<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
------------------------
CULTURALACCESSWORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 52-1309227
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2200 CLARENDON BLVD., 11TH FLOOR
ARLINGTON, VIRGINIA 22201
(800) 522-3447
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
JOHN FITZGERALD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CULTURALACCESSWORLDWIDE, INC.
2200 CLARENDON BLVD., 11TH FLOOR
ARLINGTON, VIRGINIA 22201
(800) 522-3447
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
ANDREW J. BECK, ESQ. FREDERICK W. DREHER, ESQ.
HAYTHE & CURLEY DUANE, MORRIS & HECKSCHER LLP
237 PARK AVENUE 4200 ONE LIBERTY PLACE
NEW YORK, NEW YORK 10017 PHILADELPHIA, PENNSYLVANIA 19103-7396
(212) 880-6000 (215) 979-1000
</TABLE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. h
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. h _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. h _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. h
------------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED (1) PER SHARE (2) ING PRICE (2)
<S> <C> <C> <C>
Common Stock
($.01 par value).......... 4,600,000 $18.00 $82,800,000.00
<CAPTION>
TITLE OF EACH CLASS
OF SECURITIES TO AMOUNT OF
BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock
($.01 par value).......... $25,091.00
</TABLE>
(1) Includes 600,000 shares that the Underwriters have the option to purchase
from the Registrant to cover any over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1997
PROSPECTUS
CulturalAccessWorldwide(SM)
4,000,000 Shares
Common Stock
------------------------
All of the 4,000,000 shares of Common Stock being offered hereby (the
"Offering") are being offered by CulturalAccessWorldwide, Inc. ("CulturalAccess"
or the "Company").
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $16.00 and $18.00 per share. See "Underwriting" for information
related to the factors to be considered in determining the initial public
offering price. Application will be made for inclusion of the Common Stock for
quotation on the Nasdaq Stock Market's National Market under the symbol "CAWW."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total(3)............................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 600,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively.
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------------
Smith Barney Inc. Bear, Stearns & Co. Inc.
, 1997
<PAGE>
<PAGE>
[Graphic gatefold to be added]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
------------------------
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited financial statements.
------------------------
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND COMBINED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE UNDERWRITERS'
OPTION TO PURCHASE FROM THE COMPANY UP TO 600,000 SHARES OF COMMON STOCK TO
COVER OVER-ALLOTMENTS, IF ANY, AND (II) NO CONVERSION OF THE OUTSTANDING 6%
CONVERTIBLE PROMISSORY NOTES OF THE COMPANY DUE DECEMBER 1, 2000. SEE "USE OF
PROCEEDS" AND "CERTAIN TRANSACTIONS." THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT ARE BASED ON MANAGEMENT'S ESTIMATES, ASSUMPTIONS AND
PROJECTIONS. IMPORTANT FACTORS THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPECTED BY MANAGEMENT INCLUDE THE INABILITY OF THE COMPANY TO CARRY
OUT ITS GROWTH STRATEGY AND THE OTHER FACTORS DISCUSSED UNDER "RISK FACTORS."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
"RISK FACTORS."
THE COMPANY
CULTURALACCESSWORLDWIDE, INC. is a rapidly growing outsourced marketing
services company that assists Fortune 500 companies in penetrating complex and
hard-to-reach market segments. The Company plans and executes integrated and
cost-effective marketing, sales and customer service programs using various
combinations of the Company's core competencies including market research,
database analysis, strategic planning, telesales/services, direct mail, sales
force support systems, sales territory management, product sampling and
fulfillment. The Company has expertise in serving corporations in industries
that are undergoing dramatic changes due to consolidation, deregulation and
technological innovation. These industries include pharmaceutical,
telecommunications and financial services.
The Company has marketing, sales and customer service expertise, supported
by proprietary systems and technologies, that enables its clients to access
increasingly important "Culture Markets." The Company targets Culture Markets
which it believes are underpenetrated by many goods and services and represent
substantial business-building opportunities for Fortune 500 companies. The
Company also believes that these Culture Markets are disproportionately
responsive to culturally sensitive marketing and sales activities. The Company's
targeted Culture Markets are as follows:
<TABLE>
<CAPTION>
ETHNIC CULTURE MARKETS GENERATIONAL CULTURE MARKETS HEALTHCARE CULTURE MARKETS
- ----------------------- ----------------------------- ---------------------------
<S> <C> <C>
Hispanic Mature (age 50+) Physicians
Asian College Students Pharmacists
African-American Patients
</TABLE>
The Company has demonstrated its ability to meet the diverse and growing
outsourced marketing needs of its clients. Through technology, management
systems and well-established working relationships, the Company is integrated
into the daily activities of its clients. In the first six months of 1997, the
Company's top ten clients in alphabetical order were Astra Merck, Inc. ("Astra
Merck"), ESI Lederle (a division of Wyeth Ayerst Inc.), Global One, Johnson &
Johnson, Knoll Pharmaceutical, Inc. ("Knoll"), Novartis Pharmaceutical
Corporation ("Novartis"), The Purdue Frederick Company ("Purdue Frederick"),
Schering Plough Corp. ("Schering Plough"), G.D. Searle & Co. ("G.D. Searle") and
Sprint Corp. ("Sprint"). The Company's top ten clients have been clients of the
Company for at least three years, and seven of the top ten have been clients for
longer than five years. The Company believes that these relationships develop
because its services, which produce clearly measurable results, increase its
clients' sales and market share and/or reduce its clients' overall cost of
sales/services.
The Company was founded in 1983 and is headquartered in Arlington, Virginia
with offices in California, Florida, New Jersey, Pennsylvania and Texas. On a
pro forma basis to reflect acquisitions, the Company's revenues increased by
35.9% during the first six months of 1997 compared to the first six months of
1996, and the Company improved its operating margin from 9.9% to 13.0% during
the same periods. As of June 30, 1997, the Company had approximately 1,100
employees.
FAVORABLE BUSINESS TRENDS
The Company believes that it is operating in a high growth, high
opportunity business environment driven by the following favorable business
trends:
GROWTH IN OUTSOURCING. The broad acceptance of outsourcing within Corporate
America is resulting in increased outsourcing of marketing, sales and customer
service functions.
GROWTH IN DIRECT MARKETING. In 1995, $1.1 trillion in business and consumer
sales were achieved through direct marketing, up 41% from the $780 billion spent
in 1990.
3
<PAGE>
<PAGE>
GROWTH IN PHARMACEUTICAL MARKETING SPENDING. Pharmaceutical industry
expenditures on programs promoting, marketing and selling its products through
direct channels are expected to grow at 8% per year from a base of $5.4 billion
in 1996.
GROWTH IN ETHNIC AND MATURE POPULATIONS. According to the U.S. Census
Bureau, the Hispanic and Asian populations in the United States are projected to
grow by approximately 53% and 63%, respectively, between 1995 and 2010, which is
more than four times greater than the general population's projected growth.
During the same period, the 50 year and older age group is projected to grow
faster than any other age group in the population.
GROWTH IN ACCOUNTABILITY OF MARKETING AND SALES ACTIVITIES. There is
increasing pressure within Corporate America to demonstrate a measurable return
on marketing and sales investments.
GROWTH IN CUSTOMER-FOCUSED MANAGEMENT PRACTICES. There is increasing
recognition of the fundamental need to "speak the language" of the customer as a
means of improving customer retention rates.
COMPANY GROWTH STRATEGY
The Company intends to continue its rapid growth by implementing the
following strategies:
EXPLOIT NICHE MARKET OPPORTUNITIES. In each niche that it pursues, the
Company's goal is to build and maintain a leading position as a specialized
outsourced marketing services provider. The Company focuses its outsourced
marketing efforts on ethnic, generational and healthcare Culture Markets.
Through its experience, technology and management systems, the Company has
demonstrated its effectiveness in communicating its clients' products and
services to complex and hard-to-reach Culture Markets.
DRIVE INTERNAL GROWTH. The Company plans to continue to grow internally by
further penetrating existing client relationships, acquiring new client
relationships, cross-selling established services and introducing new service
offerings. The Company is committed to a formal and systematic approach to
business development. The Company has a long history of achieving high levels of
client satisfaction and has significantly expanded client relationships as a
result of demonstrated performance.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company will continue to make
"platform" acquisitions in order to establish a strong initial presence in a
niche market or to strengthen its presence within a niche. The Company also
pursues tactical acquisitions to broaden its geographic presence, strengthen its
existing skills and gain complementary services. The Company seeks acquisitions
with a history of proven performance, experienced management and potential for
growth. The Company's management team is experienced in identifying, acquiring
and integrating businesses.
LEVERAGE MANAGEMENT EXPERTISE AND CORPORATE INFRASTRUCTURE. The Company
believes it can achieve additional economies of scale which will contribute to
improved financial performance. Each operating unit has a core executive group
in place with the experience to drive additional growth and manage an expanding
business. The continued identification of synergies between operating units is a
top management priority.
MAINTAIN TECHNOLOGICAL LEADERSHIP. The Company will continue to invest in
proprietary systems and technologies that will provide it with competitive
advantages. The Company's technology strategy is driven by its objective to
maximize reliability, integration and flexibility.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered.................................... 4,000,000 shares
Common Stock to be outstanding after the Offering (1)......... 8,930,667 shares
Use of proceeds............................................... To repay certain indebtedness, to redeem preferred stock, to
finance future acquisitions and internal growth and for other
general corporate purposes
Proposed Nasdaq National Market symbol........................ CAWW
</TABLE>
- ---------------
(1) Does not include 800,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan (the "Stock Option Plan"). See
"Management -- Executive Compensation -- Stock Option Plan," "Shares
Eligible for Future Sale" and Note 11 of Notes to the Company's Combined
Financial Statements. Includes (i) 166,667 shares of Common Stock to be
issued upon conversion of the 6% convertible subordinated promissory note of
the Company due December 1, 1998 (the "Convertible Note") upon the
consummation of the Offering and (ii) 500,000 shares of Non-Voting Common
Stock which are convertible into Common Stock on a share-for-share basis at
the option of the holder commencing upon the consummation of the Offering.
Unless otherwise indicated, information in this Prospectus regarding the
Common Stock includes such shares of Non-Voting Common Stock.
4
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
FIVE MONTHS YEAR ENDED DECEMBER 31, 30,
ENDED ------------------------------ ----------------------
YEAR ENDED JULY 31, DECEMBER PRO FORMA
---------------------- 31, AS ADJUSTED
1992 1993 1994 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $1,660 $2,796 $4,397 $ 2,728 $9,047 $ 16,286 $ 38,102 $ 8,076 $ 15,025
Cost of revenues...................... 514 1,182 1,720 1,437 4,396 8,639 19,026 4,176 8,830
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
Gross profit.......................... 1,146 1,614 2,677 1,291 4,651 7,647 19,076 3,900 6,195
Selling, general and administrative... 1,073 1,518 2,715 807 4,540 7,728 18,600 2,862 3,497
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
Income (loss) from operations......... 73 96 (38) 484 111 (81) 476 1,038 2,698
Interest income (expense)............. -- -- (3) (2) 24 (101) 87 (23) (1,085)
Other income (expense)................ -- -- -- -- 5 (200) (153 ) 5 (456)
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
Income (loss) before income taxes..... 73 96 (41) 482 140 (382) 410 1,020 1,157
Tax (expense) benefit (2)............. -- (33) -- -- -- 88 (164 ) -- (494)
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
Net income (loss)..................... $ 73 $ 63 $ (41) $ 482 $ 140 $ (294) $ 246 $ 1,020 $ 663
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
------ ------ ------ ----------- ------ --------- ----------- ----------- ---------
<CAPTION>
JUNE 30,
1997
---------
JULY 31, DECEMBER 31,
---------------------- ------------------------------
1992 1993 1994 1994 1995 1996 ACTUAL
------ ------ ------ ----------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $ 343 $ 650 $1,110 $ 994 $2,463 $ 1,963 $ 6,727
Total assets (3)...................... 354 705 1,240 1,152 2,749 3,309 16,296
Current liabilities................... 137 414 996 429 2,159 1,751 11,013
Long-term debt, less current
maturities.......................... -- 16 10 6 -- 16,201 17,105
Mandatorily redeemable preferred
stock............................... -- -- -- -- -- 1,800 3,744
Stockholders' equity (deficit)........ 193 276 234 717 590 (16,443) (15,566)
<CAPTION>
PRO FORMA
AS ADJUSTED
1997 (1)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 25,915
Cost of revenues...................... 14,772
-----------
Gross profit.......................... 11,143
Selling, general and administrative... 7,780
-----------
Income (loss) from operations......... 3,363
Interest income (expense)............. 65
Other income (expense)................ (491)
-----------
Income (loss) before income taxes..... 2,937
Tax (expense) benefit (2)............. (1,206)
-----------
Net income (loss)..................... $ 1,731
-----------
-----------
PRO FORMA
AS ADJUSTED
(4)
-----------
<S> <C>
BALANCE SHEET DATA:
Current assets........................ $ 30,681
Total assets (3)...................... 56,430
Current liabilities................... 6,855
Long-term debt, less current
maturities.......................... 1,446
Mandatorily redeemable preferred
stock............................... --
Stockholders' equity (deficit)........ 48,129
</TABLE>
- ---------------
(1) Adjustments on a Pro Forma as Adjusted basis include pro forma adjustments
to reflect acquisitions as of the periods presented and further give effect
to the sale of shares of Common Stock offered hereby and to the reduction in
interest expense and dividends on the preferred stock of the Company (the
"Preferred Stock") resulting from the assumed use, as of January 1, 1996, of
the estimated net proceeds of the Offering to retire outstanding debt and
redeem Preferred Stock as described under "Use of Proceeds." See "Unaudited
Pro Forma Financial Information."
(2) In December 1996, the Company became a C Corporation for income tax
purposes. Prior to that, the Company was an S Corporation; accordingly, no
taxes were recorded by the Company. The data for the six months ended June
30, 1997, and the Pro Forma as Adjusted data for 1996 and 1997 include a
provision for income taxes. Had the Company been a C Corporation for all of
1996, its provision (benefit) for income taxes and net income would have
been ($149) and $233, respectively, for the year ended December 31, 1996 and
$408 and $612, respectively, for the six months ended June 30, 1996.
(3) Includes $7.9 million and $23.9 million excess of cost over fair value of
net assets acquired and other intangible assets, on an Actual and on a Pro
Forma as Adjusted basis, respectively, at June 30, 1997.
(4) Adjusted on a Pro Forma as Adjusted basis to reflect the acquisition of
Hispanic Market Connections, Inc. and Phoenix Marketing Group, Inc. which
occurred after June 30, 1997 as if they had occurred on June 30, 1997, the
sale of shares of Common Stock offered hereby and the assumed use of the
estimated net proceeds as if the Offering had occurred on June 30, 1997, as
described under "Use of Proceeds." See "Unaudited Pro Forma Financial
Information."
5
<PAGE>
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
RELIANCE ON SPRINT
Sprint is the Company's largest client, accounting for approximately $9.8
million, or approximately 38%, of the Company's pro forma revenues for the
six-month period ended June 30, 1997. The Company currently has a four-year
master services agreement with Sprint, supported by four contract orders. The
Company's work for Sprint is spread throughout several different divisions of
Sprint ranging from outbound telemarketing to inbound customer service. Each of
the Sprint contract orders expires on June 30, 1999 and is automatically
renewable for additional 12-month periods unless terminated by either party. The
non-competition provision of the master services agreement restricts the Company
from servicing Sprint's competitors at any facility that services Sprint, with
limited exceptions. The Company anticipates that as the expiration of the Sprint
contract orders nears, it will enter into negotiations with Sprint regarding the
extension of their relationship. There can be no assurance that the Company will
be able to renew its contract orders with Sprint, and the loss of any
significant portion of the services provided to Sprint could have a material
adverse effect on the Company.
RELIANCE ON OTHER MAJOR CLIENTS
The Company's ten largest clients, including Sprint, accounted for
approximately 74% of the Company's revenues for the six-month period ended June
30, 1997. These clients, listed alphabetically, are Astra Merck, ESI Lederle (a
division of Wyeth Ayerst Inc.), Global One, Johnson & Johnson, Knoll, Novartis,
Purdue Frederick, Schering Plough, G.D. Searle and Sprint. Although each of
these clients has done business with the Company for at least three years, there
can be no assurance that these clients will continue to do business with the
Company over the long term, and the loss of any of these clients could have a
material adverse effect on the Company.
NEED FOR GROWTH MANAGEMENT
The Company has grown rapidly over the past several years, and its
continued growth depends significantly on the Company's ability to utilize its
existing infrastructure and databases to perform services for new clients, as
well as on the Company's ability to develop and successfully implement new
marketing methods or channels for new services for existing clients. Continued
growth will also depend on a number of other factors, including, but not limited
to, the Company's ability to: maintain the high quality of services it provides
to customers; recruit, motivate and retain qualified personnel; train existing
sales representatives or recruit new sales representatives to sell various
categories of services; and open new service facilities in a timely and
cost-effective manner. The Company's continued growth also will require the
implementation of enhanced operational and financial systems and resources, as
well as additional management. Such growth, if not managed effectively, could
have a material adverse effect on the Company.
RISKS RELATED TO RAPID EXPANSION
The Company intends to pursue a strategy of continued growth through
acquisitions and internal growth and will seek to expand the range of its
services and penetrate additional industry segments. The Company has a limited
history in managing operations which are geographically dispersed, coordinating
national sales efforts and introducing new services. The Company's proposed
expansion will be dependent on, among other things, the Company's ability to:
identify suitable acquisition candidates and additional industry segments with
sufficient demand for the Company's services; hire and retain skilled
management, marketing, technical, customer service and other personnel; obtain
adequate capital; and improve administrative and operating systems. There can be
no assurance that the Company will be able to expand its operations or its sales
and marketing team which, if the Company were unable to do so, could have a
material adverse effect on the Company. See "Business -- Growth Strategy."
ACQUISITION RISK
The Company has made three acquisitions during 1997 and plans to make
additional acquisitions in 1998 and subsequent years. However, there can be no
assurance that suitable acquisition candidates will be identified by the Company
in the future, that suitable financing for all such acquisition candidates can
be obtained by the Company or that any such acquisitions will occur. In
addition, the Company competes for acquisition and expansion opportunities with
entities that have
6
<PAGE>
<PAGE>
substantially greater resources than those of the Company. The Company's future
success is partially dependent upon its ability to integrate effectively
acquired businesses into the Company. There can be no assurance that the Company
will be able to successfully integrate its recently completed and future
acquisitions or that such acquisitions will yield profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LOSS OF CONTRACTS
The majority of the Company's contracts are short-term, cancelable on 60 or
90 days notice or less. Although the contracts typically require payment of
certain fees and, in some cases, a termination fee in the event the contract is
terminated, the loss of any of the Company's large contracts or the loss of
multiple contracts could have a material adverse effect on the Company.
DEPENDENCE ON TREND TOWARD OUTSOURCING
The Company's business and growth depend largely on the trend toward
outsourcing marketing services, particularly by pharmaceutical,
telecommunications and financial services companies. There can be no assurance
that this trend toward outsourcing will continue, as companies may elect to
perform such services internally. A significant change in the direction of this
trend, or a trend in such industries to cease or to reduce the use of outsourced
marketing services, such as those provided by the Company, could have a material
adverse effect on the Company.
DEPENDENCE ON LABOR FORCE
Many aspects of the Company's business are labor intensive with the
potential for high personnel turnover. The Company's operations typically
require specially trained persons, such as those employees who market services
and products in languages other than English and those employees with expertise
in the pharmaceutical detailing business. A higher turnover rate among the
Company's employees would increase the Company's recruiting and training costs
and decrease operating efficiencies and productivity. In addition, growth in the
Company's business will require it to recruit and train qualified personnel at
an accelerated rate from time to time. There can be no assurance that the
Company will be able to continue to hire, train and retain a sufficient labor
force of qualified persons.
COMPETITION; INDUSTRY CONSOLIDATION; POTENTIAL CONSUMER SATURATION
The industry in which the Company competes is highly competitive and
fragmented. The Company competes with other outsourced marketing services firms,
ranging in size from very small firms offering specialized applications or
short-term projects to large independent firms. In addition, the Company's
largest clients and many prospective clients have significant internal marketing
capabilities and also contract for these services with competitors of the
Company. The Company's direct marketing services business is also subject to
competition from technologically sophisticated companies, and management
anticipates that such competition will intensify in the future. There can be no
assurance that competitors will not introduce products or services that would
achieve greater market acceptance than, or would be technologically superior to,
the Company's products or services. Competitors and future competitors may have
more extensive market research and capabilities, more extensive experience and
greater financial, marketing or other resources than the Company. There can be
no assurance that the Company will be able to compete successfully or that
competitive pressures will not materially and adversely affect the Company.
The industry is beginning to consolidate and, as a result of competitive
pressures, factors such as quality of service, responsiveness to client issues,
reliability, flexibility, reputation and record of timeliness are becoming
increasingly important. A number of competitors have capabilities and resources
equal to or greater than the Company's, and there can be no assurance that, as
the Company's industry continues to evolve, additional competitors with greater
resources than those of the Company will not enter the industry (or particular
segments of the industry) or that the Company's clients will not conduct more of
their targeted marketing services internally or through alternative marketing
techniques. See "Business -- Competition."
Moreover, the effectiveness of marketing by telephone and other direct
methods could decrease as a result of consumer saturation and increased consumer
resistance to such marketing methods. There can be no assurance that the Company
will be able to anticipate and successfully respond in a timely manner to any
such potential decrease.
7
<PAGE>
<PAGE>
RELIANCE ON TECHNOLOGY
The Company has invested significant funds in sophisticated and specialized
telecommunications and computer technologies and equipment to provide customized
solutions to meet its clients' needs. In addition, the Company has invested
significantly in sophisticated proprietary databases and software that enable it
to market its clients' products to targeted markets. The Company anticipates
that it will be necessary to continue to select, invest in and develop new and
enhanced technology and proprietary databases on a timely basis in the future in
order to maintain its competitiveness.
The Company has made commitments to finance its leased equipment and has
expended substantial time and resources to train its personnel in the operation
of its existing equipment and to integrate the operations of its systems and
facilities. In the event of substantial improvements in computer technologies
and telecommunications equipment, the Company may be required to acquire such
new technologies and equipment at significant cost and/or phase out a portion of
its existing equipment. There can be no assurance that the Company's
technologies and equipment will not be rendered obsolete or its services
rendered less marketable or that the Company will be able to acquire any
improved technology or equipment.
RISK OF BUSINESS INTERRUPTION
The Company's business is highly dependent on its computer, software and
distribution systems and telephone equipment. The temporary or permanent loss of
such systems or equipment, through casualty or operating malfunction, or a
significant increase in the cost of telephone services that is not recoverable
through an increase in the price of the Company's services, could have a
material adverse effect on the Company. The Company's property and business
interruption insurance may not adequately compensate the Company for all losses
that it may incur in any such event.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part upon the abilities and
continued service of its key management personnel, most of whom, including all
of the Company's executive officers, have non-competition agreements. There can
be no assurance that the Company will be able to retain the services of such key
personnel, and the failure of the Company to retain the services of these key
personnel could have a material adverse effect on the Company. See
"Management -- Executive Compensation -- Agreements with Employees." In order to
support its growth, the Company will be required to effectively recruit, hire,
train and retain additional qualified management personnel. The inability of the
Company to attract and retain the necessary personnel could have a material
adverse effect on the Company.
CONTINGENT ACQUISITION CONSIDERATION
The Company is obligated to pay additional consideration to certain sellers
of previously acquired businesses primarily contingent upon the achievement of
certain net revenues and pre-tax earnings goals over the respective three full
calendar-year periods from the dates of acquisition. The ultimate amount of cash
to be paid and the ultimate number of shares of Common Stock to be issued cannot
be determined until earn-out periods terminate and achievement of criteria is
established. In the case of certain of these earn-out arrangements, the number
of shares of Common Stock a seller will receive is dependent upon the market
value of the Common Stock at the time such contingent payment is due. In the
other earn-out arrangements, the number of shares of Common Stock a seller will
receive if the earn-out objectives are met is fixed as of the date of the
acquisition. If the criteria for the earn-out payments with respect to each of
the Company's acquisitions to date are achieved but not exceeded, the Company
will be obligated to make cash payments of $6,520,000 and issue approximately
564,340 shares of Common Stock over the next three years. A lesser amount of
cash would be paid and a fewer number of shares of Common Stock would be
issuable under certain acquisition agreements if the financial criteria are not
met, and a greater amount of cash would be paid and a greater number of shares
of Common Stock would be issuable under certain acquisition agreements if the
financial criteria are exceeded. For example, if the criteria for the earn-out
payments with respect to each of the Company's acquisitions to date are exceeded
by 20%, the Company would be obligated to make cash payments of approximately
$8,760,000 and issue 873,000 shares of Common Stock over the next three years.
The Company expects to continue to enter into acquisition agreements providing
for future contingent earn-out arrangements primarily based on the achievement
of financial criteria. The Company believes that it will be able to make such
cash payments from internally generated funds and, if necessary, from proceeds
of future borrowings. However, there can be no assurance that the Company will
generate sufficient cash to fund such obligations or that future acquisitions
will not adversely affect cash generated from operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
8
<PAGE>
<PAGE>
GOVERNMENT REGULATION
Several of the industries in which the Company's clients operate are
subject to varying degrees of government regulation and deregulation,
particularly the pharmaceutical and telecommunications industries. Generally,
compliance with these regulations is the responsibility of the Company's
clients. However, 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.
Pharmaceutical companies and the healthcare industry in general are subject
to significant federal and state regulation. The Company's handling and
distribution of samples of pharmaceutical products is subject to regulation by
its clients, the Prescription Drug Marketing Act of 1987, the Federal Food, Drug
and Cosmetic Act, and other applicable federal, state and local laws and
regulations. In addition, the Company must comply with regulations promulgated
by professional associations such as the American Medical Association and the
Pharmaceutical Manufacturers Association. Regulations affecting the pricing or
marketing of pharmaceuticals could make it uneconomic or infeasible for
pharmaceutical companies to market their products through outsourced marketing
organizations.
The Company must also comply with rules and regulations set forth by the
Federal Communications Commission ("FCC") and the Federal Trade Commission
("FTC") and other applicable federal, state and local regulations with respect
to the Company's telephone sales and customer sales activities. The Company
believes its operating procedures comply with the applicable regulatory
requirements of the FCC and FTC, including the Federal Telephone Consumer
Protection Act of 1991 (the "FTCPA") and the Federal Telemarketing and Consumer
Fraud and Abuse Protection Act of 1994 (the "TCFAPA").
There can be no assurance that additional federal or state legislation, or
changes in regulatory implementation, would not limit the activities of the
Company or its clients in the future or significantly increase the cost of
regulatory compliance. See "Business -- Government Regulation."
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and may experience future quarter to quarter
fluctuations in its results of operations. In addition, while the Company has
experienced substantial revenue growth in recent periods, there can be no
assurance that such revenue growth rate can be maintained in the future.
Quarterly results of operations may fluctuate as a result of a variety of
factors, including, but not limited to, the size and timing of client orders,
changes in client budgets, material variations in the cost of telephone
services, the size and timing of acquisitions, the integration of acquired
businesses into the Company's operations, the demand for the Company's services,
the timing of introduction of new services and service enhancements by the
Company, the market acceptance of new services, competitive conditions in the
industry and general economic conditions. These factors either individually or
in the aggregate could result in decreasing revenues and earnings which could in
turn materially and adversely affect the price of the Company's Common Stock.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained following the completion of the Offering, or that the
market price of the Company's Common Stock will not decline below the initial
offering price. The initial public offering price of the Company's Common Stock
has been determined by negotiations between the Company and the representatives
of the Underwriters (the "Representatives"). See "Underwriting." The market
price of the Company's Common Stock could be subject to significant fluctuations
in response to a number of factors, including, but not limited to, the
announcement of quarterly operating results of the Company or general
developments in the outsourced marketing industry. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations that have
often been unrelated to the operating performance of particular companies. These
fluctuations, as well as general economic, political and market conditions, may
materially and adversely affect the market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, there will be 8,930,667 shares of the
Company's Common Stock outstanding. The 4,000,000 shares sold in the Offering
will be freely tradeable without restriction under the Securities Act, except to
the extent acquired by affiliates of the Company. The Company, its officers and
directors and the other stockholders of the Company, beneficially holding in the
aggregate 4,930,667 shares of the Company's Common Stock (55.2% following
consummation of the Offering), have agreed that, for a period of 180 days from
the date of this Prospectus, they will not, subject to certain limited
exceptions, offer, sell, contract to sell or otherwise dispose of any of the
Company's Common Stock (or any securities
9
<PAGE>
<PAGE>
convertible into or exercisable or exchangeable for the Company's Common Stock)
or grant any options or warrants to purchase the Company's Common Stock without
the prior written consent of Smith Barney Inc., except by the Company in
connection with acquisitions and pursuant to employee benefit plans existing on
the date of this Prospectus, including the Stock Option Plan. Upon expiration of
the 180-day period, at least 4,764,000 shares of Common Stock will be eligible
for sale pursuant to Rule 144 under the Securities Act ("Rule 144"), including
553,040 shares which would be freely tradeable under paragraph (k) of Rule 144
and 4,210,960 shares subject to compliance with Rule 144 volume limitations, of
which 4,109,460 are held by officers, directors and affiliates of the Company.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the 800,000 shares of Common Stock authorized and
reserved for issuance pursuant to the Stock Option Plan. Upon the filing of such
Form S-8, outstanding shares of Common Stock so registered may be freely sold
without restriction, except for shares held by officers, directors and other
affiliates of the Company. Sales of a substantial amount of the shares could
have a material adverse effect on the market price of the Company's Common
Stock. See "Shares Eligible for Future Sale."
