office and certain mailshop facilities
from a partnership in which the Company's principal stockholder is a limited
partner. Included in rent expense for each of the three years ended December
31, 1995, 1996 and 1997, is $290,000, $290,000 and $321,000, respectively, for
payments under this lease. Future annual minimum lease payments under this
agreement are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(In thousands)
<S> <C>
1998.................... $ 343
1999.................... 343
2000.................... 343
2001.................... 343
2002.................... 143
Thereafter --
------------
$1,515
============
</TABLE>
In August 1997, the Company purchased certain equipment previously leased
from a partnership, the partners of which include certain Company stockholders.
The equipment was purchased for $130,000.
NOTE 10 -- CAPITAL TRANSACTIONS
In 1995, the Company purchased into treasury from the majority stockholder,
1,600 shares of common stock for $51,000.
In 1995, certain employees were awarded an aggregate of 2,500 shares of
common stock, with an aggregate value of $86,000. The shares were granted to the
employees by the majority stockholder and were accounted for as capital
contributions and employee stock compensation expense.
In December 1996, the Company granted to a certain employee-stockholder an
option to purchase 6,000 shares at $30.00 per share, the approximate fair value
at the date of grant. The option was exercised on July 17, 1997. In view of
the terms of this option, the fair value is not deemed to be significantly
different from the intrinsic value.
NOTE 11 -- CONCENTRATION OF CREDIT RISK
The Company had two customers that accounted for 15.5% and 11.7% of 1995
revenues, respectively, one customer that accounted for 30.9% of 1996 revenues,
and one customer that accounted for 47.9% of revenues for 1997.
At December 31, 1996 and 1997, approximately 11.5% and 39.4%, respectively,
of the Company's total accounts receivable balance was due from a single
customer.
F-27
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12 -- INVENTORIES HELD IN TRUST FOR CUSTOMERS
In the ordinary course of the Company's business activities as a mailing
service company, the Company receives and stores customers' letter, statement
and paper and form stock for use in customers' mailing production processes.
The Company does not take legal title to the inventories, and accordingly, these
inventories are not carried on the Company's financial statements. The Company
maintains casualty risk insurance in amounts sufficient to cover potential
damages arising from the Company's custody of such inventories, which varies
from time to time but, according to management estimates, does not exceed $11.0
million.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is party from time to time to various legal proceedings incidental
to its business. In the opinion of management, the resolution of these items,
individually or in the aggregate, would not have a significant effect on the
financial position, results of operations, or cash flows of the Company.
NOTE 14 -- UNAUDITED SUBSEQUENT EVENT
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which, on
March 4, 1998, Compass acquired all outstanding shares of the Company's common
stock in exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
National Credit Management Corporation
We have audited the accompanying consolidated balance sheets of National
Credit Management Corporation and Subsidiary (a Maryland corporation), as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1995, 1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Credit Management Corporation and Subsidiary as of December 31, 1996 and 1997,
and the results of its operations and its cash flows for the years ended
December 31, 1995, 1996 and 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland
January 16, 1998
F-29
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
--------------------
ASSETS 1996 1997
------ ------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 1,149 $ 1,214
Accounts receivable, net of allowance for doubtful accounts of 2,141 2,969
$88 and $102, respectively......................................
Prepaid expenses and other....................................... 361 667
Deferred tax asset............................................... 73 63
------- -------
Total current assets............................................ 3,724 4,913
Property and equipment, net....................................... 1,053 2,486
Other assets, net of accumulated amortization of $272 and $284,
respectively..................................................... 73 420
------- -------
Total assets.................................................... $ 4,850 $ 7,819
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of term loan..................................... $ $ 105
Note payable..................................................... -- 53
Trade accounts payable........................................... 356 702
Client payables.................................................. 484 522
Accrued compensation and related benefits........................ 500 676
Current portion of capital lease obligations..................... 327 206
Other accrued expenses........................................... 185 403
------- -------
Total current liabilities....................................... 1,852 2,667
Deferred tax liability............................................ 96 241
Long-term portion of term loan.................................... -- 945
Long-term capital lease obligations............................... 184 158
------- -------
Total liabilities............................................... 2,132 4,011
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--Class A, $.01 par value, 5,000,000 shares 2 2
authorized, 210,000 and 231,500 shares issued and outstanding,
respectively....................................................
Common stock--Class B, $.01 par value, 250 shares authorized, -- --
no shares issued and outstanding................................
Additional paid-in-capital....................................... 752 2,097
Retained earnings................................................ 1,964 1,709
------- -------
Total stockholders' equity...................................... 2,718 3,808
------- -------
Total liabilities and stockholders' equity...................... $ 4,850 $ 7,819
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-30
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues...................................... $12,287 $13,579 $15,620
Operating expenses............................ 6,322 7,945 9,433
------- ------- -------
Gross profit................................. 5,965 5,634 6,187
Selling, general and administrative expenses.. 4,328 4,798 6,340
------- ------- -------
Income (loss) from operations................ 1,637 836 (153)
------- ------- -------
Other (income) expense:
Interest income.............................. (62) (46) (46)
Interest expense............................. 90 79 77
Other........................................ 5 15 199
------- ------- -------
Total other expense, net.................... 33 48 230
------- ------- -------
Income (loss) before income taxes............. 1,604 788 (383)
Provision (benefit) for income taxes.......... 648 335 (128)
------- ------- -------
Net income (loss)............................. $ 956 $ 453 $ (255)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock Additional Total
--------------------- ---------------------
Shares Shares Paid-in Retained Stockholders'
Outstanding Amount Outstanding Amount Capital Earnings Equity
----------- ------ ------------ ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............ 210,000 $2 -- $ -- $ 752 $ 555 $1,309
Net income......................... -- -- -- -- -- 956 956
----------- ------ ------------ ------- --------- --------- ----------
Balance, December 31, 1995............ 210,000 2 -- -- 752 1,511 2,265
Net income......................... -- -- -- -- -- 453 453
----------- ------ ------------ ------- --------- --------- ----------
Balance, December 31, 1996............ 210,000 2 -- -- 752 1,964 2,718
Stock issued pursuant to 21,500 -- -- -- 1,345 -- 1,345
termination of stock option plan...
Net loss....................... -- -- -- -- -- (255) (255)
----------- ------ ------------ ------- --------- --------- ----------
Balance, December 31, 1997............ 231,500 $2 -- $ -- $2,097 $1,709 $3,808
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-32
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 956 $ 453 $ (255)
Adjustments to reconcile net income
(loss) to net cash flows provided by
operating activities--
Compensation expense charge related to -- -- 1,345
stock issued pursuant to termination of
stock option plan........................
Loss from disposal of property and 20 15 199
equipment................................
Deferred tax provision.................... 59 48 155
Depreciation and amortization............. 322 337 483
Increase in accounts receivable........... (653) (147) (828)
Increase in prepaid expenses and other.... (39) (232) (306)
Increase in other assets.................. (11) (5) (359)
Increase (decrease) in trade accounts 204 (39) 564
payable and other accrued expenses.......
Increase (decrease) in client payables.... 56 (116) 38
(Decrease) increase in accrued (192) 252 176
compensation and related benefits........
------- -------- --------
Net cash flows provided by operating
activities.............................. 722 566 1,212
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........ (194) (164) (2,103)
------- -------- --------
Net cash flows used in investing
activities.............................. (194) (164) (2,103)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings from term (200) (100) 1,050
loan......................................
Increase in notes payable.................. -- -- 53
Principal payments under capital lease (223) (320) (147)
obligations...............................
------- -------- --------
Net cash flows (used in) provided by
financing activities.................... (423) (420) 956
------- -------- --------
Net increase (decrease) in cash and 105 (18) 65
cash equivalents........................
Cash and cash equivalents, beginning of
period..................................... 1,062 1,167 1,149
------- -------- --------
Cash and cash equivalents, end of period.... $1,167 $1,149 $ 1,214
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
National Credit Management Corporation (the "Company") provides accounts
receivable management services and, through its patented Accelerated Payment
Systems ("APS") process, telephonic check drafting services. The Company's
collection services are provided to a broad range of clients and industries. In
addition to standard contingency fee collections, the Company provides early-
stage accounts receivable management services to clients in the education,
utilities, government and healthcare sectors through its wholly-owned
subsidiary, Total Early Receivables Management Corporation.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. All
significant intercompany transactions have been eliminated in consolidation.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, borrowings under term loan and capital lease
obligations, all of which approximate fair value. In addition, the Company has
entered into an interest rate cap agreement, which is described in Note 3.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash and overnight
investments stated at cost which approximate market value.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Computer hardware and software........................ 3-5 years
Office furniture and equipment........................ 4-8 years
Leasehold improvements................................ Life of related leases
Property and equipment held under capital leases...... 3-8 years
</TABLE>
Other Assets
Other assets consist of security deposits on leases, patent costs and other
intangible assets.
Client Payables
The Company, which is licensed as a collection agency in many states,
regularly receives payments on behalf of its clients which are deposited in bank
accounts. The Company has recorded a liability for the portion of payments which
are owed to clients as of year-end.
F-34
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Income taxes have been accounted for in accordance with Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes."
Under Statement 109, the liability method is used in accounting for income
taxes. Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using tax rates and laws that are expected to be in effect when the
differences are scheduled to reverse.
Revenue Recognition
The Company recognizes revenues in its collections business at the time a
payment is received on an account directly from the debtor, or when reported as
paid by the client. Revenue is typically based upon contractual percentages of
amounts collected. Revenues for the Company's accounts receivable management
services are recognized based upon completion of services performed for the
client. The APS division of the Company recognizes revenue based upon the number
of transactions processed for each client during the month, as well as certain
supplementary services.
Significant Customers
EduCap, Inc. (formerly University Support Services) represented
approximately 16%, 16% and 19% of the Company's total revenues for the years
ended December 31, 1995, 1996 and 1997, respectively.
New Accounting Standards
In July 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. The statement establishes
revised standards under which an entity must report business segment information
in its financial statements. The Company is currently evaluating whether SFAS
No. 131 is applicable to it.
NOTE 2 -- PROPERTY AND EQUIPMENT, NET
Property and equipment consists of:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Computer hardware and software............. $ 1,754 $ 2,488
Office furniture and equipment............. 892 1,189
Leasehold improvements..................... 81 101
-------- --------
2,727 3,778
Less--accumulated depreciation............. 1,674 1,292
-------- --------
Property and equipment, net................ $ 1,053 $ 2,486
======== ========
</TABLE>
F-35
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- BORROWINGS UNDER LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
Borrowings Under Line of Credit
The Company has a line of credit agreement with a bank dated October 4,
1995, which was to expire May 15, 1997. There were no balances outstanding
under this agreement as of December 31, 1996 and 1997. On January 23, 1997, the
line of credit agreement was modified to increase available borrowings to
$1,250,000 and extend the expiration date to May 15, 1999. The agreement was
further modified on September 17, 1997, to require interest to be paid at
variable rates at the borrower's option, as well as to amend certain financial
covenants. The line of credit has available borrowings of $1,250,000 as of
December 31, 1997.
Under the line of credit agreement, substantially all of the Company's
assets are pledged as collateral.
On August 14, 1997, the Company entered into an interest rate cap
agreement. Under the cap agreement, the Company has a cap rate of 7.0% on
borrowings up to $1,250,000. The Company receives a cash return if the LIBOR
rate exceeds the cap rate. The term of the interest rate cap is three years
beginning September 15, 1997 and terminating on September 15, 2000. The cost of
the cap was $12,663, which will be amortized over the life of the cap.
Term Loan
On September 17, 1997, the Company entered into a term loan with a bank
which expires on October 15, 2003. The Company may borrow up to $1,500,000
under the loan. The loan bears interest at LIBOR plus 2.0%. Principal
repayments begin June 15, 1998 and continue monthly. As of December 31, 1997,
the Company has outstanding borrowings under the loan of $1,050,000.
Future payments under the term loan as of December 31, 1997 are as follows
(in thousands):
<TABLE>
<S> <C>
1998.......................................... $ 105
1999.......................................... 207
2000.......................................... 238
2001.......................................... 295
2002.......................................... 205
------
1,050
Less-current portion of term loan............. 105
------
Long-term portion of term loan.............. $ 945
======
</TABLE>
Under the term loan agreement, substantially all of the Company's assets
are pledged as collateral.
F-36
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capital Lease Obligations
Certain property and equipment leases have been capitalized using interest
rates ranging from approximately 8.75% to 16.0%. Future payments on capital
lease obligations as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(In thousands)
<S> <C>
1998.................................................. $2 231
1999.................................................. 130
2000.................................................. 40
-----------------
Total payments........................................ 401
Less--amount representing interest.................... 37
-----------------
364
Less--current portion of capital lease obligation..... 206
-----------------
Long-term capital lease obligations................. $158
=================
</TABLE>
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
Operating Leases and Service Contract Commitments
The Company leases its office space under operating leases which expire
through August 2001. In addition, the Company has service contracts on certain
office equipment and computer systems held under capital leases. Total rental
expense under these agreements was approximately $195,000, $325,000 and $410,000
for the years ended December 31, 1995, 1996 and 1997, respectively. Future
minimum payments on operating leases and service contract commitments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(In thousands)
<S> <C>
1998.................................................. $ 383
1999.................................................. 380
2000.................................................. 335
2001.................................................. 275
-----------------
Total............................................... $1,373
=================
</TABLE>
Litigation
Lawsuits and claims are filed from time to time against the Company in the
ordinary course of business. The Company, after reviewing developments to date
with legal counsel, is of the opinion that the outcome of such matters will not
have a material adverse effect on the Company's financial position or results of
operations. Accordingly, no amounts have been provided for these claims in the
accompanying financial statements.
In May 1997, the Company filed suit against the former owner and inventor
of the APS patent (collectively, the "Defendants"), alleging that the Defendants
have breached the agreement between the Company and the Defendants and violated
the Company's exclusive rights to the APS patent and related intellectual
property used in the APS portion of the Company's business. The Defendants have
filed a
F-37
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
counterclaim that seeks, among other things, rescission of the agreement under
which the Company purchased the APS patent, restoration of a prior agreement
pursuant to which the Defendants licensed the APS patent to the Company, return
of the APS patent to the Defendants and unspecified damages. Although the
Company believes that the counterclaims are without merit, there can be no
assurance that the Defendants will not prevail with respect to some or all of
their counterclaims. Management does not believe that a decision adverse to the
Company in this dispute would have a material adverse effect on the Company's
business, results of operations or financial condition.
NOTE 5 -- INCOME TAXES
The components of the Company's income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
CURRENT INCOME TAX PROVISION (BENEFIT):
Federal....................................... $ 487 $ 235 $ (285)
State......................................... 102 52 2
------ ------ ------
589 287 (283)
------ ------ ------
DEFERRED INCOME TAX PROVISION (BENEFIT):
Federal....................................... 51 41 154
State......................................... 8 7 1
------ ------ ------
59 48 155
------ ------ ------
Total income tax provision (benefit)......... $ 648 $ 335 $ (128)
====== ====== ======
</TABLE>
Deferred tax assets and liabilities result from differences in timing of
the recognition of certain items for tax and financial accounting purposes. The
sources of the deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Property and equipment........................................ $ (144) $ (304)
Net operating loss carryforwards.............................. 35 43
Nondeductible reserves........................................ 66 63
Other......................................................... 20 20
-------- --------
Deferred tax liability, net................................. $ (23) $ (178)
======== ========
</TABLE>
F-38
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax (liability) asset consists of the following items
included on the accompanying balance sheets as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------ ------
(In thousands)
<S> <C> <C>
Deferred tax asset $ 73 $ 63
Deferred tax liability (96) (241)
------ ------
$ (23) $ (178)
====== ======
</TABLE>
The difference between the recorded income tax provision and the federal
statutory tax rate is mainly due to lobbying expenses, premiums paid for
officers' life insurance, travel and entertainment expenses and other
nondeductible differences.
As of December 31, 1996 and 1997, the Company had $0 and $603,000 of income
taxes receivable, included in prepaid expenses and other in the accompanying
consolidated balance sheets. This income tax receivable resulted from the
compensation expense recorded in the third quarter (see Note 9), which was not
previously considered in the Company's estimated tax payments.
As of December 31, 1996 and 1997, the Company has net operating loss (NOL)
carryforwards of approximately $91,000 and $110,000, respectively, to offset
future taxable income. These loss carryforwards will expire during various
periods through 2007. The utilization of these NOL's may be limited pursuant to
Internal Revenue Code Section 382.
NOTE 6 -- ADVERTISING EXPENSES
The Company incurs advertising expenses related to promoting its services
to potential clients. These costs are expensed as incurred. The Company
recognized advertising expenses of approximately $251,000, $228,000 and $64,000
for the years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 7 -- STATEMENTS OF CASH FLOWS -- SUPPLEMENTAL DISCLOSURE:
During 1995, 1996 and 1997, the Company paid interest of approximately
$90,000, $79,000 and $73,000, respectively. In addition, the Company paid income
taxes of approximately $595,000, $498,000 and $210,000 during 1995, 1996 and
1997, respectively.
Noncash transactions during 1995, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------
1995 1996 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Property acquired under capital lease obligations $ 673 $ 157 $ 207
</TABLE>
F-39
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) plan (the Plan) for eligible employees of the
Company. Beginning in 1995, the Board of Directors approved discretionary
contributions to the Plan. In 1996, contributions were made by the Company at
the rate of 25% of employee contributions up to a maximum amount of $1,400 per
individual. The Company's contribution, including plan administrative expense,
was $22,000, $39,000 and $41,000 for the years ended December 31, 1995, 1996,
and 1997, respectively.
NOTE 9 -- STOCK OPTION AGREEMENTS
On August 14, 1994, the Company instituted a stock option plan whereby the
Board of Directors, at its discretion, can award employees options to purchase
shares of the Company's common stock. Unvested options granted under this plan
expire upon termination of the employee. Fully vested options expire ten years
from the date of grant. No option is exercisable until the employee has been an
employee of the Company for at least one year on a full-time salaried basis.
Typically, one-third of the options granted are vested immediately upon grant.
The remaining two-thirds of the options generally become vested proportionately
over a two-year period. The Company has reserved 23,331 shares of common stock
for these options.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
This statement allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by the Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB No. 25 must
make pro forma footnote disclosures of net income, as if the fair value based
method of accounting defined in SFAS No. 123 has been applied.
The Company has elected to account for its stock-based compensation plans
in accordance with APB No. 25, under which no compensation cost has been
recognized. The Company has computed for pro forma disclosure purposes the value
of all options granted during 1995 and 1996, using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 and the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Risk-free interest rate................. 5.85% 5.20%
Expected dividend yield................. -- % -- %
Expected lives.......................... 2 years 2 years
</TABLE>
F-40
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options were assumed to be exercised upon vesting for the purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. Had
compensation costs for this plan been determined consistent with SFAS No. 123,
the Company's net income reflected on the accompanying statements of operations
would have been reduced to the following "pro forma" amounts:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1995 1996
------ ------
(In thousands)
<S> <C> <C>
NET INCOME:
As reported................................. $ 956 $ 453
Pro forma................................... $ 952 $ 432
</TABLE>
The following table summarizes all stock option and purchase right activity
for the three years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Number of Exercise Price
Options Per Share
----------- --------------
<S> <C> <C>
Outstanding as of December 31, 1994 6,800 $ 12.03
Granted.................................... 7,500 22.75
----------- --------------
Outstanding as of December 31, 1995......... 14,300 12.03--22.75
Granted.................................... 9,300 40.12
Repurchased................................ (8,400) 12.03--40.12
----------- --------------
Outstanding as of December 31, 1996......... 15,200 12.03--40.12
Granted................................... 6,300 39.22
Termination of option plan.................. (21,500) 12.03--40.12
----------- --------------
Outstanding as of December 31, 1997......... --
===========
</TABLE>
On September 30, 1997, the Company elected to terminate its stock option
plan and issue 21,500 shares of common stock to the former stock option holders.
As a result, the Company recorded compensation expense in the third quarter of
approximately $1.3 million which has been reflected in selling, general and
administrative expenses in the accompanying consolidated statements of
operations. On October 2, 1997, the Company issued the shares of common stock
based upon this decision.
NOTE 10 -- UNAUDITED SUBSEQUENT EVENT
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which, on
March 4, 1998, Compass acquired all of the outstanding shares of the Company's
common stock in exchange for cash and common stock of Compass, concurrent with
the consummation of the initial public offering of the common stock of Compass.
F-41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
B.R.M.C. of Delaware, Inc.
We have audited the accompanying consolidated balance sheets of B.R.M.C. of
Delaware, Inc. as of December 31, 1996 and 1997 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
B.R.M.C. of Delaware, Inc. at December 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
January 27, 1998
Atlanta, Georgia
F-42
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
---------------
1996 1997
------ ------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 6 $ 429
Cash held for clients............................................ 743 727
Commissions receivable, net...................................... 1,021 1,125
Receivable from related parties.................................. 53 --
Other assets..................................................... 39 85
------ ------
Total current assets............................................ 1,862 2,366
Furniture and equipment, net...................................... 866 823
Goodwill, net..................................................... 873 4,018
Non-compete agreement, net........................................ -- 444
Other assets...................................................... 141 516
------ ------
Total assets.................................................... $3,742 $8,167
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Collections due to clients....................................... $ 743 $ 727
Checks issued in excess of cash balance.......................... 90 260
Accounts payable and accrued liabilities......................... 672 959
Income taxes..................................................... 64 311
Current portion of long-term debt and capital lease obligations.. 517 3,087
Borrowings under line of credit.................................. 450 1,500
------ ------
Total current liabilities....................................... 2,536 6,844
Long-term debt, less current portion.............................. 525 406
Capital lease obligations, less current portion................... 502 347
Deferred income taxes............................................. 14 51
Other liabilities................................................. 56 40
Minority interest in subsidiary 4 6
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized, issued and 1 1
outstanding.....................................................
Additional paid-in capital....................................... 60 60
Retained earnings................................................ 44 412
------ ------
Total stockholders' equity...................................... 105 473
------ ------
Total liabilities and stockholders' equity...................... $3,742 $8,167
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues...................................... $7,416 $9,597 $14,266
Operating expenses............................ 4,229 5,814 8,208
------- ------- --------
Gross profit................................. 3,187 3,783 6,058
Selling, general and administrative expenses.. 2,934 3,458 5,078
------- ------- --------
Income from operations....................... 253 325 980
OTHER EXPENSE:
Interest expense............................. 103 122 310
------- ------- --------
Income before income taxes.................... 150 203 670
Provision for income taxes.................... -- 73 302
------- ------- --------
Net income.................................... $ 150 $ 130 $ 368
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
-------------- PAID-IN (DEFICIT) EQUITY
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT)
------ ------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.... 1,000 $ 1 $ 7 $ (236) $ (228)
Net income.................... -- -- -- 150 150
------ ------ -------- -------- ----------
Balance at December 31, 1995.. 1,000 1 7 (86) (78)
Capital contribution.......... -- -- 53 -- 53
Net income.................... -- -- -- 130 130
------ ------ -------- -------- ----------
Balance at December 31, 1996.. 1,000 1 60 44 105
Net income 1997............... -- -- -- 368 368
------ ------ -------- -------- ----------
Balance at December 31, 1997.. 1,000 $ 1 $ 60 $ 412 $ 473
====== ====== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 150 $ 130 $ 368
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization................................................... 177 228 560
Minority interest............................................................... -- 4 2
Change in operating assets and liabilities:
Commissions receivable......................................................... 101 (6) (104)
Cash held for clients.......................................................... -- (53) 16
Other current assets........................................................... -- (39) (46)
Receivable from related parties................................................ -- (53) 53
Other assets................................................................... 4 (107) (375)
Accounts payable and accrued liabilities....................................... (36) 34 (25)
Current income taxes payable................................................... -- 64 247
Due to clients................................................................. -- 53 (16)
Deferred revenue............................................................... (65) -- --
Deferred income taxes.......................................................... -- 14 37
Checks issued in excess of cash................................................ (506) 90 170
----- ------- -------
Net cash (used in) provided by operating activities........................... (175) 359 887
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment............................................. (60) (589) (102)
Collections of purchased receivables............................................. 718 -- --
Business combinations net of cash acquired....................................... -- (791) (3,684)
----- ------- -------
Net cash provided by (used in) investing activities........................... 658 (1,380) (3,786)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit.................................................. -- 450 1,050
Additions under capital lease obligations........................................ -- 346 --
Repayment of line of credit...................................................... (777) -- --
Principal payments of capital lease obligations.................................. (78) (124) (188)
Issuance of long-term debt....................................................... 750 466 2,785
Principal payments of long-term debt............................................. (271) (271) (325)
Capital contributions............................................................ -- 53 --
----- ------- -------
Net cash (used in) provided by financing activities........................... (376) 920 3,322
----- ------- -------
Net increase (decrease) in cash................................................... 107 (101) 423
Cash at beginning of year......................................................... -- 107 6
----- ------- -------
Cash at end of year............................................................... $ 107 $ 6 $ 429
===== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 100 $ 116 $ 302
===== ======= =======
Cash paid for income taxes....................................................... $ -- $ -- $ 25
===== ======= =======
Furniture and equipment acquired through capital lease obligations............... $ -- $ 542 $ --
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company and Nature of Business
BoMar Credit Corporation, formerly Credit Interaction Agency, Inc. was
incorporated on June 1, 1984 under the laws of the state of Georgia. In February
1988, BoMar was acquired by East Coast Financial Services, Inc. Subsequently,
East Coast Financial Services, Inc. combined with BoMar Credit Corporation. On
April 22, 1996, BoMar Receivable Management Company (B.R.M.C.) of Delaware, Inc.
was incorporated under the laws of the state of Delaware. As of that date, the
shareholders of BoMar Credit Corporation and BoMar Credit Corporation of Texas
exchanged their shares for those of B.R.M.C. of Delaware (the "Parent"). The
assets and liabilities of BoMar Credit Corporation were transferred to two newly
formed and wholly owned subsidiaries of the Parent, BoMar Credit Corporation of
Georgia and BoMar Credit Corporation of Texas. The accompanying financial
statements reflect the operations of these wholly owned subsidiaries for the
years 1996 and 1997 as the above noted transactions were accounted for in a
manner similar to a pooling of interests. All assets and liabilities were
transferred at net book value.
At December 31, 1997, B.R.M.C. of Delaware had five subsidiaries: BoMar
Credit Corporation of Georgia; BoMar Credit Corporation of Texas; Advanced
Credit Services ("ACS"); Clayton-Parker & Associates ("CPA"); and Financial
Claims Control, Inc. ("FCCI"). All subsidiaries are wholly owned by the Company,
with the exception of ACS, of which the Company has 75% ownership. The
accompanying financial statements present the consolidated financial condition
and results of operations of B.R.M.C. of Delaware and subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company provides accounts receivable management services primarily for
clients in the telecommunications, insurance, financial services and healthcare
industries. The Company is paid a collection fee by the clients based on a
percentage of the dollar amount collected. The Company's operations are
primarily in the continental United States, however, some business is conducted
internationally.
Business Combinations
On August 1, 1996, the Parent acquired a controlling interest in ACS. The
transaction was accounted for as a purchase. The Parent obtained a note
receivable from the sole shareholder of ACS in the amount of $75,000 as the fair
value of liabilities assumed exceeded assets received. As such, no goodwill was
recorded in conjunction with the acquisition. The accompanying financial
statements reflect the results of operations of ACS from the date of
acquisition.
On November 26, 1996, the Parent acquired CPA, an Arizona corporation. The
Parent paid cash of $400,000 and issued promissory notes in the amount of
$450,000 in connection with the transaction which was accounted for as a
purchase. Goodwill of $836,000 was recorded in conjunction with the acquisition.
The accompanying financial statements reflect the results of operations of CPA
from the date of acquisition. Had the acquisition of CPA occurred on January 1,
1996, revenues for the consolidated entity would have increased by approximately
$970,000 for the period ended December 31, 1996. However, net income for the
period would not have been significantly impacted.
On September 1, 1997, the Parent acquired FCCI, a Florida corporation. The
Parent paid cash of $1,000,000 and issued promissory notes in the amount of
$2,750,000 in connection with the transaction which was accounted for as a
purchase. Goodwill of $3,198,000 and non-compete agreements
F-47
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of $500,000 were recorded in conjunction with the acquisition. The accompanying
financial statements reflect the results of operations of FCCI from the date of
acquisition to December 31, 1997. If the acquisition of FCCI had occurred on
January 1, 1997, revenues and net income for the consolidated entity would have
increased by approximately $2,380,000 and $281,000, respectively, for the twelve
months ended December 31, 1997. Had the acquisition occurred on January 1, 1996,
revenues and net income of the consolidated entity would have increased
$3,129,000 and $160,000, respectively, for the year 1996.
Cash Held for Clients and Collections Due to Clients
Cash held for clients and collections due to clients consists of amounts
collected on behalf of the Company's clients, net of the Company's commission.
Commissions Receivable
As of December 31, 1996 and 1997, commissions receivable from companies in
the telecommunications industry totaled approximately $454,000 and $474,000,
respectively. Credit is extended based on an evaluation of the customer's
financial condition, and generally collateral is not required. Credit losses are
provided for in the consolidated financial statements and have been within
management's expectations.
Notes Receivable
Included in other assets at December 31, 1996 and 1997 is a note receivable
from a related party in the amount of $110,000 and $133,000, respectively.
Goodwill
Goodwill relates to the excess of purchase price over net assets acquired
in business combinations. Such amounts are amortized over a fifteen year period.
Accumulated amortization as of December 31, 1996 and 1997 was $16,000 and
$132,000, respectively. Goodwill is measured for possible impairment
periodically and is reduced through a charge to earnings if impairment exists.
Furniture and Equipment
Furniture and equipment are stated at cost and are depreciated using the
double declining balance method over the estimated useful lives of the
individual assets which range from five to seven years. Included in depreciation
expense is amortization of assets recorded under capital leases.
