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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 000-23217
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COMPASS INTERNATIONAL
SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 22-3540815
(State of Incorporation) (I.R.S. Employer ID No.)
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ONE PENN PLAZA, SUITE 4430, NEW YORK, NEW YORK 10119
(Address of principal executive offices) (Zip Code)
(212) 967-7770
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
As of March 24, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates was approximately $59,730,793. The closing price of
the Common Stock on March 24, 1999, as reported on the Nasdaq National Market
was $5.75.
As of March 24, 1999, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 13,804,846.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on June 15, 1999, as described in the Cross-Reference Sheet and Table of
Contents included herewith, are incorporated by reference into Part III of this
report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS(1)
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PAGE
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PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 8
Item 3 Legal Proceedings........................................... 9
Item 4 Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6 Selected Financial Data..................................... 10
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 14
Item 8 Financial Statements and Supplementary Data................. 15
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 31
PART III
Item 10 Directors and Executive Officers of the Registrant(2)....... 31
Item 11 Executive Compensation(3)................................... 31
Item 12 Security Ownership of Certain Beneficial Owners and
Management(4)............................................... 31
Item 13 Certain Relationships and Related Transactions(3)........... 31
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 33
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(1) Certain information is incorporated by reference, as indicated below, from
the registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders to be held on June 15, 1999
(the "Proxy Statement")
(2) Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
(3) Proxy Statement sections entitled "Executive Compensation and Certain
Transactions" and "Report on Executive Compensation."
(4) Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Compass International Services Corporation ("Compass" or the "Company") is
a leading provider of accounts receivable management services and other
complementary outsourced services. Compass' Accounts Receivable Management
division provides a suite of accounts receivable management solutions to
clients, including traditional third-party collection services, pre-collection
customer contact programs, innovative payment options, credit report-related
services, an attorney network for severely delinquent accounts, and bankruptcy
and probate collection strategies. Compass' Print and Mail division offers
printing, mailing and related services which complement the accounts receivable
management services, including expertise and efficiency in direct mail and
billing, presorting, freight and drop shipping, data processing, laser printing,
mailing list rental and order fulfillment. The Company's Teleservices division
provides state-of-the-art call management and reporting.
The Company's clients operate in a broad range of industries, including
telecommunications, financial services, insurance, healthcare, education,
government and utilities. The Company serves its clients from fifteen call
centers across the country and four mail processing centers. As of December 31,
1998, the Company employed approximately 2,250 employees, of whom 900 were
employed in connection with accounts receivable management and 1,350 were
employed in the Print & Mail and Teleservices divisions.
Compass completed its initial public offering (the "IPO") and commenced
operations in March 1998 when it acquired five founding companies, three of
which provide accounts receivable management services, and two of which provide
complementary outsourced services (including mailing services and inbound and
outbound teleservices) (together, the "Founding Companies"). Nine subsequent
acquisitions have strengthened the depth and breadth of Compass' service
offerings. See "Acquisition History." As the Company has expanded and evolved
since the IPO, management has determined that it can best maximize profitability
by emphasizing accounts receivable management. Accordingly, Compass' goal is to
be the leading provider of accounts receivable management services on an
outsourced basis while continuing to provide complementary services in response
to clients' needs. To accomplish that goal, the Company's strategy is to (i)
continue to expand the breadth and depth of its service offerings (either
internally or through acquisitions); (ii) strengthen its client base in
attractive vertical markets; (iii) expand into new geographic markets; (iv)
continue to focus on high quality client service by delivering customized,
value-added solutions and offering other complementary outsourced services; (v)
use sophisticated technology to provide innovative solutions to clients on an
efficient and cost-effective basis; and (vi) operate on a centralized basis to
maintain strategic focus and build equity and brand awareness on a national
level.
The Company continues to believe that it is well positioned to take
advantage of the overall corporate trend towards outsourcing as clients and
prospects seek to reduce their fixed costs and focus on their core competencies.
Compass believes that businesses are seeking experienced, technologically
advanced and service-focused providers with the full range of capabilities
necessary to perform efficiently projects of any size on a local, regional or
national basis. Compass believes that the breadth of services it offers is a
competitive advantage that differentiates Compass from its competitors. It has
quickly become one of the largest competitors in its highly fragmented industry.
By focusing on integration of its acquired companies, Compass will continue to
seek to leverage technology, achieve operating efficiencies and build a national
brand name for reliable, flexible and high-quality outsourcing solutions.
The Company intends to continue to take advantage of the fragmented nature
of the accounts receivable management industry by making strategic acquisitions.
Through selected acquisitions, the Company will seek to serve new geographic
markets, expand its presence in its existing markets or add complementary
services. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions.
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Compass was incorporated in Delaware in 1997. Its principal offices are
located at One Penn Plaza, Suite 4430, New York, NY 10119, and its telephone
number is (212) 967-7770.
ACQUISITION HISTORY
Compass commenced operations on March 4, 1998 when it acquired the Founding
Companies. Compass has subsequently completed nine additional strategic
acquisitions which have added to its client base and geographic presence,
increased its presence in key client industries and expanded the depth and
breadth of its service offerings. The following chart summarizes Compass'
acquisition history:
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ACQUISITION DATE COMPANY/ SUMMARY DESCRIPTION
- ------------------------------------- -----------------------------------------------------------
<S> <C>
March 4, 1998 The Mail Box, Inc.
Mailing services
March 4, 1998 National Credit Management Corporation
Accounts receivable management services,
telephonic check drafting services
March 4, 1998 B.R.M.C. of Delaware, Inc.
Accounts receivable management services
March 4, 1998 Mid-Continent Agencies, Inc.
Accounts receivable management services
March 4, 1998 Impact Telemarketing Group, Inc.
Telemarketing services
April 8, 1998 Bender Direct Mail
Mailing services
May 1, 1998 Delivery Verification Services
Letter-based collection services
May 1, 1998 Maher & Associates
Mailing services
May 21, 1998 Metro Webb
Direct mail printing and mailing services
June 16, 1998 Nationwide Debt Recovery, Ltd.
Accounts receivable management services
June 23, 1998 Midwest Collection Service, Inc.
Accounts receivable management services
July 28, 1998 R.C. Wilson Company
Accounts receivable management services
August 13, 1998 Rosenfeld Attorney Network
Legal, bankruptcy and probate collection services
September 30, 1998 Professional American Collections, Inc.
Mortgage credit reporting and collection services
</TABLE>
COMPASS' INTEGRATION STRATEGY
To realize the benefits of its acquisition strategy, the Company recently
implemented a corporate reorganization to operate its business within three
operating divisions: (i) Accounts Receivable Management, (ii) Print & Mail, and
(iii) Teleservices.
In the Accounts Receivable Management division, Compass has substantially
reorganized its separate accounts receivable management operations into one
nationally branded entity, Compass Receivables Management Corporation ("CRMC").
CRMC has achieved, and management expects it to continue to achieve, cost
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savings through re-organization and integration initiatives in key areas that
include sales, operations, finance, compliance and information systems.
Management believes that other cost savings will be generated in CRMC from
Company-wide initiatives to realize economies of scale due to greater purchasing
power in key expense areas such as telecommunications, postage, credit bureau
reports, insurance and employee benefits.
In its Print & Mail division, the Company is consolidating three of its
standard class mailing operations (all located in Texas) into one facility
located in Dallas, Texas. This consolidation is expected to take place in mid-
1999. With this consolidation, the Company's Print & Mail division is expected
to experience operating efficiencies and offer considerable capacity for new and
larger clients.
The Teleservices division has benefited from Company-wide supplier/sourcing
initiatives such as favorable telephone rates and accounting infrastructure
improvements. The Teleservices division expects to realize further improvements
with a focused emphasis on higher margin services.
COMPASS' SERVICES
Compass provides a full suite of accounts receivable management services as
well as other complementary outsourced services. The following is a brief
description of the services that Compass provides:
Accounts Receivable Management Services.
The Company's accounts receivable management service operations, which are
provided from fifteen call centers across the United States, include full
service credit and receivables solutions for consumer and commercial account
portfolios across every stage of collection. Services provided to clients
include customized accounts receivable management programs, credit reporting
related services, innovative payment options, pre-collection customer contact
programs, traditional third-party receivable services for overdue accounts, a
network of attorneys for severely delinquent accounts and nationwide bankruptcy
and probate collection strategies. Accounts receivable management services
revenues are earned primarily on a contingency fee basis and, to a lesser
extent, on a fixed fee per account basis.
More specifically, accounts receivable management services include the
following:
- Contingency Collections -- the Company provides collection services, for
a contingency fee, for delinquent consumer and commercial accounts on a
"primary" basis (first placement with an outside collection
agency -- usually at 90 to 360 days past due), a "secondary" basis
(placed with a second agency, generally between 12 and 18 months past
due), and a "tertiary" basis (placed with more than two previous
agencies, generally more than 18 months past due).
- "Early Out" Programs -- the Company provides accounts receivable
servicing and recovery services for early stage receivables (generally 90
days or less past due), sometimes on a "first-party" outsourced basis.
Fees billed are on a per account, contingency or blended basis.
- Legal Network Management Services -- the Company provides litigation
management, bankruptcy and probate collection services through CRMC's
legal network division in Washington, D.C. This division maintains
relationships with attorneys throughout the U.S. and provides case
assignment, management, tracking, follow-up and reporting services to
clients with accounts warranting litigation.
- Credit Reporting Related Services -- the Company, through Professional
American Collections, a subsidiary of CRMC, provides credit report access
and verification services, primarily to mortgage lenders.
- Innovative Payment Options -- the Company, through its Accelerated
Payment System ("APS") unit, offers clients the opportunity to provide
check-by-phone services to their customers. This capability -- which
facilitates a checking account draft upon the customer's providing bank
account information -- is a valuable payment and collection tool in
on-line and telephone environments.
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Printing and Mailing Services.
The Company provides direct mailing and billing services, mail presorting,
freight and drop shipping, data processing, laser printing, mailing list rental
and other services relating to mail handling. Using the Company's inserting
machines and related mail-handling systems, the Company's Printing and Mailing
division processed approximately one billion pieces of mail during 1998.
Printing and Mailing services include the following:
- Mailing Services -- the Company provides high speed inserting,
pre-sorting (combining volumes of like mail and sorting and bar coding it
to United States Postal Service specifications), address cleansing,
freight and drop shipping which generate significant postal discounts for
customers.
- List Processing -- the Company obtains and manages mailing lists for
clients and provides personalization services in connection with printing
and mailing projects.
- Data Processing and Printing Services -- the Company converts data sent
by clients and processes it to produce letters or bills. It also offers
state-of-the-art predictive modeling and analysis for market segmentation
to enhance response rates for direct marketing campaigns.
- Fulfillment Services -- the Company provides order fulfillment services
whereby it stores client inventory, receives and compiles orders and
mails the item or information package ordered. The Company is expanding
this service into internet commerce and is starting to manage
order-taking web sites for clients.
Teleservices.
Compass' Teleservices division uses state-of-the-art call management and
predictive dialing technology to make, on average, approximately 65,000 hours
per month of calls on behalf of clients. More specifically, this division
provides the following services:
- Outbound Calling Programs -- the Company provides outbound telemarketing
services on behalf of many clients, receiving and updating customer data
files and then calling the customers on the list to offer goods and
services. Scripts are developed and agreed upon in advance by the Company
and its client. Calling is controlled by sophisticated call management
systems using a predictive dialer into which the target telephone numbers
are loaded. Information regarding sales and other aspects of the program
is captured, processed and verified systematically and provided to
clients in customized report formats. The Company charges its outbound
teleservices clients on a commission basis, an hourly rate or a
combination of both.
- Inbound Calling Programs -- the Company receives and processes inbound
calls, primarily involving catalog sales, customer service, lead
generation, order fulfillment or product information. Some inbound
programs assist clients in responding to customer inquiries, offering
technical and product support services and assessing customer
satisfaction. Inbound services are normally billed by the hour or minute.
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. VarTec Telecom, Inc. ("VarTec") accounted
for approximately 19% of the Company's 1998 consolidated net revenues. Other
than VarTec, no client accounted for more than 10% of the Company's revenues in
1998.
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 Company intends to continue its emphasis on developing and maintaining
long-term client relationships. The Company has implemented a marketing strategy
designed to: (i) provide a broad range of high quality, complementary services;
(ii) expand service offerings; and (iii) enable the cross-selling of services to
existing and new clients. Marketing strategies are being coordinated to optimize
the sales force efforts and prioritize new
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client acquisitions of major national accounts. The Company also evaluates each
new client to determine the optimal Company location from which to service the
client. Considerations include capacity, technology platform, staffing needs,
proximity and others.
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 market. 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 the basis of performance, client service,
range of services offered and price. Management believes that the Company is
well-positioned due to its size and reputation to compete for national clients,
but notes that servicing national accounts with high placement volumes and
significant purchasing power will create downward pressure on pricing and
margins.
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. CRMC is subject to the Fair
Debt Collection Practices Act ("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 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 collector. In cases where the Company reports to
consumer reporting agencies, the Company is also subject to the Fair Credit
Reporting Act, which imposes liability on companies that furnish information to
consumer reporting agencies. With respect to the teleservices offered by the
Company, including telemarketing, the Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 ("TCPA") broadly authorizes the Federal Trade Commission
(the "FTC") to issue regulations prohibiting misrepresentations in telemarketing
sales. The FTC's Telemarketing Sales Rule, among other things, limits the hours
during which telemarketers may call, prohibits misrepresentations of the cost,
terms, restrictions, performance or duration of products or services offered by
telephone solicitation and specifically addresses 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 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. However, 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. The failure to
comply with
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applicable statutes and regulations could have a materially adverse effect on
the Company's business, results of operations and financial condition.
EMPLOYEES
As of December 31, 1998, the Company employed a total of approximately 2250
employees, of whom approximately 900 were employed in connection with accounts
receivable management services, approximately 700 were employed in connection
with teleservices and approximately 650 were employed in connection with
printing and 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.
ITEM 2. PROPERTIES
The Company currently operates the leased facilities set forth below.
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LOCATION OF FACILITY APPROXIMATE SQUARE FOOTAGE
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CORPORATE HEADQUARTERS
New York, New York........................................ 4,547
ACCOUNTS RECEIVABLE DIVISION
Consumer Collection Call Centers
and Administrative Offices
Atlanta, Georgia............................................ 19,943
Tucker, Georgia............................................. 3,360
Baltimore, Maryland......................................... 16,257
Phoenix, Arizona(1)......................................... 3,500
Washington, D.C............................................. 7,100
South Bend, Indiana......................................... 4,500
North Aurora, Illinois...................................... 20,000
Tampa, Florida.............................................. 8,479
Houston, Texas.............................................. 16,230
St. Charles, Missouri....................................... 10,000
Pittsburgh, Pennsylvania.................................... 3,675
Las Vegas, Nevada........................................... 3,333
Commercial Collection Call Centers
and Administrative Offices
Rolling Meadows, Illinois................................... 15,714
Louisville, Kentucky........................................ 5,528
Amherst, New York........................................... 7,740
Other
New Castle, Delaware........................................ 3,150
COMPASS PRINT & MAIL DIVISION
Print Services Facilities
Dallas, Texas (various locations)........................... 44,250
Mail Services Facilities
Dallas, Texas(2)............................................ 247,618
Dallas, Texas (various locations)(3)........................ 450,000
Carrolton, Texas(4)......................................... 61,000
COMPASS TELESERVICES DIVISION
Voorhees, New Jersey(5)..................................... 8,767
Woodbury, New Jersey........................................ 3,000
</TABLE>
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(1) The Phoenix operation expects to move into a new 10,000 foot facility on or
about June 1, 1999.
(2) The Print & Mail division expects to consolidate a number of its other
facilities into this building in mid 1999.
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(3) The Print & Mail division expects to exit facilities representing
approximately 153,000 square feet during 1999.
(4) The Print & Mail division expects to exit this facility in mid 1999.
(5) The Teleservices division expects to exit this facility in mid 1999 and to
move into a new 10,000 square foot facility in Mt. Laurel, New Jersey.
The leases for the facilities listed above expire between 1999 and 2013,
and most contain renewal options. The Company's Accounts Receivable division
also leases a facility in Surrey, England. In addition to its leased facilities,
the Company owns a 24,909 square foot print services facility in Tulsa,
Oklahoma.
ITEM 3. LEGAL PROCEEDINGS
In October 1997, Mid-Continent Agencies, Inc. (a Founding Company) 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.
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
Vallecorse, 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. Vallecorse 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. The Company believes that the allegations against it and its
co-defendants are without merit, however, because this litigation is still at an
early state, its outcome cannot be predicted. The cases remain in the discovery
stage. The former stockholders of Mid-Continent Agencies, Inc. agreed, in the
purchase agreement whereby Compass agreed to purchase Mid-Continent, to
indemnify the Company for losses and damages, if any, arising from these
lawsuits.
In October 1998, a subsidiary of one of the Founding Companies, Bomar
Credit Corporation, and CRMC received a Civil Investigative Demand from the
FTC's Chicago Regional Office requesting various categories of information
relating to compliance with the FDCPA. The Company is cooperating fully with the
FTC's request. The Company, along with counsel, has reviewed the requests, but
since the matter is still in the very early state, an assessment of its duration
and outcome, and associated liability and expense, if any, cannot reasonably be
made at this time. However, there can be no assurances that future developments
relating to this matter will not have a material adverse impact on the Company's
business, financial condition or results of operations.
The Company is not involved in any other legal proceedings material to the
business, financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK INFORMATION: PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq National Market under
the symbol CMPS. The following table shows the high and low trading prices for
each fiscal quarter in 1998 as reported by Nasdaq.
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FISCAL 1998 HIGH LOW
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<S> <C> <C>
First Q (2/27-3/1/98)(1) $14.875 $10.750
Second Q.................................................... $ 17.00 $ 9.25
Third Q..................................................... $ 13.00 $ 7.00
Fourth Q.................................................... $ 10.75 $ 7.00
</TABLE>
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(1) The Company's Common Stock began trading upon effectiveness of this
Company's Registration Statement on Form S-1 (Registration No. 333-37209)
in connection with the Company's initial public offering on February 27,
1998.
At March 24, 1999, the last reported sale price for the Common Stock was $5.75
and there were 109 holders of record of the Company's Common Stock.
Since the Company's initial public offering in 1998, the Company has not
declared any cash dividends or distributions on its capital stock. The Company
currently intends to retain its earnings to finance future growth and therefore
does not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Although the Company was formed in April 1997, there were no operating
activities prior to the IPO and closing of the Founding Companies Acquisitions.
Selected financial data as of and for the year ended December 31, 1998 and as of
December 31, 1997 follows (all dollars except per share data are in thousands):
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net revenues................................................ $127,140 $ --
Operating income............................................ $ 12,842 $ --
Net Income.................................................. $ 6,007 $ --
Diluted net income per share................................ $ 0.53 $ --
Working capital............................................. $ 8,065 $ --
Property and equipment, net................................. $ 18,285 $ --
Total assets................................................ $187,481 $ 3,942
Long-term debt, net of current maturities................... $ 55,760 $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of Compass and related notes thereto included
herein and in the Company's Registration Statement on Form S-1 (No. 333-37205),
as amended, filed with the Securities and Exchange Commission in connection with
its IPO.
Presented below are discussions of the Company's results of operations on
both a historical and unaudited pro forma basis. Although the Company was formed
in April, 1997, there were no operating activities prior to the IPO and the
closing of the Founding Companies Acquisitions. Furthermore, since the Founding
Companies Acquisitions did not occur until March 4, 1998, the historical
operating results for the year ended December 31, 1998 include only ten months
of results from the Founding Companies. All of the acquisitions subsequent to
the IPO and Founding Company acquisitions have been accounted for as purchases
and, accordingly, the Company's consolidated financial statements reflect the
operations of the subsequently acquired companies from their
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respective dates of acquisition. For this reason, a discussion of the unaudited
pro forma operating results which readers may find useful has been included.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 -- HISTORICAL
Historical results of operations reflect the activities of Compass and the
Founding Companies since February 28, 1998 and the subsequent purchases since
their respective dates of acquisition.
Net revenues. Net revenues for the period amounted to $127.1 million. Among
the segments, Accounts Receivable Management services contributed $55.7 million,
or 43.8%, Print & Mail services contributed $56.2 million, or 44.2% and
Teleservices added $15.2 million or 12%.
Cost of revenues. Cost of revenues for the period amounted to $85.9 million
or 67.6% of net revenues. By segment, cost of revenues for Accounts Receivable
Management Services amounted to $33.4 million, or 60% of segment net revenues,
Print and Mail Services amounted to $40.9 million, or 72.8% of segment net
revenues and Telemarketing Services amounted to $11.6 million, or 76.3% of
segment net revenues.
Selling, general and administrative expenses. Selling general and
administrative expenses for the period amounted to $26.3 million, or 20.6% of
net revenues. Selling, general and administrative expenses in dollars and as a
percentage of segment net revenues for Accounts Receivable Management services
amounted to $11.8 million, or 21.2%, Print & Mail services amounted to $8.8 or
15.7% and Teleservices amounted to $2.5 million or 16.4%. Corporate expenses
amounted to $3.2 million.
Interest expense. Interest expense amounted to $2.0 million in the current
period. The interest primarily relates to borrowing under the Company's credit
facility, which was used to make acquisitions, loans from selling shareholders
in connection with the acquisition of their companies and interest imputed on
capital leases.
Income taxes. The effective income tax rate was 44.8% as compared to the
statutory rate of 35%. The difference primarily relates to the effects of state
income taxes and the non-deductibility of goodwill arising primarily from the
stock acquisitions.
UNAUDITED PRO FORMA YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE UNAUDITED PRO
FORMA YEAR
ENDED DECEMBER 31, 1997
Unaudited pro forma results of operations presented below assume that the
IPO, the Founding Companies Acquisitions and the subsequent acquisitions
occurred on January 1, 1998 and 1997 and reflect certain pro forma adjustments.
See Note 3 of Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenues................................................ $177,105 $151,088
Cost of revenues............................................ 119,408 103,748
-------- --------
Gross Profit.............................................. 57,697 47,340
Selling, general and administrative expenses................ 36,922 34,393
-------- --------
Operating income.......................................... $ 20,775 $ 12,947
======== ========
</TABLE>
Net revenues. Net revenues increased $26.0 million, or 17.2%, from $151.1
million for the year ended December 31, 1997 to $177.1 million for the year
ended December 31, 1998. Accounts Receivable Management services increased $12.1
million or 16.1%, Print & Mail services increased $8.3 million or 13.1% and
Teleservices increased $5.6 million or 43.7%.
Cost of revenues. Cost of revenues increased $15.7 million, or 15.1% from
$103.7 million for the year ended December 31, 1997 to $119.4 million for the
year ended December 31, 1998. Cost of revenues as a percentage of net revenues
amounted to 67.4% for 1998 as compared to 68.7% for 1997. As a percentage of
segment net revenues, Accounts Receivable Management services cost of revenues
decreased to 61.4% from 63.7% and cost of revenues for Teleservices decreased to
76.1% from 76.7% as both segments benefited from
11
<PAGE> 12
greater revenue over an existing cost base. The Print & Mail Segment cost of
revenues as a percentage of net revenues remained consistent between periods as
revenue increases were offset by similar increases in costs.
Selling, general and administrative expenses. Selling general and
administrative expenses for 1998 increased $2.5 million to $36.9 million from
$34.4 million in 1997. As a percentage of net revenues, such expenses decreased
to 20.8% in 1998 from 22.8% in 1997. On a segment basis, as a percentage of net
revenues, selling, general and administrative expenses in Accounts Receivable
Management services decreased to 17.6% in 1998 from 21% in 1997 and Teleservices
decreased to 17.8% in 1998 from 20.6% in 1997. Both of these segments benefited
from increased volumes without similar increases in selling general and
administrative expenses. For the Print and Mail Segment, selling general and
administrative expenses as a percentage of net revenues increased to 15% in 1998
from 14.5% in 1997 as these expenses increased at a greater rate then did net
revenues for the segment.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, net cash provided by operating
activities amounted to $2.4 million. Operating activities included $11.4 million
of earnings before depreciation, amortization and change in deferred income
taxes. Such activities were offset by a $2.9 million increase in trade
receivables and prepaid expenses and other assets and a $6.1 million decrease in
accounts payable and accrued expenses.
Cash used in investing activities in 1998 included net cash paid for the
acquisition of the Founding Companies and subsequent acquisitions in the amount
of $60.1 million and capital expenditures of approximately $3.3 million which
were primarily comprised of purchases of equipment for Print & Mail services.
Financing activities in 1998 generated net cash in the amount of $69.6
million. Of this amount, net proceeds of $40.2 million were received from the
Company's IPO. Proceeds of $48 million were received under the Company's
revolving credit facility (which is further discussed in the following
paragraphs). Financing activities that required cash included the repayment of
acquired debt in the amount of $16.8 million and repayments of capital lease
obligations of $1.5 million. Loan acquisition costs used $.3 million in cash.
On April 23, 1998, Compass entered into an agreement (the "Revolver") with
Bank of America, NT & SA together with a group of other financial institutions,
with respect to a $35 million revolving credit facility. On August 7, 1998, the
Revolver was amended to increase the total amount available to $50 million and
on November 16, 1998 it was further amended to increase the total available
credit to $55 million. The Revolver has a three-year term and may be used for
acquisitions, capital expenditures, refinancing debt, and for general corporate
purposes. The Revolver also provides that a maximum of $2 million of the total
$55 million available may be used for letters of credit. At December 31, 1998,
borrowings under the Revolver totaled $48 million, there were $.8 million in
outstanding letters of credit and $6.2 million available.
The Revolver requires Compass to comply with various covenants which
include maintenance of certain financial ratios, restrictions on additional
indebtedness and restrictions on liens, guarantees, investments, capital
expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest at an initial increment, based on
the Company maintaining a specified leverage ratio of 125 basis points over the
Interbank Offered Rate or a Base Rate, as defined therein. The Revolver is
secured by the common stock of Compass' current and future subsidiaries. In
addition, if the Company fails to maintain a leverage ratio, as defined in the
agreement, of less than 1.5-to-1, lenders may collateralize the Revolver with
substantially all of the assets of the Company and its subsidiaries. At December
31, 1998, the leverage ratio, as defined, exceeded 1.5-to-1 and the lenders have
perfected their lien on the collateral. At December 31, 1998, the Company was in
compliance with the debt covenants.
The interest rate under the Revolver at December 31, 1998 was 6.75%. On
October 13, 1998, the Company entered into interest rate swap arrangements to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreements at December 31, 1998
was 6.34%, which is comprised of a fixed rate of 4.84% plus an increment, based
on the Company maintaining a specified leverage ratio, of 150 basis points.
These swap arrangements were entered into with two of the lenders that are
parties to the Revolver and terminate on October 15, 2000.
12
<PAGE> 13
Due to a change in the Company's leverage ratio, the Revolver and swap
arrangements are being amended to provide, among other matters, a change in the
margin increment from 150 basis points to 225 basis points, or to interest rates
of 7.50% under the revolver and 7.09% under the swap arrangements. This margin
change is effective with the signing of the amendment.
During 1999, cash to be paid pursuant to certain earn-out agreements with
former owners of acquired companies is expected to be $8.9 million. The cash
payments of notes payable during 1999 is expected to be $1.9 million. The
Company anticipates that the integration and consolidation of acquired print and
mail companies will result in cash payments of approximately $1.8 million.
Based upon its current projections, management believes that cash flows
from operations combined with borrowings under the Revolver will be sufficient
to meet the Company's working capital needs in 1999.
SEASONALITY
The operations of Compass are not subject to seasonal factors that have a
material impact on the results of operations.
COMPANY'S EXPLORATION OF STRATEGIC ALTERNATIVES
On January 7, 1999 the Company's Board of Directors approved the engagement
of Lehman Brothers to assist the Company in evaluating its strategic
alternatives. The Company's Board has met periodically with Lehman Brothers and
is working towards finalizing its evaluation and developing plans accordingly.
YEAR 2000
The Company has assembled a Year 2000 Task Force which is in the process of
identifying and assessing potential operating and software problems related to
the "Year 2000" issue, both internally and externally. The Company's Year 2000
program is addressing both information technology and non-information
technology. The Company's Year 2000 Task Force has completed an inventory of the
hardware and software used in its operations, has prioritized the hardware and
software into "mission critical" and "non-mission critical" and has assessed the
Year 2000 readiness of all of the "mission-critical" and the majority of the
"non-mission critical" hardware and software inventoried. Based on this effort,
the Company has identified only non-material Year 2000 issues, all of which are
being remediated and will be tested on or before September 30, 1999. Two of the
Company's acquisitions have non-compliant hardware and software, but the
hardware and software used by those acquisitions are in the process of being
replaced in the course of a broader upgrade which will bring them into
compliance. Additionally, the Company has communicated with landlords,
significant vendors and other critical service providers to determine if such
parties are year 2000 compliant or have effective plans in place to address the
year 2000 issue and to determine the extent of the Company's vulnerability to
the failure of such parties to remediate such issues. The Company has received
responses from many of these third parties and is awaiting responses and/or
re-contacting the non-responding third parties. None of the responses received
to date have identified any Year 2000 issues which are not on-track to be
remediated well in advance of the requisite date(s). The Company will continue
to assess its risks and develop appropriate contingency plans as needed if
responses from landlords, significant vendors and other critical service
providers so warrant. The Company does not believe that the costs of
modifications, upgrades or replacements which would not have been incurred but
for, or which have been accelerated because of, the Year 2000 issue will be
material.
The Company does not expect the impact of the Year 2000 to have a material
adverse impact on the Company's business or results of operations. However, no
assurances can be given that any failure to effectively complete the necessary
changes to the Company's financial and operating systems on a timely basis or
that unanticipated or undiscovered Year 2000 compliance problems arise that
could have a material adverse effect on the Company's business and results of
operations. In addition, there can be no assurance that Year 2000 non-
compliance by any of the Company's clients or significant suppliers or vendors
will not have a material adverse effect on the Company's business or results of
operations.
13
<PAGE> 14
FORWARD-LOOKING INFORMATION -- SAFE HARBOR STATEMENT
Certain statements contained in this discussion regarding future events and
financial performance are not based on historical facts and, as such, constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve uncertainties and risk. There can be
no assurance that actual results will not differ materially from the Company's
expectations. Factors that could cause such differences include the timing and
pace of acquisitions, the Company's ability to achieve expected growth in
revenues, earnings and operating efficiencies, year 2000 uncertainties and other
risks described in the Company's Registration Statement on Form S-1, File No.
333-37205.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on debt.
At December 31, 1998, the Company had $8 million of debt subject to
variable interest rates. A one percent change in interest rates would impact
interest expense by $0.08 million with respect to the amount of debt that is
subject to variable interest rates.
The Company has entered into interest rate swap arrangements to reduce the
risk of increases in interest rates on $40 million of outstanding Revolver debt
through October 15, 2000. A one percent change in interest rates would have
affected interest expense by $0.4 million with respect to the amount of debt
covered by the interest rate swaps.
The Company does not hold or issue derivative financial instruments for
speculation or trading purposes.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPASS INTERNATIONAL SERVICES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... 16
Consolidated Balance Sheets -- December 31, 1998 and 1997... 17
Consolidated Statement of Operations -- Year ended December
31, 1998.................................................. 18
Consolidated Statement of Stockholders' Equity -- Year ended
December 31, 1998......................................... 19
Consolidated Statement of Cash Flows -- Year ended December
31, 1998.................................................. 20
Notes to Consolidated Financial Statements.................. 21
Financial Statement Schedule Supporting Consolidated
Financial Statements Schedule II Valuation and Qualifying
Accounts.................................................. 31
</TABLE>
All other schedules have been omitted as the required information is
inapplicable or the information is included in the
consolidated financial statements or related notes.
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF
COMPASS INTERNATIONAL SERVICES CORPORATION
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on Page 15 present fairly, in all material respects, the
financial position of Compass International Services Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the year ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
New York, New York
March 3, 1999
16
<PAGE> 17
COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,606 $ --
Cash held in trust for clients............................ 4,346 --
Trade receivables, less allowance of $725 at December 31,
1998................................................... 20,704 --
Inventory................................................. 1,282 --
Postage on hand........................................... 2,067 --
Prepaid expenses and other current assets................. 1,819 --
Deferred income taxes..................................... 877 --
-------- ------
Total current assets.............................. 39,701 --
Property and equipment, net................................. 18,285 --
Deferred offering costs..................................... -- 3,942
Goodwill, net............................................... 127,857 --
Other assets................................................ 1,495 --
-------- ------
Total assets...................................... $187,338 $3,942
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables............................................ $ 6,783 $ --
Accrued expenses.......................................... 5,540 2,747
Accrued earn-outs payable................................. 8,904
Collections due to clients................................ 4,346 --
Customer postage advances and deposits.................... 2,484 --
Notes payable............................................. 1,924 1,045
Capital lease obligations................................. 1,798 --
-------- ------
Total current liabilities......................... 31,779 3,792
Long-term debt.............................................. 48,000 --
Notes payable............................................... 7,760 --
Capital lease obligations................................... 2,644 --
Deferred income taxes....................................... 273 --
-------- ------
Total liabilities................................. 90,456 3,792
-------- ------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized $.01 par
value, no shares issued or outstanding.................... -- --
Common stock, 50,000,000 shares authorized $.01 par value,
13,804,846 and 1,682,769 shares issued and outstanding at
December 31, 1998 and 1997, respectively.................. 138 17
Additional paid-in capital.................................. 85,041 133
Value of shares to be issued (note 3)....................... 2,501 --
Retained earnings........................................... 9,202 --
-------- ------
Total stockholders' equity........................ 96,882 150
-------- ------
Total liabilities and stockholders' equity........ $187,338 $3,942
======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
Net revenues................................................ $ 127,140
Cost of revenues............................................ 85,919
-----------
Gross profit.............................................. 41,221
Selling, general and administrative expenses................ 26,250
Goodwill amortization....................................... 2,129
-----------
Operating income.......................................... 12,842
Interest expense, net....................................... 1,966
-----------
Income before provision for income taxes.................. 10,876
Provision for income taxes.................................. 4,869
-----------
Net income................................................ $ 6,007
===========
Net income per share:
Basic..................................................... $ 0.54
===========
Diluted................................................... $ 0.53
===========
Weighted average number of shares:
Basic..................................................... 11,168,799
===========
Diluted................................................... 11,313,525
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............. 1,682,769 $ 17 $ 133 $ -- $ 150
Shares issued in Offering.............. 4,715,000 47 46,045 -- 46,092
Offering costs......................... -- -- (5,945) -- (5,945)
Shares issued for acquisitions......... 7,407,077 74 30,823 -- 30,897
Value of shares to be issued (note
3)................................... -- -- 2,501 -- 2,501
Retained earnings of The Mail Box, Inc.
accounting acquirer.................. -- -- -- 3,195 3,195
Increase in value of shares exchanged
for Compass pre-offering shares...... -- -- 13,985 -- 13,985
Net income............................. -- -- -- 6,007 6,007
---------- ---- ------- ------ -------
Balance, December 31, 1998............. 13,804,846 $138 $87,542 $9,202 $96,882
========== ==== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................. $ 6,007
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 2,957
Amortization.............................................. 2,204
Deferred income taxes..................................... 273
Change in operating assets and liabilities, net of effect of
acquisitions:
Cash held in trust for clients............................ 74
Trade receivables......................................... (413)
Inventory................................................. 42
Postage on hand........................................... (553)
Prepaid expenses and other current assets................. (1,692)
Other assets.............................................. (374)
Trade payables............................................ (978)
Accrued expenses.......................................... (5,874)
Collections due to clients................................ 15
Customer postage advances and deposits.................... 765
Other non-current liabilities............................. (55)
---------------
Net cash provided by operating activities................... 2,398
---------------
Cash flows from investing activities:
Purchases of property & equipment......................... (3,336)
Business acquisitions, net of cash acquired............... (60,059)
---------------
Net cash used in investing activities....................... (63,395)
---------------
Cash flows from financing activities:
Loan acquisition costs.................................... (352)
Repayments of capital lease obligations................... (1,471)
Net proceeds from initial public offering................. 40,248
Proceeds from revolving credit facility borrowings........ 48,000
Repayment of acquired debt................................ (16,822)
---------------
Cash flows from financing activities........................ 69,603
---------------
Net increase in cash and cash equivalents................... 8,606
Cash and cash equivalents, beginning of period.............. --
---------------
Cash and cash equivalents, end of period.................... $ 8,606
===============
Supplemental Disclosures of cash flow information:
Cash paid for interest.................................... $ 1,687
===============
Cash paid for income taxes................................ $ 5,659
===============
Non cash investing activities:
Fair value of net assets acquired......................... $ 145,728
Value of common stock issued.............................. (60,190)
Notes issued.............................................. (8,650)
Amounts payable pursuant to earn-outs..................... (11,405)
---------------
Net cash paid............................................. 65,483
Cash acquired............................................. (5,424)
---------------
Net cash paid for acquisitions............................ $ 60,059
===============
</TABLE>
Non cash financing activities include $2,413 of capital lease obligations
incurred for equipment.
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
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. These services include: management of accounts
receivables, including the recovery of traditional delinquent accounts from both
consumer and commercial debtors and the management of early stage delinquencies;
mailing services, including the mailing of direct marketing materials, billing
services, mail presorting and other services related to mail handling; and
telemarketing services for outbound telemarketing, inbound customer service and
inbound sales.
On March 4, 1998, simultaneously with the closing of the Company's initial
public offering ("IPO" or the "Offering") of its common stock, Compass acquired
all of the outstanding capital stock of five companies providing accounts
receivable management services, mailing services and teleservices in separate
purchase transactions (the "Founding Companies"). (See Note 3 -- Acquisitions).
Prior to the Offering, Compass had no operating activities. These consolidated
financial statements reflect the results of operations of Compass and its
subsidiaries subsequent to the IPO and initial acquisitions.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Compass and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
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.
Cash Equivalents
Cash equivalents are liquid unrestricted investments with original
maturities of three months or less.
Revenue Recognition
The Company generally recognizes revenues in its accounts receivable
management 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 certain
other accounts receivable management services are recognized based upon
completion of services performed for the client.
The Company provides a variety of print and mail services to its customers.
Revenue for the print and mail services is recognized upon delivery to the
United States Post Office or to the customer. Postage expenses are passed
directly through to the Company's clients and are not recognized as revenues or
expenses in the Company's consolidated 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.
21
<PAGE> 22
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Inventory
Inventory consists of raw materials and work in process recorded at cost
(FIFO) not to exceed market. The cost of work in process includes the costs of
completed but unmailed production.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization of assets recorded under capital
leases and leasehold improvements, are provided using the straight-line method
over estimated useful lives of each class of assets, or, if shorter, the term of
lease. Useful lives range from 3 to 8 years. Expenditures for repairs and
maintenance are charged to expense as incurred.
Goodwill and Other Intangibles
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations and certain amounts ascribed to the
issuance of pre-IPO shares of the Company's common stock. Goodwill is amortized
on a straight-line basis over periods ranging from 15 to 40 years. Accumulated
amortization at December 31, 1998 amounted to $2,129.
Other intangibles are comprised of non-compete agreements totaling $450
with certain selling shareholders. The agreements are for periods ranging from
two to six years. Accumulated amortization at December 31, 1998 amounted to $75.
Long-lived Assets
Long-lived assets, including goodwill, are reviewed for permanent
impairment annually or whenever events or changes in circumstances indicate that
the carrying amount may be impaired. A loss would be recognized for the
difference between the fair value and carrying value of the asset.
Financial Instruments
Interest rate swap agreements have been used to effectively modify the
interest rate on $40 million of the Company's revolving line of credit from a
variable rate to a fixed rate. Amounts paid or received by the Company under
these agreements are recorded as adjustments to interest expense as realized.
Financial instruments, which potentially expose the Company to a
concentration of credit risk principally, consist of accounts receivable. The
Company provides its services to a large number of clients in many domestic
geographic areas. To minimize credit concentration risk, the Company performs
ongoing credit evaluations of its customers' financial conditions.
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 or liabilities and their
respective tax basis, using enacted tax rates.
Cash Held in Trust for Clients/Collections Due to Clients
Cash held in trust for clients and collections due to clients consist of
amounts collected on behalf of the Company's clients, net of the Company's
commission.
22
<PAGE> 23
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Earnings Per Share
The computation of basic earnings per share ("Basic EPS") for the year
ended December 31, 1998 reflects the number of shares of Common Stock
outstanding (1,682,769) attributable to BGL Capital Partners, LLC and Compass
management from January 1, 1998 until February 27, 1998, the number of shares
following the Founding Companies Acquisitions and Offering (11,218,460) from
February 27, 1998 until March 25, 1998, and the number of shares following the
exercise of the underwriters' overallotment option (11,833,460) from March 25,
1998 until the respective dates of acquisitions made using the Company's common
stock that occurred through September 30, 1998. The weighted average number of
shares outstanding for the year was 11,168,799.
Diluted earnings per share ("Diluted EPS") for the year ended December
31,1998 includes the effect of 111,270 shares earned as of December 31, 1998
pursuant to earn-out agreements (see note 3) and 33,456 shares issuable for
dilutive options outstanding, net of treasury shares that could be purchased in
the open market based on the average closing per share price for the period. At
December 31, 1998, options amounting to 122,700 weighted shares were not
considered dilutive potential shares as their exercise prices were greater than
the average market price.
A decrease in the price of a share of the Company's common stock subsequent
to the calculation of the estimated number of shares to be issued pursuant to
the earn-out agreements would result in more shares being issued than have been
used in the diluted earnings per share calculation. The actual number of shares
to be issued will be based on the closing common stock price at March 30, 1999.
New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. The statement is effective for fiscal
years beginning after June 15, 1999 and defines a derivative and establishes
common accounting principles for all types of instruments. The statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets, liabilities, or firm commitments through earnings or
recognized in comprehensive income until the hedged item is recognized in
earnings. The non-hedge portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company plans to adopt Statement No. 133
in 2000, however, management does not expect its adoption to have a significant
impact on the Company's financial position, results of operations or cash flows.