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of the Offering, Stephen F. Nagy, Chairman of the Board
and a director of the Company, and John H. Foster, a director of the Company,
and their affiliates, will beneficially own approximately 40% of the voting
stock of the Company and will, in effect, have the power to influence strongly
the outcome of all matters requiring stockholder approval, including the
election or removal of directors and the approval of significant corporate
transactions. Such voting could also delay or prevent a change in the control of
the Company in which the holders of the Company's Common Stock could receive a
substantial premium.
SUBSTANTIAL PORTION OF PROCEEDS TO BE USED FOR PAYMENTS TO PRINCIPAL
STOCKHOLDERS
The Company intends to apply approximately $43.5 million of the estimated
net proceeds from the Offering to retire certain indebtedness of the Company and
to redeem Preferred Stock of the Company. Accordingly, a substantial portion of
the net proceeds will not be available for the Company's working capital needs,
for future acquisitions or to finance internal growth. Of such amount, $32.6
million will be applied to the retirement of debt and to the redemption of
Preferred Stock held by certain principal stockholders of the Company
(investment partnerships of which Stephen F. Nagy, Chairman of the Board and a
director of the Company, and John H. Foster, a director of the Company, are
general partners of the general partner), and approximately $5.4 million will be
applied to the retirement of debt guaranteed by such investment partnerships.
Additionally, the Company has agreed to pay Foster Management Company a fee of
$750,000 for its assistance in the Company's preparation for the Offering. John
H. Foster is the Chairman and sole stockholder, and Stephen F. Nagy is the
Managing Partner, of Foster Management Company. See Notes 7 and 9 of Notes to
the Company's Combined Financial Statements, "Use of Proceeds,"
"Capitalization," "Management -- Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions."
POSSIBLE EFFECT OF ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
The Company's Certificate of Incorporation allows the Company to issue preferred
stock with rights senior to those of the Company's Common Stock without any
further vote or action by the stockholders. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of the Company's Common Stock or could adversely affect the rights
and powers, including voting rights, of the holders of the Company's Common
Stock. See "Description of Capital Stock."
NO DIVIDENDS
Since the Recapitalization (as defined below) in December 1996, the Company
has never paid cash dividends on its Common Stock and does not anticipate that
any cash dividends will be declared or paid in the foreseeable future. See
"Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in the Offering will experience immediate and substantial
dilution in net tangible book value per share of the Common Stock. Based upon an
assumed offering price of $17.00 per share, dilution to investors in the
Offering will be $12.50 per share, and the net tangible book value of the shares
held by existing stockholders will increase by $9.44 per share. See "Dilution."
10
<PAGE>
<PAGE>
THE COMPANY
The Company was organized under the name Telephone Access, Inc. under the
laws of the State of Delaware on August 11, 1983. In December 1996, the Company
merged with TelAc, Inc. Also, in December 1996, the Company was recapitalized
(the "Recapitalization") by affiliates of Foster Management Company and changed
its name to CULTURALACCESSWORLDWIDE, INC. In January 1997, TLM Holdings Inc.
("TLM"), a company separately capitalized by affiliates of Foster Management
Company, acquired through a subsidiary substantially all of the assets of
TeleManagement Services, Inc. ("TMS"), a pharmaceutical/healthcare direct
marketing and teleservices company. In September 1997, the Company acquired
Hispanic Market Connections, Inc. ("HMC"), an ethnic marketing research and
strategic planning company. In October 1997, the Company acquired substantially
all of the assets of Phoenix Marketing Group, Inc. ("Phoenix"), a
database-driven pharmaceutical industry marketing services company. Also, in
October 1997, CAW Acquisition Corp., a wholly owned subsidiary of the Company,
was merged with TLM, pursuant to which TLM and its wholly owned subsidiary TMS
became wholly owned by the Company. For additional information concerning such
acquisitions, see "Certain Transactions" and the Notes to the Company's Combined
Financial Statements. The Company transacts business directly and through its
subsidiaries. Unless the context otherwise requires, all references in this
Prospectus to the Company include its subsidiaries.
The Company's principal executive offices are located at 2200 Clarendon
Boulevard, 11th Floor, Arlington, Virginia 22201, and its telephone number is
(800) 522-3447.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
4,000,000 shares of Common Stock offered hereby, assuming an offering price of
$17.00 per share, are estimated to be $61.2 million ($70.4 million if the
Underwriters' over-allotment option is exercised in full) after deducting
estimated underwriting discounts and commissions and offering expenses.
The Company intends to apply approximately $43.5 million of the net
proceeds of the Offering to retire certain indebtedness of the Company and to
redeem preferred stock of the Company as follows: (i) $14.2 million to repay the
outstanding balance of the Company's 8% subordinated term notes due December 1,
2006, together with accrued interest; (ii) $2.8 million to repay the outstanding
balance of the Company's 8% subordinated term notes due January 15, 2007,
together with accrued interest; (iii) $11.7 million to repay the outstanding
balance of the Company's 8% subordinated term notes due October 15, 2007,
together with accrued interest; (iv) $2.5 million to repay the outstanding
balance of the 6% redeemable promissory note due December 31, 1998, together
with accrued interest; (v) $3.0 million to repay the outstanding balance of the
Company's 6% subordinated promissory notes due December 1, 2000, together with
accrued interest; (vi) $5.4 million to repay all of the amount borrowed by the
Company from an institutional lender pursuant to a demand line of credit (the
"Credit Facility") (which bears interest at the Company's option at (a) the
greater of (x) such lender's prime rate (which at October 22, 1997 was 8.5%), or
(y) the federal funds rate (which at October 22, 1997 was 6.25%) plus 0.5% or
(b) the eurodollar rate (which at October 22, 1997 was 5.66%) plus 2%, together
with accrued interest; and (vii) $3.9 million to redeem 36,000 outstanding
shares of the Preferred Stock of the Company, together with accrued dividends.
Substantially all of the foregoing indebtedness relates to the Company's
acquisitions and has been used primarily to fund the cash portions of the
purchase prices for acquisitions made by the Company during 1996 and 1997 and to
pay expenses related thereto. See Notes 7 and 9 of Notes to the Company's
Combined Financial Statements, "Capitalization" and "Certain Transactions" for
further information concerning such indebtedness. The remaining net proceeds
will be added to the Company's working capital and will be used to finance
future acquisitions and internal growth. Pending such use, the Company intends
to invest the net proceeds in short-term investment grade, interest-bearing,
certificates of deposit or guaranteed obligations of the United States.
The Company plans to augment its internal growth by acquiring companies
with businesses that offer complementary services. However, no portion of the
proceeds of the Offering has been allocated for any specific future
acquisitions, nor has the Company entered into any agreements or letters of
intent with respect to any future acquisitions.
DIVIDEND POLICY
Since the Recapitalization in December 1996, the Company has not paid a
cash dividend on its Common Stock. It is the current policy of the Company's
Board of Directors to retain any earnings to finance the operations and
expansion of the Company's business. The payment of cash dividends in the future
will depend on the Company's results of operations, financial condition and
capital needs and on other factors deemed pertinent by the Company's Board of
Directors.
11
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
acquisitions which occurred subsequent to June 30, 1997 and the sale by the
Company of the 4,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $17.00 per share and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds." This table
should be read in conjunction with the Combined Financial Statements of the
Company and the Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED (4)
-------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Line of credit facility, current portion of indebtedness and obligations under capital leases
(1)............................................................................................. $ 7,246 $ 799
-------- ---------------
-------- ---------------
Long-term debt, net of current portion (1)........................................................ $ 17,105 $ 1,446
Mandatorily redeemable preferred stock, $.01 par value, 8% cumulative; 1,000,000 shares
authorized, 36,000 shares issued and outstanding actual; no shares issued or outstanding as
adjusted (2).................................................................................... 3,744 --
Stockholders' equity (deficit):
Common Stock, $.01 par value, voting; 19,500,000 shares authorized, 4,264,000 shares issued and
outstanding actual; 8,430,667 shares issued and outstanding as adjusted (3).................. 43 85
Common Stock, $.01 par value, non-voting; 500,000 shares authorized, issued and outstanding
actual and as adjusted....................................................................... 5 5
Additional paid-in capital...................................................................... 1,636 65,289
Retained deficit................................................................................ (17,449) (17,449)
-------- ---------------
Total stockholders' equity (deficit) (5)................................................... (15,765) 47,930
-------- ---------------
Total capitalization....................................................................... $ 5,084 $ 49,376
-------- ---------------
-------- ---------------
</TABLE>
- ---------------
(1) See Note 7 of Notes to the Company's Combined Financial Statements for
information concerning indebtedness.
(2) Upon completion of the Offering, the Preferred Stock will be redeemed for
$3.6 million in cash, plus accumulated and unpaid dividends. See "Certain
Transactions."
(3) Includes 166,667 shares of Common Stock to be issued upon the conversion of
the Convertible Note upon the consummation of the Offering. Does not include
800,000 shares of Common Stock reserved for issuance under the Company's
Stock Option Plan. See "Management -- Executive Compensation -- Stock Option
Plan" and Note 11 of Notes to the Company's Combined Financial Statements.
(4) Adjusted for the sale of shares of Common Stock offered hereby, the
application of the estimated net proceeds therefrom as described under "Use
of Proceeds" based upon an assumed offering price of $17.00 per share and
the conversion of acquisition debt into common shares. See "Unaudited Pro
Forma Financial Information."
(5) See Note 1 of Notes to the Company's Combined Financial Statements for
information concerning basis of accounting.
12
<PAGE>
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of June 30, 1997,
was approximately $(23.5) million or $(4.94) per share of Common Stock. "Net
tangible book value (deficit)" represents the amount of the Company's total
tangible assets reduced by the amount of its total liabilities and divided by
the total number of shares of Common Stock outstanding. Without taking into
account any other changes in such net tangible book value (deficit) after June
30, 1997, other than to give effect to (i) the receipt by the Company of the
estimated net proceeds from the sale of the 4,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $17.00 per share
and after deducting estimated underwriting discounts and commissions and
offering expenses and (ii) 166,667 shares of Common Stock to be issued upon the
conversion of the Convertible Note upon the consummation of the Offering, the
pro forma net tangible book value of the Company as of June 30, 1997 would have
been approximately $40.2 million or $4.50 per share. This represents an
immediate increase in pro forma net tangible book value of $9.44 per share to
existing stockholders and an immediate dilution of $12.50 per share to new
investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price (1)............................................. $17.00
Net tangible book value (deficit) at June 30, 1997 (2)...................... $(4.94)
Increase in net tangible book value attributable to new investors........... 9.44
------
Pro forma net tangible book value after the Offering (3)...................... 4.50
------------
Dilution to new investors (4)................................................. $12.50
------------
------------
</TABLE>
- ---------------
(1) Assumed public offering price before deduction of estimated underwriting
discounts and commissions and offering expenses.
(2) Net tangible book value (deficit) per share of Common Stock excludes
intangible assets of approximately $(7.9 million), or $(0.89) per share.
(3) The Convertible Note was not outstanding at June 30, 1997 and, accordingly,
is not included in the computation of net tangible book value (deficit) at
June 30, 1997.
(4) Dilution is determined by subtracting net tangible book value (deficit) per
share of Common Stock after the Offering from the assumed public offering
price paid by new investors for a share of Common Stock.
Based on the assumptions utilized in the table set forth above, the
following table summarizes, on a pro forma basis as of June 30, 1997, the
difference between existing stockholders and new investors (at an assumed
initial public offering price of $17.00 per share before deducting underwriting
discounts, commissions and expenses) with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)....................................... 4,764,000 54.4% $ 376,328 0.6% $ 0.08
New investors................................................... 4,000,000 45.6 68,000,000 99.4 17.00
--------- ------- ----------- -------
Total......................................................... 8,764,000 100.0% $68,376,328 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ---------------
(1) Excludes 166,667 shares of Common Stock to be issued upon the conversion of
the Convertible Note upon the consummation of the Offering. If such shares
were included, the number of shares of Common Stock purchased by existing
stockholders would be 4,930,667 shares (55.2%) for a total consideration of
$2,876,328 (4.1%), or an average price per share of $0.58.
Other than as noted above, the foregoing computations assume no exercise of
any stock options outstanding after June 30, 1997 or the Underwriters'
over-allotment option and that no shares of Common Stock have been issued in
connection with the earn-out arrangements for any of the acquisitions. See "Risk
Factors -- Contingent Acquisition Consideration." As of June 30, 1997, options
to purchase 60,000 shares of Common Stock were outstanding. Subsequent to June
30, 1997, options to purchase 342,500 shares of Common Stock were granted by the
Company to employees and directors. To the extent these options are exercised or
shares of Common Stock issued in connection with such earn-out arrangements are
issued at below the market value of the Common Stock on the issuance date, there
will be further dilution to new investors. See "Underwriting" for information
concerning the Underwriters' over-allotment option.
13
<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT FOR SHARE DATA)
The following data, insofar as they relate to the years 1993 through 1996
(including the five months ended December 31, 1994) and the six months ended
June 30, 1997, have been derived from the audited financial statements of the
Company. The audited financial statements as of July 31, 1994, as of December
31, 1994, 1995 and 1996 and as of June 30, 1997 and for the applicable periods
then ended appear elsewhere in this Prospectus. Effective December 31, 1994, the
Company changed its fiscal year end from July 31 to December 31.
The data, insofar as they relate to the year 1992 and the six months ended
June 30, 1996, have been derived from the unaudited internal financial
statements of the Company. The unaudited financial statements for the six months
ended June 30, 1996 appear elsewhere in this Prospectus. Such financial
statements include all adjustments, consisting only of normal and recurring
adjustments, that management considers necessary for a fair and accurate
presentation of the data.
The interim results are not necessarily indicative of results of operations
for the entire year.
The selected financial data should be read in conjunction with the
financial statements and notes thereto of the Company, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
FIVE MONTHS ------------------------------ ----------------------
YEAR ENDED JULY 31, ENDED PRO FORMA
---------------------- DECEMBER 31, AS ADJUSTED
1992 1993 1994 1994 1995 1996 1996 (1) 1996 1997
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues........................... $1,660 $2,796 $4,397 $2,728 $9,047 $ 16,286 $ 38,102 $ 8,076 $ 15,025
Cost of revenues................... 514 1,182 1,720 1,437 4,396 8,639 19,026 4,176 8,830
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Gross profit....................... 1,146 1,614 2,677 1,291 4,651 7,647 19,076 3,900 6,195
Selling, general and
administrative................... 1,073 1,518 2,715 807 4,540 7,728 18,600 2,862 3,497
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Income (loss) from operations...... 73 96 (38) 484 111 (81) 476 1,038 2,698
Interest income (expense).......... -- -- (3) (2) 24 (101) 87 (23) (1,085 )
Other income (expense)............. -- -- -- -- 5 (200) (153 ) 5 (456 )
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Income (loss) before income
taxes............................ 73 96 (41) 482 140 (382) 410 1,020 1,157
Tax (expense) benefit (2).......... -- (33) -- -- -- 88 (164 ) -- (494 )
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Net income (loss).................. $ 73 $ 63 $ (41) $ 482 $ 140 $ (294) $ 246 $ 1,020 $ 663
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Net income per common share........ $ .03 $ .14
----------- ---------
----------- ---------
Shares used in net income per
common share computation......... 8,512,734 4,763,717
----------- ---------
----------- ---------
<CAPTION>
PRO FORMA
AS ADJUSTED
1997 (1)
---------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 25,915
Cost of revenues................... 14,772
---------------
Gross profit....................... 11,143
Selling, general and
administrative................... 7,780
---------------
Income (loss) from operations...... 3,363
Interest income (expense).......... 65
Other income (expense)............. (491)
---------------
Income (loss) before income
taxes............................ 2,937
Tax (expense) benefit (2).......... (1,206)
---------------
Net income (loss).................. $ 1,731
---------------
---------------
Net income per common share........ $ .20
---------------
---------------
Shares used in net income per
common share computation......... 8,763,717
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1997
JULY 31, DECEMBER 31, ---------
---------------------- -------------------------------
1992 1993 1994 1994 1995 1996 ACTUAL
------ ------ ------ ------------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $ 343 $ 650 $1,110 $ 994 $2,463 $ 1,963 $ 6,727
Total assets(3).................... 354 705 1,240 1,152 2,749 3,309 16,296
Current liabilities................ 137 414 996 429 2,159 1,751 11,013
Long-term debt, less current
maturities....................... -- 16 10 6 -- 16,201 17,105
Mandatorily redeemable preferred
stock............................ -- -- -- -- -- 1,800 3,744
Stockholders' equity (deficit)..... 193 276 234 717 590 (16,443) (15,566 )
<CAPTION>
PRO FORMA
AS ADJUSTED (4)
---------------
<S> <C>
BALANCE SHEET DATA:
Current assets..................... $ 30,681
Total assets(3).................... 56,430
Current liabilities................ 6,855
Long-term debt, less current
maturities....................... 1,446
Mandatorily redeemable preferred
stock............................ --
Stockholders' equity (deficit)..... 48,129
</TABLE>
- ---------------
(1) Adjustments on a Pro Forma as Adjusted basis include pro forma adjustments
to reflect acquisitions as of the periods presented and further give effect
to the sale of shares of Common Stock offered hereby and to the reduction in
interest expense and dividends on the Preferred Stock resulting from the
assumed use, as of January 1, 1996, of the estimated net proceeds of the
Offering to retire outstanding debt and redeem the Preferred Stock as
described under "Use of Proceeds." See "Unaudited Pro Forma Financial
Information."
(2) In December 1996, the Company became a C Corporation for income tax
purposes. Prior to that, the Company was an S Corporation; accordingly, no
taxes were recorded by the Company. The data for the six months ended June
30, 1997, and the Pro Forma as Adjusted data for 1996 and 1997 include a
provision for income taxes. Had the Company been a C Corporation for all of
1996, its provision (benefit) for income taxes and net income would have
been ($149) and $233, respectively, for the year ended December 31, 1996 and
$408 and $612, respectively, for the six months ended June 30, 1996.
(3) Includes $7.9 million and $23.9 million of excess of cost over fair value of
net assets acquired and other intangible assets, on an Actual and on a Pro
Forma as Adjusted basis, respectively, at June 30, 1997.
(4) Adjusted on a Pro Forma as Adjusted basis to reflect the acquisition of HMC
and Phoenix which occurred after June 30, 1997 as if they had occurred on
June 30, 1997, the sale of shares of Common Stock offered hereby and the
assumed use of the estimated net proceeds as if the Offering had occurred on
June 30, 1997, as described under "Use of Proceeds." See "Unaudited Pro
Forma Financial Information."
14
<PAGE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT FOR SHARE DATA)
The following Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 are based on
the historical combined financial statements of the Company, adjusted to give
effect, using the purchase method of accounting, to the acquisitions of TMS, HMC
and Phoenix as of January 1, 1996. TMS was acquired effective January 1, 1997
and is included in the historical results of operations of the Company from that
date. HMC and Phoenix were both acquired subsequent to June 30, 1997. The
Unaudited Pro Forma Balance Sheet has been prepared assuming that the
acquisitions which took place after June 30, 1997 and the Offering had occurred
on June 30, 1997.
The Unaudited Pro Forma Combined Statements of Operations also give effect
to the reduction in interest costs and dividends on indebtedness and Preferred
Stock resulting from the assumed use, as of January 1, 1996, of the estimated
net proceeds of the Offering to retire outstanding debt, together with accrued
interest, and to redeem the Preferred Stock of the Company as described under
the "Use of Proceeds."
The Unaudited Pro Forma Financial Information does not purport to represent
what the Company's results of operations or financial position would have been
had the acquisitions occurred as of January 1, 1996 or to project the Company's
results of operations or financial position for a future period or date, nor
does it give effect to any matters other than those described in the notes
thereto.
The Unaudited Pro Forma Financial Information should be read in conjunction
with the Company's Combined Financial Statements and the financial statements of
certain of the above acquired companies appearing elsewhere in this Prospectus.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- ACQUISITION OFFERING
ACQUIRED PRO FORMA PRO FORMA
THE COMPANY(1) COMPANIES(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS
---------------- -------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 15,025 $ 10,890 $ 25,915
Cost of revenues........................ 8,830 5,942 14,772
---------------- -------------- ----------------
Gross profit.......................... 6,195 4,948 11,143
Selling, general and administrative..... 3,497 3,912 $ 371(3) 7,780
---------------- -------------- ----------- ----------------
Income from operations................ 2,698 1,036 (371) 3,363
Interest income......................... 37 28 -- 65
Interest expense........................ (1,122) (162) (656)(4) (1,940) $ 1,940(5)
Other income (expense).................. (456) (35) -- (491) --
---------------- -------------- ----------- ---------------- -----------
Income before taxes................... 1,157 867 (1,027) 997 1,940
Income tax (expense) benefit............ (494) (347) 411(6) (430) (776)(6)
---------------- -------------- ----------- ---------------- -----------
Net income............................ $ 663 $ 520 $ (616) $ 567 $ 1,164
---------------- -------------- ----------- ---------------- -----------
---------------- -------------- ----------- ---------------- -----------
Net income per common share(7).......... $ .14 $ .12
---------------- ----------------
---------------- ----------------
Shares used in net income per common
share computation(7).................. 4,763,717 4,763,717 4,000,000
---------------- ---------------- -----------
---------------- ---------------- -----------
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Revenues................................ $ 25,915
Cost of revenues........................ 14,772
-----------
Gross profit.......................... 11,143
Selling, general and administrative..... 7,780
-----------
Income from operations................ 3,363
Interest income......................... 65
Interest expense........................ --
Other income (expense).................. (491)
-----------
Income before taxes................... 2,937
Income tax (expense) benefit............ (1,206)
-----------
Net income............................ $ 1,731
-----------
-----------
Net income per common share(7).......... $ .20
-----------
-----------
Shares used in net income per common
share computation(7).................. 8,763,717
-----------
-----------
</TABLE>
15
<PAGE>
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------- ACQUISITION OFFERING
THE ACQUIRED PRO FORMA PRO FORMA
COMPANY(1) COMPANIES(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS
--------------------- --------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................. $16,286 $21,816 $38,102
Cost of revenues......................... 8,639 10,387 19,026
--------------------- --------------------- ---------
Gross profit........................... 7,647 11,429 19,076
Selling, general and
administrative......................... 7,728 10,250 $ 622(3) 18,600
--------------------- --------------------- ----------- ---------
Income from operations................. (81) 1,179 (622) 476
Interest income.......................... -- 87 -- 87
Interest expense......................... (101) (407) (1,420)(4) (1,928) $ 1,928(5)
Other income (expense)................... (200) 47 -- (153) --
--------------------- --------------------- ----------- --------- -----------
Income (loss) before taxes............. (382) 906 (2,042) (1,518) 1,928
Income tax (expense) benefit............. 88 (298) 817(6) 607 (771)(6)
--------------------- --------------------- ----------- --------- -----------
Net income (loss)...................... $ (294) $ 608 $(1,225) $ (911) $ 1,157
--------------------- --------------------- ----------- --------- -----------
--------------------- --------------------- ----------- --------- -----------
Net income (loss) per common share(7).... $ (.07) $ (.20)
--------------------- ---------
--------------------- ---------
Shares used in net income (loss) per
common share
computation(7)......................... 4,512,734 4,512,734 4,000,000
--------------------- --------- -----------
--------------------- --------- -----------
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Revenues................................. $38,102
Cost of revenues......................... 19,026
-----------
Gross profit........................... 19,076
Selling, general and
administrative......................... 18,600
-----------
Income from operations................. 476
Interest income.......................... 87
Interest expense......................... --
Other income (expense)................... (153)
-----------
Income (loss) before taxes............. 410
Income tax (expense) benefit............. (164)
-----------
Net income (loss)...................... $ 246
-----------
-----------
Net income (loss) per common share(7).... $ .03
-----------
-----------
Shares used in net income (loss) per
common share
computation(7)......................... 8,512,734
-----------
-----------
</TABLE>
- ---------------
(1) Represents the historical combined statements of operations data for the
Company.
(2) The historical results of the acquired companies represent the actual
results of operations for the acquired companies prior to the dates of their
acquisition by the Company. See "The Company."
(3) The adjustment to selling, general and administrative expenses includes
reductions or increases to acquired companies' historical amounts of
compensation for services provided by former owners for the difference
between such historical amounts and amounts specified in employment
contracts for comparable positions in the Company (resulting in net
reduction in expense of $47 and $598 for six months ended June 30, 1997 and
year ended December 31, 1996, respectively). Such reductions in expenses
have been effected by the Company in connection with the acquisition of such
companies. The adjustment to selling, general and administrative expenses
also includes the additional amortization over three to 35 years of the
excess of cost over fair value of net assets acquired and other intangible
assets of acquired companies, as if such acquisitions occurred as of January
1, 1996 (resulting in amortization expense of $418 and $1,220 for the six
months ended June 30, 1997 and year ended December 31, 1996, respectively).
(4) The adjustment reflects the additional interest expense that would have been
incurred had the consideration in the form of cash and notes for the
acquisitions been paid on January 1, 1996. The aggregate amount of
borrowings and debt issued in connection with the acquisitions was
approximately $25.7 million. Such borrowings bear interest at annual rates
of 6% and 8%.
(5) The adjustment to interest expense reflects the retirement of certain
outstanding debt of the Company by applying a portion of the estimated net
proceeds of the Offering, as more fully described under "Use of Proceeds,"
as if the Offering had occurred on January 1, 1996. Such debt, which is to
be retired by applying a portion of the estimated net proceeds, bears
interest at annual rates of 6% and 8%.
(6) The adjustment to taxes reflects the taxes associated with the pro forma
adjustments at an assumed tax rate of 40%.
(7) Pro forma net income (loss) per common share is computed by dividing the
income (loss) applicable to Common Stock by the number of shares of Common
Stock outstanding as of October 22, 1997 since all such shares issued on or
prior to that date were issued at prices significantly below the offering
price. The shares used in the computation of net income (loss) per share on
an adjusted basis also include that portion of the number of shares being
sold pursuant to the Offering that would be required to generate net
proceeds to be applied to the retirement of debt, including accrued
interest, and redemption of Preferred Stock, as more fully described under
"Use of Proceeds."
16
<PAGE>
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- ACQUISITION OFFERING
THE ACQUIRED PRO FORMA PRO FORMA PRO FORMA
COMPANY (1) COMPANIES (2) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets........................... $ 6,727 $ 5,254 $11,981 $18,700(4) $30,681
Property and equipment, net.............. 1,660 1,820 3,480 -- 3,480
Other assets............................. -- 160 160 -- 160
Intangible assets, net................... 7,909 -- $14,200(3) 22,109 -- 22,109
----------- ------------- ----------- --------- ----------- -----------
Total assets.......................... $16,296 $ 7,234 $14,200 $37,730 $18,700 $56,430
----------- ------------- ----------- --------- ----------- -----------
----------- ------------- ----------- --------- ----------- -----------
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Amount due on line of credit facility.... $ 5,410 $ 66 $ 5,476 $(5,410)(4) $ 66
Current portion of indebtedness.......... 1,779 622 2,401 (1,724) 677
Other current liabilities................ 3,824 2,888 6,712 (600) 6,112
----------- ------------- --------- ----------- -----------
Total current liabilities............. 11,013 3,576 14,589 (7,734) 6,855
Long-term indebtedness................... 17,105 2,855 $14,947(3) 34,907 (33,517) 1,390
Other.................................... -- 56 -- 56 -- 56
Mandatorily redeemable preferred stock... 3,744 -- -- 3,744 (3,744)(4) --
Stockholders' (deficit) equity:
Common stock............................. 83 52 (52)(3) 83 42(4) 125
Additional paid-in capital............... 1,800 (45) 45(3) 1,800 63,653(4) 65,453
Retained earnings (accumulated
deficit).............................. (17,449) 740 (740)(3) (17,449) -- (17,449)
----------- ------------- ----------- --------- ----------- -----------
Total stockholders' (deficit)
equity........................... (15,566) 747 (747) (15,566) 63,695 48,129
----------- ------------- ----------- --------- ----------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders'
(deficit) equity...................... $16,296 $ 7,234 $14,200 $37,730 $18,700 $56,430
----------- ------------- ----------- --------- ----------- -----------
----------- ------------- ----------- --------- ----------- -----------
</TABLE>
- ---------------
(1) Represents the historical balance sheet data for the Company.
(2) The historical balance sheet data for the acquired companies as of June 30,
1997 represent the combined June 30, 1997 balance sheets for HMC and
Phoenix. Both companies were acquired subsequent to June 30, 1997. See "The
Company."
(3) Adjustment to (i) record the consideration for purchases of HMC and Phoenix;
(ii) record the excess of purchase price over the net assets acquired; and
(iii) eliminate the stockholders' equity of the acquired companies.
(4) Adjustment to record (i) the issuance of Common Stock contemplated by the
Prospectus; (ii) the use of estimated net proceeds as anticipated by the
Company to retire long-term indebtedness, pay down borrowings under its line
of credit facility and redeem Preferred Stock; and (iii) the conversion of
certain acquisition debt into 166,667 shares of Common Stock. See "Use of
Proceeds."
17
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Selected Financial Information, the Unaudited Pro Forma Financial
Information and the Combined Financial Statements of the Company and related
notes thereto and other financial information appearing elsewhere in this
Prospectus. Historical results are not necessarily indicative of trends in
operating results for any future period.
OVERVIEW
The Company is a rapidly growing outsourced marketing services company that
assists Fortune 500 companies in penetrating complex and hard-to-reach market
segments. The Company plans and executes integrated and cost-effective
marketing, sales and customer service programs using various combinations of the
Company's core competencies including market research, database analysis,
strategic planning, telesales/services, direct mail, sales force support
systems, sales territory management, product sampling and fulfillment. The
Company has expertise in serving corporations in industries that are undergoing
dramatic changes due to consolidation, deregulation and technological
innovation. These industries include pharmaceutical, telecommunications and
financial services.
Significant events during 1997 include the following:
(Bullet) On a pro forma basis to reflect acquisitions, the Company's
revenues increased by 35.9% during the first six months of 1997
compared to the first six months of 1996, and the Company improved
its operating margin from 9.9% to 13.0% during the same periods.
(Bullet) Effective January 1, 1997, TLM acquired TMS, a pharmaceutical and
healthcare direct marketing and teleservices company. TLM
subsequently merged into a subsidiary of the Company on October
21, 1997.