Revenue Recognition
The Company recognizes revenue (commission income) based on contractual
rates in the period in which collection occurs.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 which requires the liability method of
accounting for income taxes.
F-48
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Major Customer
For the years ended December 31, 1996 and 1997, one customer accounted for
approximately 31% and 28%, respectively, of revenues. The loss of the Company's
major customer could have a material adverse effect on the Company's business.
NOTE 2 -- FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
(In thousands)
<S> <C> <C>
Furniture and equipment.................. $2,940 $2,217
Less accumulated depreciation............ 2,074 1,394
------ ------
$ 866 $ 823
====== ======
</TABLE>
Furniture and equipment includes $826,000 and $1,090,000 acquired under
various capital leases at December 31, 1996 and 1997, respectively. Accumulated
depreciation on this equipment at December 31, 1996 and 1997 was $113,000 and
$617,000, respectively. Depreciation expense was $176,000, $216,000 and $352,000
for the years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 3 -- DEBT
Borrowings Under Line of Credit
Borrowings under a line of credit at were as follows:
As of December 31, 1996 and 1997, borrowings under a $1,500,000 line of
credit totaled $450,000 and $1,500,000, respectively. The line of credit is
payable on September 30, 1998 and is secured by substantially all assets of the
Company, with simple interest payable monthly at a rate of 9.75%.
F-49
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Note payable, interest at 10.5% per annum; $ 340 $ 72
secured by substantially all of the assets of the Company, payable
in equal monthly installments through March 1998
Note payable, interest at 19.5% per annum; 51 --
payable in equal monthly installments through March 2000
Note payable, interest at 8% per annum; -- 35
payable in equal monthly installments through March 2000
Note payable to related party, interest at 8.0% per annum; -- 2,750
interest payable monthly; due March 1998
Note payable, interest at 9.5% per annum; -- 15
payable in equal monthly installments through September 1998
Note payable, interest at 8.9% per annum; -- 420
payable in equal monthly installments through December 2006
Note payable, interest at 8.0% per annum; 450 --
payable in equal monthly installments through December 2006
------- -------
$ 841 $ 3,292
======= =======
</TABLE>
Principal maturities of long-term debt at December 31, 1997 were as follows
(in thousands):
<TABLE>
<S> <C>
1998......................................... $ 2,886
1999......................................... 52
2000......................................... 43
2001......................................... 42
2002......................................... 45
Thereafter................................... 224
--------
$ 3,292
========
</TABLE>
The Company has negotiated a commitment with a lending institution to
refinance long-term debt maturing in the year ending December 31, 1998.
NOTE 4 -- LEASES AND OTHER COMMITMENTS
The Company leases office space for its operations in Arizona, Georgia,
Florida and Texas under noncancelable operating lease agreements. Certain
leases have escalation clauses which provide for increases in annual rentals.
The leases for office space expire in years through fiscal 2002.
F-50
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments required under the operating lease
agreements at December 31, 1997 were as follows (in thousands):
<TABLE>
<S> <C>
1998................................................. $ 516
1999................................................. 503
2000................................................. 478
2001................................................. 348
2002................................................. 21
------
$1,866
======
</TABLE>
Total rent expense was $280,000, $319,000 and $474,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
In addition, the Company has entered into various capital leases to finance
equipment. Future minimum lease payments under capital leases are as follows (in
thousands):
<TABLE>
<S> <C>
1998................................................ $ 201
1999................................................ 160
2000................................................ 70
2001................................................ 117
Thereafter.......................................... ------
$ 548
======
</TABLE>
Obligations under capital leases as scheduled above include imputed
interest of approximately $60,000.
In addition to the lease commitments above, the Company entered into an
agreement to pay a minimum of $360,000 annually for certain telecommunications
services. The agreement expires July 15, 1998.
NOTE 5 -- EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan which permits
substantially all employees to make tax deferred contributions of up to 15% of
their annual compensation. The Company currently makes a discretionary matching
contribution of 25% of the employee contribution. The Company contributed
approximately $11,000, $7,000 and $21,000 in 1995, 1996 and 1997, respectively.
In addition, the Company sponsors a Medical Plan. The Company voluntarily
contributes approximately 50% of the premiums for all employees who elect to
participate in the Medical Plan. The Company contributed approximately $54,000,
$91,000 and $77,000 in 1995, 1996 and 1997, respectively.
F-51
<PAGE>
NOTE 6 -- INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1996 1997
------- ------
(In thousands)
<S> <C> <C>
CURRENT:
Federal....................................... $ 49 $ 230
State......................................... 3 42
----- -----
52 272
DEFERRED:
Federal....................................... 20 25
State......................................... 1 5
----- -----
21 30
----- -----
Total.......................................... $ 73 $ 302
===== =====
</TABLE>
Income tax expense differs from income taxes computed at statutory rates
due to certain non-deductible expenses and the effect of net operating loss
carryforwards. The most significant of these differences is non-deductible
goodwill. No tax expense was recorded for the year ended December 31, 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at December 31, 1996 and
1997 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
19956 1997
------- ------
(In thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation............................... $ 10 $ 29
Capitalized leases......................... 11 22
Total deferred tax liabilities.............. 21 51
Deferred tax assets......................... ------ -----
Net deferred tax liabilities................ $ 21 $ 51
====== =====
</TABLE>
The Company utilized $32,000 in net operating losses (NOL) during the year
ended December 31, 1996. There are no remaining NOL carryforwards. During 1996,
the Company reversed a previously recorded deferred tax asset valuation
allowance of approximately $28,000.
In 1995, deferred tax assets and liability consisted of an insignificant
deferred tax asset at December 31, 1995 consisting of an NOL carryforward. A
valuation allowance was established for the
F-52
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
total deferred NOL carryforward amounts for 1995. The Company utilized
approximately $150,000 of its NOL carryforwards in 1995. Deferred tax assets and
valuation allowances were reduced by approximately $52,000 during 1995.
NOTE 7 -- UNAUDITED SUBSEQUENT EVENTS
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which, on
March 4, 1998, Compass acquired all outstanding shares of the Company's common
stock in exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass. In
connection with the acquisition, certain employees of the Company became
entitled to additional compensation, which may be material to the future
operations of the Company.
F-53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Mid-Continent Agencies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Mid-
Continent Agencies, Inc. and its subsidiaries at December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Chicago, Illinois
January 23, 1998
F-54
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
--------------
ASSETS 1996 1997
------ ------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ -- $ 165
Accounts receivable, trade................................... 546 603
Receivables due from stockholders............................ 1,421 1,517
Prepaid expenses and other current assets.................... 165 350
------ ------
Total current assets........................................ 2,132 2,635
Funds held in trust for clients...............................
Property and equipment, net................................... 146 159
Deferred income tax benefit................................... 70 67
Other assets.................................................. 136 141
------ ------
Total assets................................................ $2,484 $3,002
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 590 $ 659
Notes payable to stockholders................................ 51 51
Notes payable, current portion............................... 388 928
------ -----
Total current liabilities................................... 1,029 1,638
Funds held in trust for clients...............................
Notes payable................................................. 178 --
Deferred compensation......................................... 174 177
------ ------
Total liabilities........................................... 1,381 1,815
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 10,000 shares authorized, 1,000
shares issued and outstanding............................... 10 10
Additional paid-in capital................................... 73 73
Retained earnings............................................ 1,032 1,114
Unrealized gain (loss) on securities......................... (12) (10)
------ ------
Total stockholders' equity.................................. 1,103 1,187
------ ------
Total liabilities and stockholders' equity.................... $2,484 $3,002
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Revenues...................................... $8,763 $9,038 $9,451
Operating expenses............................ 2,851 2,875 3,105
------ ------ ------
Gross profit................................. 5,912 6,163 6,346
Selling, general and administrative expenses.. 5,974 6,054 6,239
------ ------ ------
Income (loss) from operations................ (62) 109 107
Other (income) expense:
Interest and investment income, net.......... (99) (117) (70)
Interest expense............................. 48 68 81
Loss on disposal of property and equipment... -- 3 --
------ ------ ------
(51) (46) 11
------ ------ ------
Income (loss) before income taxes (11) 155 96
Provision for income taxes 34 107 14
------ ------ ------
Net income (loss) $ (45) $ 48 $ 82
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
----------------------
NUMBER RETAINED GAIN (LOSS)
OF SHARES AMOUNT PAID-IN-CAPITAL EARNINGS ON SECURITIES TOTAL
----------- -------- ----------------- ---------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995......... 10 $10 $73 $1,029 $ -- $1,112
Net loss...................... -- -- -- (45) -- (45)
Change in unrealized gain on
securities................... -- -- -- -- 3 3
--------- --------- ---------------- ----------- ------------- ---------
Balance, December 31, 1995....... 10 10 73 984 3 1,070
Net income.................... -- -- -- 48 -- 48
Change in unrealized loss on
securities................... -- -- -- -- (15) (15)
--------- --------- ---------------- ----------- ------------- ---------
Balance, December 31, 1996....... 10 10 73 1,032 (12) 1,103
Net income.................... -- -- -- 82 -- 82
Change in unrealized gain on
securities................... -- -- -- -- 2 2
--------- --------- ---------------- ----------- ------------- ---------
Balance, December 31, 1997....... 10 $10 $73 $1,114 $(10) $1,187
========= ========= ================ =========== ============= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (45) $ 48 $ 82
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 44 64 52
Loss on disposal of property and equipment -- 3 --
Changes in deferred taxes (13) (2) 3
Changes in operating assets and liabilities: (106) (11) (57)
Accounts receivable, trade
Prepaid expenses and other current assets 39 (6) (185)
Accounts payable and accrued expenses (60) 68 69
Deferred compensation 21 16 3
Other assets (54) (4) (3)
------ ------ -------
Net cash provided by (used in) operating activities (174) 176 (36)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (89) (49) (65)
Proceeds from sale of property and equipment -- 3 --
------ ------ -------
Net cash used in investing activities (89) (46) (65)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 600 250 1,000
Payments of notes payable (376) (257) (638)
Payments of notes payable to stockholders (10) -- --
Proceeds from notes receivable from stockholders (159) (124) (96)
------ ------ -------
Net cash provided by (used in) financing activities 55 (131) 266
Net increase (decrease) in cash (208) (1) 165
Cash and cash equivalents at beginning of period 209 1 --
------ ------ -------
Cash and cash equivalents at end of period $ 1 $ -- $ 165
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 48 $ 69 $ 78
Cash paid for income taxes 46 90 98
Increase (decrease) in funds held in trust for clients (53) (253) 286
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Mid-Continent Agencies, Inc. ("Mid-Continent") and subsidiaries
(collectively referred to as the "Company") provides accounts receivable
management services primarily to companies in the manufacturing, insurance,
wholesale distribution and commercial sectors. The Company has three domestic
offices located in Chicago, IL, Louisville, KY and Buffalo, NY and an office in
the United Kingdom.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include accounts of Mid-
Continent and its subsidiaries. All intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid unrestricted investments
with original maturities of three months or less. Cash equivalents are stated
at cost which approximates market.
Accounts Receivable, Trade
The Company remits collections to clients either on the net method, in
which funds are remitted to the client net of the related earned commission or
on the gross method, in which all collected funds are remitted to the client and
the Company bills the client separately for its earned commission, resulting in
a trade account receivable. Due to the nature of the trade accounts receivable,
no allowance is provided and the carrying value is considered to estimate the
fair value.
Funds Held in Trust for Clients
Funds held in trust for clients consists of funds collected on behalf
of clients, net of the Company's commission. These funds are held in segregated
accounts and are regularly remitted to clients. Funds held in trust of
$1,214,000 and $1,500,000 at December 31, 1996 and 1997, respectively, and their
offsetting liability are presented net for financial statement presentation
purposes.
The Company is entitled to invest these funds in specified marketable
debt and equity instruments. Amounts not invested in marketable debt and equity
instruments are invested in cash equivalents (See Note 4). Investments in
marketable securities are accounted for in accordance with Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Management has classified all marketable securities as "available
for sale" and accordingly, net unrealized gains and losses are presented, net of
tax, as a separate component of equity. Realized gains are computed based on
cost of investments sold.
F-59
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the assets, are capitalized at cost and
depreciated using an accelerated depreciation method, the results of which are
not materially different from the straight-line method, over their estimated
useful lives as follows:
Furniture and fixtures 5 to 7 years
Equipment 5 to 7 years
Leasehold improvements Term of lease
Maintenance, repairs, and minor replacements of these items are
charged to expense as incurred.
Deferred Compensation
Deferred compensation represents executive termination benefits for
four key officers of the Company. Deferred compensation is determined generally
by the formulas specified in the officers' employment agreements. Deferred
compensation is charged to income currently.
Income Taxes
Provisions are made to record deferred income taxes for items reported
in different periods for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes".
Concentration of Credit Risk
The Company has over 300 commercial insurance clients which accounted
for 38%, 30% and 25% of its revenues at December 31, 1995, 1996 and 1997. No one
client represents more than 5% of revenues.
Revenue Recognition
The Company generates revenues from contingency fees and contractual
services. Contingency fee revenue is recognized as a contractual percentage of
the net funds collected on behalf of clients, in the period the collection
occurs. Contractual services revenue is deferred and recognized over the period
in which the services are performed.
NOTE 3 -- RECEIVABLES DUE FROM STOCKHOLDERS
Receivables due from stockholders includes demand notes receivable
with aggregate principal and interest amounts of $1,371,000 and $1,517,000 at
December 31, 1996 and 1997, respectively. The notes receivable accrue interest
at the short-term annual Applicable Federal Rate prescribed by the Internal
Revenue Service, with the balance of principal and interest due upon demand. Due
to the demand provision, management estimates the carrying value of the notes
receivable from stockholders approximates fair value.
F-60
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 -- MARKETABLE SECURITIES
The following is a summary of the marketable debt and equity
instruments of the funds held in trust:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
HOLDING HOLDING FAIR
COST GAIN LOSS VALUE
---- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
Equity securities.............................. $ 11 $ -- $ (4) $ 7
Debt securities issued by the U.S. Treasury 195 -- (15) 180
and other U.S. government agencies............
Debt securities issued by foreign governments.. 2 -- -- 2
Corporate debt securities...................... 202 4 (1) 205
Mortgage-backed securities..................... 107 -- (4) 103
Other debt securities.......................... 294 -- -- 294
----- ---------- ---------- ---------
$ 811 $ 4 $ (24) $ 791
===== ========== ========== =========
DECEMBER 31, 1997:
Equity securities.............................. $ 2 $ -- $ (1) $ 1
Debt securities issued by the U.S. Treasury 196 -- (11) 185
and other U.S. government agencies............
Debt securities issued by foreign governments.. 2 -- -- 2
Corporate debt securities...................... 300 5 -- 305
Mortgage-backed securities..................... 107 -- (3) 104
Other debt securities.......................... 70 -- -- 70
$ 677 $ 5 $ (15) $ 667
===== ========= ========== =========
</TABLE>
Net realized (losses)/gains from the sale of investment securities
were $(6,000), $12,000 and $(21,000) for the years ended December 31, 1995, 1996
and 1997, respectively.
The cost and estimated fair value of available for sale securities by
contractual maturity at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------ ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less............................. $ 100 $ 100
Due after one year through five years............... 203 208
Investment funds or mortgage-backed securities not 374 359
due at a single maturity date......................
Total.............................................. $ 677 $ 667
====== ==========
</TABLE>
F-61
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
NOTE 5 -- PROPERTY AND EQUIPMENT, NET
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures....... $ 480 $ 483
Equipment.................... 798 865
Leasehold improvements....... 40 35
------- -------
1,318 1,383
Accumulated depreciation..... (1,172) (1,224)
------- -------
Property and equipment, net.. $ 146 $ 159
======= =======
</TABLE>
Depreciation expense aggregated $44,000, $64,000 and $42,000 for the years
ended 1995, 1996 and 1997, respectively.
NOTE 6 -- OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Cash value of life insurance.. $ 31 $ 44
Deposits...................... 101 97
Other......................... 4 --
------- ------
$ 136 $ 141
======= ======
</TABLE>
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable...... $ 136 $ 338
Accrued salaries...... 130 146
Accrued bonus......... 93 30
Accrued vacation...... 127 135
Income taxes payable.. 32 --
Other................. 72 10
------- ------
$ 590 $ 659
======= ======
</TABLE>
F-62
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of accounts payable and accrued expenses are considered
to approximate carrying value based on the short term nature of the accounts.
NOTE 8 -- NOTE PAYABLE TO STOCKHOLDERS
The Company has entered into a note payable agreement with its
stockholders. The note payable is unsecured, accrues interest at prime plus 0.5%
and is due on demand. The outstanding balance under the note at December 31,
1996 and 1997 was $51,000. No interest was accrued on the note at December 31,
1995. Interest of $6,000, $5,000 and $5,000 for the years ended December 31,
1995, 1996 and 1997, respectively, was paid to the stockholders. Due to the
demand provision, management estimates the carrying value of the notes payable
to stockholders approximates fair value.
NOTE 9 -- NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable consist of the following:
Note payable to bank, interest at prime plus 0.5%, principal $ 100 $ --
payments of $10,000 due monthly, extinguished November 15,
1997..............................................................
Note payable to bank, interest at prime plus 0.5% (9.0% at 241 153
December 31, 1997), principal payments of $22,000 due quarterly,
balance due January 15, 1998......................................
Note payable to bank, interest at prime plus 0.5% (9.0% at 175 25
December 31, 1997), principal payments of $13,000 due monthly,
balance due February 28, 1998.....................................
Notes payable to bank, interest at prime plus 0.5%, extinguished 50 --
September 15, 1997................................................
Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 300
December 31, 1997), principal amount due January 5, 1998..........
Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 250
December 31, 1997), principal amount due December 31, 1997........
Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 200
December 31, 1997), principal amount due January 15, 1998.........
------- -------
566 928
Current portion.................................................... (388) (928)
------- -------
Long-term debt..................................................... $ 179 $ --
======= =======
</TABLE>
Certain notes payable were not paid at their stated maturity dates.
Mid-Continent has obtained extensions of the notes to March 31, 1998.
All notes payable are payable to American National Bank and Trust
Company of Chicago and are secured by the assets of the Company and by personal
guarantees of the two stockholders. Due to the short maturities, management
estimates the carrying value of the notes payable approximates fair value.
F-63
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Aggregate maturities of notes payable at December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -----
(IN THOUSANDS)
<S> <C> <C>
1997................................ $ 388 $ --
1998................................ 178 928
----- -----
$ 566 $ 928
===== =====
</TABLE>
NOTE 10 -- INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996 1997
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal........................ $ 37 $ 90 $ 10
State & local.................. 10 19 5
----- ----- -----
47 109 15
Deferred tax expense (benefit)
Federal........................ (11) (1) --
State & local.................. (2) (1) (1)
----- ----- -----
(13) (2) (1)
Total........................... $ 34 $ 107 $ 14
===== ===== =====
</TABLE>
The provision for income taxes differs from the amount computed as the
statutory rates as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996 1997
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income at statutory rate............ $ (4) $ 53 $ 33
State income taxes, net of federal benefit.. 5 12 4
Nondeductible expenses...................... 41 41 (18)
Federal surtax exemption.................... (9) (2) (13)
Change in valuation allowance............... 1 3 8
----- ----- -----
Total...................................... $ 34 $ 107 $ 14
===== ===== =====
</TABLE>
F-64
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The significant items giving rise to the deferred tax assets and
(liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset--non-current:
Bad debt reserve.......................... -- $ 4
Deferred compensation..................... $ 67 64
Unrealized loss on securities............. 8 4
Charitable contribution carryforward...... 13 20
Deferred tax asset valuation allowance.... (13) (20)
----- -----
Net deferred tax asset--non-current...... 75 72
Deferred tax liability--non-current:
Unrealized gain on securities............. -- --
Property plan & equipment................. (5) (5)
Net deferred tax liability--non-current.. (5) (5)
Total..................................... $ 70 $ 67
===== =====
</TABLE>
The valuation allowance has been provided due to uncertainty surrounding
the realizability of charitable contribution carryforwards, which expire in
years 1998 to 2002. Net operating loss carryforwards for state tax purposes
exist in the aggregate of approximately $1.2 million. No benefit has been
recognized for these carryforwards.
Due to the fact that the Company has filed tax returns based on a fiscal
year ending April 30, certain estimates have been used in deriving the
provisions for income taxes contained herein.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
The Company has established a defined contribution and profit sharing plan
under Section 401(k) of the Internal Revenue Code (the "Plan") which covers
substantially all employees. Discretionary contributions to the plan were
$13,000, $26,000 and $28,000, for the years ended December 31, 1995, 1996 and
1997, respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is party from time to time to various legal proceedings
incidental to its business. In the opinion of management none of these items
individually or in the aggregate would have a significant effect on the
financial position, results of operations, or cash flows of the Company.
F-65
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases office space and equipment under operating leases and
had not entered into any capital lease transactions for the years ended December
31, 1996 and 1997. Minimum future rentals under non-cancelable operating leases
with initial or remaining terms of one year or more consist of the following at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997
-------------
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 562
1999.......................................................... 517
2000.......................................................... 454
2001.......................................................... 397
2002.......................................................... 358
Thereafter.. 306
---------
$ 2,594
=========
</TABLE>
Rent expense was $510,000, $468,000 and $500,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
NOTE 13 -- UNAUDITED SUBSEQUENT EVENT
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which, on
March 4, 1998, Compass acquired all outstanding shares of the Company's common
stock in exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-66
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Impact Telemarketing Group, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Impact
Telemarketing Group, Inc. and affiliated companies at December 31, 1996 and 1997
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is not in compliance with certain covenants
contained in its loan agreement and the line of credit was due and payable on
December 1, 1997. As a result, the Company does not have the ability to obtain
additional borrowings under its loan agreement to fund operations. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
Chicago, Illinois
January 23, 1998
F-67
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents...................................................... $ 166 $ 145
Accounts receivable, trade, net of allowance for doubtful accounts of $40 and
$77, 1,618 2,688
respectively..................................................................
Related party receivables...................................................... 188 105
Prepaid expenses and other current assets...................................... 4 22
------ ------
Total current assets......................................................... 1,976 2,960
Property and equipment, net..................................................... 573 775
Other assets.................................................................... 27 22
------ ------
$2,576 $3,757
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt.............................................. $ 153 $ 113
Borrowings on line of credit................................................... 80 650
Current portion of capitalized lease obligations............................... 119 191
Accounts payable............................................................... 1,605 1,882
Accrued expenses............................................................... 209 295
------ ------
Total current liabilities.................................................... 2,166 3,131
Capitalized lease obligations, net of current portion........................... 293 424
------ ------
Total liabilities............................................................ 2,459 3,555
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 2,500 and 2,500 shares authorized, 100 and
2,489 shares
issued and outstanding for Impact Telemarketing Group, Inc. and Impact
Telemarketing, Inc............................................................ 91 91
Retained earnings.............................................................. 26 111
------ ------
Total stockholders' equity................................................... 117 202
------ ------
$2,576 $3,757
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1997
------------------
<S> <C> <C>
Revenues........................................... $8,869 $12,870
Operating expenses................................. 6,961 9,725
------- -------
Gross profit...................................... 1,908 3,145
Selling, general and administrative................ 2,108 2,823
------- -------
Income (loss) from operations..................... (200) 322
OTHER (INCOME) EXPENSE:
Interest expense.................................. 30 163
Gain on sale of property and equipment............ (105) --
------- -------
Net income (loss).................................. $ (125) $ 159
======= =======
PRO FORMA TAX PROVISION (UNAUDITED) (SEE NOTE 2):
Income (loss) before income taxes................. $ (125) $ 159
Pro forma provision (benefit) for income taxes.... (50) 64
------- -------
Pro forma net income (loss)....................... $ (75) $ 95
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-----------------
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........ 100 $ -- $ 91 $ 191 $ 282
Net loss....................... -- -- -- (125) (125)
Distributions to stockholders.. -- -- -- (40) (40)
--------- ------ --------- -------- -----
Balance, December 31, 1996........ 100 -- 91 26 117
Net income..................... -- -- -- 159 159
Distributions to stockholders.. -- -- -- (74) (74)
--------- ------ --------- -------- -----
Balance, December 31, 1997........ 100 $ -- $ 91 $ 111 $ 202
========= ====== ========= ======== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................................. $ (125) $ 159
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization................................................................ 128 192
Gain on sale of property and equipment....................................................... (105) --
Provision for doubtful accounts.............................................................. 77 11
Changes in operating assets and liabilities:
Accounts receivable, trade.................................................................. 443 (1,081)
Prepaid expenses and other current assets................................................... 7 (18)
Related party receivables................................................................... (72) 63
Other assets................................................................................ (12) 5
Accounts payable and accrued liabilities.................................................... (245) 363
------ ------
Net cash provided by (used in) operating activities........................................ 96 (306)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.................................................. 157 --
Purchase of property and equipment............................................................ (155) (52)
------ ------
Net cash provided by (used in) investing activities.......................................... 2 (52)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit.............................................................. 80 570
Payments on notes payable..................................................................... (45) (186)
Payments on capital lease obligations......................................................... (85) (145)
Borrowings under term loan.................................................................... -- 146
Distributions to stockholders................................................................. (40) (48)
------ ------
Net cash provided by (used in) financing activities.......................................... (90) 337
Net increase (decrease) in cash................................................................ 8 (21)
Cash and cash equivalents at beginning of year................................................. 158 166
------ ------
Cash and cash equivalents at end of year....................................................... $ 166 $ 145
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................................ $ 30 $ 106
Noncash investing and financing activities:
Property acquired under capital leases....................................................... $ 330 $ 348
Assumption of North Dakota debt by third party in conjunction with the sale of North Dakota $ 67 $ --
assets......................................................................................
Distributions of assets from an affiliated company........................................... $ -- $ 20
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The affiliated companies of Impact Telemarketing Group, Inc. ("Impact" or
the "Company") are individually incorporated companies owned by the same
stockholders. Each of the companies is engaged in providing primarily outbound
telemarketing services to national and regional companies in the insurance,
financial services, telecommunications and utilities industries. The affiliated
companies are comprised of Impact Telemarketing Group, Inc. ("Group"), Impact
Tele-marketing, Inc. ("Inc."), and Impact Telemarketing of North Dakota, Inc.
("North Dakota"). The Company's headquarters are in Woodbury, New Jersey.
The results of operations for the year ended December 31, 1996 include the
expenses of North Dakota. North Dakota provided telemarketing services to Group
only. North Dakota's net assets were sold to a third party on December 31, 1996
for $157,000 in cash and the assumption of $67,000 in liabilities. A gain of
$105,000 has been recognized for the difference between the total purchase price
and the net book value of the assets that were sold. The distribution of the
remaining assets of North Dakota has been treated as a distribution to the
stockholders.
At December 31, 1997, the Company has a working capital deficit of $171,000
and is not in compliance with certain covenants contained in its loan agreement
with a bank. Total amounts outstanding as of December 31, 1997 under the
Company's term loan and line of credit of $103,000 and $650,000, respectively,
are currently due and payable at the discretion of the bank based on the
violation of these covenants. Additionally, the line of credit expired and was
due on December 1, 1997. The amounts outstanding under the term loan and the
line of credit have not been liquidated by the Company and the bank has not
demanded payment. The Company has not completed an arrangement for a
replacement credit facility. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. Even with
income from operations, the Company may require additional financing to achieve
its plans for 1998 and beyond. However, should the Company be unable to obtain
such financings, the Company will be required to reduce discretionary spending.
Management believes that it will be able to reduce discretionary spending if
required. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Combination
The combination of the financial statements includes the accounts of all
the affiliated companies (Group, Inc. and North Dakota) in which the principal
stockholders exercised similar control and which had similar operations. All
significant inter-company transactions have been eliminated. As the operations
of North Dakota have been sold, North Dakota is not combined in the accounts of
the Company for the year ended December 31, 1997.
F-72
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenues on programs as services are performed,
generally based on hours incurred.
Major Customers and Concentration of Credit Risk
For the year ended December 31, 1996, one customer accounted for
approximately 51% of revenues. For the year ended December 31, 1997, two
customers accounted for 47% and 11% of revenues, respectively. The loss of the
Company's major customer could have a material adverse effect on the Company's
business.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company holds deposits in operating accounts. The Company's
accounts receivable are derived from sales to customers located in the United
States. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for its accounts receivable. The Company
maintains reserves for potential credit losses based upon the expected
collectibility of all accounts receivable. At December 31, 1996, one customer
accounted for approximately 81% of accounts receivable. At December 31, 1997,
four customers accounted for approximately 39%, 21%, 15% and 11% of accounts
receivable, respectively.
Cash and Cash Equivalents
Cash includes cash and highly liquid investments purchased with an original
maturity of three months or less.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the respective assets, generally five to seven
years. Leasehold improvements are amortized over the lesser of the estimated
useful lives of the equipment or the lease term, generally ten years.
Income Taxes
The affiliated companies include separate legal entities that are
controlled by common stockholders. These entities file separate tax returns.
Group and North Dakota each elected to be treated as an S Corporation for
federal and state income tax purposes and accordingly any liabilities for income
taxes are the direct responsibility of the stockholders. Inc. is a C Corporation
which accounts for income taxes using the asset and liability method, whereby
deferred income tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using currently enacted tax rates and laws.
Inc. incurred losses for the years ended December 31, 1996 and 1997. The
differences between the financial reporting and the tax basis of assets and
liabilities are not significant. As of December 31, 1997, Inc. had net
operating loss carryforwards of approximately $717,000 each for federal and
state. These carryforwards expire from 2003 through 2012. Management believes
sufficient uncertainty exists with regard to the realization of these
carryforwards. Accordingly, a full valuation allowance has been provided as of
December 31, 1997.
F-73
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term nature
of those instruments. The carrying amount of the long-term debt and capitalized
lease obligations approximates fair value at December 31, 1997.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The Company rents office space owned by a partnership whose partners are
the sole stockholders of the Company. The office space is rented on a month to
month basis at above market rates. Total rent expense was $139,000 and $110,000
for the years ended December 31, 1996 and 1997, respectively.