NOTE 3 -- ACQUISITIONS
Founding Companies
On March 4, 1998, Compass acquired the Founding Companies for consideration
consisting of common stock, cash and debt. The closing of the Founding Companies
Acquisitions and the Offering occurred on that date. The Founding Companies
include providers of accounts receivable management services: National Credit
Management Corporation ("NCMC"), B.R.M.C. of Delaware, Inc. ("BRMC"),
Mid-Continent Agencies, Inc. ("MCA"); print and mail services: The Mail Box,
Inc. ("Mail Box"); and telemarketing services: Impact Telemarketing Group, Inc.
("Impact"). Mail Box has been identified as the accounting acquirer.
Accordingly, in recording the Founding Companies Acquisitions the accounts of
Mail Box continue to be reflected on its historic basis of accounting, while the
aggregate purchase price for the other Founding Companies was allocated based on
the fair value of assets acquired and liabilities assumed.
Acquired Companies
Subsequent to the IPO, the Company made several additional acquisitions in
the accounts receivable management services and the print and mail service
industries. These acquisitions included the following
23
<PAGE> 24
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
accounts receivable management services companies : Professional American
Collections, Inc. ("PAC") Nationwide Debt Recovery, Ltd. ("NDR"), Delivery
Verification Service, Inc. ("DVS"), Midwest Collection Service, Inc.( "MCS"),
R.C. Wilson Company ("Wilson"), and Rosenfeld Attorney Network ("Rosenfeld").
The print and mail service companies acquired included: Metrowebb, Inc. and MWI
Laser Group, Inc. ("Metrowebb"), Maher & Associates Mailing Services, Inc.
("Ameritex") and Bender Direct Mail Service, Inc. ("Bender") (the "Acquired
Companies"). The aggregate purchase price for each acquisition has been assigned
to their respective assets based upon the fair value of the assets acquired and
liabilities assumed. As each of these acquisitions has been accounted for as a
purchase the Company's consolidated financial statements reflect the operations
of the acquired companies subsequent to the date of the acquisitions.
The following table sets forth the consideration paid (a) in shares of the
Company's common stock, (b) in cash and (c) in other consideration, principally
debt incurred and amounts payable pursuant to earn-out agreements as of December
31, 1998; the fair value of the net assets acquired and the resulting goodwill.
<TABLE>
<CAPTION>
CONSIDERATION PAID
SHARES ------------------------------------------
OF VALUE NET
COMMON OF ASSETS GOOD-
STOCK SHARES CASH OTHER TOTAL ACQUIRED WILL
--------- -------- ------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NCMC.................................. 965,801 $ 8,163 $ 3,169 $ 88 $ 11,420 $2,689 $ 8,731
BRMC.................................. 1,151,787 9,675 3,894 1,538 15,107 (4,036) 19,143
MCA................................... 490,467 4,120 1,635 5,296 11,051 598 10,453
Impact................................ 389,124 3,269 322 113 3,704 456 3,248
PAC................................... 659,154 3,803 10,425 7,617 21,845 56 21,789
NDR................................... 205,556 1,503 6,937 6,516 14,956 458 14,498
DVS................................... -- -- 1,500 365 1,865 (374) 2,239
MCS................................... -- -- 3,225 922 4,147 (411) 4,558
Wilson................................ 14,285 97 3,000 584 3,681 149 3,532
Rosenfeld............................. -- -- 8,100 4,635 12,735 537 12,198
Metrowebb............................. 550,000 4,156 6,000 596 10,752 3,476 7,276
Ameritex.............................. 284,112 2,850 3,500 55 6,405 1,559 4,846
Bender................................ 234,939 1,875 2,152 78 4,105 632 3,473
--------- ------- ------- ------- -------- ------ --------
4,945,225 $39,511 $53,859 $28,403 $121,773 $5,789 $115,984
========= ======= ======= ======= ======== ====== ========
</TABLE>
Consideration issued pursuant to the acquisition of Mail Box, the
accounting acquirer, amounted to 2,461,852 shares of common stock with a value
of $20,679 and $8,614 in cash. At the acquisition date, additional paid-in
capital relating to the acquisition has been reduced by $29,293 for the value of
the consideration paid for Mail Box which is accounted for at historical cost.
Shares issued to the Founding Companies were valued at $8.40 per share,
representing a 20% discount from the IPO price due to a one-year restriction on
transferability. For shares issued in conjunction with other acquisitions during
the year, having an aggregate recorded share value of $14,284, discounts from
the market price ranged from 20% for one year restrictions on transferability to
a maximum of 35% for two-year restrictions on transferability.
The purchase agreements with certain of the Acquired Companies provide for
the payment of earn-out amounts based upon 1998 performance, as defined in the
specific agreements. At December 31, 1998, $11,405 has been provided in the
accompanying consolidated balance sheet for estimated payments earned pursuant
to these agreements, which are in the process of being finalized. The earn-outs
are payable in cash of $8,904 and common stock valued at $2,501. The shares to
be issued pursuant to the earn-out agreements are subject to the same
restrictions on transferability as those issued in the acquisitions and,
therefore, the market value of such shares have been discounted on a consistent
basis. In addition, the purchase agreement with one of the Acquired Companies
provides for the payment, in shares of the Company's common stock, of an
earn-out based upon that company's 1999 earnings before interest, income taxes,
depreciation and amortization, as defined, to a maximum amount of $3,745.
Pursuant to the acquisitions, the Company undertook a program to
consolidate and streamline the operations of the accounts receivable management
services operations and to eliminate certain other redundant positions. A
24
<PAGE> 25
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
total charge amounting to $1,433 has been recorded as part of the goodwill
recorded in the acquisition transactions. Of this amount, $1,333 relates to the
severance of approximately 20 employees and $100 relates to the close-down and
consolidation of operations. At of December 31, 1998, $712 was included in
accrued expenses relating to severance.
The following unaudited pro forma summary presents the combined results of
operations of the Company, the Founding Companies and the Acquired Companies, as
if the acquisitions and Compass' IPO occurred at the beginning of 1998 and 1997.
The pro forma amounts give effect to certain adjustments including: adjustments
to salaries, bonuses and benefits to former owners and key management of the
Founding Companies and the Acquired Companies, repayment of long-term debt
acquired, amortization of goodwill and other intangible assets resulting from
the Founding Company acquisitions and the Acquired Companies, interest expense
on additional debt for the Acquired Companies and provision for income taxes as
if income were subject to corporate federal and state income taxes during the
period. The pro forma summary does not purport to represent what Compass'
operations would actually have been if such transactions had occurred on January
1, 1998 and 1997, and is not necessarily representative of Compass' 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.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DEC. 31, 1998 DEC. 31, 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenues........................................... $177,105 $151,088
Operating income....................................... 20,775 12,947
Net income............................................. 9,345 4,634
Net income per share-basic............................. $ 0.68 $ 0.34
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
At December 31, 1998, property and equipment consist of the following:
<TABLE>
<S> <C>
Facilities.................................................. $ 1,098
Equipment................................................... 12,159
Furniture, fixtures and office equipment.................... 13,808
Other....................................................... 398
-------
Total............................................. 27,463
Less accumulated depreciation............................... (9,178)
-------
Net property and equipment........................ $18,285
=======
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Credit Facility
On April 23, 1998, Compass entered into an agreement (the "Revolver") with
Bank of America, NT & SA together with a group of other financial institutions,
with respect to a $35 million revolving credit facility. On August 7, 1998, the
Revolver was amended to increase the total amount available to $50 million and
on November 16, 1998 it was further amended to increase the total available
credit to $55 million. The Revolver has a three-year term and has been used for
acquisitions, capital expenditures, refinancing debt, and for general corporate
purposes. The Revolver also provides that a maximum of $2 million of the total
$55 million available may be used for letters of credit. At December 31, 1998,
borrowings under the Revolver totaled $48 million, there were $.8 million in
outstanding letters of credit and $6.2 million of availability.
25
<PAGE> 26
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Revolver requires Compass to comply with various covenants which
include maintenance of certain financial ratios, restrictions on additional
indebtedness and restrictions on liens, guarantees, investments, capital
expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest at an initial increment, based on
the Company maintaining a specified leverage ratio of 125 basis points over the
Interbank Offered Rate or a Base Rate, as defined therein. The Revolver is
secured by the common stock of Compass' current and future subsidiaries. In
addition, if the Company fails to maintain a leverage ratio, as defined, of
1.5-to-1, lenders may collateralize the Revolver with substantially all of the
assets of the Company and its subsidiaries. At December 31, 1998, the leverage
ratio, as defined, exceeded 1.5-to-1 and the lenders have perfected their lien
on the collateral. At December 31, 1998 the Company was in compliance with the
debt covenants.
The borrowing rate under the Revolver on December 31, 1998 was 6.75%. On
October 13, 1998, the Company entered into interest rate swap arrangements to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreements at December 31, 1998
was 6.34%, which is comprised of a fixed rate of 4.84% plus an increment, based
on the Company maintaining a specified leverage ratio, of 150 basis points. The
swap arrangements were entered into with two of the lenders that are parties to
the Revolver and terminate on October 15, 2000.
Due to a change in the Company's leverage ratio, the Revolver and swap
arrangements are being amended to provide a change in the margin increment to
225 basis points, or interest rates of 7.50% and 7.09%, respectively. This
margin change is effective with the signing of the amendment.
NOTES PAYABLE
The Company issued notes in connection with acquisitions and has other
notes outstanding with respect to equipment financing and general working
capital. Such notes are summarized as follows:
<TABLE>
<S> <C>
Notes issued in connection with acquisitions, due between
January 1999 and May 2001, with interest rates ranging
from 7.16% to 10%......................................... $8,650
Secured equipment financing facilities, due between 1999 and
2001, with interest rates between 8.98% and 10.15%........ 584
Other notes due between 1999 to 2015, with interest rates
between 8% and 9.5%....................................... 450
------
Total............................................. $9,684
======
</TABLE>
Aggregate maturities of long-term borrowings over the next five fiscal
years are as follows: 1999 - $1,924; 2000 - $7,214; 2001 - $48,497; 2002 - $6;
2003 - $6; Thereafter $37.
NOTE 6 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable/payable, accrued expenses and short-term debt approximate fair value
because of the short-term nature of these instruments. The estimated fair value
of notes payable and long-term debt approximates the carrying value due to its
stated interest rates approximating market rates for debt with similar terms and
average maturities.
The Company uses interest rate swap arrangements to reduce interest rate
fluctuation risk. Amounts paid or received by the Company under these agreements
are recorded as an adjustment to interest expense as realized. Fair value of
these instruments is determined based on estimated settlement costs using
current interest rates. At December 31, 1998, the fair value of these
instruments approximates an asset of $122, which is not reflected in the
accompanying consolidated balance sheet. The counterparties to the Company's
interest rate swap agreements are substantial and creditworthy commercial banks
which are recognized as market makers. Neither the risks of
26
<PAGE> 27
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
counterparty nonperformance nor the economic consequences of counterparty
nonperformance associated with these contracts were considered by the Company to
be material.
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<S> <C>
Current:
Federal................................................... $3,865
State..................................................... 731
------
4,596
------
Deferred:
Federal................................................... 231
State..................................................... 42
------
273
------
$4,869
======
</TABLE>
Actual income tax expense differs from the "expected" income tax expense
(computed by applying the U.S. Federal corporate tax rate of 35% to income
before income taxes) as follows:
<TABLE>
<S> <C>
Computed "expected" income tax expense...................... $3,807
Non-deductible goodwill..................................... 686
State income taxes, net of Federal benefit.................. 502
Other....................................................... (126)
------
Effective income tax expense...................... $4,869
======
</TABLE>
Deferred tax assets and deferred tax liabilities were comprised of the
following:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 251
Net operating loss carryforwards.......................... 337
Accrued expenses.......................................... 282
Other..................................................... 7
------
Total deferred tax assets......................... 877
Deferred tax liabilities --
Amortizable goodwill...................................... 136
Depreciation expense...................................... 137
------
Total deferred tax liabilities.................... 273
------
Net deferred tax assets........................... $ 604
======
</TABLE>
There was no valuation allowance for deferred tax assets as of December 31,
1998. Based upon the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies, management believes it is
more likely than not the Company will realize the benefits of deferred tax
assets as of December 31, 1998. The Company's net operating loss carryforwards,
which may be used to offset future taxable income of certain purchased
subsidiaries, expire through 2012.
27
<PAGE> 28
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- STOCK OWNERSHIP AND COMPENSATION PLANS
Employee Incentive Compensation Plan
In 1998, the Company adopted the Employee Incentive Compensation Plan (the
"Incentive Plan") pursuant to which 2,000,000 shares of common stock have been
reserved for option grants to directors, officers, employees, consultants and
independent contractors. Individual awards under the Incentive Plan may take the
form of one or more of: (a) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (b) stock appreciation rights ("SARs");
(c) restricted or deferred stock; (d) dividend equivalents and (e) cash awards
or other awards not otherwise provided for, the value of which is based in whole
or part upon the value of the common stock.
It is the policy of the Company that the number of shares of common stock
subject to options granted under the Incentive 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 Board of Directors may amend the Incentive Plan without the consent of the
stockholders of the Company except to the extent such consent is required by law
or agreement.
Employee Stock Purchase Plan
During 1998 the Company has also adopted an Employee Stock Purchase Plan
(the "Purchase Plan") pursuant to which a total of 500,000 shares of common
stock have been reserved for issuance. The Purchase Plan, which qualifies under
Section 423 of the Internal Revenue Code of 1986, as amended, permits eligible
employees of the Company to purchase common stock through payroll deductions.
Payroll deductions may not exceed $25,000 for all purchase periods ending with
any Plan Year, as defined. As of December 31, 1998, 500,000 shares are reserved
pursuant to the Purchase Plan.
Information as to shares subject to stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE TOTAL
OPTIONS EXERCISE PRICE CONSIDERATION
--------- ---------------- -------------
<S> <C> <C> <C>
Granted................................. 1,118,695 $ 10.70 $11,972
Forfeited............................... (187,370) $ 10.95 (2,053)
--------- ---------------- -------
Shares under option at December 31,
1998.................................. 931,325 $ 10.65 $ 9,919
========= ================ =======
Shares exercisable at December 31,
1998.................................. -- $ -- $ --
========= ================ =======
</TABLE>
Shares outstanding under the Incentive Stock Plan vest over periods ranging
from one to three years. At December 31, 1998, the weighted average remaining
life of the options was 9.32 years.
Accounting for Stock-Based Compensation
The Company applies APB Opinion No. 25 Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans and the
exercise price of all options issued have equaled or exceeded the market value
of the stock on the date of grant. Accordingly, no compensation cost has been
recognized for the stock compensation plans. Had compensation cost for the
Company's stock compensation plans been determined
28
<PAGE> 29
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
consistent with FASB Statement No. 123, Accounting for Stock Based Compensation,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below.
<TABLE>
<S> <C>
Net income:
As reported............................................... $6,007
======
Pro forma................................................. $5,249
======
Basic net income per share:
As reported............................................... $ 0.54
======
Pro forma................................................. $ 0.47
======
Diluted net income per share:
As reported............................................... $ 0.53
======
Pro forma................................................. $ 0.46
======
</TABLE>
The estimated fair value of options granted amounted to $5.34 using the
Black-Scholes option-pricing model. The principal assumptions used were:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.46%
Expected dividend yield..................................... 0%
Expected volatility......................................... 60%
Expected life in years...................................... 4
</TABLE>
NOTE 9 -- BUSINESS SEGMENTS
The Company's operations are principally in three industry segments:
accounts receivable management, including the recovery of traditional delinquent
accounts from both consumer and commercial debtors; print and mail services
including the mailing of direct marketing materials, billing services, mail
presorting and other services related to mail handling; and teleservices for
outbound telemarketing, inbound customer service and inbound sales. The
Company's operations are principally within the United States.
For the year ended December 31, 1998, revenues from one customer in the
print and mail segment represented approximately 19% of consolidated net
revenues.
It should be noted that industry segment information might be of limited
usefulness in comparing an industry segment of the Company with a similar
industry segment of another enterprise.
Selected information by industry segment is summarized below for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
ACCOUNTS
RECEIVABLE PRINT & TELE- CONSOLI-
MANAGEMENT MAIL SERVICES CORPORATE DATED
---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues......................... $ 55,708 $56,165 $15,267 $127,140
-------- ------- ------- --------
Operating profit..................... $ 9,319 $ 6,164 $ 921 $(3,562) $ 12,842
======== ======= ======= ======= ========
Total assets......................... $119,290 $43,342 $ 6,842 $18,007 $187,481
======== ======= ======= ======= ========
Depreciation......................... $ 1,047 $ 1,681 $ 155 $ 74 $ 2,957
======== ======= ======= ======= ========
Capital expenditures................. $ 1,951 $ 3,072 $ 80 $ 646 $ 5,749
======== ======= ======= ======= ========
</TABLE>
29
<PAGE> 30
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is involved in various legal matters in the normal course of
business. In the opinion of the Company's management, these matters are not
anticipated to have a material adverse effect on the financial position, results
of operations or cash flows of the Company.
Lease Commitments and Related Parties
The Company leases office and manufacturing space and certain plant and
office equipment pursuant to long-term non-cancelable lease agreements. As of
December 31, 1998, future minimum payments under lease arrangements amount to:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
1999.............................................. $2,077 $ 5,429
2000.............................................. 1,294 4,902
2001.............................................. 909 4,173
2002.............................................. 527 2,832
2003.............................................. 163 2,104
Thereafter.................................................. -- 9,357
------ -------
Total minimum lease payments................................ $4,970 $28,797
=======
Less amount representing interest........................... (528)
------
Present value of minimum lease payments..................... 4,442
Less current maturities of lease obligations................ (1,798)
------
Obligations under capital leases, excluding current
installments.............................................. $2,644
======
</TABLE>
Rent expense for the year ended December 31, 1998 amounted to approximately
$5,200. The Company has real property leases either with certain former owners
of the Founding and Acquired Companies or entities with which such former owners
have an equity or partnership interest. Included in rent expense for the year
ended December 31, 1998 is $707 for payments under leases with these related
parties.
At December 31, 1998, property and equipment included cost of $7,761 and
accumulated amortization of $2,168 with respect to equipment leased under
capital leases.
30
<PAGE> 31
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND OTHER DECEMBER 31,
1997 EXPENSES ACCOUNTS OTHER(1) 1998
------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts.................... $-- (321) -- (404) $(725)
== ==== == ==== =====
</TABLE>
- ---------------
(1) Represents amount of allowances from purchased companies.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information in response to this item is incorporated by reference from
the Proxy Statement sections entitled "Executive Compensation and Certain
Transactions" and "Report on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in response to this item is incorporated by reference from
the Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is incorporated by reference from
the Proxy Statement section entitled "Executive Compensation and Certain
Transactions."
31
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
a. The following documents are filed as part of this report:
1. Financial Statements:
An index to the Financial Statements filed as a part of this
report is contained in Item 8
Financial Statements of the Registrant's subsidiaries are
omitted because the Registrant is primarily an operating
company and the subsidiaries are wholly owned
b. Reports on Form 8-K filed for the three months ended December 31,
1998
1. The Company filed Form 8-K with the Securities and Exchange
Commission on October 16, 1998 (dated September 30, 1998)
with respect to the acquisition of the stock of Professional
American Collections, Inc. The filing was made pursuant to
Item 2 and Item 7 and included the unaudited financial
statements of Professional American Collections, Inc. and
unaudited pro forma combined financial statements of the
Company and Professional American Collections, Inc.
c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
3.1(2) Amended and Restated Certificate of Incorporation
3.2(1) By-Laws
4.1(1) Specimen Certificate representing Common Stock
10.1(2) 1997 Employee Incentive Compensation Plan
10.2(2) Employee Stock Purchase Plan
10.3(2) Employment Agreement between the Company and Michael J.
Cunningham
10.4 Amendment to Employment Agreement between the Company and
Michael J. Cunningham
10.5(2) Employment Agreement between the Company and Mahmud U. Haq
10.6 Amendment to Employment Agreement between the Company and
Mahmud U. Haq
10.7 Employment Agreement between the Company and Julie S.
Schechter
10.8(2) Employment Agreement between Compass Mail Services, L.P.,
(formerly the Mail Box, Inc.) and Kenneth W. Murphy
10.9(2) Stockholders Agreement
10.10(2) Employment Agreement between CRMC (formerly National Credit
Management Corporation) and Leeds Hackett
10.11(2) Employment Agreement between CRMC (formerly Mid-Continent
Agencies, Inc.) and Leslie J. Kirschbaum
10.12(2) Employment Agreement between Compass Teleservices, Inc.,
(formerly Impact Telemarketing Group, Inc.) and Edward A.
DuCoin
10.13(1) Processing Agreement between VarTec Telecommunications, Inc.
and Compass Mail Services L.P. (formerly The Mail Box, Inc.)
10.14 Credit Agreement dated March 17, 1998 among the Company and
Various Financial Institutions
10.15 First Amendment dated August 7, 1998 to the Credit Agreement
dated March 17, 1998 among the Company and Various Financial
Institutions
10.16 Second Amendment dated November 16, 1998 to the Credit
Agreement dated March 17, 1998 among the Company and Various
Financial Institutions
10.17 Third Amendment dated December 11, 1998 to the Credit
Agreement dated March 17, 1998 among the Company and Various
Financial Institutions
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
10.18 Lease between Petula Associates, LTD and Compass
International Services Corporation dated December 22, 1998
10.19 First Amendment to the Lease Agreement between Petula
Associates, Ltd. and the Company
11 Statement regarding computation of per share income
21 Subsidiaries of Registrant
27 Financial Data Schedule (for SEC Information Only)
99 Financial statements of The Mail Box, Inc., the accounting
Acquirer, at December 31, 1996, 1997, and February 28, 1998
and the results of their operations and their cash flows for
each of the years ended December 31, 1996 and 1997 and the
two months ended February 28, 1998
</TABLE>
- ---------------
(1) Included as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 333-37205) and incorporated by reference herein.
(2) Included as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 333-50021) and incorporated by reference herein.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
COMPASS INTERNATIONAL
SERVICES CORPORATION
By: /s/ MAHMUD U. HAQ
------------------------------------
Mahmud U. Haq
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ MICHAEL J. CUNNINGHAM Chairman of the Board March 30, 1999
- ---------------------------------------------
Michael J. Cunningham
/s/ MAHMUD U. HAQ Chief Executive Officer (Principal March 30, 1999
- --------------------------------------------- Executive Officer and Director
Mahmud U. Haq
/s/ LEEDS HACKETT Chief Financial Officer (Principal March 30, 1999
- --------------------------------------------- Financial Officer and Accounting
Leeds Hackett Officer and Director)
/s/ HOWARD L. CLARK, JR. Director March 30, 1999
- ---------------------------------------------
Howard L. Clark, Jr.
/s/ EDWARD A. DUCOIN Director March 30, 1999
- ---------------------------------------------
Edward A. DuCoin
/s/ LES J. KIRSCHBAUM Director March 30, 1999
- ---------------------------------------------
Les J. Kirschbaum
/s/ SCOTT H. LANG Director March 30, 1999
- ---------------------------------------------
Scott H. Lang
/s/ KENNETH W. MURPHY Director March 30, 1999
- ---------------------------------------------
Kenneth W. Murphy
/s/ BILLY RAY PITCHER Director March 30, 1999
- ---------------------------------------------
Billy Ray Pitcher
/s/ TOMMASO ZANZOTTO Director March 30, 1999
- ---------------------------------------------
Tommaso Zanzotto
</TABLE>
34
<PAGE> 1
EXHIBIT 10.4 AMENDMENT TO THE EMPLOYMENT AGREEMENT OF MICHAEL J. CUNNINGHAM
AMENDMENT
---------
Reference is made to the Employment Agreement dated as of December 9,
1997 by and between Compass International Services Corporation ("Compass") and
Michael J. Cunningham ("Employee") (the "Agreement").
4. The Agreement is hereby amended as so as to change Employee's
title from "Chief Executive Officer" to "Chairman".
Accordingly, all references to "Chief Executive Officer" are
changed to read "Chairman".
5. Except as amended hereby, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
6th day of December, 1998.
MICHAEL J. CUNNINGHAM COMPASS INTERNATIONAL SERVICES
CORPORATION
_________/S/____________ ______________/S/___________________
By:
<PAGE> 1
EXHIBIT 10.6 AMENDMENT TO EMPLOYMENT AGREEMENT OF MAHMUD HAQ
AMENDMENT
---------
Reference is made to the Employment Agreement dated as of December 9,
1997 by and between Compass International Services Corporation ("Compass") and
Mahmud U. Haq ("Employee") (the "Agreement").
1. The Agreement is hereby amended to change Employee's title
from President and Chief Operating Officer to Chief Executive
Officer. Accordingly, all references to "President" and/or
"Chief Operating Officer" are changed to read "Chief Executive
Officer".
2. The Agreement is hereby amended to increase Employee's Base
Salary (as defined in the Agreement) from $200,000 to $225,000
per annum, effective January 1, 1999.
3. Except as amended hereby, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
6th day of December, 1998.
MAHMUD U. HAQ COMPASS INTERNATIONAL SERVICES
CORPORATION
_______/S/______________ _____________/S/____________________
By:
<PAGE> 1
EXHIBIT 10.7 EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND JULIE S. SCHECHTER
EMPLOYMENT AGREEMENT
BY AND BETWEEN
COMPASS INTERNATIONAL SERVICES CORPORATION
AND
JULIE SCHECHTER
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of August 29, 1998 by and between Compass International Services Corporation,
a Delaware corporation (the "Company") and Julie Schechter ("Employee").
PRELIMINARY RECITALS
A. The Company, through its subsidiaries, is a provider of outsourced
business services on a national basis focusing on direct mail and accounts
receivable management services (the "Business").
B. The Company desires to employ Employee, and Employee desires to be
employed by the Company, 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 General Counsel 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 General Counsel
and will have such responsibilities, duties and authorities, and will
render such services for the Company and its affiliates as the Company
shall from time to time reasonably direct; provided, however, that such
duties and responsibilities shall be commensurate with the position of
General Counsel 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 September
1, 1998 (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,
<PAGE> 3
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 SECTIONS 1.4, 1.5 AND 1.6 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.
"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 Company relating to Employee's
central duties as General Counsel 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 Company in its reasonable discretion (not to
be less than 30 days);
(iii) any act by Employee in the course of her
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
Company 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 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 Company 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 Company will, if possible, take into
consideration the expert medical opinion of a
2
<PAGE> 4
physician chosen by the Company, after such physician has completed an
examination of Employee. Employee agrees to make herself available for
such examination upon the reasonable request of the Company.
1.5 TERMINATION OF EMPLOYMENT BY EMPLOYEE. Employee has the right to
terminate her employment under this Agreement, by notice in writing to
Employer, for any reason, including but not limited to Good Reason. 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 General Counsel 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 the duties of General Counsel 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 or to work more than three days per week at a
location other than Employee's home office, except for occasional
travel reasonably required in the performance of Employee's duties;
(iii) any decrease in the Employee's total 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 or amendment by the Company of any employee benefit plan in
which the Employee is participating unless (A) the value of the
remaining 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 or amendment, and (B) such plan is
terminated or amended as to all managerial employees of the Company.
1.6 TERMINATION DATE. The termination of Employee's employment shall be
effective on the Termination Date. The Termination Date shall be the
later of (i) the date of service of notice pursuant to Section 6.6
hereof by either Employer or Employee of the termination of Employee's
employment and (ii) the date Employee last performs service for the
Company pursuant to this Agreement, except that upon the death or
Disability of the Employee, the Termination Date shall be the date of
death or the date a determination of Disability is made pursuant to
Section 1.4 herein. The Employment Period shall terminate on the
Termination Date.
3
<PAGE> 5
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 $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 Company, in its sole discretion. If the Employment
Period is terminated pursuant to SECTIONS 1.4 AND 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.
2.2 BONUS. Employee shall be eligible to earn an annual bonus
of up to 50% of Employee's Base Salary under the Company's incentive
compensation policies for executive employees, based upon such factors
as (i) the financial performance of the Company, and/or (ii) the
achievement of personal performance goals. Such criteria shall be
determined by the Company in its sole discretion (the "Bonus"). In
addition, for the year ending December 31, 1998, the Company hereby
agrees to pay Employee a bonus, pursuant to this section, which shall
not be less than $50,000 (which amount shall not be prorated). All
Bonuses awarded to Employee hereunder shall be payable in accordance
with Company policy.
2.3 OBLIGATIONS 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 her Base Salary for a
period of one year from the Termination Date (the "Severance
Period") and (B) her prorated bonus, as determined by the
Company in its good faith judgment, for the portion of any
fiscal year prior to the termination date ((A) and (B)
collectively, the "Severance Benefits"). The Severance
Benefits payable under (A) above shall be paid in equal
installments on the Company's normal payroll payment dates
occurring during the Severance Period.
If Employee shall voluntarily terminate her
employment for (i) Good Reason (as defined in Section 1.5) or
(ii) at any time within one year after a Change of Control (as
defined below), Employee shall be entitled to receive the
Severance Benefits.
The Executive shall have no duty to mitigate with
respect to any Severance Benefits by seeking or accepting
other employment.
4
<PAGE> 6
Subject to the foregoing, upon termination or
expiration of this Agreement for any reason, 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 and Bonus 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 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.
(b) 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(b);
(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
5
<PAGE> 7
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 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,
6
<PAGE> 8
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(b), assuming
for this purpose that such liquidation or dissolution
was a Business Combination.
(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, for Good Reason or within one year
after a Change of Control and she 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. In addition to the foregoing, the
Company hereby agrees to reimburse Employee for her reasonable
out-of-pocket expenses related to the performance of her duties
hereunder. The Company shall retain the right to discontinue or modify
any employee benefit program at any time, subject to Section 1.5(v)
hereof. 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.
2.5 OFFICE. Employee's office shall be located at the
Company's offices in the metropolitan New York City area. Employee
shall be entitled to work from her home office at least two days each
work week. Company shall reimburse Employee for out-of-pocket expenses
reasonably incurred in establishing a home office for the purpose of
performing her duties hereunder, including the purchase of office
furniture, computer equipment, software, telephone and facsimile
equipment and office supplies, and maintaining that office.
2.6 OTHER. If the Initial Employment Period commences prior to
September 16, 1998 and Employee's options to purchase stock of General
Electric Company ("GE Options") are cancelled, then the Company agrees
to pay Employee $15,000, which amount represents the gain Employee
would have realized had she exercised her GE Options on September 16,
1998.
7
<PAGE> 9
3. COVENANTS.
3.1 EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges that:
(i) the Company has made known its intention to be
engaged in the Business during the Employment Period and
thereafter;
(ii) 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;
(iii) 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;
(iv) 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
(v) Employee has means to support herself and her
dependents other than by engaging in the Business as conducted
by the Company during the Restrictive Period, and the
provisions of this SECTION 3 will not impair such ability.
8
<PAGE> 10
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"), she 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
that derives more than fifty percent (50%) of its revenues
from the provision of outsourced business services on a
national basis focusing on direct mail and accounts receivable
management services 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 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, and
provided further that nothing contained herein shall be
construed to prevent Employee from providing services to or
otherwise working for or in a law firm or financial services
company.
(ii) sell or provide any products or services that
are directly competitive to products or services sold or
provided by the Business to, or solicit for the purpose of
selling or providing such 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 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 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 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
9
<PAGE> 11
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 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.ss.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, 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 Business.
3.5 CONFIDENTIAL INFORMATION. Except to the extent Employee
reasonably deems it necessary 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 Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of herself or
10
<PAGE> 12
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 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 any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches 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. Nothing
contained herein shall be construed as prohibiting the Company from
pursuing any other remedies
11
<PAGE> 13
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.
If the Company asserts a claim or brings an action against the
Employee for violation of any covenant set forth in Section 3 and
Employee prevails on such claim or in such action, the Company shall
pay the attorneys' fees and costs reasonably incurred by Employee in
connection with such claim or action.
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 AND 5 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, and should she willfully
fail to report such amounts as required, she will indemnify and hold the Company
harmless from and against any and all taxes, penalties, interest, costs and
expenses, including reasonable attorneys' and accounting fees and costs, which
are incurred by Company directly or indirectly as a result thereof.
6. MISCELLANEOUS.
6.1 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.
6.2 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 set forth the entire understanding of
the parties, and supersede and preempt all
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<PAGE> 14
prior oral or written understandings and agreements, with respect to
the subject matter hereof.
6.3 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.
6.4 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.
6.5 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.
6.6 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:
Julie Schechter, Esq.
23 Lounsbury Rd.
Ridgefield, Connecticut 06877
(b) If to the Company:
Compass International Services Corporation
One Penn Plaza
Suite 4430
13
<PAGE> 15
New York, New York 10119
Attention: Chief Executive Officer
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.
6.7 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.
6.8 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.
6.9 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.
14
<PAGE> 16
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:
Its:
EMPLOYEE:
Julie Schechter
<PAGE> 1
EXHIBIT 10.14 CREDIT AGREEMENT AMONG THE COMPANY AND VARIOUS
FINANCIAL INSTITUTIONS.
CREDIT AGREEMENT
----------------
DATED AS OF MARCH 17, 1998
--------------------------
AMONG
-----
COMPASS INTERNATIONAL SERVICES CORPORATION,
-------------------------------------------
VARIOUS FINANCIAL INSTITUTIONS
------------------------------
AND
---
BANK OF AMERICA
---------------
NATIONAL TRUST AND SAVINGS ASSOCIATION,
---------------------------------------
AS ADMINISTRATIVE AGENT
-----------------------
ARRANGED BY
-----------
BANCAMERICA ROBERTSON STEPHENS
------------------------------
<PAGE> 2
|| TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE I DEFINITIONS
---------------------
1.1 CERTAIN DEFINED TERMS 1
----------------------------------
1.2 OTHER INTERPRETIVE PROVISIONS 20
--------------------------------------------
1.3 ACCOUNTING PRINCIPLES 20
-----------------------------------
ARTICLE II THE CREDITS
----------------------
2.1 AMOUNTS AND TERMS OF COMMITMENTS 21
--------------------------------------------
2.2 LOAN ACCOUNTS 21
---------------------------
2.3 PROCEDURE FOR BORROWING 22
-----------------------------------
2.4 CONVERSION AND CONTINUATION ELECTIONS 22
-----------------------------------------------------
2.5 TERMINATION OR REDUCTION OF COMMITMENTS 24
-----------------------------------------------------
2.6 OPTIONAL PREPAYMENTS 24
-----------------------------------
2.7 MANDATORY PREPAYMENTS OF LOANS 24
--------------------------------------------
2.8 REPAYMENT 25
---------------------------
2.9 INTEREST 25
---------------------------
2.10 FEES 25
------------------
2.11 COMPUTATION OF FEES AND INTEREST 26
--------------------------------------------
2.12 PAYMENTS BY THE COMPANY 26
-----------------------------------
2.13 PAYMENTS BY THE LENDERS TO THE ADMINISTRATIVE AGENT 27
-----------------------------------------------------------------
2.14 SHARING OF PAYMENTS, ETC. 28
--------------------------------------------
ARTICLE III THE LETTERS OF CREDIT
---------------------------------
3.1 THE LETTER OF CREDIT SUBFACILITY 28
--------------------------------------------
3.2 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT 29
-----------------------------------------------------------------
3.3 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS 31
-----------------------------------------------------------------
3.4 REPAYMENT OF PARTICIPATIONS 33
--------------------------------------------
3.5 ROLE OF THE ISSUING LENDER 33
---------------------------------------
3.6 OBLIGATIONS ABSOLUTE 34
---------------------------------------
3.7 CASH COLLATERAL PLEDGE 35
---------------------------------------
3.8 LETTER OF CREDIT FEES 35
---------------------------------------
3.9 UNIFORM CUSTOMS AND PRACTICE 36
--------------------------------------------
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY
-------------------------------------------------
4.1 TAXES 36
-----------------------
4.2 ILLEGALITY 37
-----------------------
4.3 INCREASED COSTS AND REDUCTION OF RETURN 38
-----------------------------------------------------
4.4 FUNDING LOSSES 39
---------------------------
<PAGE> 3
4.5 INABILITY TO DETERMINE RATES 40
--------------------------------------------
4.6 CERTIFICATES OF LENDERS 40
-----------------------------------
4.7 SUBSTITUTION OF LENDERS 40
-----------------------------------
4.8 SURVIVAL 41
---------------------------
ARTICLE V CONDITIONS PRECEDENT
------------------------------
5.1 CONDITIONS OF INITIAL CREDIT EXTENSIONS 41
-----------------------------------------------------
5.2 CONDITIONS TO ALL CREDIT EXTENSIONS 43
-----------------------------------------------------
ARTICLE VI REPRESENTATIONS AND WARRANTIES
-----------------------------------------
6.1 CORPORATE EXISTENCE AND POWER 44
--------------------------------------------
6.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION 45
-----------------------------------------------------
6.3 GOVERNMENTAL AUTHORIZATION 45
--------------------------------------------
6.4 BINDING EFFECT 45
---------------------------
6.5 LITIGATION 45
---------------------------
6.6 NO DEFAULT 46
---------------------------
6.7 ERISA COMPLIANCE 46
-----------------------------------
6.8 USE OF PROCEEDS; MARGIN REGULATIONS 47
-----------------------------------------------------
6.9 TITLE TO PROPERTIES 47
-----------------------------------
6.10 TAXES 47
------------------
6.11 FINANCIAL CONDITION 47
-----------------------------------
6.12 REGULATED ENTITIES 48
-----------------------------------
6.13 NO BURDENSOME RESTRICTIONS 48
--------------------------------------------
6.14 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC 48
--------------------------------------------------------------
6.15 SUBSIDIARIES 48
---------------------------
6.16 INSURANCE 48
---------------------------
6.17 SOLVENCY, ETC 49
---------------------------
6.18 REAL PROPERTY 49
---------------------------
6.19 SWAP OBLIGATIONS 49
------------------------------------
6.20 ENVIRONMENTAL WARRANTIES 49
------------------------------------
6.21 FULL DISCLOSURE 50
---------------------------
ARTICLE VII AFFIRMATIVE COVENANTS
---------------------------------
7.1 FINANCIAL STATEMENTS 51
-----------------------------------
7.2 CERTIFICATES; OTHER INFORMATION 52
--------------------------------------------
7.3 NOTICES 52
---------------------------
7.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. 54
-----------------------------------------------------
7.5 MAINTENANCE OF PROPERTY 54
-----------------------------------
7.6 INSURANCE 54
---------------------------
7.7 PAYMENT OF OBLIGATIONS 54
-----------------------------------
7.8 COMPLIANCE WITH LAWS 55
-----------------------------------
7.9 COMPLIANCE WITH ERISA 55
-----------------------------------
7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS 55
--------------------------------------------------------------
<PAGE> 4
7.11 ENVIRONMENTAL COVENANT 55
-----------------------------------
7.12 USE OF PROCEEDS 56
---------------------------
7.13 FURTHER ASSURANCES 56
-----------------------------------
ARTICLE VIII NEGATIVE COVENANTS
-------------------------------
8.1 LIMITATION ON LIENS 57
-----------------------------------
8.2 DISPOSITION OF ASSETS 59
-----------------------------------
8.3 CONSOLIDATIONS AND MERGERS 60
--------------------------------------------
8.4 LOANS AND INVESTMENTS 60
-----------------------------------
8.5 LIMITATION ON INDEBTEDNESS 62
--------------------------------------------
8.6 TRANSACTIONS WITH AFFILIATES 62
--------------------------------------------
8.7 USE OF PROCEEDS 63
---------------------------
8.8 CONTINGENT OBLIGATIONS 63
-----------------------------------
8.9 CHANGE IN BUSINESS 63
-----------------------------------
8.10 LEASE OBLIGATIONS 63
-----------------------------------
8.11 MAXIMUM LEVERAGE RATIO 64
-----------------------------------
8.12 MINIMUM TANGIBLE NET WORTH 64
--------------------------------------------
8.13 MINIMUM FIXED CHARGE COVERAGE RATIO 64
--------------------------------------------------
8.14 MINIMUM CONSOLIDATED NET INCOME 64
--------------------------------------------
8.15 CAPITAL EXPENDITURES 64
-----------------------------------
8.16 MAXIMUM CUSTOMER CONCENTRATION 64
--------------------------------------------
8.17 RESTRICTED PAYMENTS 64
-----------------------------------
8.18 ERISA 65
------------------
8.19 LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS 65
--------------------------------------------------------------
8.20 INCONSISTENT AGREEMENTS 65
-----------------------------------
8.21 WORKING CAPITAL LOANS 65
-----------------------------------
ARTICLE IX EVENTS OF DEFAULT
----------------------------
9.1 EVENT OF DEFAULT 65
-----------------------------------
9.2 REMEDIES 68
---------------------------
9.3 RIGHTS NOT EXCLUSIVE 68
-----------------------------------
ARTICLE X THE ADMINISTRATIVE AGENT
----------------------------------
10.1 APPOINTMENT AND AUTHORIZATION 69
--------------------------------------------
10.2 DELEGATION OF DUTIES 69
-----------------------------------
10.3 LIABILITY OF ADMINISTRATIVE AGENT 69
-----------------------------------------------------
10.4 RELIANCE BY ADMINISTRATIVE AGENT 70
--------------------------------------------
10.5 NOTICE OF DEFAULT 70
-----------------------------------
10.6 CREDIT DECISION 71
---------------------------
10.7 INDEMNIFICATION 71
---------------------------
10.8 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY 72
--------------------------------------------------------------
10.9 SUCCESSOR ADMINISTRATIVE AGENT 72
--------------------------------------------
10.10 WITHHOLDING TAX 73
---------------------------
<PAGE> 5
10.11 COLLATERAL, GUARANTY MATTERS 74
--------------------------------------------
ARTICLE XI MISCELLANEOUS
------------------------
11.1 AMENDMENTS AND WAIVERS 75
-----------------------------------
11.2 NOTICES 76
---------------------------
11.3 NO WAIVER; CUMULATIVE REMEDIES 77
--------------------------------------------
11.4 COSTS AND EXPENSES 77
-----------------------------------
11.5 COMPANY INDEMNIFICATION 78
-----------------------------------
11.6 PAYMENTS SET ASIDE 78
-----------------------------------
11.7 SUCCESSORS AND ASSIGNS 79
-----------------------------------
11.8 ASSIGNMENTS, PARTICIPATIONS, ETC 79
--------------------------------------------
11.9 CONFIDENTIALITY 80
---------------------------
11.10 SET-OFF 81
---------------------------
11.11 AUTOMATIC DEBITS OF FEES 81
------------------------------------
11.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC 82
--------------------------------------------------------------
11.13 COUNTERPARTS 82
---------------------------
11.14 SEVERABILITY 82
---------------------------
11.15 NO THIRD PARTIES BENEFITED 82
--------------------------------------------
11.16 GOVERNING LAW AND JURISDICTION 82
--------------------------------------------
11.17 WAIVER OF JURY TRIAL 83
-----------------------------------
11.18 ENTIRE AGREEMENT 83
-----------------------------------
<PAGE> 6
SCHEDULES
---------
SCHEDULE 1.1 PRICING SCHEDULE
--------------------------------------
SCHEDULE 2.1 COMMITMENTS AND PERCENTAGES
-------------------------------------------------
SCHEDULE 5.1 INDEBTEDNESS TO BE REPAID
-----------------------------------------------
SCHEDULE 6.5 LITIGATION
--------------------------------
SCHEDULE 6.11 PERMITTED LIABILITIES
-------------------------------------------
SCHEDULE 6.15 SUBSIDIARIES
----------------------------------
SCHEDULE 6.16 INSURANCE MATTERS
---------------------------------------
SCHEDULE 6.18 REAL PROPERTY
-----------------------------------
SCHEDULE 6.20 ENVIRONMENTAL MATTERS
-------------------------------------------
SCHEDULE 8.1 LIENS
---------------------------
SCHEDULE 8.4 PERMITTED INVESTMENTS
-------------------------------------------
SCHEDULE 8.8 CONTINGENT OBLIGATIONS
--------------------------------------------
SCHEDULE 11.2 OFFSHORE AND DOMESTIC LENDING OFFICES; ADDRESSES
FOR NOTICES
----------------------------------------------------------------------
EXHIBITS
--------
EXHIBIT A FORM OF NOTICE OF BORROWING
-------------------------------------------------
EXHIBIT B FORM OF NOTICE OF CONVERSION/CONTINUATION
---------------------------------------------------------------
EXHIBIT C FORM OF COMPLIANCE CERTIFICATE
----------------------------------------------------
EXHIBIT D FORM OF PROMISSORY NOTE
---------------------------------------------
EXHIBIT E FORM OF SECURITY AGREEMENT
------------------------------------------------
EXHIBIT F FORM OF GUARANTY
--------------------------------------
EXHIBIT G FORM OF COMPANY PLEDGE AGREEMENT
------------------------------------------------------
EXHIBIT H FORM OF SUBSIDIARY PLEDGE AGREEMENT
---------------------------------------------------------
EXHIBIT I FORM OF OPINION OF COUNSEL TO THE COMPANY
---------------------------------------------------------------
EXHIBIT J FORM OF SOLVENCY CERTIFICATE
--------------------------------------------------
EXHIBIT K FORM OF ASSIGNMENT AND ACCEPTANCE
-------------------------------------------------------
EXHIBIT L FORM OF LENDER CERTIFICATE
------------------------------------------------
<PAGE> 7
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT DATED AS OF MARCH 17, 1998 IS AMONG COMPASS
INTERNATIONAL SERVICES CORPORATION (THE "COMPANY"), VARIOUS FINANCIAL
INSTITUTIONS AND BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS
ADMINISTRATIVE AGENT FOR THE LENDERS.