(Bullet) In January 1997, the Company upgraded its corporate network to
operate an Internet-based system, which provides seamless
integration with its clients' systems.
(Bullet) In May 1997, the Company added 85 Pentium equipped workstations to
its Arlington, Virginia facility, which now contains 215
workstations.
(Bullet) On April 1, 1997, the Company hired John Fitzgerald as President
and Chief Executive Officer.
(Bullet) On August 19, 1997, the Company hired Michael Dinkins as Senior
Vice President of Finance and Administration and Chief Financial
Officer.
(Bullet) On September 24, 1997, the Company acquired HMC, an ethnic
marketing research and strategic planning company.
(Bullet) On October 17, 1997, the Company acquired substantially all of the
assets of Phoenix, a database-driven pharmaceutical industry
marketing services company.
For additional information regarding the transactions see "The Company,"
"Business -- General," "Certain Transactions," "Use of Proceeds,"
"Capitalization" and the Notes to the Company's Combined Financial Statements
appearing elsewhere in this Prospectus.
REVENUES
The Company provides a variety of services for a diverse client base. The
major forms of revenue collection and recognition are as follows:
(Bullet) The Company licenses Electronic Territory Management Systems to
clients on a per sales person basis. Data analysis to drive sales
force deployment is billed on a fixed fee basis. Revenues are
recognized as activities are performed.
(Bullet) For customized or non-standard database projects, the Company
bills either on a fixed fee or on a per item basis, and revenues
are recognized upon completion of the project. Monthly or
scheduled data services are billed and recognized upon delivery of
data.
(Bullet) For sampling and fulfillment activities, the Company bills on a
per item basis.
18
<PAGE>
<PAGE>
(Bullet) For teleservices projects, the Company bills clients on one of the
following bases: production hours; completed presentations; phone
calls placed or received; and sales made per hour or a fixed
monthly fee. Revenues are recognized when the services are
completed.
(Bullet) For market research projects, the Company generally bills and
collects fixed project fees in periodic installments over the
course of the project including a percentage of the total project
costs at execution of a contract. Revenues are recognized on the
percentage of completion method.
COST OF REVENUES
Cost of revenues consists of expenses specifically associated with client
service revenues. The cost of revenues includes salaries and benefits,
commissions paid to sales personnel and telephone charges.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses include staff functions such
as accounting, information technology and human resources, as well as expenses
not directly linked to client service revenues, such as depreciation,
amortization and rental expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data and statement of operations data as a percentage of
revenues obtained from the Company's combined statements of operations. There
can be no assurance that trends in operating results will continue in the
future.
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------ ----------------- ------------------
1994 1995 1996 1996 1997
------------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues............................................................ $2,728 $9,047 $16,286 $ 8,076 $15,025
Cost of revenues.................................................... 1,437 4,396 8,639 4,176 8,830
------------ ------ ------- ------- -------
Gross profit...................................................... 1,291 4,651 7,647 3,900 6,195
Selling, general and administrative................................. 807 4,540 7,728 2,862 3,497
------------ ------ ------- ------- -------
Income from operations............................................ 484 111 (81) 1,038 2,698
Interest income (expense)........................................... -- 24 (101) (23) (1,085)
Other income (expense).............................................. (2) 5 (200) 5 (456)
------------ ------ ------- ------- -------
Income (loss) before taxes........................................ 482 140 (382) 1,020 1,157
Income tax (expense) benefit........................................ -- -- 88 -- (494)
------------ ------ ------- ------- -------
Net income (loss)................................................. $ 482 $ 140 $ (294) $ 1,020 $ 663
------------ ------ ------- ------- -------
------------ ------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------ ----------------- ------------------
1994 1995 1996 1996 1997
------------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................................... 52.7 48.6 53.0 51.7 58.8
------------ ------ ------- ------- -------
Gross profit...................................................... 47.3 51.4 47.0 48.3 41.2
Selling, general and administrative................................. 29.5 50.2 47.5 35.4 23.3
------------ ------ ------- ------- -------
Income from operations............................................ 17.8 1.2 (0.5) 12.9 17.9
Interest income (expense)........................................... -- 0.2 (0.6) (0.4) (7.2)
Other income (expense).............................................. (0.1) 0.1 (1.2) 0.1 (3.0)
------------ ------ ------- ------- -------
Income (loss) before taxes........................................ 17.7 1.5 (2.3) 12.6 7.7
Income tax (expense) benefit........................................ -- -- 0.5 -- (3.3)
------------ ------ ------- ------- -------
Net income (loss)................................................. 17.7% 1.5% (1.8)% 12.6% 4.4%
------------ ------ ------- ------- -------
------------ ------ ------- ------- -------
</TABLE>
19
<PAGE>
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues increased $6.9 million, or 86.0%, from $8.1 million for the six
months ended June 30, 1996 to $15.0 million for the six months ended June 30,
1997 primarily as a result of the acquisition of TMS in January 1997. In
addition, the Company experienced continued growth in the demand for its
services from existing clients for whom the Company markets long distance
services to residential customers in certain ethnic Culture Markets.
Cost of revenues increased $4.6 million, or 111.4%, from $4.2 million for
the six months ended June 30, 1996 to $8.8 million for the six months ended June
30, 1997. Cost of revenues as a percentage of revenues increased from 51.7% for
the six months ended June 30, 1996 to 58.8% for the six months ended June 30,
1997. This increase was primarily due to the addition of new and temporary
employees to support the Company's expanded programs. In addition, short lead
times on new projects required the Company to utilize overtime and higher-priced
contract labor to complement existing personnel.
Selling, general and administrative expenses increased $635,000, or 22.2%,
from $2.9 million for the six months ended June 30, 1996 to $3.5 million for the
six months ended June 30, 1997. Selling, general and administrative expenses as
a percentage of revenues decreased from 35.4% for the six months ended June 30,
1996 to 23.3% for the six months ended June 30, 1997. Prior to the
Recapitalization, many of the services used by the Company were provided by
related-party companies. The Company has since entered into new contracts that
have reduced the costs of such services.
Interest and other expense increased to $1.5 million for the six months
ended June 30, 1997 compared with $18,000 for the six months ended June 30,
1996, primarily due to interest expense related to certain indebtedness incurred
to finance the Recapitalization and the acquisition of TMS.
Income tax expense for the six months ended June 30, 1997 was $494,000.
Prior to December 31, 1996, the Company had elected to be subject to taxation
under Subchapter S of the Internal Revenue Code of 1986, as amended (the
"Code"), and, therefore, no federal income tax expense was recorded for the six
months ended June 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues increased $7.3 million, or 80.0%, from $9.0 million in 1995 to
$16.3 million in 1996. This increase resulted primarily from the continued
expansion of contracts to market long distance services to residential customers
in certain ethnic Culture Markets. To accommodate this increase and facilitate
future growth, the Company opened a second customer development facility in
Dallas, Texas in August 1995, representing a significant capacity addition. This
facility added 125 work stations and employs 200 teleservices representatives.
Cost of revenues increased $4.2 million, or 96.5%, from $4.4 million in
1995 to $8.6 million in 1996. Cost of revenues as a percentage of revenues
increased from 48.6% in 1995 to 53.0% in 1996, primarily reflecting the use of
overtime and contract labor at the Company's new customer development facility
in Dallas during its startup phase in late 1995 and early 1996.
Selling, general and administrative expenses increased $3.2 million, or
70.2%, from $4.5 million in 1995 to $7.7 million in 1996, primarily due to
additional personnel and corporate expenses employed to support the Company's
continued growth. Selling, general and administrative expenses as a percentage
of revenues decreased from 50.2% in 1995 to 47.5% in 1996 reflecting the
spreading of these increased expenses over a larger base of revenues.
Interest and other expense increased $330,000 from income of $29,000 in
1995 to $301,000 of expenses in 1996 primarily due to interest expense related
to certain indebtedness incurred to finance the Recapitalization.
The Company elected to be subject to taxation under Subchapter S of the
Code for 1995 and 1996 for federal income tax purposes and, therefore, no
federal income tax expense was recorded in 1995 and 1996.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO FIVE MONTHS ENDED DECEMBER
31, 1994
Effective December 31, 1994, the Company changed its fiscal year end from
July 31 to December 31. Therefore, comparisons for the twelve months ended
December 31, 1995 versus the five months ended December 31, 1994 are more
meaningful when viewed in terms of percentages of total revenues.
Revenues were $9.0 million for the twelve months ended December 31, 1995
and $2.7 million for the five months ended December 31, 1994.
20
<PAGE>
<PAGE>
Cost of revenues as a percentage of revenues decreased from 52.7% for the
five months ended December 31, 1994 to 48.6% for the twelve months ended
December 31, 1995 as the Company realized greater efficiencies in its labor
force from supervisory personnel supporting a larger base of customer
development representatives.
Selling, general and administrative expenses increased as a percentage of
revenues from 29.5% for the five months ended December 31, 1994 to 50.2% for the
twelve months ended December 31, 1995 primarily due to services provided by
related-party companies.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 (PRO
FORMA)
The following Unaudited Pro Forma Combined Statements of Operations for the
six months ended June 30, 1996 and June 30, 1997 are based on the historical
combined financial statements of the Company. Selling, general and
administrative expenses are classified as either field or corporate expenses.
Field selling, general and administrative expenses are those selling, general
and administrative expenses directly incurred by operating units. Corporate
selling, general and administrative expenses include corporate staff functions
and brand identity expenditures.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(DOLLARS IN THOUSANDS)
--------------------------------------------
PERCENTAGE
OF REVENUES
--------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................................................ $ 19,069 $ 25,915 100.0% 100.0%
Cost of revenues.................................................................... 9,645 14,772 50.6 57.0
-------- -------- -------- --------
Gross profit................................................................... 9,424 11,143 49.4 43.0
Field selling, general and administrative........................................... 7,539 7,251 39.5 28.0
-------- -------- -------- --------
Field income from operations................................................... 1,885 3,892 9.9 15.0
Corporate selling, general and administrative....................................... -- 529 -- 2.0
-------- -------- -------- --------
Income from operations......................................................... $ 1,885 $ 3,363 9.9% 13.0%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Revenues increased $6.8 million, or 35.9%, from $19.1 million for the six
months ended June 30, 1996 to $25.9 million for the six months ended June 30,
1997. Of this increase, approximately 29% was attributable to an increase in
services targeting pharmaceutical Culture Markets, particularly pharmaceutical
marketing support services; approximately 28% was attributable to growth in
ethnic and generational customer development programs targeting specific Culture
Markets, particularly college students, and the expansion of other residentially
focused marketing program services; approximately 22% was attributable to an
increase in the sale of an Electronic Territory Management System to a large
pharmaceutical client; approximately 16% was attributable to an increase in
other physician detailing programs; and 5% was related to other services.
Cost of revenues increased $5.2 million, or 53.2%, from $9.6 million for
the six months ended June 30, 1996 to $14.8 million for the six months ended
June 30, 1997. Cost of revenues as a percentage of revenues increased from 50.6%
for the six months ended June 30, 1996 to 57.0% for the six months ended June
30, 1997. Approximately 50% of the increase was due to short lead times on new
projects, which required the Company to utilize overtime and contract labor. The
balance represents the cost of Personal Digital Assistance equipment sold to a
large pharmaecutical client for electronic territory management. Although the
Company periodically makes such sales, there were no such sales in the
comparable prior periods. However, management expects that this equipment will
generate ongoing revenues from database sampling and fulfillment services.
Field selling, general and administrative expenses decreased $288,000, or
3.8%, from $7.5 million for the six months ended June 30, 1996 to $7.3 million
for the six months ended June 30, 1997. Prior to the Recapitalization, many of
the services used by the Company were provided by related-party companies. The
Company has since entered into new contracts that have reduced the costs of such
services.
Corporate selling, general and administrative expenses increased to
$529,000 for the six months ended June 30, 1997 compared to no such expenses for
the six months ended June 30, 1996. The Company established a corporate staff
for the purpose of executing the Company's strategy of improving internal growth
through cross-selling efforts, pursuing complementary acquisitions and
leveraging management expertise and corporate infrastructure to reduce cost. The
corporate staff
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consists of five individuals, and the primary expenses incurred in the first six
months of 1997 were recruiting expenses and salaries and benefits of these
individuals.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had negative working capital of $4.3 million,
a decrease of $4.5 million from December 31, 1996 primarily due to the $5.4
million of borrowings under the Credit Facility. The Company's primary sources
of liquidity as of June 30, 1997 consisted of cash and cash equivalents,
accounts receivable and borrowing availability under the Credit Facility.
During the six months ended June 30, 1997, the Company used $7.0 million in
investing activities to acquire TMS, purchase additional equipment and expand
its technological infrastructure. The Company anticipates that it will spend
approximately $1.5 million for capital expenditures during 1997 primarily for
the expansion of its facilities and upgrading of its systems, of which it has
spent $486,000 through June 30, 1997. Also during this period, the Company
generated $8.3 million from financing activities as it increased its borrowings
to finance the acquisition of TMS.
The Company experienced significant growth during 1996 and expects to
continue to grow through both internal expansion and complementary acquisitions.
The Company recorded $6.5 million in acquisition and related costs during
January 1997, which were related to the acquisition of TMS. Subsequent to June
30, 1997, the Company has paid approximately $12.5 million in cash for the
acquisitions of Phoenix and HMC, both of which were accounted for as purchases
for accounting and financial reporting purposes. To the extent that the
consideration paid for future acquisitions does not include securities of the
Company, acquisitions will initially be financed using available cash and cash
equivalents, but depending on the amount necessary to complete an acquisition,
additional financing may be required. To finance future acquisitions, the
Company may need to issue additional securities and incur additional debt. The
Company may not be able to obtain additional required capital on satisfactory
terms, if at all. The failure to raise the funds necessary to finance future
cash requirements could materially and adversely affect the Company's ability to
pursue its growth strategy and its operating results in future periods.
The Company believes that the proceeds from the Offering, together with
cash generated from operations and cash available to the Company through future
borrowing arrangements, will be sufficient to finance the Company's current
operations and planned capital expenditures for at least the next twelve months.
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BUSINESS
GENERAL
CULTURALACCESSWORLDWIDE, INC. ("CulturalAccess" or the "Company") is a
rapidly growing outsourced marketing services company that assists Fortune 500
companies in penetrating complex and hard-to-reach market segments. The Company
plans and executes integrated and cost-effective marketing, sales and customer
service programs using various combinations of the Company's core competencies
including market research, database analysis, strategic planning,
telesales/services, direct mail, sales force support systems, sales territory
management, product sampling and fulfillment. The Company has expertise in
serving corporations in industries that are undergoing dramatic changes due to
consolidation, deregulation and technological innovation. These industries
include pharmaceutical, telecommunications and financial services.
The Company has marketing, sales and customer service expertise, supported
by proprietary systems and technologies, that enables its clients to access
increasingly important Culture Markets. The Company targets Culture Markets
which it believes are underpenetrated by many goods and services and represent
substantial business building opportunities for Fortune 500 companies. The
Company also believes that these Culture Markets are disproportionately
responsive to culturally sensitive marketing and sales activities. The Company's
targeted Culture Markets are as follows:
<TABLE>
<CAPTION>
ETHNIC CULTURE MARKETS GENERATIONAL CULTURE MARKETS HEALTHCARE CULTURE MARKETS
- ----------------------- ----------------------------- ---------------------------
<S> <C> <C>
Hispanic Mature (age 50+) Physicians
Asian College Students Pharmacists
African-American Patients
</TABLE>
The Company was founded in 1983 and has long-standing relationships with
many of its clients. Through technology, management systems and well-established
working relationships, the Company is integrated into the daily activities of
its clients. As of June 30, 1997, the Company's top ten clients in alphabetical
order were Astra Merck, ESI Lederle (a division of Wyeth Ayerst Inc.), Global
One, Johnson & Johnson, Knoll, Novartis, Purdue Frederick, Schering Plough, G.D.
Searle and Sprint. The Company's top ten clients have been clients of the
Company for at least three years, and seven of the top ten have been clients for
longer than five years. The Company believes that these relationships develop
because its services, which produce clearly measurable results, increase its
clients' sales and market share and/or reduce its clients' overall cost of
sales/services.
The Company has a seasoned management team which has extensive experience
in targeted marketing and sales programs, strategic planning, internal growth
management and acquisitions integration, as well as an intimate knowledge of the
industries on which it focuses.
The Company is headquartered in Arlington, Virginia, and has offices in
California, Florida, New Jersey, Pennsylvania and Texas. On a pro forma basis to
reflect acquisitions, the Company's revenues increased by 35.9% during the first
six months of 1997 compared to the first six months of 1996, and the Company
improved its operating margin from 9.9% to 13.0% during the same periods. As of
June 30, 1997, the Company had approximately 1,100 employees.
INDUSTRY OVERVIEW
The Company believes that it is well positioned to take advantage of the
following industry and marketplace trends: (i) growth in outsourcing; (ii)
shifts in demographics; (iii) growing accountability of marketing and sales
activities; (iv) increasing customer-focused management practices; and (v)
accelerating industry consolidation.
GROWTH IN OUTSOURCING. The Company believes that the demand for outsourced
marketing services is growing rapidly as large corporations look to outside
service organizations to supplement their internal marketing, sales and customer
service activities. Outsourcing marketing, sales and customer service activities
allows companies to focus on core competencies, gain market share more quickly,
avoid incremental infrastructure costs and evaluate programs that might be too
costly to test internally. In addition, such activities enable companies to
access niche-market expertise needed to penetrate the complex and hard-to-reach
market segments that the Company targets. The Company believes that once
companies outsource their marketing or sales activities, they tend to develop
dependent relationships with outsourced marketing services firms. These
relationships and high switching costs deter companies from moving such
functions back in-house.
SHIFTS IN DEMOGRAPHICS. Two significant demographic trends currently under
way are ethnic diversification and the aging of the overall population. For
example, the U.S. Census Bureau has projected that two of the Company's target
ethnic Culture Markets, the Hispanic and Asian populations in the United States,
which were comprised of approximately 26.9
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million and 9.4 million people, respectively, in 1995, will grow at rates of
approximately 53% and 63%, respectively, by 2010, compared to a 13% growth rate
for the general population during the same period. Similarly, the U.S. Census
Bureau has projected that one of the Company's target populations, persons 50
years of age and older, the fastest growing age group in the country, will grow
41% from 68.3 million people in 1995 to 96.3 million people in 2010. The Company
believes that the ethnic and generational markets are generally regarded as
underpenetrated by many industries.
GROWING ACCOUNTABILITY OF MARKETING AND SALES ACTIVITIES. The ability to
measure results has been instrumental in the dramatic growth of direct
marketing. In 1995, $1.1 trillion in business and consumer sales were achieved
through direct marketing, up 41% from $780 billion in 1990. Significant direct
marketing opportunities exist in a number of large rapidly changing and
intensely competitive industries such as the pharmaceutical, telecommunications
and financial services industries. For example, in 1996, the pharmaceutical
industry spent approximately $5.4 billion promoting, marketing and selling its
products through direct channels. This spending is projected to grow at
approximately 8% per year. Growing pressures within companies in these
industries to demonstrate a high return on their marketing and sales investments
have forced them to seek outsourced services and programs that provide a high
level of accountability and measureability. Outsourced marketing services firms
that offer highly measurable database-driven direct marketing services and
programs, including teleservices and product sampling, are benefiting from this
growing need for corporate accountability.
In addition, recent regulatory changes in the pharmaceutical,
telecommunications and financial services industries have created a "window of
opportunity" for growth-minded companies, leading them to outsource marketing
services to enhance their competitive position. For example, in the healthcare
industry, cost containment efforts by the government and private companies,
industry consolidations and changes in Food and Drug Administration (the "FDA")
regulations regarding advertising directly to consumers, have drastically
increased the amount of outsourced marketing services. In the telecommunications
industry, where large companies compete fiercely for customers, increased
outsourcing has allowed these companies to react nimbly to competitive pressures
in order to capture and maintain market share.
INCREASING CUSTOMER-FOCUSED MANAGEMENT PRACTICES. Companies operating in
marketing intensive industries are focusing on protecting their existing
customer base and growing the lifetime value of individual customer
relationships as a means of improving both revenue growth and profitability.
There is an increasing recognition of the fundamental need to "speak the
language" of the customer in order to improve customer retention rates.
ACCELERATING INDUSTRY CONSOLIDATION. The highly fragmented industry in
which the Company operates includes many independent and captive direct
marketing providers. In the teleservices industry alone, industry analysts have
estimated that there are more than 2,000 providers of outsourced direct
marketing services. In the direct marketing industry, no single company
dominates the market, and many of the participants offer limited services.
Currently, there is a trend in the industry towards consolidation, and the
Company is increasing its market share through strategic acquisitions. These
acquisitions increase the Company's ability to provide Fortune 500 companies
with integrated outsourced marketing solutions within selected niches.
GROWTH STRATEGY
The Company, as well as the companies it has acquired, have experienced
significant internal growth over the past several years. To continue its growth
the Company intends to: (i) exploit niche market opportunities; (ii) pursue
complementary acquisitions; (iii) drive internal growth; (iv) leverage
management expertise and corporate infrastructure; and (v) maintain
technological leadership.
EXPLOIT NICHE MARKET OPPORTUNITIES. The Company's goal is to build and
maintain a leading position as a specialized outsourced marketing services
provider within each niche that the Company pursues. The Company focuses its
outsourced marketing efforts on ethnic, generational and healthcare Culture
Markets. Outsourced marketing services that target these niche markets provide
clients with the skills and experience that would otherwise be difficult or
expensive for the clients to assemble themselves. Through its experience,
technology and management systems, the Company has also demonstrated its
effectiveness in communicating its clients' products and services to complex and
hard-to-reach Culture Markets.
The Company plans to develop additional niches through new programs and by
making platform acquisitions that provide it with a substantial presence in
these niches. For example, the Company is targeting the rapidly growing "fifty
plus" age population segment through innovative programs under the leadership of
a marketer experienced in this segment.
Though hard-to-reach by traditional marketing means, the Culture Markets
targeted by the Company represent significant opportunities for growth-minded
marketers because these Culture Markets are generally underpenetrated by many
goods and services common to mainstream American markets.
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DRIVE INTERNAL GROWTH. The Company plans to continue to grow internally by
further penetrating existing client relationships, acquiring new client
relationships and broadening service offerings. The Company is committed to a
formal and systematic approach to business development which incorporates the
following strategies:
(Bullet) EXPAND EXISTING CLIENT RELATIONSHIPS. The Company has
generated substantial revenues from new relationships developed with
existing clients. Many of the Company's clients are multi-divisional, and
outsourcing decisions are frequently made independently at the divisional
level. The Company's strategy is to initiate a relationship with one
division and deliver an effective program that establishes a performance
track record and leads to assignments with other divisions within the
client company. The Company has a long history of achieving high levels of
client satisfaction. All of the Company's top ten clients in 1997 have been
with the Company for at least three years, and all of these clients have
purchased multiple services or programs from the Company over the course of
their relationship.
(Bullet) ACQUIRE NEW CLIENT RELATIONSHIPS. The Company's marketing and
sales planning process is structured around targeted industries and
prospective companies. Industry and prospect "profiles" are developed by
the head of strategic planning in order to facilitate the Company's
targeted selling process. The Company focuses on high-potential industries
including pharmaceutical, telecommunications and financial services. The
Company believes that its proven ability to deliver innovative and highly
measurable sales and marketing programs will enable it to continue to
expand its client base.
(Bullet) CROSS-SELL ESTABLISHED SERVICES. The Company believes that
the cross-selling of services to existing and potential clients represents
significant future business development opportunities. Current client
development is a top priority for the senior management at both the
operating unit and corporate levels.
(Bullet) INTRODUCE NEW SERVICE OFFERINGS. The Company has demonstrated
an ability to generate additional revenue growth from both current and
prospective clients by offering new value-added services that enable its
clients to penetrate targeted Culture Markets more effectively. The Company
has already benefited from providing new services that have been developed
as a result of new product development and acquisition synergies.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company makes "platform"
acquisitions in order to establish a strong initial presence in a niche market
or to strengthen its presence within a niche. Additionally, tactical
acquisitions are pursued by the Company to broaden its geographic presence,
strengthen the Company's existing skills and gain complementary services. The
Company seeks acquisitions with a record of proven performance, experienced
management and potential for growth. The Company has a prioritized, targeted
list of acquisition candidates and a development team that contacts and reviews
potential acquisitions. The Company's management team is experienced in
identifying, acquiring and integrating complementary businesses.
LEVERAGE MANAGEMENT EXPERTISE AND CORPORATE INFRASTRUCTURE. To implement
its niche-focused strategy, the Company must have managers with Culture Market
expertise who can drive internal growth thereby creating operational scale. Each
operating unit has a core executive group in place with the experience to drive
additional growth and manage an expanding business. Moreover, the Company
believes that there are economies of scale that can be achieved that will
contribute to improved financial performance. For example, the Company has
available capacity at its newly acquired pharmaceutical sampling facility and
the ability to expand operating capacity within its existing teleservice
facilities.
MAINTAIN TECHNOLOGICAL LEADERSHIP. The Company has a commitment to
technology investments as a means of maintaining a leadership position in the
marketplace. The Company's technology strategy is driven by its objective to
maximize reliability, integration and flexibility.
To implement its strategy, the Company's 31-person MIS staff has developed
proprietary systems and technologies, including:
(Bullet) An advanced systemized drug sample dispensing and tracking system
that conforms to applicable Drug Enforcement Agency and Prescription Drug
Marketing Act compliance standards. This single-loop system maximizes sample
distribution efficiency, trackability and security.
(Bullet) An Electronic Territory Management System (ETMS) that utilizes
both Personal Digital Assistance (PDA) and laptop computers for pharmaceutical
industry field sales organizations. These paperless systems provide
field/headquarters connectivity that accelerates the sales, sampling and
fulfillment process and enables instant customer profile updates.
(Bullet) An intranet teleservices systems environment that provides:
- Multilingual scripting (character and non-character based)
- Secured and integrated data management and order transmission
- Parallel Internet connectivity at individual workstations
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MARKETING SERVICES AND SOLUTIONS
The Company provides integrated marketing services across four distinct
competencies: Research Services/Strategic Planning; Database Marketing Services;
Healthcare Marketing Services; and Ethnic Market Activation Programs.
RESEARCH SERVICES/STRATEGIC PLANNING. Research is the marketing bridge to
ethnic, generational and pharmaceutical consumers throughout all phases of the
Company's marketing activities. The Company's research capabilities offer a
detailed definition and analysis of the market segments its clients have
targeted. In addition, the Company's experienced research staff adds valuable
analysis and strategic direction as to how clients should most effectively
approach these markets. The group acquired to spearhead the research at the
Company has operated for 11 years and has been recognized by AMERICAN
DEMOGRAPHICS MAGAZINE for the last two years as one of the "Best 100 Sources of
Marketing Information."
DATABASE MARKETING SERVICES. The Company has significant expertise in
collecting, analyzing, organizing and communicating data for the benefit of its
clients' sales and marketing activities. The Company licenses, maintains and
sells several specialized databases including the Phoenix File, the American
Medical Association franchise list, a database of all independent pharmacies and
Hispanic and Asian surname tables. The Company also works with data owned or
acquired by its clients for the execution of customer activation campaigns.
Derivative products in this area include personalized mail support for field
sales forces, electronic territory management programs for geographically
dispersed sales efforts and sales tracking and reporting systems.
HEALTHCARE MARKETING SERVICES. The Company provides direct access to
targeted healthcare Culture Markets on behalf of clients in the pharmaceutical,
medical equipment and healthcare services industries. Generally, these programs
target physicians and pharmacists with focused sales and marketing
communications campaigns and pharmaceutical sampling programs. Typically, these
projects require the Company to be integrated into the client organization's
systems and sales force management structure. Offerings include vacant territory
management for pharmaceutical sales forces and product promotion and stocking
programs targeting independent pharmacists.
ETHNIC MARKET ACTIVATION PROGRAMS. The Company helps its clients
effectively penetrate ethnic Culture Markets by developing customized marketing
programs that reflect unique ethnic market realities. The Company offers a
variety of services to address these markets. The Company and its
telesales/service representatives speak the "language" of the individual Culture
Markets served by the Company, whether they be Hispanic, European or Asian. The
Company's multicultural and multilingual staff has executed a multitude of
marketing and customer activation programs in over 15 non-English languages
including: Arabic, Cantonese, French, German, Hindi, Japanese, Khmer, Korean,
Mandarin, Portuguese, Russian, Spanish, Tagalog, Urdu and Vietnamese. Each
business day the Company services over 20,000 sales development calls and a
broad range of in-bound customer service requests, all in the preferred language
of the customer's cultural origin.
QUALITY ASSURANCE
The Company's objective is to develop long-term relationships with existing
and potential clients and to become their preferred provider of outsourced
marketing services. This objective requires extensive employee training and
development and a continued focus on superior client service and quality
control.
TRAINING AND DEVELOPMENT. The Company recognizes that the retention and
development of key marketing, sales and technical staff is important to its
continued growth and high client satisfaction levels. The Company's senior
managers play an active and "hands-on" role in employee recruitment and
development efforts. In addition, the training of new employees is conducted
in-house through certified trainers and/or by professionals supplied by outside
organizations, including clients. Employees receive on-going training in order
to respond to changes in industry matters, products and technology.
QUALITY CONTROL. The Company uses its proprietary software and systems to
monitor carefully the progress of client projects. For example, management
maintains an ongoing oversight of the duration of each customer teleservices
presentation, time between presentations, response time, number of queries
resolved after the first call and other statistics important in measuring and
enhancing productivity and service levels. Clients have daily access to a
variety of measures of service performance tracked by the Company's technology,
and can monitor presentations directly through the Company's remote monitoring
systems. The Company's pharmaceutical sample dispensing and tracking systems are
designed to verify order accuracy and to audit data integrity.
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CONTRACTUAL ARRANGEMENTS
The Company operates under both multi-year and month-to-month contractual
relationships.