As of December 31, 1997, the Company has total loans receivable from its
sole stockholders of $105,000. There are no scheduled dates of repayment or
interest rates associated with these loans.
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures...................... $ 144 $ 243
Computer equipment and software............. 752 1,047
Leasehold improvements...................... 81 81
------ ------
$ 977 $1,371
Less: Accumulated depreciation.............. (404) (596)
------ ------
$ 573 $ 775
====== ======
</TABLE>
Depreciation expense was $75,000 and $36,000 for the years ended December
31, 1996 and 1997, respectively.
Included in fixed assets shown above as of December 31, 1997 are fixed
assets under capital leases with a gross amount of $880,000. Total amortization
expense was $53,000 and $156,000 for the years ended December 31, 1996 and 1997,
respectively.
NOTE 5 -- NOTES PAYABLE
In December 1996, the Company entered into a Loan Agreement (the
"Agreement") with a bank which provided for a $650,000 line of credit and a
$150,000 term loan (the "Term Loan"). Borrowings on the line of credit are
limited to 75% of eligible accounts receivable, as defined. Principal
outstanding on the line of credit and Term Loan bear interest at the bank's
prime rate, as defined, plus .50% (9.0% as of December 31, 1997). The line of
credit is secured by substantially all of the Company's assets. The line of
credit expired on December 1, 1997 and all principal and remaining interest was
due and
F-74
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
payable. Amounts outstanding under this line of credit are $30,000 and
$650,000 as of December 31, 1996 and 1997, respectively. The Agreement contains
restrictive covenants, which, among other things, require the maintenance of a
debt service ratio, limitations on debt and dividends and minimum tangible net
worth, as defined in the Agreement.
In April 1997, the Company obtained a $100,000 letter of credit facility
under the Agreement. Borrowings under the letter of credit facility are due upon
demand, bear interest at the bank's prime rate, as defined, plus 2% (10.5% as of
December 31, 1997) and are secured by substantially all of the Company's assets.
No borrowings were outstanding under this letter of credit facility as of
December 31, 1997.
At December 31, 1996, the Company had a $100,000 revolving line of credit
agreement with a bank. Borrowings bear interest at the bank's prime rate, as
defined, plus 1.5% (9.75% at December 31, 1996). The balance outstanding under
this line of $50,000 at December 31, 1996 was repaid in January 1997 upon
termination of the line of credit agreement.
Notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Term loan payable to a bank, secured by substantially all
of the Company's assets, payable in equal monthly
installments of $4,000 over 36 months......................... -- $ 103
Installment note payable to a bank, secured by accounts
receivable, furniture and fixtures, and liens on personal
assets of stockholders, payable in equal monthly installments
of $3,000, including interest at 9.5% through May 2001........ $ 143 --
Note payable to a relative of the stockholders. No stated
maturity date or interest rate................................ 10 10
------- -------
$ 153 $ 113
====== =======
</TABLE>
The installment note payable was repaid in January 1997 with borrowings
obtained from the term loan.
F-75
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6 -- CAPITAL LEASES
The Company leases certain equipment under capital leases. The Company's
weighted average interest rate was 12% as of December 31, 1997. Future minimum
lease payments as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.......................................................... $ 250
1999.......................................................... 200
2000.......................................................... 163
2001.......................................................... 110
2002.......................................................... 28
-----
Total minimum obligations..................................... $ 751
Less interest................................................. 136
-----
Present value of minimum lease payments....................... 615
Less: Current portion......................................... 191
-----
$ 424
=====
</TABLE>
NOTE 7 -- EMPLOYEE BENEFIT PLANS
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code (the "Plan"). The Plan allows all eligible employees to defer up to 15% of
their income on a pretax basis through contributions to the Plan. As of
December 31, 1997, the Company has not made any contributions under the Plan.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities and equipment under noncancelable
operating leases through the year 2002. Future minimum payments, by year and in
the aggregate, under noncancelable operating leases with initial or remaining
terms of one year or more consist of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 230
1999........................................................ 234
2000........................................................ 239
2001........................................................ 243
2002........................................................ 174
------
$1,120
======
</TABLE>
Rent expense was $182,000 and $283,000 for the years ended December 31,
1996 and 1997, respectively.
Subcontractor Arrangements
Impact has guaranteed the payments of telephone charges incurred by its
major subcontractors with the telephone company. This guaranty arrangement
expires in March 1998, and to date, no amounts
F-76
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
have been claimed by the telephone company under this arrangement. Impact has a
contractual right to offset any claims by the telephone company against amounts
owed by Impact to these subcontractors.
Legal Matters
The Company became a party to certain lawsuits and claims arising out of
the conduct of its business. While the ultimate outcome of these matters cannot
be predicted with certainty, management expects that these matters will not have
a material adverse effect on the financial position or results of the Company.
NOTE 9 -- UNAUDITED SUBSEQUENT EVENT
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which, on
March 4, 1998, Compass acquired all outstanding shares of the Company's common
stock in exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-77
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of any offer to buy any securities other than the shares of
Common Stock to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY......................................... 3
RISK FACTORS............................................... 10
FORWARD-LOOKING STATEMENTS................................. 17
PRICE RANGE OF COMMON STOCK................................ 17
THE COMPANY................................................ 18
DIVIDEND POLICY............................................ 19
SECURITIES COVERED BY THIS PROSPECTUS...................... 19
CAPITALIZATION............................................. 21
SELECTED FINANCIAL DATA.................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 24
BUSINESS................................................... 35
MANAGEMENT................................................. 48
CERTAIN TRANSACTIONS....................................... 54
PRINCIPAL STOCKHOLDERS..................................... 57
DESCRIPTION OF CAPITAL STOCK............................... 58
SHARES ELIGIBLE FOR FUTURE SALE............................ 59
CERTAIN LEGAL MATTERS...................................... 60
EXPERTS.................................................... 60
AVAILABLE INFORMATION...................................... 61
INDEX TO FINANCIAL STATEMENTS.............................. F-1
</TABLE>
3,000,000 Shares
COMPASS INTERNATIONAL
SERVICES CORPORATION
Common Stock
--------------------
PROSPECTUS
--------------------
April __, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission registration fee 12,888
Nasdaq National Market listing fee............... 17,500
Accountants' fees and expenses................... 20,000
Blue Sky fees and expenses....................... 5,000
Legal fees and expenses.......................... 15,000
Miscellaneous expenses........................... 9,612
----------
Total........................................... $ 80,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall, to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, as amended from time to time, indemnify all
persons whom it may indemnify pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees, or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to be indemnified for such expenses despite such
adjudication of liability.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 164 of the Delaware General Corporation
II-1
<PAGE>
Law, which makes directors liable for unlawful dividends or unlawful stock
repurchase or redemptions or (d) for transactions from which directors derive
improper personal benefit.
The Company enters into indemnification agreements with its directors and
officers. The form of such agreement is filed as an Exhibit hereto. The Company
has director and officer insurance coverage that became effective concurrently
with the closing of the IPO.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold by the Company since inception that were not registered under the
Securities Act:
The Company was organized in April 1997 and issued 15,000 shares of its
Common Stock to its founders at a price of $10.00 per share. Of such shares,
10,000 were issued to BGL Capital Partners, LLC, 2,250 were issued to Michael J.
Cunningham, 1,750 were issued to Mahmud U. Haq and 1,000 were issued to Richard
A. Alston. The offer and sale of these shares were exempt from registration
under the Securities Act of 1933, as amended ("Securities Act"), in reliance on
the exemption provided by Section 4(2) thereof. Prior to the closing of the IPO,
the number of these shares was increased to 1,682,769 by a 112.1846-for-one
stock split.
On March 4, 1998, the Company issued 5,435,691 shares of its Common Stock
in connection with the Acquisitions of the Founding Companies. Each of these
transactions was completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant (incorporated by reference to
Exhibit No. to the Registration Statement on Form S-1, File
No. 333-37205 (the "IPO Registration Statement").
4.1* Specimen stock certificate representing Common Stock.
5.1 Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent).
10.1 1997 Employee Incentive Compensation Plan.
10.2 Employee Stock Purchase Plan.
10.3 Employment Agreement between the Registrant and Michael J.
Cunningham.
10.4 Employment Agreement between the Registrant and Mahmud U.
Haq.
10.5 Employment Agreement between the Registrant and Richard A.
Alston.
10.6 Employment Agreement between The Mail Box, Inc. and Kenneth
W. Murphy.
10.7 Stockholders' Agreement.
10.8 Bonus Agreement dated as of October 2, 1997 among the
Registrant, National Credit Management Corporation and the
Stockholders named therein.
II-2
<PAGE>
10.9* Form of Indemnification Agreement between the Registrant and
its officers and directors (incorporated by reference to
Exhibit 10.9 to the IPO Registration Statement).
10.10 Employment Agreement between National Credit Management
Corp. and Leeds Hackett.
10.11 Employment Agreement between B.R.M.C. of Delaware, Inc. and
John Maloney.
10.12 Employment Agreement between B.R.M.C. of Delaware, Inc. and
H. Gene Collins.
10.13 Employment Agreement between B.R.M.C. of Delaware, Inc. and
Mary Maloney.
10.14 Employment Agreement between Mid-Continent Agencies, Inc.
and Leslie J. Kirschbaum.
10.15 Employment Agreement between Impact Telemarketing Group,
Inc. and Edward A. DuCoin.
10.17* Processing Agreement between VarTec Telecom, Inc. and The
Mail Box, Inc. (incorporated by reference to Exhibit 10.17
to the IPO Registration Statement).
10.18 Supplemental Agreement between the Registrant and
Michael J. Cunningham dated as of March 4, 1998.
10.19 Supplemental Agreement between the Registrant and
Mahmud W. Haq dated as of March 4, 1998.
10.20 Supplemental Agreement between the Registrant and
Richard A. Alston dated as of March 4, 1998.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Katten Muchin & Zavis (contained in its opinion
to be filed as Exhibit 5 hereto).
24 Power of Attorney (see signature page).
_________________
* Previously filed
(b) Financial Statement Schedules.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned reistrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
II-3
<PAGE>
which, individually or in the aggregate, represents a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter had been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, and State of
Illinois on the 9th day of April, 1998.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
---------------------------------------
Michael J. Cunningham
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Michael J.
Cunningham and Richard A. Alston, and each of them severally, acting alone and
without the other, his true and lawful Attorney-in-Fact with authority to
execute in the name of each such person and to file with the securities and
exchange commission, together with any exhibits thereto and other documents
therewith, any and all amendments (including post-effective amendments) to this
registration statement necessary or advisable to enable the registrant to comply
with the Securities Act of 1933, as amended, and any rules, regulations, and
requirements of the securities and exchange commission in respect thereof, which
amendments may make such other changes in the registration statement as the
aforesaid Attorney-in-Fact executing the same deems appropriate, and any filings
pursuant to Rule 462(B) under the Securities Act of 1933, as amended.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- -------------------------- ----------------------------- -----------------
/s/ MICHAEL J. CUNNINGHAM Chairman and Chief Executive April 9, 1998
- ----------------------------
Michael J. Cunningham Officer (Principal Executive
Officer)
/s/ RICHARD A. ALSTON Chief Financial Officer (Principal April 9, 1998
- ----------------------------
Richard A. Alston Financial and Accounting Officer)
/s/ MAHMUD U. HAQ Director April 9, 1998
- ----------------------------
Mahmud U. Haq
/s/ KENNETH W. MURPHY Director April 9, 1998
- ----------------------------
Kenneth W. Murphy
/s/ LEEDS HACKETT Director April 9, 1998
- ----------------------------
Leeds Hackett
II-5
<PAGE>
Signature Title Date
- -------------------------- ----------------------------- -----------------
/s/ JOHN MALONEY Director April 9, 1998
- ---------------------------
John Maloney
/s/ LES J. KIRSCHBAUM Director April 9, 1998
- ---------------------------
Les J. Kirschbaum
/s/ EDWARD A. DUCOIN Director April 9, 1998
- ---------------------------
Edward A. DuCoin
/s/ HOWARD L. CLARK, JR. Director April 9, 1998
- ---------------------------
Howard L. Clark, Jr.
/s/ SCOTT H. LANG Director April 9, 1998
- ---------------------------
Scott H. Lang
/s/ TOMASSO ZANZOTTO Director April 9, 1998
- ---------------------------
Tomasso Zanzotto
II-6
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMPASS INTERNATIONAL SERVICES CORPORATION
(Original Certificate of Incorporation
filed April 29, 1997)
Compass International Services Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Law"), does hereby certify:
A. That the Board of Directors of the Corporation adopted a resolution
setting forth the Amended and Restated Certificate of Incorporation set forth
below, declaring it advisable and submitting it to the stockholders entitled to
vote in respect thereof for their consideration of such Amended and Restated
Certificate of Incorporation.
B. That by written consent executed in accordance with Section 228 of the
Law, the holders of a majority of the outstanding stock has voted in favor of
the adoption of the Amended and Restated Certificate of Incorporation set forth
below.
C. That the Amended and Restated Certificate of Incorporation set forth
below has been duly adopted in accordance with Sections 242 and 245 of the Law:
ARTICLE I
The name of the corporation is Compass International Services Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the Law.
<PAGE>
ARTICLE IV
A. The Corporation shall have authority to issue the following classes of
stock, in the number of shares and at the par value as indicated opposite the
name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
-------------------- --------------------- --------------------
<S> <C> <C>
Common Stock 50,000,000 $.01
Preferred Stock 10,000,000 $.01
</TABLE>
As of the date of the filing of this Amended and Restated Certificate of
Incorporation, each issued share of Common Stock of the Corporation shall be
reclassified and changed into 112.1846 shares of Common Stock having the terms
specified in this ARTICLE IV. Each outstanding stock certificate which
immediately prior to the date hereof represented a number of shares of Common
Stock shall, without any action on the part of the holder, hereupon and
hereafter, until surrendered as hereinafter provided, represent that number of
shares of Common Stock equal to 112.1846 times the number of shares of the
Common Stock represented by such certificate. The registered holder of each such
certificate may on or after the date hereof surrender such certificate to the
Corporation for cancellation and, upon such surrender, shall receive in exchange
therefor, without charge, a new certificate registered in the name of such
holder representing that number of shares of Common Stock equal to 112.1846
times the number of shares of Common Stock which, prior to the date of filing
hereof, was represented by the certificate(s) representing shares of Common
Stock.
B. The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
1. Common Stock.
------------
a. Voting Rights: Except as otherwise required by law or
-------------
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote
of the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
---------
preferred stock, the holders of Common Stock shall be entitled to
receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation.
c. Liquidation Rights: In the event of any liquidation,
------------------
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment
-2-
<PAGE>
or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any
outstanding shares of Preferred Stock shall be entitled upon
dissolution, liquidation or winding up, the assets of the Corporation
available for distribution to stockholders shall be distributed
ratably among the holders of the shares of Common Stock.
2. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more
series. Subject to the other provisions of this Amended and Restated
Certificate of Incorporation, the Board of Directors is authorized, subject
to any limitations prescribed by law, to provide for the issuance of and to
issue shares of the Preferred Stock in series, and by filing a certificate
pursuant to the laws of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of any Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing such series of Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors. The number of directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Initially, the number of directors shall be ten.
Such directors shall be divided into three classes, Class I, Class II and
Class III; with Class I having four members and Classes II and III each having
three members. At the election of directors immediately following the adoption
of this Amended and Restated Certificate of Incorporation, Class I directors
will be elected for a term expiring at the annual meeting relating to the
Corporation's 1998 fiscal year (but occurring in calendar year 1999) (the "1998
Annual Meeting"), Class II directors will be elected for a term expiring at the
annual meeting following the Corporation's 1999 fiscal year (but occurring in
calendar year 2000) and Class III directors will be elected for a term expiring
at the annual meeting relating to the Corporation's 2000 fiscal year (but
occurring in calendar year 2001). At each annual meeting of stockholders
commencing with the 1998 Annual Meeting, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes by the Board of Directors so as to maintain the
number of directors in each class as nearly equal as reasonably possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such
-3-
<PAGE>
class shall hold office for a term that shall coincide with the remaining term
of that class. In no case will a decrease in the number of directors shorten
the term of any incumbent director even though such decrease may result in an
inequality of the classes until the expiration of such term. A director shall
hold office until the annual meeting of the year in which his or her term
expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement or removal from
office. No director elected by the stockholders of the Corporation may be
removed except for cause. Except as required by law or the provisions of this
Amended and Restated Certificate of Incorporation, all vacancies on the board of
directors and newly-created directorships shall be filled by the board of
directors. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the terms
of this Amended and Restated Certificate of Incorporation and any resolutions of
the Board of Directors applicable thereto, and such directors so elected shall
not be divided into classes pursuant to this Article V. Notwithstanding
anything to the contrary contained in this Amended and Restated Certificate of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of the shares entitled to vote generally in the election of directors
shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, this Article V.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the By-
laws of the Corporation.
ARTICLE VI
Election of Directors need not be by written ballot unless the By-laws of
the Corporation so provide.
ARTICLE VII
The Corporation reserves the right to amend, alter or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
-4-
<PAGE>
ARTICLE VIII
The Corporation shall, in accordance with and to the full extent now or
hereafter permitted by law, indemnify and upon request advance expenses to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of the Corporation), by reason of his acting as a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he is or was an employee of the Corporation or is or was serving at the request
of the Corporation in any other capacity for or on behalf of the Corporation)
against any liability or expense (including attorneys' fees and expenses)
actually and reasonably incurred by such person in respect thereof; provided,
however, that the Corporation shall not be obligated to indemnify or advance
expenses to any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by such person and not by way of defense, or
(ii) for any amounts paid in settlement of an action effected without the prior
written consent of the Corporation to such settlement. Such indemnification is
not exclusive of any other right to indemnification provided by law, agreement
or otherwise.
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that this provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
ARTICLE X
No amendment to or repeal of Articles VIII or IX of this Amended and
Restated Certificate of Incorporation shall apply to or have any effect on the
rights of any individual referred to in Articles VIII or IX for or with respect
to acts or omissions of such individual occurring prior to such amendment or
repeal.
ARTICLE XI
A. Written Consent. At any time after the closing of an initial public
---------------
offering of the Corporation's Common Stock, any action required or permitted to
be taken by the stockholders
-5-
<PAGE>
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
B. Special Meetings. Special meetings of stockholders of the Corporation
----------------
may be called upon not less than ten nor more than 60 days' written notice only
by the Board of Directors pursuant to a resolution approved by a majority of the
Board of Directors.
C. Amendment. Notwithstanding anything contained in this Amended and
---------
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of the shares entitled to vote generally in the
election of directors shall be required to amend, alter or repeal, or to adopt
any provision inconsistent with, this Article XI.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation.
ARTICLE XIII
The By-laws of the Corporation may be altered, amended, or repealed or new
By-laws may be adopted by the Board of Directors or by the vote of the holders
of 66-2/3% of the votes entitled to be cast by the shares entitled to vote
generally for the election of directors if notice of such alteration, amendment,
repeal or adoption of new By-laws is contained in the notice of such special
meeting.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chief Executive Officer on
December 2, 1997.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Michael J. Cunningham
------------------------------------
Name: Michael J. Cunningham
------------------------------------
Its: Chairman and Chief Executive Officer
------------------------------------
-6-
<PAGE>
EXHIBIT 5.1
April 9, 1998
KATTEN MUCHIN & ZAVIS
525 W. MONROE, SUITE 1600
CHICAGO, ILLINOIS 60661
Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, New York 10119
Re: Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to Compass International Services Corporation, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-1 (the "Registration Statement") filed under the Securities
Act of 1933, as amended (the "Securities Act") for the purpose of registering
under the Securities Act 3,000,000 shares of common stock, par value $.01 per
share (the "Shares"), of the Company, which the Company may offer from time to
time pursuant to Rule 415 under the Securities Act.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statement of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Amended and
Restated Certificate of Incorporation of the Company, (b) the By-Laws of the
Company, as amended to date, (c) certain resolutions adopted by the Board of
Directors of the Company ("Board") and (d) such other documents, records,
certificates and other instruments of the Company as in our judgment are
necessary or appropriate for purposes of this opinion. We have assumed that (i)
the Registration Statement, and any amendments thereto, will have become
effective, (ii) such Shares will have been duly authorized and reserved for
issuance and, upon the issuance and sale of the Shares in the manner
contemplated in the Registration Statement, certificates evidencing the same
will be duly executed and delivered, against receipt of the consideration
approved by the Board or a committee thereof which will be no less than the par
value thereof, and (iii) the Shares will be issued in compliance with applicable
federal and state securities laws.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have
<PAGE>
reviewed, the genuineness of all signatures, the due authority of the parties
signing such documents, the authenticity of the documents submitted to us as
originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed or reproduced copies.
Based upon and subject to the foregoing, we are of the opinion that the
Shares will, upon the issuance and sale thereof in the manner contemplated in
the Registration Statement, be duly authorized, validly issued, fully paid and
non-assessable.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5.1 to the Registration Statement.
/s/ Katten Muchin & Zavis
Katten Muchin & Zavis
<PAGE>
EXHIBIT 10.1
COMPASS INTERNATIONAL SERVICES CORPORATION
EMPLOYEE INCENTIVE COMPENSATION PLAN
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
EMPLOYEE INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I ESTABLISHMENT.............................................. 1
1.1 Purpose...................................................... 1
ARTICLE II DEFINITIONS................................................ 1
2.1 "Affiliate".................................................. 1
2.2 "Agreement" or "Award Agreement"............................. 1
2.3 "Annual Incentive Award"..................................... 1
2.4 "Award....................................................... 1
2.5 "Beneficiary"................................................ 1
2.6 "Board of Directors" or "Board".............................. 2
2.7 "Cause"...................................................... 2
2.8 "Change in Control" and "Change in Control Price"........... 2
2.9 "Code" or "Internal Revenue Code"............................ 2
2.10 "Commission"................................................. 2
2.11 "Committee".................................................. 2
2.12 "Common Stock"............................................... 2
2.13 "Company".................................................... 2
2.14 "Covered Employee"........................................... 2
2.15 "Deferred Stock"............................................. 3
2.16 "Disability"................................................. 3
2.17 "Effective Date"............................................. 3
2.18 "Exchange Act"............................................... 3
2.19 "Extraordinary Termination of Employment".................... 3
2.20 "Fair Market Value".......................................... 3
2.21 "Grant Date"................................................. 3
2.22 "Incentive Stock Option"..................................... 3
2.23 "Nonqualified Stock Option".................................. 3
2.24 "Option Period".............................................. 4
2.25 "Option Price"............................................... 4
2.26 "Participant"................................................ 4
2.27 "Performance Shares"......................................... 4
2.28 "Plan"....................................................... 4
2.29 "Representative"............................................. 4
2.30 "Restricted Stock"........................................... 4
2.31 "Retirement"................................................. 4
2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)".......................... 5
2.33 "Stock Appreciation Right"................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.34 "Stock Option" or "Option"................................... 5
2.35 "Termination of Employment".................................. 5
ARTICLE III ADMINISTRATION............................................. 5
3.1 Committee Structure and Authority............................ 5
ARTICLE IV STOCK SUBJECT TO PLAN...................................... 8
4.1 Number of Shares............................................. 8
4.2 Release of Shares............................................ 8
4.3 Restrictions on Shares....................................... 8
4.4 Stockholder Rights........................................... 9
4.5 Best Efforts To Register..................................... 9
4.6 Anti-Dilution................................................ 9
ARTICLE V ELIGIBILITY................................................ 10
5.1 Eligibility.................................................. 10
ARTICLE VI STOCK OPTIONS.............................................. 10
6.1 General...................................................... 10
6.2 Grant and Exercise........................................... 10
6.3 Terms and Conditions......................................... 11
6.4 Termination by Reason of Death............................... 13
6.5 Termination by Reason of Disability.......................... 13
6.6 Other Termination............................................ 14
6.7 Cashing Out of Option........................................ 14
6.8 Formula Grants............................................... 14
ARTICLE VII STOCK APPRECIATION RIGHTS.................................. 15
7.1 General...................................................... 15
7.2 Grant........................................................ 15
7.3 Terms and Conditions......................................... 15
ARTICLE VIII RESTRICTED STOCK........................................... 17
8.1 General...................................................... 17
8.2 Awards and Certificates...................................... 17
8.3 Terms and Conditions......................................... 17
ARTICLE IX DEFERRED STOCK............................................. 19
9.1 General...................................................... 19
9.2 Terms and Conditions......................................... 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X PERFORMANCE SHARES......................................... 20
10.1 General...................................................... 20
10.2 Price........................................................ 20
10.3 Performance Share Agreement.................................. 20
10.4 Performance Periods.......................................... 21
10.5 Performance Goals............................................ 21
10.6 Earning of Performance Shares................................ 21
10.7 Termination of Employment Due to Death, Disability or
Retirement or at the Request of the Company Without Cause.... 22
10.8 Termination of Employment for Other Reasons.................. 22
10.9 Nontransferability........................................... 22
10.10 Amendment of Awards.......................................... 22
ARTICLE XI ANNUAL INCENTIVE AWARDS.................................... 22
11.1 Eligibility.................................................. 22
11.2 Earning of Annual Incentive Awards........................... 23
11.3 Payments and Election........................................ 24
11.4 Amendment of Awards.......................................... 25
11.5 Performance Threshold........................................ 25
11.6 Maximum Awards............................................... 25
ARTICLE XII PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER
THIS PLAN.................................................. 25
12.1 Limited Transfer During Offering............................. 25
ARTICLE XIII CHANGE IN CONTROL PROVISIONS............................... 25
13.1 Impact of Event.............................................. 25
13.2 Definition of Change in Control.............................. 26
13.3 Change in Control Price...................................... 28
ARTICLE XIV MISCELLANEOUS.............................................. 28
14.1 Amendments and Termination................................... 28
14.2 Unfunded Status of Plan...................................... 28
14.3 Status of Awards Under Code Section 162(m)................... 29
14.4 General Provisions........................................... 29
14.5 Mitigation of Excise Tax..................................... 30
14.6 Rights with Respect to Continuance of Employment............. 31
14.7 Awards in Substitution for Awards Granted by Other
Corporations................................................. 31
14.8 Procedure for Adoption....................................... 31
14.9 Procedure for Withdrawal..................................... 31
14.10 Delay........................................................ 32
14.11 Headings..................................................... 32
</TABLE>
iii
<PAGE>
<TABLE>
PAGE
----
<S> <C>
14.12 Severability................................................. 32
14.13 Successors and Assigns....................................... 32
14.14 Entire Agreement............................................. 32
</TABLE>
iv
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
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ESTABLISHMENT
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1.1 Purpose. The Compass International Services Corporation Employee
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Incentive Compensation Plan ("Plan") is hereby established by Compass
International Services Corporation ("Company"). The purpose of this Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating those persons selected to participate in this Plan to achieve long-
term growth in stockholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
The Plan and the grant of awards hereunder are expressly conditioned upon the
Plan's approval by the stockholders of the Company. If such approval is not
obtained, then this Plan and all Awards (as defined herein) hereunder shall be
null and void ab initio.
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ARTICLE II
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DEFINITIONS
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For purposes of this Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
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association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means any agreement entered into
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pursuant to this Plan pursuant to which an Award is granted to a Participant.
2.3 "Annual Incentive Award" means an award granted pursuant to Article
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XI.
2.4 "Award" means any Stock Option, Stock Appreciation Right, Restricted
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Stock, Deferred Stock, Performance Share or Annual Incentive Award granted to a
Participant under the Plan.
2.5 "Beneficiary" means the person, persons, trust or trusts which have
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been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee
to receive the benefit specified under the Plan to the extent permitted. If
there
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is no designated beneficiary, then the term means the person or persons, trust
or trusts entitled by will or the laws of descent and distribution to receive
such benefits.
2.6 "Board of Directors" or "Board" means the Board of Directors of the
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Company.
2.7 "Cause" shall mean, for purposes of whether and when a Participant has
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incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate a written agreement or arrangement (employment
or otherwise) between the Participant and the Company or an Affiliate for Cause
as defined in such agreement or arrangement, or in the event there is no such
agreement or arrangement or the agreement or arrangement does not define the
term "cause," then Cause shall mean (a) any act or failure to act deemed to
constitute cause under the Company's established practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or
omission constituting gross misconduct with respect to the Company or an
Affiliate in any material respect.
2.8 "Change in Control" and "Change in Control Price" have the meanings
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set forth in Sections 13.2 and 13.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
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1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
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successor agency.
2.11 "Committee" means the person or persons appointed by the Board of
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Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "disinterested"
persons or "non-employees" within the meaning of Rule 16b-3 and each of whom is
an "outside" director under Section 162(m) of the Code.
2.12 "Common Stock" means the shares of the regular voting Common Stock,
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$.01 par value per share, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of this Plan.
2.13 "Company" means Compass International Services Corporation, a Delaware
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corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities all or substantially all of the securities of the Company
shall be exchanged; and any assignee of or successor to substantially all of the
assets of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
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within the meaning of Section 162(m) of the Code.
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2.15 "Deferred Stock" means an award made pursuant to Article IX to receive
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Common Stock at the end of a specified period.
2.16 "Disability" means a mental or physical illness that entitles the
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Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. Notwithstanding the
foregoing, if the Participant and the Company or an Affiliate have entered into
an employment agreement which defines the term "Disability" (or a similar term),
such definition shall govern for purposes of determining whether such
Participant suffers a Disability for purposes of this Plan. The determination
of Disability shall be made by the Committee. The determination of Disability
for purposes of this Plan shall not be construed to be an admission of
disability for any other purpose.
2.17 "Effective Date" means February 27, 1998.
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2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
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and the rules and regulations promulgated thereunder.
2.19 "Extraordinary Termination of Employment" means the Termination of
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Employment of the Participant due to death, Disability or Retirement.