IN CONSIDERATION OF THE PREMISES AND THE MUTUAL AGREEMENTS HEREIN
CONTAINED, AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS
FOLLOWS:
I. ARTICLE
----------
DEFINITIONS
-----------
1.1 CERTAIN DEFINED TERMS. The following terms have the following meanings:
ACQUISITION means any transaction or series of related
transactions for the purpose of, or resulting directly or indirectly
in, (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that the Company or a Subsidiary is the surviving
entity.
ADMINISTRATIVE AGENT means BofA in its capacity as
administrative agent for the Lenders hereunder, and any successor
administrative agent arising under SECTION 10.9.
AFFILIATE means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the
ownership of voting securities or membership interests, by contract, or
otherwise. Without limiting the foregoing, any Person which is an
executive officer, director or shareholder of more than 5% of the
outstanding capital stock of the Company, or a member of the immediate
family of any such executive officer, director or shareholder of more
than 5% of the outstanding capital stock of the Company, shall be
deemed to be an Affiliate of the Company.
AGENT-RELATED PERSONS means BofA and any successor
administrative agent arising under SECTION 10.9, together with its
Affiliates (including the
<PAGE> 8
Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
AGENT'S PAYMENT OFFICE means the address for payments set
forth on SCHEDULE 11.2 in relation to the Administrative Agent, or such
other address as the Administrative Agent may from time to time
specify.
AGREEMENT means this Credit Agreement.
APPLICABLE MARGIN means at any time, with respect to Base
Rate Loans and Offshore Rate Loans, the rate per annum determined in
accordance with Schedule 1.1 for the applicable Type of Loan.
ARRANGER means BancAmerica Robertson Stephens, a Delaware
corporation.
ASSIGNEE - see SUBSECTION 11.8(a).
ASSIGNMENT AND ACCEPTANCE - see SUBSECTION 11.8(a).
ATTORNEY COSTS means and includes all reasonable and
documented fees and disbursements of any law firm or other external
counsel and, without duplication of effort, the allocated cost of
internal legal services and all disbursements of internal counsel.
BANKRUPTCY CODE means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, ET SEQ.).
BASE RATE means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA
in San Francisco as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced
at, above or below such announced rate.) Any change in the reference
rate announced by BofA shall take effect at the opening of business on
the day specified in the public announcement of such change.
BASE RATE LOAN means a Loan that bears interest based on the
Base Rate.
BOFA means Bank of America National Trust and Savings
Association, a national banking association.
BORROWING means a borrowing hereunder consisting of Loans of
the same Type made to the Company on the same day by the Lenders and,
in the case
<PAGE> 9
of Offshore Rate Loans, having the same Interest Period, in each case
pursuant to ARTICLE II.
BORROWING AVAILABILITY AMOUNT means the product of (i)
EBITDA for the period of four consecutive fiscal quarters ending on the
later of (a) December 31, 1997 or (b) the most recent date for which
the Company has delivered financial statements pursuant to SECTION 7.1
multiplied by (ii) 2.
BORROWING DATE means any date on which a Borrowing occurs
under SECTION 2.3.
BUSINESS DAY means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City, Chicago or San
Francisco are authorized or required by law to close and, if the
applicable Business Day relates to any Offshore Rate Loan, means such a
day on which dealings are carried on in the applicable offshore Dollar
interbank market.
CAPITAL ADEQUACY REGULATION means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case regarding capital adequacy of any bank or of any Person
controlling a bank.
CASH COLLATERALIZE means to pledge and deposit with or
deliver to the Administrative Agent, for the benefit of the
Administrative Agent, the Issuing Lender and the Lenders, as additional
collateral for the L/C Obligations, cash or deposit account balances
pursuant to documentation in form and substance reasonably satisfactory
to the Administrative Agent and the Issuing Lender (which documents are
hereby consented to by the Lenders). Derivatives of such term shall
have corresponding meanings. The Company hereby grants the
Administrative Agent, for the benefit of the Administrative Agent, the
Issuing Lender and the Lenders, a security interest in all such cash
and deposit account balances. Cash collateral shall be maintained in
blocked, non-interest bearing deposit accounts at BofA.
CASH EQUIVALENT INVESTMENTS shall mean (i) securities issued
or directly and fully guaranteed or insured by the United States of
America and having maturities of not more than one year from the date
of acquisition; (ii) marketable direct obligations issued by any State
of the United States of America or any local government or other
political subdivision thereof rated (at the time of acquisition of such
security) at least AA or the equivalent thereof by Standard & Poor's
Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P")
or Aa the equivalent thereof by Moody's Investors Service, Inc.
("MOODY'S") and having maturities of not more than one year from the
date of acquisition; (iii) time deposits, certificates of deposit and
bankers' acceptances of (x) any Lender or (y) any commercial bank that
is a member of the Federal Reserve System, has capital and surplus in
excess of $250,000,000 and has a short-term commercial paper
<PAGE> 10
rating (at the time of acquisition of such security) of A-1 or the
equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's
(any such bank, an "APPROVED BANK"), in each case with maturities of
not more than six months from the date of acquisition; (iv) commercial
paper and variable or fixed rate notes issued by any Lender or Approved
Bank; (v) repurchase agreements with any Lender or any primary dealer
maturing within one year from the date of acquisition that are fully
collateralized by investment instruments that would otherwise be Cash
Equivalent Investments; PROVIDED that the terms of such repurchase
agreements comply with the guidelines set forth in the Federal
Financial Institutions Examination Council Supervisory Policy --
Repurchase Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; (vi) investments in money market funds that invest
primarily in Cash Equivalent Investments described in CLAUSES (i)
through (v); or (vii) investments in short-term asset management
accounts offered by any Bank for the purpose of investing in loans to
any corporation (other than an Affiliate of the Company) organized
under the laws of any state of the United States or of the District of
Columbia and rated at least A-1 or the equivalent thereof by S&P or P-1
or the equivalent thereof by Moody's.
CAPITAL EXPENDITURES means all expenditures which, in
accordance with GAAP, would be required to be capitalized and shown on
the consolidated balance sheet of the Company, but excluding
expenditures made in connection with the replacement, substitution or
restoration of assets to the extent financed (i) from insurance
proceeds (or other similar recoveries) paid on account of the loss of
or damage to the assets being replaced or restored or (ii) with awards
of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced.
CERCLA means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
CHANGE OF CONTROL means the occurrence of any of the
following events: (i) a majority of the Board of Directors of the
Company shall not be Continuing Directors; or (ii) any Person or group
of Persons (within the meaning of Section 13 or 14 of the Exchange
Act), excluding the Specified Owners, shall acquire beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the outstanding shares of common stock
of the Company.
CODE means the Internal Revenue Code of 1986.
COLLATERAL DOCUMENT means the Security Agreement, each
Pledge Agreement and any other document pursuant to which collateral
securing the liabilities of the Company or any Guarantor under any Loan
Document is granted or pledged to the Administrative Agent for the
benefit of itself and the Lenders.
<PAGE> 11
COLLATERALIZATION DATE means (a) initially, the earlier of
(i) the date on which the Company's Leverage Ratio first exceeds 1.50
to 1 or (ii) the fifteenth day following the occurrence of any Event of
Default which has not either been cured or waived in writing by the
Administrative Agent and all of the Lenders; and (b) if one or more
Collateralization Dates have occurred and the collateral has been
subsequently released pursuant to CLAUSE (e) of SECTION 7.13, the
earlier of (i) the first date after such release on which the Company's
Leverage Ratio exceeds 1.50 to 1 or (ii) the fifteenth day following
the occurrence of any Event of Default which arises after such release
and which has not either been cured or waived in writing by the
Administrative Agent and all of the Lenders.
COMMITMENT means, as to any Lender, the commitment of such
Lender to make Loans pursuant to SUBSECTION 2.1. The initial amount of
each Lender's Commitment is set forth across from such Lender's name on
SCHEDULE 2.1.
COMMITMENT AMOUNT means $35,000,000, as reduced from time to
time in accordance with the terms hereof.
COMMITMENT FEE RATE means at any time the rate per annum
determined pursuant to SCHEDULE 1.1.
COMPANY - see the PREAMBLE.
COMPANY PLEDGE AGREEMENT means the Company Pledge Agreement
substantially in the form of EXHIBIT G.
COMPLIANCE CERTIFICATE means a certificate substantially in
the form of EXHIBIT C.
COMPUTATION PERIOD means any period of four consecutive
fiscal quarters ending on the last day of a fiscal quarter.
CONSOLIDATED NET INCOME means, with respect to the Company
and its Subsidiaries for any period, the net income (or loss) of the
Company and its Subsidiaries for such period; PROVIDED that the net
income of any Subsidiary shall be excluded from Consolidated Net Income
to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary from such income is not at the time
permitted by the terms of its charter or by-laws or any judgment,
decree, order, law, statute, rule, regulation, agreement, indenture or
other instrument which is binding on such Subsidiary.
CONTINGENT LIABILITIES means, at any time, the maximum
estimated amount of liabilities reasonably likely to result at such
time from pending litigation, asserted and unasserted claims and
assessments, guaranties, uninsured risks and other contingent
liabilities of each of the Company and of each
<PAGE> 12
Guarantor after giving effect to the transactions contemplated by this
Agreement (including all fees and expenses related thereto).
CONTINGENT OBLIGATION means, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or
without recourse: (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including any
obligation of such Person (i) to purchase, repurchase or otherwise
acquire such primary obligation or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any primary
obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any primary obligation against loss in respect thereof
(each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety
Instrument (other than any Letter of Credit) issued for the account of
such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another
Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property,
or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or
such services are ever performed or tendered; or (d) in respect of any
Swap Contract. The amount of any Contingent Obligation shall, (1) in
the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof and (2) in
the case of other Contingent Obligations, be equal to the maximum
reasonably anticipated liability in respect thereof.
CONTINUING DIRECTOR means (A) any individual who was a
member of the Company's Board of Directors on the Effective Date and
(B) any individual who becomes a member of the Company's Board of
Directors whose nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the Continuing
Directors on the date of such nomination.
CONTRACTUAL OBLIGATION means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
CONVERSION/CONTINUATION DATE means any date on which, under
SECTION 2.4, the Company (a) converts Loans of one Type to the other
Type or (b)
<PAGE> 13
continues as Offshore Rate Loans, but with a new Interest Period,
Offshore Rate Loans having Interest Periods expiring on such date.
CREDIT EXTENSION means and includes (a) the making of any
Loan hereunder and (b) the Issuance of any Letter of Credit hereunder.
DOLLARS and $ mean lawful money of the United States.
DORMANT SUBSIDIARY means, each of Telephone Communication
Services, Inc. and APS Express, Inc.; PROVIDED that each such
Subsidiary shall cease to be a Dormant Subsidiary if (i) the Company or
any of its other Subsidiaries provides any credit support thereto or is
liable in any respect for the liabilities thereof; (ii) such Subsidiary
at any time has assets with a fair market value in the aggregate of
$100,000 or more; or (iii) such Subsidiary becomes active in any
business.
EBITDA means, for any period, Consolidated Net Income for
such period excluding, to the extent reflected in determining such
Consolidated Net Income, extraordinary gains for such period, PLUS to
the extent deducted in determining such Consolidated Net Income,
Interest Expense, income tax expense, depreciation and amortization for
such period, PLUS (i) for the fiscal quarter ending March 31, 1998,
$3,883,000, (ii) for the fiscal quarter ending June 30, 1998,
$2,606,000, (iii) for the fiscal quarter ending September 30, 1998,
$1,566,000 and (iv) for the fiscal quarter ending December 31, 1998,
$603,000. For purposes of calculating the Leverage Ratio and the
Borrowing Availability Amount, EBITDA shall be calculated for the
relevant period on a PRO FORMA basis (as certified by the Company to
the Administrative Agent) assuming that all Acquisitions made, and all
divestitures completed, during such period had been made on the first
day of such period (but without adjustment for expected cost savings or
other synergies). For purposes of calculating EBITDA for any period of
12 months ending prior to March 1, 1999, EBITDA for any portion of such
period prior to March 1, 1998 shall be calculated on a PRO FORMA basis
(as certified by the Company to the Administrative Agent) assuming that
the Founding Companies had been acquired on the first day of such
period (but without adjustment for expected cost savings or other
synergies).
EFFECTIVE AMOUNT means, with respect to any outstanding L/C
Obligations on any date, (i) the amount of such L/C Obligations on such
date after giving effect to any Issuances of Letters of Credit
occurring on such date and (ii) any other changes in the aggregate
amount of the L/C Obligations as of such date, including as a result of
any reimbursements of outstanding unpaid drawings under any Letter of
Credit or any reduction in the maximum amount available for drawing
under Letters of Credit taking effect on such date.
EFFECTIVE DATE means the date on which all conditions
precedent set forth in SECTIONS 5.1 and 5.2 are satisfied or waived by
all Lenders in their sole
<PAGE> 14
discretion (or, in the case of SUBSECTION 5.1(e), waived by the Person
entitled to receive the applicable payment).
ELIGIBLE ASSIGNEE means (i) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $500,000,000; (ii) a
commercial bank organized under the laws of any other country which is
a member of the Organization for Economic Cooperation and Development,
or a political subdivision of any such country, and having a combined
capital and surplus of at least $500,000,000, provided that such bank
is acting through a branch or agency located in the United States,
which branch or agency provides to the Administrative Agent and the
Company the items described in SECTION 10.10; (iii)(x) a Lender, (y) an
Affiliate of a Lender that is a Person of the type specified in CLAUSE
(i), (ii) or (iv) of this definition or (z) a Person that is primarily
engaged in the business of commercial banking and that is (A) a
Subsidiary of a Lender, (B) a Subsidiary of a Person of which a Lender
is a Subsidiary or (C) a Person of which a Lender is a Subsidiary; and
(iv) a mutual fund, commercial finance company or similar financial
institution having a net worth of at least $250,000,000.
ENVIRONMENTAL CLAIMS means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
under any Environmental Law or responsibility for violation of any
Environmental Law, or for release or injury to the environment.
ENVIRONMENTAL LAWS means CERCLA, RCRA and all other federal,
state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes relating to pollution or protection of public or
employee health or the environment, together with all administrative
orders, consent decrees, licenses, authorizations and permits of any
Governmental Authority implementing them.
ERISA means the Employee Retirement Income Security Act of
1974.
ERISA AFFILIATE means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
ERISA EVENT means: (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a substantial cessation of operations which is
treated as such a withdrawal; (c) a complete or partial withdrawal by
the Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA,
or the commencement of
<PAGE> 15
proceedings by the PBGC to terminate a Pension Plan or Multiemployer
Plan; (e) an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate.
EVENT OF DEFAULT means any of the events or circumstances
specified in SECTION 9.1.
EXCHANGE ACT means the Securities Exchange Act of 1934.
EXCLUDED ASSETS has the meaning assigned thereto in the
Security Agreement.
EXCLUDED TAXES - see the definition of "Taxes."
FAIR VALUE means, at any time, the amount at which the
assets, in their entirety, of each of the Company and of each Guarantor
would likely change hands at such time as part of a going concern and
for continued use as part of a going concern between a willing buyer
and a willing seller, within a commercially reasonable period of time,
each having reasonable knowledge of the relevant facts, with neither
being under any compulsion to act.
FEDERAL FUNDS RATE means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Administrative Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the
Administrative Agent.
FEE LETTER - see SUBSECTION 2.10(a).
FIXED CHARGE COVERAGE RATIO means, as of the last day of any
fiscal quarter, the ratio of (i) the sum of EBITDA for the Computation
Period most recently ended on or before such date for which financial
statements have been delivered pursuant to SECTION 7.1 PLUS Rentals of
the Company and its Subsidiaries for such Computation Period TO (ii)
the sum (without duplication) of (a) Interest Expense for such
Computation Period, PLUS (b) Rentals of the Company and its
Subsidiaries for such Computation Period, PLUS (c) payments on
<PAGE> 16
capital leases made by the Company and its Subsidiaries for such
Computation Period.
FOUNDING COMPANIES means The Mail Box, Inc., National Credit
Management Corporation, B.R.M.C. of Delaware, Inc., Mid-Continent
Agencies, Inc. and Impact Telemarketing Group, Inc.
FRB means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
FUNDED DEBT means all Indebtedness of the Company and its
Subsidiaries as determined in accordance with GAAP.
FURTHER TAXES means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including net income taxes and franchise taxes), and
all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts paid or payable pursuant to SECTION 4.1.
GAAP means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
GOVERNMENTAL AUTHORITY means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
GUARANTOR means each Subsidiary that executes the Guaranty
on the Effective Date and each other Person which from time to time
executes and delivers a counterpart of the Guaranty.
GUARANTY means a Guaranty substantially in the form of
EXHIBIT F.
GUARANTY OBLIGATION has the meaning specified in the
definition of Contingent Obligation.
HAZARDOUS MATERIAL means
(a) any "hazardous substance", as defined by CERCLA;
<PAGE> 17
(b) any "hazardous waste", as defined by RCRA;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material or substance within the meaning
of any other Environmental Law.
HONOR DATE - see SUBSECTION 3.3(b).
INDEBTEDNESS of any Person means, without duplication: (a)
all indebtedness of such Person for borrowed money; (b) all obligations
issued, undertaken or assumed by such Person as the deferred purchase
price of property or services (other than trade payables entered into
and accrued expenses arising in the ordinary course of business on
ordinary terms); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all obligations of
such Person evidenced by notes, bonds, debentures or similar
instruments; (e) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired
by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations of such
Person with respect to capital leases; (g) all indebtedness referred to
in CLAUSES (a) through (f) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h)
all Guaranty Obligations of such Person in respect of indebtedness or
obligations of others of the kinds referred to in CLAUSES (a) through
(g) above.
INDEMNIFIED LIABILITIES - see SECTION 11.5.
INDEMNIFIED PERSON - see SECTION 11.5.
INDEPENDENT AUDITOR - see SUBSECTION 7.1(a).
INSOLVENCY PROCEEDING means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors
generally or any substantial portion of such creditors, in each case
undertaken under any U.S. Federal, State or foreign law, including the
Bankruptcy Code.
<PAGE> 18
INTEREST EXPENSE means for any period the consolidated
interest expense of the Company and its Subsidiaries for such period
(including all imputed interest on capital leases).
INTEREST PAYMENT DATE means (i) as to any Offshore Rate
Loan, the last day of each Interest Period applicable to such Loan and,
in the case of any Offshore Rate Loan with a six-month Interest Period,
the three-month anniversary of the first day of such Interest Period,
and (ii) as to any Base Rate Loan, the last Business Day of each
calendar quarter.
INTEREST PERIOD means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending one, two, three or six
months thereafter, as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; PROVIDED that:
(i) if any Interest Period would otherwise end on
a day that is not a Business Day, such Interest Period shall
be extended to the following Business Day unless the result
of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall end
on the last Business Day of the calendar month at the end of
such Interest Period; and
(iii) no Interest Period for any Loan shall
extend beyond the Termination Date.
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
ISSUANCE DATE - see SUBSECTION 3.1(a).
ISSUE means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have
corresponding meanings.
ISSUING LENDER means BofA in its capacity as issuer of one
or more Letters of Credit hereunder, together with any replacement
letter of credit issuer arising under SUBSECTION 10.1(b) or SECTION
10.9.
L/C ADVANCE means each Lender's participation in any L/C
Borrowing in accordance with its Percentage.
<PAGE> 19
L/C AMENDMENT APPLICATION means an application form for
amendment of an outstanding standby letter of credit as shall at any
time be in use at the Issuing Lender, as the Issuing Lender shall
request.
L/C APPLICATION means an application form for issuances of a
standby letter of credit as shall at any time be in use at the Issuing
Lender, as the Issuing Lender shall request.
L/C BORROWING means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Loans under
SUBSECTION 3.3(c).
L/C COMMITMENT means the commitment of the Issuing Lender to
Issue, and the commitments of the Lenders severally to participate in,
Letters of Credit from time to time Issued or outstanding under ARTICLE
III, in an aggregate amount not to exceed on any date the lesser of
$1,000,000 and the Commitment Amount; IT BEING UNDERSTOOD that the L/C
Commitment is a part of the Commitments, rather than a separate,
independent commitment.
L/C FEE RATE means, at any time for any Letter of Credit,
the rate per annum determined pursuant to SCHEDULE 1.1; PROVIDED that
such rate shall be increased by 2% at any time an Event of Default
exists.
L/C OBLIGATIONS means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
PLUS (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
L/C-RELATED DOCUMENTS means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Lender's
standard form documents for letter of credit issuances.
LENDERS means the several financial institutions from time
to time party to this Agreement. References to the "Lenders" shall
include BofA in its capacity as the Issuing Lender; for purposes of
clarification only, to the extent that the Issuing Lender may have any
rights or obligations in addition to those of the other Lenders due to
its status as Issuing Lender, its status as such will be specifically
referenced.
LENDING OFFICE means, as to any Lender, the office or
offices of such Lender specified as its "Lending Office" or "Domestic
Lending Office" or "Offshore Lending Office", as the case may be, on
SCHEDULE 11.2, or such other office or offices as such Lender may from
time to time specify to the Company and the Administrative Agent.
<PAGE> 20
LETTER OF CREDIT means any standby letter of credit Issued
by the Issuing Lender pursuant to ARTICLE III.
LEVERAGE RATIO means at, as of any date, the ratio of (i)
the aggregate outstanding principal amount of all Funded Debt as of
such date TO (ii) EBITDA for the Computation Period most recently ended
on or before such date for which financial statements have been
delivered pursuant to SECTION 7.1.
LIEN means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, or any financing lease having substantially the same
economic effect as any of the foregoing, but not including the interest
of a lessor under an operating lease).
LOAN - see SUBSECTION 2.1.
LOAN DOCUMENTS means this Agreement, any Notes, the Fee
Letter, the L/C-Related Documents, the Guaranty, the Collateral
Documents and all other documents delivered to the Administrative Agent
or any Lender in connection herewith.
MARGIN STOCK means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
MATERIAL ADVERSE EFFECT means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Company and the Guarantors taken as a
whole to perform any of their obligations under the Loan Documents; or
(c) a material adverse effect upon the legality, validity, binding
effect or enforceability against the Company or any Guarantor of any
Loan Document.
MULTIEMPLOYER PLAN means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, with respect to which the
Company or any ERISA Affiliate may have any liability.
NOTE means a promissory note executed by the Company in
favor of a Lender pursuant to SUBSECTION 2.2(b), in substantially the
form of EXHIBIT D.
NOTICE OF BORROWING means a notice in substantially the form
of EXHIBIT A.
<PAGE> 21
NOTICE OF CONVERSION/CONTINUATION means a notice in
substantially the form of EXHIBIT B.
OBLIGATIONS means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Company to any Lender, the Administrative Agent, or any
Indemnified Person, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due,
or now existing or hereafter arising.
OFFSHORE RATE means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the rate
of interest per annum (rounded upward, if necessary, to the next 1/16th
of 1%) determined by the Administrative Agent as follows:
Offshore Rate = IBOR
--------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as
a decimal, rounded upward, if necessary, to the next 1/100th
of 1%) in effect on such day (whether or not applicable to
any Lender) under regulations issued from time to time by
the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by
the Administrative Agent as the rate at which Dollar
deposits in the approximate amount of BofA's Offshore Rate
Loan for such Interest Period would be offered by BofA's
Grand Cayman Branch, Grand Cayman B.W.I. (or such other
office as may be designated for such purpose by BofA), to
major banks in the offshore Dollar interbank market at their
request at approximately 11:00 a.m. (New York City time) two
Business Days prior to the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
OFFSHORE RATE LOAN means a Loan that bears interest based on
the Offshore Rate.
OPERATING LEASE of a Person means any lease of Property
(other than a capitalized lease) by such Person as lessee which has an
original term (including
<PAGE> 22
any required renewals and any renewals effective at the option of the
lessor) of one year or more.
ORGANIZATION DOCUMENTS means, as applicable, (a) relative to
any domestic Person, its certificate or articles of incorporation or
other certificate of formation, its bylaws, its partnership agreement,
its operating agreement, any shareholder agreements, voting trusts and
similar agreements applicable to any of its authorized shares of
capital stock or other equity interests and all applicable resolutions
of the board of directors or other management body (or any committee
thereof) of such Person and (b) relative to any foreign Person, the
equivalent documents.
OTHER TAXES means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Document.
OUTSTANDINGS means, at any time, the sum of the principal
amount of all outstanding Loans plus the Effective Amount of all L/C
Obligations.
PARTICIPANT - see SUBSECTION 11.8(c).
PBGC means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
PENSION PLAN means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA with respect to which the
Company or any ERISA Affiliate may have any liability.
PERCENTAGE means, as to any Lender, the percentage which (a)
the amount of such Lender's Commitment is of (b) the aggregate amount
of all of the Lenders' Commitments (or, if the Commitments have
terminated, which the sum of such Lender's Loans plus such Lender's
participation interest in L/C Obligations is of the aggregate amount of
all Loans and L/C Obligations). The initial Percentage for each Lender
is set forth across from such Lender's name on SCHEDULE 2.1.
PERMITTED LIENS - see SECTION 8.1.
PERMITTED SWAP OBLIGATIONS means all obligations (contingent
or otherwise) of the Company existing or arising under Swap Contracts,
PROVIDED that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by the Company in the ordinary
course of business for the purpose of directly mitigating risks
associated with liabilities, commitments or assets held or
<PAGE> 23
reasonably anticipated by the Company, or changes in the value of
securities issued by the Company in conjunction with a securities
repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" and (b) such Swap
Contracts do not contain any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party.
PERSON means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
PLAN means an employee benefit plan (as defined in Section
3(3) of ERISA) with respect to which the Company may have any
liability.
PLEDGE AGREEMENT means the Company Pledge Agreement and each
Subsidiary Pledge Agreement.
PRESENT FAIR SALEABLE VALUE means, at any time, the amount
that could be obtained at such time by an independent willing seller
from an independent willing buyer if the assets of each of the Company
and/or any Guarantor are sold with reasonable promptness in an
arm's-length transaction under present conditions for the sale of
comparable assets.
PROPERTY of a Person means any and all property, whether
real, personal, tangible, intangible, or mixed, of such Person, or
other assets owned, leased or operated by such Person.
PROSPECTUS means the prospectus dated as of February 6, 1998
filed by the Company with the SEC.
PUBLIC OFFERING means the initial public offering of the
Company's common stock as described in the Prospectus.
RCRA means the Resource Conservation and Recovery Act, 42
U.S.C. Section 690, ET SEQ.
RELEASE means a "release", as such term is defined in
CERCLA.
RENTALS of a Person means the aggregate fixed amounts
payable by such Person under any Operating Lease.
REPLACEMENT LENDER - see SECTION 4.7.
REPORTABLE EVENT means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC or administrative
pronouncements.
<PAGE> 24
REQUIRED LENDERS means, at any time, Lenders having an
aggregate Percentage of 66 % or more.
REQUIREMENT OF LAW means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such
Person or any of its property is subject.
RESPONSIBLE OFFICER means the chief executive officer, the
president, the chief financial officer or the treasurer of the Company,
or any other officer having substantially the same authority and
responsibility.
SEC means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
SECURITY AGREEMENT means a Security Agreement substantially
in the form of EXHIBIT E.
SPECIFIED OWNERS means each of BGL Capital Partners, Michael
Cunningham, Leeds Hackett, Mary Maloney, Kenneth Murphy and Les
Kirshbaum.
STATED LIABILITIES means, at any time, the recorded
liabilities (including Contingent Liabilities that would be recorded in
accordance with GAAP) of each of the Company and of each Guarantor at
such time after giving effect to the transactions contemplated under
this Agreement, determined in accordance with GAAP consistently
applied, together with the amount, without duplication, of all Loans
and Contingent Liabilities.
SUBORDINATED DEBT means unsecured Indebtedness of the
Company for money borrowed which is subject to, and is only entitled to
the benefits of, terms and provisions (including maturity,
amortization, acceleration, interest rate, sinking fund, covenant,
default and subordination provisions) satisfactory in form and
substance to the Required Lenders, in each case as evidenced by their
written approval thereof (which may be granted or withheld in their
sole discretion).
SUBSIDIARY of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests is owned or controlled directly or indirectly
by such Person, or one or more of the Subsidiaries of such Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
<PAGE> 25
SUBSIDIARY PLEDGE AGREEMENT means any agreement
substantially in the form of Exhibit H pursuant to which any Subsidiary
pledges to the Administrative Agent shares of stock owned by it or
Indebtedness owing to it.
SURETY INSTRUMENTS means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, surety
bonds and similar instruments.
SWAP CONTRACT means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and any master agreement relating to or governing any or all
of the foregoing.
TANGIBLE NET WORTH means the Company's consolidated
stockholders' equity minus the aggregate amount of any intangible
assets of the Company and its Subsidiaries, including, without
limitation, goodwill, franchises, licenses, patents, trademarks, trade
names, copyrights, service marks and brand names.
TAXES means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, charges or withholdings, fees
or similar charges and all liabilities with respect thereto, excluding,
in the case of each Lender and the Administrative Agent, such taxes
(including income taxes, branch profit taxes or franchise taxes) as are
imposed on or measured by such Lender's or the Administrative Agent's,
as the case may be, net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender or the
Administrative Agent, as the case may be, is organized, maintains a
lending office or conducts business (collectively, "EXCLUDED TAXES").
TERMINATION DATE means the earlier to occur of (a) March 17,
2001; and (b) the date on which the Commitments terminate in accordance
with the provisions of this Agreement.
TYPE of Loan means the characterization of a Loan as a Base
Rate Loan or an Offshore Rate Loan.
UNFUNDED PENSION LIABILITY means the excess of a Pension
Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of such Pension Plan's assets, determined in accordance
with the assumptions used for funding such Pension Plan pursuant to
Section 412 of the Code for the applicable plan year.
UNITED STATES and U.S. each means the United States of
America.
<PAGE> 26
UNMATURED EVENT OF DEFAULT means any event or circumstance
which, with the giving of notice, the lapse of time, or both, would (if
not cured or otherwise remedied during such time) constitute an Event
of Default.
WHOLLY-OWNED SUBSIDIARY means any corporation in which
(other than director's qualifying shares or due to native ownership
requirements) 100% of the capital stock of each class is owned
beneficially and of record by the Company or by one or more other
Wholly-Owned Subsidiaries.
1.2 OTHER INTERPRETIVE PROVISIONS.(a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) SUBSECTION, SECTION, SCHEDULE and EXHIBIT references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but excluding"; and the word "through" means "to and
including."
(d) Unless otherwise expressly provided herein, (i) references to agreements
(including this Agreement) and other contractual instruments shall be deemed to
include all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited by the
terms of any Loan Document and (ii) references to any statute or regulation are
to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and the other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
<PAGE> 27
1.3 ACCOUNTING PRINCIPLES
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied; PROVIDED that if the Company notifies the
Administrative Agent that the Company wishes to amend any covenant in ARTICLE
VIII or any corresponding definition to eliminate the effect of any change in
GAAP on the operation of such covenant (or if the Administrative Agent notifies
the Company that the Required Lenders wish to amend ARTICLE VIII or any
corresponding definition for such purpose), then the Company's compliance with
such covenant shall be determined on the basis of GAAP in effect immediately
before the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Required Lenders.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
I. ARTICLE
THE CREDITS
2.1 AMOUNTS AND TERMS OF COMMITMENTS Each Lender severally agrees, on the
terms and conditions set forth herein, to make loans to the Company (each
such loan, a "LOAN") from time to time on any Business Day during the
period from the Effective Date to the Termination Date, in an aggregate
amount not to exceed at any time outstanding such Lender's Percentage of
the Commitment Amount; PROVIDED that, after giving effect to any Borrowing
of Loans, the Outstandings shall not exceed the lesser of (i) the
Commitment Amount or (ii) the Borrowing Availability Amount. Within the
foregoing limits, and subject to the other terms and conditions hereof,
the Company may borrow under this SUBSECTION 2.1, prepay under SECTION 2.7
or 2.8 and reborrow under this SUBSECTION 2.1.
2.2 LOAN ACCOUNTS The Loans made by each Lender and the Letters of Credit
Issued by the Issuing Lender shall be evidenced by one or more accounts or
records maintained by such Lender or the Issuing Lender, as the case may be, in
the ordinary course of business. The accounts or records maintained by the
Administrative Agent, the Issuing Lender and each Lender shall be conclusive
(absent manifest error) as to the amount of the Loans made by the Lenders to the
Company and the Letters of Credit Issued for the account of the Company, and the
interest and payments thereon. Any failure to record or any error in doing so
shall not, however, limit or otherwise affect the obligation of the Company
hereunder to pay any amount owing with respect to any Loan or any Letter of
Credit.
<PAGE> 28
(b) Upon the request of any Lender made through the Administrative Agent, the
Loans made by such Lender may be evidenced by one or more Notes in addition to
loan accounts. Each such Lender shall endorse on the schedules annexed to its
Note(s) the date, amount and maturity of each Loan made by it and the amount of
each payment of principal made by the Company with respect thereto. Each such
Lender is irrevocably authorized by the Company to endorse its Note(s) and each
Lender's record shall be conclusive absent manifest error; PROVIDED, HOWEVER,
that the failure of a Lender to make, or an error in making, a notation thereon
with respect to any Loan shall not limit or otherwise affect the obligations of
the Company hereunder or under any Note to such Lender.
2.3 PROCEDURE FOR BORROWING. Each Borrowing shall be made upon the Company's
irrevocable written notice delivered to the Administrative Agent in the form of
a Notice of Borrowing (which notice must be received by the Administrative Agent
(i) prior to 11:00 a.m. (Chicago time) two Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans and (ii) prior to 11:00 a.m.
(Chicago time) on the requested Borrowing Date, in the case of Base Rate Loans),
specifying:
(a) the amount of the Borrowing, which shall be in an amount not less than
$500,000 or a higher integral multiple of $100,000; PROVIDED HOWEVER, if such
requested Borrowing is to be a Base Rate Loan and the Borrowing Availability
Amount is less than $500,000 on the requested Borrowing Date, the amount of such
Borrowing may be in an amount equal to the Borrowing Availability Amount on such
date;
(b) the requested Borrowing Date, which shall be a Business Day;
(c) the Type of Loans comprising the Borrowing; and
(d) in the case of Offshore Rate Loans, the duration of the Interest Period
applicable to such Borrowing.
(b) The Administrative Agent will promptly notify each Lender of its receipt
of any Notice of Borrowing and of the amount of such Lender's share of the
related Borrowing.
(c) Each Lender will make the amount of its share of each Borrowing available
to the Administrative Agent for the account of the Company at the Agent's
Payment Office by 1:00 p.m. (Chicago time) on the Borrowing Date requested by
the Company in funds immediately available to the Administrative Agent. The
proceeds of all Loans will then be made available to the Company by the
Administrative Agent at such office by crediting the account of the Company on
the books of BofA with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
(d) After giving effect to any Borrowing, there may not be more than six
different Interest Periods in effect.
<PAGE> 29
2.4 CONVERSION AND CONTINUATION ELECTIONS. The Company may, upon irrevocable
written notice to the Administrative Agent in accordance with SUBSECTION 2.4(b):
(i) elect to convert, on any Business Day, any Base Rate Loans (in an aggregate
amount of $500,000 or a higher integral multiple of $100,000) into Offshore Rate
Loans;
(ii) elect to convert, on the last day of the applicable Interest Period, any
Offshore Rate Loans (or any part thereof in an aggregate amount of $500,000 or a
higher integral multiple of $100,000) into Base Rate Loans; or
(iii) elect to continue, as of the last day of the applicable Interest Period,
any Offshore Rate Loans having Interest Periods expiring on such day (or any
part thereof in an aggregate amount of $500,000 or a higher integral multiple of
$100,000);
PROVIDED that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing shall have been reduced, by payment, prepayment or
conversion of part thereof, to be less than $500,000, such Offshore Rate Loans
shall automatically convert into Base Rate Loans.
(b) The Company shall deliver a Notice of Conversion/Continuation to be
received by the Administrative Agent not later than (i) 11:00 a.m. (Chicago
time) at least two Business Days in advance of the Conversion/Continuation Date,
if the Loans are to be converted into or continued as Offshore Rate Loans and
(ii) not later than 11:00 a.m. (Chicago time) on the Conversion/Continuation
Date, if the Loans are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate principal amount of Loans to be converted or continued;
(C) the Type of Loans resulting from the proposed conversion or continuation;
and
(D) in the case of conversions into Offshore Rate Loans, the duration of the
requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to Offshore Rate
Loans, the Company has failed to select timely a new Interest Period to be
applicable to such Offshore Rate Loans, the Company shall be deemed to have
elected to convert such Offshore Rate Loans into Base Rate Loans effective as of
the expiration date of such Interest Period.
(d) The Administrative Agent will promptly notify each Lender of its receipt
of a Notice of Conversion/Continuation or, if no timely notice is provided by
the Company, the Administrative Agent will promptly notify each Lender of the
details of any automatic conversion. All conversions and continuations shall be
made ratably according to the Percentages of the Lenders.
<PAGE> 30
(e) Unless the Required Lenders otherwise agree, during the existence of an
Event of Default or Unmatured Event of Default, the Company may not elect to
have a Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans, there may
not be more than six different Interest Periods in effect.
2.5 TERMINATION OR REDUCTION OF COMMITMENTS. The Company may, upon not less
than five Business Days' prior written notice to the Administrative Agent,
permanently reduce the Commitment Amount to an amount which is not less than the
Outstandings. Any such reduction shall be in an aggregate amount of $500,000 or
an integral multiple thereof. The Company may at any time on like notice
terminate the Commitments upon payment in full of all Loans and Cash
Collateralization in full of all L/C Obligations. Once reduced in accordance
with this Section, the Commitment Amount may not be increased without the
consent of all Lenders. Any reduction of the Commitments shall be applied to the
Commitment of each Lender according to its Percentage. All accrued commitment
fees to, but not including, the effective date of any reduction or termination
of the Commitments shall be paid on the effective date of such reduction or
termination.
2.6 OPTIONAL PAYMENTS. (a) Subject to SECTION 4.4, the Company may, from time
to time, upon irrevocable written notice to the Administrative Agent (which
notice must be received by 11:00 a.m. (Chicago time) on the requested Business
Day of prepayment in the case of Base Rate Loans and 11:00 a.m. (Chicago time)
two Business Days prior to the date of prepayment in the case of Offshore Rate
Loans), prepay any Borrowing of Loans in whole or in part, without premium or
penalty, in an aggregate amount of $500,000 or a higher integral multiple of
$100,000.
(b) Each notice of prepayment shall specify the date and amount of such
prepayment and the Loans to be prepaid. The Administrative Agent will
promptly notify each Lender of its receipt of any such notice and of such
Lender's share of such prepayment. If any such notice is given by the
Company, the Company shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to such date on the amount prepaid
and any amounts required pursuant to SECTION 4.4.
2.7 MANDATORY PREPAYMENTS OF LOANS. Subject to SECTION 4.4, if at any time
the Outstandings exceed the Borrowing Availability Amount, the Company will make
an immediate prepayment of Loans in an amount equal to 100% of such excess
(rounded upward, if necessary, to an integral multiple of $100,000).