In the pharmaceutical/healthcare business, the compensation system is
divided into long-term and short-term programs. The long-term (multi-year)
programs generate monthly fees and sometimes bonuses based on specific
performance criteria such as market share increases or prescription order
growth. The short-term programs are primarily billed on a completed unit of
service basis, such as presentations delivered or pharmaceutical samples
forwarded.
For the ethnic and generational teleservices business, hourly rate
structures reflect the specialized nature of multi-ethnic/multi-lingual skills
that exist throughout the organization as well as the extensive systems
integration that the Company has created with its clients.
The only client that represents over 10% of the Company's total revenues is
Sprint. There is one master services agreement for the Sprint account that
establishes the Company's role as a strategic partner. As a result of the
multiplicity of markets and the multitude of programs within each market that
the Company is servicing, the master services agreement is supported by four
contract orders. Each of these contract orders is specific to a market area.
Each market area's budget is controlled by a separate marketing team. The
Company is targeting a wide range of markets for Sprint and provides an array of
services within these markets. The targeted markets that the Company is
contracted to service are as follows: Asian-American, college, mainstream,
international and Latino. The services the Company provides include customer
service, acquisition, retention, winback and third-party verification, all in an
outbound and inbound mode. The contract orders that delineate these activities
are all two and one-half year agreements that expire on June 30, 1999 and are
automatically renewed for additional one-year terms unless renegotiation or
termination occurs at at least 90 days prior to the expiration. A single
contract order could be suspended without any impact to the others. The master
services agreement is a four-year agreement that expires on December 31, 2001.
COMPETITION
The industry in which the Company operates is very competitive and highly
fragmented. While many companies provide outsourced marketing services,
management believes that no single company dominates the industry.
The Company believes that it competes primarily on its ability to deliver
marketing, sales and customer support solutions that enable its clients to
penetrate niche markets that are disproportionately responsive when approached
in a culturally sensitive manner. Companies targeting these niche Culture
Markets require special knowledge and skills in order to penetrate them
effectively and efficiently. The Company provides differentiated value-added
services that help its clients attract new customers, protect existing customer
relationships and increase the lifetime value of all customer relationships. The
Company believes that its ability to provide both strategic and tactical
solutions, supported by systems and technology, differentiates itself in the
highly fragmented marketing services industry.
GOVERNMENT REGULATION
Several industries in which the Company's clients operate are subject to
varying degrees of governmental regulation, particularly the pharmaceutical,
healthcare and telecommunications industries. Generally, compliance with these
regulations is the responsibility of the Company's clients. However, 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.
Pharmaceutical companies and the healthcare industry in general are subject
to significant federal and state regulation. The Company's handling and
distribution of samples of pharmaceutical products are subject to regulation by
its clients, the Drug Enforcement Agency, the FDA and other applicable federal,
state and local laws and regulations, including the Prescription Drug Marketing
Act of 1987. Currently, the healthcare industry is monitoring potential passage
of new regulations under the Prescription Drug Marketing Act which would impose
even stricter requirements in the areas of storage, inventory control and lot
number tracking.
In addition, the Company must comply with regulations promulgated by
professional associations such as the American Medical Association and the
Pharmaceutical Manufacturers Association. The American Medical Association has
established ethical guidelines which govern receipts of gifts to physicians from
health related entities, including any items received during peer-to-peer
meetings and symposia sponsored by pharmaceutical companies. The Pharmaceutical
Manufacturers Association has implemented similar regulations, as have many
accreditation organizations.
The pharmaceutical industry is also subject to federal regulation by the
FDA. The Federal Food, Drug and Cosmetics Act regulates the approval, labeling,
advertising, promotion, sales and distribution of drugs, which includes the
distribution of product samples to physicians. The FDA also regulates all
promotional activities involving prescription drugs. There can be
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no assurance that additional federal or state legislation regulating the
pharmaceutical or healthcare industries would not limit the scope of the
Company's product sampling services or significantly increase the cost of
regulatory compliance.
The Company's business has been subject to an increasing amount of federal
and state regulation in recent years. The FCC rules under the FTCPA limit the
hours during which telemarketers may call consumers and prohibit the use of
automated telephone dialing equipment to call certain telephone numbers. The
TCFAPA broadly authorizes the FTC to issue regulations prohibiting
misrepresentation in telephone sales. In August 1995, the FTC issued regulations
under the TCFAPA, which, among other things, require telemarketers to make
certain disclosures when soliciting sales. The Company believes its operating
procedures comply with the telephone solicitation rules of the FCC and FTC.
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 or its clients in the future or significantly increase the cost of
regulatory compliance.
Two bills recently introduced in Congress included provisions requiring
parental consent to any sale of lists of minors. Though neither of these bills
was reported out of committee, there can be no assurance that similar
legislation will not be passed in the future at the federal or state level. Any
substantial legal restriction on the use or sale of marketing lists could have a
material adverse effect on the Company.
One of the significant regulations of the FCC applicable to long distance
carriers, such as Sprint, prohibits the unauthorized switching of subscribers'
long distance carriers, known in the industry as "slamming." A fine of up to
$100,000 may be imposed by the FCC for each instance of slamming. In order to
prevent unauthorized switches, federal law requires that switches authorized
over the telephone, such as through the Company's teleservices, be verified
contemporaneously by a third party. The Company believes its procedures comply
with this third-party verification requirement.
Third-party verification generally is not required for switches obtained in
person, such as those obtained by members of a direct field sales force. The
Company's training and other procedures are designed to prevent unauthorized
switching. However, as with any sales force, the Company cannot completely
ensure that each employee will always follow the Company's mandated procedures.
Accordingly, it is possible that employees may in some instances engage in
unauthorized activities, including slamming. The Company investigates customer
complaints reported to it by its telecommunications clients and reports the
results to such clients. To the Company's knowledge, no FCC complaint has been
brought against any of its clients as a result of the Company's services,
although the Company believes that the FCC is examining the sales activities of
long distance telecommunications providers, including the Company's clients, and
the activities of outside vendors, such as the Company, used by such providers.
If any complaints were brought, the Company's client might assert that such
complaints constituted a breach of its agreement with the Company and, if
material, seek to terminate the contract. Any termination by Sprint would be
likely to have a material adverse effect on the Company. If such complaints
resulted in fines being assessed against a client of the Company, the client
could seek to recover such fines from the Company.
INTELLECTUAL PROPERTY
The Company has developed certain computer software and technically-derived
procedures intended to maximize the quality and efficiency of its services.
Although the Company does not believe that its intellectual property rights are
as important to its results of operations as factors such as the technical
expertise, knowledge, ability and experience of its employees, the Company
believes that its technological capabilities provide significant benefits to its
clients.
The Company also owns a number of registered trademarks and service marks
and has filed applications to register additional trademarks and service marks
with the United States Patent and Trademark Office, including
CULTURALACCESSWORLDWIDE, INC. and related logos. The Company believes the
CULTURALACCESSWORLDWIDE, INC. service mark and logo will be an important
component in its merchandising and marketing strategy and that it will have all
service mark and trademark rights necessary to conduct business under the
CULTURALACCESSWORLDWIDE, INC. name.
EMPLOYEES
At June 30, 1997, the Company had approximately 1,100 employees. None of
the Company's employees is represented by a labor union, and the Company is not
aware of any current activity to organize any of its employees. Management
considers relations between the Company and its employees to be good.
PROPERTIES
The Company's principal executive offices are located at 2200 Clarendon
Boulevard, 11th Floor, Arlington, Virginia 22201. In addition, the Company has
six other locations in California (2), Florida, New Jersey, Pennsylvania and
Texas. See Note 8 of Notes to the Company's Combined Financial Statements for
information concerning the Company's leases for its facilities. The Company does
not anticipate that it will experience any difficulty in renewing any such
leases upon their expiration or obtaining different space on comparable terms if
such leases are not renewed. The Company believes that these facilities are well
maintained and are of adequate size for present needs and planned expansion in
the near future.
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INSURANCE
The Company believes that it maintains the types and amounts of insurance
customary in the industry, including coverage for general liability, product
liability, product damage and workers' compensation. The Company considers its
insurance coverage to be adequate both as to risks and amounts.
LEGAL PROCEEDINGS
From time to time, the Company is party to certain claims, suits and
complaints which arise in the ordinary course of business. Currently, there are
no such claims, suits or complaints which, in the opinion of management, would
have a material adverse effect on the Company.
29
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------- --- ------------------------------------------------------------------------
<S> <C> <C> <C>
Executive Officers
John Fitzgerald 50 President, Chief Executive Officer and Director
Michael Dinkins 43 Senior Vice President of Finance and Administration
and Chief Financial Officer
John Jordan 38 President, TelAc Teleservices Group
Lee Edelstein 49 President, Professional Markets Group and Director
Isabel Valdes 48 President, Market Connections Group
Douglas Rebak 53 President, Phoenix Marketing Group
Beth Broderson 41 Senior Vice President, Strategic Planning
Mary Sanchez 37 Corporate Controller
</TABLE>
Directors
<TABLE>
<S> <C> <C> <C>
Stephen F. Nagy 53 Chairman of the Board and Director
Peter D. Bewley 51 Director
Liam Donohue 29 Director
John H. Foster 55 Director
Shawkat Raslan 46 Director
</TABLE>
JOHN FITZGERALD has been President, Chief Executive Officer and a director
of the Company since April 1997. He has 25 years of experience in the global
marketing services industry, with broad-based marketing and operational
management experience in multi-site marketing/communications organizations. Mr.
Fitzgerald has held senior management and board level positions while running
global, regional and local operations. He was President and Chief Operating
Officer of Saatchi & Saatchi (1996), and he served in various capacities at
McCann-Erickson Worldwide from 1990 to 1995, serving as President and Chief
Executive Officer for McCann-Erickson Japan and as Vice Chairman of North
America and Chief Operating Officer of New York for McCann-Erickson. Mr.
Fitzgerald served in several senior positions for Ketchum Communications Inc.
from 1985-1990, including Chairman of Ketchum Advertising USA. From 1981 to
1984, he was Senior Vice President for Hill Holliday, Inc. From 1971 to 1980, he
served in a variety of account management positions rising to Senior Vice
President for Ted Bates Worldwide. Mr. Fitzgerald's professional development
includes the Harvard Business School's Advanced Management Program, the
University of Michigan's East-Asia Studies Program, and extensive strategic
planning, marketing and communications experience working with leading corporate
clients, including: Johnson & Johnson, Procter & Gamble Co., Bayer AG, The
Coca-Cola Company, AT&T, Nestle S.A., PNC Bank Corp., Motorola, Inc. and Bell
Atlantic Corp.
MICHAEL DINKINS has served as Senior Vice President of Finance and
Administration and Chief Financial Officer of the Company since August 1997.
From September 1993 until he joined the Company, Mr. Dinkins served in various
capacities with Cadmus Communications Corp., where he most recently was
President of the Graphic Communications Group and before that was Vice President
and Chief Financial Officer. From 1976 to 1993, Mr. Dinkins was employed at the
General Electric Co. in numerous divisions, including Corporate Financial
Planning & Analysis, GE Lighting, GE Capital and GE Appliances. During this
period, Mr. Dinkins earned CPA and CMA designations. Mr. Dinkins also serves on
the Board of Directors of the Lawyers Title Corp. Mr. Dinkins has a Bachelor of
Science degree in Financial Administration from Michigan State University.
30
<PAGE>
<PAGE>
JOHN JORDAN has been President of the TelAc Teleservices Group of the
Company since December 1996. In 1983, Mr. Jordan founded the Company and served
as President and Chief Executive Officer of the Company until the
Recapitalization in December 1996. Mr. Jordan has a national reputation for
leadership and innovation in targeted general market telemarketing as well as
the application of direct marketing methodology within the Hispanic and
Asian-American communities. As the Company's Chief Executive Officer from 1983
to 1996, Mr. Jordan designed and executed many innovative direct marketing
campaigns for a diverse selection of clients including: MCI, Sprint, NYNEX,
Ameritech, SouthwesternBell, Global One, Allstate, MetLife, JCB, Beneficial
National Bank, Mellon Bank and Marine Midland/Hong Kong Bank. Prior to starting
the Company, Mr. Jordan worked at Campaign Marketing Group Inc. from 1979 to
1983 in various positions, including Vice President of Client Services which he
held until the time he departed to start the Company. Mr. Jordan has a Bachelor
of Arts degree in Economics and Political Science from the University of
Maryland.
LEE EDELSTEIN has been the President of the Professional Markets Group of
the Company since January 1997 and a director of the Company since October 1997.
In 1992, he founded TMS, a pharmaceutical/healthcare direct marketing and
teleservices company acquired by the Company in January 1997. Mr. Edelstein
brings over 18 years of pharmaceutical industry experience to the Company. Prior
to founding TMS, Mr. Edelstein worked for Goldline Laboratories, a division of
IVAX Corp., for 11 years in various management positions including Operations
Manager, Director of Marketing and Vice President of Marketing and Business
Development. Prior to his employment with Goldline Laboratories, Mr. Edelstein
held management positions at the New York College of Podiatric Medicine and
Premo Pharmaceutical. Mr. Edelstein graduated from Brooklyn College in 1970 with
a Bachelor of Science degree in Accounting and received a Masters of Business
Administration degree from the New York University in 1973.
ISABEL VALDES has been the President of the Market Connections Group of the
Company since September 1997. In 1985, Ms. Valdes founded HMC, a marketing
research and strategic planning organization acquired by the Company in
September 1997. Prior to founding HMC in 1985, Ms. Valdes served as a member of
the clinical faculty at Stanford's School of Medicine in the Division of Family
Medicine from 1980 to 1989. From 1982 to 1985, Ms. Valdes was Director of
IC-NET, an on-line information network. Ms. Valdes is a summer lecturer at the
Professional Communications Program at Stanford University. She also holds a
faculty position at the National Hispanic Corporate Council Institute, an
organization created by Fortune 500 executives to further understand the
National and Global Hispanic marketplace. In 1995, Ms. Valdes was named the
Latino Business Woman of the Year by the New York Federation of Hispanic
Chambers of Commerce. Ms. Valdes is the principal author of Hispanic Market
Handbook, "a bible for marketers and advertisers communicating with Hispanics."
Ms. Valdes is a founding member of the Ethnic Advertising Committee for the
Advertising Research Foundation and a founding member of the San Mateo, Latino
Leadership Council. Ms. Valdes' Master of Arts degree in Communications and
Master of Arts degree in Education are both from Stanford University. She also
has professional degrees in Communication Arts and Advertising from two major
Chilean universities.
DOUGLAS REBAK has been the President of the Phoenix Marketing Group of the
Company since October 1997. In 1983, Mr. Rebak founded Phoenix and served as its
President and Chief Executive Officer until it was acquired by the Company in
October 1997. Mr. Rebak served as President of the Data Services Division of
Fisher-Stevens, a subsidiary of Dun & Bradstreet from 1981 to 1983. Before that
he had 14 years of sales, marketing and product management experience with
Pfizer, Inc. and Roche Biomedical Laboratories, Inc. Mr. Rebak has a Bachelor of
Science degree from Villanova University and a Masters of Business
Administration degree from the University of Chicago. He is currently a member
of the Board of Directors of the Passaic Rubber Company in Wayne, New Jersey.
BETH BRODERSON has served as Senior Vice President, Strategic Planning for
the Company since July 1997. Prior to joining the Company, Ms. Broderson was
Vice President, Marketing at the National Council on the Aging from January 1996
to July 1997, with a dedicated focus on tapping the rapidly expanding elderly
market segment. For 15 years prior thereto, she served in senior management
roles at integrated marketing services companies in the United States and
Europe. She was Executive Vice President, Strategic Planning at Goldberg,
Marchesano, Kohlman from 1991 to 1995, and from 1989 to 1991, she was Senior
Vice President at Ketchum Communications Inc., a marketing communications
company. She held a range of client management positions at Hill Holliday, Inc.
from 1981 to 1989. Throughout her career, Ms. Broderson's clients included
Ortho-McNeil Pharmaceutical Corporation, Pfizer, Inc., NYNEX Corporation,
Digital Equipment Corporation, Polaroid Corp., Wang Laboratories, Inc., GE
Information Systems, John Hancock Mutual Life Insurance Company and the Sara Lee
Corporation. Ms. Broderson received a Bachelor of Arts degree in history, magna
cum laude, from Boston University.
31
<PAGE>
<PAGE>
MARY SANCHEZ has served as Corporate Controller of the Company since August
1997. From February 1996 until TMS was acquired by TLM in January 1997, Ms.
Sanchez served as Chief Financial Officer of TMS. Prior to joining TMS, Ms.
Sanchez had seven years of pharmaceutical experience as Controller for Goldline
Laboratories, a division of IVAX Corp. In addition to working in the finance
department, Ms. Sanchez was responsible for various functions such as customer
service, bids and contracts, and warehousing. Prior to joining Goldline
Laboratories, Ms. Sanchez was an audit manager with Ernst and Young, LLP. Ms.
Sanchez graduated in 1981 from Florida International University with a degree in
Business Administration and a major in Accounting. Ms. Sanchez is a certified
public accountant.
STEPHEN F. NAGY has been Chairman of the Board and a director of the
Company since December 1996. Since January 1996, Mr. Nagy has also served as
Chairman of the Board and a director of Valley Forge Dental Associates, Inc., a
leading provider of dental services, as well as its Chief Executive Officer
until October 1997. Mr. Nagy was Chairman of the Board of The Pet Practice, Inc.
("Pet Practice"), a leading national provider of veterinary services, from March
1995 to July 1996 and a director from October 1993 to July 1996 (when Pet
Practice was acquired by Veterinary Centers of America, Inc.) Mr. Nagy has been
a Managing Partner of Foster Management Company, a venture capital firm, since
1989. He was President of Foster Medical Corporation from 1982 to 1984 and
Executive Vice President of Avon Products, Inc. from 1984 to 1986, after Avon's
acquisition of Foster Medical Corporation. Mr. Nagy was a Vice President of
Foster Management Company from 1980 to 1982. From 1971 to 1980, Mr. Nagy was
with Booz, Allen and Hamilton, Inc., serving as a Vice President from 1976 to
1980. Mr. Nagy received a Bachelor of Science degree from Union College
(Schenectady), a Masters of Science degree from Columbia University and a
Masters of Science degree from New York University.
PETER D. BEWLEY has been a director of the Company since May 1997. Since
May 1994, he has also been Senior Vice President, General Counsel and Secretary
of NovaCare, Inc., the nation's clinical and technological leader in
rehabilitation. Prior to joining NovaCare, Inc., Mr. Bewley was employed as
Associate General Counsel with Johnson & Johnson for 17 years. He served as an
associate with the law firm of Wilmer, Cutler & Pickering, in Washington, D.C.
from 1972 to 1977. He received a Bachelor of Arts degree, cum laude from
Princeton University in 1968 and graduated from Stanford University with a
Doctor of Jurisprudence degree in 1971. Mr. Bewley is a member of the bar in
California and Washington, D.C., as well as the Court of Appeals for the D.C.
Circuit and the United States Supreme Court.
LIAM DONOHUE has been a director of the Company since December 1996. Since
1995, Mr. Donohue has also been a Principal of Foster Management Company and
since June 1997 has served on the Board of Directors of XYAN, Inc., a digital
print-on-demand company. In 1994, he was an Associate with Salomon Brothers
Corporate Finance Group in London. From 1989 to 1993, he was an Associate with
Booz, Allen and Hamilton, Inc.'s International Environmental Management Practice
where he started Booz, Allen's office in Budapest, Hungary. Mr. Donohue received
a Bachelor of Science degree from Georgetown University and a Masters of
Business Administration degree from the Amos Tuck School of Business
Administration at Dartmouth College.
JOHN H. FOSTER has been a director of the Company since December 1996. He
is the founder and Chairman of Foster Management Company and a general partner
of various venture capital investment funds. He is founder and Chairman of the
Board of NovaCare, Inc. Mr. Foster is a director of Corning Incorporated, an
international corporation with business interests in specialty materials,
communications, laboratory services and consumer products. He serves as a
trustee of the Children's Hospital of Philadelphia, the Hospital for Special
Surgery, and the Independence Seaport Museum. He is a member of the Dean's
Council of the Harvard School of Public Health and the Amos Tuck School Board of
Overseers. He also serves as Chairman of the Board and Chief Executive Officer
of Apogee, Inc., a national provider of mental health services. Mr. Foster
received a Bachelor of Arts degree from Williams College and a Masters of
Business Administration degree from the Amos Tuck School of Business
Administration at Dartmouth College.
SHAWKAT RASLAN has been a director of the Company since May 1997. Since
June 1983, he has served as President and Chief Executive Officer of
International Resource Holdings, Inc., an asset management and investment
advisory service for international clients. Prior thereto, he served as Vice
President of Trans Arabian Investment Bank in Bahrain from 1980 to 1983. From
1976 to 1980, Mr. Raslan was a liaison officer and engineer for Turner
International in New York. Mr. Raslan serves on the Board of Advisors of
investment funds managed by Foster Management Company. He currently serves as a
director of Apogee Inc., Arbitrage Associates, Parisco Limited, Tiedemann
International Research, and U.S. HomeCare Corp. He was previously a director of
Fairfield First Bank and Trust Company, Orthopedic Services, Inc. and
RehabClinics, Inc. Mr. Raslan has a Bachelor of Science degree in Civil
Engineering and a Masters in Science degree in Civil Engineering.
No family relationships exists between any of the directors or executive
officers of the Company.
32
<PAGE>
<PAGE>
COMMITTEES OF THE BOARD
The Board has a Compensation Committee, an Audit Committee and an
Acquisition Committee. The members of the Compensation Committee are John H.
Foster, Liam S. Donohue, Shawkat Raslan and Peter D. Bewley. The Compensation
Committee has a Stock Option Subcommittee. The members of the Stock Option
Subcommittee are Peter D. Bewley and Shawkat Raslan. The Compensation Committee
makes recommendations to the full Board as to the compensation of senior
management. The Stock Option Subcommittee administers the Company's Stock Option
Plan and determines the persons who are to receive options, the number of shares
subject to each option and the terms, including the exercise price, of such
options.
The members of the Audit Committee are Peter D. Bewley, John H. Foster and
Shawkat Raslan. The Audit Committee acts as a liaison between the Board and the
independent accountants and annually recommends to the Board the appointment of
the independent accountants. The Audit Committee reviews with the independent
accountants the planning and scope of the audits of the financial statements,
the results of those audits and the adequacy of internal accounting controls and
monitors other corporate and financial policies.
The members of the Acquisition Committee are Stephen F. Nagy, John
Fitzgerald, Liam S. Donohue and Lee Edelstein. The Acquisition Committee is
authorized to approve acquisitions of businesses having an aggregate purchase
price of less than $5,000,000.
The Board of Directors does not have a Nominating Committee.
DIRECTOR COMPENSATION
Directors of the Company do not receive fees for service as directors but
are reimbursed for out-of-pocket expenses.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or awarded to the Chief Executive Officer of the Company. No other executive
officer's total annual salary and bonus exceeded $100,000 for fiscal 1996.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
1996
ANNUAL COMPENSATION
NAME AND -------------------------
PRINCIPAL POSITION SALARY ($) BONUS ($)
- ------------------------------------------------------------------------------ ---------- ---------
<S> <C> <C>
John E. Jordan
President and Chief Executive Officer (2)................................... $ 150,000 $ 100,000
</TABLE>
- ---------------
(1) As a result of the Recapitalization in December 1996, there was a
significant change in management. Accordingly, set forth below is certain
compensation information with respect to the five highest compensated
executive officers of the Company based on their projected 1998 annual
salaries (see "Agreements with Employees" below):
<TABLE>
<CAPTION>
NAME AND PROJECTED 1998
PRINCIPAL POSITION ANNUAL SALARY*
- ----------------------------------------------------------------------- --------------
<S> <C>
John Fitzgerald
President and Chief Executive Officer................................ $300,000
Michael Dinkins
Senior Vice President of Finance and Administration and Chief
Financial Officer.................................................... 200,000
John Jordan
President, TelAc Teleservices Group.................................. 220,000
Lee Edelstein
President, Professional Markets Group................................ 150,000
Douglas Rebak
President, Phoenix Marketing Group................................... 225,000
</TABLE>
* In addition, each of the executive officers is eligible to
receive a bonus in the discretion of the Board of Directors of
the Company. Such bonuses range from up to 20% of such
executive officer's salary to up to 50% of such executive
officer's salary.
(2) Mr. Jordan served as President and Chief Executive Officer until the
Recapitalization of the Company in December 1996 when he was appointed
President of the TelAc Teleservices Group of the Company. Prior to the
Recapitalization, the directors of the Company authorized a one-time payment
to the stockholders. As a stockholder, Mr. Jordan received $471,000 in
connection with such payment. The aggregate value of perquisites and other
personal benefits received by Mr. Jordan was less than the lesser of $50,000
or 10% of his total annual salary and bonus and, accordingly, has been
omitted.
33
<PAGE>
<PAGE>
AGREEMENTS WITH EMPLOYEES
The Company has entered into employment agreements with each of its
executive officers. These agreements provide that the Company will employ each
such executive officer on an "at will" basis and generally include certain
non-competition agreements, confidentiality commitments, non-solicitation of
employee provisions and assignment of work product agreements. Set forth below
is a description of the terms of the employment arrangements for the five
highest compensated executive officers of the Company based on their projected
1998 annual salary.
John Fitzgerald entered into a four-year employment agreement with the
Company effective in April 1997 which provides for Mr. Fitzgerald to serve as
the President and Chief Executive Officer of the Company and to receive an
annual base salary of $250,000, which base salary will increase to $300,000
after the Offering. In addition, Mr. Fitzgerald will be eligible for merit
increases as determined at the discretion of the Board of Directors of the
Company and will be eligible to receive an annual bonus of up to 50% of his
annual base salary based on the achievement on a weighted average basis of
certain quantitative and qualitative goals to be mutually agreed upon by Mr.
Fitzgerald and the Board of Directors of the Company. Mr. Fitzgerald will
receive an option to purchase 50,000 shares of the Company's Common Stock at the
price to the public in the Offering.
Michael Dinkins entered into an employment agreement with the Company
effective in August 1997 which provides for Mr. Dinkins to serve as the Senior
Vice President of Finance and Administration and Chief Financial Officer of the
Company and to receive an annual base salary of $175,000, which base salary will
increase to $200,000 after the Offering. In addition, Mr. Dinkins will be
eligible for merit increases as determined in the discretion of the Board of
Directors of the Company and will be eligible to receive an annual bonus of up
to $25,000 for calendar year 1997 and 40% of his base salary for each year
thereafter, based on the achievement of certain objectives as determined at the
discretion of the Board of Directors of the Company. Mr. Dinkins received an
option to purchase 50,000 shares of Common Stock at an exercise price of $5.00
per share, which options vest evenly over five years, except that 10,000 of the
options vest upon consummation of the Offering. Mr. Dinkins will receive an
option to purchase an additional 10,000 shares of the Company's Common Stock at
the price to the public in the Offering.
John Jordan entered into a five-year employment agreement with the Company
effective in December 1996 which provides for Mr. Jordan to receive an annual
base salary of $220,000, subject to merit increases as determined at the
discretion of the President of the Company. In addition, Mr. Jordan is eligible
to receive an annual bonus of up to 35% of his base salary based on the
achievement of certain operational, financial and performance objectives and
certain corporate growth objectives established by the President of the Company.
Lee Edelstein entered into a five-year employment agreement with the
Company effective in January 1997 which provides for Mr. Edelstein to receive an
annual base salary of $150,000, subject to merit increases at the discretion of
the President and the Board of Directors of the Company. In addition, Mr.
Edelstein is eligible to receive an annual bonus of up to 25% of his base salary
based on the achievement of certain performance objectives.
Douglas Rebak entered into a five-year employment agreement with the
Company in October 1997 which provides for Mr. Rebak to receive an annual base
salary of $225,000, subject to merit increases as determined at the discretion
of the Chief Executive Officer of the Company. In addition, Mr. Rebak is
eligible to receive an annual bonus of up to 20% of his base salary based on the
achievement by the Company of certain financial goals. Mr. Rebak also received
stock options to purchase 24,000 shares of the Company's Common Stock at $8.00
per share, one-half of which vest on December 31, 2000 and one-half on December
31, 2001.
STOCK OPTION PLAN
Effective May 1, 1997, the Board of Directors and the stockholders of the
Company adopted the Stock Option Plan to attract and retain key personnel. The
following discussion of the material features of the Stock Option Plan is
qualified by reference to the text of the Stock Option Plan filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. Under the
Stock Option Plan, options to purchase up to an aggregate of 800,000 shares of
Common Stock may be granted to key employees of the Company or its subsidiaries,
and to officers and directors of the Company.
The Compensation Committee of the Board of Directors, through the Stock
Option Subcommittee, administers the Stock Option Plan and determines the
persons who are to receive options and the number of shares of Common Stock to
be subject to each option. In selecting individuals for options and determining
the terms thereof, the Compensation Committee may consider any factors it deems
relevant including present and potential contributions to the success of the
Company. Options granted under the Stock Option Plan must be exercised within a
period fixed by the Compensation Committee, which may
34
<PAGE>
<PAGE>
not exceed ten years from the date of the option or, in the case of incentive
stock options granted to any holder on the date of grant of more than ten
percent of the total combined voting power of all classes of stock of the
Company, five years from the date of grant of the option. Options may be made
exercisable in whole or in installments, as determined by the Compensation
Committee.
Options may not be transferred other than by will or the laws of descent
and distribution and during the lifetime of an optionee may be exercised only by
the optionee. The per share exercise price may not be less than the per share
market value of the Common Stock on the date of grant of the option. In the case
of incentive stock options granted to any holders on the date of grant of more
than ten percent of the total combined voting power of all classes of stock of
the Company and its subsidiaries, the exercise price may not be less than 110%
of the market value per share of the Common Stock on the date of grant. Unless
designated as "incentive stock options" intended to qualify under Section 422 of
the Code, options which are granted under the Stock Option Plan are intended to
be "nonstatutory stock options." The exercise price may be paid in cash, shares
of Common Stock owned by the optionee, or in a combination of cash and shares.