2.20 "Fair Market Value" means the fair market value of Common Stock,
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Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value per share of Common Stock as of any date shall be the closing
sale price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which the Common Stock is traded on the
date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.
2.21 "Grant Date" means the date that as of which an Award is granted
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pursuant to this Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be and
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designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.23 "Nonqualified Stock Option" means an Option to purchase Common Stock
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in the Company granted under this Plan the taxation of which is pursuant to
Section 83 of the Code.
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2.24 "Option Period" means the period during which the Option shall be
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exercisable in accordance with the Agreement and Article VI.
2.25 "Option Price" means the price at which the Common Stock may be
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purchased under an Option as provided in Section 6.3.
2.26 "Participant" means a person who satisfies the eligibility conditions
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of Article V and to whom an Award has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is by or for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with the Rule 16b-3 or the status of the Option as an Incentive
Stock Option to the extent intended. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
employee (and other terms intended to refer solely to the employee shall be
interpreted in a manner that is consistent with such intent).
2.27 "Performance Shares" means a right, granted under Article X, to
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receive Awards based upon criteria specified by the Committee.
2.28 "Plan" means this Compass International Services Corporation 1997
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Employee Incentive Compensation Plan, as the same may be amended from time to
time.
2.29 "Representative" means (a) the person or entity acting as the executor
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or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.30 "Restricted Stock" means an award of Common Stock under Article VIII
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that is subject to certain restrictions and a risk of forfeiture.
2.31 "Retirement" means the Participant's Termination of Employment after
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attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
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2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
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16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.33 "Stock Appreciation Right" means a right granted under Article VII.
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2.34 "Stock Option" or "Option" means a right to purchase stock on
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specified conditions granted under Article VI.
2.35 "Termination of Employment" means the occurrence of any act or event
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whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, consultant, director or employee of the Company or of any
Affiliate, or to be an officer, independent contractor, director or employee of
any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee with respect to the Company or an Affiliate, the
Agreement may establish what act or event shall constitute a Termination of
Employment for purposes of this Plan. A transfer of employment from the Company
to an Affiliate, or from an Affiliate to the Company, shall not be a Termination
of Employment, unless expressly determined by the Committee. A Termination of
Employment shall occur with respect to an employee who is employed by an
Affiliate if the Affiliate shall cease to be an Affiliate and the Participant
shall not immediately thereafter become an employee of the Company or an
Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
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ADMINISTRATION
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3.1 Committee Structure and Authority. This Plan shall be administered by
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the Committee which shall be comprised of one or more persons. The Committee
shall be the Compensation Committee of the Board of Directors, unless such
committee does not exist or the Board establishes a committee whose purpose is
the administration of this Plan. In the absence of an appointment, the Board or
the portion that qualifies as the Committee shall be the Committee. A majority
of the Committee shall constitute a quorum at any meeting thereof (including
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Committee. This Plan is intended to
qualify for exemption from Section 16(b) of the Exchange
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Act and to qualify as performance-based compensation under Section 162(m) of the
Code and shall be interpreted in such a way as to result in such qualification.
A member of the Committee shall not exercise any discretion respecting himself
or herself under this Plan. The Board shall have the authority to remove,
replace or fill any vacancy of any member of the Committee upon notice to the
Committee and the affected member. Any member of the Committee may resign upon
notice to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, (i) subject to
the terms of this Plan, and (ii) subject to the approval of the Board (to the
extent required to qualify an option granted hereunder for exemption under
Section 16(b) of the Exchange Act and as "performance-based compensation" under
Section 162(m) of the Code):
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation; any exercise acceleration
or forfeiture waiver or any performance criteria regarding any Award and
the shares of Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 14.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock.
(h) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
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(j) to determine what securities law requirements are applicable to
this Plan, Awards, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to
such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in this Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under this Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing this Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of this
Plan and any Award issued under this Plan (and any Agreement) and to otherwise
supervise the administration of this Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
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Any determination made by the Committee pursuant to the provisions of this
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of this Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of this Plan shall be final and binding on all persons, including the Company
and Participants. Any determination shall not be subject to de novo review if
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challenged in court.
ARTICLE IV
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STOCK SUBJECT TO PLAN
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4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
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total number of shares of Common Stock initially reserved and available for
distribution pursuant to Awards under this Plan shall be 2,000,000 shares of
Common Stock. Notwithstanding the foregoing, unless approved by the Board of
Directors, the number of shares of Common Stock available for distribution
hereunder shall not exceed 10% of the shares of Common Stock then outstanding;
provided, however, that the number of shares available shall at no time be less
than 2,000,000. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
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determine the number of shares of Common Stock available for Award, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Awards to a
particular Participant under any applicable law, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
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of an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Award Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock
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to be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in this Plan or as
the Committee may otherwise require. The Committee may require any person
exercising an Award to make such representations and furnish such information as
it may consider appropriate in connection with the issuance or delivery of the
shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares, with appropriate payment made with respect to such
fractional shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
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as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have a
reasonable time in which to issue the shares, and the Participant will not be
treated as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. If there has been an initial public
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offering of the Common Stock, the Company will register under the Securities Act
the Common Stock delivered or deliverable pursuant to Awards on Commission Form
S-8 if available to the Company for this purpose (or any successor or alternate
form that is substantially similar to that form to the extent available to
effect such registration), in accordance with the rules and regulations
governing such forms, as soon as such forms are available for registration to
the Company for this purpose. The Company will use its best efforts to cause
the registration statement to become effective as soon as possible and will file
such supplements and amendments to the registration statement as may be
necessary to keep the registration statement in effect until the earliest of (a)
one year following the expiration of the last relevant period of the last Award
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all shares of
Common Stock delivered pursuant to any Award. The Company may delay the
foregoing obligation if the Committee reasonably determines that any such
registration would materially and adversely affect the Company's interests or if
there is no material benefit to Participants.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
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split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee may adjust or substitute, as the case may be,
the number of shares of Common Stock available for Awards under this Plan, the
number of shares of Common Stock covered by outstanding Awards, the
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exercise price per share of outstanding Awards, and any other characteristics or
terms of the Awards as the Committee shall deem necessary or appropriate to
reflect equitably the effects of such changes to the Participants; provided,
however, that the Committee may limit any such adjustment so as to maintain the
deductibility of the Awards under Section 162(m) of the Code, and that any
fractional shares resulting from such adjustment shall be eliminated by rounding
to the next lower whole number of shares with appropriate payment for such
fractional share as shall reasonably be determined by the Committee.
ARTICLE V
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ELIGIBILITY
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5.1 Eligibility. Except as herein provided, the persons who shall be
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eligible to participate in this Plan and be granted Awards shall be those
persons who are officers, directors, employees or consultants of the Company or
any subsidiary, who shall be in a position, in the opinion of the Committee, to
make contributions to the growth, management, protection and success of the
Company and its subsidiaries. Of those persons described in the preceding
sentence, the Committee may, from time to time, select persons to be granted
Awards and shall determine the terms and conditions with respect thereto. In
making any such selection and in determining the form of the Award, the
Committee may give consideration to the functions and responsibilities of the
person's contributions to the Company and its subsidiaries, the value of the
individual's service to the Company and its subsidiaries and such other factors
deemed relevant by the Committee. The Committee may designate any person who is
not eligible to participate in this Plan if such person would otherwise be
eligible to participate in this Plan (and members of the Committee are expressly
excluded from participation to the extent necessary for purposes of Rule 16b-3,
Section 162(m) of the Code or any other legal reason).
ARTICLE VI
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STOCK OPTIONS
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6.1 General. The Committee shall have authority to grant Options under
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this Plan at any time or from time to time. Stock Options may be granted alone
or in addition to other Awards and may be either Incentive Stock Options or Non-
Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
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date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions
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of such Option and which shall be subject to the express terms and conditions
set forth in this Plan. Such Agreement shall become effective upon execution by
the Participant. Only a person who is a common-law employee of the Company, any
parent corporation of the Company or a subsidiary (as such terms are defined in
Section 424 of the Code) on the Grant date shall be eligible to be granted an
Option which is intended to be and is an Incentive Stock Option. To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Non-Qualified Stock Option.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
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and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
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fixed by the Committee; provided that no Non-Qualified Stock Option shall
be exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option, the Option Period shall
not exceed ten (10) years from the date of grant or five (5) years in the
case of an individual who owns more than ten percent (10%) of the combined
voting power of all classes of stock of the Company, a corporation which is
a parent corporation of the Company or any subsidiary of the Company (each
as defined in Section 424 of the Code). No Option which is intended to be
an Incentive Stock Option shall be granted more than ten (10) years from
the date this Plan is adopted by the Company or the date this Plan is
approved by the stockholders of the Company, whichever is earlier.
(b) Option Price. The Option Price per share of the Common Stock
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purchasable under an Option shall be determined by the Committee. If such
Option is intended to qualify as an Incentive Stock Option, the Option
Price per share shall be not less than the Fair Market Value per share on
the date the Option is granted, or where granted to an individual who owns
or who is deemed to own stock possessing more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a corporation
which is a parent corporation of the Company or any subsidiary of the
Company (each as defined in Section 424 of the Code), not less than one
hundred ten percent (110%) of such Fair Market Value per share.
(c) Exercisability. Subject to Section 13.1, Stock Options shall be
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exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part.
In addition, the Committee may at any time accelerate the exercisability of
any Stock Option. If the Committee intends that an Option be an Incentive
Stock Option, the Committee shall, in its discretion, provide that the
aggregate Fair Market Value (determined at the Grant Date) of Incentive
Stock Option which is exercisable for the first time during the calendar
year shall not exceed $100,000.
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(d) Method of Exercise. Subject to the provisions of this Article VI,
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a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee (including approval at the
time of exercise), payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal to the Option Price;
(ii) by the execution and delivery of a note or other evidence of
indebtedness (and any security agreement thereunder) satisfactory to the
Committee and permitted in accordance with Section 6.3(e); (iii) by
authorizing the Company to retain shares of Common Stock which would
otherwise be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the Option Price; (iv) by the
delivery of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); (v) by certifying ownership of shares of Common Stock owned by
the Participant to the satisfaction of the Committee for later delivery to
the Company as specified by the Company; or (vi) by any combination of the
foregoing. If payment of the Option Price of a Non-Qualified Stock Option
is made in whole or in part in the form of Restricted Stock or Deferred
Stock, the number of shares of Common Stock to be received upon such
exercise equal to the number of shares of Restricted Stock or Deferred
Stock used for payment of the Option Price shall be subject to the same
forfeiture restrictions or deferral limitations to which such Restricted
Stock or Deferred Stock was subject, unless otherwise determined by the
Committee. In the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares of Common Stock of the same
class as the Common Stock subject to the Stock Option may be authorized
only at the time the Stock Option is granted. No shares of Common Stock
shall be issued until full payment therefor, as determined by the
Committee, has been made. Subject to any forfeiture restrictions or
deferral limitations that may apply if a Stock Option is exercised using
Restricted Stock or Deferred Stock, a Participant shall have all of the
rights of a stockholder of the Company holding the class of Common Stock
that is subject to such Stock Option (including, if applicable, the right
to vote the shares and the right to receive dividends), when the
Participant has given written notice of exercise, has paid in full for such
shares and such shares have been recorded on the Company's official
stockholder records as having been issued and transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
-------------------------
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
12
<PAGE>
(i) lend to the Participant, an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse against the Participant
and any security interest thereunder, shall be determined by the Committee,
except that no extension of credit or guarantee shall obligate the Company
for an amount to exceed the lesser of the aggregate Fair Market Value per
share of the Common Stock on the date of exercise, less the par value of
the shares of Common Stock to be purchased upon the exercise of the Award,
or the amount permitted under applicable laws or the regulations and rules
of the Federal Reserve Board and any other governmental agency having
jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
------------------------------
an Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option (as applicable), no Stock Option or interest therein
shall be transferable by the Participant other than by will or by the laws
of descent and distribution or by a designation of beneficiary effective
upon the death of the Participant, and all Stock Options shall be
exercisable during the Participant's lifetime only by the Participant. If
and to the extent transferability is permitted by Rule 16b-3 and except as
otherwise provided herein or by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer does not
result in liability under Section 16 of the Exchange Act to the Participant
or other Participants and is consistent with registration of the Option and
sale of Common Stock on Form S-8 (or a successor form) or the Committee's
waiver of such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of one (1)
year (or such other period or no period as the Committee may specify)
immediately following the date of such death or until the expiration of the
Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
-----------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of one (1) year (or such other period or no period as
the Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise
13
<PAGE>
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
-----------------
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an Agreement or determined by the Committee, if the
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not due to Retirement) or (b) with Cause,
the Option shall terminate immediately. Unless otherwise provided in an
Agreement or determined by the Committee, the death or Disability of a
Participant after a Termination of Employment otherwise provided herein shall
not extend the exercisability of the time permitted to exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
---------------------
Committee may elect to cash out all or part of the portion of any Stock Option
by paying the Participant an amount, in cash or Common Stock, equal to the
excess of the Fair Market Value of the Common Stock that is subject to the
Option over the Option Price times the number of shares of Common Stock subject
to the Option on the effective date of such cash out.
6.8 Formula Grants. Each person who is a non-employee Director on the
--------------
Effective Date shall become a Participant and shall be granted an Option to
purchase ten thousand (10,000) shares of Common Stock without further action by
the Board or the Committee. Each non-employee who is subsequently elected or
appointed as a Director shall become a Participant and shall, on his date of
election or appointment, without further action by the Board or the Committee,
be granted an Option to purchase ten thousand (10,000) shares of Common Stock.
Thereafter, on the date of each annual meeting of stockholders of the Company
after which a Participant continues as a non-employee Director, but only with
respect to an annual meeting which is more than three months after the date of
the initial grant of an Option to such Participant under this Section 6.8, such
Participant shall be granted an Option to purchase five thousand (5,000) shares
of Common Stock. If the number of shares of Common Stock available to grant
under the Plan on a scheduled date of grant is insufficient to make all
automatic grants required to be made pursuant to the Plan on such date, then
each eligible Director shall receive an Option to purchase a pro rata number of
the remaining shares of Common Stock available under the Plan; provided further,
however, that if such proration results in fractional shares of Common Stock,
then such Option shall be rounded down to the nearest number of whole shares of
Common Stock. If there is no whole number of shares remaining to be granted,
then no grants shall be made under the Plan. Each Option granted under the Plan
shall be evidenced by an Agreement, in a form approved by the Committee, which
shall embody the terms and conditions of such Option and which shall be subject
to the express terms and conditions set forth in the Plan. Such Agreement shall
become effective upon execution by the Participant.
14
<PAGE>
Any Option granted pursuant to this Section 6.8 shall terminate upon the first
anniversary of the date the Participant first ceased to hold the position of
Director.
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Stock
-------
Appreciation Rights under this Plan at any time or from time to time. Subject
to the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with this Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
-----
all or part of any Stock Option granted under this Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of the Stock Option
will result in cancellation of a corresponding portion of the Stock Appreciation
Right. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right may also be granted on a stand
alone basis. The grant of a Stock Appreciation Right shall occur as of the date
the Committee determines. Each Stock Appreciation Right granted under this Plan
shall be evidenced by an Agreement, which shall embody the terms and conditions
of such Stock Appreciation Right and which shall be subject to the terms and
conditions set forth in this Plan. During any three-calendar-year period, no
more Stock Appreciation Rights shall be granted to any Participant than the
number of Options that may be granted to any Participant under Section 6.1.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
-------------------
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand alone basis shall be for such period and shall be
exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form provided by the Committee to the
Company specifying the portion of the Stock Appreciation Right to be
exercised.
15
<PAGE>
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
------
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Committee or as otherwise
permitted in an Agreement equal in value to the excess of the Fair Market
Value per share of Common Stock over the Option Price per share of Common
Stock specified in the related Agreement multiplied by the number of shares
in respect of which the Stock Appreciation Right is exercised. In the case
of a Stock Appreciation Right granted on a stand alone basis, the Agreement
shall specify the value to be used in lieu of the Option Price per share of
Common Stock. The aggregate Fair Market Value per share of the
Common Stock shall be determined as of the date of exercise of such Stock
Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights relating
-------------
to Stock Options held by Participants who are actually or potentially
subject to Section 16(b) of the Exchange Act to the extent required by Rule
16b-3:
(i) The Committee may require that such Stock Appreciation
Rights be exercised only in accordance with the provisions
of Rule 16b-3; and
(ii) The Committee may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights (other than those
relating to Incentive Stock Options) shall be based on the
highest mean sales price of the Common Stock on the
principal exchange on which the Common Stock is traded,
NASDAQ or other relevant market for determining value.
(d) Non-transferability of Stock Appreciation Rights. Stock
------------------------------------------------
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under this Plan unless otherwise
provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at such
-----------
time as a Stock Option would terminate under this Plan, unless otherwise
provided in an Agreement.
(f) Effect on Shares Under this Plan. Upon the exercise of a Stock
--------------------------------
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4.1 on the number of
shares of Common Stock to be issued under this Plan, but only to the extent
of the number of shares of Common Stock covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(g) Incentive Stock Option. A Stock Appreciation Right granted in
----------------------
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of
16
<PAGE>
the Common Stock on the date of exercise exceeds the Option Price. In no
event shall any amount paid pursuant to the Stock Appreciation Right exceed
the difference between the Fair Market Value on the date of exercise and
the Option Price.
ARTICLE VIII
------------
RESTRICTED STOCK
----------------
8.1 General. The Committee shall have authority to grant Restricted Stock
-------
under this Plan at any time or from time to time. Shares of Restricted Stock
may be awarded either alone or in addition to other Awards granted under this
Plan. The Committee shall determine the persons to whom and the time or times
at which grants of Restricted Stock will be awarded, the number of shares of
Restricted Shares to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate (including a division or department of the
Company or an Affiliate) for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Restricted Stock Awards need not be the same with
respect to any Participant. The purchase price for shares of Restricted Stock
shall be set by the Committee and may be zero.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
-----------------------
of shares of Common Stock otherwise provided in this Plan, each Participant
receiving an Award of Restricted Stock shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in the
name of such Participant and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
--------------------
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
------------------------------
Plan and the Agreement, during a period set by the Committee, commencing
with the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber any interest in shares of Restricted Stock. Unless otherwise
determined by the Committee, awards of Restricted Stock must be accepted by
a Participant within a period of 60 days (or such shorter periods as the
Committee may specify at grant) after the Grant Date, by executing a
Restricted Stock Agreement and paying whatever price, if any, is required.
The Participant shall not have any rights with
17
<PAGE>
respect to such Award, unless and until such Participant has executed an
agreement evidencing the Award and has delivered a fully executed copy
thereof to the Company, and has otherwise complied with the applicable
terms and conditions of such Award.
(b) Rights. Except as provided in Section 8.3(a), the Participant
------
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends.
Unless otherwise determined by the Committee and subject to this Plan, cash
dividends on the class of Common Stock that is the subject of the
Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as the Common
Stock on which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
--------
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and this Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death or
Disability, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a
--------
prior forfeiture of the Restricted Stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of the
--------
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to completion of
the Restriction Period.
18
<PAGE>
ARTICLE IX
----------
DEFERRED STOCK
--------------
9.1 General. The Committee shall have authority to grant Deferred Stock
-------
under this Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under this Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the
--------------------
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of this
------------------------------
Plan and except as may otherwise be provided in an Agreement, neither
Deferred Stock Awards, nor any interest therein, may be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period.
At the expiration of the Deferral Period (or Elective Deferral Period as
defined in Section 9.2(e), where applicable), the Committee may elect to
deliver Common Stock, cash equal to the Fair Market Value of such Common
Stock or a combination of cash and Common Stock, to the Participant for the
shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
------
to this Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
--------
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
19
<PAGE>
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) Election. A Participant may elect to further defer receipt of the
--------
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event (an "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made at least one (1) year
prior to completion of the Deferral Period for the Award (or the applicable
installment thereof).
ARTICLE X
---------
PERFORMANCE SHARES
------------------
10.1 General. Subject to the terms and conditions described below,
-------
Performance Shares may be granted to any Participant at any time and from time
to time as determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Shares granted to each
Participant; provided, however, that no Participant who is a Covered Employee
may earn more than one half the number of shares of Common Stock reserved under
the Plan as Performance Shares with respect to any Performance Period (as
defined below).
10.2 Price. The purchase price for Performance Shares shall be zero unless
-----
otherwise specified by the Committee.
10.3 Performance Share Agreement. Subject to the provisions of this Plan,
---------------------------
all the terms and conditions of an Award of Performance Shares shall be
determined by the Committee in its discretion and shall be confirmed by a
Performance Share Award Agreement which shall be executed by the Company and the
Participant. Not later than the date required or permitted for "qualified
performance-based compensation" under Code Section 162(m), the Committee shall
determine the Participants who are Covered Employees who will potentially
receive individual Performance Share Awards for the Performance Period and the
amount or method for determining the amount of such Participant's number of
Performance Shares.
20
<PAGE>
10.4 Performance Periods. Any time period (the "Performance Period")
-------------------
relating to a Performance Share Award (commencing with the Grant Date) shall be
at least one calendar or Company fiscal year in length unless otherwise provided
by the Committee.
10.5 Performance Goals. Not later than the date required or permitted for
-----------------
"qualified performance-based compensation" under Section 162(m), the Committee
shall establish in writing the performance goals ("Performance Goals") for such
Performance Period, which shall be based on any of the following performance
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may determine: sales, net asset turnover,
earnings per share, cash flow, cash flow from operations, operating profit or
income, net income, operating margin, net income margin, return on net assets,
return on total assets, return on common equity, return on total capital, and
total shareholder return. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items as the Committee may specify; extraordinary, unusual
or nonrecurring items; effects of accounting changes; effects of financing
activities (e.g., effect on earnings per share of issuance of convertible debt
securities); expenses for restructuring or productivity initiates; other
nonoperating items; spending for acquisitions; effects of divestitures; and
effects of litigation activities and settlements. Any such performance
criterion or combination of such criteria may apply to the Participant's Award
opportunity in its entirety or to any designated portion or portions of the
Award opportunity, as the Committee may specify. Unless the Committee
determines otherwise for any Performance Period, extraordinary items, such as
capital gains and losses, which affect any performance criterion applicable to
the Award (including but not limited to the criterion of net income) shall be
excluded or included in determining the extent to which the correspondence
performance goal has been achieved, whichever will produce the higher Award.
The Committee may, in its discretion, vary the terms and conditions of any
Performance Share Award, including, without limitation, the Performance Period
and Performance Goals, without shareholder approval, as applied to any recipient
who is not a Covered Employee with respect to the Company. In the event
applicable tax or securities laws change to permit the Committee discretion to
alter the governing performance measures without obtaining shareholder approval
of such changes, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.
10.6 Earning of Performance Shares. After the applicable Performance
-----------------------------
Period shall have ended, the Committee shall certify the extent to which the
established Performance Goals have been achieved. The retention of Performance
Shares shall be a direct function of the extent to which the Company's
Performance Goals have been achieved. A Participant may earn more or less than
the number of Performance Shares originally awarded, or no Performance Shares at
all. Performance Shares shall be paid in the form of Common Stock.
Unrestricted certificates representing such number of shares of Common Stock as
equals the number of Performance Shares earned under the Award shall be
delivered to the Participant as soon as practicable after the end of the
applicable Performance Period. Participants shall also be entitled to any
dividends or other distributions that have been or would have been paid or
earned in respect of such shares of Common Stock during the period from the
initial award date to the final payout on the Performance Shares, and may be
paid in the form of Common Stock. Unless
21
<PAGE>
otherwise provided, in its discretion, by the Committee, any such dividends or
other distributions shall not bear interest. All determinations by the Committee
as to the establishment of Performance Goals and the potential Awards related to
such Performance Goals and as to the achievement of Performance Goals relating
to such Awards, and the number of any Performance Shares shall be made in
writing in the case of any Award intended to qualify under Code Section 162(m).
The Committee may not delegate any responsibility relating to such Awards, and
may not exercise discretion to increase the amount payable in respect of a
Performance Share Award to a Covered Employee.
10.7 Termination of Employment Due to Death, Disability or Retirement
----------------------------------------------------------------
or at the Request of the Company Without Cause. In the event of an
- ----------------------------------------------
Extraordinary Termination of Employment or a Termination of Employment by the
Company without Cause during a Performance Period, the Participant may receive a
prorated payout with respect to the Performance Shares relating to such
Performance Period. The prorated payout shall be determined by the Committee,
in its sole discretion, and shall be based upon the length of time that the
Participant held the Performance Shares during the Performance Period and based
upon the achievement of the established Performance Goals. Distribution of
earned Performance Shares shall be made at the same time payments are made to
Participants who did not incur a Termination of Employment during the applicable
Performance Period.
10.8 Termination of Employment for Other Reasons. Unless otherwise
-------------------------------------------
provided in an Agreement, in the event that a Participant's employment
terminates for any reason other than those reasons set forth in Section 10.7,
all Performance Shares shall be forfeited by the Participant to the Company.
10.9 Nontransferability. Unless otherwise provided in an Agreement,
------------------
Performance Shares may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. Further, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or a
Representative.
10.10 Amendment of Awards. The Committee has discretion, subject to
-------------------
the Plan's constituting a plan of performance-based compensation under Code
Section 162(m), to vary the terms and conditions of any Performance Share Award,
including, without limitation, the Performance Goals, without shareholder
approval, as applied to any Participant who is not a "covered employee" with
respect to the Company as defined in Section 162(m) of the Code.
ARTICLE XI
----------
ANNUAL INCENTIVE AWARDS
-----------------------
11.1 Eligibility. Participants designated by the Committee shall be
-----------
eligible for an Annual Incentive Award, the amount of which will be based on the
satisfaction of specified
22
<PAGE>
bonus targets ("Award Targets"). Not later than the date required as permitted
for "qualified performance-based compensation" under Code Section 162(m), the
Committee shall establish in writing (i) the Award Targets and (ii) the Annual
Incentive Awards which may be earned by Participants, based upon the extent to
which the Award Targets are achieved ("Award Opportunities"). The Award Targets
and Award Opportunities shall be confirmed in Agreements between the Company and
the Participants. The Award Targets shall be based on any of the following
performance criteria, either alone or in any combination, and on either a
consolidated or business unit level, as the Committee may determine: sales, net
asset turnover, earnings per share, cash flow, cash flow from operations,
operating profit or income, net income, operating margin, net income margin,
return on net assets, return on total assets, return on common equity, return on
total capital, and total shareholder return. The foregoing criteria shall have
any reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items; effects of accounting changes;
effects of financing activities (e.g., effect on earnings per share of issuance
of convertible debt securities); expenses for restructuring or productivity
initiates; other nonoperating items; spending for acquisitions; effects of
divestitures; and effects of litigation activities and settlements. Any such
performance criterion or combination of such criteria may apply to the
Participant's Award opportunity in its entirety or to any designated portion or
portions of the Award opportunity, as the Committee may specify. Unless the
Committee determines otherwise for any Performance Period, extraordinary items,
such as capital gains and losses, which affect any performance criterion
applicable to the Award (including but not limited to the criterion of net
income) shall be excluded or included in determining the extent to which the
corresponding performance goal has been achieved, whichever will produce the
higher Award. The Committee may specify the amount of the individual Award as a
percentage of such business criteria, a percentage thereof in excess of a
threshold amount, or another amount which need not bear a strictly mathematical
relationship to such relationship criteria. With respect to any Performance
Period, the Committee may establish an aggregate limit or individual limit with
respect to the value of the Awards.
11.2 Earning of Annual Incentive Awards. After the applicable fiscal year
----------------------------------
shall have ended, the Committee shall certify in writing the extent to which the
established Award Targets have been achieved. The Committee may, in its
discretion, determine that the amount payable to any Participant as a final
Annual Incentive Award shall be increased or reduced from the amount of his or
her potential Award, including a determination to make no final Award
whatsoever, but the Committee may not exercise discretion to increase any such
amount in the case of an individual Award with respect to a Covered Employee
intended to qualify under Code Section 162(m). Unless otherwise determined by
the Committee, during a Performance Period, an Award shall be payable under this
Plan to the Participant who incurs an Extraordinary Termination of Employment or
a Termination of Employment by the Company without cause, which shall be
adjusted, pro rata, for the period of time during the year the Participant
actually worked. Unless otherwise provided by the Committee, a Participant who
incurs a Termination of Employment other than an Extraordinary Termination of
Employment or a Termination of Employment by the Company with Cause prior to the
end of the Performance Period shall not be entitled to any Award under the
Performance Period. Subsequently, the Committee shall calculate the Annual
Incentive Award (if any) for each Participant, based upon the Award
23
<PAGE>
Opportunities established by the Committee prior to the beginning of the
applicable year. Each Annual Incentive Award shall be solely a function of the
degree to which the established Award Targets have been achieved.
11.3 Payments and Election. Participants may elect to receive Annual
---------------------
Incentive payouts in cash, Common Stock, Deferred Stock, Restricted Stock or a
combination of the foregoing, provided that any election for payment in Common
Stock is subject to the approval of the Committee. Payouts with respect to a
fiscal year will be made within ninety (90) days of the end of such year. To
elect the payout of a portion of an Annual Incentive Award in Common Stock, a
Participant must inform the Committee in writing prior to the start of the
fiscal year with respect to which payout would be made or at such other time as
the Committee may permit. Unless modified by the Committee before the beginning
of a fiscal year of the Company, terms and conditions of Deferred or Restricted
Stock payouts shall include the following:
(a) Any portion of an Annual Incentive Award can be elected for payout
in Deferred or Restricted Stock, either in a dollar amount or as a
percentage of the total Annual Incentive Award.
(b) Deferred or Restricted Stock will be issued on the same date that
cash payouts would be made, based on the closing price of the Common Stock
as of the date of the award ("Closing Price") on the principal exchange on
which the Common Stock shall then be listed or quoted.