2.8 REPAYMENT
The Company shall pay to the Administrative Agent, for the account of the
Lenders, on the Termination Date the aggregate principal amount of all Loans
outstanding on such date.
<PAGE> 31
2.9 INTEREST. (a) Each Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Base Rate or the Offshore Rate, as the case may be (and subject to the
Company's right to convert to the other Type of Loans under SECTION 2.4), PLUS
the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest Payment
Date therefor. Interest shall also be paid on the date of any prepayment of
Offshore Rate Loans under SECTION 2.6 or 2.7 for the portion of the Loans so
prepaid and upon payment (including prepayment) in full thereof.
(c) Notwithstanding SUBSECTION (a) of this Section, during the existence of
any Event of Default, the Company shall pay interest (after as well as before
entry of judgment thereon to the extent permitted by law) on the principal
amount of all outstanding Loans and, to the extent permitted by applicable law,
on any other amount payable hereunder or under any other Loan Document, at a
rate per annum equal to the rate otherwise applicable thereto pursuant to the
terms hereof or such other Loan Document (or, if no such rate is specified, the
Base Rate) PLUS 2%. All such interest shall be payable on demand.
(d) Anything herein to the contrary notwithstanding, the obligations of the
Company to any Lender hereunder shall be subject to the limitation that payments
of interest shall not be required for any period for which interest is computed
hereunder to the extent (but only to the extent) that contracting for or
receiving such payment by such Lender would be contrary to the provisions of any
law applicable to such Lender limiting the highest rate of interest that may be
lawfully contracted for, charged or received by such Lender, and in such event
the Company shall pay such Lender interest at the highest rate permitted by
applicable law.
2.10 FEES. In addition to certain fees described in SECTION 3.8:
(a) ARRANGER AND AGENCY FEES. The Company shall pay arrangement fees to the
Arranger for the Arranger's own account and agency fees to the Administrative
Agent for the Administrative Agent's own account, in each case as required by
the letter agreement (the "FEE LETTER") among the Company, the Arranger and the
Administrative Agent dated as of January 5, 1998.
(b) COMMITMENT FEES. The Company shall pay to the Administrative Agent for the
account of each Lender a commitment fee calculated at a rate per annum equal to
the Commitment Fee Rate on the average daily unused portion of such Lender's
Percentage of the Commitment Amount, computed on a quarterly basis in arrears on
the last Business Day of each calendar quarter based upon the daily utilization
for that quarter as calculated by the Administrative Agent. For purposes of
calculating utilization under this subsection, the Commitment Amount shall be
deemed used to the extent of the principal amount of all Loans then outstanding
PLUS the Effective Amount of all L/C Obligations then outstanding. Such
commitment fee shall accrue from the date of the execution and
<PAGE> 32
delivery of this Agreement by all parties hereto to the Termination Date (or, if
later, the date on which the Commitment Amount is reduced to zero) and shall be
due and payable quarterly in arrears on the last Business Day of each calendar
quarter, with the final payment to be made on the Termination Date. The
commitment fees provided in this subsection shall accrue based on the Commitment
Amount at all times on and after April 23, 1998, including at any time during
which one or more conditions in ARTICLE V are not met and at any time that the
Borrowing Availability Amount is less than the Commitment Amount.
2.11 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest for
Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of interest and fees shall be made
on the basis of a 360-day year and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Administrative Agent shall
be conclusive and binding on the Company and the Lenders in the absence of
manifest error. The Administrative Agent will, at the request of the Company or
any Lender, deliver to the Company or such Lender, as the case may be, a
statement showing the quotations used by the Administrative Agent in determining
any interest rate and the resulting interest rate.
2.12 PAYMENTS BY THE COMPANY. (a) All payments to be made by the Company shall
be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the
Administrative Agent for the account of the Lenders at the Agent's Payment
Office, and shall be made in Dollars and in immediately available funds, no
later than 1:00 p.m. (Chicago time) on the date specified herein. Except as
expressly otherwise provided herein, the Administrative Agent will promptly
distribute, in like funds as received, to each Lender its Percentage (or other
applicable portion) of such payment. Any payment received by the Administrative
Agent later than 1:00 p.m. (Chicago time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Whenever any payment is due on a day other than a Business Day, such
payment shall be made on the following Business Day (unless, in the case of an
Offshore Rate Loan, such following Business Day is in another calendar month, in
which case such payment shall be made on the preceding Business Day), and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from the Company prior to
the date on which any payment is due to the Lenders that the Company will not
make such payment in full as and when required, the Administrative Agent may
assume that the Company has made such payment in full to the Administrative
Agent on such date in immediately available funds and the Administrative Agent
may (but shall not be so
<PAGE> 33
required), in reliance upon such assumption, distribute to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Company has not made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent on demand such amount
distributed to such Lender, together with interest thereon at the Federal Funds
Rate for each day from the date such amount is distributed to such Lender until
the date repaid.
2.13 PAYMENTS BY THE LENDERS TO THE ADMINISTRATIVE AGENT. (a) Unless the
Administrative Agent receives notice from a Lender on or prior to the Effective
Date, or, with respect to any Borrowing after the Effective Date, at least one
Business Day prior to the date of such Borrowing in the case of Offshore Rate
Loans and by 1:00 p.m. on the date of such Borrowing in the case of Base Rate
Loans, that such Lender will not make available as and when required hereunder
to the Administrative Agent for the account of the Company the amount of such
Lender's Percentage of such Borrowing, the Administrative Agent may assume that
each Lender has made such amount available to the Administrative Agent in
immediately available funds on the Borrowing Date and the Administrative Agent
may (but shall not be required to), in reliance upon such assumption, make
available to the Company on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to the
Administrative Agent in immediately available funds and the Administrative Agent
in such circumstances has made available to the Company such amount, such Lender
shall on the Business Day following such Borrowing Date make such amount
available to the Administrative Agent, together with interest at the Federal
Funds Rate for each day during such period. A notice of the Administrative Agent
submitted to any Lender with respect to amounts owing under this SUBSECTION (a)
shall be conclusive, absent manifest error. If such amount is so made available,
such payment to the Administrative Agent shall constitute such Lender's Loan on
the date of Borrowing for all purposes of this Agreement. If such amount is not
made available to the Administrative Agent on the Business Day following the
Borrowing Date, the Administrative Agent will notify the Company of such failure
to fund and, upon demand by the Administrative Agent, the Company shall pay such
amount to the Administrative Agent for the Administrative Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing Date shall not
relieve any other Lender of any obligation hereunder to make a Loan on such
Borrowing Date, but no Lender shall be responsible for the failure of any other
Lender to make the Loan to be made by such other Lender on any Borrowing Date.
A. SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share of such payment
(determined in accordance with the provisions of this Agreement), such Lender
shall immediately (a) notify the Administrative Agent of such fact and (b)
purchase from the other Lenders such
<PAGE> 34
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment PRO RATA with each other Lender;
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's ratable share (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Company
agrees that any Lender so purchasing a participation from another Lender may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to SECTION 11.10) with respect to
such participation as fully as if such Lender were the direct creditor of the
Company in the amount of such participation. The Administrative Agent will keep
records (which shall be conclusive and binding in the absence of manifest error)
of participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments.
ARTICLE
THE LETTERS OF CREDIT
---------------------
3.1 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and conditions set forth
herein: (i) the Issuing Lender agrees, (A) from time to time on any Business Day
during the period from the Effective Date to the Termination Date to issue
Letters of Credit for the account of the Company, and to amend or renew Letters
of Credit issued by it, in accordance with SUBSECTIONS 3.2(c) and 3.2(d), and
(B) to honor properly drawn drafts under the Letters of Credit issued by it; and
(ii) the Lenders severally agree to participate in Letters of Credit Issued for
the account of the Company; PROVIDED that the Issuing Lender shall not be
obligated to Issue, and no Lender shall be obligated to participate in, any
Letter of Credit if as of the date of Issuance of such Letter of Credit (the
"ISSUANCE DATE") (1) the Outstandings exceed the Commitment Amount or the
Borrowing Availability Amount, (2) the Effective Amount of all L/C Obligations
exceeds the amount of the L/C Commitment or (3) the sum of the participation of
any Lender in the Effective Amount of all L/C Obligations PLUS the outstanding
principal amount of the Loans of such Lender shall exceed such Lender's
Commitment. Within the foregoing limits, and subject to the other terms and
conditions hereof, the Company's ability to obtain Letters of Credit shall be
fully revolving, and, accordingly, the Company may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which have expired or
which have been drawn upon and reimbursed.
(b) The Issuing Lender shall not be under any obligation to Issue any Letter
of Credit if;
<PAGE> 35
(i) any order, judgment or decree of any Governmental Authority or arbitrator
shall by its terms purport to enjoin or restrain the Issuing Lender from Issuing
such Letter of Credit, or any Requirement of Law applicable to the Issuing
Lender or any request or directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the Issuing Lender shall
prohibit, or request that the Issuing Lender refrain from, the Issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Issuing Lender with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing Lender is not
otherwise compensated hereunder) not in effect on the Effective Date, or shall
impose upon the Issuing Lender any unreimbursed loss, cost or expense which was
not applicable on the Effective Date and which the Issuing Lender in good faith
deems material to it;
(ii) the Issuing Lender has received written notice from any Lender, the
Administrative Agent or the Company, on or prior to the Business Day prior to
the requested date of Issuance of such Letter of Credit, that one or more of the
applicable conditions contained in ARTICLE V is not then satisfied;
(iii) the expiry date of such Letter of Credit is after the Termination Date,
unless all of the Lenders have approved such expiry date in writing;
(iv) such Letter of Credit does not provide for drafts, or is not otherwise in
form and substance reasonably acceptable to the Issuing Lender, or the Issuance
of such Letter of Credit shall violate any applicable policies of the Issuing
Lender; or
(v) such Letter of Credit is denominated in a currency other than Dollars.
3.2 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a)Each Letter of
Credit shall be issued upon the irrevocable written request of the Company
received by the Issuing Lender and the Administrative Agent at least four
Business Days (or such shorter time as the Issuing Lender and the Administrative
Agent may agree in a particular instance in their sole discretion) prior to the
proposed date of issuance. Each such request for issuance of a Letter of Credit
shall be by facsimile, confirmed immediately in an original writing, in the form
of an L/C Application, and shall specify in form and detail satisfactory to the
Issuing Lender: (i) the face amount of the Letter of Credit; (ii) the expiry
date of the Letter of Credit; (iii) the name and address of the beneficiary
thereof; (iv) the documents to be presented by the beneficiary of the Letter of
Credit in case of any drawing thereunder; (v) the full text of any certificate
to be presented by the beneficiary in case of any drawing thereunder; and (vi)
such other matters as the Issuing Lender may require.
(b) At least two Business Days prior to the Issuance of any Letter of Credit,
the Issuing Lender will confirm with the Administrative Agent (by telephone or
in writing) that the Administrative Agent has received a copy of the L/C
Application or L/C Amendment Application from the Company and, if not, the
Issuing Lender will provide the Administrative Agent with a copy thereof. If and
only if the Administrative Agent notifies the Issuing Lender on or before the
Business Day immediately preceding the
<PAGE> 36
proposed date of Issuance of a Letter of Credit that the Issuing Lender may
Issue such Letter of Credit, then, subject to the terms and conditions hereof,
the Issuing Lender shall, on the requested date, Issue such Letter of Credit for
the account of the Company in accordance with the Issuing Lender's usual and
customary business practices. The Administrative Agent shall not give such
notice if the Administrative Agent has knowledge that (A) such Issuance is not
then permitted under SUBSECTION 3.1(a) as a result of the limitations set forth
in CLAUSE (1) or (2) thereof or (B) the Issuing Lender has received a notice
described in SUBSECTION 3.1(b)(ii). The Administrative Agent will promptly
notify the Lenders in writing of any Letter of Credit Issuance hereunder.
(c) From time to time while a Letter of Credit is outstanding and prior to the
Termination Date, the Issuing Lender will, upon the written request of the
Company received by the Issuing Lender (with a copy sent by the Company to the
Administrative Agent) at least four Business Days (or such shorter time as the
Issuing Lender and the Administrative Agent may agree in a particular instance
in their sole discretion) prior to the proposed date of amendment, amend any
Letter of Credit issued by it. Each such request for amendment of a Letter of
Credit shall be made by facsimile, confirmed immediately in an original writing,
made in the form of an L/C Amendment Application and shall specify in form and
detail satisfactory to the Issuing Lender: (i) the Letter of Credit to be
amended; (ii) the proposed date of amendment of such Letter of Credit (which
shall be a Business Day); (iii) the nature of the proposed amendment; and (iv)
such other matters as the Issuing Lender may require. The Issuing Lender shall
not have any obligation to amend any Letter of Credit if: (A) the Issuing Lender
would have no obligation at such time to Issue such Letter of Credit in its
amended form under the terms of this Agreement; or (B) the beneficiary of such
Letter of Credit does not accept the proposed amendment to such Letter of
Credit.
(d) The Issuing Lender and the Lenders agree that, while a Letter of Credit is
outstanding and prior to the Termination Date, at the option of the Company and
upon the written request of the Company received by the Issuing Lender (with a
copy sent by the Company to the Administrative Agent) at least four Business
Days (or such shorter time as the Issuing Lender and the Administrative Agent
may agree in a particular instance in their sole discretion) prior to the
proposed date of notification of renewal, the Issuing Lender shall be entitled,
with the approval of the Administrative Agent, to authorize the automatic
renewal of any Letter of Credit issued by it. Each such request for renewal of a
Letter of Credit shall be made by facsimile, confirmed immediately in an
original writing, in the form of an L/C Amendment Application, and shall specify
in form and detail satisfactory to the Issuing Lender: (i) the Letter of Credit
to be renewed; (ii) the proposed date of notification of renewal of such Letter
of Credit (which shall be a Business Day); (iii) the revised expiry date of such
Letter of Credit (which, unless all Lenders otherwise consent in writing, shall
be prior to the Termination Date); and (iv) such other matters as the Issuing
Lender may require. The Issuing Lender shall not be under any obligation to
renew any Letter of Credit if: (A) the Issuing Lender would have no obligation
at such time to issue or amend such Letter of Credit in its renewed form under
the terms of this Agreement; or (B) the beneficiary of such Letter of Credit
does not accept the proposed renewal of such Letter of Credit. If any
outstanding Letter of Credit shall provide that it
<PAGE> 37
shall be automatically renewed unless the beneficiary thereof receives notice
from the Issuing Lender that such Letter of Credit shall not be renewed, and if
at the time of renewal the Issuing Lender would be entitled to authorize the
automatic renewal of such Letter of Credit in accordance with this SUBSECTION
3.2(d) upon the request of the Company but the Issuing Lender shall not have
received any L/C Amendment Application from the Company with respect to such
renewal or other written direction by the Company with respect thereto, the
Issuing Lender shall nonetheless be permitted to allow such Letter of Credit to
renew, subject to the approval of the Administrative Agent, and the Company and
the Lenders hereby authorize such renewal, and, accordingly, the Issuing Lender
shall be deemed to have received an L/C Amendment Application from the Company
requesting such renewal.
(e) The Issuing Lender may, at its election (or as required by the
Administrative Agent at the direction of the Required Lenders), deliver any
notices of termination or other communications to any Letter of Credit
beneficiary or transferee, with a copy thereof delivered to the Company at
substantially the same time as the delivery of such notice to the beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Termination Date.
(f) This Agreement shall control in the event of any conflict with any
L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Lender will deliver to the Administrative Agent, concurrently
or promptly following its delivery of a Letter of Credit, or amendment to or
renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and
complete copy of each such Letter of Credit or amendment to or renewal of a
Letter of Credit.
3.3 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a) Immediately upon
the Issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from the Issuing
Lender a participation in such Letter of Credit and each drawing thereunder
in an amount equal to the product of (i) such Lender's Percentage times (ii)
the maximum amount available to be drawn under such Letter of Credit and the
amount of such drawing, respectively.
(b) In the event of any request for a drawing under a Letter of Credit by the
beneficiary or transferee thereof, the Issuing Lender will promptly notify the
Company and the Administrative Agent. The Company shall reimburse the Issuing
Lender prior to 11:00 a.m. (Chicago time), on each date that any amount is paid
by the Issuing Lender under any Letter of Credit (each such date, an "HONOR
DATE") in an amount equal to the amount so paid by the Issuing Lender; PROVIDED
that, to the extent that the Issuing Lender accepts a drawing under a Letter of
Credit after 11:00 a.m. (Chicago time), the Company will not be obligated to
reimburse the Issuing Lender until the next Business Day and the "Honor Date"
for such Letter of Credit shall be such next Business Day. If the Company fails
to reimburse the Issuing Lender for the full amount of any drawing under any
Letter
<PAGE> 38
of Credit by 11:00 a.m. (Chicago time) on the Honor Date, the Issuing Lender
will promptly notify the Administrative Agent and the Administrative Agent will
promptly notify each Lender thereof, and the Company shall be deemed to have
requested that Base Rate Loans be made by the Lenders to be disbursed on the
Honor Date under such Letter of Credit, subject to the amount of the unutilized
portion of the Commitment Amount and subject to the conditions set forth in
SECTION 5.3 other than SECTION 5.3(a). Any notice given by the Issuing Lender or
the Administrative Agent pursuant to this SUBSECTION 3.3(b) may be oral if
immediately confirmed in writing (including by facsimile); PROVIDED that the
lack of such an immediate confirmation shall not affect the conclusiveness or
binding effect of such notice.
(c) Each Lender shall upon any notice pursuant to SUBSECTION 3.3(b) make
available to the Administrative Agent for the account of the Issuing Lender an
amount in Dollars and in immediately available funds equal to its Percentage of
the amount of the drawing, whereupon the participating Lenders shall (subject to
SUBSECTION 3.3(d)) each be deemed to have made a Loan consisting of a Base Rate
Loan to the Company in such amount. If any Lender so notified fails to make
available to the Administrative Agent for the account of the Issuing Lender the
amount of such Lender's Percentage of the amount of such drawing by no later
than 1:00 p.m. (Chicago time) on the Honor Date, then interest shall accrue on
such Lender's obligation to make such payment, from the Honor Date to the date
such Lender makes such payment, at a rate per annum equal to the Federal Funds
Rate in effect from time to time during such period. The Administrative Agent
will promptly give notice of the occurrence of the Honor Date, but failure of
the Administrative Agent to give any such notice on the Honor Date or in
sufficient time to enable any Lender to effect such payment on such date shall
not relieve such Lender from its obligations under this SECTION 3.3.
(d) With respect to any unreimbursed drawing that is not converted into Loans
consisting of Base Rate Loans in whole or in part, because of the Company's
failure to satisfy the conditions set forth in SECTION 5.2 (other than SECTION
5.2(a), which need not be satisfied) or for any other reason, the Company shall
be deemed to have incurred from the Issuing Lender an L/C Borrowing in the
amount of such drawing, which L/C Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at a rate per annum equal to
the sum of the Base Rate PLUS 2%, and each Lender's payment to the Issuing
Lender pursuant to SUBSECTION 3.3(c) shall be deemed payment in respect of its
participation in such L/C Borrowing and shall constitute an L/C Advance from
such Lender in satisfaction of its participation obligation under this SECTION
3.3.
(e) Each Lender's obligation in accordance with this Agreement to make Loans
or L/C Advances, as contemplated by this SECTION 3.3, as a result of a drawing
under a Letter of Credit, shall be absolute and unconditional and without
recourse to the Issuing Lender and shall not be affected by any circumstance,
including (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Issuing Lender, the Company or any other
Person for any reason whatsoever, (ii) the occurrence or continuance of an Event
of Default, an Unmatured Event of Default or a Material Adverse Effect or (iii)
any other circumstance, happening or event whatsoever,
<PAGE> 39
whether or not similar to any of the foregoing; PROVIDED that each Lender's
obligation to make Loans under this SECTION 3.3 is subject to the conditions set
forth in SECTION 5.3.
3.4 REPAYMENT OF PARTICIPANTS. (a) Upon (and only upon) receipt by the
Administrative Agent for the account of the Issuing Lender of immediately
available funds from the Company (i) in reimbursement of any payment made by
the Issuing Lender under a Letter of Credit with respect to which any Lender
has paid the Administrative Agent for the account of the Issuing Lender for
such Lender's participation in such Letter of Credit pursuant to SECTION 3.3
or (ii) in payment of interest thereon, the Administrative Agent will pay to
each Lender, in like funds as those received by the Administrative Agent for
the account of the Issuing Lender, the amount of such Lender's Percentage of
such funds, and the Issuing Lender shall receive the amount of the
Percentage of such funds of any Lender that did not so pay the
Administrative Agent for the account of the Issuing Lender.
(b) If the Administrative Agent or the Issuing Lender is required at any time
to return to the Company, or to a trustee, receiver, liquidator or custodian, or
to any official in any Insolvency Proceeding, any portion of any payment made by
the Company to the Administrative Agent for the account of the Issuing Lender
pursuant to SUBSECTION 3.4(a) in reimbursement of a payment made under a Letter
of Credit or interest or fee thereon, each Lender shall, on demand of the
Administrative Agent, forthwith return to the Administrative Agent or the
Issuing Lender the amount of its Percentage of any amount so returned by the
Administrative Agent or the Issuing Lender PLUS interest thereon from the date
such demand is made to the date such amount is returned by such Lender to the
Administrative Agent or the Issuing Lender, at a rate per annum equal to the
Federal Funds Rate in effect from time to time.
3.5 (a) ROLE OF THE ISSUING LENDER. Each Lender and the Company agree that,
in paying any drawing under a Letter of Credit, the Issuing Lender shall not
have any responsibility to obtain any document (other than any draft and
certificate expressly required by such Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) None of any Agent-Related Person, the Issuing Lender or any of their
respective correspondents, participants or assignees shall be liable to any
Lender for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Lenders (including the Required Lenders, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts or omissions of any
beneficiary or transferee with respect to its use of any Letter of Credit;
PROVIDED that this assumption is not intended to, and shall not, preclude the
Company's pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under this Agreement or any other agreement.
None of any Agent-Related Person, the Issuing
<PAGE> 40
Lender or any of their respective correspondents, participants or assignees
shall be liable or responsible for any of the matters described in CLAUSES (i)
through (vii) of SECTION 3.6; PROVIDED that, anything in such clauses to the
contrary notwithstanding, the Company may have a claim against the Issuing
Lender, and the Issuing Lender may be liable to the Company, to the extent, but
only to the extent, of any direct, as opposed to consequential or exemplary,
damages suffered by the Company which the Company proves were caused by the
Issuing Lender's willful misconduct or gross negligence or the Issuing Lender's
willful or grossly negligent failure to pay under any Letter of Credit after the
presentation to it by the beneficiary of a draft and certificate(s) strictly
complying with the terms and conditions of such Letter of Credit. In furtherance
and not in limitation of the foregoing: (i) the Issuing Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary;
and (ii) the Issuing Lender shall not be responsible for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason.
3.6 OBLIGATIONS ABSOLUTE. The obligations of the Company under this Agreement
and any L/C-Related Document to reimburse the Issuing Lender for a drawing under
a Letter of Credit, and to repay any L/C Borrowing and any drawing under a
Letter of Credit converted into Loans, shall be unconditional and irrevocable,
and shall be paid strictly in accordance with the terms of this Agreement and
each such other L/C-Related Document under all circumstances, including the
following:
(i) any lack of validity or enforceability of this Agreement or any L/C-Related
Document;
(ii) any change in the time, manner or place of payment of, or in any other term
of, all or any of the obligations of the Company in respect of any Letter of
Credit or any other amendment or waiver of or any consent to departure from all
or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other right that the
Company may have at any time against any beneficiary or any transferee of any
Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Issuing Lender or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by the
L/C-Related Documents or any unrelated transaction;
(iv) any draft, demand, certificate or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect or
any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any Letter of Credit;
(v) any payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of such Letter of Credit;
<PAGE> 41
or any payment made by the Issuing Lender under any Letter of Credit to any
Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any collateral, or any release
or amendment or waiver of or consent to departure from any guarantee, for all or
any of the obligations of the Company in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing, including any other circumstance that might otherwise
constitute a defense available to, or a discharge of, the Company or a
guarantor.
3.7 CASH COLLATERAL PLEDGE. If any Letter of Credit remains outstanding and
partially or wholly undrawn as of the Termination Date, then the Company shall
immediately Cash Collateralize the L/C Obligations in an amount equal to the
maximum amount then available to be drawn under all Letters of Credit.
3.8 LETTER OF CREDIT FEES. (a) The Company shall pay to the Administrative
Agent for the account of each Lender a letter of credit fee with respect to each
Letter of Credit at a rate per annum equal to the L/C Fee Rate on the average
daily maximum amount available to be drawn on such Letter of Credit, computed on
a quarterly basis in arrears on the last Business Day of each calendar quarter.
(b) The Company shall pay to the Issuing Lender a letter of credit fronting
fee for each Letter of Credit Issued equal to 0.25% per annum of the average
daily maximum amount available to be drawn on such Letter of Credit, computed on
the last Business Day of each calendar quarter and on the Termination Date (or
such later date on which such Letter of Credit shall expire or be fully drawn).
(c) The letter of credit fees payable under SUBSECTION 3.8(a) and the
fronting fees payable under SUBSECTION 3.8(b) shall be due and payable quarterly
in arrears on the last Business Day of each calendar quarter during which
Letters of Credit are outstanding, commencing on the first such quarterly date
to occur after the Effective Date, through the Termination Date (or such later
date upon which all outstanding Letters of Credit shall expire or be fully
drawn), with the final payment to be made on the Termination Date (or such later
date).
(d) The Company shall pay to the Issuing Lender from time to time on demand
the normal issuance, presentation, amendment and other processing fees, and
other standard costs and charges, of the Issuing Lender relating to letters of
credit as from time to time in effect.
3.9 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
<PAGE> 42
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in such Letter of Credit) apply to each Letter of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.1 TAXES. (a) Any and all payments by the Company to each Lender or the
Administrative Agent under this Agreement and any other Loan Document shall
be made free and clear of, and without deduction or withholding for, any
Taxes. In addition, the Company shall pay all Other Taxes.
(b) The Company agrees to indemnify and hold harmless each Lender and the
Administrative Agent for the full amount of Taxes, Other Taxes and Further Taxes
paid by such Lender in the amount necessary to preserve the after-tax yield such
Lender would have received if such Taxes, Other Taxes or Further Taxes had not
been imposed, and any liability (including penalties, interest, additions to tax
and reasonable and documented out-of-pocket expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted; PROVIDED, HOWEVER, that no participant of any
Lender shall be entitled to receive any greater payment under this SUBSECTION
4.1(b) than such Lender would have been entitled to receive with respect to the
rights participated; and PROVIDED FURTHER that the Company shall not indemnify
any Lender (or participant thereof) or the Administrative Agent for Taxes, Other
Taxes, Further Taxes, penalties, additions to tax, interest and expenses arising
as a result of any of their own willful misconduct or gross negligence. Payment
under this SUBSECTION 4.1(b) shall be made within 30 days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor, including with such demand an identification of the Taxes, Other Taxes
or Further Taxes (together with the amounts thereof) with respect to which such
demand for indemnification is being made.
(c) If the Company shall be required by law to deduct or withhold any Taxes,
Other Taxes or Further Taxes from or in respect of any sum payable hereunder to
any Lender or the Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that, after making all
required deductions and withholdings (including deductions and withholdings
applicable to additional sums payable under this Section), such Lender or the
Administrative Agent, as the case may be, receives and retains an amount equal
to the sum it would have received and retained had no such deductions or
withholdings been made;
(ii) the Company shall make such deductions and withholdings; and
(iii) the Company shall pay the full amount deducted or withheld to the relevant
taxing authority or other authority in accordance with applicable law.
<PAGE> 43
(d) Within 10 days after the date the Company receives any receipt for the
payment of Taxes, Other Taxes or Further Taxes, the Company shall furnish to
each Lender and the Administrative Agent the original or a certified copy of
such receipt evidencing payment thereof, or other evidence of payment
satisfactory to such Lender or the Administrative Agent.
(e) If the Company is required to pay additional amounts to any Lender or the
Administrative Agent pursuant to SUBSECTION (b) of this Section or SECTION 4.3,
then such Lender shall use reasonable efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its Lending Office so as
to reduce or eliminate any such additional payment by the Company which may
thereafter accrue, if such change in the sole judgment of such Lender is not
otherwise disadvantageous to such Lender. Each Lender agrees that it will not
make a request for compensation pursuant to SUBSECTION (b) of this Section or
SECTION 4.3 unless such Lender is making a similar claim for compensation from
substantially all its borrowers of similar creditworthiness which are similarly
situated.
(f) If a Lender (or participant thereof) or the Administrative Agent shall
become aware that it is entitled to receive a refund (including interest and
penalties, if any) in respect of Taxes, Other Taxes or Further Taxes as to
which it has been indemnified by the Company pursuant to this SECTION 4.1,
it shall promptly notify the Company in writing of the availability of such
refund (including interest and penalties, if any) and shall, within 30 days
after receipt of a request by the Company, apply for such refund. If any
Lender (or participant thereof) or the Administrative Agent receives a
refund (including interest and penalties, if any) in respect of any Taxes,
Other Taxes or Further Taxes as to which it has been indemnified by the
Company pursuant to this SECTION 4.1, it shall promptly notify the Company
of the receipt of such refund and shall, within 15 days of receipt, repay
such refund (to the extent of amounts that have been paid by the Company
under this SECTION 4.1 with respect to such refund and not previously
reimbursed) to the Company, net of all reasonable and documented
out-of-pocket expenses of such Lender or the Administrative Agent and
without any interest (other than the interest, if any, included in such
refund).
4.2 ILLEGALITY. (a) After the date hereof, if any Lender determines that the
introduction of any Requirement of Law, or any change in any Requirement of Law,
or in the interpretation or administration of any Requirement of Law, has made
it unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for such Lender or its applicable Lending Office
to make Offshore Rate Loans, then, on notice thereof by the Lender to the
Company through the Administrative Agent, any obligation of such Lender to make
Offshore Rate Loans shall be suspended until such Lender notifies the
Administrative Agent and the Company that the circumstances giving rise to such
determination no longer exist.
(b) After the date hereof, if a Lender determines that it is unlawful to
maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice
of such fact and
<PAGE> 44
demand from such Lender (with a copy to the Administrative Agent), prepay in
full such Offshore Rate Loan, together with interest accrued thereon and any
amount required under SECTION 4.4, either on the last day of the Interest Period
thereof, if such Lender may lawfully continue to maintain such Offshore Rate
Loan to such day, or on such earlier date on which such Lender may no longer
lawfully continue to maintain such Offshore Rate Loan (as determined by such
Lender). If the Company is required to so prepay any Offshore Rate Loan, then
concurrently with such prepayment, the Company shall borrow from the affected
Lender, in the amount of such repayment, a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain Offshore Rate Loans
has been terminated or suspended pursuant to SUBSECTION (a) or (b) above, all
Loans which would otherwise be made by such Lender as Offshore Rate Loans shall
be instead Base Rate Loans.
(d) Before giving any notice to the Administrative Agent or demand upon the
Company under this Section, the affected Lender shall designate a different
Lending Office with respect to its Offshore Rate Loans if such designation will
avoid the need for giving such notice or making such demand and will not, in the
reasonable judgment of such Lender, be illegal or otherwise disadvantageous to
such Lender. Each Lender agrees that it will not give notice to the
Administrative Agent or make any demand upon the Company pursuant to this
SECTION 4.2 unless such Lender is delivering similar notices to and/or making
similar demands of substantially all its borrowers of similar creditworthiness
which are similarly situated.
4.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) After the date hereof, if
any Lender determines that, due to either (i) the introduction of or any change
(other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the Offshore Rate) in or in the
interpretation of any law or regulation or (ii) compliance by such Lender with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
Offshore Rate Loan or participating in Letters of Credit or, in the case of the
Issuing Lender, any increase in the cost to the Issuing Lender of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Company shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
(b) After the date hereof, if any Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by such Lender (or its Lending Office) or any corporation controlling
such Lender with any Capital Adequacy
<PAGE> 45
Regulation, affects or would affect the amount of capital required or expected
to be maintained by such Lender or any corporation controlling such Lender and
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy and such Lender's desired return on capital)
determines that the amount of such capital is increased as a consequence of any
of its Commitments, Loans or obligations under this Agreement, then, upon demand
of such Lender to the Company through the Administrative Agent, the Company
shall pay to such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender for such increase.
(c) This SECTION 4.3 shall not require the Company to reimburse the
Administrative Agent or any Lender for any Taxes which are otherwise covered by
the indemnity set forth in SECTION 4.1 or any Excluded Taxes.
(d) Before making any demand upon the Company under this SECTION 4.3, the
affected Lender shall designate a different Lending Office if such designation
will allow the Company to avoid payments under this SECTION 4.3 and will not, in
the reasonable judgment of such Lender, be illegal or otherwise disadvantageous
to such Lender. Each Lender agrees that it will not make any demand for payment
upon the Company under this SECTION 4.3 unless such Lender is making similar
demands for payment of substantially all its borrowers of similar
creditworthiness which are similarly situated.
4.4 FUNDING LOSSES. The Company shall reimburse each Lender and hold each
Lender harmless from any loss or expense which such Lender may sustain or incur
as a consequence of:
a. the failure of the Company to make on a timely basis any payment of
principal of any Offshore Rate Loan;
b. the failure of the Company to borrow, continue or convert a Loan after the
Company has given (or is deemed to have given) a Notice of Borrowing or a
Notice of Conversion/Continuation;
c. the failure of the Company to make any prepayment in accordance with any
notice delivered under SECTION 2.6;
d. the prepayment (including pursuant to SECTION 2.7) or other payment
(including after acceleration thereof) of an Offshore Rate Loan on a day
that is not the last day of the relevant Interest Period; or
e. the automatic conversion under SUBSECTION 2.4(a) of any Offshore Rate Loan
to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts
<PAGE> 46
payable by the Company to the Lenders under this Section and under SUBSECTION
4.3(a), each Offshore Rate Loan made by a Lender (and each related reserve,
special deposit or similar requirement) shall be conclusively deemed to have
been funded at the IBOR used in determining the Offshore Rate for such Offshore
Rate Loan by a matching deposit or other borrowing in the interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such
Offshore Rate Loan is in fact so funded.
4.5 INABILITY TO DETERMINE RATES. If the Administrative Agent determines that
for any reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or the Required Lenders determine (and notify the
Administrative Agent) that the Offshore Rate applicable pursuant to SUBSECTION
2.9(a) for any requested Interest Period with respect to a proposed Offshore
Rate Loan does not adequately and fairly reflect the cost to such Lenders of
funding such Loan, the Administrative Agent will promptly so notify the Company
and each Lender. Thereafter, the obligation of the Lenders to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Administrative Agent,
with the consent of the Required Lenders, revokes such notice in writing. Upon
receipt of such notice, the Company may revoke any Notice of Borrowing or Notice
of Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Company, in the amount specified in the applicable notice submitted by
the Company, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.
4.6 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement or
compensation under this ARTICLE IV shall deliver to the Company (with a copy to
the Administrative Agent) a certificate setting forth in reasonable detail the
basis for such claim and a calculation of the amount payable to such Lender and
such certificate shall be conclusive and binding on the Company in the absence
of manifest error.
4.7 SUBSTITUTION OF LENDERS. In the event the Company becomes obligated to pay
additional amounts to any Lender pursuant to SECTIONS 4.1(b) or (c) or SECTION
4.3, or if it becomes illegal for any Lender to continue to fund or to make
Offshore Rate Loans pursuant to SECTION 4.2, as a result of any condition
described in any such Section, then, unless such Lender has theretofore taken
steps to remove or cure, and has removed or cured, the conditions creating the
cause for such obligation to pay such additional amounts or for such illegality,
the Company may designate another Lender which is acceptable to the
Administrative Agent and the Issuing Lender in their sole discretion (such
Lender being herein called a "REPLACEMENT LENDER") to purchase the Loans of such
Lender and such Lender's rights hereunder, without recourse to or warranty by,
or expense to, such Lender for a purchase price equal to the outstanding
principal amount of the Loans payable to such Lender plus any accrued but unpaid
interest on such Loans and accrued but unpaid commitment fees in respect of such
Lender's Commitments and any other amounts payable to such Lender under this
Agreement, and to assume all the obligations of such Lender hereunder, and, upon
such purchase, such Lender shall no longer be a party hereto or have any rights
hereunder and shall be relieved from all
<PAGE> 47
obligations to the Company hereunder, and the Replacement Lender shall succeed
to the rights and obligations of such Lender hereunder.
4.8 SURVIVAL. The agreements and obligations of the Company in this ARTICLE
IV shall survive the payment of all other Obligations.
I. ARTICLE
CONDITIONS PRECEDENT
--------------------
5.1 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of each Lender to
make its initial Credit Extension is subject to the conditions (in addition
to the conditions set forth in Section 5.2) that the Administrative Agent
shall have received (i) evidence, reasonably satisfactory to the
Administrative Agent that the Company has used not less than 80% of the net
cash proceeds of the Public Offering as cash consideration for Acquisitions
consummated by the Company, (ii) evidence, reasonably satisfactory to the
Administrative Agent that The Mail Box, Inc. has terminated its $2,250,000
secured revolving line of credit with Merrill Lynch Financial Services, Inc.
and repaid any Indebtedness and satisfied any liabilities (including those
described on SCHEDULE 6.11) in connection therewith, and any Liens against
The Mail Box, Inc. in connection with such credit facility (including those
described on SCHEDULE 8.1) have been terminated and (iii) all of the
following, in form and substance satisfactory to the Administrative Agent
and each Lender, and (except for any Notes) in sufficient copies for each
Lender.
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Notes (if
any) executed by each party thereto.
(b) RESOLUTIONS AND INCUMBENCY.
(i) Copies of resolutions of the board of directors of the
Company and each Guarantor authorizing the transactions contemplated hereby,
certified as of the Effective Date by the Secretary or an Assistant Secretary of
such Person; and
(b) (ii) A certificate of the Secretary or an Assistant Secretary of
the Company and each Guarantor certifying the names and true signatures of the
officers of such Person authorized to execute, deliver and perform this
Agreement and the other Loan Documents to be delivered by it hereunder.
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) for the Company and each Guarantor, the articles or
certificate of incorporation and the bylaws of each such Person, as the case may
be, as in
<PAGE> 48
effect on the Effective Date, certified by the Secretary or Treasurer of such
Person, as of the Effective Date; and
b) a good standing certificate for the Company and each Guarantor
from the Secretary of State (or similar applicable Governmental Authority) of
the jurisdiction of its organization.
(d) LEGAL OPINION.
An opinion of Katten, Muchin & Zavis, substantially in the form
of EXHIBIT I.
(e) PAYMENT OF FEES. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Effective Date, together with Attorney Costs of the Administrative Agent
and the Arranger to the extent invoiced prior to or on the Effective Date, PLUS
such additional amounts of Attorney Costs as shall constitute the Administrative
Agent's reasonable estimate of Attorney Costs incurred or to be incurred by it
through the closing proceedings (IT BEING UNDERSTOOD that such estimate shall
not thereafter preclude final settling of accounts between the Company and the
Administrative Agent), including any such costs, fees and expenses arising under
or referenced in SECTION 2.10 or 11.4.
(f) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of the Effective Date, stating that:
a) the representations and warranties contained in ARTICLE VI
are true and correct on and as of such date, as though made on and as of such
date;
b) no Event of Default or Unmatured Event of Default exists or
will result from the initial Credit Extension; and
c) no event or circumstance has occurred since December 31,
1997 that has resulted, or would reasonably be expected to result, in a Material
Adverse Effect.
(g) SECURITY AGREEMENT, ETC. A security agreement, substantially
in the form of EXHIBIT E (the "Security Agreement"), executed by the Company and
each Subsidiary (such Security Agreement to be held in escrow by the
Administrative Agent until the occurrence of the Collateralization Date),
together with duly executed financing statements and any other documents that
may be necessary to perfect the Lien which will be granted to the Administrative
Agent (for the benefit of itself and the Lenders) on any collateral granted
under the Security Agreement upon the occurrence of the Collateralization Date.
(h) GUARANTY. The Guaranty executed by each Subsidiary (except
Creditsafe Limited, a United Kingdom corporation).
<PAGE> 49
(i) PLEDGE AGREEMENT. A pledge agreement, substantially in the
form of EXHIBIT G, issued by the Company (the "Company Pledge Agreement") with
respect to its pledge of 100% of the stock of each direct Subsidiary of the
Company and all intercompany Indebtedness owing to the Company, together with
the stock certificates to be pledged thereunder and undated stock powers, or
other instruments of transfer in form and substance satisfactory to the
Administrative Agent, duly executed in blank and all intercompany notes (if any)
to be pledged thereunder duly endorsed to the order of the Administrative Agent.
(j) SUBSIDIARY PLEDGE AGREEMENTS. Pledge agreements, each
substantially in the form of Exhibit H (each a "Subsidiary Pledge Agreement"),
issued by each Subsidiary of the Company which has one or more Subsidiaries, and
all intercompany Indebtedness owing to each such Subsidiary, together with the
stock certificates to be pledged thereunder and undated stock powers, or other
instruments of transfer in form and substance satisfactory to the Administrative
Agent, duly executed in blank and all intercompany notes (if any) to be pledged
thereunder duly endorsed to the order of the Administrative Agent; PROVIDED,
HOWEVER, Mid-Continent Agencies, Inc. shall not be required to execute and
deliver a pledge agreement with respect to the following shares of stock: (i)
all of the shares of Creditsafe Limited, a United Kingdom corporation, (ii) 225
shares of Mid-Continent Agencies of Kentucky, Inc. owned by certain employees of
such Guarantor and (iii) 175 shares of Mid-Continent Agencies of New York, Inc.
owned by certain employees of such Guarantor.
(k) SOLVENCY CERTIFICATE. A Solvency Certificate substantially in the
form of Exhibit J, executed by the chief financial officer of the Company.
(l) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Administrative Agent or any Lender may reasonably request.
5.2 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each
Lender to make any Loan to be made by it and the obligation of the Issuing
Lender to Issue any Letter of Credit is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) NOTICE, APPLICATION. In the case of any Loan, the
Administrative Agent shall have received a Notice of Borrowing, and in the case
of any Issuance of any Letter of Credit, the Issuing Lender and the
Administrative Agent shall have received an L/C Application or L/C Amendment
Application, as required under SECTION 3.2.