The Stock Option Plan provides that in the event that any member of the
Compensation Committee is not a "disinterested person" as defined in Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect at April 30, 1991, the maximum number of shares of Common Stock which
may be subject to options granted to all directors is 250,000 shares, the
maximum number of shares of Common Stock which may be subject to options granted
to each director who is an officer or employee of the Company is 150,000 shares,
and the maximum number of shares of Common Stock which may be subject to options
granted to each director who is not an officer or employee of the Company is
50,000 shares.
The Stock Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Compensation Committee, or the Board of Directors in the case of options
granted to directors, may, in its discretion, make adjustments with respect to
the number of shares which may be issued under the Stock Option Plan or which
are covered by outstanding options, in the exercise price per share, or both.
The Compensation Committee may in its discretion provide that, in connection
with any merger or consolidation in which the Company is not the surviving
corporation or any sale or transfer by the Company of all or substantially all
its assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the then
outstanding voting securities of the Company, outstanding options under the
Stock Option Plan will become exercisable in full or in part, notwithstanding
any other provision of the Stock Option Plan or of any outstanding options
granted thereunder, on and after (i) 15 days prior to the effective date of such
merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be.
Between July 1, 1997 and October 17, 1997, the Company granted options to
purchase 185,000 shares of Common Stock to certain members of the Company's
management at a weighted average exercise price of $6.27 per share. In addition
to any options granted under their respective employment agreements, in October
1997 the Company granted options to purchase 50,000 shares to John Fitzgerald,
25,000 shares to Michael Dinkins and an aggregate of 82,500 shares to other
members of the Company's management under the Stock Option Plan effective upon
the consummation of the Offering at an exercise price per share equal to the
price per share to the public in the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors of the
Company for fiscal 1997 are John H. Foster, Peter D. Bewley, Liam S. Donohue and
Shawkat Raslan. See "Management -- Directors and Executive Officers."
As discussed in "Certain Transactions," the Company has engaged in a
variety of transactions with limited partnerships of which John H. Foster and
Stephen F. Nagy are general partners of the general partner and Foster
Management Company, an investment adviser, of which Mr. Foster is the Chairman
of the Board and sole stockholder and Mr. Nagy is Managing Partner. For a more
detailed description of such relationships and transactions, see "Certain
Transactions."
35
<PAGE>
<PAGE>
CERTAIN TRANSACTIONS
In connection with the Recapitalization in December 1996,
(i) Abbingdon Venture Partners Limited Partnership ("Abbingdon-I"),
Abbingdon Venture Partners Limited Partnership-II ("Abbingdon-II"), and
Abbingdon Venture Partners Limited Partnership-III ("Abbingdon-III") purchased
from the Company an aggregate of 3,000,000 shares of Common Stock and 500,000
shares of Non-Voting Common Stock for an aggregate purchase price of $200,000,
and 18,000 shares of 8% Cumulative Preferred Stock for an aggregate purchase
price of $1,800,000. Abbingdon-I, Abbingdon-II and Abbingdon-III are investment
partnerships operated by Foster Management Company (an investment advisor of
which Stephen F. Nagy is Managing Partner, Liam S. Donohue is a Principal and
John H. Foster is the Chairman and sole stockholder);
(ii) Abbingdon-I, Abbingdon-II and Abbingdon-III agreed to extend credit in
the amount of $1,333,000, $7,198,200 and $4,798,800, respectively, to the
Company pursuant to 8% Subordinated Promissory Notes due December 1, 2006 (the
"Notes"). Effective January 2, 1997, (x) Abbingdon-I (i) transferred to
Abbingdon-III at cost 300,000 shares of Common Stock, 50,000 shares of
Non-Voting Common Stock and 1,800 shares of Preferred Stock, (ii) assigned its
rights under its Note to Abbingdon-III and (y) Abbingdon-II transferred to
Abbingdon-III at cost (i) 270,000 shares of Common Stock, 45,000 shares of
Non-Voting Common Stock and 1,620 shares of Preferred Stock and (ii) $1,199,700
of the principal amount of its Note; and
(iii) the Company redeemed from (x) John Jordan 1,102,500 shares of Common
Stock of the Company held by him in exchange for (i) a 6% convertible promissory
note in the principal amount of $926,100 due December 1, 2000 and (ii) a non-
interest bearing promissory note in the principal amount of $4,630,500 due
January 2, 1997 and (y) Joseph Morrow 1,610,000 shares of Common Stock of the
Company held by him in exchange for (i) a 6% convertible promissory note in the
principal amount of $1,352,400 due December 1, 2000 and (ii) a non-interest
bearing promissory note in the principal amount of $6,672,000 due January 2,
1997. Mr. Morrow and Mr. Jordan retained 360,640 and 246,960 shares of the
Common Stock, respectively. To secure the non-interest bearing promissory notes
in December 1996, Abbingdon-I and Abbingdon-II on behalf of the Company funded a
letter of credit in the amount of $11,302,500 from the Company. On January 2,
1997, the $4,630,500 note to Mr. Jordan and the $6,672,000 note to Mr. Morrow
were repaid. At any time after ten days after the consummation of the Offering,
each of Mr. Morrow and Mr. Jordan have the option of requiring the Company to
prepay the convertible promissory notes issued to them. The Company intends to
prepay these notes from the net proceeds of the Offering. See "Use of Proceeds."
In January 1997, the Partnerships made a capital contribution of $111,610
to the Company. In January 1997, in connection with the initial capitalization
of TLM, presently a subsidiary of the Company, Abbingdon-II and Abbingdon-III
(collectively, the "Partnerships") purchased an aggregate of (x) 3,500,000
shares of common stock, $.01 par value, of TLM (the "TLM Common Stock") for an
aggregate purchase price of $199,500 and (y) 18,000 shares of 8% Cumulative
Preferred Stock of TLM for an aggregate purchase price of $1,800,000. In October
1997, CAW Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of the Company ("CAW"), was merged with and into TLM, pursuant to
which TLM was the surviving corporation and, after the effective time of the
merger, a wholly owned subsidiary of the Company. As part of such merger, (x)
the Partnerships made a capital contribution to the Company of the 3,500,000
shares of the TLM Common Stock held by them and (y) the 18,000 shares of
preferred stock, $.01 per value, held by the Partnerships were converted into
18,000 shares of 8% Cumulative Preferred Stock, Series 1997 of the Company.
In January 1997, the Company and Ash Creek, Inc., a subsidiary of the
Company ("Ash Creek"), jointly and severally, entered into an agreement with the
Partnerships whereby the Partnerships agreed to lend the Company and Ash Creek
up to $5,000,000 pursuant to 8% Subordinated Promissory Notes due January 15,
2007. To date, the Company and Ash Creek have borrowed an aggregate of
approximately $1,215,000 from Abbingdon-II and $1,485,000 from Abbingdon-III
under these notes.
In January 1997, TLM and Sturges Pond, Inc., a subsidiary of the Company
("Sturges Pond"), entered into an agreement whereby the Partnerships agreed to
lend to the Company and Sturges Pond up to $3,000,000 pursuant to 8%
Subordinated Promissory Notes due January 15, 2007. To date, neither the Company
nor Sturges Pond has borrowed any amounts under these notes.
In October 1997, the Company and Ash Creek entered into an agreement with
the Partnerships whereby the Partnerships agreed to lend to the Company and Ash
Creek up to $15,500,000 pursuant to 8% Subordinated Promissory Notes due October
15, 2007. To date, the Company and Ash Creek have borrowed an aggregate of
approximately $6,347,000 from Abbingdon-II and $5,193,000 from Abbingdon-III
under these notes.
36
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<PAGE>
The Company intends to apply a portion of the net proceeds from the
Offering to repay these notes and the other promissory notes issued to the
Partnerships and to redeem all of the shares of Preferred Stock held by the
Partnerships. After the Offering, the Company's loan agreements with the
Partnerships will be terminated. See "Use of Proceeds."
Through October 15, 1997, the Company has been billed by Foster Management
Company an aggregate of $68,333 for management fees (at the rate of $6,667 per
month) plus reimbursement of out-of-pocket expenses of approximately $536,462.
The agreement to pay a monthly management fee will terminate upon the
consummation of the Offering. The Company has agreed to pay Foster Management
Company a fee of $750,000 for its assistance in the Company's preparation for
the Offering.
Lee Edelstein was a stockholder of TMS, substantially all of the assets of
which a subsidiary of the Company acquired in January 1997. In consideration for
such assets, such subsidiary paid to TMS $6,500,000 in cash, issued three-year
6% subordinated promissory note of such subsidiary in the principal amount of
$1,300,000 and agreed to pay to Mr. Edelstein certain additional contingent
payments of cash and Common Stock of such subsidiary payable over a three-year
period dependent upon the achievement of certain financial and operational
goals.
Douglas Rebak was a stockholder of Phoenix, substantially all the assets of
which were acquired by a subsidiary of the Company in October 1997. In
consideration for such assets, such subsidiary paid to Phoenix $10,000,000 in
cash, a 6% subordinated redeemable promissory note of the Company and such
subsidiary (the "Redeemable Note") in the principal amount of $2,500,000 due the
earlier of (i) ten days after the Offering or (ii) December 31, 1998, the
Convertible Note, and agreed to pay to Phoenix certain additional contingent
payments of the Company's Common Stock payable over a three-year period
dependent upon the achievement of certain financial and operational goals. The
principal amount of the Convertible Note is convertible into 166,667 shares of
Common Stock at the rate of $15.00 per share of Common Stock, provided that the
Convertible Note will be converted into a greater number of shares of Common
Stock if the initial price to the public in the Offering is less than $15.00 per
share. The Redeemable Note will be repaid from the net proceeds of the Offering.
See "Use of Proceeds."
In connection with the acquisition of the assets of Phoenix, the Company
entered into a lease agreement with Phoenix Realty Partners, a New Jersey
partnership ("Phoenix Realty"), of which Mr. Rebak is a partner, for two
locations in Lincoln Park, New Jersey. The lease is for a term of ten years. In
years one through five, the Company will pay Phoenix Realty fixed rent in the
aggregate amount of $618,560 per year, payable in equal monthly installments. In
years six through ten, the Company will pay Phoenix Realty fixed rent in the
aggregate amount of $733,600 per year, payable in equal monthly installments.
In December 1996, the Company sold to John Jordan, the President of the
TelAc Teleservices Group of the Company, 75,000 shares of Common Stock at $.057
per share and in April 1997, the Company sold to John Fitzgerald, the President
and Chief Executive Officer and a director of the Company, 230,000 shares of
Common Stock at $.057 per share. The shares of Common Stock issued to Mr.
Fitzgerald vest over a four-year period and the shares of Common Stock issued to
Mr. Jordan vest over a five-year period, each contingent upon continued service
with the Company. Messrs. Jordan and Fitzgerald purchased such shares pursuant
to stock purchase agreements with the Company (the "Stock Purchase Agreements").
The Stock Purchase Agreements provide for restrictions on the sale of such
shares and further provide that the Company has the option to repurchase such
shares at $.057 per share upon the occurrence of certain conditions contained
therein. The Company and each of Messrs. Jordan and Fitzgerald agreed that, in
the event of a proposed sale of control of the Company, each of such individuals
will be permitted, or may be required, to sell a number of those shares of
Common Stock covered by his respective Stock Purchase Agreement as shall be
proportionate to the number of shares of Common Stock that the controlling
stockholders shall sell of the shares owned by them, for the same consideration
per share and on the same terms and conditions received by such controlling
stockholders in such sale of control.
On January 14, 1997, the Company executed a demand promissory note payable
to PNC Bank in the principal amount of the lesser of the amount borrowed or
$6,000,000, with an interest rate, at the Company's option, equal to (a) the
greater of (i) PNC Bank's prime rate, which at October 22, 1997 was 8.5%, or
(ii) the federal funds rate plus 0.5% or (b) the Eurodollar rate plus 2%. The
Partnership unconditionally guaranteed the payment of the Company's obligations
to PNC Bank under such note. The Company intends to apply a portion of the net
proceeds from the Offering to retire such debt to PNC Bank. See "Use of
Proceeds." Upon such repayment, the guarantees by the Partnerships will
terminate.
In December 1996, the Company purchased Jordan Computer Specialists
Incorporated ("JCSI") from Jared Jordan, the brother of John Jordan. In
consideration for his shares of JCSI stock, the Company paid to Jared Jordan
$60,000 in cash and a three-year 6% subordinated convertible promissory note of
the Company in the principal amount of $180,000. Mr. Jordan has the right to
convert the principal amount of the note into shares of the Company's Common
Stock at the rate of $15.00 per
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<PAGE>
share if certain financial and operational goals are achieved by JCSI. Prior to
the purchase of JCSI, the Company had paid JCSI consulting fees of $155,799 and
$216,432 in 1995 and 1996, respectively, pursuant to a written consulting
agreement.
Prior to the Recapitalization in December 1996, certain affiliates of
Joseph Morrow, a beneficial holder of more than 5% of the Company's Common
Stock, received management fees from the Company in consideration of certain
services provided by such affiliates. In 1995 and 1996, the Company paid to such
affiliates management fees of $1,500,000 and $1,517,000, respectively.
In August 1995, the Company and Triple J Enterprises L.L.C. ("Triple J"), a
limited liability company of which John Jordan and Joseph Morrow are members,
entered into an equipment lease agreement whereby the Company leased certain
equipment from Triple J, which agreement was amended in December 1996 and
terminated in 1997. The Company made lease payments to Triple J of $368,003,
$462,662 and $214,344 in 1995, 1996 and 1997, respectively.
The purchase price with respect to each of the acquisitions described above
was determined by arms-length negotiations based upon the sale price of
comparable companies. The Company believes that the terms of the other
transactions with affiliated persons described above are no less favorable to
the Company than the Company could have obtained from non-affiliated parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) as of October 15, 1997 and (ii) as
adjusted to reflect the sale of the 4,000,000 shares of Common Stock offered by
the Company in Offering by (a) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock, (b) each director of
the Company, (c) each of the persons named in the Summary Compensation Table and
(d) all officers and directors of the Company as a group. Except as indicated in
the footnotes to the table, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her spouse)
with respect to all shares of capital stock listed as owned by such person or
entity.
<TABLE>
<CAPTION>
COMMON PERCENT OF COMMON STOCK(6)
STOCK ----------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING(1) OFFERING
- ------------------------------------------------------------------------------------- ------------ ----------- --------
<S> <C> <C> <C>
Abbingdon Venture Partners........................................................... 1,575,000(2) 35.1% 18.6%
Limited Partnership-II
1018 West Ninth Avenue
King of Prussia, PA 19406
Abbingdon Venture Partners........................................................... 1,925,000(3) 42.4% 22.5%
Limited Partnership-III
1018 West Ninth Avenue
King of Prussia, PA 19406
John H. Foster....................................................................... 3,500,000(4) 73.5% 39.9%
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Stephen F. Nagy...................................................................... 3,500,000(4) 73.5% 39.9%
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Joseph J. Morrow..................................................................... 360,640 8.5% 4.4%
8 Hedgerow
Greenwich, CT 06830
John Jordan.......................................................................... 321,960 7.6% 3.9%
1791 Crestwood Drive, N.W.
Washington, D.C. 20011
Peter D. Bewley...................................................................... -- -- --
Lee Edelstein........................................................................ 50,000 1.2% *
John Fitzgerald...................................................................... 230,000 5.4% 2.8%
Shawkat Raslan....................................................................... -- -- --
Directors and executive.............................................................. 4,101,960(5) 86.1% 46.8%
officers as a group (13 persons)
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission (the
"Commission"), and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after October 15, 1997 through the
exercise of any stock option, warrant or other right. Also, under such
rules, more than one person may be deemed the beneficial owner of the same
shares. The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares.
(2) Includes 225,000 shares of Non-Voting Common Stock convertible at any time
after the consummation of the Offering into shares of Common Stock on a
share-for-share basis. In addition, Abbingdon-II owns 8,100 shares of 8%
Cumulative Preferred Voting Stock and 8,100 shares of 8% Cumulative
Preferred Non-Voting Stock, all of which will be redeemed with a portion of
the net proceeds of the Offering. See "Use of Proceeds" and "Certain
Transactions."
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<PAGE>
(3) Includes 275,000 shares of Non-voting Common Stock convertible at any time
after the consummation of the Offering into shares of Voting Common Stock on
a share-for share basis. In addition, Abbingdon-III owns 9,900 shares of 8%
Cumulative Preferred Voting Stock and 9,900 shares of 8% Cumulative
Preferred Non-Voting Stock, all of which will be redeemed with a portion of
the net proceeds of the Offering.
(4) Represents shares of Common Stock owned by Abbingdon-II and Abbingdon-III,
limited partnerships of which John H. Foster and Stephen F. Nagy are general
partners of the general partner. In addition, Abbingdon-II and Abbingdon-III
own an aggregate of 18,000 shares of 8% Cumulative Preferred Voting Stock
and 18,000 shares of 8% Cumulative Preferred Non-Voting Stock, all of which
will be redeemed with a portion of the net proceeds of the Offering. See
"Certain Transactions."
(5) Includes the shares of Common Stock owned by Abbingdon-II and Abbingdon-III.
See Footnotes (2), (3) and (4).
(6) Excludes 166,667 shares of Common Stock to be issued upon conversion of the
Convertible Note upon the consummation of the Offering.
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<PAGE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of (a) 20,000,000 shares of
Common Stock, of which 19,500,000 shares are Common Stock and 500,000 shares are
Non-Voting Common Stock, and (b) 1,000,000 shares of Preferred Stock, issuable
in series.
The following description of all material matters relating to the capital
stock of the Company is a summary and is qualified in its entirety by the
provisions of the Company's Certificate of Incorporation and By-laws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and all shares of
Common Stock to be issued and to be sold in the Offering will be, validly
issued, fully paid and nonassessable. Except as set forth below, all shares of
Common Stock have equal rights and, subject to the rights of the holders of the
Preferred Stock, are entitled to receive ratably such dividends, if any, as the
Board of Directors may declare from time to time out of funds legally available
therefor. Upon liquidation of the Company, after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock, the holders of the Common
Stock will share ratably in the net assets, if any, available for distribution
to holders of Common Stock upon liquidation.
COMMON STOCK. At October 15, 1997, approximately 25 persons were holders of
the 4,264,000 shares of Common Stock outstanding. Each holder of record of
Common Stock is entitled to one vote for each outstanding share of Common Stock
owned by such holder, is not entitled to cumulate his votes for the election of
directors and does not have preemptive rights.
NON-VOTING COMMON STOCK. At October 15, 1997, the Partnerships held all
500,000 shares of Non-Voting Common Stock outstanding. Each share of Non-Voting
Common Stock is convertible at any time on or after the earlier to occur of (i)
December 31, 2000 or (ii) the closing of the initial sale by the Company to the
public, through an underwritten public offering, of shares of Common Stock
pursuant to a registration statement under the Securities Act, at the option of
the holder, into shares of Common Stock at the rate of one share of Common Stock
for each share of Non-Voting Common Stock converted.
PREFERRED STOCK
The Company has issued two series of its Preferred Stock, one designated
the 8% Cumulative Preferred Stock (the "Original Preferred Stock") and the other
designated the 8% Preferred Stock Series 1997 (the "1997 Preferred Stock"). At
October 15, 1997, the Company had issued and outstanding 18,000 shares of the
Original Preferred Stock and (ii) 18,000 shares of the 1997 Preferred Stock, all
of which are owned by the Partnerships. See "Certain Transactions." A portion of
the proceeds of the Offering will be used to redeem such shares. See "Use of
Proceeds." Holders of the Preferred Stock are entitled to receive dividends out
of any net profits or net assets of the Company legally available for dividends
at the rate of $8.00 per share per annum, payable quarterly on March 31, June
30, September 30 and December 31. Dividends upon the Preferred Stock are
cumulative, so that if dividends upon the outstanding Preferred Stock from the
date on which such dividends commence to accrue to the end of the then current
quarterly dividend period for such stock shall not have been declared and paid,
the amount of the deficiency shall be paid, but without interest, before the
Company shall declare, pay or set aside funds for any dividends or other
distributions (other than dividends payable in shares of Common Stock to all
holders of Common Stock) in respect of Common Stock or any Common Stock shall be
purchased by the Company. In the event of the liquidation of the Company, the
holders of the Preferred Stock are entitled to receive payment of a preferential
amount of $100 per share plus all accrued and accumulated but unpaid dividends
before any distribution is made to holders of Common Stock. The Original
Preferred Stock does not have any voting rights. The holders of 1997 Preferred
Stock have the right to vote with the holders of Common Stock on a
share-for-share basis on all matters submitted to a vote of the stockholders of
the Corporation. The Preferred Stock is not convertible. The Preferred Stock may
be redeemed at any time by the Company, at its option, for $100 per share plus
an amount equal to all accrued and accumulated but unpaid dividends and is
required to be redeemed upon the consummation of the Offering.
The Company's Board of Directors may without further action by the
Company's stockholders, from time to time, direct the issuance of additional
shares of Preferred Stock in series and may, at the time of issuance, determine
the rights, preferences and limitations of each series. The rights of any such
series may include voting and conversion rights which would adversely affect the
voting power of the holders of Common Stock. Satisfaction of any dividend
preferences of outstanding
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<PAGE>
Preferred Stock would reduce the amount of funds available, if any, for the
payment of dividends on Common Stock. See "Dividend Policy." Also, the holders
of Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of the Common Stock. The Company does not
have any present plans to issue any additional series of Preferred Stock.
The overall effect of the ability of the Company's Board of Directors to
issue Preferred Stock may be to render more difficult the accomplishment of
mergers or other takeover or change in control attempts. To the extent that this
ability has this effect, removal of the Company's incumbent Board of Directors
and management may be rendered more difficult. Further, this may have an adverse
impact on the ability of stockholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of the Common Stock. The Company is not aware of any proposed takeover attempt
or any proposed attempt to acquire a large block of Common Stock.
LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION; ANTI-TAKEOVER
PROVISIONS
Article Sixth of the Certificate of Incorporation of the Company provides
that the Company shall indemnify and hold harmless any director, officer,
employee or agent of the Company from and against any and all expenses and
liabilities that may be imposed upon or incurred by him in connection with, or
as a result of, any proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such a director, officer,
employee or agent of the Company, whether or not he continues to be such at the
time such expenses and liabilities shall have been imposed or incurred, to the
extent permitted by the laws of the State of Delaware, as they may be amended
from time to time.
Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as a director, except in the case in which
the director breached his duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law, or obtained an improper personal benefit.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale and other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer and
Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,930,667 shares of
Common Stock outstanding, of which 4,930,667 shares (approximately 55.2% of the
shares to be outstanding) will be held by persons who acquired such shares in
transactions in which such shares were not registered under the Securities Act.
These shares may not be sold unless registered under the Securities Act or sold
pursuant to an applicable exemption from registration, such as Rule 144. Rule
144, as currently in effect and subject to its provisions and other applicable
federal and state securities laws, permits a person (or persons whose shares are
aggregated) who has beneficially owned his or her shares for at least one year
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the total number of outstanding shares of Common Stock or
the average weekly trading volume during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information concerning the Company. Rule 144 also permits, under certain
circumstances, such sale of shares without any quantity limitation or current
public information described above by a person who is not an affiliate of the
Company and who has satisfied a two-year holding period.
The Company, its officers and directors and the other stockholders of the
Company, have agreed that, for a period of 180 days from the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for Common Stock or grant any
42
<PAGE>
<PAGE>
options or warrants to purchase Common Stock except, in the case of the Company,
in certain limited circumstances, without the prior written consent of Smith
Barney Inc. See "Underwriting."
The Company cannot predict the number of shares of Common Stock which may
be sold in the future pursuant to Rule 144 since such sales will depend upon the
market price of the Common Stock, the individual circumstances of holders
thereof and other factors. Any sales of a substantial number of shares of Common
Stock in the public market could have a significant adverse effect on the market
price of the Common Stock.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the 800,000 shares of Common Stock authorized and
reserved for issuance pursuant to the Stock Option Plan. Upon the filing of such
Form S-8, outstanding shares of Common Stock so registered may be freely sold
without restriction, except for shares held by officers, directors and other
affiliates of the Company. See "Management -- Stock Option Plan."
43
<PAGE>
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, each Underwriter named below has severally agreed to
purchase, and the Company has agreed to sell to such Underwriter, the respective
number of shares of Common Stock set forth opposite the name of such
Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------- -------------
<S> <C>
Smith Barney Inc.................................................
Bear, Stearns & Co. Inc..........................................
-------------
Total............................................................ 4,000,000
-------------
-------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Bear, Stearns & Co. Inc.
are acting as Representatives propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares to certain dealers at a price
that represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to the Underwriters or to certain
other dealers. After the initial public offering, the public offering price,
such concessions and other selling terms may be changed by the Underwriters. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Company has granted an option to the Underwriters, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 600,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase additional shares solely for
the purpose of covering over-allotments, if any, incurred in connection with the
sale of the shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the total number of shares in such table.
In connection with the Offering and in accordance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters which appears above) and effect transactions
which stabilize, maintain or otherwise affect the market price of the Common
Stock at levels above those which might otherwise prevail in the open market.
Such transactions may include placing bids for Common Stock or effecting
purchases of Common Stock for the purpose of pegging, fixing or maintaining the
price of Common Stock or for purpose of reducing a syndicate short position
created in connection with the Offering. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representatives purchase Common Stock in the open market for the account of the
underwriting syndicate and Common Stock purchased can be traced to a particular
Underwriter or member of the selling group, the underwriting syndicate may
require the Underwriter or selling group member in question to purchase the
Common Stock in question at the cost price to syndicate or may recover from (or
decline to pay to) the Underwriter or selling group member in question the
selling concession applicable to the Common Stock in question. The Underwriters
are not required to engage in any of these activities and any such activities,
if commenced, may be discontinued at any time. In addition, a syndicate short
position may be covered by exercise of the option described above in lieu of or
in addition to open market purchases.
The Company, its officers and directors and the other stockholders of the
Company have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or
44
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<PAGE>
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock except, in the case of the Company, in certain limited
circumstances.
Prior to the Offering, there has not been any public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering has been determined by negotiations between the
Company and the Representatives. Among the factors considered in determining
such price were the history of and the prospects for the Company's business and
the industry in which it competes, an assessment of the Company's management and
the present state of the Company's development, the past and present revenues
and earnings of the Company, the prospects for the growth of the Company's
revenues and earnings, the current state of the economy in the United States and
the current level of economic activity in the industry in which the Company
competes and in related or comparable industries, and currently prevailing
conditions in the securities markets, including current market valuations of
publicly traded companies which are comparable to the Company.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Haythe & Curley, 237 Park Avenue, New York, New York 10017.
Certain legal matters will be passed upon for the Underwriters by Duane, Morris
& Heckscher LLP, 4200 One Liberty Place, Philadelphia, Pennsylvania 19103-7396.
EXPERTS
The combined financial statements of the Company and TLM as of and for the
year ended December 31, 1996 and as of and for the six months ended June 30,
1997; Phoenix and TMS as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996; and HMC as of and for the year
ended December 31, 1996 included in this Prospectus have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Telephone Access, Inc. and TelAc, Inc. as of
and for the year ended July 31, 1994, as of and for the five months ended
December 31, 1994 and as of and for the year ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Green,
Holman, Frenia and Company, L.L.P., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement and to the financial statements, schedules and exhibits filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein represent materially
complete summaries of such contents. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement, the exhibits and schedules forming a part
thereof, may be inspected without charge at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and copies of such documents can be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed fees. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy information statements and
other information regarding registrants that file electronically with the
Commission through the Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"). The Registration Statement has been filed electronically through
EDGAR and may be retrieved through the Commission's Web site on the Internet.
45
<PAGE>
<PAGE>
As a result of the Offering, the Company will be subject to the
informational requirements of the Exchange Act. As long as the Company is
subject to periodic reporting requirements of the Exchange Act, it will continue
to file reports and other information required thereby by the Commission. The
Company intends to furnish its stockholders with annual reports containing
financial statements audited by the Company's independent accountants and to
make available quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.
46
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
Report of Independent Accountants...................................................................................... F-2
Combined Balance Sheets as of December 31, 1996, June 30, 1996 (unaudited) and June 30, 1997........................... F-3
Combined Statements of Operations for the Year Ended December 31, 1996, and for the Six Months Ended June 30, 1996
(unaudited) and 1997................................................................................................. F-4
Combined Statements of Changes in Common Stockholders' Equity and Accumulated Deficit for the Year Ended December 31,
1996 and for the Six Months Ended June 30, 1997...................................................................... F-5
Combined Statements of Cash Flows for the Year Ended December 31, 1996 and for the Six Months Ended
June 30, 1996 (unaudited) and 1997................................................................................... F-6
Notes to Combined Financial Statements................................................................................. F-7
TELEPHONE ACCESS, INC. AND TELAC, INC.
Independent Auditors' Report........................................................................................... F-17
Balance Sheets as of July 31, 1994, December 31, 1994 and December 31, 1995............................................ F-18
Statements of Operations and Changes in Retained Earnings for the Year Ended July 31, 1994; for the Five Months Ended
December 31, 1994; and for the Year Ended December 31, 1995.......................................................... F-19
Statements of Cash Flows for the Year Ended July 31, 1994; for the Five Months Ended December 31, 1994; and for the
Year Ended December 31, 1995......................................................................................... F-20
Notes to Financial Statements.......................................................................................... F-21
TELEMANAGEMENT SERVICES, INC.
Report of Independent Accountants...................................................................................... F-24
Balance Sheets as of December 31, 1995 and 1996........................................................................ F-25
Statements of Operations and Retained Earnings for the Years Ended December 31, 1994, 1995 and 1996.................... F-26
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.......................................... F-27
Notes to Financial Statements.......................................................................................... F-28
HISPANIC MARKET CONNECTIONS, INC.