(c) Deferred or Restricted Stock will be issued pursuant to, and shall
be subject to the terms and conditions contained in this Plan. Unless
otherwise agreed, the Deferral Period or Restriction Period, respectively,
will be for a period determined by the Committee of at least three (3)
years in duration, after which time the Common Stock will be distributed or
released to the Participant.
(d) The number of shares of Deferred Stock or Restricted Stock granted
to a Participant will equal the product of (A) such number of shares of
Common Stock as have an aggregate closing price equal to the dollar amount
of the Annual Incentive Award elected to be received in the form of
Deferred Stock or Restricted Stock, multiplied by (B) a factor greater than
1.00 but less than or equal to 1.30, as determined by the Committee prior
to the beginning of the Company's applicable fiscal year.
(e) If the Participant (who is not a Covered Employee) incurs a
Termination of Employment by reason of death, Disability or Retirement or
by the Company without Cause, the Committee, at its discretion, may provide
for waiver of all, or a portion of the deferrals or restrictions applicable
to such Awards. If the Participant's incurs a Termination of Employment
for any other reason, the shares of Deferred or Restricted Stock may be
forfeited.
24
<PAGE>
11.4 Amendment of Awards. The Committee has discretion, subject to the
-------------------
Plan's constituting a plan of performance-based compensation under Code Section
162(m), to vary the terms and conditions of any Annual Incentive Award,
including, without limitation, the Award Targets, without shareholder approval,
as applied to any Participant who is not a "covered employee" with respect to
the Company as defined in Section 162(m) of the Code.
11.5 Performance Threshold. The Committee may establish minimum levels of
---------------------
Company performance which must be achieved during a fiscal year before any
Annual Incentive Awards shall be paid to Participants.
11.6 Maximum Awards. The Committee may establish guidelines governing the
--------------
maximum Annual Incentive Awards that may be earned by Participants (either in
the aggregate, by employee class or among individual Participants), provided
that no Participant may receive an Annual Incentive Award in an amount
(including the value of any Common Stock constituting any portion of such Annual
Incentive Awards) greater than $1,500,000 with respect to any fiscal year of the
Company.
ARTICLE XII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN
-------------------------------------------------------
12.1 Limited Transfer During Offering. In the event there is an effective
--------------------------------
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
12.2 No Company Obligation. None of the Company, an Affiliate or the
---------------------
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XIII
------------
CHANGE IN CONTROL PROVISIONS
----------------------------
13.1 Impact of Event. Notwithstanding any other provision of this Plan to
---------------
the contrary, in the event of a Change in Control (as defined in Section 13.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
25
<PAGE>
(a) to provide that the Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change in Control which are not then
exercisable shall become fully exercisable to the full extent of the
original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock or other Award shall
lapse, and such Restricted Stock, Deferred Stock or other Award shall
become free of all restrictions and become fully vested and transferrable
to the full extent of the original grant;
(c) to deem any performance goal or other condition with respect to
any Performance Shares or Annual Incentive Award to have been satisfied in
full, and such Award shall be fully distributable;
(d) to cause any Award to be cancelled, provided notice of at least 15
days thereof is provided before the date of cancellation;
(e) to provide that the securities of another entity be substituted
hereunder for the Common Stock and to make equitable adjustment with
respect thereto;
(f) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to surrender
all or part of a stock-based Award to the Company and to receive cash in an
amount equal to the amount by the "Change in Control Price" (as defined in
Section 13.3) per share of the Common Stock on the date of the election
exceeds the amount the Participant must pay to exercise the Award per share
of Common Stock under the Award (the "Spread") multiplied by the number of
shares of Common Stock granted under the Award; and
(g) to take any other action the Committee determines to take.
13.2 Definition of Change in Control. For purposes of this Plan, a "Change
-------------------------------
in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of thirty percent (30%) or more of either (i) the then-
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company other than in connection with the acquisition by
the Company or an Affiliate of a business, (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the
26
<PAGE>
Company, (iv) any acquisition by a lender to the Company pursuant to a debt
restructuring of the Company, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 13.2;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board.
(c) Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than sixty percent (60%) of, respectively, the
then-outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, thirty percent
(30%) or more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company other than to a corporation which
would satisfy the
27
<PAGE>
requirements of clauses (i), (ii) or (iii) of Subsection (c) of this
Section 13.2, assuming for this purpose that such liquidation or
dissolution was a Business Combination.
13.3 Change in Control Price. For purposes of this Plan, "Change in
-----------------------
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on Nasdaq during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a Corporate Transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or a
Corporate Transaction, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 Amendments and Termination. The Board may amend, alter or discontinue
--------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Company or an Affiliate, (b) made to cause the
Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement. The Committee may
amend, alter or discontinue the terms of any Award theretofore granted,
prospectively or retroactively, on the same conditions and limitations (and
exceptions to limitations) as the Board and further subject to any approval or
limitations the Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Common Stock having a Fair Market Value equal to the cash otherwise payable
hereunder for the right which caused the transaction to be ineligible for
pooling of interest accounting.
14.2 Unfunded Status of Plan. It is intended that this Plan be an
-----------------------
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under this Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the
28
<PAGE>
existence of such trusts or other arrangements is consistent with the "unfunded"
status of this Plan.
14.3 Status of Awards Under Code Section 162(m). It is the intent of the
------------------------------------------
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
14.4 General Provisions.
------------------
(a) Representation. The Committee may require each person purchasing
--------------
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in this Plan shall
------------------------
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
-----------
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. To the extent permitted by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Award that gives rise to the withholding requirement
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under this Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant. If the
Participant disposes of shares of Common Stock acquired pursuant to an
Incentive Stock Option in any transaction considered to be a disqualifying
transaction under the Code, the Participant must give written notice of
such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant.
29
<PAGE>
(d) Reinvestment. The reinvestment of dividends in additional
------------
Deferred or Restricted Stock at the time of any dividend payment shall only
be permissible if sufficient shares of Common Stock are available for such
reinvestment (taking into account then outstanding Options and other
Awards).
(e) Representation. The Committee shall establish such procedures as
--------------
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. This Plan and all Awards made and actions taken
---------------
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law).
This Plan shall be construed to comply with all applicable law, and to
avoid liability to the Company, an Affiliate or a Participant, including,
without limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
(i) Right to Capitalize. The grant of an Award shall in no way affect
-------------------
the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
14.5 Mitigation of Excise Tax. Subject to any other agreement between the
------------------------
Participant and the Company or an Affiliate, if any payment or right accruing to
a Participant under this Plan (without the application of this Section 14.5),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
30
<PAGE>
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under this Plan being subject to an excise tax under Section 4999 of
the Code or being disallowed as a deduction under Section 280G of the Code. The
determination of whether any reduction in the rights or payments under this Plan
is to apply shall be made by the Committee in good faith after consultation with
the Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee
in making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 14.5 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of this
Plan and after reduction for only federal income taxes.
14.6 Rights with Respect to Continuance of Employment. Nothing contained
------------------------------------------------
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
14.7 Awards in Substitution for Awards Granted by Other Corporations.
---------------------------------------------------------------
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
14.8 Procedure for Adoption. Any Affiliate of the Company on the Effective
----------------------
Date shall be deemed to have adopted this Plan on the Effective Date. Any other
Affiliate of the Company may by resolution of such Affiliate's board of
directors, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, adopt this Plan as of
the date specified in the board resolution.
14.9 Procedure for Withdrawal. Any Affiliate which has adopted this Plan
------------------------
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of this Plan.
31
<PAGE>
14.10 Delay. If at the time a Participant incurs a Termination of
-----
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under this Plan or an Agreement to
the extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in this Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee shall have the discretion to suspend
the application of the provisions of this Plan required solely to comply with
Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to
this Plan.
14.11 Headings. The headings contained in this Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of this Plan.
14.12 Severability. If any provision of this Plan shall for any reason
------------
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed as
if such invalid or unenforceable provision were omitted.
14.13 Successors and Assigns. This Plan shall inure to the benefit of and
----------------------
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
14.14 Entire Agreement. This Plan and the Agreement constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between this Plan and the Agreement, the terms
and conditions of the Agreement shall control.
Effective as of February 27, 1998.
COMPASS INTERNATIONAL SERVICES CORPORATION
By /s/ Michael J. Cunningham
--------------------------------------
Michael J. Cunningham
Chairman and Chief Executive Officer
32
<PAGE>
EXHIBIT 10.2
COMPASS INTERNATIONAL SERVICES CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(1997)
INTRODUCTION
------------
The purpose of this Employee Stock Purchase Plan (the "PLAN") is to benefit
Compass International Services Corporation (the "CORPORATION") (and its parent
or subsidiaries) by offering eligible employees a favorable opportunity to
become stockholders of the Corporation over a period of years, thereby giving
them a proprietary interest in the growth and prosperity of the Corporation and
encouraging the continuance of their dedicated services with the Corporation (or
its parent or subsidiaries).
Pursuant to this Plan, 500,000 shares of authorized but unissued common
stock of the Corporation may be offered for sale to eligible employees (as
determined under Section 2 of this Plan) through periodic offerings to be made
during the ten-year period commencing April 1, 1998 (the "EFFECTIVE DATE"). The
Plan will be implemented by making four (4) offerings annually of the
Corporation's common stock (the "OFFERINGS" and individually, an "OFFERING"),
beginning on the first day of each calendar quarter, each Offering terminating
on the last day of such quarter ("OFFERING PERIOD"). The maximum number of
shares issued in each Offering shall be 25,000 shares.
The Plan is intended to qualify as an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "CODE"), and
the regulations promulgated thereunder.
<PAGE>
1. COMMITTEE. The Plan will be administered by a committee (the
---------
"COMMITTEE") appointed by the Corporation's Board of Directors. The Committee
shall consist of one or more members of the Board of Directors, none of whom
shall be eligible to participate in the Plan. The Committee's interpretations
and decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. All employees of the Corporation (and its parent and
-----------
subsidiaries) on the date of any Offering (as hereinafter described) shall be
eligible to participate in the Plan, except that the following classes of
employees shall not be eligible:
(a) employees who are not employed by the Corporation (or its parent or
one of its subsidiaries) as of the date one year prior to the first
day of an Offering;
(b) employees whose customary employment is for not more than 5 months in
any calendar year;
(c) employees who would, immediately after the grant of an option under
the Plan, own Corporation stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the
Corporation (or its parent or subsidiaries);
(d) employees whose customary employment with the Corporation is 20 hours
or less per week;
(e) members of the Committee.
For purposes of subparagraph (a), above, a participating employee who
terminates his or her employment and is subsequently reemployed by the
Corporation (or its parent or one of its subsidiaries) within one year of the
termination date shall be eligible to participate in any Offering under this
Plan as of the first day of the Offering Period following the one year
anniversary of the date of such reemployment (as if the employee were a new
employee). Additionally, in determining an employee's employment for purposes
of this Plan, such
-2-
<PAGE>
employee's employment with any business entity, the assets, business, stock or
product line of which is acquired by the Corporation (or its parent or one of
its subsidiaries) through purchase, merger or otherwise will be deemed to be
employment with the Corporation. For purposes of subparagraph (c) of this
Section 2, the rules of Section 424(d) of the Code shall apply in determining
the stock ownership of an employee, and stock which the employee may purchase
under outstanding options shall be treated as stock owned by the employee. For
purposes of this Plan, a subsidiary of the Corporation shall mean a "SUBSIDIARY
CORPORATION" as defined in Section 424(f) of the Code, and a parent of the
Corporation shall mean a "PARENT CORPORATION" as defined in section 424(e) of
the Code.
3. OFFERINGS. The Corporation will make four (4) annual Offerings to
---------
employees to purchase stock under this Plan. Each Offering Period shall be
three (3) months in duration, during which the amounts of Base Compensation (as
defined below) directed pursuant to Section 4 by an employee (plus the amount of
any dividends received on any shares purchased by the employee under the Plan
while such shares are registered in the name of a custodian, if one is appointed
pursuant to Section 9 hereof) shall constitute the measure by which the
employee's participation in the Offering is based. For all purposes of this
Plan, "BASE COMPENSATION" shall mean cash payments on account of the employee's
employment with the Corporation or its subsidiaries, and shall include regular
wage or salary payments only. Overtime premium, shift pay for Saturday, Sunday
or holiday work, emergency call-in cash payments, bonuses, commissions and all
other non-regular compensation, if any, shall be excluded from Base Compensation
for both salaried and hourly employees.
-3-
<PAGE>
No employee may be granted an option which permits his rights to purchase
stock under this Plan, and any other stock purchase plan of the Corporation (and
its parent or subsidiaries), to accrue at a rate which exceeds $25,000 of the
fair market value of such stock (determined at the effective date of the
Offering) for each calendar year in which the Offering is outstanding at any
time. For purposes of the preceding sentence, the rules set forth in Section
423(b)(8) of the Code shall apply.
4. PARTICIPATION. Subject to the third sentence of Section 7, an
-------------
employee eligible on the effective date of any Offering may participate in such
Offering on any enrollment date by completing and forwarding a payroll deduction
authorization form to the Human Resources Department. The form will authorize a
regular payroll deduction from the employee's direct, after-tax Base
Compensation, and must specify the date on which such deduction is to commence,
which shall be the first day of the next Offering Period and may not be
retroactive. The form may also authorize the purchase of additional shares with
any dividends received on any shares purchased by the employee under this Plan
while such shares are registered in the name of a custodian, if one is appointed
pursuant to Section 9 hereof.
5. PAYROLL DEDUCTIONS. The Corporation will maintain payroll deduction
------------------
accounts for all participating employees. With respect to any Offering made
under this Plan, an employee may authorize a payroll deduction in terms of whole
number percentages from a minimum of 1% up to a maximum of 10% of the gross,
pre-tax Base Compensation an employee receives during the Offering Period.
Notwithstanding the foregoing, in no event may more than $5,000.00 be deducted
from an employee's Base Compensation for each Offering Period.
-4-
<PAGE>
6. DEDUCTION TERMINATIONS. An employee may, at any time, terminate the
----------------------
employee's payroll deduction by filing a payroll deduction termination form.
The change will not become effective sooner than the next pay period after
receipt of the form by the Human Resources Department. Upon filing such payroll
deduction termination form, the employee shall also be deemed to have elected a
"WITHDRAWAL OF FUNDS" in accordance with Section 7, below.
7. WITHDRAWAL OF FUNDS. An employee may at any time more than 15 days
-------------------
prior to the end of an Offering Period, and for any reason, permanently draw out
the balance accumulated in the employee's account for the Offering Period for
which such payroll deduction form is effective and thereby withdraw from
participation in an Offering for the Offering Period. Upon an election in
accordance with this Section 7, all payroll withdrawals for the Offering Period
shall be returned to the employee as soon as administratively practicable and
such employee's option shall be automatically terminated. An employee may
thereafter resume participation again only as of the first day of the next
Offering Period (and/or the first day of each Offering Period thereafter);
provided, however, that an employee who is an officer or director of the
Corporation may not thereafter resume participation in that Offering or
participate in a subsequent Offering until the first day of an Offering Period
which occurs at least six months after the date of such withdrawal. Partial
withdrawals will not be permitted.
8. PURCHASE OF SHARES. Each employee participating in any Offering under
------------------
this Plan will be granted an option, upon the effective date of such Offering,
for as many full shares of the Corporation's common stock as can be purchased by
such employee, which shall equal the sum of the following:
-5-
<PAGE>
(a) the amount of payroll deduction elected by the employee up to 10% of
such employee's gross, pre-tax Base Compensation received during the
specified Offering Period, but not to exceed $5,000; and
(b) the amount of any dividends received on any shares purchased by the
employee under this Plan while such shares are registered in the name
of a custodian appointed pursuant to Section 9 hereof, if any.
Notwithstanding the foregoing, the maximum number of shares which can be
purchased by an employee shall not exceed the amount of payroll deduction
elected by the employee for the Offering Period (not to exceed $5,000) divided
by 85% of the fair market value (as defined in Section 11) of the stock on the
first day of the Offering Period
9. PURCHASE PRICE OF SHARES. The purchase price for each share purchased
------------------------
will be 85% of the fair market value (as defined in Section 11) of the stock at
the time the option is exercised, or, if lower, on the first day of the Offering
Period (such price hereinafter referred to as the "SUBSCRIPTION PRICE"), when
there are sufficient funds in the employee's account to purchase one or more
full shares. Each option shall be automatically exercised at the Subscription
Price at the end of the Offering Period. The employee's account shall be
charged for the amount of the purchase price and ownership of such share or
shares shall be appropriately entered in the books of the Corporation. The
Committee may appoint a custodian to accept custody of such shares on behalf of
each participating employee. Upon an employee's request, the employee shall be
issued a certificate for any or all of the shares held by the custodian on his
or her behalf by completing a form approved by the Committee. If no such
custodian is appointed, employees will be issued a certificate for shares as
soon as practical after exercising an option.
-6-
<PAGE>
A participating employee may not purchase a share under any Offering beyond
60 months from the effective date thereof. Any balance remaining in an
employee's payroll deduction account at the end of an Offering Period shall be
carried over to the next Offering Period. In no event will such balance exceed
the Subscription Price of one share on the last day of the last month of the
Offering Period.
10. REGISTRATION OF CERTIFICATION. Any certificates issued to an employee
-----------------------------
may be registered only in the name of the employee, or, if the employee so
indicates on the employee's payroll deduction authorization form, in the
employee's name jointly with a member of the employee's family, with right of
survivorship.
11. FAIR MARKET VALUE. The "FAIR MARKET VALUE" for any day shall be the
-----------------
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Exchange or, if such
shares are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
shares are listed or admitted to trading or, if the shares are not listed or
admitted to trading on any national securities exchange, the last quoted sale
price on such date or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Automated Quotation System ("NASDAQ") or
such other system then in use, or, if on any such date the shares are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker
-7-
<PAGE>
making a market in such shares selected by the Committee. If such prices are
not available on a given day, then the Committee may use the prices of such
stock on the next preceding trading day for which such prices are available.
12. RIGHTS AS A STOCKHOLDER. None of the rights or privileges of a
-----------------------
stockholder of the Corporation shall exist with respect to shares purchased
under this Plan unless and until a stock certificate with respect to such full
shares shall have been issued to the employee or the custodian, if any, on his
behalf.
13. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the
--------------------------------------------------------
event of a participating employee's retirement, death or termination of
employment (other than an authorized leave of absence), no payroll deduction
shall be taken from any pay due and owing to an employee at such time and the
balance in the employee's account shall be paid to the employee or, in the event
of the employee's death, to the employee's estate, as soon as practicable
thereafter. Such employee's option shall be automatically terminated.
14. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and, during the employee's lifetime, said rights are exercisable
only by the employee.
15. APPLICATION OF FUNDS. All funds received or held by the Corporation
--------------------
under this Plan may be used for any corporate purpose, and the Corporation shall
not be obligated to segregate any payroll deductions. No interest shall be
allocated to the payroll deductions credited to an employee's account under the
Plan.
-8-
<PAGE>
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMPASS INTERNATIONAL SERVICES
----------------------------------------------------------------------
CORPORATION STOCK. The number of shares subject to the Plan and to Offerings
- -----------------
granted under the Plan shall be adjusted as follows: (a) in the event that the
Corporation's outstanding common stock is changed by any stock dividend, stock
split or combination of shares, the number of shares subject to the Plan and to
Offerings theretofore granted thereunder shall be proportionately adjusted; (b)
in the event of any merger or consolidation of the Corporation with any other
corporation or corporations, there shall be substituted for each share of
Compass International Services Corporation then subject to the Plan, whether or
not at the time subject to outstanding Offerings, the number and kind of shares
of common stock or other securities to which the holders of common stock of the
Corporation will be entitled pursuant to the transaction; and (c) in the event
of any other relevant change in the capitalization of the Corporation, the
Committee shall provide for an equitable adjustment in the number of shares of
Compass International Services Corporation common stock subject to the Plan,
whether or not then subject to outstanding Offerings. In the event of any such
adjustment, the Subscription Price(s) per share shall be appropriately adjusted.
17. AMENDMENT OF THE PLAN. The Committee may at any time, or from time to
---------------------
time, amend this Plan in any respect, except that, without the approval of a
majority of the shares of stock of the Corporation then issued and outstanding
and entitled to vote, no amendment shall be made (i) increasing or decreasing
the number of shares approved for this Plan (other than as provided in Section
16) or (ii) amending provisions governing which employees (or class of
employees) are eligible to receive options under the Plan. Said shareholder
approval must be obtained within 12 months of the amendment's adoption by the
Committee.
-9-
<PAGE>
18. TERMINATION OF THE PLAN. This Plan and all rights of employees under
-----------------------
any Offering pursuant to the Plan hereunder shall terminate:
(a) on the day that participating employees become entitled to purchase a
number of shares equal to or greater than the number of shares
remaining available for purchase. If the number of shares so
purchasable is greater than the shares remaining available, the
available shares shall be allocated by the Committee on a pro rata
basis of each participant's Base Compensation earned during the prior
Offering Period or, if none, during the immediately prior fiscal year
of the Corporation; or
(b) at any time, at the discretion of the Board of Directors.
No Offering hereunder shall be made which shall extend beyond the ten year
anniversary of the Effective Date. Upon termination of this Plan, all amounts
in the accounts of participating employees shall be carried forward into the
employees' payroll deduction account under a successor employee stock purchase
plan, if any, or refunded as soon as practicable thereafter.
19. GOVERNMENTAL REGULATIONS. The Corporation's obligation to sell and
------------------------
deliver Compass International Services Corporation common stock under this Plan
is subject to the approval of any governmental authority required in connection
with the authorization, issuance or sale of such common stock.
Each option shall also be subject to the requirement that, if at any time
the Corporation determines, in its discretion, that the listing, registration or
qualification of the shares subject to the option upon any securities exchange
or under any state or federal law, or the consent or approval of any government
regulatory body is necessary or desirable as a condition of, or in connection
with, the issue or purchase of shares thereunder, the option may not be
exercised in
-10-
<PAGE>
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable by the Corporation.
20. PURCHASE OF SHARES. Purchase of outstanding shares may be made
------------------
pursuant to and on behalf of this Plan, upon such terms of the Corporation may
approve, for delivery under this Plan.
21. SHAREHOLDER APPROVAL. No options shall be exercised or shares issued
--------------------
hereunder before the Plan shall have been approved by the stockholders of the
Company. Such approval must be obtained within 12 months before or after the
date the Plan is adopted, and shall comply with all applicable laws and the
requirements of Section 423 of the Code.
22. NO EMPLOYMENT RIGHTS. The Plan does not provide any employment rights
--------------------
to any employee, and it shall not be deemed to interfere in any way with an
employer's right to terminate, or otherwise modify, an employee's employment at
any time.
23. APPLICABLE LAW. The laws of the State of Illinois shall govern all
--------------
matters relating to this Plan, except to the extent such laws are superseded by
the laws of the United States.
24. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("SECTION 16"),
shall comply with the applicable provisions of Rule 16b-3. This Plan shall be
deemed to contain, such options shall contain, and the shares issued upon
exercise thereof shall be subject to, such additional conditions and
-11-
<PAGE>
restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 with respect to Plan transactions.
25. PLAN ADMINISTRATION. The Committee shall have full and exclusive
--------------------
discretionary authority to construe, interpret and apply the terms of the Plan,
to determine eligibility and to adjudicate all disputed claims under the Plan.
All notices or other communications hereunder shall be deemed to have been duly
given when received in the form specified by the Committee at the location, or
by the person, designated by the Committee for the receipt thereof.
IN WITNESS WHEREOF, this Plan is adopted this 4th day of March, 1998.
COMPASS INTERNATIONAL
SERVICES CORPORATION
By:/s/ Michael J. Cunningham
--------------------------------------
Its:Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS INTERNATIONAL SERVICES CORPORATION
AND
MICHAEL J. CUNNINGHAM
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
December 9, 1997, by and between Compass International Services Corporation, a
Delaware corporation (the "Company"), and Michael J. Cunningham ("Employee").
PRELIMINARY RECITALS
A. Reference is made to those certain Stock Purchase Agreements dated as
of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to
which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box,
Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact
Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the
Company (the "Acquisitions"). Concurrently therewith, the Company will close an
initial public offering of its common stock.
B. Following the consummation of the Acquisitions, the Company, through
its subsidiaries, will be a provider of outsourced business services on a
national basis (the "Business").
C. The Company desires to employ Employee, and Employee desires to be
employed by the Company, in an executive capacity, all under the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
Chief Executive Officer of the Company and Employee agrees to accept such
employment, all in accordance with the terms and conditions of this
Agreement.
1.2 Duties and Powers. During the Employment Period (as defined
-----------------
herein), Employee will serve as the Company's Chief Executive Officer and
will have such responsibilities, duties and authorities, and will render
such services for the Company and its affiliates as the Board of Directors
of the Company (the "Board") shall from time to time reasonably direct;
provided, however, that such duties and responsibilities shall be
commensurate with the position of Chief Executive Officer of the Company.
Employee shall report to the Company's Board of Directors. Employee agrees
to serve the Company diligently and faithfully during the Employment Period
and to devote Employee's best efforts, highest talents and skills and full
time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of three years beginning on the date of the Closing
of the Acquisitions
<PAGE>
(the "Initial Employment Period"). This Agreement shall automatically
renew for successive one-year periods (each one-year period shall be
referred to herein as a "Renewal Period") unless either the Company or
Employee, as the case may be, provides written notice to the other party at
least one hundred twenty (120) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.4 below.
1.4 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically terminate
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
directions of the Board after (A) written notice is delivered to
Employee describing such willful failure and (B) Employee has failed
to cure or take substantial steps to cure such willful failure after a
reasonable time period, as determined by the Board in its reasonable
discretion (not to be less than 30 days);
(iii) any act by Employee in the course of his employment
constituting fraud or misappropriation of property of the Company or
its affiliates;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of
this Agreement if (A) written notice is delivered to Employee
describing such breach and (B) Employee has failed to cure or take
substantial steps to cure such breach after a reasonable time period,
as determined by the Board in its reasonable discretion (not to be
less than 30 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 90 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if possible, take into consideration the expert medical opinion of a
physician chosen by the Company,
-2-
<PAGE>
after such physician has completed an examination of Employee. Employee
agrees to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $225,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion. If the Employment Period is terminated pursuant to SECTION 1.4
above, then the Base Salary for any partial year will be prorated based on
the number of days elapsed in such year during which services were actually
performed by Employee.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
and/or (ii) the achievement of personal performance goals. The criteria
and/or goals for the Bonus Program shall be established by the Compensation
Committee at the beginning of each fiscal year. All bonuses awarded to
Employee hereunder shall be payable in accordance with Company policy.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.4 of this Agreement), Employee shall be entitled to receive
severance compensation equal to the sum of (A) continuance of his Base
Salary and Deemed Bonus for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health, life and disability insurance
coverage ("Insurance Coverage"), continuation at the cost of Company
of Employee's coverage thereunder (subject to such changes in coverage
as shall apply to Company's employees generally) or (ii) if not so
permitted, reimbursement by the Company of the premiums for group
health insurance coverage otherwise payable by Employee under COBRA,
until the end of the Severance Period or until other employment is
obtained, whichever occurs first, and (C) his pro rated bonus, as
determined by the Compensation Committee in its good faith judgment,
for the portion of any fiscal year prior to the termination date ((A),
(B) and (C) collectively, the "Severance Benefits"). The Severance
Benefits payable under (A) and (B) (ii) above shall be paid in equal
installments on the Company's normal payroll payment dates occurring
during the Severance Period. It shall be a condition to Employee's
right to receive the Severance Benefits that (i) Employee shall
execute and deliver to the Company
-3-
<PAGE>
a written separation agreement, in form and substance satisfactory to
the Company, which agreement shall, among other things, contain (X) a
general release by Employee of all claims arising out of Employee's
employment or termination of employment, (Y) a covenant by Employee to
cooperate with the Company in prosecuting or defending any litigation
involving third parties and (Z) a covenant by Employee not to
disparage the Company, and (ii) Employee shall be in compliance with
all of Employee's obligations which survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the Severance Period,
provided that the timing of such consulting services shall not
unreasonably interfere with Employee's ability to obtain other full-
time employment or to fulfill his obligations relating to that
employment. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause.
Employee shall not be required to seek other employment during the
Severance Period. Except as expressly provided above or in the
Compass Stock Option Plan, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee shall voluntarily terminate his employment for
Good Reason (as defined below) during the Employment Period and at any
time after a Change of Control (as defined below), Employee shall be
entitled to receive the same Severance Benefits as are provided for in
Section 2.3(a) above, subject to all of the terms and conditions set
forth in said Section, except that the Severance Period shall be a
period of three years commencing on the last day of the Employment
Period.
(c) For purposes of this Agreement, "Good Reason" shall mean,
so long as Employee has not been guilty of the conduct giving rise to
the right to terminate Employee for Cause, (i) the failure to elect
Employee to the office of Chief Executive Officer of the Company (or a
comparable or superior office), the removal of Employee from such
position or the assignment to Employee of any additional duties or
responsibilities or a reduction in Employee's duties or
responsibilities which, in either case, are inconsistent with those
customarily associated with such position or an adverse change in the
Employee's reporting lines; (ii) the Company's requiring Employee to
be based at any office or location other than in the metropolitan New
York City area, except for travel reasonably required in the
performance of Employee's duties; (iii) any decrease in the Employee's
compensation; (iv) a material breach of this Agreement by the Company
if (A) written notice is delivered to the Company describing such
breach and (B) the Company has failed to cure or take substantial
steps to cure such breach after a reasonable period of time (not to
exceed 30 days); and (v) the termination by the Company of any
employee benefit plan in which the Employee is participating unless
(A) such plan is terminated as to all managerial employees of the
Company, and (B) the value of the remaining compensation and benefits
-4-
<PAGE>
offered to Employee (including any compensation and benefits offered
in lieu of such plan) is not less than prior to such termination.