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in ARTICLE VI shall be true and correct in all
material respects on and as of the date of such Credit Extension with the same
effect as if made on and as of such date (except to the extent such
representations and warranties expressly
<PAGE> 50
refer to an earlier date, in which case they shall be true and correct as of
such earlier date).
(c) NO EXISTING DEFAULT. No Event of Default or Unmatured
Event of Default shall exist or shall result from such Credit Extension.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by the Company hereunder shall constitute a representation and
warranty by the Company hereunder, as of the date of such notice and as of the
applicable Borrowing Date or Issuance Date, that the conditions in this SECTION
5.2 are satisfied.
I. ARTICLE
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants to the Administrative Agent and
each Lender that:
6.1 CORPORATE EXISTENCE AND POWER. The Company and
each of its Subsidiaries (other than any Dormant Subsidiary):
(a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation;
(b) has the power and authority and all
governmental licenses, authorizations, consents and approvals (i) to own its
assets and to carry on its business and (ii) to execute, deliver and perform its
obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation
and is licensed and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in CLAUSE (b)(i), (c) or (d), to the extent
that the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
6.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The
execution and delivery by the Company of this Agreement and each other Loan
Document to which it is a party, the Borrowings hereunder, the execution and
delivery by each Guarantor of each Loan Document to which it is a party and the
performance by each of the Company and each Guarantor of its obligations under
each Loan Document to which it is a party (i) are within the corporate powers of
the Company and each Guarantor, as applicable, (ii) have been duly authorized by
all necessary corporate action on the part of the Company and each Guarantor
(including any necessary shareholder action) and (iii) do not and will not:
<PAGE> 51
(a) contravene the terms of any of the Organization
Documents of the Company or any Guarantor;
(b) conflict with or result in a breach or contravention
of, or the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company or any Guarantor is a party or any order,
injunction, writ or decree of any Governmental Authority to which the Company,
any Guarantor or any of their properties are subject; or
(c) violate any Requirement of Law.
except, in each case referred to in CLAUSE (b) or (c), to the extent that any
such conflict, breach, contravention or violation would not reasonably be
expected to have a Material Adverse Effect.
6.3 GOVERNMENTAL AUTHORIZATION. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company of
this Agreement or any other Loan Document to which it is a party or any
Guarantor with respect to each Loan Document to which it is a party, except, in
each case, for filings required to perfect Liens in favor of the Administrative
Agent granted under the Loan Documents.
6.4 BINDING EFFECT. This Agreement and each other Loan
Document to which the Company is a party constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability; and with
respect to each Guarantor, each Loan Document to which such Guarantor is a party
constitutes the legal, valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally and by equitable
principles relating to enforceability.
6.5 LITIGATION. Except as specifically disclosed in
Schedule 6.5, there are no actions, suits, proceedings, claims or disputes
pending or, to the best knowledge of the Company, threatened or contemplated, at
law, in equity, in arbitration or before any Governmental Authority, against the
Company or any Subsidiary or any of their respective properties which: purport
to affect or pertain to this Agreement or any other Loan Document, or any of the
transactions contemplated hereby or thereby; or would reasonably be expected to
have a Material Adverse Effect. No injunction, writ, temporary restraining order
or other order of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other Loan Document, or directing that the
<PAGE> 52
transactions provided for herein or therein not be consummated as herein or
therein provided.
6.6 NO DEFAULT. No Event of Default or Unmatured Event of
Default exists or reasonably would be expected to result from the incurring of
any Obligations by the Company. As of the Effective Date, neither the Company
nor any Subsidiary is in default under or with respect to any Contractual
Obligation in any respect which, individually or together with all such
defaults, would reasonably be expected to have a Material Adverse Effect, or
that would, if such default had occurred after the Effective Date, create an
Event of Default under SUBSECTION 9.1(e).
6.7 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and, to the best knowledge of the
Company, nothing has occurred which would cause the loss of such qualification.
The Company and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the
Company, threatened claims, actions or lawsuits, or actions by any Governmental
Authority, with respect to any Plan which has resulted or would reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or would reasonably be expected to result in a
Material Adverse Effect.
(c) No ERISA Event has occurred or is reasonably expected to
occur that would reasonably be expected to have a Material Adverse Effect; no
contribution failure has occurred with respect to a Pension Plan sufficient to
give rise to a Lien under Section 302(f) of ERISA; neither the Company nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability to
the PBGC under Title IV of ERISA with respect to any Pension Plan; neither the
Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to any Multiemployer Plan that would reasonably be
expected to have a Material Adverse Effect; and neither the Company nor any
ERISA Affiliate has engaged in a transaction that could be subject to Section
4069 or 4212(c) of ERISA.
6.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by SECTIONS
7.12 and 8.7. Neither the Company nor any Subsidiary is generally engaged in the
business of
<PAGE> 53
purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.
6.9 TITLE TO PROPERTIES. Each of the Company and each Subsidiary
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all real property necessary or used in the ordinary conduct of its
businesses, except for such defects in title as would not, individually or in
the aggregate, have a Material Adverse Effect. Each of the Company and each
Subsidiary has good title to all their other respective material properties and
assets (except for those assets disposed of not in violation of this Agreement
and the other Loan Documents). As of the Effective Date, the property of the
Company and its Subsidiaries is subject to no Liens, other than Permitted Liens.
6.10 TAXES. The Company and its Subsidiaries have filed all
Federal and State income tax returns and all other material tax returns and
reports required to be filed, and have paid all Federal and State income taxes
and all other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP. There is no written, and, to the best of the Company's knowledge,
there is no oral, proposed tax assessment against the Company or any Subsidiary
that would, if made, have a Material Adverse Effect.
6.11 FINANCIAL CONDITION. (a) The pro forma combined financial
statements of the Company and the Founding Companies set forth in the
Prospectus:
(i) were prepared in accordance with the requirements of Article 11
of Regulation S-X promulgated by the SEC;
(ii) present fairly in all material respects the pro forma financial
condition of the Company and the Founding Companies as of the dates thereof and
the results of operations for the periods covered thereby; and
(iii) except as specifically disclosed in SCHEDULE 6.11, show all
material indebtedness and other liabilities, direct or contingent, of the
Company and the Founding Companies as of the dates thereof, including
liabilities for taxes, material commitments and Contingent Obligations.
(b) The audited financial statements of the Company and each of
the Founding Companies set forth in the Prospectus:
(i) were prepared in accordance with GAAP;
(ii) present fairly in all material respects the financial condition
of the Company and the applicable Founding Company and its Subsidiaries as of
the dates thereof and the results of operations for the periods covered thereby;
and
<PAGE> 54
(iii) except as specifically disclosed in SCHEDULE 6.11, show all
material indebtedness and other liabilities, direct or contingent, of the
Company and the applicable Founding Company and its Subsidiaries as of the dates
thereof, including liabilities for taxes, material commitments and Contingent
Obligations.
(c) Since December 31, 1997 there has been no Material Adverse
Effect.
6.12 REGULATED ENTITIES. None of the Company or any Subsidiary is
an "investment company" within the meaning of the Investment Company Act of
1940. None of the Company or any Subsidiary is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
6.13 NO BURDENSOME RESTRICTIONS. Neither the Company nor any
Subsidiary is a party to or bound by any Contractual Obligation or subject to
any restriction in any Organization Document or any Requirement of Law which
would reasonably be expected to have a Material Adverse Effect.
6.14 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The
Company and its Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights and
other similar rights that are reasonably necessary for the operation of their
respective businesses, without conflict with the rights of any other Person,
except to the extent described on SCHEDULE 6.5. To the best knowledge of the
Company, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by the Company or any Subsidiary infringes upon any valid rights held
by any other Person. Except as specifically disclosed in SCHEDULE 6.5, no claim
or litigation regarding any of the foregoing is pending or, to the knowledge of
the Company, threatened against the Company or any Subsidiary, and no patent,
invention, device, application, principle or any statute, law, rule, regulation,
standard or code, relating in each case to intellectual property, is, to the
knowledge of the Company, pending or proposed, which, in either case, would
reasonably be expected to have a Material Adverse Effect.
6.15 SUBSIDIARIES. As of the Effective Date, the Company has no
Subsidiaries other than those specifically disclosed in SCHEDULE 6.15.
6.16 INSURANCE. Except as specifically disclosed in SCHEDULE
6.16, the properties of the Company and its Subsidiaries are insured with
financially sound and reputable insurance companies not Affiliates of the
Company, in such amounts, with such deductibles and covering such risks as are
customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Company or such Subsidiary operates.
<PAGE> 55
6.17 SOLVENCY, ETC. On the Effective Date (or, in the case of any
Person that becomes a Guarantor after the Effective Date, on the date such
Person becomes a Guarantor), and immediately prior to and after giving effect to
each Credit Extension and the use of the proceeds thereof, each of the Company
and each Guarantor will not have an unreasonably small capital (meaning that for
the period from the date of determination through March 17, 2001, each of the
Company and each Guarantor, after consummation of the transactions contemplated
by this Agreement, is a going concern and has sufficient capital to ensure that
it will be able to pay its debts and liabilities as they mature and continue to
be a going concern in the business in which such entities are engaged and
proposed to be engaged for such period), each of the Company's and each
Guarantor's assets will exceed its liabilities, each of the Company and each
Guarantor will be solvent, will be able to pay its Stated Liabilities as they
mature (meaning that each of the Company and such Guarantor will have sufficient
assets and cash flow to pay their respective Stated Liabilities as those
liabilities mature or otherwise become payable in the normal course of business)
and both the Fair Value and Present Fair Saleable Value of the assets of the
Company and each Guarantor exceeds the Stated Liabilities, respectively, of each
of the Company and each Guarantor.
6.18 REAL PROPERTY. (a) Set forth on SCHEDULE 6.18 is a complete
and accurate list, as of the date of this Agreement, of the address of any real
property owned by the Company or any Subsidiary.
6.19 SWAP OBLIGATIONS. Neither the Company nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap Contracts,
other than Permitted Swap Obligations incurred by the Company. The Company has
undertaken its own independent assessment of its consolidated assets,
liabilities and commitments and has considered appropriate means of mitigating
and managing risks associated with such matters and has not relied on any swap
counterparty or any Affiliate of any swap counterparty in determining whether to
enter into any Swap Contract.
6.20 ENVIRONMENTAL WARRANTIES. Except as set forth in SCHEDULE
6.20:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Company or any of its Subsidiaries are in
compliance with all Environmental Laws, except for such non-compliance as would
not reasonably be expected to result in a Material Adverse Effect;
(b) there are no pending or, to the knowledge of the Company,
threatened Environmental Claims, except for such Environmental Claims that are
not reasonably likely, either singly or in the aggregate, to result in a
Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or
under any property now or, to the best of the Company's knowledge, previously
owned or leased by the Company or any of its Subsidiaries that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material Adverse
Effect;
<PAGE> 56
(c) the Company and its Subsidiaries have been issued and are in
compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or desirable for
their businesses, except to the extent that the failure to have or comply with
such permits, certificates, approvals, licenses and other authorizations
relating to environmental matters would not be reasonably likely to have a
Material Adverse Effect;
(d) no property now or, to the best of the Company's knowledge,
previously owned or leased by the Company or any of its Subsidiaries is listed
or proposed for listing (with respect to owned property only) on the National
Priorities List pursuant to CERCLA, or, to the best of the Company's knowledge,
is on the Comprehensive Environmental Response Compensation Liability
Information List or on any similar state list of sites requiring investigation
or clean-up, except, in each case, for any such listing that, singly or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect;
and
(e) to the best of the Company's knowledge, neither the Company
nor any Subsidiary of the Company has directly transported or directly arranged
for the transportation of any Hazardous Material to any location which is listed
or proposed for listing on the National Priorities List pursuant to CERCLA, or
which is the subject of federal, state or local enforcement actions or other
investigations which reasonably would be expected to lead to Environmental
Claims against the Company or such Subsidiary except, in each case, to the
extent that the foregoing would not reasonably be expected to have a Material
Adverse Effect.
6.21 FULL DISCLOSURE. None of the representations or warranties
made by the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made and none of the written
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents, considering each of the foregoing taken as a whole and in the context
in which it was made and together with all other representations, warranties and
written statements taken as a whole theretofore furnished by the Company and its
Subsidiaries to the Administrative Agent and the Lenders in connection with the
Loan Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make such
representation, warranty or written statement, in light of the circumstances
under which it is made, not misleading as of the time when made or delivered;
PROVIDED that the Company's representation and warranty as to any forecast,
projection or other statement regarding future performance, future financial
results or other future development is limited to the fact that such forecast,
projection or statement was prepared in good faith on the basis of information
and assumptions that the Company believed to be reasonable as of the date such
material was provided (IT BEING UNDERSTOOD that projections are subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control, and that no assurance can be given that the projections will
be realized).
<PAGE> 57
6.22 YEAR 2000 PROBLEM. The Company and its Subsidiaries have
reviewed the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by the Company and its Subsidiaries may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999). Based on such review and program, the
Company reasonably believes that the "Years 2000 Problem" will not have a
Material Adverse Effect.
I. ARTICLE
AFFIRMATIVE COVENANTS
---------------------
So long as any Lender shall have any Commitment hereunder, or any Loan or other
Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall
remain outstanding, unless the Required Lenders waive compliance in writing:
7.1 FINANCIAL STATEMENTS. The Company shall deliver to the
Administrative Agent, in form and detail satisfactory to the Required Lenders:
(a) As soon as available, but not later than 90 days after
the end of each fiscal year, a copy of (i) the audited consolidated balance
sheet of the Company and its Subsidiaries as at the end of such year and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of a
nationally-recognized independent public accounting firm (the "INDEPENDENT
AUDITOR"), which report (x) shall state that such consolidated financial
statements present fairly in all material respects the consolidated financial
position of the Company and its Subsidiaries for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and (y)
shall not contain a "going concern" or similar qualification or be qualified or
limited because of a restricted or limited examination by the Independent
Auditor of any material portion of the Company's or any Subsidiary's records and
(ii) the unaudited consolidating balance sheet of the Company and its
Subsidiaries as at the end of such year and the related consolidating statements
of income or operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year.
(b) Promptly when available, and in any event within 45
days after the end of each fiscal quarter (other than the last fiscal quarter of
each fiscal year), a copy of (i) unaudited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of the end of such
quarter, and the related consolidated statement of shareholders' equity and
consolidated and consolidating statements of income and cash flows for such
quarter and for the period beginning with the first day of the applicable fiscal
year and ending on the last day of such quarter, including a comparison with the
<PAGE> 58
corresponding quarter and period of the previous fiscal year and a comparison
with the budget for such quarter and for such period of the current fiscal year,
together with a certificate of the chief executive officer or the chief
financial officer of the Company that each such statements fairly present in all
material respects the financial condition and results of operations of the
Company and its Subsidiaries (subject to normal year-end audit adjustments).
(c) Not later than 45 days after the first day of each
fiscal year, a copy of the projections of the Company of the consolidated
operating budget and cash flow budget of the Company and its Subsidiaries for
such fiscal year, such projections to be accompanied by a certificate of the
chief financial officer of the Company to the effect that (i) such projections
were prepared by the Company in good faith, (ii) the Company has a reasonable
basis for the assumptions contained in such projections and (iii) such
projections have been prepared according to such assumptions.
7.2 CERTIFICATES: OTHER INFORMATION. The Company shall furnish
to the Administrative Agent:
(a) concurrently with the delivery of the financial
statements referred to in SUBSECTION 7.1(a)(i), a certificate of the
Independent Auditor stating that in making the examination necessary therefor no
knowledge was obtained of any Event of Default or Unmatured Event of Default,
except as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in SUBSECTION 7.1(a) and each set of quarterly statements
referred to in SUBSECTION 7.1(b), a Compliance Certificate executed by a
Responsible Officer;
(c) promptly, copies of all financial statements and
reports that the Company sends to its shareholders, and copies of all financial
statements and regular, periodic or special reports (including Forms 10K, 10Q
and 8K) that the Company or any Subsidiary may make to, or file with, the SEC;
(d) promptly from time to time, any notices (including
without limitation notices of default or acceleration thereunder) received from
any holder or trustee of, under or with respect to any Subordinated Debt; and
(e) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Administrative Agent, at the request of any Lender, may from time to time
reasonably request.
7.3 NOTICES. Promptly, and in any event within three Business
Days, upon a Responsible Officer obtaining knowledge thereof (or, in the case of
CLAUSE (c)(ii) below, not less than ten days before the occurrence of such
event), the Company shall notify the Administrative Agent (and the
Administrative Agent will promptly distribute such notice to the Lenders) of:
<PAGE> 59
(a) the occurrence of any Event of Default or Unmatured Event
of Default;
(b) any matter that has resulted or would reasonably be expected
to result in a Material Adverse Effect, including, if applicable, any breach or
non-performance of, or any default under, a Contractual Obligation of the
Company or any Subsidiary, any dispute, litigation, investigation, proceeding or
suspension between the Company or any Subsidiary and any Governmental Authority
or the commencement of, or any material development in, any litigation or
proceeding affecting the Company or any Subsidiary;
(c) the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (together with a copy of any notice with respect
to such event that is filed with a Governmental Authority or received by the
Company or any ERISA Affiliate with respect thereto):
(i) an ERISA Event;
b(ii) a contribution failure with respect to a Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA;
c(iii) a material increase in Unfunded Pension Liabilities;
d(iv) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Company or any ERISA
Affiliate; or
e(v) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liabilities;
(d) any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries; and
(e) the incurrence of any indebtedness or the occurrence of any
other event which will cause the Leverage Ratio to exceed 1.5 to 1.
Each notice under CLAUSE(a), (b) or (c) of this Section shall be accompanied by
a written statement by a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action the Company or any
affected Subsidiary proposes to take with respect thereto and at what time. Each
notice under SUBSECTION 7.3(a) shall describe with particularity any and all
clauses or provisions of this Agreement or any other Loan Document that have
been breached or violated.
7.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall, and
shall cause each Subsidiary (other than a Dormant Subsidiary) to:
<PAGE> 60
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation except a Subsidiary need not be in compliance with the foregoing
to the extent such Subsidiary is sold pursuant to SECTION 8.2 or merged or
consolidated into another Person pursuant to SECTION 8.3, or dissolved, if the
Company, in its reasonable business judgment, determines that such Subsidiary no
longer is necessary to the continued operation of the business;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises, in each
case which are material and which are necessary or desirable in the normal
conduct of its business, except in connection with transactions permitted by
SECTION 8.3 and dispositions of assets permitted by SECTION 8.2; and
(c) preserve or renew all of its registered patents, copyrights,
trademarks, trade names and service marks, the non-preservation of which would
reasonably be expected to have a Material Adverse Effect.
7.5 MAINTENANCE OF PROPERTY. The Company shall, and shall cause each
Subsidiary (other than a Dormant Subsidiary) to, maintain and preserve all
property material to the normal conduct of its business in good working order
and condition, ordinary wear and tear excepted, other than obsolete, worn out or
surplus equipment; PROVIDED, HOWEVER, that nothing in this SECTION 7.5 shall
prevent the Company or any of its Subsidiaries from discontinuing the operation
and the maintenance of any of its properties if such discontinuance is, in the
opinion of the Board of Directors or senior management of the Company, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Lenders.
7.6 INSURANCE. The Company shall, and shall cause each Subsidiary
(other than a Dormant Subsidiary) to, maintain with financially sound and
reputable independent insurers, insurance with respect to its properties and
business against loss or damage of the kinds customarily insured against by
Persons engaged in the same or similar business, of such types and in such
amounts as are customarily carried under similar circumstances by such other
Persons.
7.7 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable all of
its material obligations and liabilities, including:
(a) all material tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets unless the same are (i)
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by the Company or such Subsidiary
or (ii) subject to a lawful extension; and
<PAGE> 61
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its property.
7.8 COMPLIANCE WITH LAWS. The Company shall, and shall cause each
Subsidiary to, comply in all material respects with all material Requirements of
Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company
shall, and shall cause each Subsidiary to, maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Administrative Agent or any Lender to visit
and inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and to make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, executive officers, and independent
public accountants and to inspect any of their inventory and equipment, to
perform (at their expense prior to the occurrence of a Collateralization Date)
appraisals of any of their equipment, and to inspect, audit, check and make
copies and/or extracts from the books, records, computer data and records,
computer programs, journals, orders, receipts, correspondence and other data
relating to inventory, accounts receivable, contract rights, general
intangibles, equipment and any other collateral, or relating to any other
transactions between the parties hereto; at such reasonable times during normal
business hours and as often as may be reasonably desired, upon reasonable
advance notice to the Company; PROVIDED, HOWEVER, that when an Event of Default
exists, the Administrative Agent or any Lender may do any of the foregoing
without advance notice. After the occurrence and during the continuance of any
Event of Default, any such inspection shall be at the Company's expense. No such
inspection shall materially disrupt the regular operations of the Company or any
Subsidiary. All information obtained by any representative of the Administrative
Agent or any Lender during any such inspection shall be subject to the
provisions of SECTION 11.9.
7.11 ENVIRONMENTAL COVENANT. The Company will, and will cause
each of its Subsidiaries to,
<PAGE> 62
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits, approvals,
certificates, licenses and other authorizations relating to environmental
matters in effect and remain in material compliance therewith, and handle all
Hazardous Materials in material compliance with all applicable Environmental
Laws;
(b) promptly notify the Administrative Agent and provide copies of all
written Environmental Claims, and shall act in a diligent and prudent fashion to
address such Environmental Claims, including Environmental Claims that allege
that the Company or any of its Subsidiaries is not in compliance with
Environmental Laws; and
(c) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to evidence
compliance with this SECTION 7.12.
7.12 USE OF PROCEEDS. The Company shall use the proceeds of the
Loans and the Letters of Credit for working capital, Acquisitions permitted
hereunder and other general corporate purposes not in contravention of any
Requirement of Law or of any Loan Document.
7.13 FURTHER ASSURANCES.
(a) The Company shall cause each Subsidiary (including any Subsidiary
created or acquired after the date hereof) to execute and deliver a counterpart
of the Guaranty; PROVIDED, HOWEVER, Creditsafe Limited, a United Kingdom
corporation shall not be required to execute and deliver a counterpart of the
Guaranty.
(b) The Company shall, and shall cause each Guarantor to, execute and
deliver such pledge agreements, stock certificates, stock powers and other
documents as are necessary to ensure that at all times all of the stock of each
Subsidiary is pledged to the Administrative Agent to secure the Obligations of
the Company hereunder or of the applicable Subsidiary under the Guaranty;
PROVIDED, HOWEVER, that (i) unless the Required Lenders request the pledge of
65% of the stock of Creditsafe Limited, a United Kingdom corporation,
Mid-Continent Agencies, Inc. shall not be required to pledge any of the shares
of stock of Creditsafe Limited and (ii) Mid-Continent Agencies, Inc. shall not
be required to pledge any of the following shares of stock: (x) 225 shares of
Mid-Continent Agencies of Kentucky, Inc. owned by certain employees of such
Guarantor and (y) 175 shares of Mid-Continent Agencies of New York, Inc. owned
by certain employees of such Guarantor, until such shares are repurchased by the
applicable Guarantor at which time Mid-Continent Agencies, Inc. shall execute
and deliver such pledge agreement and stock power with respect to such
repurchased shares and any other documents reasonably requested by the
Administrative Agent.
(c) Prior to a Collateralization Date, the Company shall, and shall
cause each Guarantor to, execute and deliver such security agreements, financing
statements and other documents as are necessary, or as the Administrative Agent
or the Required
<PAGE> 63
Lenders may reasonably request from time to time, to ensure that, if a
Collateralization Date were to occur, the Administrative Agent would have in its
possession all documents necessary to create and perfect a security interest on
substantially all assets of the Company and the Guarantors without any further
action by the Company or any Guarantor (other than the delivery to the
Administrative Agent of items with respect to which perfection is customarily
obtained by possession).
(d) Upon the occurrence of a Collateralization Date, the Company
shall, and shall cause each Guarantor to, take such actions as are necessary
(including the delivery to the Administrative Agent of items with respect to
which perfection is customarily obtained by possession), or as the
Administrative Agent or the Required Lenders may reasonably request, to perfect
and maintain the validity, effectiveness, perfection and priority of the
security interests granted to the Administrative Agent pursuant to the
Collateral Documents and to preserve, protect and confirm the rights granted to
the Administrative Agent and the Lenders pursuant to the Guaranty and the
Collateral Documents.
(e) Notwithstanding anything in this Agreement to the contrary, the
Administrative Agent and the Lenders agree to release their security interest on
the assets of the Company and the Guarantors granted pursuant to the Security
Agreement (including the delivery of termination statements and the return of
items with respect to which perfection is customarily obtained by possession) if
(i) the Company's Leverage Ratio is less than or equal to 1.50 to 1 for two
consecutive fiscal quarters following the occurrence of a Collateralization Date
and (ii) no Event of Default or Unmatured Event of Default has been in existence
during such period; PROVIDED, HOWEVER, if the Administrative Agent and the
Lenders release their security interest on the assets of the Company and the
Guarantors after the occurrence of a Collateralization Date, the Company and
each Guarantor agree to execute and deliver to the Administrative Agent the
documents described in CLAUSE (c) above to ensure that if a Collateralization
Date were to reoccur, the Administrative Agent would have in its possession all
documents necessary to create and perfect a security interest on substantially
all assets of the Company and the Guarantors without any further action by the
Company or any Guarantor, other than the delivery to the Administrative Agent of
items with respect to which perfection is customarily obtained by possession (it
being understood that all such documents delivered hereunder will be held in
escrow by the Administrative Agent until the reocurrence of a Collateralization
Date).
I. ARTICLE
NEGATIVE COVENANTS
------------------
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Lenders waive compliance in
writing:
<PAGE> 64
8.1 LIMITATION ON LIENS. The Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer
to exist any Lien upon or with respect to any part of its property, whether now
owned or hereafter acquired, other than the following ("PERMITTED LIENS"):
(a) any Lien existing on property of the Company or any Subsidiary on
the Effective Date and set forth on SCHEDULE 8.1 securing Indebtedness
outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by SECTION 7.7, PROVIDED that no notice of
lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or which are being contested in good faith and by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on property of the Company or any Subsidiary securing the
non-delinquent performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety bonds (excluding appeal bonds and
other bonds posted in connection with court proceedings or judgments) and other
non-delinquent obligations of a like nature, in each case, incurred in the
ordinary course of business; PROVIDED that all such Liens in the aggregate would
not (even if enforced) cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment Liens and
Liens securing contingent obligations on appeal bonds and other bonds posted in
connection with court proceedings or judgments, provided that the enforcement of
such Liens is effectively stayed and all such Liens (excluding such Liens which
arise from obligations an independent third party insurance company has agreed
in writing to pay) in the aggregate at any time outstanding for the Company and
its Subsidiaries do not exceed $1,000,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of
<PAGE> 65
the property subject thereto or interfere with the ordinary conduct of the
businesses of the Company and its Subsidiaries taken as a whole;
(i) purchase money security interests on any property acquired
by the Company or any Subsidiary in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property, PROVIDED that any such Lien attaches to
such property concurrently with or within 90 days after the acquisition thereof,
such Lien attaches solely to the property so acquired in such transaction, the
principal amount of the Indebtedness secured thereby does not exceed 100% of the
cost of such property and the principal amount of the Indebtedness secured by
all such purchase money security interests shall not at any time exceed
$2,500,000;
(j) Liens securing obligations in respect of capital leases on
assets subject to such leases, PROVIDED that the aggregate amount of
Indebtedness arising under such capital leases shall not at any time exceed
$5,000,000;
(k) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution, PROVIDED that such deposit account is not a dedicated
cash collateral account and is not subject to restrictions against access by the
Company in excess of those set forth by regulations promulgated by the FRB and
such deposit account is not intended by the Company or any Subsidiary to provide
collateral to the depository institution;
(l) Liens (i) in respect of property acquired by the Company or a
Subsidiary after the Effective Date, existing on such property at the time of
acquisition thereof (and not created in anticipation thereof), provided that no
such Lien shall extend to or cover any other property of the Company or such
Subsidiary, as the case may be, and (ii) securing Indebtedness incurred by the
Company or any Subsidiary in connection with the issuance of industrial revenue
bonds; PROVIDED that the aggregate amount of all Indebtedness secured by Liens
described in this CLAUSE (l) shall not at any time exceed $2,500,000;
(m) extensions, renewals and replacements of Liens referred to in
CLAUSES (a) through (l) above; PROVIDED that any such extension, renewal or
replacement Lien is limited to the property or assets covered by the Lien
extended, renewed or replaced and does not secure any Indebtedness in addition
to that secured immediately prior to such extension, renewal or replacement; and
(n) Liens securing other Indebtedness of the Company and its
Subsidiaries not expressly permitted by CLAUSES (a) through (m) above; PROVIDED
that the aggregate amount of all Indebtedness secured by Liens permitted
pursuant to this CLAUSE (n) does not exceed $500,000 in the aggregate.
<PAGE> 66
8.2 DISPOSITION OF ASSETS. The Company shall not, and shall not permit any
Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or
otherwise dispose of (whether in one or a series of transactions) any property
(including accounts and notes receivable, with or without recourse) or enter
into any agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions not otherwise permitted hereunder (including
the disposition of all of the capital stock of any operating Subsidiary and
including a disposition pursuant to a sale and lease-back transaction) which are
made for fair market value if the fair market value of all assets so disposed of
by the Company and its Subsidiaries under this CLAUSE (c) does not exceed
$1,000,000 in any fiscal year; PROVIDED that (i) at the time of any disposition,
no Event of Default or Unmatured Event of Default shall exist or will result
from such disposition and (ii) at least 90% of the consideration received by the
Company or such Subsidiary from such disposition is in cash or Cash Equivalent
Investments; and
(d) mergers expressly permitted by SECTION 8.3 or transfers by
any Wholly-Owned Subsidiary of the Company of its assets upon its liquidation or
dissolution to the Company or any of its Wholly-Owned Subsidiaries or by the
Company to any of its Wholly-Owned Subsidiaries or other transfers between the
Company and any Wholly-Owned Subsidiary and between one or more Wholly-Owned
Subsidiaries, whether or not in connection with any liquidation or dissolution.
8.3 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not
permit any Subsidiary to, merge or consolidate with or into any other Person,
except that (a) any Subsidiary may merge with the Company (PROVIDED that the
Company shall be the continuing or surviving corporation) or with any one or
more Wholly-Owned Subsidiaries (PROVIDED that a Wholly-Owned Subsidiary shall be
the continuing or surviving corporation); and (b) the Company or any Subsidiary
may merge or consolidate in connection with any Acquisition permitted by
SUBSECTION 8.4(h).
8.4 LOANS AND INVESTMENTS. The Company shall not, and shall not
permit any Subsidiary to, purchase or acquire, or make any commitment to
purchase or acquire, any capital stock, equity interest or other obligations or
securities of, or any interest in, any other Person, or make or commit to make
any Acquisition, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any other Person,
except for:
<PAGE> 67
(a) investments in Cash Equivalent Investments;
(b) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) investments by the Company in its Wholly-Owned Subsidiaries
or by any Subsidiary in any Wholly-Owned Subsidiary, in the form of
contributions to capital or loans or advances; PROVIDED that, immediately before
and after giving effect to such investment, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing;
(d) loans or advances made by any Subsidiary to the Company or
by the Company or any Subsidiary to any Wholly-Owned Subsidiary;
(e) loans and advances to employees in the ordinary course of
business (such as travel advances or relocation expenses) in an aggregate amount
not at any time exceeding $250,000;
(f) investments by the Company constituting Permitted Swap
Obligations or payments or advances under Swap Contracts relating to Permitted
Swap Obligations;
(g) investments existing on the Effective Date and set forth
on SCHEDULE 8.4;
(h) investments incurred in order to consummate Acquisitions
(except in the case of the acquisition of the Founding Companies), PROVIDED that
(i) no Unmatured Event of Default or Event of Default exists or will result
therefrom, (ii) the acquired Person is engaged in, or the acquired assets will
be used in, a line of business engaged in by the Company and its Subsidiaries on
the date of this agreement or a business or activity that is substantially
similar, related or incidental thereto or which constitutes a reasonable
extension of product lines of the Company in existence on the date of this
Agreement, (iii) after giving effect to such Acquisition, the Company would have
been in compliance on a PRO FORMA basis, after giving effect to such Acquisition
(as if such Acquisition had occurred, and any related Indebtedness had been
assumed or incurred, on the first day of the most recently-ended Computation
Period, but without adjustment for expected cost savings and other synergies)
with SECTIONS 8.11, 8.12, 8.13, 8.15 and 8.16 as of such most recently-ended
Computation Period, (iv) the board of directors of any entity proposed to be
acquired has not announced that it will oppose such Acquisition and has not
commenced any litigation which alleges that such Acquisition violates, or will
violate, any Requirement of Law or any Contractual Obligation of such entity,
(v) the cash portion of the consideration paid by the Company and/or any
Subsidiary for such Acquisition will not exceed the product of 6 multiplied by
the EBITDA of the Person or business being acquired in such proposed
Acquisition, and (vi) if the cash portion of the consideration paid by the
Company and/or any Subsidiary for such Acquisition exceeds $10,000,000, (A) the
Company shall have delivered to the
<PAGE> 68
Administrative Agent a certificate setting forth calculations demonstrating
compliance with the requirements set forth in CLAUSE (iii) above and (B) the
Required Lenders shall have approved such Acquisition in writing;
(i) loans and advances to employees to permit the exercise of stock
options in an amount not exceeding $250,000 at any time; PROVIDED that,
immediately before and after giving effect to each such loan or advance, no
Event of Default or Unmatured Event of Default shall have occurred and be
continuing; and
(j) other investments in an aggregate amount not exceeding $1,000,000
during the term of this Agreement (with all such investments valued at the time
of investment at the cash amount thereof, if in cash, the fair market value
thereof as determined by the board of directors of the Company, if in property,
and at the maximum amount thereof if in Contingent Obligations).
8.5 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise
become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
Guaranty;
(b) Subordinated Debt;
(c) Indebtedness consisting of Contingent Obligations permitted
pursuant to SECTION 8.8;
(d) Indebtedness of Subsidiaries to the Company or Wholly-Owned
Subsidiaries and of the Company to any Subsidiary;
(e) Indebtedness secured by Liens permitted by SUBSECTIONS
8.1(i), (j) and (l);
(f) Indebtedness incurred in connection with leases permitted
pursuant to SECTION 8.10;
(g) Indebtedness of the Company or any Subsidiary of the
Company in connection with guaranties resulting from endorsement of negotiable
instruments in the ordinary course of business;
(h) surety bonds and appeal bonds required in the ordinary
course of business or in connection with the enforcement of rights or claims of
the Company or in connection with judgments that do not result in an Unmatured
Event of Default or an Event of Default;
<PAGE> 69
(i) extensions, renewals and replacements of Indebtedness referred to
in clauses (a) through (h) above; PROVIDED that no such Indebtedness shall be
refinanced, renewed or replaced for a principal amount in excess of the then
existing commitment amount of the Indebtedness which is the subject of such
extension, renewal or replacement, plus the amount of any prepayment penalties
or other fees or expenses incurred in connection with the consummation of such
transaction; and
(j) other Indebtedness in an aggregate amount not at any time
exceeding $1,000,000.
8.6 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
not permit any Subsidiary to, enter into any transaction with any Affiliate of
the Company (other than a Subsidiary), except upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company.
8.7 USE OF PROCEEDS. The Company shall not, and shall not permit any
Subsidiary to, use any portion of the proceeds of any Loan or any Letter of
Credit, directly or indirectly, to purchase or carry Margin Stock, to repay or
otherwise refinance indebtedness of the Company or others incurred to purchase
or carry Margin Stock, to extend credit for the purpose of purchasing or
carrying any Margin Stock or acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
8.8 CONTINGENT OBLIGATIONS. The Company shall not, and shall not
permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligation except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Permitted Swap Obligations incurred by the Company;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Effective Date and listed in SCHEDULE 8.8;
(d) Guaranty Obligations by the Company relating to Indebtedness
of Wholly-Owned Subsidiaries which is permitted hereunder; and
(e) Contingent Obligations arising under the Loan Documents.
8.9 CHANGE IN BUSINESS. The Company shall not, and shall not permit
any Subsidiary to, engage in any business other than those lines of business
carried on by the Company and its Subsidiaries on the date hereof, any business
or activities that are substantially similar, related or incidental thereto and
reasonable extensions of product lines of the Company in existence on the date
hereof.
<PAGE> 70
8.10 LEASE OBLIGATIONS. The Company shall not, and shall not permit
any Subsidiary to, create or suffer to exist any obligations for the payment of
rent for any property under lease or agreement to lease, except for:
(a) leases of the Company and its Subsidiaries in existence on
the Effective Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Company or any
Subsidiary after the Effective Date in the ordinary course of business; and
(c) capital leases entered into by the Company to finance the
acquisition of equipment; PROVIDED that no Event of Default or Unmatured Event
of Default exists or will result therefrom.
8.11 MAXIMUM LEVERAGE RATIO. The Company will not at any time permit
the Leverage Ratio to be greater than 2.0 to 1.
8.12 MINIMUM TANGIBLE NET WORTH. The Company will not at any time
permit Tangible Net Worth to be less than the sum of (a) $18,458,000 PLUS (b)
60% of the total Consolidated Net Income for each fiscal quarter ending after
the Effective Date (PROVIDED that if Consolidated Net Income is less than zero
for any fiscal quarter, for purposes of this SECTION 8.12 Consolidated Net
Income for such fiscal quarter will be deemed to be zero) PLUS (c) 100% of the
net proceeds of any equity contributed to or issued by the Company or any of its
Subsidiaries (on a consolidated basis) after the Effective Date.
8.13 MINIMUM FIXED CHARGE COVERAGE RATIO. The Company shall not permit
the Fixed Charge Coverage Ratio as of the end of any fiscal quarter to be less
than (i) 2.5 to 1 as of the end of the fiscal quarters ending March 31, 1998,
June 30, 1998, September 30, 1998 and December 31, 1998 and (ii) 2.75 to 1 as of
the end of any fiscal quarter ending thereafter.
8.14 MINIMUM CONSOLIDATED NET INCOME. The Company shall not permit
Consolidated Net Income to be less than zero for any fiscal quarter.
8.15 CAPITAL EXPENDITURES. The Company will not permit the aggregate
amount of all Capital Expenditures made by the Company and its Subsidiaries in
any fiscal year to exceed the lesser of (i) the product of 1.5 times the amount
of pro forma consolidated depreciation and amortization (including goodwill) of
the Company and its Subsidiaries for the prior fiscal year (assuming any
Subsidiary acquired during such prior fiscal year had been a Subsidiary for such
entire fiscal year) or (ii) 50% of the Company's EBITDA for the prior fiscal
year.
8.16 MAXIMUM CUSTOMER CONCENTRATION. The Company shall not permit any
Customer (as defined below) of the Company and/or its Subsidiaries to be
responsible for more than 20% of the aggregate revenues of the Company and its
Subsidiaries in any
<PAGE> 71
fiscal quarter. For purposes of the foregoing, "Customer" means any Person which
is a customer of the Company or any Subsidiary and all Affiliates of such
Person.
8.17 RESTRICTED PAYMENTS. The Company shall not, and shall not permit any
Subsidiary to, (i) declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock, or purchase, redeem or otherwise
acquire for value any shares of its capital stock or any warrants, rights or
options to acquire such shares, now or hereafter outstanding (any of the
foregoing, a "Distribution"), or (ii) make any redemption, prepayment,
defeasance, purchase or repurchase of any Subordinated Debt except that:
(a) any Subsidiary may declare and pay dividends to the Company
or a Wholly-Owned Subsidiary;
(b) the Company may declare and make dividend payments or other
distributions payable solely in stock of the Company including the issuance of
common stock of the Company upon the exercise of stock options by employees of
the Company; and
(c) Mid-Continent Agencies of Kentucky, Inc. and Mid-Continent
Agencies of New York, Inc. may repurchase stock issued to certain employees
pursuant to the terms of certain employment contracts existing on the Effective
Date in an aggregate amount not to exceed $250,000; PROVIDED, HOWEVER, if any
Event of Default or Unmatured Event of Default exists or would result from such
purchase, any consideration paid by the applicable Subsidiary to repurchase
stock pursuant to this CLAUSE (c) must be in the form of a promissory note to
the extent permitted under the applicable employment contract.
8.18 ERISA. The Company shall not, and shall not permit any of its
ERISA Affiliates to: engage in a prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
would reasonably be expected to result in liability of the Company in an
aggregate amount in excess of $1,000,000 at any time; or engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
8.19 LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS. The Company shall
not, and shall not permit any Subsidiary to, enter into any arrangement with any
Person providing for the leasing by the Company or any Subsidiary of any real or
personal property, which property is or has been sold or transferred by the
Company or any Subsidiary to such Person in contemplation of taking back a lease
thereof.
8.20 INCONSISTENT AGREEMENTS. The Company will not, and will not
permit any Subsidiary to, enter into any agreement containing any provision
which would be violated or breached by any borrowing by the Company hereunder or
by the performance by the Company or any Subsidiary of their respective
obligations hereunder or under any other Loan Document.
<PAGE> 72
8.21 WORKING CAPITAL LOANS. The Company will not at any time permit,
on a consolidated basis, more than $6,000,000 of the aggregate Borrowings
outstanding to be used for working capital and/or general corporate purposes, as
opposed to Acquisitions (it being understood that the payoff of any working
capital and/or general corporate purpose loan facility by the Company or any of
its Subsidiaries in connection with an Acquisition permitted under this
Agreement shall not be included in the aggregate Borrowings outstanding used for
working capital and/or general corporate purposes calculated under this SECTION
8.21).
I. ARTICLE
EVENTS OF DEFAULT
-----------------
9.1 EVENT OF DEFAULT. Any of the following shall constitute an
"EVENT OF DEFAULT":
(a) NON-PAYMENT. The Company fails to pay, when and as required
to be paid herein, any amount of principal of any Loan or of any L/C Obligation,
or, within three Business Days after the same becomes due, any amount of
interest or any fees or other amounts payable hereunder or under any other Loan
Document.