Report of Independent Accountants...................................................................................... F-32
Balance Sheet as of December 31, 1996.................................................................................. F-33
Statement of Operations and Retained Earnings for the Year Ended December 31, 1996..................................... F-34
Statement of Cash Flows for the Year Ended December 31, 1996........................................................... F-35
Notes to Financial Statements.......................................................................................... F-36
PHOENIX MARKETING GROUP, INC.
Report of Independent Accountants...................................................................................... F-39
Balance Sheets as of December 31, 1995 and 1996........................................................................ F-40
Statements of Operations and Accumulated Deficit for the Years Ended December 31, 1994, 1995 and 1996.................. F-41
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.......................................... F-42
Notes to Financial Statements.......................................................................................... F-43
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in common stockholders' equity and
accumulated deficit and of cash flows present fairly, in all material respects,
the financial position of CulturalAccessWorldwide, Inc. and TLM Holdings, Inc.
(collectively, "the Company") at December 31, 1996 and June 30, 1997 and the
results of their operations and their cash flows for the year ended December 31,
1996 and the six months ended June 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, PA
October 22, 1997
F-2
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash........................................................................ $ 300,387 $ 396,895 $ 1,642,651
Accounts receivable, net of allowance for doubtful accounts of $11,532 at
December 31, 1996 and $116,977 at June 30, 1997.......................... 1,488,173 3,024,340 4,634,370
Advances on behalf of customers............................................. -- -- 165,289
Due from employees.......................................................... -- -- 13,338
Deferred tax asset.......................................................... 87,533 -- 36,063
Other receivables........................................................... -- -- 143,934
Other assets................................................................ 86,500 93,096 91,397
------------ ------------ ------------
Total current assets..................................................... 1,962,593 3,514,331 6,727,042
Property and equipment, net................................................. 1,127,239 271,890 1,659,579
Intangible assets, net...................................................... 219,542 -- 7,908,663
------------ ------------ ------------
Total assets............................................................. $ 3,309,374 $ 3,786,221 $ 16,295,284
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Amount due on line of credit facility....................................... $ -- $ -- $ 5,410,000
Accounts payable............................................................ 179,523 1,123,828 714,649
Accrued recruiting expenses................................................. 100,000 -- --
Accrued interest expense.................................................... 95,617 -- 780,970
Accrued salaries, wages and related benefits................................ 807,820 -- 253,129
Other accrued expenses...................................................... 20,120 -- 1,232,428
Due to related parties...................................................... 328,747 1,041,047 478,038
Deferred revenue............................................................ -- -- 307,716
Capital lease obligation.................................................... 219,165 5,410 56,438
Current portion of indebtedness -- related parties.......................... -- -- 1,643,333
Current portion of indebtedness............................................. -- -- 136,256
------------ ------------ ------------
Total current liabilities................................................ 1,750,992 2,170,285 11,012,957
Long-term portion of indebtedness -- related parties.......................... 16,201,000 -- 17,007,667
Long-term portion of indebtedness............................................. -- -- 97,066
Mandatorily redeemable preferred stock, $.01 par value: 8% cumulative,
2,000,000 shares authorized, 36,000 shares issued and outstanding at
December 31, 1996 and June 30, 1997......................................... 1,800,000 -- 3,744,000
------------ ------------ ------------
Total liabilities........................................................ 19,751,992 2,170,285 31,861,690
Commitments and contingencies (Notes 8 and 14)
Stockholders' (deficit) equity:
Common stock of CulturalAccess, $.01 par value: voting 19,500,000 shares
authorized, 3,930,000 and 4,264,000 issued and outstanding at December
31, 1996 and June 30, 1997, respectively................................. 39,300 -- 42,640
Common stock of CulturalAccess, $.01 par value;: non-voting: 500,000 shares
authorized, issued and outstanding at December 31, 1996 and June 30,
1997, respectively....................................................... 5,000 -- 5,000
Common stock of TLM, $.01 par value: voting 20,000,000 shares authorized,
3,500,000 issued and outstanding at June 30, 1997........................ -- -- 35,000
Common stock of CulturalAccess, $1 par value: 2,000 shares authorized,
issued and outstanding at June 30, 1996.................................. -- 2,000 --
Additional paid-in capital.................................................. 1,625,012 223,000 1,800,010
Accumulated (deficit) equity................................................ (18,111,930) 1,390,936 (17,449,056)
------------ ------------ ------------
Total stockholders' (deficit) equity..................................... (16,442,618) 1,615,936 (15,566,406)
------------ ------------ ------------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' (deficit) equity......................................... $ 3,309,374 $ 3,786,221 $ 16,295,284
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE SIX FOR THE SIX
DECEMBER MONTHS ENDED MONTHS ENDED
31, JUNE 30, JUNE 30,
1996 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
(unaudited )
Revenues....................................................................... $16,286,280 $ 8,076,041 $15,025,350
Cost of revenues............................................................... 8,639,578 4,176,354 8,830,651
----------- ------------ ------------
Gross profit................................................................. 7,646,702 3,899,687 6,194,699
Selling, general and administrative expenses (selling, general and adminis-
trative expenses paid to related parties are $2,196,094; $1,041,047; and
$401,221, respectively)...................................................... 7,727,530 2,861,871 3,497,588
(Loss) income from operations................................................ (80,828) 1,037,816 2,697,111
Interest income................................................................ -- -- 37,274
Interest expense-related parties............................................... (100,733) (22,901 ) (1,121,853 )
Other expense-related party.................................................... -- -- (301,842 )
Other (expense) income......................................................... (200,322) 4,699 (153,807 )
----------- ------------ ------------
Income (loss) before income taxes............................................ (381,883) 1,019,614 1,156,883
Income tax benefit (expense)................................................... 87,533 -- (494,009 )
----------- ------------ ------------
Net (loss) income............................................................ $ (294,350) $ 1,019,614 $ 662,874
----------- ------------ ------------
----------- ------------ ------------
Historical information Note 1:
Net income per common share.................................................. $ .14
------------
------------
Weighted average shares outstanding.......................................... 4,763,717
------------
------------
Pro forma data (unaudited) Notes 1 and 6:
Historical income (loss) before taxes........................................ $ (381,883) $ 1,019,614
Pro forma (provision) benefit for income taxes............................... 148,934 (407,846 )
----------- ------------
Net (loss) income adjusted for pro forma income tax provision................ $ (232,949) $ 611,768
----------- ------------
----------- ------------
Supplemental earnings per share (unaudited) Note 1:
Net (loss) income per common share........................................... $ (.05) $ .23 $ .21
----------- ------------ ------------
----------- ------------ ------------
Weighted average number of shares outstanding................................ 4,798,938 4,529,281 6,480,938
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
COMBINED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
CULTURALACCESS TLM CULTURALACCESS
COMMON STOCK (VOTING) COMMON STOCK (VOTING) COMMON STOCK
(NON-VOTING) ADDITIONAL
--------------------- --------------------- ---------------- PAID-IN TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK
---------- -------- ---------- -------- -------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996,
before stock split...... 2,000 $ 2,000 $223,000
Stock split effective
December 6, 1996........ 4,298,000 41,000 (41,000)
---------- -------- ---------- -------- -------- ------ ---------- ------------
Balance, January 1, 1996,
as adjusted............. 4,300,000 43,000 182,000
Assumption of net
liabilities by Former
Principal
Stockholders............ -- -- 936,500
Sale of common stock to
management.............. 130,000 1,300 6,110
Sale of common stock to
investors............... 3,000,000 30,000 500,000 $5,000 277,000
Purchase of common
shares.................. -- -- -- -- -- $(18,000,000)
Retirement of treasury
stock................... (3,500,000) (35,000) -- -- (147,420) 18,000,000
Revocation of S
Corporation status...... -- -- -- -- 370,822 --
Net loss for the year
ended December 31,
1996.................... -- -- -- -- -- --
---------- -------- ---------- -------- -------- ------ ---------- ------------
Balance, December 31,
1996.................... 3,930,000 39,300 500,000 5,000 1,625,012 --
Sale of common stock to
management.............. 334,000 3,340 -- -- 10,998 --
Purchase of TMS by TLM
(Note 1)................ -- -- 3,500,000 $ 35,000 -- -- 164,000 --
Net income for the six
months ended June 30,
1997.................... -- -- -- -- -- -- -- --
---------- -------- ---------- -------- -------- ------ ---------- ------------
Balance, June 30, 1997.... 4,264,000 $ 42,640 3,500,000 $ 35,000 500,000 $5,000 $1,800,010 $ --
---------- -------- ---------- -------- -------- ------ ---------- ------------
---------- -------- ---------- -------- -------- ------ ---------- ------------
<CAPTION>
ACCUMULATED
EARNINGS
(DEFICIT) TOTAL
------------ ------------
<S> <C> <C>
Balance, January 1, 1996,
before stock split...... $ 370,822 $ 595,822
Stock split effective
December 6, 1996........ -- --
------------ ------------
Balance, January 1, 1996,
as adjusted............. 370,822 595,822
Assumption of net
liabilities by Former
Principal
Stockholders............ -- 936,500
Sale of common stock to
management.............. -- 7,410
Sale of common stock to
investors............... -- 312,000
Purchase of common
shares.................. -- (18,000,000)
Retirement of treasury
stock................... (17,817,580) --
Revocation of S
Corporation status...... (370,822) --
Net loss for the year
ended December 31,
1996.................... (294,350) (294,350)
------------ ------------
Balance, December 31,
1996.................... (18,111,930) (16,442,618)
Sale of common stock to
management.............. -- 14,338
Purchase of TMS by TLM
(Note 1)................ -- 199,000
Net income for the six
months ended June 30,
1997.................... 662,874 662,874
------------ ------------
Balance, June 30, 1997.... $(17,449,056) $(15,566,406)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX FOR THE SIX
YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(unaudited )
Cash flows from operating activities:
Net (loss) income............................................................ $ (294,350) $ 1,019,614 $ 662,874
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................. 157,459 -- 377,890
Deferred tax provision.................................................... (87,533) -- 51,470
Interest expense on mandatorily redeemable preferred stock................ -- -- 144,000
Loss on disposition of property........................................... 200,238 200,238 --
Changes in operating assets and liabilities, excluding effects from
acquisitions:
Accounts receivable....................................................... (2,351,438) (1,522,394 ) (3,146,197 )
Other receivable.......................................................... -- -- (143,934 )
Due from employees........................................................ -- -- (13,338 )
Advances on behalf of customers........................................... -- -- (165,289 )
Due to related parties.................................................... 288,438 826,347 149,291
Other assets.............................................................. 186,596 186,000 (4,897 )
Accounts payable and accrued expenses..................................... 2,573,539 (813,533 ) 1,778,136
Deferred revenue.......................................................... -- -- 307,716
------------ ------------ ------------
Net cash provided by (used in) operating activities..................... 672,949 (103,728 ) (2,278 )
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment, net..................................... (1,045,073) (271,288 ) (486,098 )
Business acquisitions, net of cash acquired.................................. (60,000) -- (6,491,133 )
------------ ------------ ------------
Net cash used in investing activities................................... (1,105,073) (271,888 ) (6,977,231 )
------------ ------------ ------------
Cash flows from financing activities:
Payments on capital lease.................................................... (6,186) (776 ) (162,727 )
Distribution to Former Principal Stockholders................................ (175,000) -- --
Proceeds from sale of common and preferred stock............................. 2,119,410 -- 1,999,500
Repayment of amount due to former stockholders............................... -- -- (75,000 )
Borrowings under line of credit facility..................................... -- -- 5,660,000
Repayments under line of credit facility..................................... -- -- (250,000 )
Purchase of treasury stock................................................... (15,000,000) -- --
Proceeds from subordinated notes payable..................................... 13,021,000 -- 1,150,000
------------ ------------ ------------
Net cash (used in) provided by financing activities..................... (40,776) (776 ) 8,321,773
------------ ------------ ------------
Net (decrease) increase in cash......................................... (472,900) (376,392 ) 1,342,264
Cash, beginning of period...................................................... 773,287 773,287 300,387
------------ ------------ ------------
Cash, end of period............................................................ $ 300,387 $ 396,895 $ 1,642,651
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................................................... $ 8,335 $ 265,000
------------ ------------
------------ ------------
Income taxes................................................................. $ -- $ 512,500
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
CulturalAccessWorldwide, Inc. ("CulturalAccess") is an outsourced marketing
services company that assists clients in penetrating complex and hard-to-reach
market segments. The Company plans and executes integrated marketing and
customer support programs featuring market research, database analysis,
strategic planning, telesales/services, direct mail, sales force support
systems, sales territory management, sampling and fulfillment. The Company's
customers are located throughout the United States.
BASIS OF ACCOUNTING
The combined financial statements present the financial position and
results of operations of CulturalAccessWorldwide, Inc. (formerly "Telephone
Access, Inc." or "TelAc") and its subsidiaries. TelAc (which operates in
Arlington, Virginia) was formed and was wholly-owned by three individuals (the
"Former Principal Stockholders"). The Former Principal Stockholders also formed
and wholly owned another corporation, TelAc, Inc., which operates in Dallas,
Texas. On December 6, 1996, the Former Principal Stockholders merged TelAc, Inc.
into TelAc. The merger was accounted for as a merger of entities under common
control and accordingly, the financial statements reflect the combined results
of TelAc and TelAc, Inc. for all periods presented.
On December 6, 1996, the Company was recapitalized. The recapitalization
was effected by (i) the Company's issuance of common and preferred shares to a
group of investors, previously unaffiliated with the Company (the "Investors"),
for $2.1 million; (ii) the Company's issuance of common shares to the then
current management of the Company for $7,410; (iii) the Company's borrowing of
$13 million from the Investors; and (iv) the purchase and cancellation of common
shares from the individuals owning common shares before the recapitalization
(the Former Principal Stockholders) for $18 million. After the recapitalization,
the Former Principal Stockholders of the Company owned 18% of the outstanding
common shares. See Note 2 for a more complete description of these transactions.
As a result of the continuing voting common stock interest of the Former
Principal Stockholders, the historical accounting bases of TelAc and TelAc, Inc.
have been retained.
Effective January 1, 1997, TLM Holdings ("TLM") purchased through a
subsidiary certain assets and assumed certain liabilities of TeleManagement
Services, Inc. ("TMS") for $7.8 million. Since CulturalAccess and TLM are
commonly controlled companies effective January 1, 1997, financial statements as
of and for the six months ended June 30, 1997 are presented on a combined basis.
All intercompany transactions and balances have been eliminated. On October 21,
1997, the Investors merged its interests in TelAc and TLM. This merger was also
treated as a merger of entities under common control. These combined financial
statements reflect the results of TMS from the date of its acquisition by TLM.
The acquisition of TMS by TLM was accounted for as a purchase business
acquisition; these financial statements reflect TLM's basis in the assets
acquired.
JUNE 30, 1996 FINANCIAL INFORMATION (UNAUDITED)
The interim financial statements as of June 30, 1996, and for the six
months ended June 30, 1996, are unaudited and certain information and
disclosures normally included in annual financial statements have been omitted.
In the opinion of management, the accompanying interim unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial position, results
of operations and cash flows with respect to the interim financial statements
and have been prepared on the same basis as the audited financial statements.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
ADVANCES ON BEHALF OF CUSTOMERS
The Company provides rebate processing services on behalf of its customers.
This service requires the Company to issue rebate checks to third parties for
which the Company receives advances or reimbursements (depending on the
customer) related to the rebates.
F-7
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from three to seven years. Leasehold
improvements are amortized over the remaining term of the facilities' lease.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in income for the period. Expenditures for maintenance and
repairs are expensed as incurred, while expenditures for major renewals that
extend useful lives are capitalized.
REVENUE RECOGNITION
Revenue is recognized when services have been rendered.
DEFERRED INCOME
Deferred income represents customer deposits for services that have been
contracted for but have not been fully performed.
ACQUISITIONS
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of net assets
acquired consists of noncompete agreements, customer lists, assembled workforce
and goodwill and is amortized on a straight-line basis over the estimated useful
lives of the assets which range from three to thirty-five years. The Company
performs periodic assessments of the recoverability of long-lived assets,
including goodwill, based on estimated future cash flows in accordance with
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
INCOME TAXES
Prior to December 7, 1996, the Company elected to be taxed as an S
Corporation for Federal tax purposes. As a result, no taxes were recorded by the
Company. Instead, the stockholders paid tax on their respective shares of
taxable income, even if such income was not distributed. Effective December 7,
1996, the election to be treated as an S Corporation was discontinued and the
Company began to account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.
Accordingly, deferred tax assets and liabilities are recognized at applicable
income tax rates based upon future tax consequences of temporary differences
between the tax basis and financial reporting basis.
PRO FORMA STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
The pro forma tax provision has been calculated as if the Company was
taxable as a C Corporation (the Company's tax status effective December 7, 1996)
under the Internal Revenue Code of 1986, as amended, for the year ended December
31, 1996 and for the unaudited six month period ended June 30, 1996.
EARNINGS PER SHARE
Net income (loss) per share has been computed in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB 83"). SAB 83
requires that common shares issued by the Company in the twelve months
immediately preceding a proposed public offering plus the number of common
equivalent shares which became issuable during the same period pursuant to the
grant of stock options at prices substantially less than the initial public
offering price be included in the calculation of common stock and common stock
equivalent shares, as if they were outstanding for all periods presented, using
the treasury stock method.
Historical Net Income Per Common Share is computed by dividing net income
applicable to common shares by the number of shares of common stock and common
stock equivalents outstanding at October 22, 1997. Common equivalent
F-8
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
shares consist of convertible notes (using the if-converted method) and stock
options (using the treasury stock method). Common equivalent shares are included
in the computation even if their effect is anti-dilutive.
Unaudited Pro Forma Net Income (Loss) Per Common Share is computed by
dividing net income (loss) applicable to common shares (as adjusted for a pro
forma provision for income taxes) by the number of shares of common stock and
common stock equivalents outstanding as of October 22, 1997.
Unaudited Supplemental Pro Forma Net Loss Per Common Share is presented
since the Company intends to use a portion of the net proceeds from the initial
public offering of shares of its common stock to retire certain indebtedness and
redeemable preferred stock. Unaudited Supplemental Net Income (Loss) Per Common
Share is computed by dividing net income (loss), adjusted for the elimination of
applicable interest expense (including dividends on preferred stock) related to
the indebtedness assumed to be retired with the offering proceeds, net of
related income tax effect, by total outstanding shares as of October 22, 1997
plus estimated additional shares required to be sold to retire outstanding debt.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, ("FASB Statement No. 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, ("APB 25") and related Interpretations.
NEW ACCOUNTING PRONOUNCEMENTS
Recently, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("FASB Statement No.
128") which will be effective for fiscal periods beginning after December 15,
1997. FASB Statement No. 128 simplifies the standards required under current
accounting rules for computing earnings per share and replaces the presentation
of primary earnings per share and fully diluted earnings per share with a
presentation of basic earnings per share ("basic EPS") and diluted earnings per
share ("diluted EPS"). Basic EPS excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. Diluted EPS is computed
similarly to fully diluted earnings per share under current accounting
principles. The Company will implement FASB Statement No. 128 in its quarter
ending December 31, 1997 and management does not expect the implementation to
have a material impact.
2. LEVERAGED RECAPITALIZATION
On December 6, 1996, the Company consummated a leveraged recapitalization
(the "Recapitalization") pursuant to the Recapitalization and Investment
Agreement (the "Agreement"), among the Company, the Former Principal
Stockholders and the Investors. The principal elements of the Recapitalization
included the following:
(Bullet) Amendments to the certificate of incorporation to provide that the
authorized capital consists of 1,000,000 shares of $.01 par value preferred
stock of which 18,000 shares shall be designated as cumulative mandatorily
redeemable preferred stock; 19,500,000 shares of $.01 par value voting common
stock; and 500,000 shares of $.01 par value non-voting common stock.
(Bullet) The 2,000 shares of voting common stock held by the Former Principal
Stockholders were split at a rate of 2,150 shares for each share then held which
resulted in 4,300,000 voting common shares issued and outstanding.
F-9
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
2. LEVERAGED RECAPITALIZATION -- Continued
(Bullet) The sale of newly issued shares of common stock (3,000,000 shares of
voting stock and 500,000 shares of non-voting stock) and preferred stock (18,000
shares of 8% cumulative redeemable stock) for cash of $2,000,000 to the
Investors. In addition, the Investors contributed $112,000 to the Company.
(Bullet) The sale of 130,000 shares of newly issued shares of voting common
stock to current management of the Company for $7,410.
(Bullet) The borrowing of $13 million in 8% subordinated promissory notes from
the Investors.
(Bullet) The repurchase and cancellation of 3,500,000 shares of voting common
stock (out of 4,300,000 voting common shares) from the Former Principal
Stockholders for $15,000,000 in cash paid by the Company on December 6, 1996 and
$3,000,000 in 6% convertible subordinated notes.
3. PURCHASE BUSINESS COMBINATIONS
On December 6, 1996, the Company purchased a computer services firm
("computer firm") from one of its stockholders. Effective January 1, 1997, the
Company acquired TeleManagement Services, Inc. (See Note 1). These acquisitions
were accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to assets and liabilities acquired based on their
estimated fair values. The financial statements reflect the results of the
acquisitions from their respective dates of acquisition.
Information with respect to businesses acquired in purchase transactions is
as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Cash paid (net of cash acquired)................................................................. $240,000 $ 6,491,133
Notes issued..................................................................................... -- 1,300,000
Other consideration.............................................................................. -- 1,593,118
Liabilities assumed.............................................................................. -- 307,468
------------ -----------
240,000 9,691,719
Fair value of assets acquired.................................................................... 20,000 1,806,242
------------ -----------
Cost in excess of fair value of assets acquired.................................................. $220,000 $ 7,885,477
------------ -----------
------------ -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
USEFUL LIFE DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
-------------- ------------ ----------
<S> <C> <C> <C>
Goodwill.......................................................................... 35 $ 220,000 $7,055,477
Customer lists.................................................................... 5 -- 400,000
Assembled workforce............................................................... 3 -- 250,000
Noncompete agreements............................................................. 7 -- 400,000
------------ ----------
220,000 8,105,477
Less: Accumulated amortization.................................................... (458) (196,814)
------------ ----------
Net intangible assets............................................................. $ 219,542 $7,908,663
------------ ----------
------------ ----------
</TABLE>
Amortization expense was $458 and $196,356 for the year ended December 31,
1996 and the six month period ended June 30, 1997, respectively.
F-10
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
4. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
-------------- ------------ ----------
<S> <C> <C> <C>
Furniture and fixtures............................................................ 7 $ 247,210 $ 335,595
Telephone equipment............................................................... 7 701,415 921,022
Computer equipment................................................................ 3-5 186,106 602,030
Leasehold improvements............................................................ life of lease 8,252 3,094
------------ ----------
1,142,983 1,861,741
Less: Accumulated depreciation.................................................... (15,744) (202,162)
------------ ----------
Property and equipment, net....................................................... $1,127,239 $1,659,579
------------ ----------
------------ ----------
</TABLE>
Depreciation expense was $157,001 and $181,534 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively.
5. REVENUE FROM SIGNIFICANT CUSTOMER
A substantial portion of the Company's revenue is derived from one
customer. For the year ended December 31, 1996 and the six months ended June 30,
1997, revenues to that customer amounted to approximately 96% and 67% percent of
revenues, respectively. At December 31, 1996 and June 30, 1997, amounts due from
that customer included in accounts receivable amounted to approximately 83% and
64% of accounts receivable, respectively. The Company does not require
collateral or other security to support credit sales.
6. INCOME TAXES
As discussed in Note 1, prior to December 7, 1996, the Company had elected
to be treated as an S Corporation for Federal and state income tax purposes.
Accordingly, the financial statements do not reflect a provision for Federal
income taxes prior to December 7, 1996.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Current tax (benefit) expense:
Federal.......................................................................................... $ -- $397,141
State............................................................................................ -- 45,398
------------ ----------
-- 442,539
------------ ----------
Deferred tax (benefit) expense:
Federal.......................................................................................... (74,604) 47,301
State............................................................................................ (12,929) 4,169
------------ ----------
(87,533) 51,470
------------ ----------
$(87,533) $494,009
------------ ----------
------------ ----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-11
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES -- Continued
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Gross deferred tax assets:
Depreciation...................................................................................... $ -- $ 13,720
Allowance for doubtful accounts................................................................... -- 48,533
Net operating loss carryforwards.................................................................. 87,533 --
------------ --------
87,533 62,253
------------ --------
Gross deferred tax liabilities:
Amortization of intangible assets................................................................. -- (26,190)
------------ --------
Net deferred tax asset.............................................................................. $ 87,533 $ 36,063
------------ --------
------------ --------
</TABLE>
The effective tax rate was different from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Statutory rate..................................................................................... 34% 34%
State income taxes, net of Federal benefit......................................................... 4 4
Preferred stock dividend treated as interest expense............................................... -- 4
Other items, net................................................................................... 1 1
------------ ----------
39% 43%
------------ ----------
------------ ----------
</TABLE>
At December 31, 1996, the Company had Federal tax net operating loss
carryforwards available of $207,889.
7. INDEBTEDNESS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Short-term borrowings consist of the following:
Uncommitted line of credit facility in the amount of $6,000,000, short-term borrowings due to
PNC Bank, on demand, bearing an interest rate at the option of the Company at (a) the greater x
of (x) PNC Bank's prime rate (8.5% at June 30, 1997) or (y) the Federal funds rate (5.52% at
June 30, 1997) plus 0.5% or (b) the eurodollar rate (5.69% at June 30, 1997 at the 30 day
rate) plus 2%................................................................................ $ -- $ 5,410,000
------------ -----------
------------ -----------
</TABLE>
F-12
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
7. INDEBTEDNESS -- Continued
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Long-term debt consists of the following:
8% subordinated promissory notes due to the Investors; principal due December 1, 2006; interest
at 8% per year payable quarterly beginning at the earlier of the date of the closing of the
initial public offering of the Company's common stock or December 1, 2000.................... $ 13,021,000 $13,021,000
8% subordinated promissory notes due to the Investors; principal due January 15, 2007 or, at
the option of the holder, upon the date of the closing of the initial public offering of the
Company's common stock....................................................................... -- 1,150,000
6% convertible subordinated promissory note due to stockholders; principal due in three equal
installments of $60,000 beginning April 1, 1998 and due in full on April 1, 2000; interest at
6% per year payable quarterly................................................................ 180,000 180,000
6% convertible subordinated promissory note due to a stockholders; principal due in two annual
installments of $433,333 beginning January 15, 1998 and due in full on January 15, 2000;
interest at 6% per year...................................................................... -- 1,300,000
6% convertible subordinated promissory notes due to Former Principal Stockholders; principal
(and any outstanding accrued interest) due either, at the request of the payee, ten days
after the closing of the initial public offering of the Company's common stock or December 1,
2000; interest at 6% per year payable quarterly.............................................. 3,000,000 3,000,000
Amount due to former stockholder of TMS; principal due in monthly payments of $12,500 plus
interest at 8% through February 1, 1999...................................................... -- 233,322
------------ -----------
16,201,000 18,884,322
Less: current portion (due within one year).................................................... -- (1,779,589)
------------ -----------
$ 16,201,000 $17,104,733
------------ -----------
------------ -----------
</TABLE>
The $180,000 6% convertible subordinated promissory note is convertible
into shares of common stock at a price of $15 per share if the net revenues of
the former computer firm's business for the years ended December 31, 1997
through 1999 exceed a specified target amount.
The 6% convertible subordinated promissory notes of $3,000,000 are
convertible in whole (but not in part) at any time after the closing of the
initial public offering of the Company's common stock and until payment in full
into 200,000 shares of the Company's common stock. Any outstanding and unpaid
interest accrued through the conversion date is payable in cash. Prior to the
initial public offering, if earnings before interest and taxes of the Company as
a percentage of net revenues for the years ending December 31, 1997 and 1998 are
less than 5%, then the obligation of the Company to make any further payments to
the holders of these notes automatically terminates as of the end of December
31, 1997 or 1998, without any further action on the part of the Company except
to deliver to the holder 50,000 shares of common stock. This provision for
automatic conversion terminates on the closing of the initial public offering of
the Company's common stock.
Aggregate annual principal maturities for indebtedness are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
---------------
<S> <C>
1997....................................................................... $ 1,216,769
1998....................................................................... 635,134
1999....................................................................... 518,085
2000....................................................................... 493,334
2001....................................................................... 3,000,000
Thereafter................................................................. 13,021,000
------------
$ 18,884,322
------------
------------
</TABLE>
F-13
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
8. LEASES
The Company leases a telephone switch and telephones under a non-cancelable
lease from a company owned by certain stockholders. Lease payments are $26,793 a
month through August 1997. The lease provides for a transfer of ownership to the
Company at the end of the lease term and, as such, has been accounted for as a
capital lease.
The Company also leases office space and operating equipment under
non-cancelable operating leases with terms ranging from three to seven years and
expiring at various dates through May 31, 2001. Rent expense under operating
leases was $334,651 and $370,811 for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.
Aggregate future minimum lease payments under all operating leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
---------------
<S> <C>
1997........................................................................ $ 312,812
1998........................................................................ 624,817
1999........................................................................ 619,406
2000........................................................................ 531,432
2001........................................................................ 182,269
-----------
$ 2,270,736
-----------
-----------
</TABLE>
9. CULTURALACCESS CAPITAL STRUCTURE
COMMON STOCK
CulturalAccess authorized capital includes 20,000,000 shares of common
stock, $.01 par value per share, of which 19,500,000 are voting and 500,000 are
non-voting. Each share of non-voting common stock is convertible at the option
of the holder into a share of voting common stock at the rate of one share of
voting common stock for each share of non-voting common stock. These shares
become convertible at the earlier of December 31, 2000 or the closing of the
CulturalAccess initial public offering.
MANDATORILY REDEEMABLE PREFERRED STOCK
CulturalAccess has the authority to issue 1,000,000 shares of preferred
stock, $.01 par value per share.