(d) For purposes of this Agreement, a "Change of Control" of the
Company shall be deemed to have occurred on the first of any of the
following:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%)
or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company
other than in connection with the acquisition by the Company or
its affiliates of a business, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the Company, or (E)
any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii)
of this Section 2.3(d);
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation of the Company or any direct or indirect subsidiary
of the Company or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially
-5-
<PAGE>
own, directly or indirectly, more than sixty percent (60%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (which shall include for these purposes, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination and any
Person beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 30% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, thirty
percent (30%) or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company other than to
a corporation which would satisfy the requirements of clauses
(A), (B) and (C) of Subsection (iii) of this Section 2.3(d),
assuming for this purpose that such liquidation or dissolution
was a Business Combination.
(e) For purposes of this Agreement, "Deemed Bonus" means an
amount equal to the higher of (A) the bonus paid or payable to
Employee under the Bonus Program for the fiscal year immediately
proceeding the fiscal year in which termination of employment occurs
and (B) the maximum bonus payable to Employee under the Bonus Program
for the fiscal year in which termination of employment occurs.
(f) If the Company shall terminate Employee's employment during
the Employment Period pursuant to SECTION 1.4, the Company shall have
no further obligations hereunder or otherwise with respect to
Employee's employment from and after the termination or expiration
date (except payment of Employee's Base Salary accrued through the
date of termination or expiration), and the Company shall continue to
have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity); provided
-6-
<PAGE>
that if Employee's employment terminates by reason of Employee's death
or disability, Employee or Employee's estate shall have the right to
exercise Employee's stock options for a period of 12 months thereafter
and all options shall be immediately exercisable.
(g) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause and he
subsequently dies or becomes disabled.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to other
senior officers of the Company, including without limitation vacation,
health and insurance benefits, and the opportunity to participate in the
Company's Employee Incentive Compensation Plan and Employee Stock Purchase
Plan. The Company shall retain the right to discontinue or modify any
employee benefit program at any time. The Company will reimburse Employee
in accordance with Company policy for his normal out-of-pocket expenses
incurred in the course of performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business as conducted by the Company
during the
-7-
<PAGE>
Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of
this SECTION 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the first anniversary of the last
day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he
shall not (except on behalf of the Company during the Employment Period),
for any reason whatsoever, directly or indirectly, whether individually or
as an officer, director, shareholder, owner, partner, joint venturer,
employee, independent contractor, consultant or advisor to or of any
entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Restricted Business anywhere in the United States
of America (the "Territory"); provided, however, that nothing
contained herein shall be construed to prevent Employee from investing
in up to 2% of the outstanding stock of any competing corporation that
is widely-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
actively being solicited by the Company to become a customer of the
Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company for made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transactions,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination.
-8-
<PAGE>
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
action at any time deemed reasonably necessary by the Company to further
establish such transfer) all of Employee's right, title and interest in and
to all ideas, discoveries, inventions and improvements relating to the
Business created, originated, developed or conceived of by Employee solely
or jointly with others during the term of Employee's employment hereunder,
whether or not during normal working hours. Employee agrees that all
right, title and interest in and to all such ideas, discoveries, inventions
and improvements shall belong solely to the Company, whether or not they
are protected or protectible under applicable patent, trademark, service
mark, copyright or trade secret laws. Employee agrees that all work or
other material containing or reflecting any such ideas, discoveries,
inventions or improvements shall be deemed work made for hire as defined in
Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall
include all patent rights, copyrights, trademark and service mark rights,
and trade secret rights (if any) to such ideas, discoveries, inventions and
improvements in the United States and in all other countries. Employee
further agrees, at the expense of the Company, to take all such reasonable
actions and to execute and deliver all such assignments and other lawful
papers relating to any aspect of the prosecution of such rights in the
United States and all other countries as the Company may request at any
time during the Employment Period or after termi nation thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative capacity
solicit or encourage any present or future customer, supplier or other
third party to terminate or otherwise alter his, her or its relationship
with the Company with respect to the Restricted Business.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, customers, suppliers, pricing, marketing, equipment,
programs, strategies, analyses, profit margins, or other proprietary
information of or used by the Company or any subsidiary of Company in
connection with the Business; provided, however, that Confidential
Information shall not include any information which is in the public domain
or becomes known in the industry through no wrongful act on the part of
Employee. Employee acknowledges that the Confidential Information is
vital, sensitive, confidential and proprietary to the Company.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to
-9-
<PAGE>
be the longest period permissible by law under the circumstances and the
Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall
reduce the time period and/or territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items in Employee's
possession, together with all copies thereof.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages. In addition, if
Employee is otherwise entitled to receive Severance Benefits and breaches
any of the terms of the Restrictive Covenants, Employee will not be
entitled to the payment of any further Severance Benefits hereunder.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or the threat
of such a breach by Employee, including the recovery of any other damages
which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
assignees and any successors in interest of the Company or its
subsidiaries.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full
force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations, and should he fail to report such
amounts as required, he will indemnify and hold the Company harmless from and
against any and all taxes, penalties, interest, costs and expenses, including
-10-
<PAGE>
reasonable attorneys' and accounting fees and costs, which are incurred by
Company directly or indirectly as a result thereof.
6. Excise Tax
----------
6.1 This Section 6 shall apply in the event that the Employee becomes
entitled (without regard to this Section 6) to one or more payments or
rights (which payments or rights shall include, without limitation, the
vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the
"Total Payments") which would be subject (in whole or in part) to the
excise tax imposed by Section 4999 of the Code (or any similar tax as may
hereafter be imposed) (the "Excise Tax").
6.2 In the event that the Total Payments cause the Employee's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Employee's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
6.3 In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Employee at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made only with respect to the amount (the "Subject Amount") which equals
50% of the Employee's "excess parachute payments" subject to the Excise
Tax. For the avoidance of doubt, no Gross-up Payment shall be made with
respect to the remaining 50% of the amount described in the preceding
sentence. The Gross-up Payment shall be an amount such that the net amount
retained by Employee with respect to the Subject Amount after reduction for
any Excise Tax on the Subject Amount and any federal, state and local
income or employment tax and Excise Tax payable by the Employee on the
Gross-up Payment hereunder (provided that such amount is actually paid when
due) shall be equal to the Subject Amount.
6.4 For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code
shall be treated as subject to the Excise Tax, unless, and except that to
the extent that, in the written opinion of independent legal counsel,
compensation consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and reasonably acceptable
to Employee, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4)
-11-
<PAGE>
of the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total
amount of the Total Payments or (ii) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying Section 6.4 (a) above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-up
Payment is made, Employee shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the amount
of such reduction is refunded to Employee or otherwise realized as a
benefit by Employee) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially calculating
the Gross-up Payment, plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up
Payment and shall indemnify and hold Employee harmless in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day
(or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments
(or any other portion thereof) are subject to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof
cannot be finally determined on or before such day, the Company shall pay
to Employee on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. Such notification shall be given as
soon as practicable but no later
-12-
<PAGE>
than ten (10) business days after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Employee
harmless, on an after-tax basis, for any Excise Tax or income or employment
tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6, the Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs Employee to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to Employee, on an interest-free basis, and shall indemnify
and hold Employee harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Employee with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-up Payment would be
payable hereunder and the
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<PAGE>
Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. If, after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 6, Employee becomes entitled to receive
any refund with respect to such claim, Employee shall (subject to the
Company's complying with the requirements of this Section 6) promptly pay
to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by Employee of an amount advanced by the Company pursuant to this Section
6, a determination is made that Employee shall not be entitled to any
refund with respect to such claim and the Company does not notify Employee
in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid.
6.5 Section 14.5 of the Company's Employee Incentive Compensation
Plan shall not apply with respect to Employee.
7. Miscellaneous.
-------------
7.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be required by the insurance company or
companies to whom the Company has applied for such insurance. Employee
shall have no interest whatsoever in any such policy or policies, except
that, upon the termination of Employee's employment hereunder, Employee
shall have the privilege of purchasing any such insurance from the Company
for an amount equal to the actual premiums thereon previously paid by the
Company.
7.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement (i) to any affiliate of the Company to which the Business of the
Company is assigned at any time, any subsidiary or affiliate of the Company
or any surviving entity following any merger or consolidation of any of
those entities with any entity other than the Company or (ii) in connection
with the sale of the Business by the Company. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective legal representatives, heirs, successors
and assigns of the parties hereto whether so expressed or not.
7.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement and all other agreements entered into by the parties
hereto on the date hereof
-14-
<PAGE>
set forth the entire understanding of the parties, and supersede and
preempt all prior oral or written understandings and agreements, with
respect to the subject matter hereof.
7.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
7.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
7.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New York, without giving effect to provisions thereof
regarding conflict of laws.
7.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a recognized overnight
courier service, (c) sent by certified or registered mail, return receipt
requested and first class postage prepaid, or (d) sent by facsimile
transmission followed by a confirmation copy delivered by a recognized
overnight courier service the next day. Such notices, demands and other
communications shall be sent to the addresses indicated below:
(a) If to Employee:
Mr. Michael J. Cunningham
21 Bridge Road
Nanuet, New York 10954
(b) If to the Company:
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
Attention: Chief Executive Officer
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<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Date of service of such notice shall be (i) the date such notice is
personally delivered or sent by facsimile transmission (with issuance by
the transmitting machine of a confirmation of successful transmission),
(ii) three business days after the date of mailing if sent by certified or
registered mail or (iii) one business day after date of delivery to the
overnight courier if sent by overnight courier.
7.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
7.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
7.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
7.11 Effectiveness. This Agreement shall become effective upon the Closing
-------------
of the Acquisitions.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Mahmud U. Haq
----------------------------------
Its: President
----------------------------------
EMPLOYEE:
/s/ Michael J. Cunningham
---------------------------------------
Michael J. Cunningham
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<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS INTERNATIONAL SERVICES CORPORATION
AND
MAHMUD U. HAQ
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
December 9, 1997, by and between Compass International Services Corporation, a
Delaware corporation (the "Company"), and Mahmud U. Haq ("Employee").
PRELIMINARY RECITALS
A. Reference is made to those certain Stock Purchase Agreements dated as
of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to
which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box,
Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact
Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the
Company (the "Acquisitions"). Concurrently therewith, the Company will close an
initial public offering of its common stock.
B. Following the consummation of the Acquisitions, the Company, through
its subsidiaries, will be a provider of outsourced business services on a
national basis (the "Business").
C. The Company desires to employ Employee, and Employee desires to be
employed by the Company, in an executive capacity, all under the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
Chief Executive Officer of the Company and Employee agrees to accept such
employment, all in accordance with the terms and conditions of this
Agreement.
1.2 Duties and Powers. During the Employment Period (as defined
-----------------
herein), Employee will serve as the Company's Chief Executive Officer and
will have such responsibilities, duties and authorities, and will render
such services for the Company and its affiliates as the Board of Directors
of the Company (the "Board") shall from time to time reasonably direct;
provided, however, that such duties and responsibilities shall be
commensurate with the position of Chief Executive Officer of the Company.
Employee shall report to the Company's Board of Directors. Employee agrees
to serve the Company diligently and faithfully during the Employment Period
and to devote Employee's best efforts, highest talents and skills and full
time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of three years beginning on the date of the Closing
of the Acquisitions
<PAGE>
(the "Initial Employment Period"). This Agreement shall automatically
renew for successive one-year periods (each one-year period shall be
referred to herein as a "Renewal Period") unless either the Company or
Employee, as the case may be, provides written notice to the other party at
least one hundred twenty (120) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.4 below.
1.4 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically terminate
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
directions of the Board after (A) written notice is delivered to
Employee describing such willful failure and (B) Employee has failed
to cure or take substantial steps to cure such willful failure after a
reasonable time period, as determined by the Board in its reasonable
discretion (not to be less than 30 days);
(iii) any act by Employee in the course of his employment
constituting fraud or misappropriation of property of the Company or
its affiliates;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of
this Agreement if (A) written notice is delivered to Employee
describing such breach and (B) Employee has failed to cure or take
substantial steps to cure such breach after a reasonable time period,
as determined by the Board in its reasonable discretion (not to be
less than 30 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 90 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if possible, take into consideration the expert medical opinion of a
physician chosen by the Company,
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<PAGE>
after such physician has completed an examination of Employee. Employee
agrees to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $200,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion. If the Employment Period is terminated pursuant to SECTION 1.4
above, then the Base Salary for any partial year will be prorated based on
the number of days elapsed in such year during which services were actually
performed by Employee.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
and/or (ii) the achievement of personal performance goals. The criteria
and/or goals for the Bonus Program shall be established by the Compensation
Committee at the beginning of each fiscal year. All bonuses awarded to
Employee hereunder shall be payable in accordance with Company policy.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.4 of this Agreement), Employee shall be entitled to receive
severance compensation equal to the sum of (A) continuance of his Base
Salary and Deemed Bonus for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health, life and disability insurance
coverage ("Insurance Coverage"), continuation at the cost of Company
of Employee's coverage thereunder (subject to such changes in coverage
as shall apply to Company's employees generally) or (ii) if not so
permitted, reimbursement by the Company of the premiums for group
health insurance coverage otherwise payable by Employee under COBRA,
until the end of the Severance Period or until other employment is
obtained, whichever occurs first, and (C) his pro rated bonus, as
determined by the Compensation Committee in its good faith judgment,
for the portion of any fiscal year prior to the termination date ((A),
(B) and (C) collectively, the "Severance Benefits"). The Severance
Benefits payable under (A) and (B) (ii) above shall be paid in equal
installments on the Company's normal payroll payment dates occurring
during the Severance Period. It shall be a condition to Employee's
right to receive the Severance Benefits that (i) Employee shall
execute and deliver to the Company
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a written separation agreement, in form and substance satisfactory to
the Company, which agreement shall, among other things, contain (X) a
general release by Employee of all claims arising out of Employee's
employment or termination of employment, (Y) a covenant by Employee to
cooperate with the Company in prosecuting or defending any litigation
involving third parties and (Z) a covenant by Employee not to
disparage the Company, and (ii) Employee shall be in compliance with
all of Employee's obligations which survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the Severance Period,
provided that the timing of such consulting services shall not
unreasonably interfere with Employee's ability to obtain other full-
time employment or to fulfill his obligations relating to that
employment. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause.
Employee shall not be required to seek other employment during the
Severance Period. Except as expressly provided above or in the
Compass Stock Option Plan, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee shall voluntarily terminate his employment for
Good Reason (as defined below) during the Employment Period and at any
time after a Change of Control (as defined below), Employee shall be
entitled to receive the same Severance Benefits as are provided for in
Section 2.3(a) above, subject to all of the terms and conditions set
forth in said Section, except that the Severance Period shall be a
period of three years commencing on the last day of the Employment
Period.
(c) For purposes of this Agreement, "Good Reason" shall mean,
so long as Employee has not been guilty of the conduct giving rise to
the right to terminate Employee for Cause, (i) the failure to elect
Employee to the offices of President and Chief Operating Officer of
the Company (or a comparable or superior office), the removal of
Employee from such position or the assignment to Employee of any
additional duties or responsibilities or a reduction in Employee's
duties or responsibilities which, in either case, are inconsistent
with those customarily associated with such position or an adverse
change in the Employee's reporting lines; (ii) the Company's requiring
Employee to be based at any office or location other than in the
metropolitan New York City area, except for travel reasonably required
in the performance of Employee's duties; (iii) any decrease in the
Employee's compensation; (iv) a material breach of this Agreement by
the Company if (A) written notice is delivered to the Company
describing such breach and (B) the Company has failed to cure or take
substantial steps to cure such breach after a reasonable period of
time (not to exceed 30 days); and (v) the termination by the Company
of any employee benefit plan in which the Employee is participating
unless (A) such plan is terminated as to all managerial employees of
the Company, and (B) the value of the remaining
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<PAGE>
compensation and benefits offered to Employee (including any
compensation and benefits offered in lieu of such plan) is not less
than prior to such termination.
(d) For purposes of this Agreement, a "Change of Control" of the
Company shall be deemed to have occurred on the first of any of the
following:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%)
or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company
other than in connection with the acquisition by the Company or
its affiliates of a business, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the Company, or (E)
any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii)
of this Section 2.3(d);
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation of the Company or any direct or indirect subsidiary
of the Company or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially
-5-
<PAGE>
own, directly or indirectly, more than sixty percent (60%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (which shall include for these purposes, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination and any
Person beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 30% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, thirty
percent (30%) or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company other than to
a corporation which would satisfy the requirements of clauses
(A), (B) and (C) of Subsection (iii) of this Section 2.3(d),
assuming for this purpose that such liquidation or dissolution
was a Business Combination.
(e) For purposes of this Agreement, "Deemed Bonus" means an
amount equal to the higher of (A) the bonus paid or payable to
Employee under the Bonus Program for the fiscal year immediately
proceeding the fiscal year in which termination of employment occurs
and (B) the maximum bonus payable to Employee under the Bonus Program
for the fiscal year in which termination of employment occurs.
(f) If the Company shall terminate Employee's employment during
the Employment Period pursuant to SECTION 1.4, the Company shall have
no further obligations hereunder or otherwise with respect to
Employee's employment from and after the termination or expiration
date (except payment of Employee's Base Salary accrued through the
date of termination or expiration), and the Company shall continue to
have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity); provided
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that if Employee's employment terminates by reason of Employee's death
or disability, Employee or Employee's estate shall have the right to
exercise Employee's stock options for a period of 12 months thereafter
and all options shall be immediately exercisable.
(g) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause and he
subsequently dies or becomes disabled.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to other
senior officers of the Company, including without limitation vacation,
health and insurance benefits, and the opportunity to participate in the
Company's Employee Incentive Compensation Plan and the Employee Stock
Purchase Plan. The Company shall retain the right to discontinue or modify
any employee benefit program at any time. The Company will reimburse
Employee in accordance with Company policy for his normal out-of-pocket
expenses incurred in the course of performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business as conducted by the Company
during the
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<PAGE>
Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of
this SECTION 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the first anniversary of the last
day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he
shall not (except on behalf of the Company during the Employment Period),
for any reason whatsoever, directly or indirectly, whether individually or
as an officer, director, shareholder, owner, partner, joint venturer,
employee, independent contractor, consultant or advisor to or of any
entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Restricted Business anywhere in the United States
of America (the "Territory"); provided, however, that nothing
contained herein shall be construed to prevent Employee from investing
in up to 2% of the outstanding stock of any competing corporation that
is widely-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
actively being solicited by the Company to become a customer of the
Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company for made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transactions,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination.
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<PAGE>
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
action at any time deemed reasonably necessary by the Company to further
establish such transfer) all of Employee's right, title and interest in and
to all ideas, discoveries, inventions and improvements relating to the
Business created, originated, developed or conceived of by Employee solely
or jointly with others during the term of Employee's employment hereunder,
whether or not during normal working hours. Employee agrees that all
right, title and interest in and to all such ideas, discoveries, inventions
and improvements shall belong solely to the Company, whether or not they
are protected or protectible under applicable patent, trademark, service
mark, copyright or trade secret laws. Employee agrees that all work or
other material containing or reflecting any such ideas, discoveries,
inventions or improvements shall be deemed work made for hire as defined in
Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall
include all patent rights, copyrights, trademark and service mark rights,
and trade secret rights (if any) to such ideas, discoveries, inventions and
improvements in the United States and in all other countries. Employee
further agrees, at the expense of the Company, to take all such reasonable
actions and to execute and deliver all such assignments and other lawful
papers relating to any aspect of the prosecution of such rights in the
United States and all other countries as the Company may request at any
time during the Employment Period or after termi nation thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative capacity
solicit or encourage any present or future customer, supplier or other
third party to terminate or otherwise alter his, her or its relationship
with the Company with respect to the Restricted Business.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, customers, suppliers, pricing, marketing, equipment,
programs, strategies, analyses, profit margins, or other proprietary
information of or used by the Company or any subsidiary of Company in
connection with the Business; provided, however, that Confidential
Information shall not include any information which is in the public domain
or becomes known in the industry through no wrongful act on the part of
Employee. Employee acknowledges that the Confidential Information is
vital, sensitive, confidential and proprietary to the Company.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to
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<PAGE>
be the longest period permissible by law under the circumstances and the
Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall
reduce the time period and/or territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items in Employee's
possession, together with all copies thereof.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages. In addition, if
Employee is otherwise entitled to receive Severance Benefits and breaches
any of the terms of the Restrictive Covenants, Employee will not be
entitled to the payment of any further Severance Benefits hereunder.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or the threat
of such a breach by Employee, including the recovery of any other damages
which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
assignees and any successors in interest of the Company or its
subsidiaries.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full
force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations, and should he fail to report such
amounts as required, he will indemnify and hold the Company harmless from and
against any and all taxes, penalties, interest, costs and expenses, including
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<PAGE>
reasonable attorneys' and accounting fees and costs, which are incurred by
Company directly or indirectly as a result thereof.
6. Excise Tax
----------
6.1 This Section 6 shall apply in the event that the Employee becomes
entitled (without regard to this Section 6) to one or more payments or
rights (which payments or rights shall include, without limitation, the
vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the
"Total Payments") which would be subject (in whole or in part) to the
excise tax imposed by Section 4999 of the Code (or any similar tax as may
hereafter be imposed) (the "Excise Tax").
6.2 In the event that the Total Payments cause the Employee's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Employee's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
6.3 In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Employee at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made only with respect to the amount (the "Subject Amount") which equals
50% of the Employee's "excess parachute payments" subject to the Excise
Tax. For the avoidance of doubt, no Gross-up Payment shall be made with
respect to the remaining 50% of the amount described in the preceding
sentence. The Gross-up Payment shall be an amount such that the net amount
retained by Employee with respect to the Subject Amount after reduction for
any Excise Tax on the Subject Amount and any federal, state and local
income or employment tax and Excise Tax payable by the Employee on the
Gross-up Payment hereunder (provided that such amount is actually paid when
due) shall be equal to the Subject Amount.
6.4 For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code
shall be treated as subject to the Excise Tax, unless, and except that to
the extent that, in the written opinion of independent legal counsel,
compensation consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and reasonably acceptable
to Employee, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4)
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<PAGE>
of the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total
amount of the Total Payments or (ii) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying Section 6.4 (a) above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-up
Payment is made, Employee shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the amount
of such reduction is refunded to Employee or otherwise realized as a
benefit by Employee) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially calculating
the Gross-up Payment, plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up
Payment and shall indemnify and hold Employee harmless in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day
(or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments
(or any other portion thereof) are subject to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof
cannot be finally determined on or before such day, the Company shall pay
to Employee on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. Such notification shall be given as
soon as practicable but no later
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than ten (10) business days after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Employee
harmless, on an after-tax basis, for any Excise Tax or income or employment
tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6, the Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs Employee to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to Employee, on an interest-free basis, and shall indemnify
and hold Employee harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Employee with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-up Payment would be
payable hereunder and the
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<PAGE>
Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. If, after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 6, Employee becomes entitled to receive
any refund with respect to such claim, Employee shall (subject to the
Company's complying with the requirements of this Section 6) promptly pay
to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by Employee of an amount advanced by the Company pursuant to this Section
6, a determination is made that Employee shall not be entitled to any
refund with respect to such claim and the Company does not notify Employee
in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid.
6.5 Section 14.5 of the Company's Employee Incentive Compensation
Plan shall not apply with respect to Employee.
7. Miscellaneous.
-------------
7.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be required by the insurance company or
companies to whom the Company has applied for such insurance. Employee
shall have no interest whatsoever in any such policy or policies, except
that, upon the termination of Employee's employment hereunder, Employee
shall have the privilege of purchasing any such insurance from the Company
for an amount equal to the actual premiums thereon previously paid by the
Company.
7.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement (i) to any affiliate of the Company to which the Business of the
Company is assigned at any time, any subsidiary or affiliate of the Company
or any surviving entity following any merger or consolidation of any of
those entities with any entity other than the Company or (ii) in connection
with the sale of the Business by the Company. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective legal representatives, heirs, successors
and assigns of the parties hereto whether so expressed or not.
7.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement and all other agreements entered into by the parties
hereto on the date hereof
-14-
<PAGE>
set forth the entire understanding of the parties, and supersede and
preempt all prior oral or written understandings and agreements, with
respect to the subject matter hereof.
7.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
7.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
7.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New York, without giving effect to provisions thereof
regarding conflict of laws.
7.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a recognized overnight
courier service, (c) sent by certified or registered mail, return receipt
requested and first class postage prepaid, or (d) sent by facsimile
transmission followed by a confirmation copy delivered by a recognized
overnight courier service the next day. Such notices, demands and other
communications shall be sent to the addresses indicated below:
(a) If to Employee:
Mr. Mahmud U. Haq
10 Beekman Road
Franklin Park, New Jersey 08823
(b) If to the Company:
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
Attention: Chief Executive Officer
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<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Date of service of such notice shall be (i) the date such notice is
personally delivered or sent by facsimile transmission (with issuance by
the transmitting machine of a confirmation of successful transmission),
(ii) three business days after the date of mailing if sent by certified or
registered mail or (iii) one business day after date of delivery to the
overnight courier if sent by overnight courier.
7.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
7.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
7.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
7.11 Effectiveness. This Agreement shall become effective upon the Closing
-------------
of the Acquisitions.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
----------------------------------------
Its: Chairman and Chief Executive Officer
----------------------------------------
EMPLOYEE:
/s/ Mahmud U. Haq
---------------------------------------------
Mahmud U. Haq
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<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS INTERNATIONAL SERVICES CORPORATION
AND
RICHARD A. ALSTON
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
December 9, 1997, by and between Compass International Services Corporation, a
Delaware corporation (the "Company"), and Richard A. Alston ("Employee").
PRELIMINARY RECITALS
A. Reference is made to those certain Stock Purchase Agreements dated as
of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to
which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box,
Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact
Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the
Company (the "Acquisitions"). Concurrently therewith, the Company will close an
initial public offering of its common stock.
B. Following the consummation of the Acquisitions, the Company, through
its subsidiaries, will be a provider of outsourced business services on a
national basis (the "Business").
C. The Company desires to employ Employee, and Employee desires to be
employed by the Company, in an executive capacity, all under the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
Chief Financial Officer of the Company and Employee agrees to accept such
employment, all in accordance with the terms and conditions of this
Agreement.
1.2 Duties and Powers. During the Employment Period (as defined
-----------------
herein), Employee will serve as the Company's Chief Financial Officer and
will have such responsibilities, duties and authorities, and will render
such services for the Company and its affiliates as the Board of Directors
of the Company (the "Board") shall from time to time reasonably direct;
provided, however, that such duties and responsibilities shall be
commensurate with the position of Chief Financial Officer of the Company.
Employee shall report to the Company's Chief Executive Officer. Employee
agrees to serve the Company diligently and faithfully during the Employment
Period and to devote Employee's best efforts, highest talents and skills
and full time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of three years beginning on the date of the Closing
of the Acquisitions
<PAGE>
(the "Initial Employment Period"). This Agreement shall automatically
renew for successive one-year periods (each one-year period shall be
referred to herein as a "Renewal Period") unless either the Company or
Employee, as the case may be, provides written notice to the other party at
least one hundred twenty (120) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.4 below.
1.4 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically terminate
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
directions of the Board after (A) written notice is delivered to
Employee describing such willful failure and (B) Employee has failed
to cure or take substantial steps to cure such willful failure after a
reasonable time period, as determined by the Board in its reasonable
discretion (not to be less than 30 days);
(iii) any act by Employee in the course of his employment
constituting fraud or misappropriation of property of the Company or
its affiliates;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of
this Agreement if (A) written notice is delivered to Employee
describing such breach and (B) Employee has failed to cure or take
substantial steps to cure such breach after a reasonable time period,
as determined by the Board in its reasonable discretion (not to be
less than 30 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 90 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if possible, take into consideration the expert medical opinion of a
physician chosen by the Company,
-2-
<PAGE>
after such physician has completed an examination of Employee. Employee
agrees to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $200,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion. If the Employment Period is terminated pursuant to SECTION 1.4
above, then the Base Salary for any partial year will be prorated based on
the number of days elapsed in such year during which services were actually
performed by Employee.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
and/or (ii) the achievement of personal performance goals. The criteria
and/or goals for the Bonus Program shall be established by the Compensation
Committee at the beginning of each fiscal year. All bonuses awarded to
Employee hereunder shall be payable in accordance with Company policy.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.4 of this Agreement), Employee shall be entitled to receive
severance compensation equal to the sum of (A) continuance of his Base
Salary and Deemed Bonus for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health, life and disability insurance
coverage ("Insurance Coverage"), continuation at the cost of Company
of Employee's coverage thereunder (subject to such changes in coverage
as shall apply to Company's employees generally) or (ii) if not so
permitted, reimbursement by the Company of the premiums for group
health insurance coverage otherwise payable by Employee under COBRA,
until the end of the Severance Period or until other employment is
obtained, whichever occurs first, and (C) his pro rated bonus, as
determined by the Compensation Committee in its good faith judgment,
for the portion of any fiscal year prior to the termination date ((A),
(B) and (C) collectively, the "Severance Benefits"). The Severance
Benefits payable under (A) and (B) (ii) above shall be paid in equal
installments on the Company's normal payroll payment dates occurring
during the Severance Period. It shall be a condition to Employee's
right to receive the Severance Benefits that (i) Employee shall
execute and deliver to the Company
-3-
<PAGE>
a written separation agreement, in form and substance satisfactory to
the Company, which agreement shall, among other things, contain (X) a
general release by Employee of all claims arising out of Employee's
employment or termination of employment, (Y) a covenant by Employee to
cooperate with the Company in prosecuting or defending any litigation
involving third parties and (Z) a covenant by Employee not to
disparage the Company, and (ii) Employee shall be in compliance with
all of Employee's obligations which survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the Severance Period,
provided that the timing of such consulting services shall not
unreasonably interfere with Employee's ability to obtain other full-
time employment or to fulfill his obligations relating to that
employment. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause.