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by the Company or any Subsidiary made or deemed made herein or in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary or any Responsible Officer
furnished at any time under this Agreement or any other Loan Document, is
incorrect in any material respect on or as of the date made or deemed made.
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe
any term, covenant or agreement contained in any of SECTION 7.3 or ARTICLE VIII.
(d) OTHER DEFAULTS. The Company or any Guarantor party thereto
fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue unremedied
for a period of 30 days after the earlier of the date upon which a Responsible
Officer knew or reasonably should have known of such failure or the date upon
which written notice thereof is given to the Company by the Administrative Agent
or any Lender.
(e) CROSS-DEFAULT. The Company or any Guarantor fails to make
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $1,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise but subject to any
applicable grace period) or fails to perform or observe any other condition or
covenant, or any other event shall occur or
<PAGE> 73
condition shall exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause, such
Indebtedness to be declared to be due and payable prior to its stated maturity,
or such Contingent Obligation to become payable, or cash collateral in respect
thereof to be demanded.
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any
Subsidiary (other than a Dormant Subsidiary): ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due; voluntarily ceases to conduct its business in the ordinary
course; commences any Insolvency Proceeding with respect to itself; or takes any
action to effectuate or authorize any of the foregoing.
(g) INVOLUNTARY PROCEEDINGS. Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary (other
than a Dormant Subsidiary), or any writ, judgment, warrant of attachment,
warrant of execution or similar process is issued or levied against a
substantial part of the Company's or any Subsidiary's properties, and such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, warrant of execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy; the
Company or any Subsidiary (other than a Dormant Subsidiary) admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or the Company or any Subsidiary (other than a Dormant Subsidiary)
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor) or other similar Person
for itself or a substantial portion of its property or business.
(h) ERISA. One or more ERISA Events shall occur with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$1,000,000; a contribution failure shall have occurred with respect to a Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; the
aggregate amount of Unfunded Pension Liability among all Pension Plans at any
time exceeds $1,000,000; or the Company or any ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace period, one or more
installment payments with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan which results in an aggregate withdrawal
liability in excess of $1,000,000.
(i) MONETARY JUDGMENTS. One or more judgments, orders,
decrees or arbitration awards is entered against the Company or any Subsidiary
involving in the aggregate a liability (to the extent not covered by independent
third-party insurance as to which the insurer does not dispute coverage), as to
any single or related series of
<PAGE> 74
transactions, incidents or conditions, of $1,000,000 or more, and the same shall
remain undischarged, unvacated and unstayed pending appeal for a period of 30
days after the entry thereof, or the Company or any Subsidiary shall enter into
any agreement to settle or compromise any pending or threatened litigation (to
the extent not covered by independent third party insurance as to which the
insurer does not dispute coverage), as to any single or related series of
claims, involving payment by the Company or any Subsidiary of $1,000,000 or
more.
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree is entered against the Company or any Subsidiary which has or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect.
(k) CHANGE OF CONTROL. Any Change of Control occurs.
(l) GUARANTOR DEFAULTS. The Guaranty shall cease to be in full
force and effect with respect to any Guarantor (other than as expressly
permitted hereunder), any Guarantor shall fail to comply with or to perform any
applicable provision of the Guaranty, or any Guarantor (or any Person acting by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of the Guaranty with respect to such
Guarantor.
(m) COLLATERAL DOCUMENTS, ETC. After the Collateralization
Date, any Collateral Document shall cease to be in full force and effect with
respect to the Company or any Guarantor (other than as expressly permitted
hereunder), the Company or any Guarantor shall fail to comply with or to perform
any applicable provision of any Collateral Document, or the Company or any
Guarantor (or any Person acting by, through or on behalf of the Company or any
Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
9.2 REMEDIES. If any Event of Default occurs, the
Administrative Agent shall, at the request of, or may, with the consent of, the
Required Lenders do any or all of the following:
(a) declare the commitment of each Lender to make Loans and
any obligation of the Issuing Lender to Issue Letters of Credit to be
terminated, whereupon such commitments and obligations shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letter of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letter of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and
<PAGE> 75
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any Event of Default specified in
SUBSECTION 9.1(f) or (g), the obligation of each Lender to make Loans and the
obligation of the Issuing Lender to Issue Letters of Credit shall automatically
terminate and the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and
payable without further act of the Administrative Agent, the Issuing Lender or
any other Lender.
9.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement now existing or hereafter
arising.
I. ARTICLE
THE ADMINISTRATIVE AGENT
10.1 APPOINTMENT AND AUTHORIZATION.
(a) Each Lender hereby irrevocably (subject to SECTION 10.9)
appoints, designates and authorizes the Administrative Agent to take such action
on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the
Administrative Agent have or be deemed to have any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Administrative Agent. Without limiting
the generality of the foregoing sentence, the use of the term "agent" in this
Agreement and in the other Loan Documents with reference to the Administrative
Agent is not intended to connote any fiduciary or other implied (or express)
obligation arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
(b) The Issuing Lender shall act on behalf of the Lenders with
respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Administrative Agent may
agree at the request of the
<PAGE> 76
Required Lenders to act for the Issuing Lender with respect thereto; PROVIDED,
HOWEVER, that the Issuing Lender shall have all of the benefits and immunities
provided to the Administrative Agent in this ARTICLE X with respect to any acts
taken or omissions suffered by the Issuing Lender in connection with Letters of
Credit Issued by it or proposed to be Issued by it and the applications and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Administrative Agent", as used in this ARTICLE X, included the
Issuing Lender with respect to such acts or omissions and as additionally
provided in this Agreement with respect to the Issuing Lender.
10.2 DELEGATION OF DUTIES. The Administrative Agent may execute
any of its duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
10.3 LIABILITY OF ADMINISTRATIVE AGENT. None of the
Agent-Related Persons shall be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct) or be responsible in any manner to any of the
Lenders for any recital, statement, representation or warranty made by the
Company or any Subsidiary or Affiliate of the Company, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or the existence, creation, validity, attachment, perfection,
enforceability, value or sufficiency of any collateral security for the
Obligations or for any failure of the Company or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Company or any of the Company's Subsidiaries
or Affiliates.
10.4 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and
<PAGE> 77
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Required Lenders and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in SECTIONS 5.1 and 5.2, each Lender that has executed this Agreement
shall be deemed to have consented to, approved or accepted, or to be satisfied
with, each document or other matter either sent by the Administrative Agent to
such Lender for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory to
such Lender.
10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Event of Default or
Unmatured Event of Default, except with respect to defaults in the payment of
principal, interest and fees required to be paid to the Administrative Agent for
the account of the Lenders, unless the Administrative Agent shall have received
written notice from a Lender or the Company referring to this Agreement,
describing such Event of Default or Unmatured Event of Default and stating that
such notice is a "notice of default". The Administrative Agent will notify the
Lenders of its receipt of any such notice. The Administrative Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Lenders in accordance with ARTICLE IX;
PROVIDED, HOWEVER, that unless and until the Administrative Agent has received
any such request, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Event
of Default or Unmatured Event of Default as it shall deem advisable or in the
best interest of the Lenders.
10.6 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereafter taken, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company hereunder. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and
<PAGE> 78
other documents expressly herein required to be furnished to the Lenders by the
Administrative Agent, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Company which may come into the possession
of any of the Agent-Related Persons.
10.7 INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, the Lenders shall indemnify upon demand the
Administrative Agent and the Agent-Related Persons (to the extent not reimbursed
by or on behalf of the Company and without limiting the obligation of the
Company to do so), pro rata, from and against any and all Indemnified
Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for the payment
to the Administrative Agent or any Agent-Related Person of any portion of the
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse the Administrative Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of the
Company. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Administrative
Agent.
10.8 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. BofA and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with the
Company and its Subsidiaries and Affiliates as though BofA were not the
Administrative Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, BofA or its
Affiliates may receive information regarding the Company or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Company or such Affiliates) and acknowledge that the Administrative
Agent shall be under no obligation to provide such information to them. With
respect to its Loans, BofA and any Affiliate thereof shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though BofA were not the Administrative Agent.
10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may, and
at the request of the Required Lenders (and with the consent of the Company so
long as no Event of Default or Unmatured Event of Default has occurred and is
continuing) shall, resign as Administrative Agent upon 30 days' notice to the
Lenders and the Company. If the Administrative Agent resigns under this
Agreement, the Required Lenders shall have the right, with the consent of the
Company so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing (which consent
<PAGE> 79
shall not be unreasonably withheld or delayed), to appoint from among the
Lenders a successor agent for the Lenders. If no successor agent is appointed
prior to the effective date of the resignation of the Administrative Agent, the
Administrative Agent may appoint, after consulting with the Lenders and the
Company, a successor agent from among the Lenders. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Administrative Agent and the
term "Administrative Agent" shall mean such successor agent and the retiring
Administrative Agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this ARTICLE X and SECTIONS
11.4 and 11.5 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement. If no
successor agent has accepted appointment as Administrative Agent by the date
which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
the Administrative Agent hereunder until such time, if any, as the Required
Lenders appoint a successor agent as provided for above. Notwithstanding the
foregoing, however, BofA may not be removed as the Administrative Agent at the
request of the Required Lenders unless BofA and any Affiliate thereof acting as
the Issuing Lender hereunder shall also simultaneously be replaced as the
Issuing Lender pursuant to documentation in form and substance reasonably
satisfactory to BofA (and, if applicable, such Affiliate).
10.10 WITHHOLDING TAX. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Section 1441 or
1442 of the Code, such Lender shall deliver to the Administrative Agent and the
Company:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS Forms
1001 and W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS Form
W-9;
(iii) if such Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224, such Lender shall deliver (A) a certificate
substantially in the form of EXHIBIT L and (B) two properly completed and signed
copies of Internal Revenue Service Form W-8 certifying that such Lender is
entitled to an exemption from United States withholding
<PAGE> 80
tax with respect to payments of interest to be made under this Agreement and any
Note; and
(iv) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from, or reduction
of, United States withholding tax.
Each such Lender agrees to promptly notify the Administrative Agent and the
Company of any change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Company to such Lender, such Lender agrees
to notify the Administrative Agent and the Company of the percentage amount in
which it is no longer the beneficial owner of Obligations of the Company to such
Lender. To the extent of such percentage amount, the Administrative Agent and
the Company will treat such Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Administrative Agent and the
Company sells, assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of the Company to such Lender, such Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent or the Company, as the case may be,
may withhold from any interest payment to such Lender an amount equivalent to
the applicable withholding tax after taking into account such reduction. If the
forms or other documentation required by SUBSECTION (a) of this Section are not
timely delivered to the Administrative Agent, or the Company, as the case may
be, then the Administrative Agent or the Company, as the case may be, may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
without deduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent or
the Company did not properly withhold tax from amounts paid to or for the
account of any Lender (because the appropriate form was not delivered or was not
properly executed, or because such Lender failed to notify the Administrative
Agent or the Company of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Administrative Agent or the Company, as the case
may be, fully for all amounts paid, directly or indirectly, by the
Administrative Agent or the Company, as the case may be, as Tax or
<PAGE> 81
otherwise, including penalties and interest, and including any Taxes imposed by
any jurisdiction on the amounts payable to the Administrative Agent or the
Company, as the case may be, under this Section, together with all costs and
expenses (including Attorney Costs). The obligation of the Lenders under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Administrative Agent.
(f) If any Lender claims exemption from, or reduction of,
withholding tax under the Code by providing IRS Form W-8 and a certificate in
the form of EXHIBIT L and such Lender sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Company to such
Lender, such Lender agrees to notify the Administrative Agent and the Company of
the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Lender. To the extent of such percentage
amount, the Administrative Agent and the Company will treat such Lender's IRS
Form W-8 and certificate in the form of EXHIBIT L as no longer valid.
10.11 COLLATERAL, GUARANTY MATTERS
(a) The Administrative Agent is authorized on behalf of all the
Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any collateral or
the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the collateral granted
pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Administrative Agent,
at its option and in its discretion, to release any Lien granted to or held by
the Administrative Agent upon any collateral: (i) upon termination of the
Commitments and payment in full of all Loans and all other obligations known to
the Administrative Agent and payable under this Agreement or any other Loan
Document; (ii) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition permitted hereunder; (iii) constituting
property in which the Company or any Subsidiary owned no interest at the time
the Lien was granted or at any time thereafter; (iv) constituting property
leased to the Company or any Subsidiary under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by the Company or such Subsidiary to
be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness
or other debt instrument, if the indebtedness thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by the Required Lenders or,
if required by SECTION 11.1(f), all the Lenders. Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or items of
collateral pursuant to this SUBSECTION 10.11(b).
(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Company or any Subsidiary) that
any security interest in real property collateral received by a Lender in
connection with the extension of any loan or financial commitment between such
Lender and the Company or any of its Affiliates and not related to the
transactions contemplated hereby shall not
<PAGE> 82
constitute collateral for the Company's obligations under this Agreement or any
other Loan Document.
(d) The Administrative Agent is authorized on behalf of all the
Lenders, without the need to provide notice to or obtain consent from the
Lenders, from time to time to release any Guarantor from its obligations under
the Guaranty upon the sale, merger, liquidation or dissolution of such Guarantor
in accordance with the provisions of this Agreement.
I. ARTICLE
MISCELLANEOUS
-------------
11.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Company therefrom, shall be effective unless the
same shall be in writing and signed by the Required Lenders and the Company and
acknowledged by the Administrative Agent, and then any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED that no such amendment, waiver or consent:
(a) shall increase or extend any Commitment of any Lender (or
reinstate any Commitment terminated pursuant to SECTION 9.2) without the written
consent of such Lender;
(b) shall postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal of or interest on any Loan
without the written consent of the Lender holding such Loan;
(c) shall reduce the principal of, or the rate of interest
specified herein on, any Loan without the written consent of the Lender holding
such Loan;
(d) shall reduce any fees payable hereunder or under any other
Loan Document, or postpone or delay any date fixed by this Agreement or any
other Loan Document for the payment of fees or any other amounts due to any
Lender hereunder or under any other Loan Document, without the written consent
of the Person to whom such fee or other amount is to be paid;
(e) shall change the Percentage of the Lenders which is required
for any waiver, amendment or consent hereunder, or amend the definition of
"Required Lenders", without the written consent of all Lenders;
(f) shall release the Guaranty or any Guarantor or, after a
Collateralization Date (other than pursuant to SECTION 7.13(e) of this
Agreement), release all or substantially all of the collateral securing the
Obligations, in each case without the written consent of all Lenders;
<PAGE> 83
(g) shall amend or waive any provision of this Section or
SECTION 2.15, or any other provision herein providing for consent or other
action by all Lenders, without the written consent of all Lenders;
(h) shall, unless in writing and signed by the Issuing Lender
in addition to the Required Lenders or all Lenders, as the case may be, affect
the rights or duties of the Issuing Lender under this Agreement or any
L/C-Related Document; or
(i) shall, unless in writing and signed by the Administrative
Agent in addition to the Required Lenders or all Lenders, as the case may be,
affect the rights or duties of the Administrative Agent under this Agreement or
any other Loan Document.
11.2 NOTICES. (a) All notices, requests and other communications
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Company by facsimile (i) shall be immediately confirmed by a telephone call to
the recipient at the number specified on SCHEDULE 11.2, and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed, faxed
or delivered to the address or facsimile number specified for notices on
SCHEDULE 11.2 or (x) in the case of the Company or the Administrative Agent, to
such other address as shall be designated by such party in a written notice to
the other parties and (y) in the case of any other party, at such other address
as shall be designated by such party in a written notice to the Company and the
Administrative Agent.
(b) All such notices, requests and communications shall, if
transmitted by overnight delivery, or faxed, be effective when delivered, or
transmitted in legible form by facsimile machine, respectively, or if mailed, on
the third Business Day after the date deposited into the U.S. mail; except that
notices to the Administrative Agent pursuant to ARTICLE II, III or X shall not
be effective until actually received by the Administrative Agent, and notices
pursuant to ARTICLE III to the Issuing Lender shall not be effective until
actually received by the Issuing Lender.
(c) Any agreement of the Administrative Agent and the Lenders
herein to receive certain notices by telephone or facsimile is solely for the
convenience and at the request of the Company. The Administrative Agent and the
Lenders shall be entitled to rely on the authority of any Person purporting to
be a Person authorized by the Company to give such notice and the Administrative
Agent and the Lenders shall not have any liability to the Company or any other
Person on account of any action taken or not taken by the Administrative Agent
or the Lenders in reliance upon such telephonic or facsimile notice. The
obligation of the Company to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure of the Administrative Agent
and the Lenders to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Administrative Agent and the Lenders of a
confirmation which is at variance with the terms understood by the
Administrative Agent and the Lenders to be contained in the telephonic or
facsimile notice.
<PAGE> 84
11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Administrative Agent or any Lender,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
11.4 COSTS AND EXPENSES. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Administrative Agent and its Affiliates
(including the Arranger) within five Business Days after demand (subject to
SUBSECTION 5.1(e)) for all reasonable and documented costs and expenses incurred
by the Administrative Agent and its Affiliates in connection with the
preparation, delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Loan Document and any other document
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including Attorney Costs incurred
by the Administrative Agent and the Arranger with respect thereto; and
(b) pay or reimburse the Administrative Agent and each Lender
within five Business Days after demand (subject to SUBSECTION 5.1(e)) for all
reasonable and documented costs and expenses (including Attorney Costs) incurred
by them in connection with the enforcement, attempted enforcement or
preservation of any right or remedy under this Agreement or any other Loan
Document during the existence of an Event of Default or after acceleration of
the Loans (including in connection with any "workout" or restructuring regarding
the Loans and including in any Insolvency Proceeding or appellate proceeding).
11.5 COMPANY INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify and hold the
Agent-Related Persons and each Lender and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Administrative Agent or
replacement of any Lender) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby or thereby, or any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding or any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to the
protection
<PAGE> 85
of the environment or the Release by the Company or any of its Subsidiaries of
any Hazardous Material) related to or arising out of this Agreement or the Loans
or Letters of Credit or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); PROVIDED that the Company shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations. Each Agent-Related Person and each Lender agrees that if any
investigation, litigation or proceeding is asserted or threatened in writing or
instituted against it or any other Indemnified Person, or any remedial, removal
or response action is requested of it or any other Indemnified Party, for which
such Agent-Related Person or such Lender may desire indemnity or defense
hereunder, such Agent-Related Person or such Lender shall notify the Company in
writing of such event; PROVIDED that failure to so notify the Company shall not
affect the right of any Agent-Related Person or Lender to seek indemnification
under this Section.
11.6 PAYMENTS SET ASIDE. To the extent that the Company makes a
payment to the Administrative Agent or any Lender, or the Administrative Agent
or any Lender exercises its right of set-off, and such payment or the proceeds
of such set-off or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Lender in its
discretion) to be repaid to a trustee or receiver, or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred and (b) each Lender
severally agrees to pay to the Administrative Agent upon demand its pro rata
share of any amount so recovered from or repaid by the Administrative Agent.
11.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and each Lender.
11.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Lender may, with
the written consent of the Company (at all times other than during the existence
of an Event of Default), the Administrative Agent and the Issuing Lender, which
consents shall not be unreasonably withheld or delayed, at any time assign and
delegate to one or more Eligible Assignees (PROVIDED that no written consent of
the Company, the Administrative Agent or the Issuing Lender shall be required in
connection with any assignment and delegation by a Lender to a Person described
in CLAUSE (iii) of the definition of Eligible Assignee) (each, an "ASSIGNEE")
all, or a ratable part of all, of the Loans, the Commitments, the L/C
Obligations and the other rights and obligations of such Lender hereunder, in a
minimum amount of $5,000,000 (or, if less, all of such Lender's remaining rights
and obligations hereunder); PROVIDED that (A) the Company, the
<PAGE> 86
Administrative Agent and the Issuing Lender may continue to deal solely and
directly with such Lender in connection with the interest so assigned to an
Assignee until (i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee
shall have been given to the Company and the Administrative Agent by such Lender
and the Assignee, (ii) such Lender and the Assignee shall have delivered to the
Company and the Administrative Agent an Assignment and Acceptance in the form of
EXHIBIT K (an "ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes
subject to such assignment and (iii) the assignor Lender or the Assignee shall
have paid to the Administrative Agent a processing fee in the amount of $3,500
and (B) the Company shall not, as a result of any assignment by any Lender to
any of such Lender's Affiliates, incur any increased liability for Taxes, Other
Taxes or Further Taxes pursuant to SECTION 4.1. The Company designates the
Administrative Agent as its agent for maintaining a book entry record of
ownership identifying the Lenders and the amount of the respective Loans and
Notes which they own. The foregoing provisions are intended to comply with the
registration requirements in Treasury Regulation Section 5f.103-1 so that the
Loans and Notes are considered to be in "registered form" pursuant to such
regulation.
(b) From and after the date that the Administrative Agent
notifies the assignor Lender that it has provided its consent, and received the
consents of the Issuing Lender and (if applicable) the Company, with respect to
an executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Loan Documents.
(c) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Company (a "PARTICIPANT")
participating interests in any Loan, the Commitments of such Lender and the
other interests of such Lender (the "ORIGINATING LENDER") hereunder and under
the other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Lender's
obligations under this Agreement shall remain unchanged, (ii) the originating
Lender shall remain solely responsible for the performance of such obligations,
(iii) the Company, the Issuing Lender and the Administrative Agent shall
continue to deal solely and directly with the originating Lender in connection
with the originating Lender's rights and obligations under this Agreement and
the other Loan Documents and (iv) no Lender shall transfer or grant any
participating interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent of the Lenders or the consent of a particular
Lender, in each case as described in the PROVISO to SECTION 11.1. In the case of
any such participation, the Participant shall be entitled to the benefit of
SECTIONS 4.1, 4.3 and 11.5 as though it were also a Lender hereunder (PROVIDED,
with respect to SECTIONS 4.1 and 4.3, the Company shall not be
<PAGE> 87
required to pay any amount which it would not have been required to pay if no
participating interest had been sold), and if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, the Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement. Each Lender may furnish any information concerning the Company
and its Subsidiaries in the possession of such Lender from time to time to
participants and prospective participants and may furnish information in
response to credit inquiries consistent with general banking practice. Each
Lender which sells a participation will maintain a book entry record of
ownership identifying the Participant(s) and the amount of such participation(s)
owned by such Participant(s). Such book entry record of ownership shall be
maintained by the Lender as agent for the Company and the Administrative Agent.
This provision is intended to comply with the registration requirements in
Treasury Regulation Section 5f.103-1 so that the Loans and Notes are considered
to be in "registered form" pursuant to such regulation.
(d) Notwithstanding any other provision of this Agreement, any
Lender may at any time create a security interest in, or pledge all or any
portion of, its rights under and interest in this Agreement and any Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
11.9 CONFIDENTIALITY. Each Lender agrees to take, and to cause
its Affiliates to take, normal and reasonable precautions and exercise due care
to maintain the confidentiality of all non-public information provided to it by
the Company or any Subsidiary, or by the Administrative Agent on the Company's
or any Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither such Lender nor any of its Affiliates shall use any such
<PAGE> 88
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any Subsidiary, except to
the extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by such Lender or (ii) was or becomes
available on a non-confidential basis from a source other than the Company
(PROVIDED that such source is not bound by a confidentiality agreement with the
Company or any Subsidiary known to such Lender); PROVIDED, HOWEVER, that any
Lender may disclose such information (A) at the request or pursuant to any
requirement of any Governmental Authority to which such Lender is subject or in
connection with an examination of such Lender by any such authority, (B)
pursuant to subpoena or other court process, (C) when required to do so in
accordance with the provisions of any applicable Requirement of Law, (D) to the
extent reasonably required in connection with any litigation or proceeding to
which the Administrative Agent or any Lender or any of their respective
Affiliates may be party, (E) to the extent reasonably required in connection
with the exercise of any remedy hereunder or under any other Loan Document, (F)
to such Lender's independent auditors and other professional advisors, (G) to
any Participant or Assignee, actual or potential, provided that such Person
agrees in writing to keep such information confidential to the same extent
required of the Lenders hereunder, (H) as to any Lender or its Affiliate, as
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which the Company or any Subsidiary is party or is deemed
party with such Lender or such Affiliate and (I) to its Affiliates; PROVIDED
HOWEVER, that with respect to any disclosure described in CLAUSE (B), (C) or
(D), the applicable Lender shall notify the Company of such disclosure within a
sufficient period of time to permit the Company to pursue legal action to
prevent or control such disclosure, unless the applicable Lender reasonably
determines that such notification or disclosure to the Company is prohibited by
any such subpoena, court process, proceeding or other applicable Requirement of
Law.
11.10 SET-OFF. In addition to any right or remedy of the Lenders
provided by law, if an Event of Default exists, or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Company, any such notice being waived by the Company
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, such Lender to or for the
credit or the account of the Company against any and all Obligations owing to
such Lender, now or hereafter existing, irrespective of whether or not the
Administrative Agent or such Lender shall have made demand under this Agreement
or any other Loan Document and although such Obligations may be contingent or
unmatured. Each Lender agrees promptly to notify the Company and the
Administrative Agent after any such set-off and application made by such Lender;
PROVIDED that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 AUTOMATIC DEBITS OF FEES. With respect to any commitment
fee, arrangement fee, agency fee, letter of credit fee or other fee, or any
other cost or expense (including Attorney Costs) due and payable to the
Administrative Agent or the Issuing Lender under the Loan Documents, the Company
hereby irrevocably authorizes BofA to debit any deposit account of the Company
with BofA in an amount such that the aggregate amount debited from all such
<PAGE> 89
deposit accounts does not exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount of the fee or
other cost or expense then due, such debits will be reversed (in whole or in
part, in BofA's sole discretion) and such amount not debited shall be deemed to
be unpaid. No such debit under this Section shall be deemed a set-off.
11.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Lender
shall notify the Administrative Agent in writing of any change in the address to
which notices to such Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
11.13 COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of which taken together shall constitute but one and the same
instrument.
11.14 SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or such instrument or agreement.
11.15 NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Company, the
Lenders, the Administrative Agent and the Agent-Related Persons, and their
permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other Loan Document.
11.16 GOVERNING LAW AND JURISDICTION (a) THIS AGREEMENT AND ANY
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW
OF THE STATE OF ILLINOIS; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY,
THE ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH
<PAGE> 90
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, THE ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
11.17 WAIVER OF JURY TRIAL. THE COMPANY, THE LENDERS AND THE
ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
11.18 ENTIRE AGREEMENT. This Agreement, together with the other
Loan Documents, embodies the entire agreement and understanding among the
Company, the Lenders and the Administrative Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Lender and as a Lender
By:
Title:
FIRST NATIONAL BANK OF MARYLAND
By:
Title:
FLEET NATIONAL BANK
By:
Title:
<PAGE> 92
SCHEDULE 1.1
PRICING SCHEDULE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
APPLICABLE Applicable
MARGIN FOR Margin for Base Commitment
LEVERAGE RATIO OFFSHORE RATE LOANS Rate Loans Fee Rate L/C FEE RATE
================================================================================================
<S> <C> <C> <C> <C>
1.50:1 1.75% 0.50% 0.45% 1.75%
- ------------------------------------------------------------------------------------------------
1.50:1 but 1.50% 0.25% 0.40% 1.50%
1.00:1
- ------------------------------------------------------------------------------------------------
1.00:1 1.25% 0% 0.35% 1.25%
- ------------------------------------------------------------------------------------------------
</TABLE>
Initially, the Applicable Margin for Offshore Rate Loans, the
Applicable Margin for Base Rate Loans, the Commitment Fee Rate and the L/C Fee
Rate shall be 1.25%, 0% , 0.35 % and 1.25%, respectively. The Applicable
Margins, the Commitment Fee Rate and the L/C Fee Rate shall be adjusted, to the
extent applicable, 45 days (or, in the case of the last fiscal quarter of any
fiscal year, 90 days) after the end of each fiscal quarter based on the Leverage
Ratio as of the last day of such fiscal quarter; provided that if the Company
fails to deliver the financial statements required by SECTION 7.1 by the 45th
day (or, if applicable, the 90th day) after any fiscal quarter, the Applicable
Margins, the Commitment Fee Rate and the L/C Fee Rate that would apply if the
Leverage Ratio were greater than 1.50 to 1 shall apply until such financial
statements are delivered.
<PAGE> 93
<TABLE>
<CAPTION>
SCHEDULE 2.1
COMMITMENTS AND PERCENTAGES
LENDER COMMITMENT PERCENTAGE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Bank of America National $15,000,000 42.85714286%
Trust and Savings Association
First National Bank of Maryland $10,000,000 28.57142857%
Fleet National Bank $10,000,000 28.57142857%
----------------------------------
$35,000,000 100%
</TABLE>
<PAGE> 94
SCHEDULE 11.2
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
COMPASS INTERNATIONAL SERVICES CORPORATION
- ------------------------------------------
1 Penn Plaza
Suite 4430
New York, New York 10119
Attention: Richard Alston
Telephone: (212) 967-7770
Facsimile: (212) 967-0650
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- ------------------------
as Administrative Agent
Bank of America National Trust
and Savings Association
Agency Management Services #33499
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Dave Johanson
Telephone: (312) 828-7933
Facsimile: (312) 974-9102
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- ------------------------
as a Lender
Domestic and Offshore Lending Office:
231 South LaSalle Street
Chicago, Illinois 60697
Notices (other than Borrowing notices and Notices
of Conversion/Continuation):
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Michael A. Brothers
Telephone: (312) 828-6031
Facsimile: (312) 828-1974
Borrowing notices and Notices of Conversion/Continuation:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Fred Johnson
Telephone: (312) 828-6706
Facsimile: (312) 974-1199
<PAGE> 95
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- ------------------------
as Issuing Lender
Address for Notices:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Fred Johnson
Telephone: (312) 828-6706
Facsimile: (312) 974-1199
FIRST NATIONAL BANK OF MARYLAND
- -------------------------------
Domestic and Offshore Lending Office:
25 South Charles Street
Baltimore, Maryland 21201
Notices (other than Borrowing notices and Notices
of Conversion/Continuation):
25 South Charles Street
Suite 1209
Baltimore, Maryland 21201
Attention: Anne E. Quirk
Telephone: (410) 244-4094
Facsimile: (410) 244-4022
Borrowing notices and Notices of Conversion/Continuation:
25 South Charles Street
Suite 1209
Baltimore, Maryland 21201
Attention: Anne E. Quirk
Telephone: (410) 244-4094
Facsimile: (410) 244-4022
<PAGE> 96
FLEET NATIONAL BANK
- -------------------
Domestic and Offshore Lending Office:
777 Main Street
Hartford, Connecticut 06115
Notices (other than Borrowing notices and Notices
of Conversion/Continuation):
777 Main Street
Hartford, Connecticut 06115
Attention: Jeffrey Kinney
Telephone: (860) 986-2158
Facsimile: (860) 986-3450
Borrowing notices and Notices of Conversion/Continuation:
777 Main Street
Hartford, Connecticut 06115
Attention: Helena Schwalm
Telephone: (860) 986-3916
Facsimile: (860) 986-3918
<PAGE> 1
EXHIBIT 10.15 FIRST AMENDMENT TO THE CREDIT AGREEMENT.
FIRST AMENDMENT
---------------
THIS FIRST AMENDMENT dated as of August 7, 1998 (this "First
Amendment") amends the Credit Agreement dated as of March 17, 1998 (the "Credit
Agreement") among COMPASS INTERNATIONAL SERVICES CORPORATION (the "Company"),
various financial institutions and Bank of America National Trust and Savings
Association, as Administrative Agent. Terms defined in the Credit Agreement are,
unless otherwise defined herein or the context otherwise requires, used herein
as defined therein.
WHEREAS, the Company, the Lenders and the Agent desire to amend the
Credit Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
I. SECTION AMENDMENTS. Effective on (and subject to the occurrence
of) the First Amendment Effective Date (as defined below), the Credit Agreement
shall be amended in accordance with SECTIONS 1.1 through 1.6 below:
A. SECTION AMENDMENT TO COMMITMENT AMOUNT. The definition of
"Commitment Amount" set forth in Section 1.1 is amended by deleting the amount
"$35,000,000" therein and substituting the amount "$50,000,000" therefor.
A. SECTION AMENDMENT TO EBITDA. The definition of "EBITDA" is
amended by adding a comma and the words "other than adjustments for changes in
the acquisition target's officer compensation" before the parenthesis at the end
of the second parenthetical clause of the second sentence therein.
A. SECTION AMENDMENT TO SCHEDULE 2.1. Schedule 2.1 is replaced in
its entirety by SCHEDULE 2.1 hereto.
A. SECTION AMENDMENT TO SECTION 8.12. Section 8.12 is amended in
its entirety to read as follows:
"8.12 DEBT TO CAPITALIZATION RATIO. The Company shall not as of
the end of any fiscal quarter permit the ratio of (a) Outstandings to
(b) the sum of Outstandings PLUS the Company's consolidated
stockholders' equity to be greater than 0.375 to 1.0."
A. SECTION AMENDMENT TO SECTION 11.1(g). Section 11.1(g) is amended
by deleting the reference to "Section 2.15" therein and substituting "Section
2.14" therefor.
<PAGE> 2
A. SECTION AMENDMENT TO NOTICE OF BORROWING. Exhibit A is amended by
adding SCHEDULE A.1 hereto thereto.
I. SECTION REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to the Agent and the Lenders that (a) each representation and
warranty set forth in Section 6 of the Credit Agreement is true and correct as
of the date of the execution and delivery of this First Amendment by the Company
(and assuming the effectiveness hereof), with the same effect as if made on such
date (except to the extent such representations and warranties expressly refer
to an earlier date, in which case they shall be true and correct as of such
earlier date); (b) the execution and delivery by the Company of this First
Amendment and the New Notes (as defined below), and the performance by the
Company of its obligations under the Credit Agreement as amended hereby (as so
amended, the "Amended Credit Agreement") and the New Notes, (i) are within the
corporate powers of the Company, (ii) have been duly authorized by all necessary
corporate action on the part of the Company, (iii) have received all necessary
governmental and regulatory approval and (iv) do not and will not contravene or
conflict with, or result in or require the creation or imposition of any lien
under, any provision of law or of the charter or by-laws of the Company or any
Subsidiary or of any agreement, instrument, order or decree which is binding
upon the Company or any Subsidiary; and (c) the Amended Credit Agreement is, and
when executed and delivered the New Notes will be, legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
I. SECTION EFFECTIVENESS. The amendments set forth in SECTION 1
above shall become effective on the date (the "First Amendment Effective Date")
when the Administrative Agent shall have received the fees referred to in
SECTION 4 and each of the following documents, each in form and substance
satisfactory to the Administrative Agent:
1. counterparts of this First Amendment executed by the
Company, each of the Lenders and the Administrative Agent (it being understood
that the Administrative Agent may conclusively rely on any counterpart signature
hereof received by facsimile);
1. a certificate of the secretary or an assistant secretary of
the Company as to:
a) resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this First Amendment and the New Notes
and the performance by the Company of its obligations under the Amended Credit
Agreement and the New Notes, and
<PAGE> 3
a) the incumbency and signatures of those of its officers
authorized to execute and deliver this First Amendment and the New Notes;
1. a Confirmation, executed by the Company and each Subsidiary,
substantially in the form of EXHIBIT A hereto;
1. New Notes, substantially in the form of Exhibit D to the
Credit Agreement (the "New Notes"), payable to the order of each Lender in the
amount of its Commitment as set forth in SCHEDULE 2.1 hereto (the Notes executed
by the Company on March 17, 1998 to be canceled by each Lender and returned to
the Company upon receipt of such Lender's New Note); and
1. such other documents as the Administrative Agent may
reasonably request.
I. SECTION FEES. On the First Amendment Effective Date, the
Company shall pay:
1. to the Administrative Agent for the account of each Lender,
a closing fee in an amount equal to 0.15% of the excess (if any) of such
Lender's Percentage of the Commitment Amount over such Lender's Percentage of
the Commitment Amount immediately prior to the First Amendment Effective Date;
and
1. to the Administrative Agent for its own account, the fees
referred to in the letter agreement dated as of August 6, 1998 between the
Company and the Administrative Agent.
I. SECTION MISCELLANEOUS.
A. SECTION CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects. After the First Amendment Effective Date, all
references in the Credit Agreement and the other Loan Documents to "Credit
Agreement" or similar terms shall refer to the Amended Credit Agreement.
A. SECTION COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same First Amendment.
A. SECTION GOVERNING LAW. This First Amendment shall be a contract
made under and governed by the laws of the State of Illinois applicable to
contracts made and to be performed entirely within such State.
A. SECTION SUCCESSORS AND ASSIGNS. THIS FIRST AMENDMENT SHALL BE
BINDING UPON THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT AND THEIR
<PAGE> 4
RESPECTIVE SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT OF THE
COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT AND THE RESPECTIVE SUCCESSORS
AND ASSIGNS OF THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT. DELIVERED
AT CHICAGO, ILLINOIS, AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
COMPASS
INTERNATIONAL SERVICES
CORPORATION
BY:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Lender and as a Lender
By:
Title:
FIRST NATIONAL BANK OF MARYLAND
By:
Title:
FLEET NATIONAL BANK
By:
Title:
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULE 2.1
COMMITMENTS AND PERCENTAGES
LENDER COMMITMENT PERCENTAGE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Bank of America National $20,000,000 40.00000000%
Trust and Savings Association
First National Bank of Maryland $10,000,000 20.00000000%
Fleet National Bank $20,000,000 40.00000000%
------------------------------
$50,000,000 100%
</TABLE>
<PAGE> 1
EXHIBIT 10.16 SECOND AMENDMENT TO THE CREDIT AGREEMENT
SECOND AMENDMENT
----------------
THIS SECOND AMENDMENT dated as of November 16, 1998 (this "Second
Amendment") amends the Credit Agreement dated as of March 17, 1998 (the "Credit
Agreement") among COMPASS INTERNATIONAL SERVICE CORPORATION (the "Company"),
various financial institutions and Bank of America National Trust and Savings
Association, as Administrative Agent. Terms defined in the Credit Agreement are,
unless otherwise defined herein or the context otherwise requires, used herein
as defined therein.
WHEREAS, the Company, the Lenders and the Agent desire to amend the
Credit Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of)
the Second Amendment Effective Date (as defined below), the Credit Agreement
shall be amended in accordance with SECTIONS 1.1 and 1.2 below:
SECTION 1.1 AMENDMENT TO COMMITMENT AMOUNT. The definition of
"Commitment Amount" set forth in Section 1.1 is amended by deleting the amount
"$50,000,000" therein and substituting the amount "$55,000,000" therefor.
SECTION 1.2 AMENDMENT TO SCHEDULE 2.1. Schedule 2.1 is replaced in its
entirety by SCHEDULE 2.1 hereto.
SECTION 2 REPRESENTATIONS AND WARRANTIES. The company represents and
warrants to the Agent and the Lenders that (a) each representation and warrant
set forth in Section 6 of the Credit Agreement is true and correct as of the
date of the execution and delivery of this Second Amendment by the Company, with
the same effect as if made on such date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date); (b) the execution and
delivery by the Company of this Second Amendment and the New Notes (as defined
below), and the performance by the Company of its obligations under the Credit
Agreement as amended hereby (as so amended, the "Amended Credit Agreement") and
the New Notes, (i) are within the
<PAGE> 2
corporate powers of the Company, (ii) have been duly authorized by all necessary
corporate action on the part of the Company, (iii) have received all necessary
governmental and regulatory approval and (iv) do not and will not contravene or
conflict with, or result in or require the creation or imposition of any Lien
under, any provision of law or of the charter or by-laws of the Company or any
Subsidiary or of any agreement, instrument, order or decree which is binding
upon the Company or any Subsidiary; and (c) the amended Credit Agreement is, and
when executed and delivered the New Notes will be, legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
SECTION 3 EFFECTIVENESS. The amendments set forth in SECTION 1 above
shall become effective on the date (the "Second Amendment Date") when the
Administrative Agent shall have received the fees referred to in SECTION 5 and
each of the following documents, each in form and substance satisfactory to the
Administrative Agent.
(a) counterparts of this Second Amendment executed by the
Company, each of the Lender and the Administrative
Agent (it being understood that the Administrative
Agent may conclusively rely on any counterpart
signature received by facsimile);
(b) a certificate of the secretary or an assistant of
the Company as to:
(i) resolutions of the Board of Directors of the
Company authorizing the execution and
delivery of this Second Amendment and the
New Notes and the performance by the Company
of its obligations under the Amended Credit
Agreement and the New Notes, and
(ii) the incumbency and signatures of those of
its officers authorized to execute and
deliver this Second Amendment and the New
Notes;
(c) a Confirmation, executed by the Company and each
Subsidiary, substantially in the form of EXHIBIT A
hereto;
(d) New Notes, substantially in the form of Exhibit D to
the Credit Agreement (the "New Notes"), payable to
the order of each Lender in the amount of its
Commitment as set forth in SCHEDULE 2.1 hereto (the
Notes executed by the
<PAGE> 3
Company on August 7, 1998 to be canceled by each
Lender and returned to the Company upon receipt of
such Lender's New Note); and
(e) Such other documents as the Administrative Agent may
reasonably request.
SECTION 4 ADDITION OF LENDER. On the Second Amendment Effective Date,
PNC Bank shall become a "Lender" under and for all purposes of the Amended
Credit Agreement and shall be bound thereby and entitled to the benefits thereof
with all the rights and obligations of a Lender under the Amended Credit
Agreement.
SECTION 5 FEES. On the Second Amendment Effective Date, the Company
shall pay to PNC Bank, a closing fee in an amount equal to .15% of PNC Bank's
Percentage of the Commitment Amount.
SECTION 6 MISCELLANEOUS.
SECTION 6.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects. After the Second Amendment Effective Date, all
references in the Credit Agreement and the Loan Documents to "Credit Agreement"
or similar terms shall refer to the Amended Credit Agreement.
SECTION 6.2 COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, and
each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Second Amendment.
SECTION 6.3 GOVERNING LAW. This Second Amendment shall be a contract
made under and governed by the laws of the State of Illinois applicable to
contracts made and to be performed entirely within such State.
SECTION 6.4 SUCCESSORS AND ASSIGNS. This Second Amendment shall be
binding upon the Company, the Lenders and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, the Lenders and the Administrative Agent and the respective successors
and assigns of the Company, the Lenders and the Administrative Agent.