The first series of preferred stock designated by CulturalAccess is 18,000
shares of non-voting cumulative mandatorily redeemable preferred stock, $.01 par
value, non-voting. The holders of this stock are entitled to receive dividends
in cash, when and as declared by the board of directors, at a rate of $8.00 per
share per year payable quarterly commencing on March 31, 1997. Dividends are
cumulative on these shares from the date of original issuance. CulturalAccess
has the right to redeem all or part of the outstanding shares of the 8%
cumulative preferred stock at any time at a price of $100 per share plus all
accrued dividends. Any outstanding preferred stock is mandatorily redeemable at
$100 per share on December 31, 2000 or upon the occurrence of the initial public
offering of CulturalAccess common stock.
10. TLM CAPITAL STRUCTURE
COMMON STOCK
TLM's authorized capital includes 20,000,000 voting shares of common stock,
$.01 par value per share.
PREFERRED STOCK
TLM has the authority to issue 1,000,000 shares of preferred stock, $.01
par value per share.
The first series of preferred stock designated by TLM is 18,000 shares of
non-voting, cumulative mandatorily redeemable preferred stock, $.01 par value.
The holders of this stock are entitled to receive dividends in cash, when and as
declared by the board of directors, at a rate of $8.00 per share per year
payable quarterly commencing on March 31, 1997. Dividends are cumulative on
these shares from the date of original issuance. TLM has the right to redeem all
or part of the outstanding
F-14
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
10. TLM CAPITAL STRUCTURE -- Continued
shares of the 8% cumulative preferred stock at any time at a price of $100 per
share plus all accrued dividends. Any outstanding preferred stock is mandatorily
redeemable at $100 on January 31, 2000 or upon the occurrence of the initial
public offering of the TLM's common stock.
11. STOCK OPTION PLAN
Effective May 1, 1997, the Company adopted the 1997 Stock Option Plan ("the
Plan") which is administered by the Compensation Committee of the Board of
Directors of the Company. The aggregate maximum number of shares of common stock
available for award under the Plan is 800,000 and options may be either
incentive stock options or non-qualified stock options. The maximum number of
shares which may be granted to any person under the Plan can not exceed 150,000
shares in a fiscal year of the Company. The exercise price of each option equals
the fair market value of the Company's stock on the date of the grant. An
option's maximum term is 10 years for non-incentive options. In the case of
incentive stock options granted to an individual owning more than 10% of the
Company's voting common stock, an option's maximum term is 5 years. Vesting
terms are determined by the Compensation Committee at the time of grant. The
Plan terminates effective May 1, 2001.
The Company applies APB 25 and related Interpretations in accounting for
the Plan. Accordingly, no compensation cost has been recognized for options
granted under the Plan. As of June 30, 1997, 60,000 options were granted, of
which none were vested. Of these options, 10,000 vest in 20% increments
beginning with the first anniversary of the grant and 50,000 fully vest at the
date of the initial public offering. Had compensation cost for the Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method of FASB Statement No. 123, the Company's net income
and earnings per share would not materially differ from the historical reported
balances.
12. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1996, the Company paid professional fees,
management fees, equipment rental fees and computer consulting fees of $342,000,
$1,175,000, $462,662 and $216,432, respectively, to companies owned by Former
Principal Stockholders. For the six months ended June 30, 1997, the Company paid
management fees and other fees of $23,331 and $301,842, respectively, to the
Investors.
13. DEFINED CONTRIBUTION PLANS
The Company retains a defined contribution employee benefit plan which
covers substantially all employees. The Company may make discretionary
contributions to the plan. No amounts were contributed to the plan for the year
ended December 31, 1996 and the six months ended June 30, 1997.
14. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with management
employees, certain of whom are stockholders of the Company, which expire at
various times through 2001. The employment agreements have terms of four years
and require annual payments of $1,310,000 with bonus amounts of up to $101,000.
CONTINGENT CONSIDERATION IN BUSINESS ACQUISITIONS
In connection with certain acquisitions (see Notes 1 and 16), the Company
has entered into contractual arrangements whereby shares of Company stock and
cash may be issued to former owners of acquired businesses upon attainment of
specified financial criteria over three year periods as set forth in the
respective agreements. The amount of the shares and cash to be issued cannot be
fully determined until the periods expire and the attainment of criteria is
established. If the criteria are attained, but not exceeded, the amount of
shares which could be issued and cash which could be paid under all agreements
executed prior and subsequent to June 30, 1997 is 564,340 shares and $6,520,000,
respectively. If the targets are exceeded by 20%, the amount of shares which
could be issued and cash which could be paid under agreements executed prior
F-15
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
14. COMMITMENTS AND CONTINGENCIES -- Continued
and subsequent to June 30, 1997 is 873,000 shares and $8,760,000, repectively.
The Company accounts for this additional consideration, when the specified
financial criteria are achieved and it is probable it will be paid, as
additional purchase price for the related acquisition.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires the disclosure of fair value of
financial investments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value.
The carrying amount of accounts receivable, other assets, advances on
behalf of customers, due from employees, accounts payable, accrued expenses, due
to related parties, capital lease obligations, amount due under line of credit
facility and deferred income approximate fair value.
The fair value of the Company's long-term debt is determined by calculating
the present value of expected future cash outlays associated with the debt
instruments. The discount rate used is equivalent to the current rate offered to
the Company for debt of the same maturities. The fair value of the Company's
long-term indebtedness is $17,993,822 compared to a carrying value of
$18,884,322.
16. SUBSEQUENT EVENTS (UNAUDITED)
On September 24, 1997, the Company purchased all the outstanding and issued
shares of Hispanic Market Connections, Inc. ("HMC"), a California company. The
purchase price was $1,500,000 in cash, $240,000 in the form of a 6.5%
subordinated promissory note, and specified contingent payments based on certain
net revenues and pre-tax earnings goals over the three full calendar year
periods subsequent to the date of acquisition. The cash portion of this purchase
was funded by debt financing provided by the Investors.
Subsequent to June 30, 1997, the Company granted 342,500 options under the
Stock Option Plan.
On October 17, 1997, the Company purchased assets and liabilities of
Phoenix Marketing Group, Inc. ("Phoenix"), a New Jersey company. The purchase
price was $10 million in cash (including an assumption of $1 million in debt), a
$2.5 million redeemable note at 6.0% interest, a $2.5 million convertible note
at 6.0% interest automatically convertible into 166,667 shares of common stock
at the initial public offering, and specified contingent payments based on
certain net revenues and pre-tax earnings goals over the three full calendar
year periods subsequent to the date of acquisition. The cash portion of this
purchase was funded by debt financing provided by the Investors.
On October 21, 1997, TLM was merged into a subsidiary of CulturalAccess.
F-16
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
TELEPHONE ACCESS, INC. AND
TELAC, INC.
We have audited the accompanying combined balance sheets of Telephone
Access, Inc. and Telac, Inc. as of July 31, 1994, December 31, 1994 and December
31, 1995 and the combined statements of operations and changes in retained
earnings and cash flows for the year ended July 31, 1994, for the five months
ended December 31, 1994 and for the year ended December 31, 1995. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Telephone Access,
Inc. and Telac, Inc. as of July 31, 1994, December 31, 1994 and December 31,
1995 and the results of its operations and its cash flows for the year ended
July 31, 1994, for the five months ended December 31, 1994 and for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ GREEN, HOLMAN, FRENIA AND COMPANY, L.L.P.
Woodbridge, New Jersey
October 23, 1997
F-17
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995
---------- ----------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 101,241 $ 406,094 $ 773,287
Accounts receivable -- net of allowance for doubtful accounts of $33,000,
$18,000 and $18,000, respectively....................................... 969,193 547,083 1,501,946
Other current assets....................................................... 39,549 40,444 187,296
---------- ----------------- ------------
Total current assets.................................................... 1,109,983 993,621 2,462,529
Property and equipment, net................................................ 119,123 122,364 200,338
Security deposit........................................................... 10,800 35,800 85,800
---------- ----------------- ------------
$1,239,906 $ 1,151,785 $2,748,667
---------- ----------------- ------------
---------- ----------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...................................... $ 915,180 $ 392,746 $1,937,361
Due to related parties..................................................... 74,379 29,297 40,300
Note payable -- affiliated company......................................... -- -- 175,000
Obligation under capital lease............................................. 6,066 6,996 6,186
---------- ----------------- ------------
Total current liabilities............................................... 995,625 429,039 2,158,847
Obligation under capital lease less current portion.......................... 10,150 6,187 --
Stockholders' equity:
Common stock, $1 par value: 1,000 shares authorized, issued and outstanding
at July 31, 1994 and December 31, 1994 and 2,000 shares authorized,
1,670 issued and outstanding at December 31, 1995....................... 1,000 1,000 1,670
Common stock subscribed, $1 par value, 330 shares.......................... -- -- 330
Additional paid-in-capital................................................. 24,000 24,000 217,000
Retained earnings.......................................................... 209,131 691,559 370,820
---------- ----------------- ------------
Total stockholders' equity................................................. 234,131 716,559 589,820
---------- ----------------- ------------
Total liabilities and stockholders' equity.............................. $1,239,906 $ 1,151,785 $2,748,667
---------- ----------------- ------------
---------- ----------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
JULY 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995
---------- ----------------- ------------
<S> <C> <C> <C>
Revenues..................................................................... $4,396,550 $ 2,727,704 $9,047,323
Cost of revenues............................................................. 1,719,732 1,436,646 4,396,712
---------- ----------------- ------------
Gross profit............................................................ 2,676,818 1,291,058 4,650,611
General and administrative expenses.......................................... 1,778,375 718,344 2,671,866
Telephone and computer lease expense -- related party........................ -- -- 171,990
Consulting fees -- related party............................................. 142,164 59,655 155,799
Management fees -- related party............................................. 720,000 -- 1,500,000
Other general and administrative -- related party............................ 74,379 29,297 40,300
---------- ----------------- ------------
Total general and administrative expenses.................................... 2,714,918 807,296 4,539,955
Income (loss) from operations........................................... (38,100) 483,762 110,656
Interest income.............................................................. -- -- 26,524
Interest expense............................................................. (3,308) (1,334) (2,358)
Other income (expense)....................................................... -- -- 5,131
---------- ----------------- ------------
Net income (loss)....................................................... (41,408) 482,428 139,953
---------- ----------------- ------------
Retained earnings -- beginning of period..................................... 250,539 209,131 691,559
Less: stockholder distributions.............................................. -- -- (460,692)
---------- ----------------- ------------
Retained earnings -- end of period........................................... $ 209,131 $ 691,559 $ 370,820
---------- ----------------- ------------
---------- ----------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FIVE FOR THE YEAR
ENDED MONTHS ENDED ENDED
JULY 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ (41,408) $ 482,428 $ 139,953
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation.................................................................. 40,911 28,126 54,270
Changes in operating assets and liabilities:
Accounts receivable........................................................... (528,868) 422,110 (954,863)
Other current assets.......................................................... (38,021) (895) (146,852)
Deposits...................................................................... -- (25,000) (50,000)
Accounts payable and accrued expenses......................................... 746,679 (522,434) 1,544,615
Income taxes payable.......................................................... (12,882) -- --
------------ ------------ ------------
Net cash provided by operating activities.......................................... 166,411 384,335 587,123
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment.............................................. (115,511) (31,367) (132,244)
------------ ------------ ------------
Net cash provided by investing activities:......................................... (115,511) (31,367) (132,244)
------------ ------------ ------------
Cash flows from financing activities:
Repayments of capital lease obligations.......................................... (5,270) (3,033) (6,997)
Stockholder distribution......................................................... -- -- (460,692)
Advances to related parties, net................................................. (152,591) (45,082) 11,003
Proceeds from note payable -- affiliated company................................. -- -- 175,000
Proceeds from the issuance and subscription of common stock...................... -- -- 194,000
------------ ------------ ------------
Net cash used by financing activities.............................................. (157,861) (48,115) (87,686)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents............................... (106,961) 304,853 367,193
Cash and cash equivalents, beginning of period..................................... 208,202 101,241 406,094
------------ ------------ ------------
Cash and cash equivalents, end of period........................................... $ 101,241 $ 406,094 $ 773,287
------------ ------------ ------------
------------ ------------ ------------
Supplementary disclosure of cash flow information:
Interest paid.................................................................... $ 3,308
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Telephone Access, Inc. and TelAc, Inc. (the "Company") are primarily
engaged in conducting diverse direct telemarketing and communication campaigns,
specializing in servicing client customers and narrowly defined prospect bases.
The Company's customers are located throughout the United States. Telephone
Access, Inc. was incorporated in Delaware and began operations in 1983. TelAc,
Inc. was incorporated in June 1995 in the state of Delaware and began operations
on June 15, 1995.
BASIS OF ACCOUNTING
Because Telephone Access, Inc. and TelAc, Inc. are commonly controlled
companies by three individuals ("Principal Stockholders") effective June 15,
1995, financial statements as of and for the year ended December 31, 1995 are
presented on a combined basis. All intercompany transactions and balances have
been eliminated. The combined financial statements present the financial
position and results of operations of Telephone Access, Inc. and TelAc, Inc. On
December 6, 1996, TelAc, Inc. was merged into Telephone Access, Inc. The merger
was accounted for as a merger of entities under common control and accordingly,
the financial statements reflect the combined results of Telephone Access, Inc.
and TelAc, Inc. for all periods presented.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from five to seven years. Leasehold
improvements are amortized over the remaining term of the facilities lease. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in income for the period. Expenditures for maintenance and repairs
which do not appreciably extend the useful lives of the related assets are
charged to expense as incurred, while expenditures for major renewals or
betterments that extend useful lives are capitalized.
REVENUE RECOGNITION
Revenue is recognized when services have been rendered.
CASH AND CASH EQUIVALENTS
For the purpose of statements of cash flows, the Company considers all
highly liquid debt instruments purchased within a maturity of three months or
less to be cash equivalents. At times, such deposits may be in excess of FDIC
limits.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INCOME TAXES
The Company elected to be taxed as an S Corporation for Federal and state
income tax purposes as of August 1, 1994. As a result, income is taxable to its
stockholders. Accordingly, no income tax provision has been recorded in the
Company's Financial Statements for the periods ended December 31, 1994 and 1995.
For the period ended July 31, 1994, Telephone Access, Inc. was a C Corporation.
RECLASSIFICATIONS
Certain reclassifications have been made to the July 31, 1994 and December
31, 1994 financial statements to conform with the December 31, 1995
presentation.
F-21
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIFE JULY 31, DECEMBER 31, DECEMBER 31,
IN YEARS 1994 1994 1995
-------------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Furniture and fixtures............................................... 5-7 $ 55,333 $ 59,167 $ 64,490
Office equipment..................................................... 5-7 133,994 161,527 288,448
Leasehold improvements............................................... life of lease 1,427 1,427 1,427
-------- ------------ ------------
190,754 222,121 354,365
Less: Accumulated depreciation..................................... 71,631 99,757 154,027
-------- ------------ ------------
Property and Equipment -- Net...................................... $119,123 $122,364 $200,338
-------- ------------ ------------
-------- ------------ ------------
</TABLE>
Depreciation expense was $40,911, $28,126 and $54,270 for the year ended
July 31, 1994, the five months ended December 31, 1994 and the year ended
December 31, 1995, respectively.
3. REVENUE FROM SIGNIFICANT CUSTOMER
A substantial portion of the Company's revenue was derived from one
customer. Revenues to that customer amounted to 85%, 90% and 76% of the
Company's revenue for the year ended July 31, 1994, the five months ended
December 31, 1994, and the year ended December 31, 1995. Amounts due from that
customer included in accounts receivable totaled 89%, 88% and 79% of accounts
receivable as of July 31, 1994, December 31, 1994 and December 31, 1995,
respectively.
4. LEASES
CAPITAL LEASE
The Company leases a computer system pursuant to a lease agreement which
bears interest at 19% and expires in October, 1996 and provides for a monthly
principal and interest payment of $743. The total cost of the computer equipment
held under capital lease is $30,000 and accumulated depreciation is $21,000,
$24,500 and $28,000 as of July 31, 1994, December 31, 1994 and December 31,
1995, respectively. The lease provides for accounting as a capital lease.
The future minimum lease payments under the capital lease as of December
31, 1995, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Future minimum lease payments................................................................................... $6,687
Less: amount representing interest.............................................................................. 501
------------
Present value of net minimum
Lease payments.................................................................................................. $6,186
------------
------------
Current portion................................................................................................. $6,186
</TABLE>
OPERATING LEASES
The Company also leases a telephone and computer system from an affiliated
company. The lease requires monthly payments of $26,460, plus sales tax. The
monthly lease payment may be suspended for six months if the Company loses its
customer. The lease expires in August 1997. Lease payments for the year ended
December 31, 1995 amounted to $257,872.
Minimum future lease payments under the operating lease are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------------------------
<S> <C>
1996.......................................................................... $317,518
1997.......................................................................... 211,680
--------
$529,198
--------
--------
</TABLE>
F-22
<PAGE>
<PAGE>
TELEPHONE ACCESS, INC. AND TELAC, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. LEASES -- Continued
The Company leases its office facilities under a noncancellable operating
lease that expired prior to July 31, 1994. Total rent expense for the Company
was $188,235 for the year ended July 31, 1994.
5. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to a company owned by a stockholder's
brother totaling $70,164, $59,665 and $155,799 for the year ended July 31, 1994,
the five months ended December 31, 1994 and the year ended December 31, 1995,
respectively.
Two companies, which are related by common ownership, were paid operating
and administrative expenses of $74,379, $29,297 and $40,300 by the Company for
the year ended July 31, 1994, the five months ended December 31, 1994 and the
year ended December 31, 1995, respectively.
The Company paid consulting fees to stockholders totaling $72,000 during
the year ended July 31, 1994. The Company also paid management fees of $720,000
and $1,500,000 to a partnership related by common interest during the years
ended July 31, 1994 and December 31, 1995, respectively.
The Company has a note payable with an affiliated company amounting to
$175,000. This unsecured loan bears interest at 10% per annum.
6. LITIGATION
The Company is involved in a lawsuit that arose in the ordinary course of
business. In the opinion of the Company's legal counsel and management, any
liability resulting from such litigation would not be material in relation to
the Company's financial position.
7. SUBSEQUENT EVENTS
On December 6, 1996, TelAc, Inc. and Telephone Access, Inc. were merged
into Telephone Access, Inc.
On December 6, 1996, Telephone Access, Inc. consummated a leveraged
recapitalization among Telephone Access, Inc., the Principal Stockholders, and a
group of investors previously unaffiliated with Telephone Access, Inc.
F-23
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF TELEMANAGEMENT SERVICES, INC.
In our opinion, the accompanying balance sheets and the related statements
of operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of TeleManagement Services, Inc. at
December 31, 1995 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, 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.
PRICE WATERHOUSE LLP
Philadelphia, PA
September 22, 1997
F-24
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1995 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash............................................................................................ $ 8,854 $ 8,867
Accounts receivable, net of allowance for doubtful accounts of $0 and $94,734, respectively..... 1,041,577 1,459,670
Advances on behalf of customers................................................................. 257,781 68,062
Other assets.................................................................................... 19,303 12,120
---------- ----------
Total current assets......................................................................... 1,327,515 1,548,719
Property and equipment, net..................................................................... 183,138 256,933
---------- ----------
Total assets................................................................................. $1,510,653 $1,805,652
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................ $ 37,939 $ 21,483
Accrued salaries, wages & related taxes......................................................... 51,605 146,653
Other accrued expenses.......................................................................... 4,392 138,743
Note payable to stockholder..................................................................... 35,000 --
Current portion of notes payable................................................................ -- 211,020
---------- ----------
Total current liabilities.................................................................... 128,936 517,899
Long-term portion of notes payable................................................................ -- 449,828
---------- ----------
Total liabilities............................................................................ 128,936 967,727
---------- ----------
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $1 par value: 120,000 shares authorized, 600 shares issued and outstanding........ 600 600
Additional paid-in capital...................................................................... 9,400 9,400
Loan receivable from stockholder................................................................ -- (633,330)
Retained earnings............................................................................... 1,371,717 1,461,255
---------- ----------
Total stockholders' equity................................................................... 1,381,717 837,925
---------- ----------
Total liabilities and stockholders' equity................................................... $1,510,653 $1,805,652
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenues.......................................................................... $ 2,972,427 $3,849,493 $5,954,901
Cost of revenues.................................................................. 1,646,469 1,925,078 3,358,847
----------- ---------- ----------
Gross profit.................................................................... 1,325,958 1,924,415 2,596,054
Selling, general and administrative expenses...................................... 758,137 1,044,991 1,694,233
----------- ---------- ----------
Income from operations.......................................................... 567,821 879,424 901,821
Interest income................................................................... 7,156 42,085 86,819
Interest expense.................................................................. (5,600) (4,391) (61,347)
----------- ---------- ----------
Net income...................................................................... 569,377 917,118 927,293
Retained earnings, beginning of year.............................................. 387,222 756,599 1,371,717
Stockholder distributions......................................................... (200,000) (302,000) (837,755)
----------- ---------- ----------
Retained earnings, end of year.................................................... $ 756,599 $1,371,717 $1,461,255
----------- ---------- ----------
----------- ---------- ----------
Pro forma data (unaudited) Note 1:
Historical income before taxes............................................... $ 569,377 $ 917,118 $ 927,293
Pro forma provision for income taxes......................................... 216,363 348,505 352,371
----------- ---------- ----------
Net income adjusted for pro forma income tax provision....................... $ 353,014 $ 568,613 $ 574,922
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 569,377 $ 917,118 $ 927,293
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................. 38,511 61,084 91,596
Loss on sale of equipment..................................................... 8,264 -- --
Changes in operating assets and liabilities:
Accounts receivable........................................................... (414,456) (197,020) (418,093)
Advances on behalf of customers............................................... -- (257,777) 189,719
Other assets.................................................................. (1,223) (9,005) 7,183
Accounts payable and accrued expenses......................................... 89,506 (18,028) 212,943
--------- ----------- -----------
Net cash provided by operating activities................................... 289,979 496,372 1,010,641
--------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment.............................................. (101,561) (153,038) (165,391)
--------- ----------- -----------
Net cash used in investing activities....................................... (101,561) (153,038) (165,391)
--------- ----------- -----------
Cash flows from financing activities:
Distribution to stockholder...................................................... (200,000) (302,000) (837,755)
Borrowings under line of credit facility......................................... -- -- 27,518
Repayment of notes payable to stockholder........................................ -- (35,000) (35,000)
--------- ----------- -----------
Net cash used in financing activities....................................... (200,000) (337,000) (845,237)
--------- ----------- -----------
Net (decrease) increase in cash............................................. (11,582) 6,334 13
Cash, beginning of year............................................................ 14,102 2,520 8,854
--------- ----------- -----------
Cash, end of year.................................................................. $ 2,520 $ 8,854 $ 8,867
--------- ----------- -----------
--------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................................................... $ 5,600 $ -- $ 62,489
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
TeleManagement Services, Inc. ("TMS" or the "Company") was formed on April
23, 1992 as an S Corporation in the state of Florida. The Company is a full
service telecommunications and marketing company that specializes in providing
customized, cost effective telecommunications solutions for the physician and
pharmacy markets throughout the United States.
On February 15, 1996, a stockholder purchased 300 shares of TMS stock for
$3,000,000 from another stockholder to become the sole stockholder.
ADVANCES ON BEHALF OF CUSTOMERS
The Company provides rebate processing services on behalf of its customers.
This service requires the Company to issue rebate checks to third parties for
which the Company receives advances or reimbursements (depending on the
customer) related to the rebates.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from three to seven years. Leasehold
improvements are amortized over the remaining term of the facilities' lease.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in income for the period. Expenditures for maintenance and
repairs are expensed as incurred while expenditures for major renewals that
extend useful lives are capitalized.
LOAN RECEIVABLE FROM STOCKHOLDER
Simultaneously with the loan agreement entered into on February 16, 1996
(see Note 3), the Company loaned approximately $800,000 to the sole stockholder.
The loan is due in full on February 16, 2000 and requires monthly principal
payments of $16,667, with interest accruing at the prime rate (8.25% at December
31, 1996) plus one percentage point. At the end of the loan term, the remaining
principal and accrued interest is due. As of December 31, 1996, $633,330
remained due to the Company. This amount has been reflected as a reduction of
stockholders' equity.
REVENUE RECOGNITION
Revenue is recognized when services have been rendered.
INCOME TAXES
The Company elected to be taxed as an S Corporation for Federal and state
income tax purposes. As a result, income is taxable to its stockholders.
Accordingly, no income tax provision has been recorded in the Company's
financial statements.
PRO FORMA INCOME TAX PROVISION
The pro forma tax provision has been calculated as if the Company were
taxable as a C Corporation (the Company's tax status effective January 1, 1997)
under the Internal Revenue Code of 1986, as amended, for all periods presented.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-28
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
CONCENTRATION OF CREDIT RISK
As part of its ongoing control procedures, the Company monitors
concentrations of credit risk associated with clients with which it conducts
business. Credit risk is minimal as the Company monitors the credit worthiness
of its clients to which it grants terms in the normal course of business. The
Company does not normally require collateral or other security to support credit
sales.
REVENUES FROM SIGNIFICANT CUSTOMERS
The Company had revenues of approximately 52%, 58% and 50% from three, five
and three customers for the years ended December 31, 1994, 1995 and 1996,
respectively. Total receivables from these customers approximated 43%, 95% and
59% of the receivable balances as of December 31, 1994, 1995 and 1996,
respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ----------------------
IN YEARS 1995 1996
-------------- --------- ---------
<S> <C> <C> <C>
Office equipment............................................. 7 $ 115,113 $ 155,503
Computer equipment........................................... 5 113,893 191,409
Furniture and fixtures....................................... 7 47,362 88,239
Computer software............................................ 3 7,508 7,508
Leasehold improvements....................................... life of lease 45,324 51,934
--------- ---------
329,200 494,593
LESS: Accumulated depreciation............................. (146,062) (237,660)
--------- ---------
Property and equipment, net................................ $ 183,138 $ 256,933
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $38,511, $61,084 and $91,596 for the years ended
December 31, 1994, 1995 and 1996, respectively.
3. NOTES PAYABLE
As of December 31, 1994, TMS had two loans outstanding for $35,000 due to
each of its two stockholders. These loans require monthly interest payments only
with the principal due on demand. The Company incurred interest expense of
$5,600, $4,391 and $384 for the years ended December 31, 1994, 1995 and 1996,
respectively. One loan was paid in full in 1995 and the other was paid in full
in 1996.
On February 16, 1996, the Company, a related party, and its sole
stockholder entered into a term loan agreement (the "loan") for $800,000 with
Barnett Bank. Approximately $700,000 of the borrowed amount is secured by
accounts receivable and all issued shares of the Company under a subordination
agreement. The loan requires monthly principal payments of $16,667, with
interest accruing at the lender's stated prime rate (8.25% at December 31, 1996)
plus one percentage point. Any remaining principal and accrued interest is due
in full on February 16, 2000. As of December 31, 1996, $633,330 remained
outstanding.
In addition, on June 25, 1996, the Company entered into a line of credit
agreement with Barnett Bank for borrowings of up to $33,026. The agreement
expires on June 25, 1999. The agreement requires monthly principal payments of
$918, with interest accruing at the lender's stated prime rate (8.25% at
December 31, 1996) plus one percentage point. This revolving line of credit is
secured by accounts receivable and all issued shares of the Company. As of
December 31, 1996, $27,518 remains outstanding.
F-29
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. NOTES PAYABLE -- Continued
Aggregate annual principal maturities are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------
<S> <C>
1997.................................................. $211,020
1998.................................................. 211,020
1999.................................................. 205,490
2000.................................................. 33,318
--------
$660,848
--------
--------
</TABLE>
4. OPERATING LEASES
The Company is obligated under noncancelable operating leases for office
space and operating equipment expiring on February 28, 2001 and November 15,
1999, respectively. Aggregate future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------
<S> <C>
1997.................................................. $163,992
1998.................................................. 162,704
1999.................................................. 161,947
2000.................................................. 105,820
2001.................................................. 16,798
--------
$611,261
--------
--------
</TABLE>
Rent expense approximated $122,904, $125,027 and $223,641 for the years
ended December 31, 1994, 1995 and 1996, respectively.
5. DEFINED CONTRIBUTION PLAN
The Company maintains a profit sharing plan which covers substantially all
full time employees. During 1996, the Company made a discretionary contribution
of $12,604 to the plan for the year ended December 31, 1995.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires the disclosure of the fair value of
financial investments, both assets and liabilities recognized and not recognized
on the balance sheet for which it is practicable to estimate fair value.
The carrying amounts of accounts receivable, advances on behalf of
customers, loan receivable from stockholder, other assets, accounts payable and
accrued expenses approximate fair value.
The fair value of the Company's notes payable and line of credit is
determined by calculating the present value of expected future cash outlays
associated with the debt instruments. The discount rate used is equivalent to
the current rate offered to the Company for notes payable of the same
maturities. The fair value of the Company's notes payable approximates the
carrying value.
F-30
<PAGE>
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7. RELATED PARTY TRANSACTIONS
In 1994 and 1995, the two stockholders of the Company were also Company
executives and received compensation in addition to normal stockholder
distributions and entered into other transactions with the Company. In 1994, the
two stockholders loaned the Company approximately $35,000 each to be used to
finance the Company's operations. (See Note 3.)
8. SUBSEQUENT EVENT
Effective January 1, 1997, TLM Holdings (TLM), through its wholly-owned
subsidiary, TLM Acquisition Inc., purchased certain assets and assumed certain
liabilities of the Company. In conjunction with this purchase, the Company
discontinued its election to be treated as an S Corporation.
On October 21, 1997, TLM was merged into a subsidiary of
CulturalAccessWorldwide, Inc.
F-31
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF HISPANIC MARKET CONNECTIONS, INC.
In our opinion, the accompanying balance sheet and the related statement of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Hispanic Market Connections, Inc.
at December 31, 1996, and the results of its operations and its cash flows for
the year ended December 31, 1996, 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.