Employee shall not be required to seek other employment during the
Severance Period. Except as expressly provided above or in the
Compass Stock Option Plan, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee shall voluntarily terminate his employment for
Good Reason (as defined below) during the Employment Period and at any
time after a Change of Control (as defined below), Employee shall be
entitled to receive the same Severance Benefits as are provided for in
Section 2.3(a) above, subject to all of the terms and conditions set
forth in said Section, except that the Severance Period shall be a
period of three years commencing on the last day of the Employment
Period.
(c) For purposes of this Agreement, "Good Reason" shall mean,
so long as Employee has not been guilty of the conduct giving rise to
the right to terminate Employee for Cause, (i) the failure to elect
Employee to the office of Chief Financial Officer of the Company (or a
comparable or superior office), the removal of Employee from such
position or the assignment to Employee of any additional duties or
responsibilities or a reduction in Employee's duties or
responsibilities which, in either case, are inconsistent with those
customarily associated with such position or an adverse change in the
Employee's reporting lines; (ii) the Company's requiring Employee to
be based at any office or location other than in the metropolitan New
York City area, except for travel reasonably required in the
performance of Employee's duties; (iii) any decrease in the Employee's
compensation; (iv) a material breach of this Agreement by the Company
if (A) written notice is delivered to the Company describing such
breach and (B) the Company has failed to cure or take substantial
steps to cure such breach after a reasonable period of time (not to
exceed 30 days); and (v) the termination by the Company of any
employee benefit plan in which the Employee is participating unless
(A) such plan is terminated as to all managerial employees of the
Company, and (B) the value of the remaining compensation and benefits
-4-
<PAGE>
offered to Employee (including any compensation and benefits offered
in lieu of such plan) is not less than prior to such termination.
(d) For purposes of this Agreement, a "Change of Control" of the
Company shall be deemed to have occurred on the first of any of the
following:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%)
or more of either (A) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company
other than in connection with the acquisition by the Company or
its affiliates of a business, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by a lender to the
Company pursuant to a debt restructuring of the Company, or (E)
any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii)
of this Section 2.3(d);
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation of the Company or any direct or indirect subsidiary
of the Company or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially
-5-
<PAGE>
own, directly or indirectly, more than sixty percent (60%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (which shall include for these purposes, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination and any
Person beneficially owning, immediately prior to such Business
Combination, directly or indirectly, 30% or more of the
Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, thirty
percent (30%) or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company other than to
a corporation which would satisfy the requirements of clauses
(A), (B) and (C) of Subsection (iii) of this Section 2.3(d),
assuming for this purpose that such liquidation or dissolution
was a Business Combination.
(e) For purposes of this Agreement, "Deemed Bonus" means an
amount equal to the higher of (A) the bonus paid or payable to
Employee under the Bonus Program for the fiscal year immediately
proceeding the fiscal year in which termination of employment occurs
and (B) the maximum bonus payable to Employee under the Bonus Program
for the fiscal year in which termination of employment occurs.
(f) If the Company shall terminate Employee's employment during
the Employment Period pursuant to SECTION 1.4, the Company shall have
no further obligations hereunder or otherwise with respect to
Employee's employment from and after the termination or expiration
date (except payment of Employee's Base Salary accrued through the
date of termination or expiration), and the Company shall continue to
have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity); provided
-6-
<PAGE>
that if Employee's employment terminates by reason of Employee's death
or disability, Employee or Employee's estate shall have the right to
exercise Employee's stock options for a period of 12 months thereafter
and all options shall be immediately exercisable.
(g) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause and he
subsequently dies or becomes disabled.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to other
senior officers of the Company, including without limitation vacation,
health and insurance benefits, and the opportunity to participate in the
Company's Employee Incentive Compensation Plan and Employee Stock Purchase
Plan. The Company shall retain the right to discontinue or modify any
employee benefit program at any time. The Company will reimburse Employee
in accordance with Company policy for his normal out-of-pocket expenses
incurred in the course of performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business as conducted by the Company
during the
-7-
<PAGE>
Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of
this SECTION 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the first anniversary of the last
day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he
shall not (except on behalf of the Company during the Employment Period),
for any reason whatsoever, directly or indirectly, whether individually or
as an officer, director, shareholder, owner, partner, joint venturer,
employee, independent contractor, consultant or advisor to or of any
entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Restricted Business anywhere in the United States
of America (the "Territory"); provided, however, that nothing
contained herein shall be construed to prevent Employee from investing
in up to 2% of the outstanding stock of any competing corporation that
is widely-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to,
or solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
actively being solicited by the Company to become a customer of the
Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company for made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transactions,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination.
-8-
<PAGE>
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
action at any time deemed reasonably necessary by the Company to further
establish such transfer) all of Employee's right, title and interest in and
to all ideas, discoveries, inventions and improvements relating to the
Business created, originated, developed or conceived of by Employee solely
or jointly with others during the term of Employee's employment hereunder,
whether or not during normal working hours. Employee agrees that all
right, title and interest in and to all such ideas, discoveries, inventions
and improvements shall belong solely to the Company, whether or not they
are protected or protectible under applicable patent, trademark, service
mark, copyright or trade secret laws. Employee agrees that all work or
other material containing or reflecting any such ideas, discoveries,
inventions or improvements shall be deemed work made for hire as defined in
Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall
include all patent rights, copyrights, trademark and service mark rights,
and trade secret rights (if any) to such ideas, discoveries, inventions and
improvements in the United States and in all other countries. Employee
further agrees, at the expense of the Company, to take all such reasonable
actions and to execute and deliver all such assignments and other lawful
papers relating to any aspect of the prosecution of such rights in the
United States and all other countries as the Company may request at any
time during the Employment Period or after termi nation thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative capacity
solicit or encourage any present or future customer, supplier or other
third party to terminate or otherwise alter his, her or its relationship
with the Company with respect to the Restricted Business.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, customers, suppliers, pricing, marketing, equipment,
programs, strategies, analyses, profit margins, or other proprietary
information of or used by the Company or any subsidiary of Company in
connection with the Business; provided, however, that Confidential
Information shall not include any information which is in the public domain
or becomes known in the industry through no wrongful act on the part of
Employee. Employee acknowledges that the Confidential Information is
vital, sensitive, confidential and proprietary to the Company.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to
-9-
<PAGE>
be the longest period permissible by law under the circumstances and the
Territory herein shall be deemed to comprise the largest territory
permissible by law under the circumstances. The court in each case shall
reduce the time period and/or territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items in Employee's
possession, together with all copies thereof.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages. In addition, if
Employee is otherwise entitled to receive Severance Benefits and breaches
any of the terms of the Restrictive Covenants, Employee will not be
entitled to the payment of any further Severance Benefits hereunder.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or the threat
of such a breach by Employee, including the recovery of any other damages
which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
assignees and any successors in interest of the Company or its
subsidiaries.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full
force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations, and should he fail to report such
amounts as required, he will indemnify and hold the Company harmless from and
against any and all taxes, penalties, interest, costs and expenses, including
-10-
<PAGE>
reasonable attorneys' and accounting fees and costs, which are incurred by
Company directly or indirectly as a result thereof.
6. Excise Tax
----------
6.1 This Section 6 shall apply in the event that the Employee becomes
entitled (without regard to this Section 6) to one or more payments or
rights (which payments or rights shall include, without limitation, the
vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement, or
agreement with the Company or any affiliated company (collectively, the
"Total Payments") which would be subject (in whole or in part) to the
excise tax imposed by Section 4999 of the Code (or any similar tax as may
hereafter be imposed) (the "Excise Tax").
6.2 In the event that the Total Payments cause the Employee's
"parachute payments" within the meaning of Section 280G(b)(2) of the Code
to equal or to exceed three times the Employee's "base amount" within the
meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an
amount which is not greater than 10% of the Trebled Base Amount, the Total
Payments shall be reduced (or eliminated) such that no portion of the Total
Payments is subject to the Excise Tax. Reductions shall be made first to
those Total Payments arising under the terms of this Agreement.
6.3 In the event that the Total Payments cause the parachute payments
to exceed 110% of the Trebled Base Amount, the Company shall pay to the
Employee at the time specified below, an additional amount determined as
set forth below (the "Gross-up Payment"). The Gross-up Payment shall be
made only with respect to the amount (the "Subject Amount") which equals
50% of the Employee's "excess parachute payments" subject to the Excise
Tax. For the avoidance of doubt, no Gross-up Payment shall be made with
respect to the remaining 50% of the amount described in the preceding
sentence. The Gross-up Payment shall be an amount such that the net amount
retained by Employee with respect to the Subject Amount after reduction for
any Excise Tax on the Subject Amount and any federal, state and local
income or employment tax and Excise Tax payable by the Employee on the
Gross-up Payment hereunder (provided that such amount is actually paid when
due) shall be equal to the Subject Amount.
6.4 For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of any Excise Tax:
(a) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code
shall be treated as subject to the Excise Tax, unless, and except that to
the extent that, in the written opinion of independent legal counsel,
compensation consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and reasonably acceptable
to Employee, the Total Payments (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4)
-11-
<PAGE>
of the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total
amount of the Total Payments or (ii) the total amount of excess parachute
payments within the meaning of Section 280G(b)(1) of the Code (after
applying Section 6.4 (a) above); and
(c) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-up
Payment is made, Employee shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the amount
of such reduction is refunded to Employee or otherwise realized as a
benefit by Employee) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied to initially calculating
the Gross-up Payment, plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time
of the Gross-up Payment), the Company shall make an additional Gross-up
Payment and shall indemnify and hold Employee harmless in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th day
(or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments
(or any ot her portion thereof) are subject to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or portion thereof
cannot be finally determined on or before such day, the Company shall pay
to Employee on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment.
Employee shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-up Payment. Such notification shall be given as
soon as practicable but no later
-12-
<PAGE>
than ten (10) business days after Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to the Company (or such shorter period ending
on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Employee in writing prior to the expiration of such
period that it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Employee
harmless, on an after-tax basis, for any Excise Tax or income or employment
tax (including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6, the Company shall
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either
direct Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs Employee to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to Employee, on an interest-free basis, and shall indemnify
and hold Employee harmless, on an after-tax basis, from any Excise Tax or
income or employment (including income or employment or interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Employee with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-up Payment would be
payable hereunder and the
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<PAGE>
Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority. If, after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 6, Employee becomes entitled to receive
any refund with respect to such claim, Employee shall (subject to the
Company's complying with the requirements of this Section 6) promptly pay
to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by Employee of an amount advanced by the Company pursuant to this Section
6, a determination is made that Employee shall not be entitled to any
refund with respect to such claim and the Company does not notify Employee
in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid.
6.5 Section 14.5 of the Company's Employee Incentive Compensation
Plan shall not apply with respect to Employee.
7. Miscellaneous.
-------------
7.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be required by the insurance company or
companies to whom the Company has applied for such insurance. Employee
shall have no interest whatsoever in any such policy or policies, except
that, upon the termination of Employee's employment hereunder, Employee
shall have the privilege of purchasing any such insurance from the Company
for an amount equal to the actual premiums thereon previously paid by the
Company.
7.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement (i) to any affiliate of the Company to which the Business of the
Company is assigned at any time, any subsidiary or affiliate of the Company
or any surviving entity following any merger or consolidation of any of
those entities with any entity other than the Company or (ii) in connection
with the sale of the Business by the Company. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective legal representatives, heirs, successors
and assigns of the parties hereto whether so expressed or not.
7.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement and all other agreements entered into by the parties
hereto on the date hereof
-14-
<PAGE>
set forth the entire understanding of the parties, and supersede and
preempt all prior oral or written understandings and agreements, with
respect to the subject matter hereof.
7.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
7.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
7.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New York, without giving effect to provisions thereof
regarding conflict of laws.
7.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a recognized overnight
courier service, (c) sent by certified or registered mail, return receipt
requested and first class postage prepaid, or (d) sent by facsimile
transmission followed by a confirmation copy delivered by a recognized
overnight courier service the next day. Such notices, demands and other
communications shall be sent to the addresses indicated below:
(a) If to Employee:
Mr. Richard A. Alston
408 Duff Lane
Louisville, Kentucky 40207
(b) If to the Company:
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
Attention: Chief Executive Officer
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<PAGE>
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Date of service of such notice shall be (i) the date such notice is
personally delivered or sent by facsimile transmission (with issuance by
the transmitting machine of a confirmation of successful transmission),
(ii) three business days after the date of mailing if sent by certified or
registered mail or (iii) one business day after date of delivery to the
overnight courier if sent by overnight courier.
7.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
7.9 Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
in this Agreement are inserted for convenience of reference only and are
not intended to be part of or to affect the meaning or interpretation of
this Agreement. The use of the word "including" in this Agreement shall be
by way of example rather than by limitation. The Preliminary Recitals set
forth above are incorporated by reference into this Agreement.
7.10 No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties hereto to express
their mutual interest, and no rule of strict construction will be applied
against any party hereto.
7.11 Effectiveness. This Agreement shall become effective upon the
-------------
Closing of the Acquisitions.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
----------------------------------------
Its: Chairman and Chief Executive Officer
----------------------------------------
EMPLOYEE:
/s/ Richard A. Alston
---------------------------------------------
Richard A. Alston
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<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
BY AND BETWEEN
THE MAIL BOX, INC.
AND
KENNETH W. MURPHY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between The Mail Box, Inc., a Texas corporation (the
"Company"), and Kenneth W. Murphy ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and the stockholders of the Company identified on Schedule A to the
----------
Purchase Agreement, providing for the purchase (the "Purchase") by Compass of
all of the outstanding capital stock of the Company, whereby the Company shall
become a wholly-owned subsidiary of Compass.
B. The Company provides billing, direct mail fulfillment, mailing list
rental, data processing, database management, list marketing, list maintenance,
laser printing services and other related services to major corporations
throughout the United States (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to
<PAGE>
time reasonably direct; provided, however, that such duties,
responsibilities, authority and services shall be commensurate with the
position of President and CEO of the Company. Employee agrees diligently
and faithfully to serve the Company and to devote Employee's best efforts,
highest talents and skills and full time and attention to the furtherance
and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the greater Dallas, Texas metropolitan area
as shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
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<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
available, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above, then the Base Salary for any partial year will be prorated based on
the number of days elapsed in such year during which services were actually
performed by Employee, and all such Base Salary which remains unpaid,
together with accrued but unused vacation and sick pay, if any, shall be
paid by the Company to the Employee within five days after the effective
date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
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<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependant coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
proceeding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first 60 days of the
Severance Period, provided that the timing of such consulting services
shall not unreasonably interfere with Employee's ability to obtain
other full-time employment. The Severance Benefits are intended to be
in lieu of all
-4-
<PAGE>
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under SECTION 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to,
or solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Texas, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Kenneth W. Murphy
3700 Pipestone Road
Dallas, Texas 75212-6194
Facsimile No: (214) 637-4286
with a copy to:
Jenkins & Gilchrist
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202-2799
Attn: L. Steven Leshin, Esq.
Facsimile No.: (214) 855-4300
-10-
<PAGE>
(b) If to the Company:
The Mail Box, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for
-11-
<PAGE>
injunctive relief for any alleged breach of the provisions of SECTION 3 as to
which the parties shall have the right to apply for relief in any court of
competent jurisdiction, shall be resolved by arbitration in Dallas, Texas, in
accordance with the Federal Arbitration Act and the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof and any party to the arbitration may, if such party
so elects, institute proceedings in any court having jurisdiction for the
specific performance of any such award. Without limiting the generality of the
foregoing sentence, the claims to which this provision shall apply include, but
are not limited to: (i) any claims arising out of or related to this Employment
Agreement or breach thereof ; (ii) any claims arising under any federal, state
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this SECTION 6.11
shall not apply to: (i) any claim by Employee for workers' compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of SECTION 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
THE MAIL BOX, INC.
By: /s/ Kenneth W. Murphy
-----------------------------
Kenneth W. Murphy
President
EMPLOYEE:
/s/ Kenneth W. Murphy
-----------------------------------
KENNETH W. MURPHY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Michael J. Cunningham
-----------------------------
Michael J. Cunningham
Chairman and CEO
-13-
<PAGE>
EXHIBIT 10.7
STOCKHOLDERS' AGREEMENT
-----------------------
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is made as of March 4, 1998,
---------
by and among BGL Capital Partners, L.L.C. ("BGL"), Michael J. Cunningham, Mahmud
---
U. Haq and Richard A. Alston, and each of the individuals listed on SCHEDULE I
hereto (each such individual a "Founding Company Owner" and collectively, the
----------------------
"Founding Company Owners").
- ------------------------
WHEREAS, on the date hereof, BGL and Messrs. Cunningham, Haq and Alston are
the sole owners of the common stock, par value $.01 per share (the "Common
------
Stock") of Compass International Services Corporation (the "Corporation"); and
-----------
WHEREAS, upon the consummation of each of the separate Stock Purchase
Agreements dated October 3, 1997, by and among the Corporation, the Founding
Company Owners and the Founding Companies set forth on SCHEDULE I hereto
(collectively, the "Stock Purchase Agreements"), the Founding Company Owners
-------------------------
will become owners of Common Stock; and
WHEREAS, each of the undersigned parties believes that the continuity of
management is essential to the success of the business of the Corporation, and
that to preserve such continuity, it is essential for the undersigned parties to
vote on shareholder proposals and for the election of the board of directors of
the Corporation (the "Board") as hereinafter provided.
-----
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned parties agree as
follows:
1. COMPOSITION OF BOARD OF DIRECTORS IMMEDIATELY FOLLOWING THE OFFERING.
--------------------------------------------------------------------
Immediately upon the closing of the Offering, the Board shall be composed of ten
members, consisting of (i) five Founding Company Owners (or their selected
representative), each designated by his or her respective Founding Company, (ii)
one director designated by BGL, (iii) Mr. Cunningham, (iv) Mr. Haq and (v) two
independent directors, not employed by the Corporation, the Founding Companies
or their respective subsidiaries or by BGL. The Board shall be divided into
three classes, with Class I consisting of four directors and Classes II and III
each consisting of three directors. The Class I directors shall initially be
elected for a term expiring at the Annual Meeting of the Corporation's
stockholders relating to the fiscal year ending December 31, 1998 but held in
1999 (the "1998 Annual Meeting"); the Class II directors shall initially be
-------------------
elected for a term expiring at the Annual Meeting relating to the fiscal year
ending December 31, 1999 but held in 2000 (the "1999 Annual Meeting"); and the
-------------------
Class III directors shall initially be elected for a term expiring at the Annual
Meeting relating to the fiscal year ending December 31, 2000 but held in 2001
(the "2000 Annual Meeting"). Thereafter, directors will be elected for three-
-------------------
year terms. The initial members of the Board, the persons by whom they are
designated, if applicable, and their Classes are set forth on SCHEDULE II
hereto.
<PAGE>
2. NOMINATIONS FOR ANNUAL MEETINGS. With respect to each Annual Meeting
-------------------------------
of the Corporation's stockholders beginning with the 1998 Annual Meeting up to
and including the Annual Meeting relating to the fiscal year ending December 31,
2002 but held in 2003 (the "2002 Annual Meeting"), and in each case at any
-------------------
adjournment thereof, each of the undersigned parties shall take any and all
action necessary as a stockholder and/or director or officer of the Corporation
(in each case, subject to applicable fiduciary duties) to cause those directors
listed on SCHEDULE II attached hereto whose terms are then expiring, or their
designated successors as provided in Section 4 herein, to be nominated for
election to the Board.
3. ELECTION OF DIRECTORS AT THE ANNUAL MEETINGS. Each of the undersigned
--------------------------------------------
parties shall vote the shares of Common Stock which it owns or hereafter
acquires, or over which it has voting control or hereafter acquires voting
control, in any manner necessary to cause all nominees nominated pursuant to
Section 2 herein to be elected to the Board at each Annual Meeting of the
Corporation's stockholders beginning with the 1998 Annual Meeting and up to and
including the 2002 Annual Meeting.
4. SUCCESSORS. In the event that the Board determines (in its reasonable
----------
discretion) that a member of the Board is unable for any protracted period to
discharge his/her duties to the Corporation, or such member resigns or is
removed from the Board or declines to stand for re-election to the Board, each
of the undersigned parties shall take any and all action necessary (subject to
applicable fiduciary duties) as a stockholder and/or director or officer of the
Corporation to cause the then-incumbent Board to nominate as a successor
director (i) if the director being replaced was designated by the former owners
of a Founding Company or by BGL, such individual as shall be designated by the
persons who originally designated such director and (ii) in all other cases,
such individual as shall be approved by a majority of the then-incumbent Board,
and each of the undersigned parties shall take any and all action necessary as a
stockholder and/or director or officer of the Corporation (in each case, subject
to applicable fiduciary duties) to elect such successor director to the Board.
5. OTHER MATTERS BROUGHT TO VOTE; BEST EFFORTS. In the event that any
-------------------------------------------
matter other than election of directors is brought to the vote of stockholders
at any Annual Meeting beginning with the 1998 Annual Meeting and up to and
including the 2002 Annual Meeting, each of the undersigned parties shall vote
the shares of Common Stock which it owns or hereafter acquires or over which it
has voting control or hereafter acquires voting control, in accordance with the
recommendations of the incumbent Board.
6. TERM. The term of this Agreement shall run from the date hereof until
----
immediately following the final adjournment of the 2002 Annual Meeting.
7. TERMINATION. If the Stock Purchase Agreements are not consummated by
-----------
March 31, 1998, this Agreement will terminate and its terms will be null and
void and of no force and effect.
-2-
<PAGE>
8. ASSIGNABILITY/TRANSFERS. Except with respect to the assignment of this
-----------------------
Agreement to a transferee of Common Stock owned by one or more of the parties
hereto, this Agreement shall only be assignable by the written consent of all of
the parties hereto. This Agreement shall be binding on all transferees of the
Common Stock owned by the parties hereto and no assignment or transfer permitted
pursuant to this Paragraph 8 shall be effective or be of any force or effect
whatsoever, unless and until any such assignee or transferee executes a
counterpart of this Agreement (unless, in the case of a transfer of Common
Stock, such transfer is a transfer or sale in connection with a registered
public securities offering or pursuant to Rule 144 under the Securities Act of
1933, as amended).
9. EXPANSION OF BOARD OF DIRECTORS. This Agreement is not intended to
-------------------------------
limit in any respect the Board's authority to increase from time to time the
size of the Board in accordance with Article V of the Corporation's Amended and
Restated Certificate of Incorporation.
10. AMENDMENT. This Agreement may be amended from time to time by an
---------
instrument in writing signed by the holders of a majority of the aggregate
number of shares of outstanding Common Stock held by the signatories hereto at
the date of such amendment; provided, however, that no amendment shall be made
which would materially adversely affect the rights of any Founding Company
Owners or BGL without the consent of the persons so affected.
11. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original.
12. GOVERNING LAW. This Agreement shall be governed by and enforced in
-------------
accordance with the laws and decisions of the State of Delaware, without regard
to the choice of law provisions thereof.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed individually, and has entered into this Agreement effective the date
and year first above written.
BGL CAPITAL PARTNERS, L.L.C.
By: BGL Management Company, L.L.C.
By: /s/ Scott H. Lang
-----------------------------------
Scott H. Lang
Managing Partner
/s/ Michael J. Cunningham
- ----------------------------------------
Michael J. Cunningham
/s/ Mahmud U. Haq
- ----------------------------------------
Mahmud U. Haq
/s/ Richard A. Alston
- ----------------------------------------
Richard A. Alston
(Additional Signatures Follow)
-4-
<PAGE>
OWNERS OF THE MAIL BOX, INC.:
/s/ Kenneth W. Murphy
- ----------------------------------------
Kenneth W. Murphy
Kenneth W. Murphy Childrens Trust
By: /s/ Kenneth W. Murphy
------------------------------------
Trustee
/s/ Robert Meador
- ----------------------------------------
Robert Meador
/s/ Richard J. Bainter
- ----------------------------------------
Richard J. Bainter
/s/ John Erickson
- ----------------------------------------
John Erickson
/s/ Lynn Harris
- ----------------------------------------
Lynn Harris
/s/ Earl Johnson
- ----------------------------------------
Earl Johnson
/s/ Jack Padian
- ----------------------------------------
Jack Padian
/s/ Patty Bond
- ----------------------------------------
Patty Bond
/s/ Lee McNamara
- ----------------------------------------
Lee McNamara
(Additional Signatures Follow)
-5-
<PAGE>
OWNERS OF NATIONAL CREDIT MANAGEMENT CORPORATION:
/s/ Leeds Hackett
- ----------------------------------------
Leeds Hackett
/s/ Thomas Gillespie
- ----------------------------------------
Thomas Gillespie
/s/ Veronica Hackett
- ----------------------------------------
Veronica Hackett
/s/ Victoria C. McAndrews
- ----------------------------------------
Victoria C. McAndrews
/s/ Richard M. Fiorito
- ----------------------------------------
Richard M. Fiorito
/s/ Russ C. Causey
- ----------------------------------------
Russ C. Causey
/s/ Paul Holt
- ----------------------------------------
Paul Holt
/s/ Sylvia Sorgel
- ----------------------------------------
Sylvia Sorgel
(Additional Signatures Follow)
-6-
<PAGE>
OWNERS OF BRMC OF DELAWARE, INC.:
/s/ Mary Maloney
- ----------------------------------------
Mary Maloney
/s/ H. Eugene Collins
- ----------------------------------------
H. Eugene Collins
ADVANCED CREDIT SERVICES, INC.,
a Georgia corporation
By: /s/ David Fletcher
-----------------------------------
Its: President
-----------------------------
/s/ Billy Ray Pitcher
- ----------------------------------------
Billy Ray Pitcher
/s/ Eddie Newton King, Jr.
- ----------------------------------------
Eddie Newton King, Jr.
/s/ Peter Michael Grossman
- ----------------------------------------
Peter Michael Grossman
/s/ William Dale Graham
- ----------------------------------------
William Dale Graham
/s/ Thomas Warren Hester
- ----------------------------------------
Thomas Warren Hester
(Additional Signatures Follow)
-7-
<PAGE>
OWNER OF MID-CONTINENT AGENCIES, INC.:
/s/ Leslie J. Kirschbaum
- ----------------------------------------
Leslie J. Kirschbaum
(Additional Signatures Follow)
-8-
<PAGE>
OWNERS OF IMPACT TELEMARKETING GROUP, INC.
AND IMPACT TELEMARKETING, INC.:
/s/ Edward A. DuCoin
- ----------------------------------------
Edward A. DuCoin
/s/ David T. DuCoin
- ----------------------------------------
David T. DuCoin
-9-
<PAGE>
SCHEDULE I
----------
NAME OF FOUNDING COMPANY AND OWNERS
-----------------------------------
THE MAIL BOX, INC.:
- ------------------
Kenneth W. Murphy
Kenneth W. Murphy Childrens Trust
Robert Meador
Richard J. Bainter
John Erickson
Lynn Harris
Earl Johnson
Jack Padian
Patty Bond
Lee McNamara
NATIONAL CREDIT MANAGEMENT CORPORATION:
- --------------------------------------
Leeds Hackett
Thomas Gillespie
Veronica Hackett
Victoria McAndrews
Richard M. Florito
Russ C. Causey
Paul Holt
Sylvia Sorgel
I-1
<PAGE>
BRMC OF DELAWARE, INC.:
- ----------------------
Mary Maloney
H. Eugene Collins
Advanced Credit Services, Inc., a Georgia corporation
Billy Ray Pitcher
Eddie Newton King, Jr.
Peter Michael Grossman
William Dale Grossman
Thomas Warren Hester
MID-CONTINENT AGENCIES, INC.:
- ----------------------------
Leslie J. Kirschbaum
IMPACT TELEMARKETING GROUP, INC. AND
- ------------------------------------
IMPACT TELEMARKETING, INC.:
- --------------------------
Edward A. DuCoin
David T. DuCoin
I-2
<PAGE>
SCHEDULE II
-----------
BOARD OF DIRECTORS
------------------
<TABLE>
<CAPTION>
NAME CLASS DESIGNATED BY
- ------------------------- --------------- -------------------------
<S> <C> <C>
Michael J. Cunningham III
Kenneth W. Murphy III Owners of Mail Box
Leeds Hackett III Owners of National Credit
Management Corp.
Howard L. Clark, Jr. II
Scott H. Lang II BGL
John Maloney II Owners of BRMC
Leslie J. Kirschbaum I Owners of Mid-Continent
Edward A. DuCoin I Owners of Impact
Tomasso Zanzotto I
Mahmud U. Haq I
</TABLE>
II-1
<PAGE>
EXHIBIT 10.8
BONUS AGREEMENT
---------------
THIS BONUS AGREEMENT (this "Agreement") is made as of October 2, 1997 by
and among Compass International Services Corporation, a Delaware corporation
("Compass"), National Credit Management Corp., a Maryland corporation (the
"Company"), and the stockholders of the Company identified in Schedule A to this
Agreement (the "Stockholders").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement, the parties
hereto are entering into a Stock Purchase Agreement (the "Purchase Agreement"),
whereby Compass is purchasing all of the issued and outstanding shares of
capital stock of the Company; and
WHEREAS, the Company is a party to certain litigation regarding United
States Letter Patent No. 5,504,667 entitled "Automatic Payment System and
Method" (the "Patent"), of which it is the owner, and which litigation is as
follows:
A. National Credit Management Corporation v. Western Union Financial
-----------------------------------------------------------------
Services, Inc., DC. SD. NY. Civil Action No. 96 Civ. 4609 (the "Western Union
- --------------
Litigation"); and
B. National Credit Management Corporation v. Novus Services, Inc. and
------------------------------------------------------------------
Dean Witter, Discovery & Co., DC. M.D. Civil Action No. K 96-3833 (the "Dean
- ----------------------------
Witter Litigation"); and
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
<PAGE>
1. Defined Terms.
--------------
(a) Terms used herein with their initial letter capitalized shall, unless
otherwise defined herein, shall have the same meanings given such terms as in
the Purchase Agreement.
(b) "Applicable Transactions" shall mean, with respect to the Western Union
Litigation and the Dean Witter Litigation, those transactions on which a damage
award is based.