Delivered at Chicago, Illinois, as of the day and year first above
written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
<PAGE> 4
By: ______________/S/_________________
Title: ____________/S/__________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: ______________/S/_________________
Title: ____________/S/__________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Lender and as a Lender
By: ______________/S/_________________
Title: ____________/S/__________________
FIRST NATIONAL BANK OF MARYLAND
By: _____________/S/___________________
Title: ___________/S/____________________
FLEET NATIONAL BANK
By: ____________/S/____________________
Title: __________/S/_____________________
PNC BANK, NATIONAL ASSOCIATION
By: ___________/S/____________________
Title: _________/S/_____________________
<PAGE> 5
SCHEDULE 2.1
COMMITMENTS AND PERCENTAGES
<TABLE>
<CAPTION>
LENDER COMMITMENT PERCENTAGE
------ ---------- ----------
<S> <C> <C>
Bank of America National $18,000,000 32.727272727%
Trust and Savings Association
Fleet National Bank $17,000,000 30.909090909%
First National Bank of Maryland $10,000,000 18.181818182%
PNC Bank $10,000,000 18.181818182%
----------- ------------
$55,000,000 100%
</TABLE>
<PAGE> 6
CONFIRMATION
Dated as of November 16, 1998
TO: Bank of America National Trust and Savings Association,
as Administrative Agent, and the Lenders party to the
Credit Agreement referred to below
Please refer to (a) the Credit Agreement dated as of March 17,
1998 (the "CREDIT AGREEMENT") among Compass International Services Corporation
(the "COMPANY"), various financial institutions (the "LENDERS") and Bank of
America National Trust and Savings Association, as Administrative Agent; (b) the
First Amendment dated as of August 7, 1998 to the Credit Agreement; (c) the
Second Amendment dated as of November 16, 1998 to the Credit Agreement; (d) the
Security Agreement dated as of March 17, 1998 (the "SECURITY AGREEMENT") among
the Company, various Subsidiaries of the Company and the Administrative Agent;
(e) the Guaranty dated as of March 17, 1998 (the "GUARANTY") executed by various
Subsidiaries of the Company; (f) the Company Pledge Agreement dated as of March
17, 1998 (the "COMPANY PLEDGE AGREEMENT") between the Company and the
Administrative Agent; (g) the Subsidiary Pledge Agreement dated as of March 17,
1998 (the "MAIL BOX, INC. PLEDGE AGREEMENT") between the Mail Box, Inc. and the
Administrative Agent; (h) the Subsidiary Pledge Agreement dated as of March 17,
1998 (the "MID-CONTINENT AGENCIES, INC. PLEDGE AGREEMENT") between Mid-Continent
Agencies, Inc. and the Administrative Agent; (i) the Subsidiary Pledge Agreement
dated as of March 17, 1998 (the "NATIONAL CREDIT MANAGEMENT CORPORATION PLEDGE
AGREEMENT") between National Credit Management Corporation and the
Administrative Agent; (j) the Subsidiary Pledge Agreement dated as of July 1,
1998 (the "MAHER & ASSOCIATE MAILING SERVICES, INC. PLEDGE AGREEMENT") between
Maher & Associate Mailing Services, Inc. and the Administrative Agent; (k) the
Subsidiary Pledge Agreement dated as of _________ (the "NATIONWIDE DEBT RECOVERY
PLEDGE AGREEMENT") between Nationwide Debt Recovery, Inc. and the Administrative
Agent; (l) the Subsidiary Pledge Agreement dated as of ___________ (the "COMPASS
RECEIVABLES MANAGEMENT HOLDING CORPORATION PLEDGE AGREEMENT") between Compass
Receivables Management Holding Corporation and the Administrative Agent. Each
document referred to in ITEMS (D) through (L) above is called a "CREDIT
DOCUMENT". Capitalized terms used but not defined herein shall have the meanings
set forth in the Credit Agreement.
Each of the undersigned (a) confirms to the Lenders and the
Administrative Agent that (i) each Credit Document to which such undersigned is
a party continues in full force and effect on and after the date hereof, and is
the legal, valid and binding obligation of such undersigned, enforceable against
such undersigned in accordance with its terms, it being understood that the
Security Agreement shall not become effective until the occurrence of a
Collateralization Date, and (ii) the obligations and liabilities
<PAGE> 7
guaranteed or secured (as applicable) under each Credit Document include,
without limitation, all obligations and liabilities of the Company under the
Credit Agreement, as amended by the Second Amendment (as so amended, the
"AMENDED CREDIT AGREEMENT"); and (b) agrees that each reference in each Credit
Document to the "Credit Agreement" or any similar term shall, after the date
hereof, be deemed to be a reference to the Amended Credit Agreement.
<PAGE> 8
IN WITNESS WHEREOF, each of the undersigned has caused this
Confirmation to be executed and delivered by its duly authorized officer as of
the date first written above.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: ______________/S/_________________
Title: ____________/S/_________________
The Mail Box, Inc.
The Mail Box Data Services, Inc.
Mid-Continent Agencies, Inc.
Mid-Continent Agencies of Illinois, Inc.
Mid-Continent Agencies of NewYork, Inc.
Mid-Continent Agencies of Kentucky, Inc.
Mid-Continent Agencies of Georgia, Inc.
Mid-Continent Agencies of California, Inc.
Impact Telemarketing Group, inc.
Impact Tele-marketing, Inc.
National Credit Management Corporation
Total Early Receivables Management Corporation
Compass Receivables Management Corporation
Bender Direct Mail Service, Inc.
Delivery Verification Service, Inc.
Maher & Associates Mailing Services, Inc.
Metrowebb, Inc.
MWI Laser Group, Inc.
Ameritex mailing Services, Inc.
Nationwide Debt Recovery, Inc.
Compass Receivables Management Holding Corporation
Nationwide Debt Recovery, L.P.
Professional American Collections, Inc.
By: _________________/S/___________________
Title:________________/S/___________________
<PAGE> 9
Accepted and Agreed to this
16th day of November, 1998
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Administrative Agent
By: __________/S/_________________
Title: __________/S/________________
<PAGE> 1
EXHIBIT 10.17 THIRD AMENDMENT TO THE CREDIT AGREEMENT
December 11, 1998
-----------------
Bank of America National Trust
and Savings Association, as Administrative
Agent, and the Lenders party to the Credit
Agreement referred to below
Re: Third Amendment to Credit Agreement
-----------------------------------
Ladies and Gentlemen:
Please refer to the Credit Agreement dated as of March 17, 1998 among
Compass International Services Corporation, various financial institutions and
Bank of America National Trust and Savings Association, as Administrative Agent.
Capitalized terms used but not otherwise defined herein have the meanings
assigned thereto in the Credit Agreement.
The parties hereto agree that:
The definition of "L/C Commitment" shall be amended by deleting the
amount $1,000,000" therein and substituting the amount "$2,000,000" therefor.
Section 8.21 shall be amended by deleting the amount "$6,000,000"
therein and substituting the amount "$10,000,000" therefor.
Except as amended above, the Credit Agreement and the documents
executed pursuant to the Credit Agreement shall remain in full force and effect
and are hereby ratified and confirmed in all respects. This letter amendment
shall be a contract made under and governed by the internal laws of the State of
Illinois.
This letter amendment shall be effective on the date the Administrative
Agent has received counterparts of this letter amendment executed by the
Company, the Administrative Agent and the
<PAGE> 2
Required Lenders (or, in the case of any party from which the Administrative
Agent has not received a counterpart hereof, facsimile confirmation of the
execution of a counterpart by such party).
This letter amendment may be executed in any number of counterparts and
by the different parties on separate counterparts, and each such counterpart
shall be deemed to be an original but all such counterparts shall together
constitute one and the same letter amendment.
The Company agrees to pay the reasonable costs and expenses of the
Administrative Agent (including reasonable attorney's fees and charges) in
connection with the preparation, execution and delivery of this letter
amendment.
Please evidence your agreement to the foregoing by signing and
returning a counterpart of this letter amendment.
Very truly yours,
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: ______________/S/_________________
Title: ____________/S/__________________
Accepted and Agreed:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: _____________/S/__________________
Title: ___________/S/___________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Lender and as a Lender
<PAGE> 3
By: _____________/S/__________________
Title: ___________/S/___________________
FIRST NATIONAL BANK OF MARYLAND
By: ____________/S/____________________
Title: __________/S/_____________________
FLEET NATIONAL BANK
By: ____________/S/____________________
Title: __________/S/_____________________
PNC BANK, NATIONAL ASSOCIATION
By: ____________/S/___________________
Title: __________/S/____________________
<PAGE> 1
EXHIBIT 10.18 LEASE AGREEMENT BETWEEN PETULA ASSOCIATES, LTD. AND COMPASS
INTERNATIONAL SERVICES
TRAMMELL CROW COMPANY
COMMERCIAL LEASE AGREEMENT
PETULA ASSOCIATES, LTD.
LANDLORD
AND
COMPASS INTERNATIONAL SERVICES ("COMPASS")
TENANT
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C>
1. PREMISES, TERM, AND INITIAL IMPROVEMENTS 1
2. BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT 1
3. TAXES 2
4. LANDLORD'S MAINTENANCE 3
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS 3
6. ALTERATIONS 3
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
7. SIGNS 3
8. UTILITIES 4
9. INSURANCE BY TENANT 4
10. SUBROGATION 4
11. CASUALTY DAMAGE 5
12. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE 5
13. USE 5
14. INSPECTION 6
15. ASSIGNMENT AND SUBLETTING 6
16. CONDEMNATION 7
17. SURRENDER OF PREMISES; HOLDING OVER 7
18. QUIET ENJOYMENT 7
19. EVENTS OF DEFAULT 7
20. REMEDIES 8
21. LANDLORD'S DEFAULT 9
22. MORTGAGES 9
23. ENCUMBRANCES 9
24. MISCELLANEOUS 9
25. NOTICES 11
26. HAZARDOUS WASTE 11
</TABLE>
<PAGE> 4
27. LANDLORD'S LIEN 12
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Affiliate 9
Base Rent 1
Building 1
Building's Structure 3
Claimant 8
Collateral 12
Commencement Date 1
Design Professional B-1
Environmental Law 11
Event of Default 7
Hazardous Substances 11
HVAC System 3
Indemnified Parties 5
Initial Improvements 1
Land 1
Landlord 1
Landlord's Mortgagee 9
Law 9
Laws 9
Lease 1
Loss 5
Mortgage 9
New Premises 10
Operating Expenses 2
Permitted Activities 11
Permitted Materials 11
Plans B-1
Premises 1
Primary Lease 9
Proportionate Share 1
rent 2
Repair Period 5
Security Deposit 1
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
substantial completion B-1
substantially completed B-1
Taking 7
Taxes 2
Tenant 1
Tenant Party 9
Term 1
Transfer 6
UCC 12
Vacation Date 6
</TABLE>
<PAGE> 6
247,618 Square Feet
2322 French Settlement
Suites #100 - 300
Dallas, Texas 75237
200170-25 Project #
LEASE AGREEMENT
---------------
This Lease Agreement (this "LEASE") is entered into by PETULA
ASSOCIATES, LTD. ("LANDLORD"), and COMPASS INTERNATIONAL SERVICES ("COMPASS")
("TENANT").
1. PREMISES, TERM, AND INITIAL IMPROVEMENTS.
(a) Landlord leases to Tenant, and Tenant leases from Landlord, the space
depicted on the floor plan attached as EXHIBIT A-1 (the "PREMISES"), which is
part of the approximately 247,618 square foot building (the "BUILDING") located
on the real property described on EXHIBIT A (the "LAND"), subject to the terms
and conditions in this Lease. If more than one building is now or hereafter on
the Land, then all references to "Building" shall collectively refer to all such
buildings unless the context otherwise requires. Landlord and Tenant stipulate
that, as of the date of this Lease, the size of the Premises is 247,618 square
feet and the size of the Building is 247,618 square feet, and Tenant's
"PROPORTIONATE SHARE" is 100%. The Proportionate Share shall be adjusted if the
size of the Premises or the Building (including the addition of new buildings on
the Land) changes.
(b) The Lease term shall be FORTY-NINE (49) months, beginning JANUARY 1, 1999
(the "COMMENCEMENT DATE"), and ending JANUARY 31, 2003 (the "TERM", which
defined term shall include all renewals and extensions of the Term); however, if
the Commencement Date is not the first day of a calendar month, then the Term
shall end FORTY-NINE (49) months after the first day of the first full calendar
month of the Term.
(c) If an EXHIBIT B is attached hereto, Landlord shall construct in the Premises
the improvements (the "INITIAL IMPROVEMENTS") described on the plans and
specifications referenced on EXHIBIT B, and, by occupying the Premises, Tenant
shall have accepted the Premises in their condition, subject to completion of
any punch-list items relating to the Initial Improvements.
<PAGE> 7
(d) If an EXHIBIT B is not attached hereto, then Tenant accepts the Premises in
their "AS-IS" condition; Landlord shall have no obligation to perform or pay for
any repair or other work therein; and Tenant shall obtain and deliver to
Landlord a certificate of occupancy for the Premises from the appropriate
governmental authority.
2. BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT.
(a) Tenant shall pay to Landlord "BASE RENT", in advance, without demand,
deduction or set off, equal to the following amounts for the following periods
of time:
<TABLE>
<CAPTION>
Time Period Monthly Base Rent
<S> <C>
January 1, 1999 through January 31, 2001 $61,904.50
February 1, 2001 through January 31, 2003 $63,967.98
</TABLE>
The first monthly installment, plus the other monthly charges set forth in
section, shall be due on the date hereof; thereafter, monthly installments of
Base Rent shall be due on the first day of each calendar month following the
Commencement Date. If the Term begins on a day other than the first day of a
month or ends on a day other than the last day of a month, the Base Rent and
additional rent for such partial month shall be prorated.
(b) Tenant shall deposit with Landlord on the date hereof EIGHTY-TWO THOUSAND
FIVE HUNDRED THIRTY-NINE AND 32/100 DOLLARS ($82,539.32) the "SECURITY
DEPOSIT"), which shall be held by Landlord to secure Tenant's obligations under
this Lease; however, the Security Deposit is not an advance rental deposit or a
measure of Landlord's damages for an Event of Default (defined below). Landlord
may use any portion of the Security Deposit to satisfy Tenant's unperformed
obligations hereunder, without prejudice to any of Landlord's other remedies. If
so used, Tenant shall pay Landlord an amount that will restore the Security
Deposit to its original amount upon request. In connection with any waiver of a
Tenant default or modification of this Lease, Landlord may require that Tenant
provide Landlord with an additional amount to be held as part of the Security
Deposit. The Security Deposit shall be Landlord's property. The unused portion
of the Security Deposit will be returned to Tenant within a reasonable time
after the end of the Term, provided that Tenant has fully and timely performed
its obligations hereunder throughout the Term.
(c) Tenant shall pay, as additional rent its Proportionate Share of all costs
incurred in owning, operating and maintaining the Land and Building and the
facilities and services provided for the common use of Tenant and any other
tenants of the Building (collectively, "OPERATING EXPENSES"), including the
following items: Taxes (defined below) and the cost of any tax consultant
employed to assist Landlord in determining the fair tax valuation of the
Building and Land; the cost of all utilities used in the Building which are not
billed separately to a tenant of the Building for above-Building-standard
utility consumption; the cost of insurance; the cost of repairs, replacement,
management fees and expenses, landscape maintenance and replacement, security
service (if provided), sewer service (if provided), trash service (if provided),
and a replacement reserve for capital items; the cost of dues, assessments, and
other charges applicable to the Land payable to any property or community owner
association under restrictive covenants or deed restrictions to which the
Premises are subject; and alterations, additions, and improvements made by
Landlord to comply with Law (defined below). On the
<PAGE> 8
same day that Base Rent is due, Tenant shall pay to Landlord an amount equal to
1/12 of Landlord's estimate of Tenant's Proportionate Share of annual Operating
Expenses. The initial monthly payments are based upon Landlord's estimate of the
Operating Expenses for the year in question, and shall be increased or decreased
annually to reflect the projected actual Operating Expenses for that year. If
Tenant's total payments in respect of Operating Expenses for any year are less
than Tenant's Proportionate Share of Operating Expenses for that year, Tenant
shall pay the difference to Landlord within ten days after Landlord's request
therefor; if such payments are more than Tenant's Proportionate Share of
Operating Expenses, Landlord shall retain such excess and credit it against
Tenant's future annual payments. Operating Expenses shall not include the
following: any costs for interest, amortization, or other payments on loans to
Landlord; expenses incurred in leasing or procuring tenants; legal expenses
other than those incurred for the general benefit of the Building's tenants;
allowances, concessions, and other costs of renovating or otherwise improving
space for occupants of the Building or vacant space in the Building; federal
income taxes imposed on or measured by the income of Landlord from the operation
of the Building; rents under ground leases; and costs incurred in selling,
syndicating, financing, mortgaging, or hypothecating any of Landlord's interests
in the Building. There shall be no duplication of costs for reimbursements in
calculating Operating Expenses. The amounts of the initial monthly Base Rent and
Tenant's Proportionate Share of Operating Expenses (and the part thereof
attributable to Taxes) are as follows:
<TABLE>
<S> <C>
Base Rent (Section).............................................................. $61,904.50
Operating Expenses, excluding Taxes (Section).................................... $10,111.06
(Insurance $412.69; CAM 9,698.37)
Taxes (Sections and)............................................................. $10,523.76
Total initial monthly payment $82,539.32
==========
</TABLE>
(d) If during any year the Building is less than 100% occupied, then, for
purposes of calculating Tenant's Proportionate Share of Operating Expenses for
that year, the amount of Operating Expenses that fluctuate with Building
occupancy shall be "grossed-up" to the amount which, in Landlord's reasonable
estimation, they would have been had the Building been 100% occupied for that
entire year.
(e) If any payment required of Tenant under this Lease is not paid when due,
Landlord may charge Tenant a fee equal to 5% of the delinquent payment to
reimburse Landlord for its cost and inconvenience incurred as a consequence of
Tenant's delinquency.
(f) All payments and reimbursements required to be made by Tenant under this
Lease shall constitute "RENT" (herein so called).
<PAGE> 9
3. TAXES.
(a) Landlord shall pay all taxes, assessments and governmental charges whether
federal, state, county, or municipal and whether they are imposed by taxing or
management districts or authorities presently existing or hereafter created
(collectively, "TAXES") that accrue against the Premises, the Land and the
Building. If, during the Term, there is levied, assessed or imposed on Landlord
a capital levy or other tax directly on the rent or a franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon rent, then all
such taxes, assessments, levies or charges, or the part thereof so measured or
based, shall be included within the term "Taxes". If the Building is occupied by
more than one tenant and the cost of any improvements constructed in the
Premises is disproportionately higher than the cost of improvements constructed
in the premises of other tenants of the Building, then Landlord may require that
Tenant pay the amount of Taxes attributable to such improvements in addition to
its Proportionate Share of other Taxes.
(b) Tenant shall before delinquency pay all taxes levied or assessed against any
personal property, fixtures or alterations placed in the Premises and upon the
request of Landlord, deliver to Landlord receipts from the applicable taxing
authority or other evidence acceptable to Landlord to verify that such taxes
have been paid. If any such taxes are levied or assessed against Landlord or
Landlord's property and Landlord pays them or the assessed value of Landlord's
property is increased thereby and Landlord pays the increased taxes, then Tenant
shall pay to Landlord such taxes within ten days after Landlord's request
therefor.
4. LANDLORD'S MAINTENANCE.
(a) This Lease is intended to be a net lease; accordingly, Landlord's
maintenance obligations are limited to the replacement of the Building's roof
and maintenance of the foundation and structural members of the exterior walls
(collectively, the "BUILDING'S STRUCTURE"); however, Landlord shall not be
responsible for any such work until Tenant delivers to Landlord written notice
of the need therefor or for alterations to the Building's Structure required by
Law because of Tenant's use of the Premises (which alterations shall be
performed by Tenant). The Building's Structure does not include skylights,
windows, glass or plate glass, doors, special store fronts or office entries,
all of which shall be maintained by Tenant. Landlord's liability for any
defects, repairs, replacement or maintenance for which Landlord is responsible
hereunder shall be limited to the cost of performing such work.
(b) Additionally, Landlord shall, at Tenant's expense, maintain the parking
areas, driveways, alleys and grounds surrounding the Premises in a clean and
sanitary condition, consistent with the operation of a first-class
office/warehouse building, including prompt maintenance, repairs and
replacements of (1) any drill or spur tract servicing the Premises, (2) the
exterior of the Building (including painting), (3) sprinkler systems and sewage
lines, and (4) any other items normally associated with the foregoing. Tenant
shall promptly notify Landlord of any work required to be performed under this
Section 4.(b), and Landlord shall not be responsible for performing
<PAGE> 10
such work until Tenant delivers to Landlord such notice. All costs in performing
the work described in this Section 4.(b) shall be included in Operating
Expenses.
5. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS.
(a) Tenant shall maintain all parts of the Premises (except for maintenance work
which Landlord is expressly responsible for under Section ) in good condition
and promptly make all necessary repairs and replacements to the Premises. Tenant
shall repair and pay for any damage caused by a Tenant Party (defined below) or
caused by Tenant's default hereunder.
(b) Tenant shall maintain the hot water equipment and the heating, air
condition, and ventilation equipment and system (the "HVAC SYSTEM") in good
repair and condition and in accordance with Law and with such equipment
manufacturers' suggested operation/maintenance service program; such obligation
shall include replacement of all equipment necessary to maintain such equipment
and system in good working order. Within ten days after the Commencement Date,
Tenant shall enter into regularly scheduled preventive maintenance/service
contracts for such equipment, each in compliance with Landlord's specifications
and otherwise in form and substance and with a contractor reasonably acceptable
to Landlord, and deliver copies thereof to Landlord. At least 14 days before the
end of the Term, Tenant shall deliver to Landlord a certificate from an engineer
reasonably acceptable to Landlord certifying that the hot water equipment and
the HVAC System are then in good repair and working order.
(6) ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Landlord shall not be required to notify Tenant of whether it consents to any
alteration, addition or improvements until it has received plans and
specifications therefor which are sufficiently detailed to allow construction of
the work depicted thereon to be performed in a good and workmanlike manner, and
has had a reasonable opportunity to review them. If the alteration, addition or
improvement will affect the Building's Structure, HVAC System, or mechanical,
electrical, or plumbing systems, then the plans and specifications therefor must
be prepared by a licensed engineer reasonably acceptable to Landlord. Landlord's
approval of any plans and specifications shall not be a representation that the
plans or the work depicted thereon will comply with law or be adequate for any
purpose, but shall merely be Landlord's consent to performance of the work. Upon
completion of any alteration, addition, or improvement, Tenant shall deliver to
Landlord accurate, reproducible as-built plans therefor. Tenant may erect
shelves, bins, machinery and trade fixtures provided that such items do not
alter the basic character of the Premises or the Building; do not overload or
damage the same; and may be removed without damage to the Premises. Unless
Landlord specifies in writing otherwise, all alterations, additions, and
improvements shall be Landlord's property when installed in the Premises. All
work performed by a Tenant Party in the Premises (including that relating to the
installations, repair, replacement, or removal of any item) shall be performed
in accordance with Law and with Landlord's specifications and requirements, in a
good and workmanlike manner, and so as not to damage or alter the Building's
Structure or the Premises. In connection with any such alteration, addition, or
improvement, Tenant shall pay to Landlord an administration fee of 10% of all
costs incurred for such work.
<PAGE> 11
7. SIGNS. Tenant shall not place, install or attach any signage, decorations,
advertising media, blinds draperies, window treatments, bars, or security
installations to the Premises or the Building without Landlord's prior written
approval. Tenant shall repair, paint, and/or replace any portion of the Premises
or the Building damaged or altered as a result of its signage when it is removed
(including, without limitation, any discoloration of the Building). Tenant shall
not make any changes to the exterior of the Premises or the Building, install
any exterior lights, decorations, balloons, flags, pennants, banners or
paintings, or erect or install any signs, windows or door lettering, decals,
window or storefront stickers, placards, decorations or advertising media of any
type that is visible from the exterior of the Premises without Landlord's prior
written consent. Landlord shall not be required to notify Tenant of whether it
consents to any sign until it has received detailed, to-scale drawings thereof
specifying design, material composition, color scheme, and method of
installation, and has had a reasonable opportunity to review them.
8. UTILITIES. Tenant shall obtain and pay for all water, gas, electricity, heat,
telephone, sewer, sprinkler charges and other utilities and services used at the
Premises, together with any taxes, penalties, surcharges, maintenance charges,
and the like pertaining to the Tenant's use of the Premises. Landlord may, at
Tenant's expense, separately meter and bill Tenant directly for its use of any
such utility service, in which case, the amount separately billed to Tenant for
Building-standard utility service shall not be duplicated in Tenant's obligation
to pay additional rent under Section . Landlord shall not be liable for any
interruption or failure of utility service to the Premises. All amounts due from
Tenant under this Section shall be payable within ten days after Landlord's
request therefor.
9. INSURANCE BY TENANT. Tenant shall, during the Lease Term, procure at its
expense and keep in force the following insurance:
(a) Commercial general liability insurance naming the Landlord as an additional
insured against any and all claims for bodily and property damage occurring in,
or about the Premises arising out of Tenant's use and occupancy of the Premises.
Such insurance shall have a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000)
aggregate limit and excess umbrella liability insurance in the amount of Two
Million Dollars. If the Tenant has other locations that it owns or leases the
policy shall include an aggregate limit per location endorsement. Such liability
insurance shall be primary and not contributing to any insurance available to
Landlord and Landlord's insurance shall be in excess thereto. In no event shall
the limits of such insurance be considered as limiting the liability of Tenant
under this lease.
(b) Personal property insurance insuring all equipment, trade fixtures,
inventory, fixtures and personal property located on or in the Premises for
perils covered by the causes of loss - special form (all risk) [and in addition,
coverage for flood, earthquake and boiler and machinery (if applicable)]. Such
insurance shall be written on a replacement cost basis in an amount equal to one
hundred percent (100%) of the full replacement value of the aggregate of the
foregoing.
<PAGE> 12
(c) Workers' compensation insurance in accordance with statutory law and
employers' liability insurance with a limit of not less than One Hundred
Thousand ($100,000) per accident, Five Hundred Thousand ($500,000) disease,
policy limit and One Hundred Thousand ($100,000) disease, each employee.
(d) Such other insurance as Landlord deems necessary and prudent or required by
Landlord's beneficiaries or mortgagees of any deed of trust or mortgage
encumbering the Premises.
The policies required to be maintained by Tenant shall be with companies rated
AX or better in the most current issue of Best's Insurance Reports. Insurers
shall be licensed to do business in the state in which the Premises are located
and domiciled in the USA. [Any deductible amounts under any insurance policies
required hereunder shall not exceed $1,000.] Certificates of insurance
[(certified copies of the policies may be required)] shall be delivered to
Landlord prior to the commencement date and annually thereafter at least thirty
(30) days prior to the expiration date of the old policy. Tenant shall have the
right to provide insurance coverage which it is obligated to carry pursuant to
the terms hereof in a blanket policy, provided such blanket policy expressly
affords coverage to the Premises and to Landlord as required by this Lease. Each
policy of insurance shall provide notification to Landlord at least thirty (30)
days prior to any cancellation or modification to reduce the insurance coverage.
[In the event Tenant does not purchase the insurance required by this Lease or
keep the same in full force and effect, Landlord may, but shall not be obligated
to purchase the necessary insurance and pay the premium. The Tenant shall repay
to Landlord, as additional rent, the amount so paid promptly upon demand. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorneys' fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance.]
10. SUBROGATION. Landlord and Tenant hereby mutually waive their respective
rights of recovery against each other for any loss of, or damage to, either
parties' property, to the extent that such loss or damage is insured by an
insurance policy required to be in effect at the time of such loss or damage.
Each party shall obtain any special endorsements, if required by its insurer
whereby the insurer waives its rights of subrogation against the other party.
The provisions of this clause shall not apply in those instances in which waiver
of subrogation would cause either party's insurance coverage to be voided or
otherwise made uncollectible.
<PAGE> 13
11. CASUALTY DAMAGE.
(a) Tenant immediately shall give written notice to Landlord of any damage to
the Premises or the Building. If the Premises or the Building are totally
destroyed by an insured peril, or so damaged by an insured peril that, in
Landlord's estimation, rebuilding or repairs cannot be substantially completed
within 180 days after the date of Landlord's actual knowledge of such damage,
then either Landlord or (if a Tenant Party did not cause such damage) Tenant may
terminate this Lease by delivering to the other written notice thereof within 30
days after such damage, in which case, the rent shall be abated during the
unexpired portion of this Lease, effective upon the date such damage occurred.
Time is of the essence with respect to the delivery of such notices.
(b) Subject to Section , if this Lease is not terminated under Section , then
Landlord shall restore the Premises to substantially its previous condition,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, additions and other improvements or personal
property required to be covered by Tenant's insurance under Section . If the
Premises are untenantable, in whole or in part, during the period beginning on
the date such damage occurred and ending on the date of substantial completion
of Landlord's repair or restoration work (the "REPAIR PERIOD"), then the rent
for such period shall be reduced to such extent as may be fair and reasonable
under the circumstances and the Term shall be extended by the number of days in
the Repair Period.
(c) If the Premises are destroyed or substantially damaged by any peril not
covered by the insurance maintained by Landlord or any Landlord's Mortgagee
(defined below) requires that insurance proceeds be applied to the indebtedness
secured by its Mortgage (defined below) or to the Primary Lease (defined below)
obligations, Landlord may terminate this Lease by delivering written notice of
termination to Tenant within 30 days after such destruction or damage or such
requirement is made known by any such Landlord's Mortgagee, as applicable,
whereupon all rights and obligations hereunder shall cease and terminate, except
for any liabilities of Tenant which accrued before this Lease is terminated.
<PAGE> 14
12. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE.
(a) Subject to Section , Tenant shall indemnify, defend, and hold harmless
Landlord, its successors, assigns, agents, employees, contractors, partners,
directors, officers and affiliates (collectively, the "INDEMNIFIED PARTIES")
from and against all fines, suits, losses, costs, liabilities, claims, demands,
actions and judgments of every kind or character arising from Tenant's failure
to perform its covenants hereunder, recovered from or asserted against any of
the Indemnified Parties on account of any Loss (defined below) to the extent
that any such Loss may be incident to, arise out of, or be caused, either
proximately or remotely, wholly or in part, by a Tenant Party or any other
person entering upon the Premises under or with a Tenant Party's express or
implied invitation or permission, arising from or out of the occupancy or use by
a Tenant Party or arising from or out of any occurrence in the Premises,
howsoever caused, or suffered by, recovered from or asserted against any of the
Indemnified Parties by the employees, agents, contractors, or invitees of Tenant
or its subtenants or assignees, REGARDLESS OF WHETHER LANDLORD'S NEGLIGENCE
CAUSED SUCH LOSS OR DAMAGE. HOWEVER, SUCH INDEMNIFICATION OF THE INDEMNIFIED
PARTIES BY TENANT SHALL NOT BE APPLICABLE IF SUCH LOSS, DAMAGE, OR INJURY IS
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY OF ITS
DULY AUTHORIZED AGENTS OR EMPLOYEES.
(b) Landlord shall not be liable to Tenant or those claiming by, through, or
under Tenant for any injury to or death of any person or persons or the damage
to or theft, destruction, loss, or loss of use of any property or inconvenience
(a "LOSS") caused by casualty, theft, fire, third parties, or any other matter
(including Losses arising through repair or alteration of any part of the
Building, or failure to make repairs, or from any other cause), REGARDLESS OF
WHETHER THE NEGLIGENCE OF EITHER PARTY CAUSED SUCH LOSS IN WHOLE OR IN PART.
Landlord and Tenant each waives any claim it might have against the other for
any damage to or theft, destruction, loss, or loss of use of any property, to
the extent the same is insured against under any insurance policy maintained by
it that covers the Building, the Premises, Landlord's or Tenant's fixtures,
personal property, leasehold improvements, or business, or is required to be
insured against by the waiving party under the terms hereof, REGARDLESS OF
WHETHER THE NEGLIGENCE OR FAULT OF THE OTHER PARTY CAUSED SUCH LOSS; HOWEVER,
LANDLORD'S WAIVER SHALL NOT APPLY TO ANY DEDUCTIBLE AMOUNTS MAINTAINED BY
LANDLORD UNDER ITS INSURANCE. Each party shall cause its insurance carrier to
endorse all applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party.
<PAGE> 15
13. USE.
(a) The Premises shall be used only for receiving, storing, shipping and selling
products, materials and merchandise made or distributed by Tenant and for such
other lawful purposes as may be incidental thereto; however, no retail sales may
be made from the Premises. Tenant shall not use the Premises to receive, store
or handle any product, material or merchandise that is explosive or highly
inflammable or hazardous. Outside storage is prohibited. Tenant shall be solely
responsible for complying with all Laws applicable to the use, occupancy, and
condition of the Premises. Tenant shall not permit any objectionable or
unpleasant odors, smoke, dust, gas, light, noise or vibrations to emanate from
the Premises; nor take any other action that would constitute a nuisance or
would disturb, unreasonably interfere with, or endanger Landlord or any other
person; nor permit the Premises to be used for any purpose or in any manner that
would void the insurance thereon, increase the insurance risk, or cause the
disallowance of any sprinkler credits. Tenant shall pay to Landlord on demand
any increase in the cost of any insurance on the Premises or the Building
incurred by Landlord, which is caused by Tenant's use of the Premises or because
Tenant vacates the Premises.
(b) Tenant and its employees and invitees shall have the non-exclusive right to
use, in common with others, any parking areas associated with the Premises which
Landlord has designated for such use, subject to such reasonable rules and
regulations as Landlord may promulgate from time to time and rights of ingress
and egress of other tenants and their employees, agents and invitees. Landlord
shall not be responsible for enforcing Tenant's parking rights against third
parties.
14. INSPECTION. Landlord and Landlord's agents and representatives may enter the
Premises during business hours to inspect the Premises; to make such repairs as
may be required or permitted under this Lease; to perform any unperformed
obligations of Tenant hereunder; and to show the Premises to prospective
purchasers, mortgagees, ground lessors, and (during the last 12 months of the
Term) tenants. During the last 12 months of the Term, Landlord may erect a sign
on the Premises indicating that the Premises are available. Tenant shall notify
Landlord in writing of its intention to vacate the Premises at least 60 days
before Tenant will vacate the Premises; such notice shall specify the date on
which Tenant intends to vacate the Premises (the "VACATION DATE"). At least 30
days before the Vacation Date, Tenant shall arrange to meet with Landlord for a
joint inspection of the Premises. After such inspection, Landlord shall prepare
a list of items that Tenant must perform before the Vacation Date. If Tenant
fails to arrange for such inspection, then Landlord may conduct such inspection
and Landlord's determination of the work Tenant is required to perform before
the Vacation Date shall be conclusive. If Tenant fails to perform such work
before the Vacation Date, then Landlord may perform such work at Tenant's cost.
Tenant shall pay all costs incurred by Landlord in performing such work within
ten days after Landlord's request therefor.
<PAGE> 16
15. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior written consent of Landlord, advertise
that any portion of the Premises is available for lease or cause or allow any
such advertisement, assign, transfer, or encumber this Lease or any estate or
interest herein, whether directly or by operation of law, permit any other
entity to become Tenant hereunder by merger, consolidation, or other
reorganization, if Tenant is an entity other than a corporation whose stock is
publicly traded, permit the transfer of an ownership interest in Tenant so as to
result in a change in the current control of Tenant, sublet any portion of the
Premises, grant any license, concession, or other right of occupancy of any
portion of the Premises, or permit the use of the Premises by any parties other
than Tenant (any of the events listed in Sections through being a "TRANSFER").
If Tenant requests Landlord's consent to a Transfer, then Tenant shall provide
Landlord with a written description of all terms and conditions of the proposed
Transfer, copies of the proposed documentation, and the following information
about the proposed transferee: name and address; reasonably satisfactory
information about its business and business history; its proposed use of the
Premises; banking, financial, and other credit information; and general
references sufficient to enable Landlord to determine the proposed transferee's
creditworthiness and character. Tenant shall reimburse Landlord for its
reasonable attorneys' fees and other expenses incurred in connection with
considering any request for its consent to a Transfer. If Landlord consents to a
proposed Transfer, then the proposed transferee shall deliver to Landlord a
written agreement whereby it expressly assumes the Tenant's obligations
hereunder (however, any transferee of less than all of the space in the Premises
shall be liable only for obligations under this Lease that are properly
allocable to the space subject to the Transfer, and only to the extent of the
rent it has agreed to pay Tenant therefor) and, in the case of an assignment and
subletting, Tenant shall pay to Landlord's leasing contractor a commission
therefor equal to 6% of the consideration payable in respect thereof. Landlord's
consent to a Transfer shall not release Tenant from performing its obligations
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default occurs
while the Premises or any part thereof are subject to a Transfer, then Landlord,
in addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Tenant's rent
obligations. Tenant authorizes its transferees to make payments of rent directly
to Landlord upon receipt of notice from Landlord to do so.
(b) Landlord may, within 30 days after submission of Tenant's written request
for Landlord's consent to a Transfer, cancel this Lease (or, as to a subletting
or assignment, cancel as to the portion of the Premises proposed to be sublet or
assigned) as of the date the proposed Transfer was to be effective. If Landlord
cancels this Lease as to any portion of the Premises, then this Lease shall
cease for such portion of the Premises and Tenant shall pay to Landlord all rent
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer. Thereafter, Landlord may lease such portion of
the Premises to the prospective transferee (or to any other person) without
liability to Tenant.
<PAGE> 17
(c) Tenant hereby assigns, transfers and conveys all consideration received by
Tenant under any Transfer, which are in excess of the rents payable by Tenant
under this Lease, and Tenant shall hold such amounts in trust for Landlord and
pay them to Landlord within ten days after receipt.
16. CONDEMNATION. If more than 50% of the Premises is taken for any public or
quasi-public use by right of eminent domain or private purchase in lieu thereof
(a "TAKING "), and the Taking prevents or materially interferes with the use of
the remainder of the Premises for the purpose for which they were leased to
Tenant, either party may terminate this Lease by delivering to the other written
notice thereof within 30 days after the Taking, in which case rent shall be
abated during the unexpired portion of the Term, effective on the date of such
Taking. If less than 50% of the Premises are subject to a Taking or more than
50% of the Premises are subject to a Taking, but the Taking does not prevent or
materially interfere with the use of the remainder of the Premises for the
purpose for which they were leased to Tenant, then neither party may terminate
this Lease, but the rent payable during the unexpired portion of the Term shall
be reduced to such extent as may be fair and reasonable under the circumstances.
All compensation awarded for any Taking shall be the property of Landlord and
Tenant assigns any interest it may have in any such award to Landlord; however,
Landlord shall have no interest in any award made to Tenant for loss of business
or goodwill or for the taking of Tenant's trade fixtures, if a separate award
for such items is made to Tenant.
<PAGE> 18
17. SURRENDER OF PREMISES; HOLDING OVER.
(a) No act by Landlord shall be an acceptance of a surrender of the Premises,
and no agreement to accept a surrender of the Premises shall be valid unless it
is in writing and signed by Landlord. At the end of the Term or the termination
of Tenant's right to possess the Premises, Tenant shall deliver to Landlord the
Premises with all improvements located thereon in good repair and condition,
reasonable wear and tear (subject however to Tenant's maintenance obligations)
excepted, and with the HVAC System and hot water equipment, light and light
fixtures (including ballasts), and overhead doors and related equipment in good
working order, deliver to Landlord all keys to the Premises, and remove all
signage placed on the Premises, the Building, or the Land by or at Tenant's
request. All fixtures, alterations, additions, and improvements (whether
temporary or permanent) shall be Landlord's property and shall remain on the
Premises except as provided in the next two sentences. Provided that Tenant has
performed all of its obligations hereunder, Tenant may remove all unattached
trade fixtures, furniture, and personal property placed in the Premises by
Tenant (but Tenant shall not remove any such item which was paid for, in whole
or in part, by Landlord). Additionally, Tenant shall remove such alterations,
additions, improvements, fixtures, equipment, wiring, furniture, and other
property as Landlord may request, provided such request is made within six
months after the end of the Term. All items not so removed shall, at the option
of Landlord, be deemed abandoned by Tenant and may be appropriated, sold,
stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant
and without any obligation to account for such items and Tenant shall pay for
the costs incurred by Landlord in connection therewith. Any such disposition
shall not be considered a strict foreclosure or other exercise of Landlord's
rights in respect of the security interest granted under Section . All work
required of Tenant under this Section shall be coordinated with Landlord and be
done in a good and workmanlike manner, in accordance with all Laws, and so as
not to damage the Building or unreasonably interfere with other tenants' use of
their premises. Tenant shall, at its expense, repair all damage caused by any
work performed by Tenant under this Section .
(b) If Tenant fails to vacate the Premises at the end of the Term, then Tenant
shall be a Tenant at will and Tenant shall pay, in addition to the other rent
due hereunder, a daily base rental equal to 200% of the daily Base Rent payable
during the last month of the Term. Additionally, Tenant shall defend, indemnify,
and hold harmless Landlord from any damage, liability and expense (including
attorneys' fees and expenses) incurred because of such holding over. No payments
of money by Tenant to Landlord after the Term shall reinstate, continue or
extend the Term, and no extension of this Term shall be valid unless it is in
writing and signed by Landlord and Tenant.
18. QUIET ENJOYMENT. Provided Tenant has fully performed its obligations under
this Lease, Tenant shall peaceably and quietly hold and enjoy the Premises for
the Term, without hindrance from Landlord or any party claiming by, through, or
under Landlord, but not otherwise.
19. EVENTS OF DEFAULT. Each of the following events shall constitute an "EVENT
OF DEFAULT" under this Lease:
<PAGE> 19
(a) Tenant fails to pay any rent when due or any payment or reimbursement
required under any other lease with Landlord when due, and in either case such
failure continues for a period of five days from the date such payment was due.
(b) The filing of a petition by or against Tenant or any guarantor of Tenant's
obligations hereunder in any bankruptcy or other insolvency proceeding; seeking
any relief under any debtor relief Law; for the appointment of a liquidator,
receiver, trustee, custodian, or similar official for all or substantially all
of Tenant's property or for Tenant's interest in this Lease; or for
reorganization or modification of Tenant's capital structure (however, if any
such petition is filed against Tenant, then the filing of such petition shall
not constitute an Event of Default, unless it is not dismissed within 45 days
after the filing thereof).
(c) Tenant vacates all or a substantial portion of the Premises or fails to
continuously operate its business at the Premises for the permitted use set
forth herein.
(d) Tenant fails to discharge any lien placed upon the Premises in violation of
Section within five days after any such lien or encumbrance is filed against the
Premises.
(e) Tenant fails to comply with any term, provision or covenant of this Lease
(other than those listed in this Section ), and such failure continues for 20
days after written notice thereof to Tenant.
20. REMEDIES.
(a) Upon any Event of Default, Landlord may, in addition to all other rights and
remedies afforded Landlord hereunder or by Law, take any of the following
actions:
(i) Terminate this Lease by giving Tenant written notice thereof, in
which event, Tenant shall pay to Landlord the sum of all rent accrued
hereunder through the date of termination, all amounts due under
Section , and an amount equal to the total rent that Tenant would have
been required to pay for the remainder of the Term discounted to
present value at a per annum rate equal to the "Prime Rate" as
published on the date this Lease is terminated by The Wall Street
Journal, Southwest Edition, in its listing of "Money Rates", minus the
then present fair rental value of the Premises for such period,
similarly discounted; or
(ii) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in
which event Tenant shall pay to Landlord all rent and other amounts
accrued hereunder to the date of termination of possession, all amounts
due from time to time under Section , and all rent and other sums
required hereunder to be paid by Tenant during the remainder of the
Term, diminished by any net sums thereafter received by Landlord
through reletting the Premises during such period; however, Landlord
shall not be obligated to relet the Premises and shall not
<PAGE> 20
be liable for, nor shall Tenant's obligations hereunder be diminished
because of, Landlord's failure to relet the Premises or to collect rent
due for a reletting. Tenant shall not be entitled to the excess of any
consideration obtained by reletting over the rent due hereunder.
Reentry by Landlord in the Premises shall not affect Tenant's
obligations hereunder for the unexpired Term; rather, Landlord may,
from time to time, bring action against Tenant to collect amounts due
by Tenant, without the necessity of Landlord's waiting until the
expiration of the Term. Unless Landlord delivers written notice to
Tenant expressly stating that it has elected to terminate this Lease,
all actions taken by Landlord to exclude or dispossess Tenant of the
Premises shall be deemed to be taken under this Section . If Landlord
elects to proceed under this Section , it may at any time elect to
terminate this Lease under Section .
Additionally, without notice, Landlord may alter locks or other security devices
at the Premises to deprive Tenant of access thereto, and Landlord shall not be
required to provide a new key or right of access to Tenant.
(b) Tenant shall pay to Landlord all costs incurred by Landlord (including court
costs and reasonable attorneys' fees and expenses) in obtaining possession of
the Premises, removing and storing Tenant's or any other occupant's property,
repairing, restoring, altering, remodeling, or otherwise putting the Premises
into condition acceptable to a new tenant, if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting all or any part of the
Premises (including brokerage commissions, cost of tenant finish work, and other
costs incidental to such reletting), performing Tenant's obligations which
Tenant failed to perform, and enforcing, or advising Landlord of, its rights,
remedies, and recourses. Landlord's acceptance of rent following an Event of
Default shall not waive Landlord's rights regarding such Event of Default.
Landlord's receipt of rent with knowledge of any default by Tenant hereunder
shall not be a waiver of such default, and no waiver by Landlord of any
provision of this Lease shall be deemed to have been made unless set forth in
writing and signed by Landlord. No waiver by Landlord of any violation or breach
of any of the terms contained herein shall waive Landlord's rights regarding any
future violation of such term or violation of any other term. If Landlord
repossesses the Premises pursuant to the authority herein granted, then Landlord
shall have the right to keep in place and use or remove and store, at Tenant's
expense, all of the furniture, fixtures, equipment and other property in the
Premises, including that which is owned by or leased to Tenant at all times
before any foreclosure thereon by Landlord or repossession thereof by any lessor
thereof or third party having a lien thereon. Landlord may relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person (a "CLAIMANT") who presents to Landlord a copy of any instrument
represented by Claimant to have been executed by Tenant (or any predecessor of
Tenant) granting Claimant the right under various circumstances to take
possession of such furniture, fixtures, equipment or other property, without the
necessity on the part of Landlord to inquire into the authenticity or legality
of the instrument. Landlord may, at its option and without prejudice to or
waiver of any rights it may have, escort Tenant to the Premises to retrieve any
personal belongings of Tenant and/or its employees not covered by the Landlord's
statutory lien or the security interest described in Section or obtain a list
from Tenant of the personal property of Tenant and/or its employees that is not
covered by the Landlord's statutory lien or the security interest described in
Section , and make such property available to Tenant and/or Tenant's employees;
however, Tenant first shall pay in cash all costs and estimated expenses to be
incurred in connection with the removal of such property and making it
available. The rights of
<PAGE> 21
Landlord herein stated are in addition to any and all other rights that Landlord
has or may hereafter have at law or in equity, and Tenant agrees that the rights
herein granted Landlord are commercially reasonable.
21. LANDLORD'S DEFAULT. If Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure, Tenant's exclusive remedy shall be an action for damages. Unless
Landlord fails to so cure such default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. Liability of Landlord to Tenant
for any default by Landlord, shall be limited to actual, direct, but not
consequential, damages therefor and shall be recoverable only from the interest
of Landlord in the Building and the Land, and neither Landlord nor Landlord's
owners shall have any personal liability therefor.
22. MORTGAGES.
(a) This Lease shall be subordinate to any deed of trust, mortgage or other
security instrument (a "MORTGAGE"), and any ground lease, master lease, or
primary lease (a "PRIMARY LEASE") that now or hereafter covers any portion of
the Premises (the mortgagee under any Mortgage or the lessor under any Primary
Lease is referred to herein as "LANDLORD'S MORTGAGEE"), and to increases,
renewals, modifications, consolidations, replacements, and extensions thereof.
However, any Landlord's Mortgagee may elect to subordinate its Mortgage or
Primary Lease (as the case may be) to this Lease by delivering written notice
thereof to Tenant. The provisions of this Section shall be self-operative, and
no further instrument shall be required to effect such subordination; however,
Tenant shall from time to time within ten days after request therefor, execute
any instruments that may be required by any Landlord's Mortgagee to evidence the
subordination of this Lease to any such Mortgage or Primary Lease. If Tenant
fails to execute the same within such ten-day period, Landlord may execute the
same as attorney-in-fact for Tenant.
(b) Tenant shall attorn to any party succeeding to Landlord's interest in the
Premises, whether by purchase, foreclosure, deed in lieu of foreclosure, power
of sale, termination of lease, or otherwise, upon such party's request, and
shall execute such agreements confirming such attornment as such party may
reasonably request. Tenant shall not seek to enforce any remedy it may have for
any default on the part of Landlord without first giving written notice by
certified mail, return receipt requested, specifying the default in reasonable
detail to any Landlord's Mortgagee whose address has been given to Tenant, and
affording such Landlord's Mortgagee a reasonable opportunity to perform
Landlord's obligations hereunder.
(c) Notwithstanding any such attornment or subordination of a Mortgage or
Primary Lease to this Lease, the Landlord's Mortgagee shall not be liable for
any acts of any previous landlord, shall not be obligated to install the Initial
Improvements, and shall not be bound by any amendment to which it did not
consent in writing nor any payment of rent made more than one month in advance.
23. ENCUMBRANCES. Tenant has no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind Landlord's property or the interest
<PAGE> 22
of Landlord or Tenant in the Premises or to charge the rent for any claim in
favor of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs. Tenant shall pay or
cause to be paid all sums due for any labor performed or materials furnished in
connection with any work performed on the Premises by or at the request of
Tenant. Tenant shall give Landlord immediate written notice of the placing of
any lien or encumbrance against the Premises.
24. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall include any other gender, and
words in the singular shall include the plural, unless the context otherwise
requires. The captions inserted in this Lease are for convenience only and in no
way affect the interpretation of this Lease. The following terms shall have the
following meanings: "LAWS" shall mean all federal, state, and local laws,
rules, and regulations; all court orders, governmental directives, and
governmental orders; and all restrictive covenants affecting the Property, and
"LAW" shall mean any of the foregoing; "AFFILIATE" shall mean any person or
entity which, directly or indirectly, controls, is controlled by, or is under
common control with the party in question; and "TENANT PARTY" shall include
Tenant, any assignees claiming by, through, or under Tenant, any subtenants
claiming by, through, or under Tenant, and any of their respective agents,
contractors, employees, and invitees.
(b) Landlord may transfer and assign, in whole or in part, its rights and
obligations in the Building and property that are the subject to this Lease, in
which case Landlord shall have no further liability hereunder. Each party shall
furnish to the other, promptly upon demand, a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
(c) Whenever a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever
which are beyond the control of Landlord.
(d) Tenant shall, from time to time, within ten days after request of Landlord,
deliver to Landlord, or Landlord's designee, a certificate of occupancy for the
Premises, financial statements for itself and any guarantor of its obligations
hereunder, evidence reasonably satisfactory to Landlord that Tenant has
performed its obligations under this Lease (including evidence of the payment of
the Security Deposit), and an estoppel certificate stating that this Lease is in
full effect, the date to which rent has been paid, the unexpired Term and such
other factual matters pertaining to this Lease as may be requested by Landlord.
Tenant's obligation to furnish the above-described items in a timely fashion is
a material inducement for Landlord's execution of this Lease. If Tenant fails to
execute any such estoppel certificate within such ten-day period, Landlord may
do so as attorney-in-fact for Tenant.
<PAGE> 23
(e) This Lease constitutes the entire agreement of the Landlord and Tenant with
respect to the subject matter of this Lease, and contains all of the covenants
and agreements of Landlord and Tenant with respect thereto. Landlord and Tenant
each acknowledge that no representations, inducements, promises or agreements,
oral or written, have been made by Landlord or Tenant, or anyone acting on
behalf of Landlord or Tenant, which are not contained herein, and any prior
agreements, promises, negotiations, or representations not expressly set forth
in this Lease are of no effect. This Lease may not be altered, changed or
amended except by an instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed by the end of the
Term shall survive, including, without limitation, all payment obligations with
respect to Taxes and insurance and all obligations concerning the condition and
repair of the Premises. Upon the end of the Term and before Tenant vacates the
Premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the Premises in good condition and repair,
reasonable wear and tear excluded. Tenant shall also, prior to vacating the
Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's
obligation hereunder for Operating Expenses for the year in which the Term ends.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied as the case
may be. Any Security Deposit held by Landlord may be credited against the amount
due by Tenant under this Section .
(g) Landlord may at any time during the Term, at Landlord's expense, remove
Tenant from the Premises and relocate Tenant to other space in the Building or
any other building owned or managed by Landlord in the vicinity of the Building
(the "NEW PREMISES"), which is approximately the same dimensions and size and
is improved in such a manner so that the New Premises shall be comparable in its
interior design and decoration to the Premises; however, if Landlord exercises
Landlord's election to relocate Tenant to the New Premises, then Tenant shall
not be required to pay a higher Base Rent for the New Premises. Nothing herein
contained shall relieve Tenant, or imply that Tenant is relieved, of the
liability for or obligation to pay any additional rent due by reason of any of
the other provisions of this Lease, which provisions shall be applied to the New
Premises. Landlord's election to relocate Tenant shall not terminate this Lease
or release Tenant, in whole or in part, from Tenant's obligation to perform its
obligations hereunder for the full Term. If any such relocation occurs, this
Lease shall continue in full force with no change in the terms or conditions
hereof other than the substitution of the New Premises for the Premises
specified in Section , and if the size of the New Premises differs from the
Premises, the Proportionate Share shall be adjusted. Upon request from Landlord,
Tenant shall execute an amendment to this Lease reflecting such changes.
(h) If any provision of this Lease is illegal, invalid or unenforceable, then
the remainder of this Lease shall not be affected thereby, and in lieu of each
such provision, there shall be added, as a part of this Lease, a provision as
similar in terms to such illegal, invalid or unenforceable clause or provision
as may be possible and be legal, valid and enforceable.
18
<PAGE> 24
(i) All references in this Lease to "the date hereof" or similar references
shall be deemed to refer to the last date, in point of time, on which all
parties hereto have executed this Lease.
(j) Landlord and Tenant each warrant to the other that it has not dealt with any
broker or agent other than GARY McCURLEY in connection with this Lease. Tenant
and Landlord shall each indemnify the other against all costs, attorneys' fees,
and other liabilities for commissions or other compensation claimed by any
broker or agent claiming the same by, through, or under the indemnifying party.
(k) If and when included within the term "Tenant," as used in this instrument,
there is more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of a notice specifying an individual
at a specific address within the continental United States for the receipt of
notices and payments to Tenant. All parties included within the terms "Landlord"
and "Tenant," respectively, shall be bound by notices given in accordance with
the provisions of Section to the same effect as if each had received such
notice.
(l) The terms and conditions of this Lease are confidential and Tenant shall not
disclose the terms of this Lease to any third party except as may be required by
law or to enforce its rights hereunder.
(m) Tenant shall pay interest on all past-due rent from the date due until paid
at the maximum lawful rate. In no event, however, shall the charges permitted
under this Section or elsewhere in this Lease, to the extent they are considered
to be interest under applicable Law, exceed the maximum lawful rate of interest.
25. NOTICES. Each provision of this instrument or of any applicable Laws and
other requirements with reference to the sending, mailing or delivering of
notice or the making of any payment hereunder shall be deemed to be complied
with when and if the following steps are taken:
(a) All rent shall be payable to Landlord at the address for Landlord set forth
below or at such other address as Landlord may specify from time to time by
written notice delivered in accordance herewith. Tenant's obligation to pay rent
shall not be deemed satisfied until such rent has been actually received by
Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder shall be
payable to Tenant at the address set forth below, or at such other address
within the continental United States as Tenant may specify from time to time by
written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered upon the earlier to occur of tender of
delivery (in the case of a hand-delivered notice), deposit in the United States
Mail, postage prepaid, Certified Mail, or receipt by facsimile transmission, in
each case, addressed to the parties hereto at the respective addresses set out
below, or at such other address as they have theretofore specified by written
notice delivered in accordance herewith. If Landlord has attempted to deliver
notice to Tenant at Tenant's address reflected on Landlord's books but such
notice was returned or acceptance
19
<PAGE> 25
thereof was refused, then Landlord may post such notice in or on the Premises,
which notice shall be deemed delivered to Tenant upon the posting thereof.
26. HAZARDOUS WASTE. The term "HAZARDOUS SUBSTANCES," as used in this Lease
shall mean pollutants, contaminants, toxic or hazardous wastes, or any other
substances, the removal of which is required or the use of which is restricted,
prohibited or penalized by any "ENVIRONMENTAL LAW," which term shall mean any
Law relating to health, pollution, or protection of the environment. Tenant
hereby agrees that no activity will be conducted on the Premises that will
produce any Hazardous Substances, except for such activities that are part of
the ordinary course of Tenant's business activities (the "PERMITTED ACTIVITIES")
provided such Permitted Activities are conducted in accordance with all
Environmental Laws and have been approved in advance in writing by Landlord; the
Premises will not be used in any manner for the storage of any Hazardous
Substances except for any temporary storage of such materials that are used in
the ordinary course of Tenant's business (the "PERMITTED MATERIALS") provided
such Permitted Materials are properly stored in a manner and location satisfying
all Environmental Laws and approved in advance in writing by Landlord; no
portion of the Premises will be used as a landfill or a dump; Tenant will not
install any underground tanks of any type; Tenant will not allow any surface or
subsurface conditions to exist or come into existence that constitute, or with
the passage of time may constitute a public or private nuisance; and Tenant will
not permit any Hazardous Substances to be brought onto the Premises, except for
the Permitted Materials, and if so brought or found located thereon, the same
shall be immediately removed by Tenant, with proper disposal, and all required
cleanup procedures shall be diligently undertaken pursuant to all Environmental
Laws. If at any time during or after the Term, the Premises are found to be so
contaminated or subject to such conditions, Tenant shall defend, indemnify and
hold Landlord harmless from all claims, demands, actions, liabilities, costs,
expenses, damages and obligations of any nature arising from or as a result of
the use of the Premises by Tenant. Unless expressly identified on an addendum to
this Lease, as of the date hereof there are no "Permitted Activities" or
"Permitted Materials" for purposes of the foregoing provision and none shall
exist unless and until approved in writing by the Landlord. Landlord may enter
the Premises and conduct environmental inspections and tests therein as it may
require from time to time, provided that Landlord shall use reasonable efforts
to minimize the interference with Tenant's business. Such inspections and tests
shall be conducted at Landlord's expense, unless they reveal the presence of
Hazardous Substances (other than Permitted Materials) or that Tenant has not
complied with the requirements set forth in this Section , in which case Tenant
shall reimburse Landlord for the cost thereof within ten days after Landlord's
request therefor.
<PAGE> 26
27. LANDLORD'S LIEN. In addition to the statutory landlord's lien, Tenant grants
to Landlord, to secure performance of Tenant's obligations hereunder, a security
interest in all goods, inventory, equipment, fixtures, furniture, improvements,
chattel paper, accounts, and general intangibles, and other personal property of
Tenant now or hereafter situated on or relating to Tenant's use of the Premises,
and all proceeds therefrom (the "COLLATERAL"), and the Collateral shall not be
removed from the Premises without the consent of Landlord until all obligations
of Tenant have been fully performed. Upon the occurrence of an Event of Default,
Landlord may, in addition to all other remedies, without notice or demand except
as provided below, exercise the rights afforded a secured party under the
Uniform Commercial Code of the State in which the Building is located (the
"UCC"). In connection with any public or private sale under the UCC, Landlord
shall give Tenant five-days' prior written notice of the time and place of any
public sale of the Collateral or of the time after which any private sale or
other intended disposition thereof is to be made, which is agreed to be a
reasonable notice of such sale or other disposition. Tenant grants to Landlord a
power of attorney to execute and file any financing statement or other
instrument necessary to perfect Landlord's security interest under this
Section , which power is coupled with an interest and is irrevocable during the
Term. Landlord may also file a copy of this Lease or this provision as a
financing statement to perfect its security interest in the Collateral.
(1) TENANT ACKNOWLEDGES THAT IT HAS INSPECTED AND ACCEPTS THE PREMISES IN AN "AS
IS, WHERE IS" CONDITION, THE BUILDINGS AND IMPROVEMENTS COMPRISING THE SAME ARE
SUITABLE FOR THE PURPOSE FOR WHICH THE PREMISES ARE LEASED AND LANDLORD HAS MADE
NO WARRANTY, REPRESENTATION, COVENANT, OR AGREEMENT WITH RESPECT TO THE
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES, THE
PREMISES ARE IN GOOD AND SATISFACTORY CONDITION, NO REPRESENTATIONS AS TO THE
REPAIR OF THE PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES
HAVE BEEN MADE BY LANDLORD (UNLESS AND EXCEPT AS MAY BE SET FORTH IN EXHIBIT B
ATTACHED TO THIS LEASE, IF ONE SHALL BE ATTACHED, OR AS IS OTHERWISE EXPRESSLY
SET FORTH IN THIS LEASE), AND THERE ARE NO REPRESENTATIONS OR WARRANTIES,
EXPRESSED, IMPLIED OR STATUTORY, THAT EXTEND BEYOND THE DESCRIPTION OF THE
PREMISES. (2)
20
<PAGE> 27
Executed by Tenant on __________, 1998.
TENANT:
COMPASS INTERNATIONAL SERVICES
("COMPASS")
By:
Name:
Title:
Address:
Telephone:
Fax:
Executed by Landlord on __________, 1998.
LANDLORD:
PETULA ASSOCIATES, LTD.
By:
Name:
Title:
By:
Name:
Title:
Address: c/o Trammell Crow Dallas/Fort Worth
2200 Ross Avenue, Suite 3700
Dallas, TX 75201
Telephone:
Fax:
<PAGE> 28
RIDER ONE
28. NO OFFER. The submission of this Lease to Tenant shall not be construed
as an offer to enter into this Lease. Tenant shall have no rights under this
Lease or in or to the Premises, unless and until Landlord has executed a copy of
this Lease and delivered it to Tenant.
29. CONTINGENCY. This Lease is solely contingent upon FootStar Corporation
(successor in interest to FootAction, Inc.) entering into a fully executed
Termination Agreement with Petula Associates, Ltd, in which FootStar agrees to
vacate the premises on or before midnight, December 31, 1998.
30. TENANT IMPROVEMENTS. Landlord agrees to provide Tenant Improvements to
Tenant consisting of new paint and carpet to all existing office areas of the
Premises.
31. SECURITY SYSTEM. Tenant will gain possession and ownership of all
security system equipment located inside the Premises which is currently owned
by the previous Tenant (FootStar Corporation, successor in interest to
FootAction, Inc.) and more specifically described on Exhibit "B-1".
<PAGE> 29
EXHIBIT B
(a) Landlord shall diligently perform the work described in Paragraph 30 of the
Rider portion of this Lease; however, if Landlord is unable to substantially
complete such work by the Commencement Date set forth in Section of this Lease,
then Landlord shall not be liable for damages therefor and Tenant shall accept
possession of the Premises when Landlord tenders possession thereof to Tenant in
a substantially completed condition and, except as provided below, Tenant's
obligation to pay Base Rent and additional rent under Section of this Lease
shall be waived until Landlord tenders possession of the Premises to Tenant in a
substantially completed condition, and the Term shall be extended by the number
of days in the period beginning with the Commencement Date set forth in Section
of this Lease and ending on the date Landlord tenders possession of the Premises
to Tenant (which date will then be the "Commencement Date").
(b) The term "SUBSTANTIAL COMPLETION" or "SUBSTANTIALLY COMPLETED" shall mean
that, in the opinion of the contractor performing the work, the Initial
Improvements have been completed substantially , subject to completion of minor
punch list items. As soon as the Initial Improvements have been substantially
completed, Landlord shall notify Tenant in writing that the Commencement Date
has occurred. Within ten days thereafter, Tenant shall submit to Landlord in
writing a punch list of items needing completion or correction. Landlord shall
use commercially reasonable efforts to complete such items within 30 days after
it receives such notice. If Tenant or its employees, agents or contractors delay
completion of the Initial Improvements, then the Commencement Date shall be the
date that, in the contractor's opinion, substantial completion would have
occurred had such delays not occurred.
<PAGE> 30
EXHIBIT C
WAIVER OF RIGHTS UNDER THE
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT
---------------------------------------------------
Pursuant to, and to the extent permitted by Section 17.42 of the Texas Deceptive
Trade Practices -Consumer Protection Act (Tex. Bus. & Com. Code Ann. Sec.17.41,
et. seq.), Landlord and Tenant hereby agree that the Texas Deceptive Trade
Practices - Consumer Protection Act is waived and shall have no applicability to
this Lease, except that such waiver shall not apply to Section 17.555 of such
Act.
LANDLORD:
PETULA ASSOCIATES, LTD.
By:
Name:
Title:
By:
Name:
Title:
TENANT:
COMPASS INTERNATIONAL SERVICES
("COMPASS")
By:
Name:
Title:
TENANT'S LEGAL COUNSEL:
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.19 FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN PETULA ASSOCIATES,
LTD. AND COMPASS INTERNATIONAL SERVICES
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease is made and entered into this _____ day
of , 1998 between Petula Associates, Ltd. ("Landlord") and Compass
International Services, Inc. ("Compass"),("Tenant"), for the purpose of amending
the lease agreement between Landlord and Tenant, dated August 28, 1998 (as
amended, the "Lease"). Unless otherwise specified herein, all capitalized terms
used herein shall have the meanings assigned to them in the Lease.
RECITALS
Tenant desires to extend the term of the Lease (the "Term") for a
period of Seventy-one (71) months, and Landlord has agreed to such extension on
the terms and conditions contained herein.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are
acknowledged, Landlord and Tenant agree as follows:
1. EXTENSION OF TERM. The Term is hereby extended such that it expires
at 5:00 p.m., Dallas, Texas time, on December 31, 2008, rather than January 31,
2003, on the terms and conditions of the Lease, as modified hereby. Tenant shall
have no further rights to extend or renew the Term.
2. BASE RENT. As delineated in paragraph 2(a) of the Lease, Tenant
shall pay to Landlord "BASE RENT", in advance, without demand, deduction or set
off, equal to the following amended amounts for the following periods of time:
January 1, 1999 through January 31, 2001, the monthly Base Rent shall be
Sixty-one Thousand Nine Hundred Four and 50/100 Dollars ($61,904.50); February
1, 2001 through January 31, 2003, the monthly Base Rent shall be Sixty-three
Thousand Nine Hundred Sixty-seven and 98/100 Dollars ($63,967.98); and February
1, 2003 through December 31, 2008, the monthly Base Rent shall be Sixty-nine
Thousand Seven Hundred Twenty-four and 00/100 Dollars ($69,724.00).
3. TENANT IMPROVEMENTS. Landlord agrees to provide pinwelded insulation
in 136,000 square feet of the warehouse area to create a R-19 insulation factor.
4. Paragraph 27 of the Lease is hereby deleted.
5. Paragraph 24(g) of the Lease is hereby deleted.
6. RATIFICATION. Tenant hereby ratifies and confirms its obligations
under the Lease, and represents and warrants to Landlord that it has no defenses
thereto.
7. BINDING EFFECT; GOVERNING LAW. Except as modified hereby, the Lease
shall remain in full effect and this Amendment shall be binding upon Landlord
and Tenant and their respective successors and assigns. This Amendment shall be
governed by Texas law. All other terms and conditions of the Lease shall remain
in full force and effect and the Lease as hereby amended is ratified and
affirmed.
<PAGE> 2
IN WITNESS WHEREOF the parties hereto have signed and sealed this
Amendment Agreement this 22nd day of December, 1998.
Petula Associates, Ltd.
By:_______________/S/_____________________
Name: ____________/S/_____________________
Title: ___________/S/_____________________
Compass International Services, Inc.
By:_______________/S/_____________________
Name: ____________/S/_____________________
Title: ___________/S/_____________________
<PAGE> 1
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE INCOME.
<TABLE>
<CAPTION>
BASIC DILUTED
----------- -----------
<S> <C> <C>
Net income (in thousands)................................. $ 6,007 $ 6,007
=========== ===========
Weighted average shares attributable to BGL Partners and
Compass management prior to Initial Public Offering..... 1,682,769 1,682,769
Weighted average shares attributable to The IPO,
overallotment and Founding Companies.................... 8,493,896 8,493,896
Weighted average shares attributable to the subsequent
acquisitions............................................ 988,873 988,873
Weighted average shares attributable to the purchase of
minority interests...................................... 3,261 3,261
Weighted average shares earned as of December 31, 1998
with respect to earn outs............................... -- 111,270
Dilutive common stock options............................. -- 33,456
----------- -----------
Weighted average shares used in net income per share
computation............................................. 11,168,799 11,313,525
=========== ===========
Net income per share...................................... $ 0.54 $ 0.53
=========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
OF
NAME OF SUBSIDIARY ORGANIZATION
------------------ ------------
<S> <C>
APS Express, Inc............................................ Maryland
Bender Direct Mail Service, Inc............................. Delaware
Compass Mail Services Holding Corporation................... Delaware
Compass Mail Services, Inc.................................. Delaware
Compass Mail Services, L.P.................................. Delaware
Compass Print & Mail Services, Inc.......................... Delaware
Compass Print Services Holding Corporation.................. Delaware
Compass Print Services, L.P................................. Delaware
Compass Receivables Management Corporation.................. Delaware
Compass Receivables Management Holding Corporation.......... Delaware
Compass Receivables Management, L.P......................... Delaware
Compass Teleservices, Inc................................... New Jersey
Creditsafe Limited.......................................... United Kingdom
Delivery Verification Service, Inc.......................... Delaware
The Mail Box, Inc........................................... Texas
MB Strategic Services, Ltd.................................. Texas
MetroWebb, Inc.............................................. Delaware
Mid-Continent Agencies of New York, Inc..................... New York
MWI Laser Group, Inc........................................ Delaware
National Credit Management Corporation...................... Maryland
Nationwide Debt Recovery, Inc............................... Delaware
Professional American Collections, Inc...................... Illinois
Total Early Receivables Management Corporation.............. Maryland
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COMPASS INTERNATIONAL SERVICES CORPORATION
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,952
<SECURITIES> 0
<RECEIVABLES> 21,429
<ALLOWANCES> (725)
<INVENTORY> 1,282
<CURRENT-ASSETS> 39,844
<PP&E> 27,463
<DEPRECIATION> (9,178)
<TOTAL-ASSETS> 187,481
<CURRENT-LIABILITIES> 31,779
<BONDS> 58,404
0
0
<COMMON> 138
<OTHER-SE> 97,024
<TOTAL-LIABILITY-AND-EQUITY> 187,481
<SALES> 127,140
<TOTAL-REVENUES> 85,919
<CGS> 28,379
<TOTAL-COSTS> 321
<OTHER-EXPENSES> 1,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,869
<INCOME-PRETAX> 10,876
<INCOME-TAX> 4,869
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,007
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.53
</TABLE>
<PAGE> 1
EXHIBIT 99. FINANCIAL STATEMENTS OF THE MAIL BOX, INC., THE ACCOUNTING ACQUIRER,
WITH REPORT OF INDEPENDENT ACCOUNTANTS THEREON
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 February 28, 1998, and the results
of their operations and their cash flows for each of the years ended December
31, 1996 and 1997, and the two months ended February 28, 1998, 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/ PricewaterhouseCoopers LLP
New York, New York
March 3, 1999
<PAGE> 2
THE MAIL BOX, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, February 28,
-------------------- -----------
1996 1997 1998
-------------------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash...................................................................... $ 1,419 $ 16 $ 239
Accounts receivable, net of allowance for doubtful accounts of
$81, $125, and $125, respectively ...................................... 3,419 4,481 4,113
Inventories .............................................................. 708 733 722
Postage on hand .......................................................... 3,593 1,231 1,435
Prepaid expenses and other current assets ................................ 69 154 133
Deferred income taxes .................................................... 26 44 44
-------- -------- --------
Total current assets ................................................. 9,234 6,659 6,686
Property and equipment, net ................................................. 3,205 4,327 4,565
Other assets ................................................................ 100 304 249
-------- -------- --------
Total assets ......................................................... $ 12,539 $ 11,290 $ 11,500
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit ........................................................... $ 569 $ 1,168 $ 1,191
Note payable, current portion ............................................ -- 471 328
Secured equipment financing facilities, current portion .................. 327 329 434
Capitalized lease obligations, current portion ........................... 450 423 423
Accounts payable ......................................................... 1,450 1,373 1,519
Accrued expenses and other liabilities ................................... 824 1,235 1,324
Income taxes payable ..................................................... 524 416 13
Postage advances and deposits ............................................ 4,818 950 1,416
-------- -------- --------
Total current liabilities ............................................ 8,962 6,365 6,648
Long-term liabilities:
Note payable, net of current portion ..................................... -- 242 326
Secured equipment financing facilities, net of current portion ........... 616 712 533
Capitalized lease obligations, net of current portion .................... 650 622 582
Deferred income taxes .................................................... 105 165 163
-------- -------- --------
Total liabilities .................................................... 10,333 8,106 8,252
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares authorized, 132,900, 138,900,
and 138,900 shares issued, and 129,300, 102,900, and
96,900 shares outstanding at December 31, 1996 and 1997 and
February 28, 1998, respectively ....................................... 13 14 14
Additional paid-in-capital ............................................... 947 1,126 1,126
Treasury stock, at cost, 3,600, 36,000, and 36,000 shares at
December 31, 1996 and 1997 and February 28, 1998, respectively ........ (100) (1,087) (1,087)
Retained earnings ........................................................ 1,346 3,131 3,195
-------- -------- --------
Total stockholders' equity ........................................... 2,206 3,184 3,248
-------- -------- --------
Total liabilities and stockholders' equity ........................... $ 12,539 $ 11,290 $ 11,500
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Two Months
Ended
Years Ended December 31, February 28,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues............................................................... $ 26,156 $ 32,566 $ 5,685
Operating expenses..................................................... 17,953 21,493 4,003
----------- ----------- -----------
Gross profit.................................................... 8,203 11,073 1,682
Selling, general and administrative expenses........................... 5,891 7,824 1,493
----------- ----------- -----------
Income from operations.......................................... 2,312 3,249 189
Other expense:
Interest expense.................................................... 337 382 76
----------- ----------- -----------
Income before income taxes............................................. 1,975 2,867 113
Provision for income taxes............................................. 700 985 49
----------- ----------- -----------
Net income............................................................. $ 1,275 $ 1,882 $ 64
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-In Treasury Retained
Shares Amount Capital Stock Earnings Total
------- ------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996............ 132,900 13 947 (100) 135 995
Net income....................... 1,275 1,275
Cash dividends, $.50 per share (64) (64)
------- --- ------ ------- ------ ------
Balance, December 31, 1996.......... 132,900 13 947 (100) 1,346 2,206
Net income....................... 1,882 1,882
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
------- --- ------ ------- ------ ------
Balance, December 31, 1997.......... 138,900 14 1,126 (1,087) 3,131 3,184
Net Income...................... 64 64
------- --- ------ ------- ------ ------
Balance, February 28, 1998.......... 138,900 $14 $1,126 $(1,087) $3,195 $3,248
======= === ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Two Months
December 31, Ended
------------------ February 28,
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 1,275 $ 1,882 $ 64
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 768 980 168
Provision for doubtful accounts ................ 82 70 --
Change in deferred taxes ....................... 114 42 (2)
Changes in operating assets and liabilities:
Accounts receivable ............................ (104) (1,131) 368
Inventories .................................... (218) (25) 11
Postage on hand ................................ (2,706) 2,362 (204)
Prepaid expenses and other assets .............. 18 (290) 76
Accounts payable and accrued expenses .......... 566 332 235
Postage advances and deposits .................. 2,778 (3,868) 466
Income taxes payable ........................... 310 (108) (403)
------- ------- -------
Net cash provided by operating activities .. 2,883 246 779
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment ............ (1,007) (1,541) (406)
Proceeds from disposal of property and equipment -- 38 --
------- ------- -------
Net cash used in investing activities ...... (1,007) (1,503) (406)
------- ------- -------
Cash flows from financing activities:
Net borrowings on line of credit ............... 130 600 23
Repayments of capital lease obligations ........ (439) (654) (77)
Proceeds from long-term debt ................... 161 1,517 37
Repayment of long-term debt .................... (261) (705) (133)
Proceeds from issuance of common stock ......... -- 180 --
Repurchases of treasury stock .................. -- (987) --
Cash dividends paid ............................ (64) (97) --
------- ------- -------
Net cash used in financing activities ...... (473) (146) (150)
------- ------- -------
Net increase (decrease) in cash ..................... 1,403 (1,403) 223
Cash at beginning of period ......................... 16 1,419 16
------- ------- -------
Cash at end of period ............................... $ 1,419 $ 16 $ 239
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest ........................... $ 338 $ 382 $ 71
Cash paid for taxes .............................. 276 1,051 450
Noncash investing and financing activities:
Equipment acquired under capital leases .......... 592 600 37
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
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.
The Company and its stockholders entered into a definitive agreement with
Compass International Services Corporation ("Compass") pursuant to which Compass
will acquire 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. These transactions were
consummated on March 4, 1998. The accompanying financial statements do not
reflect any adjustments related to these subsequent transactions.
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 customer or 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 and leasehold improvements are provided using the straight-line method
over estimated useful lives of each class of assets, or, if shorter, the term of
lease. 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.
<PAGE> 7
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 1.
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 established 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, February 28,
1996 1997 1998
------------------ ------------
(In Thousands)
<S> <C> <C> <C>
Work in progress........................................................ $ 466 $ 390 $ 362
Spare parts............................................................. 130 253 264
Paper and envelope stock................................................ 112 90 96
-------- -------- --------
$ 708 $ 733 $ 722
======== ======== ========
</TABLE>
<PAGE> 8
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
------------------- ---------
(In Thousands)
<S> <C> <C> <C>
Furniture and fixtures.................................................. $ 552 $ 665 $ 703
Plant equipment......................................................... 3,996 5,495 5,808
Computer equipment and software......................................... 3,654 3,745 3,805
Leasehold improvements.................................................. 70 470 470
--------- --------- --------
8,272 10,375 10,786
Accumulated depreciation and amortization............................... (5,067) (6,048) (6,221)
--------- --------- --------
$ 3,205 $ 4,327 $ 4,565
========= ========= ========
</TABLE>
Depreciation and amortization expense was $768 and $980 for the years
ended December 31, 1996 and 1997, and $168 for the two months ended
February 28, 1998.
NOTE 5--ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
------------------- -----------
(In thousands)
<S> <C> <C> <C>
Accrued compensation.................................................... $ 314 $ 357 $ 432
Accrued vacation........................................................ 214 278 279
Other liabilities....................................................... 296 600 613
-------- --------- --------
Total accrued expenses and other liabilities............................ $ 824 $ 1,235 $ 1,324
======== ========= ========
</TABLE>
NOTE 6--NOTE PAYABLE, CREDIT FACILITIES AND LEASES
Obligations under long term note payable and credit facilities are as
follows:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
------------------- ------------
(In thousands)
<S> <C> <C> <C>
Note payable to financial institution, interest at 30 day commercial rate
plus 2.8% (8.3% at February 28, 1998), principal payment of
$27,000 due monthly, balance due on January 1, 2000................... $ -- $ 713 $ 654
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 1,041 967
Less: Current portion................................................... (327) (800) (762)
-------- --------- --------
$ 616 $ 954 $ 859
======== ========= ========
</TABLE>
<PAGE> 9
The Company's note payable to a financial institution is secured by the
personal guarantee of its principal stockholder.
The following summarizes the Company's required annual principal payments
under note payable and secured equipment financing facilities at February 28,
1998 for the next four years:
<TABLE>
<CAPTION>
February 28,
1998
------------
(In thousands)
<S> <C>
1998 $ 667
1999 648
2000 275
2001 31
-----------
$ 1,621
===========
</TABLE>
Revolving Credit Facility
The Company has a revolving credit facility with a financial institution
which provides for borrowings of $2,250 at December 31, 1996 and 1997 and
February 28, 1998 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 (8.8%, 8.4%, and 8.3% at
December 31, 1996 and 1997 and February 28, 1998, respectively.)
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 February 28, 1998, the Company was in compliance with all
covenants.
Leases
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, February 28
1996 1997 1998
-------------------- ---------
(In thousands)
<S> <C> <C> <C>
Furniture and fixtures.............................. $ 71 $ 155 $ 191
Plant equipment..................................... 799 1,119 1,119
Computer equipment and software..................... 959 530 530
-------- --------- --------
1,829 1,804 1,840
Accumulated amortization............................ (669) (565) (641)
-------- --------- --------
Total......................................... $ 1,160 $ 1,239 $ 1,199
======== ========= ========
</TABLE>
These amounts are classified as property and equipment (see Note 4).
<PAGE> 10
The following is a schedule of future annual minimum lease payments due
under capital lease obligations at February 28, 1998, together with the present
value of the future minimum lease payments for the years ended:
<TABLE>
<CAPTION>
February 28,
1998
------------
(In thousands)
<S> <C>
1998 $ 425
1999 430
2000 179
2001 85
2002 7
------------
Total future minimum lease payments 1,126
Less: Amount representing interest (121)
Present value of future minimum lease payments $ 1,005
============
</TABLE>
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>
February 28,
1998
------------
(In thousands)
<S> <C>
1998 $ 1,707
1999 1,662
2000 1,264
2001 903
2002 396
Thereafter 85
------------
$ 6,017
============
</TABLE>
Rent expense was $1,534, $1,695, and $375 for the years ended
December 31, 1996 and 1997, and for the two months ended February 28, 1998,
respectively.
NOTE 7--INCOME TAXES
The Company's provision for income taxes is comprised of the following for
the years ended December 31, 1996 and 1997, and the two months ended February
28, 1998:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
--------------------- ----------
(In thousands)
<S> <C> <C> <C>
Current tax expense................................... $ 586 $ 943 $ 47
Deferred tax expense (benefit)........................ 114 42 2
-------- --------- --------
Total provision for income taxes...................... $ 700 $ 985 $ 49
======== ========= ========
</TABLE>
<PAGE> 11
The effective income tax rate for the years ended December 31, 1996 and
1997 and the two months ended February 28, 1998 varied from the federal
statutory rate as follows:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
--------------------- ----------
(In thousands)
<S> <C> <C> <C>
Tax provision computed at statutory rate of 35%.......... $ 694 $ 970 $ 40
Nondeductible expenses and other......................... 6 15 9
-------- --------- --------
$ 700 $ 985 $ 49
======== ========= ========
</TABLE>
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997 1998
--------------------- ----------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 26 $ 44 $ 44
Other.................................................. 4 4 8
-------- --------- --------
30 48 52
Deferred tax liabilities:
Depreciation and amortization.......................... (109) (169) (171)
-------- --------- ---------
Net deferred tax liability......................... $ (79) $ (121) $ (119)
======== ========= =========
</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 $64,000
and $8,000 for the year ended December 31, 1997, and the two months ended
February 28, 1998, respectively.
During 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 $108,000 for 1996. 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.
<PAGE> 12
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, 1996 and
1997, and the two months ended February 28, 1998, is $290,000, $321,000 and
$57,000, respectively, for payments under this lease. Future annual minimum
lease payments under this agreement are as follows:
<TABLE>
<CAPTION>
February 28,
1998
-------------
(In Thousands)
<S> <C>
1998 $ 286
1999 343
2000 343
2001 343
2002 143
Thereafter --
---------
$ 1,458
=========
</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 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 one customer that accounted for 30.9% of 1996 revenues, one
customer that accounted for 45.3% of revenues for 1997, and one customer that
accounted for 51% of revenues for the two months ended February 28, 1998.
At December 31, 1996 and 1997 and February 28, 1998, approximately 11.5%,
39.4%, and 38%, respectively, of the Company's total accounts receivable balance
was due from a single customer.
<PAGE> 13
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.