(c) "Closing Date" shall mean the date on which the transactions provided
for in the Purchase Agreement have closed.
(d) "Plaintiff Litigation" shall mean the Western Union Litigation and the
Dean Witter Litigation.
(e) "Pre-Closing Damages" shall mean, with respect to the Western Union
Litigation and the Dean Witter Litigation, that portion of the Proceeds (defined
herein) which are for or otherwise relate to the Applicable Transactions which
occurred prior to the Closing Date.
(f) "Proceeds" shall mean a monetary settlement or judgment in the Western
Union Litigation or the Dean Witter Litigation.
2. Western Union Litigation and Dean Witter Litigation.
----------------------------------------------------
(a) The Company intends to continue to pursue the Western Union Litigation
and Dean Witter Litigation. In the event that the Company receives Proceeds
from the Plaintiff Litigation, subject to subsection (b) below, such Proceeds
shall be divided between the Company and certain individuals, when and as
received by the Company, in the following order:
(1) First, to the Company in an amount necessary to pay any income or
other taxes, if any, which will be owed by the Company as a
result of receipt of the Proceeds;
2
<PAGE>
(2) Second, to the Company in an amount necessary to reimburse it for
all fees and costs incurred in pursuing the Plaintiff Litigation,
including, without limitation, attorney fees and costs,
accountant fees and costs and other court costs;
(3) Third, an amount representing Pre-Closing Damages to be
distributed to certain individuals in such amounts to be
determined by the president of the Company with the approval of
Compass, such approval to not be unreasonably withheld.
(4) Fourth, all remaining Proceeds to the Company.
From and after the date of the judgment or settlement, all royalties or
other amounts received from exploitation of the Patent shall belong to the
Company.
(b) In the event that any portion of the Proceeds are not awarded on the
basis of Applicable Transactions or other criteria which can be determined as
occurring prior to or after the Closing Date, then such portion of the Proceeds
shall, after allocation of amounts set forth in (a)(1) and (2) above, be
allocated between the Company and those certain individuals in the same
proportion that the number of pre-Closing Date Applicable Transactions are to
the number of post-Closing Date Applicable Transactions. In the event that the
parties are unable to determine the number of Applicable Transactions which
occurred pre-Closing Date and which occurred post-Closing Date, Proceeds shall
be allocated between the Company and those certain individuals, after allocation
of amounts set forth in (a)(1) and (2) above, based on a percentage determined
by taking the number of days prior to the Closing Date (for the certain
individuals) or after the Closing Date (for the Company) and dividing said
number in each case by the total
3
<PAGE>
number of days from the date reasonably determined to be the first day of
infringement to the date of settlement or judgment.
(c) Any disputes between the parties as to the allocation of the Proceeds
shall be submitted to a mutually agreeable "Big-Six" (or "Big-Five") accounting
firm, other than one which then provides services to the Stockholders, the
Company or Compass, or, if the parties are unable to agree or no such accounting
firm agrees to take this engagement, then the Company's regularly engaged
auditors shall select any accounting firm (other than themselves) or other party
they believe suitable to resolve the dispute. The decision by the accounting
firm or other arbitor shall be binding upon the parties. Each of the parties
shall, if required, agree to indemnify such accounting firm or other arbitor for
any damages resulting from the engagement, other than damages which are a result
of willful misconduct or fraud. The fees of the accounting firm or other arbitor
shall be split equally between the parties hereto.
3. This Agreement and the performance hereunder shall be governed and
construed in accordance with the laws of the State of Delaware and the United
States of America.
4. The Agreement constitutes the entire Agreement between the parties with
respect to the subject matter hereof, supersedes all other agreements and
understanding, whether written or oral and no agreements, warranties or
representations have been made by either of the parties to the other with
respect to said subject matter except as herein or therein expressly set forth
provided that nothing herein shall be deemed to affect or change any of the
provisions of the Merger Agreement.
4
<PAGE>
5. Notwithstanding anything to the contrary which may be contained herein,
nothing in this Agreement shall be construed to modify any of the terms and
conditions of the Purchase Agreement, which Purchase Agreement remains in full
force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties have agreed to this Agreement as of the
date first above written.
COMPASS INTERNATIONAL SERVICES CORPORATION
/s/ Michael J. Cunningham
------------------------------------------
NATIONAL CREDIT MANAGEMENT CORP.
/s/ Leeds Hackett
------------------------------------------
STOCKHOLDERS
/s/ Leeds Hackett
------------------------------------------
LEEDS HACKETT
/s/ Veronica Hackett
------------------------------------------
VERONICA HACKETT
/s/ Thomas Gillespie, Jr.
------------------------------------------
THOMAS GILLESPIE, JR.
/s/ Victoria C. McAndrews
------------------------------------------
VICTORIA C. McANDREWS
/s/ Richard M. Fiorito
------------------------------------------
RICHARD M. FIORITO
/s/ Russ C. Causey
------------------------------------------
RUSS C. CAUSEY
/s/ Paul Holt
------------------------------------------
PAUL HOLT
/s/ Sylvia Sorgel
------------------------------------------
SYLVIA SORGEL
6
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
BY AND BETWEEN
NATIONAL CREDIT MANAGEMENT CORP.
AND
LEEDS HACKETT
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between National Credit Management Corp., a Maryland
corporation (the "Company"), and Leeds Hackett ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and the stockholders of the Company identified on Schedule A to the
----------
Purchase Agreement (the "Stockholders"), providing for the purchase by Compass
of all of the issued and outstanding stock of the Company.
B. The Company provides accounts receivable management services and
patented telephonic check drafting services throughout the United States (the
"Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties and responsibilities, duties,
<PAGE>
authority and services shall be commensurate with the position of President
and CEO of the Company. Employee agrees diligently and faithfully to serve
the Company and to devote Employee's best efforts, highest talents and
skills and full time and attention to the furtherance and success of the
Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employees's services hereunder shall be
-------------------
rendered at such locations in the greater Baltimore metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 120 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
available, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index. All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above, or for any other reason, then the Base Salary for any partial year
will be prorated based on the number of days elapsed in such year during
which services were actually performed by Employee, and all such prorated
Base Salary which remains unpaid, together with accrued but unused vacation
and sick pay, if any, shall be paid by the Company to Employee within five
days after the effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgment, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and B(ii) above shall be paid in
equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payment required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, or (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United states of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period ("Termination Date") or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time,
(provided that the Company and Compass shall remain liable for all
obligations of Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Maryland, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Leeds Hackett
c/o National Credit Management Corporation
11350 McCormick Road
Suite 800, Executive Plaza III
Hunt Valley, MD 21031
with a copy to:
Earl S. Wellschlager
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, MD 21201
(b) If to the Company:
National Credit Management Corp.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
-10-
<PAGE>
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Baltimore, Maryland, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment
-11-
<PAGE>
Agreement or breach thereof; (ii) any claims arising under any federal, state,
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this SECTION 6.11
shall not apply to: (i) any claim by Employee for workers compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of SECTION 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
NATIONAL CREDIT MANAGEMENT CORP.
By: /s/ Leeds Hackett
-----------------
Its: President
---------
EMPLOYEE:
/s/ Leeds Hackett
-----------------
LEEDS HACKETT
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the obligations
of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
-------------------------
Michael Cunningham
Chairman and Chief Executive Officer
-13-
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
JOHN MALONEY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation
(the "Company"), and John Maloney ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and the stockholders of the Company identified on Schedule A to the
----------
Purchase Agreement, providing for the purchase (the "Purchase") by Compass of
all of the outstanding capital stock of the Company, whereby the Company shall
become a wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the Chief Operating Officer ("COO") of the Company, and Employee agrees to
accept such employment, all in accordance with the terms and conditions of
this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the COO and will have such
responsibilities, duties and authority, and will render such services for
the Company and its affiliates as the Board of Directors of Compass (the
"Board") shall from time to time reasonably direct; provided, however, that
such duties, responsibilities, authority and services shall be commensurate
with the position of COO of the Company. Employee agrees diligently
<PAGE>
and faithfully to serve the Company and to devote Employee's best efforts,
highest talents and skills and full time and attention to the furtherance
and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without his
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
-2-
<PAGE>
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole judgment
of the Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of the
Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the date of such
termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payments required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed
to have occurred if the Company (i) demotes Employee to a position
below that of COO of the Company or assigns the Employee duties and
responsibilities that are not commensurate with such position, (ii)
reduces Employee's Base Salary or materially reduces his employee
benefits and prerequisites, taken in the aggregate, or (iii) requires
Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. John Maloney
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above,
each party to the arbitration shall bear his or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRMC OF DELAWARE, INC.
By: /s/ Gene Collins
---------------------------------
Gene Collins
President
EMPLOYEE:
/s/ John Maloney
---------------------------------------
JOHN MALONEY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
---------------------------------
Michael J. Cunningham
Chairman and CEO
-13-
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
H. GENE COLLINS
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation
(the "Company"), and H. Gene Collins ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and the stockholders of the Company identified on Schedule A to the
----------
Purchase Agreement, providing for the purchase (the "Purchase") by Compass of
all of the outstanding capital stock of the Company, whereby the Company shall
become a wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the President and Chief Executive Officer ("CEO") of the Company, and
Employee agrees to accept such employment, all in accordance with the terms
and conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties, responsibilities, authority
<PAGE>
and services shall be commensurate with the position of President and CEO
of the Company. Employee agrees diligently and faithfully to serve the
Company and to devote Employee's best efforts, highest talents and skills
and full time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without his
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employe and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole judgment
of the Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of the
Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for
-3-
<PAGE>
the Bonus Program shall be established by the Compensation Committee at the
beginning of each fiscal year after consultation with Employee. All
bonuses awarded to Employee hereunder shall be payable in accordance with
Company policy. If the Employment Period is terminated pursuant to SECTION
1.5 above then the foregoing bonus for any partial year will be determined
based on annualizing results to the date of the termination and will be
prorated based upon the number of days elapsed in such year during which
services were actually performed by Employee, and shall be paid within five
days of the date of such termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis
-4-
<PAGE>
during the first sixty (60) days of the Severance Period, provided
that the timing of such consulting services shall not unreasonably
interfere with Employee's ability to obtain other full-time
employment. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under SECTION 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
-5-
<PAGE>
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to,
or solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
-6-
<PAGE>
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
-7-
<PAGE>
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, customers, suppliers, pricing, marketing, equipment,
programs, strategies, analyses, profit margins, or other proprietary
information of or used by Compass, the Company or any other subsidiary of
Compass in connection with the Business; provided, however, that
Confidential Information shall not include any information which is in the
public domain or becomes known in the industry through no wrongful act on
the part of Employee. Employee acknowledges that the Confidential
Information is vital, sensitive, confidential and proprietary to the
Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
-9-
<PAGE>
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. H. Gene Collins
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above, each
party to the arbitration shall bear his or its own attorney's fees and expenses
and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BOMAR RECEIVABLES MANAGEMENT CORPORATION
By: /s/ Mary Maloney
---------------------------------------
Its: Secretary
---------------------------------------
EMPLOYEE:
/s/ H. Gene Collins
---------------------------------------------
H. GENE COLLINS
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
---------------------------------------
Michael J. Cunningham
Chairman and CEO
-13-
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
MARY MALONEY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation
(the "Company"), and Mary Maloney ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and the stockholders of the Company identified on Schedule A to the
----------
Purchase Agreement, providing for the purchase (the "Purchase") by Compass of
all of the outstanding capital stock of the Company, whereby the Company shall
become a wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the Vice President and Secretary of the Company, and Employee agrees to
accept such employment, all in accordance with the terms and conditions of
this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's Vice President and
Secretary and will have such responsibilities, duties and authority, and
will render such services for the Company and its affiliates as the Board
of Directors of Compass (the "Board") shall from time to time reasonably
direct; provided, however, that such duties, responsibilities, authority
and services shall be commensurate with the position of Vice President and
<PAGE>
Secretary of the Company. Employee agrees diligently and faithfully to
serve the Company and to devote Employee's best efforts, highest talents
and skills and full time and attention to the furtherance and success of
the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/her desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without her
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of her employment constituting fraud or misappropriation
of Company property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
-2-
<PAGE>
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if she is unable to perform, by reason of physical or mental
incapacity, her material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make herself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing her duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole judgment
of the Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of the
Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the date of such
termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate her employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of her Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, her covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) her pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payments required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of her death
or Disability, but shall continue to be payable during the Severance
Period if her employment is terminated without Cause or by reason of
Constructive Termination and she subsequently dies or becomes
disabled.
(d) "Constructive Termination" as used herein, shall be deemed
to have occurred if the Company (i) demotes Employee to a position
below that of Vice President and Secretary of the Company or assigns
the Employee duties and responsibilities that are not commensurate
with such position, (ii) reduces Employee's Base Salary or materially
reduces her employee benefits and prerequisites, taken in the
aggregate, or (iii) requires Employee to relocate in violation of
SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for her normal out-of-pocket expenses incurred in the course of
performing her duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and her dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
she shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of her immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of her duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of her
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that she will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Ms. Mary Maloney
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of her or its reasonable costs and expenses of the arbitration as she
deems just and equitable under the circumstances. Except as provided above,
each party to the arbitration shall bear her or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRMC OF DELAWARE, INC.
By: /s/ Gene Collins
--------------------------------
Gene Collins
President
EMPLOYEE:
/s/ Mary Maloney
-------------------------------------
MARY MALONEY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Michael J. Cunningham
--------------------------------
Michael J. Cunningham
Chairman and CEO
-13-
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MID-CONTINENT AGENCIES, INC.
AND
LESLIE J. KIRSCHBAUM
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between Mid-Continent Agencies, Inc., an Illinois
corporation (the "Company"), and Leslie J. Kirschbaum ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Compass International Services Corporation, a Delaware corporation
("Compass"), and Employee, providing for the purchase by Compass of all of the
outstanding capital stock of the Company.
B. The Company provides credit collection services to clients throughout
the United States, the United Kingdom, the Peoples Republic of China and other
foreign countries (the "Business").
C. Employee has been a substantial stockholder of the Company for more
than twenty years, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business of the
Company.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates, as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties and responsibilities, duties, authority and
services shall be commensurate with the position of President and CEO of
<PAGE>
the Company. Employee agrees diligently and faithfully to serve the
Company and to devote Employee's best efforts, highest talents and skills
and full time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the greater Chicago metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 120 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if available, take into consideration the expert medical opinion of a
physician mutually agreed upon by Employee and the Company, after such
physician has completed an examination of Employee. Employee agrees to
make reasonable efforts to make himself available for such examination upon
the reasonable request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above or for any other reason, then the Base Salary for any partial year
will be prorated based on the number of days elapsed in such year during
which services were actually performed by Employee, and all such prorated
Base Salary which remains unpaid, together with accrued but unused vacation
and sick pay, if any, shall be paid by the Company to Employee within five
days after the effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to Section 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with Section 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with Section 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first 60 days of the
Severance Period, provided that the timing of such consulting services
shall not unreasonably interfere with Employee's ability to obtain
other full-time employment. The Severance Benefits are intended to be
in lieu of all
-4-
<PAGE>
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under Section 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of Section 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere in the United States of America
(the "Territory"); provided, however, that nothing contained herein
shall be construed to prevent Employee from investing in up to 5% of
the outstanding stock of any competing corporation that is publicly-
traded and listed on a recognized national, international or regional
securities exchange or traded in the U.S. over-the-counter market, but
only if Employee is not actively involved in and does not render
consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to,
or solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
known by Employee to have been actively being solicited by the Company
to become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which the Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Illinois, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Leslie J. Kirschbaum
c/o Mid-Continent Agencies, Inc.
3701 West Algonquin Road
Rolling Meadows, Illinois 60008-3155
with a copy to:
Fagel & Haber
140 South Dearborn, Suite 1400
Chicago, Illinois 60603
Attention: Joel A. Haber, Esq.
(b) If to the Company:
Mid-Continent Agencies, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
-10-
<PAGE>
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Chicago, Illinois, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment
-11-
<PAGE>
Agreement or breach thereof; (ii) any claims arising under any federal, state,
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this Section 6.11
shall not apply to: (i) any claim by Employee for workers compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of Section 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
MID-CONTINENT AGENCIES, INC.
By: /s/ Leslie J. Kirschbaum
---------------------------------------
Its: President
---------------------------------------
EMPLOYEE:
/s/ Leslie J. Kirschbaum
--------------------------------------------
LESLIE J. KIRSCHBAUM
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the obligations
of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
---------------------------------------
Michael J. Cunningham
Chairman and Chief Executive Officer
-13-
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
BY AND BETWEEN
IMPACT TELEMARKETING GROUP, INC.
AND
EDWARD A. DUCOIN
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
March __, 1998, by and between Impact Telemarketing Group, Inc., a New Jersey
corporation (the "Company"), and Edward A. DuCoin ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement dated as of
October 3, 1997, as amended (the "Purchase Agreement"), by and among the
Company, Impact Telemarketing, Inc. ("IT"), Compass International Services
Corporation, a Delaware corporation ("Compass"), and the Stockholders of the
Company and IT identified on Schedule A to the Purchase Agreement, providing for
----------
the purchase by Compass of all of the issued and outstanding stock of the
Company and IT.
B. The Company and IT provide outbound and inbound telemarketing services
to national and regional companies throughout the United States (the
"Business").
C. Employee has been a substantial owner of the Company and IT since their
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business of the
Company and IT.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates, as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties and responsibilities, duties,
<PAGE>
authority and services shall be commensurate with the position of President
and CEO of the Company. Employee agrees diligently and faithfully to serve
the Company and to devote Employee's best efforts, highest talents and
skills and full time and attention to the furtherance and success of the
Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the greater Philadelphia metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 120 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if available, take into consideration the expert medical opinion of a
physician mutually agreed upon by Employee and the Company, after such
physician has completed an examination of Employee. Employee agrees to make
reasonable efforts to make himself available for such examination upon the
reasonable request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $110,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole judgment
of the Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of the
Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above or for any
other reason, then the Base Salary for any partial year will be prorated
based on the number of days elapsed in such year during which services were
actually performed by Employee, and all such prorated Base Salary which
remains unpaid, together with accrued but unused vacation and sick pay, if
any, shall be paid by the Company to Employee within five days after the
effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for
-3-
<PAGE>
the Bonus Program shall be established by the Compensation Committee at the
beginning of each fiscal year after consultation with Employee. All bonuses
awarded to Employee hereunder shall be payable in accordance with Company
policy. If the Employment Period is terminated pursuant to Section 1.5
above then the foregoing bonus for any partial year will be determined
based on annualizing results to the date of the termination and will be
prorated based upon the number of days elapsed in such year during which
services were actually performed by Employee, and shall be paid within five
days of the effective date of such termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with Section 2.2. above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with Section 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such Severance
Benefits, require that Employee provide consulting services to the
Company on a reasonable basis during the first
-4-
<PAGE>
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under Section 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed
to have occurred if the Company (i) demotes Employee to a position
below that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(ii) requires Employee to relocate in violation of Section 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during
the Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3
are essential to protect the Company and the goodwill of the Business
and are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere in the United States of America
(the "Territory"); provided, however, that nothing contained herein
shall be construed to prevent Employee from investing in up to 5% of
the outstanding stock of any competing corporation that is publicly-
traded and listed on a recognized national, international or regional
securities exchange or traded in the U.S. over-the-counter market, but
only if Employee is not actively involved in and does not render
consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
known by Employee to have been actively being solicited by the Company
to become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment here under, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New Jersey, without giving effect to provisions
thereof regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Edward A. DuCoin
c/o Impact Telemarketing Group, Inc.
15 East Center Street
Woodbury, NJ 08090
with a copy to:
Robert Amron
1236 Brace Road, Suite K
P.O. Box 2626
Cherry Hill, NJ 08034-0219
(b) If to the Company:
Impact Telemarketing Group, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
-10-
<PAGE>
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Philadelphia, Pennsylvania, in accordance with the Federal Arbitration Act and
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment
-11-
<PAGE>
Agreement or breach thereof; (ii) any claims arising under any federal, state,
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this Section 6.11
shall not apply to: (i) any claim by Employee for workers compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of Section 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the arbitrator
does not rule in favor of the prevailing party in respect of all the claims
alleged by such party, the arbitrator shall include in any award in favor of the
prevailing party the amount of his or its reasonable costs and expenses of the
arbitration as he deems just and equitable under the circumstances. Except as
provided above, each party to the arbitration shall bear his or its own
attorney's fees and expenses and the parties shall bear equally all other costs
and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
IMPACT TELEMARKETING GROUP, INC.
By: /s/ Leslie J. Kirschbaum
-----------------------------------------
Its: President
-----------------------------------------
EMPLOYEE:
/s/ Leslie J. Kirschbaum
----------------------------------------------
LESLIE J. KIRSCHBAUM
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
-------------------------
Michael J. Cunningham
Chairman and Chief Executive Officer
-13-
<PAGE>
EXHIBIT 10.18
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
March 4, 1998
Mr. Michael J. Cunningham
c/o Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, New York 10119
Dear Mr. Cunningham:
You are an officer of the undersigned (the "Company"). Pursuant to that
certain letter agreement, dated as of April 28, 1997 with BGL Capital Partners,
L.L.C., you subscribed for and purchased 2,250 shares of common stock of the
Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00
per share (the "Purchase Price").
To induce you to continue to serve as an officer of the Company, and in
consideration of your continued service after the date hereof, the Company
hereby undertakes and agrees to pay or cause to be paid and shall be liable for,
and covenants and agrees to defend, indemnify and hold you harmless on an after-
tax basis from and against, any and all Losses (as defined below) resulting
from, arising out of or otherwise based upon Taxes (as defined below) that are
attributable to, or arise from any claim or determination by the Internal
Revenue Service or other income tax authority that the fair market value of the
Shares on the date you purchased them was greater than the Purchase Price (such
claim or determination an "Indemnified Tax Matter").
As used in this letter, (i) "Losses" means liabilities, obligations,
losses, fines, costs, or deficiencies, including but not limited to out-of-
pocket fees and expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same and (ii)
"Taxes" means any income, alternative minimum, employment, payroll, social
security, unemployment, withholding or other similar tax, assessment or other
governmental charge (including all interest and penalties thereon and additions
thereto whether disputed or not) imposed by any federal, state or local
government.
The payment obligation of Company hereunder shall be reduced by any Tax
benefit actually realized by you that would not have been realized but for an
Indemnified Tax Matter (for example, the benefit of an increase in the tax basis
in Shares disposed of by you). If any such Tax benefit is actually realized by
you before any payment is made to you by the Company hereunder, the obligation
of the Company shall be reduced by the amount of any such Tax
<PAGE>
Mr. Michael J. Cunningham
March 4, 1998
Page Two
benefit, and if such Tax benefit is actually realized by you after the date the
Company has made a payment to you hereunder, you shall reimburse the Company for
the amount of such Tax benefit promptly after such Tax benefit is actually
realized, provided that your reimbursement obligation hereunder shall not exceed
the aggregate amount of payments in respect of tax liabilities previously made
to you by the Company hereunder.
The obligation of Company hereunder shall survive any transfer by you of
the Shares and any termination of your employment by the Company.
If you are in agreement with the foregoing, please so indicate by signing
the enclosed copy of this letter where indicated below and return the same to
the Company.
This letter will be governed by and construed in accordance with the laws
of the State of New York.
Very truly yours,
COMPASS INTERNATIONAL SERVICES CORPORATION
By /s/ Mahmud U. Haq
-------------------------------------------
Name: Mahmud U. Haq
Title: President
Accepted and Agreed as of
the date of this letter:
/s/ Michael J. Cunningham
- ------------------------------
Michael J. Cunningham
<PAGE>
EXHIBIT 10.19
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
March 4, 1998
Mr. Mahmud U. Haq
c/o Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, New York 10119
Dear Mr. Haq:
You are an officer of the undersigned (the "Company"). Pursuant to that
certain letter agreement, dated as of March 31, 1997 with BGL Capital Partners,
L.L.C., you subscribed for and purchased 1,750 shares of common stock of the
Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00
per share (the "Purchase Price").
To induce you to continue to serve as an officer of the Company, and in
consideration of your continued service after the date hereof, the Company
hereby undertakes and agrees to pay or cause to be paid and shall be liable for,
and covenants and agrees to defend, indemnify and hold you harmless on an after-
tax basis from and against, any and all Losses (as defined below) resulting
from, arising out of or otherwise based upon Taxes (as defined below) that are
attributable to, or arise from any claim or determination by the Internal
Revenue Service or other income tax authority that the fair market value of the
Shares on the date you purchased them was greater than the Purchase Price (such
claim or determination an "Indemnified Tax Matter").
As used in this letter, (i) "Losses" means liabilities, obligations,
losses, fines, costs, or deficiencies, including but not limited to out-of-
pocket fees and expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same and (ii)
"Taxes" means any income, alternative minimum, employment, payroll, social
security, unemployment, withholding or other similar tax, assessment or other
governmental charge (including all interest and penalties thereon and additions
thereto whether disputed or not) imposed by any federal, state or local
government.
The payment obligation of Company hereunder shall be reduced by any Tax
benefit actually realized by you that would not have been realized but for an
Indemnified Tax Matter (for example, the benefit of an increase in the tax basis
in Shares disposed of by you). If any such Tax benefit is actually realized by
you before any payment is made to you by the Company hereunder, the obligation
of the Company shall be reduced by the amount of any such Tax
<PAGE>
Mr. Mahmud U. Haq
March 4, 1998
Page Two
benefit, and if such Tax benefit is actually realized by you after the date the
Company has made a payment to you hereunder, you shall reimburse the Company for
the amount of such Tax benefit promptly after such Tax benefit is actually
realized, provided that your reimbursement obligation hereunder shall not exceed
the aggregate amount of payments in respect of tax liabilities previously made
to you by the Company hereunder.
The obligation of Company hereunder shall survive any transfer by you of
the Shares and any termination of your employment by the Company.
If you are in agreement with the foregoing, please so indicate by signing
the enclosed copy of this letter where indicated below and return the same to
the Company.
This letter will be governed by and construed in accordance with the laws
of the State of New York.
Very truly yours,
COMPASS INTERNATIONAL SERVICES CORPORATION
By /s/ Michael J. Cunningham
--------------------------------------------
Name: Michael J. Cunningham
Title: Chief Executive Officer
Accepted and Agreed as of
the date of this letter:
/s/ Mahmud U. Haq
- -----------------------------
Mahmud U. Haq
<PAGE>
EXHIBIT 10.20
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
March 4, 1998
Mr. Richard A. Alston
c/o Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, New York 10119
Dear Mr. Alston:
You are an officer of the undersigned (the "Company"). Pursuant to that
certain letter agreement, dated as of May 28, 1997 with BGL Capital Partners,
L.L.C., you subscribed for and purchased 1,000 shares of common stock of the
Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00
per share (the "Purchase Price").
To induce you to continue to serve as an officer of the Company, and in
consideration of your continued service after the date hereof, the Company
hereby undertakes and agrees to pay or cause to be paid and shall be liable for,
and covenants and agrees to defend, indemnify and hold you harmless on an after-
tax basis from and against, any and all Losses (as defined below) resulting
from, arising out of or otherwise based upon Taxes (as defined below) that are
attributable to, or arise from any claim or determination by the Internal
Revenue Service or other income tax authority that the fair market value of the
Shares on the date you purchased them was greater than the Purchase Price (such
claim or determination an "Indemnified Tax Matter").
As used in this letter, (i) "Losses" means liabilities, obligations,
losses, fines, costs, or deficiencies, including but not limited to out-of-
pocket fees and expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same and (ii)
"Taxes" means any income, alternative minimum, employment, payroll, social
security, unemployment, withholding or other similar tax, assessment or other
governmental charge (including all interest and penalties thereon and additions
thereto whether disputed or not) imposed by any federal, state or local
government.
The payment obligation of Company hereunder shall be reduced by any Tax
benefit actually realized by you that would not have been realized but for an
Indemnified Tax Matter (for example, the benefit of an increase in the tax basis
in Shares disposed of by you). If any such Tax benefit is actually realized by
you before any payment is made to you by the Company hereunder, the obligation
of the Company shall be reduced by the amount of any such Tax
<PAGE>
Mr. Richard A. Alston
March 4, 1998
Page Two
benefit, and if such Tax benefit is actually realized by you after the date the
Company has made a payment to you hereunder, you shall reimburse the Company for
the amount of such Tax benefit promptly after such Tax benefit is actually
realized, provided that your reimbursement obligation hereunder shall not exceed
the aggregate amount of payments in respect of tax liabilities previously made
to you by the Company hereunder.
The obligation of Company hereunder shall survive any transfer by you of
the Shares and any termination of your employment by the Company.
If you are in agreement with the foregoing, please so indicate by signing
the enclosed copy of this letter where indicated below and return the same to
the Company.
This letter will be governed by and construed in accordance with the laws
of the State of New York.
Very truly yours,
COMPASS INTERNATIONAL SERVICES CORPORATION
By /s/ Michael J. Cunningham
-------------------------------------------
Name: Michael J. Cunningham
Title: Chief Executive Officer
Accepted and Agreed as of
the date of this letter:
/s/ Richard A. Alston
- -------------------------------
Richard A. Alston
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
Financial Statements Date
- -------------------- ----
<S> <C>
Compass International Services Corporation January 28, 1008, except as to Note 1, which is as of March 25, 1998
The Mail Box, Inc. January 17, 1998
Mid-Continent Agencies, Inc. January 23,1998
Impact Telemarketing Group, Inc. January 23, 1998
</TABLE>
We also consent to the reference to us under the healing "Expert".
/s/Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
April 8, 1998
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
April 7, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 27, 1998, with respect to the financial
statements of BRMC of Delaware, Inc. included in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Compass International
Services Corporation for the registration of 3,000,000 shares of its common
stock.
/s/ Ernst & Young LLP
April 9, 1998
Atlanta, Georgia