PRICE WATERHOUSE LLP
Philadelphia, PA
October 17, 1997
F-32
<PAGE>
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................................... $ 36,767
Accounts receivable............................................................................................. 346,616
Deferred tax asset.............................................................................................. 46,530
Other assets.................................................................................................... 19,553
--------
Total current assets......................................................................................... 449,466
Property and equipment, net....................................................................................... 84,644
--------
Total assets................................................................................................. $534,110
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amount due on line of credit facility........................................................................... $ 40,508
Accounts payable................................................................................................ 214,285
Accrued salaries, wages and related benefits.................................................................... 48,018
Other accrued expenses.......................................................................................... 8,258
Deferred revenue................................................................................................ 107,715
Capital lease obligation........................................................................................ 6,974
--------
Total current liabilities.................................................................................... 425,758
--------
Commitments and contingencies (Note 5)
Stockholder's equity:
Common stock, no par value: 1,000,000 shares authorized, 100,000 shares issued and outstanding.................. 1,728
Retained earnings............................................................................................... 106,624
--------
Total stockholder's equity................................................................................... 108,352
--------
Total liabilities and stockholder's equity................................................................... $534,110
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues........................................................................................................ $2,811,566
Cost of revenues................................................................................................ 1,563,616
----------
Gross profit.................................................................................................. 1,247,950
General and administrative expenses............................................................................. 1,414,328
----------
Loss from operations.......................................................................................... (166,378)
----------
Interest expense................................................................................................ (12,796)
Other expense................................................................................................... (1,768)
----------
Loss before income taxes...................................................................................... (180,942)
Income tax benefit.............................................................................................. 38,272
----------
Net loss...................................................................................................... (142,670)
Retained earnings, beginning of year............................................................................ 249,294
----------
Retained earnings, end of year.................................................................................. $ 106,624
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................................... $(142,670)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................................................ 26,325
Deferred tax benefit........................................................................................ (38,272)
Changes in operating assets and liabilities:
Accounts receivable......................................................................................... 126,253
Other assets................................................................................................ 1,278
Accounts payable and accrued expenses....................................................................... 1,776
Deferred revenue............................................................................................ 63,201
Capital lease obligation.................................................................................... 2,255
---------
Net cash provided by operating activities.............................................................. 40,146
---------
Cash flows from investing activities:
Additions to property and equipment............................................................................ (43,924)
---------
Net cash used in investing activities.................................................................. (43,924)
---------
Cash flows from financing activities:
Borrowings under line of credit facility....................................................................... 100,012
Repayments under line of credit facility....................................................................... (159,504)
---------
Net cash used in financing activities.................................................................. (59,492)
---------
Net decrease in cash and cash equivalents.............................................................. (63,270)
Cash and cash equivalents, beginning of year..................................................................... 100,037
---------
Cash and cash equivalents, end of year........................................................................... $ 36,767
---------
---------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest.................................................................................................... $ 15,712
---------
---------
Income taxes................................................................................................ $ 3,967
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PHOENIX MARKETING GROUP, INC.
In our opinion, the accompanying balance sheets and the related statements
of operations and accumulated deficit and of cash flows present fairly, in all
material respects, the financial position of Phoenix Marketing Group, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, 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.
PRICE WATERHOUSE LLP
Morristown, New Jersey
March 7, 1997
F-39
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 184,467 $ 110,051
Accounts receivable, net of allowance for doubtful accounts of $60,480 and $90,480,
respectively................................................................................. 2,765,815 2,591,494
Other current assets............................................................................ 224,764 403,501
---------- ----------
Total current assets......................................................................... 3,175,046 3,105,046
Property and equipment, net....................................................................... 1,827,947 1,717,384
Other assets...................................................................................... 54,798 182,636
---------- ----------
Total assets................................................................................. $5,057,791 $5,005,066
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses........................................................... $ 932,160 $ 972,973
Accrued salaries, wages and related benefits.................................................... 104,814 79,095
Current portion of long-term borrowings......................................................... 1,308,550 741,830
Customer deposits............................................................................... 64,090 111,683
---------- ----------
Total current liabilities.................................................................... 2,409,614 1,905,581
Long-term borrowings.............................................................................. 687,770 1,065,581
Amounts due stockholders.......................................................................... 2,303,852 2,241,102
Deferred compensation............................................................................. 15,000 --
---------- ----------
Total liabilities............................................................................ 5,416,236 5,212,264
---------- ----------
Commitments and contingencies (Note 5)
Stockholders' deficit:
Common stock, no par value: authorized 2,500 shares, 250 shares issued and outstanding.......... 50,000 50,000
Accumulated deficit............................................................................. (363,445) (212,198)
---------- ----------
Subtotal..................................................................................... (313,445) (162,198)
Less treasury stock -- 50 shares of common stock at cost.......................................... 45,000 45,000
---------- ----------
Total stockholders' deficit.................................................................. (358,445) (207,198)
---------- ----------
Total liabilities and stockholders' deficit.................................................. $5,057,791 $5,005,066
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues........................................................................ $14,031,485 $13,849,031 $13,048,989
Cost of revenues................................................................ 6,938,455 6,287,524 5,462,962
----------- ----------- -----------
Gross profit............................................................... 7,093,030 7,561,507 7,586,027
----------- ----------- -----------
Selling, general and administrative expenses:
Salaries, wages and related benefits.......................................... 4,731,641 4,873,524 4,409,297
Depreciation and amortization expense......................................... 345,701 435,180 526,473
Other selling, general and administrative expenses............................ 1,919,376 2,054,008 2,205,775
----------- ----------- -----------
Total selling, general and administrative expenses......................... 6,996,718 7,362,712 7,141,545
----------- ----------- -----------
Income from operations..................................................... 96,312 198,795 444,482
Interest expense................................................................ (248,294) (313,317) (331,826)
Other income.................................................................... 48,561 38,546 44,592
----------- ----------- -----------
Income (loss) before income taxes.......................................... (103,421) (75,976) 157,248
Income tax expense.............................................................. (2,390) (3,275) (6,001)
----------- ----------- -----------
Net income (loss).......................................................... (105,811) (79,251) 151,247
Accumulated deficit, beginning of year.......................................... (178,383) (284,194) (363,445)
----------- ----------- -----------
Accumulated deficit, end of year................................................ $ (284,194) $ (363,445) $ (212,198)
----------- ----------- -----------
----------- ----------- -----------
Pro forma data (unaudited) Note 1:
Historical income (loss) before taxes...................................... $ (105,811) $ (79,251) $ 151,247
Pro forma provision for income taxes....................................... 36,172 46,265 146,774
----------- ----------- -----------
Net income (loss) adjusted for pro forma income tax provision................... $ (141,983) $ (125,516) $ 4,473
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
--------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................................... $(105,811) $ (79,251) $ 151,247
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................... 345,701 569,172 658,473
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (131,543) 237,536 174,321
Other current assets............................................................. (105,955) (75,805) (178,737)
Other assets..................................................................... (18,000) (36,798) 14,298
Accounts payable and accrued expenses............................................ 393,197 (455,050) 40,813
Accrued payroll and related taxes................................................ (73,597) 322 (25,719)
Customer deposits................................................................ -- 43,090 47,593
Deferred compensation............................................................ -- (30,000) (15,000)
--------- ---------- ---------
Net cash provided by operating activities...................................... 303,992 173,216 867,289
--------- ---------- ---------
Cash flows from investing activities:
Additions to property and equipment................................................. (934,928) (865,557) (528,917)
Employee loan (net of repayments)................................................... -- -- (69,961)
--------- ---------- ---------
Net cash used in investing activities.......................................... (934,928) (865,557) (598,878)
--------- ---------- ---------
Cash flows from financing activities:
Proceeds from bank borrowing........................................................ 600,000 1,050,000 850,000
Payments of bank borrowing.......................................................... (145,835) (179,171) (987,675)
Payments of borrowing-former stockholders........................................... (350,190) (375,540) (122,106)
Proceeds from borrowing-stockholders................................................ 444,675 508,985 82,750
Payments of borrowing-stockholders.................................................. (97,200) (97,200) (145,500)
Payments pursuant to restrictive covenant........................................... -- -- (8,837)
Payments of obligation under capital lease.......................................... (40,526) (42,019) (11,459)
--------- ---------- ---------
Net cash provided by (used in) financing activities............................ 410,924 865,055 (342,827)
--------- ---------- ---------
Net (decrease) increase in cash....................................................... (220,012) 172,714 (74,416)
Cash and cash equivalents, beginning of year.......................................... 231,765 11,753 184,467
--------- ---------- ---------
Cash and cash equivalents, end of year................................................ $ 11,753 $ 184,467 $ 110,051
--------- ---------- ---------
--------- ---------- ---------
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest......................................................................... $ 247,333 $ 318,785 $ 331,826
--------- ---------- ---------
--------- ---------- ---------
Noncash activities:
Debt obligation incurred on extension of covenant not to compete.................... -- -- $ 91,168
Capital lease obligation............................................................ $ 61,831 -- --
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Phoenix Marketing Group, Inc. (the "Company") was formed in 1983 to provide
database and other computer based marketing support to the health care industry.
The majority of the Company's sales are made to the pharmaceutical sector,
primarily in the United States.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, management has
used estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
approximately three months or less from date of purchase to be cash equivalents.
REVENUE RECOGNITION
Revenue represents the total fees charged to clients for the services
provided and is recognized upon fulfillment of the service requirements. Revenue
from two major customers, as a percentage of total revenue, was 20% and 10% in
1994, 19% and 12% in 1995 and 21% and 10% in 1996.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated over their
estimated useful lives, ranging from 5 to 10 years, using accelerated methods.
INCOME TAXES
For federal income tax purposes, the Company has elected to be treated as
an S Corporation. Income, deductions and credits are, therefore, distributed,
pro rata, to stockholders for inclusion on their individual income tax returns.
A portion of the distributed amounts are subsequently reinvested in the Company
by the stockholders as subordinated debt. Reinvested amounts were $508,985 and
$82,750 in 1995 and 1996, respectively. Accordingly, no provision for federal
income taxes is required in the accompanying statements of operations. The
Company is, however, subject to certain state income taxes.
PRO FORMA INCOME TAX PROVISION
The pro forma tax provision has been calculated as if the Company were
taxable as a C Corporation (the Company's tax status effective October 17, 1997)
under the Internal Revenue Code of 1986, as amended, for all periods presented.
PROFIT SHARING PLAN
The Company sponsors a defined contribution Profit Sharing Plan covering
substantially all its full-time employees. Contributions are made at the
discretion of the Company. Plan expense for the year ended December 31, 1996
totaled $79,800. No contributions were made for the years ended December 31,
1994 and 1995. Additionally, the Company implemented a 401(k) deferred
compensation plan in 1993. The Company incurred an expense of $49,050, $48,839,
and $46,909 for the portion of employee contributions matched in 1994, 1995 and
1996, respectively.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments (cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, and
notes payable) approximate fair value given the short-term nature of these
instruments. The carrying amounts of long-term debt approximates fair value as
the obligations bear interest at fair value rates. The Company does not have any
financial instruments held or issued for trading purposes.
F-43
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ------------------------
IN YEARS 1995 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Equipment.................................................. 5-10 $2,738,760 $3,010,756
Computer equipment held for lease.......................... 5-10 302,585 322,425
Furniture and fixtures..................................... 5-10 811,369 836,610
Leasehold improvements..................................... life of lease 600,215 812,055
---------- ----------
4,452,929 4,981,846
Less-accumulated depreciation.............................. 2,624,982 3,264,462
---------- ----------
Net property and equipment............................... $1,827,947 $1,717,384
---------- ----------
---------- ----------
</TABLE>
Depreciation expense amounted to $345,701, $569,172 and $639,480 for the
years ended December 31, 1994, 1995, and 1996, respectively.
Property and equipment includes the following amounts held under capital
leases:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Equipment....................................................................... $68,331 $68,331
Less-accumulated depreciation................................................... 11,389 21,151
------- -------
Net........................................................................... $56,942 $47,180
------- -------
------- -------
</TABLE>
The Company leases computer systems and related equipment to customers
under short-term operating leases. Rental income under this arrangement totaled
approximately $0, $74,000 and $100,000 for the years ended December 31, 1994,
1995 and 1996, respectively. Future minimum rentals under this agreement will be
$100,020 and $58,345 in 1997 and 1998, respectively.
F-44
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Equipment line for $600,000; interest only payable monthly to May 31, 1997 at prime (8.25% at
December 31, 1996) plus .125%. At May 31, 1997, the line may be converted into a term loan...... $ 250,000 $ 400,000
Term loan to bank for $400,000; repayable in 60 monthly installments of $6,667 plus interest at
prime plus .125%................................................................................ -- 393,333
Working capital line of credit in the amount of $600,000, balance due at May 31, 1997 plus
interest at prime............................................................................... 600,000 300,000
Term loan to bank for $250,000; repayable in 60 monthly installments of $4,167 plus interest at
prime plus .5%.................................................................................. 250,000 199,996
Equipment revolver for $1,000,000; interest only payable monthly at prime plus .5%. At February 1,
1997, the balance was converted into an 18 month term loan...................................... 300,000 144,000
Term loan to bank for $500,000; repayable in 48 monthly installments of $10,417 plus interest at
prime plus .5%.................................................................................. 250,000 125,000
Term loan to bank for $250,000; repayable in 60 monthly installments of $4,167 plus interest at
prime plus 1%................................................................................... 174,994 124,990
Note payable; repayable in monthly installments of $2,942 including interest at 10% through July
1999............................................................................................ -- 82,331
Capital lease payable in monthly installments of $1,276 through November 31, 1999................. 49,220 37,761
Note payable to a former stockholder repayable in monthly installments of $25,004 including
interest at 9.5% through May 1996............................................................... 122,106 --
---------- ----------
Total........................................................................................... 1,996,320 1,807,411
Less-current portion.............................................................................. 1,308,550 741,830
---------- ----------
Long-term borrowings............................................................................ $ 687,770 $1,065,581
---------- ----------
---------- ----------
</TABLE>
All bank debt is secured by the Company's business assets and additionally
collaterized by minimum life insurance policies of $500,000 on each of the
Company's principal stockholders. The Company's principal stockholders have also
given personal guarantees.
4. AMOUNTS DUE STOCKHOLDERS
Amounts due stockholders consist of notes payable with interest at 9%,
which are payable by December 31, 2000. Interest is paid annually in December.
Stockholder amounts are subordinated to all bank debt.
F-45
<PAGE>
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. COMMITMENTS AND CONTINGENCIES
a) The Company leases its office and warehouse facilities under a long-term
operating lease from a partnership comprising of stockholders and
certain former stockholders. Rent expense under this agreement totaled
$249,700, $257,260 and $269,420 for the years ended December 31, 1994,
1995, and 1996, respectively. The Company also leases certain computer
and warehouse equipment under long-term capital leases. Minimum annual
rentals under the operating leases, and minimum lease payments under the
capitalized leases together with the present value of the net minimum
lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
ANNUAL RENTALS UNDER
---------------------
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- --------------------------------------------------------------------------------------------- ------- ----------
<S> <C> <C>
1997......................................................................................... $15,312 $ 503,018
1998......................................................................................... 15,312 452,507
1999......................................................................................... 14,036 124,203
------- ----------
Total minimum lease payments............................................................... 44,660 $1,079,728
----------
----------
Less-portion representing interest........................................................... 5,214
-------
Present value of minimum lease payments, including current maturity of $12,411............... $39,446
-------
-------
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 totaled
$276,700, $493,918 and $510,149, respectively.
b) Under an agreement between the Company and the stockholders, upon the
death of a stockholder, the Company is obligated to repurchase the
stockholder's shares at a price equal to the value per share as defined
in the stockholder's agreement. The Company maintains key-man life
insurance policies on the primary stockholders in this regard.
6. STATE INCOME TAXES
The provision for income taxes consists of current state income taxes of
$2,390, $3,275 and $6,001 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Income tax expense for each of the years ended December 31, 1994, 1995 and
1996 is reflective of the Company's election as an S Corporation for state
income tax purposes effective January 1, 1994. Although the Company was granted
S Corporation status, it continues to be liable for state income taxes, but at a
reduced rate. The Company has determined that a provision for deferred income
taxes is not necessary.
Differences between the pre-tax accounting income and taxable income for
state tax purposes primarily arise due to the restriction on the deductibility
of interest paid to stockholders.
7. SUBSEQUENT EVENT
Effective October 17, 1997, CulturalAccessWorldwide, Inc. purchased all the
assets and assumed all the liabilities of the Company.
F-46
<PAGE>
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS;
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE SHARES OF COMMON STOCK TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
The Company.......................................... 11
Use of Proceeds...................................... 11
Dividend Policy...................................... 11
Capitalization....................................... 12
Dilution............................................. 13
Selected Financial Information....................... 14
Unaudited Pro Forma Financial Information............ 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 18
Business............................................. 23
Management........................................... 30
Certain Transactions................................. 36
Principal Stockholders............................... 39
Description of Capital Stock......................... 41
Shares Eligible for Future Sale...................... 42
Underwriting......................................... 44
Legal Matters........................................ 45
Experts.............................................. 45
Available Information................................ 45
Index to Financial Statements........................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,000,000 Shares
CulturalAccessWorldwide(SM)
Common Stock
PROSPECTUS
Smith Barney Inc.
Bear, Stearns & Co. Inc.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
S.E.C. registration fee*.......................................................................................... $ 25,091
NASD filing fee*.................................................................................................. 8,780
Fee to Foster Management Company*................................................................................. 750,000
NASDAQ application fee*........................................................................................... 41,435
Accounting fees and expenses...................................................................................... **
Legal fees and expenses........................................................................................... **
Printing and engraving expenses................................................................................... **
Blue sky fees and expenses........................................................................................ **
Transfer agent fees............................................................................................... **
Miscellaneous expenses............................................................................................ **
Total...................................................................................................... $ **
</TABLE>
* Actual fee.
** To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Sixth of the Certificate of Incorporation of the Company provides
that the Company shall indemnify and hold harmless any director, officer,
employee or agent of the Company from and against any and all expenses and
liabilities that may be imposed upon or incurred by him in connection with, or
as a result of, any proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such a director, officer,
employee or agent of the Company, whether or not he continues to be such at the
time such expenses and liabilities shall have been imposed or incurred, to the
extent permitted by the laws of the State of Delaware, as they may be amended
from time to time.
Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as a director, except in the case in which
the director breached his duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law or obtained an improper personal benefit.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters and
their respective controlling persons on the other hand against certain
liabilities in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 15, 1995, each of Joseph Morrow, Thomas Ficker, John Jordan, Thomas
Ball and Wallace Searle purchased 989,000, 709,500, 236,500, 107,500 and 107,500
shares (as adjusted for stock splits) for $.0465 per share (as adjusted for
stock splits).
In connection with the Company's recapitalization in December 1996,
Abbingdon Venture Partners Limited Partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II ("Abbingdon-II"), and Abbingdon Venture
Partners Limited Partnership-III ("Abbingdon-III") purchased 3,000,000 shares of
Voting Common Stock and 500,000 shares of Non-Voting Common Stock for an
aggregate purchase price of $200,000, and 18,000 shares of 8% Cumulative
Preferred Stock for an aggregate purchase price of $1,800,000.
On December 6, 1996, John Jordan, President of the TelAc Teleservices Group
of the Company, purchased 75,000 shares of Common Stock for $4,275.
On December 6, 1996, Jared Jordan purchased 10,000 shares of Common Stock
for $570.
II-1
<PAGE>
On December 6, 1996, John Allen purchased 10,000 shares of Common Stock for
$570.
On December 6, 1996, Susan Bykofsky purchased 10,000 shares of Common Stock
for $570.
On December 6, 1996, Georges Andre purchased 10,000 shares of Common Stock
for $570.
On December 6, 1996, David Chong purchased 2,500 shares of Common Stock for
$142.50.
On December 6, 1996, Laura Kim purchased 2,500 shares of Common Stock for
$142.50.
On December 6, 1996, Christopher Purdy purchased 10,000 shares of Common
Stock for $570.
On January 1, 1997, Joseph Fitzpatrick purchased 4,000 shares of Common
Stock for $228.
In connection with the initial capitalization of TLM Holdings Corp., a
Delaware corporation and a subsidiary of the Company ("TLM"), Abbingdon-II and
Abbingdon-III (the "Partnerships") purchased an aggregate of (x) 3,500,000
shares of common stock $.01 par value (the "TLM Common Stock"), of TLM for an
aggregate purchase price of $199,500, and (y) 18,000 shares of 8% Cumulative
Preferred Stock for an aggregate purchase price of $1,800,000.
On January 15, 1997, Lee Edelstein, President of the Professional Markets
Group and a director of the Company, purchased 50,000 shares of TLM Common Stock
for $2,850.
On January 15, 1997, Brian Henderson purchased 15,000 shares of TLM Common
Stock for $855.
On January 15, 1997, Fran Lawrence purchased 10,000 shares of TLM for $570.
On January 15, 1997, Robert Bronner purchased 10,000 shares of TLM Common
Stock for $510.
On January 15, 1997, Barbara Ginn purchased 7,500 shares of TLM Common
Stock for $427.50.
On January 15, 1997, Mary Sanchez, Corporate Controller of the Company,
purchased 7,500 shares of TLM Common Stock for $427.50.
On April 1, 1997, John Fitzgerald purchased 230,000 shares of Common Stock
for $13,110.
Registration under the Securities Act of the securities issued in the
transactions described herein was not required because such securities were
issued in transactions not involving any "public offering" within the meaning of
Section 4(2) of the Securities Act, in reliance on Rule 506 under the Securities
Act. In connection therewith, the Registrant has obtained representations from
all such acquirors to the effect that they are "accredited investors" as defined
in Rule 501(a) under the Securities Act. In addition, there was no general
solicitation or general advertising in connection with such issuances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The Exhibits required to be filed as part of this Registration Statement
are listed in the attached Index to Exhibits.
(b) Financial Statement Schedules:
Financial Statement Schedules have been omitted because they are
inapplicable or the information is provided in the Financial Statements,
including the Notes thereto, included in the Prospectus.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Certificate of Incorporation or
By-laws or the laws of the State of Delaware, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the
II-2
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Arlington, Commonwealth of Virginia, on the 27th day of October, 1997.
CULTURALACCESSWORLDWIDE, INC.
By /s/ JOHN FITZGERALD
JOHN FITZGERALD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below constitutes and appoints John
Fitzgerald and Stephen F. Nagy, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ STEPHEN F. NAGY Chairman of the Board and Director October 27, 1997
(STEPHEN F. NAGY)
/s/ JOHN FITZGERALD President, Chief Executive Officer and October 27, 1997
Director (principal executive officer)
(JOHN FITZGERALD)
/s/ MICHAEL DINKINS Chief Financial Officer and Senior Vice October 27, 1997
President (principal financial and
(MICHAEL DINKINS) accounting officer)
/s/ LIAM S. DONOHUE Director October 27, 1997
(LIAM S. DONOHUE)
/s/ JOHN H. FOSTER Director October 27, 1997
(JOHN H. FOSTER)
/s/ PETER D. BEWLEY Director October 27, 1997
(PETER D. BEWLEY)
/s/ SHAWKAT RASLAN Director October 27, 1997
(SHAWKAT RASLAN)
/s/ LEE EDELSTEIN Director October 27, 1997
(LEE EDELSTEIN)
</TABLE>
II-4
<PAGE>
CONSENT OF COUNSEL
The consent of Haythe & Curley will be contained in its opinion to be filed
by amendment as Exhibit 5 to the Registration Statement.
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
<C> <S> <C>
1 (a) Form of Underwriting Agreement **
2 (a) Agreement and Plan of Merger, dated as of December 6, 1996, by and
between the Company and Telac, Inc. *
2 (b) Recapitalization and Investment Agreement, dated December 6, 1996, by
and among Telephone Access, Inc., the shareholders of Telephone Access,
Inc., Abbingdon Venture Partners Limited Partnership ("Abbingdon-I"),
Abbingdon Venture Partners Limited Partnership II ("Abbingdon-II"), and
Abbingdon Venture Partners Limited Partnership III ("Abbingdon-III). *
2 (c) Agreement of Purchase and Sale, dated as of January 1, 1997, by and
among TeleManagement Services, Inc., Lee H. Edelstein and TLM Holdings
Corp. *
2 (d) Agreement of Purchase and Sale, dated as of September 1, 1997, by and
among Hispanic Market Connections, Inc., M. Isabel Valdes and the
Company. *
2 (e) Agreement of Purchase and Sale, dated as of October 1, 1997, by and
among Phoenix Marketing Group, Inc., Douglas Rebak, Joseph Macaluso and
the Company. *
3 (a) Amended and Restated Certificate of Incorporation of the Company, as
amended to date. *
3 (b) By-Laws of the Company. *
4 The Company's 1997 Stock Option Plan. *
5 Opinion of Haythe & Curley regarding Legality. **
10 (a) Form of 6% Convertible Subordinated Promissory Notes due December 1,
2000 of the Company, dated December 6, 1996, payable to the order of
Joseph Morrow and John E. Jordan, respectively. *
10 (b) Form of 8% Subordinated Promissory Notes due December 1, 2006 of the
Company and Ash Creek, Inc., jointly and severally as the maker, dated
December 6, 1996, payable to the order of Abbingdon-II and
Abbingdon-III, respectively. *
10 (c) Form of 8% Subordinated Promissory Notes due January 15, 2007 of the
Company and Ash Creek, Inc., dated January 15, 1997, payable to the
order of Abbingdon-II and Abbingdon-III, respectively. *
10 (d) Form of 8% Subordinated Promissory Notes due January 15, 2007 of the
Company and Sturges Pond, Inc., jointly and severally as the maker,
dated January 15, 1997, payable to the order of Abbingdon-II and
Abbingdon-III, respectively. *
10 (e) Form of 8% Subordinated Promissory Notes due October 15, 2007 of the
Company and Ash Creek, Inc., jointly and severally as the maker, dated
October 15, 1997, payable to the order of Abbingdon-II and
Abbingdon-III, respectively. *
10 (f) $6,000,000 Discretionary Line of Credit Letter Agreement, dated January
14, 1997, by and among TLM Holdings Corp., PNC Bank, National
Association ("PNC"), Abbingdon-II, Abbingdon-III and TLM Acquisition
Corp. *
10 (g) Demand Note, dated January 14, 1997, in the principal amount of
$6,000,000 executed by TLM Holdings Corp., payable to the order of PNC. *
10 (h) Guaranty and Suretyship Agreement, dated as of January 14, 1997, made
and given by Abbingdon-II and Abbingdon-III in favor of PNC. *
10 (i) 6% Convertible Subordinated Promissory Note of the Company, dated
October 17, 1997, payable to the order of Phoenix Marketing Group, Inc. *
10 (j) 6% Redeemable Subordinated Promissory Note of the Company, dated October
17, 1997, payable to the order of Phoenix Marketing Group, Inc. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
<C> <S> <C>
10 (k) Stock Purchase Agreement, dated December 6, 1996, by and between the
Company and John E. Jordan. *
10 (l) Stock Purchase Agreement, dated January 15, 1997, between TLM Holdings
Corp. and Lee H. Edelstein. *
10 (m) Stock Purchase Agreement, dated April 1, 1997, by and between the
Company and John Fitzgerald. *
10 (n) Employment Agreement, dated December 6, 1996, by and between the Company
and John E. Jordan. *
10 (o) Employment Agreement, dated January 15, 1997, by and between TLM
Holdings Corp. and Lee Edelstein. *
10 (p) Employment Letter Agreement, dated April 1, 1997, by and between the
Company and John Fitzgerald. *
10 (q) Employment Agreement, dated August 1, 1997, by and between the Company
and Michael Dinkins. *
10 (r) Employment Agreement, dated October 17, 1997, by and between the Company
and Douglas Rebak. *
10 (s) Agreement, effective January 1, 1997, by and between the Company and
Sprint/United Management Company, together with contract orders related
thereto. **
10 (t) Database Licensee Agreement for the AMA Physician Professional Data,
effective January 1, 1996, between the Company and the American Medical
Association. **
21 Subsidiaries of the Company. *
23 (a) Consent of Price Waterhouse LLP *
23 (b) Consent of Green, Holman, Frenia and Company, L.L.P. *
23 (c) Consent of Haythe & Curley (included in Exhibit 5). **
24 Power of Attorney (see signature page to the Registration Statement). *
27 (a) Financial Data Schedule for December 31, 1996 *
27 (b) Financial Data Schedule for June 30, 1997 *
</TABLE>
* Filed herewith.
** To be filed by amendment.
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") made and entered into
as of December 6, 1996, by and between TELEPHONE ACCESS, INC., a Delaware
corporation (sometimes referred to as "TELAC-VA" or the "Surviving Corporation")
and TELAC, INC., a Delaware corporation (TELAC-TX; both corporations being
sometimes hereinafter referred to collectively as the "Constituent
Corporations);
W I T N E S S E T H:
WHEREAS, the Constituent Corporations desire that TELAC-TX merge with and
into TELAC-VA;
WHEREAS, immediately prior to the Merger described herein, all shares of
common stock of the Constituent Corporations will be uncertificated;
NOW THEREFORE, in consideration of the premises and the mutual agreements,
covenants, grants and provisions herein contained, it is hereby agreed by and
between the Constituent Corporations as follows:
I. MERGER: SURVIVING CORPORATION
The names of the Constituent Corporations are Telephone Access, Inc. and
TELAC, INC. TELAC-TX shall be merged at the Effective Time of the Merger with
and into TELAC-VA. TELAC-VA shall survive the Merger, and shall be governed by
the laws of the State of Delaware and its name shall be "Telephone Access, Inc."
II. TERMS AND CONDITIONS
The terms and conditions of the Merger, and the mode of carrying it into
effect, are as follows:
1. Effective Time. The Merger shall become effective upon the filing of
Articles or a Certificate of Merger with the Delaware Secretary of State. The
time when the Merger shall become effective is referred to in this Agreement as
the "Effective Time of the Merger".
2. Certificate of Incorporation. The Certificate of Incorporation of
TELAC-VA, as in effect immediately prior to the Effective Time of the Merger,
shall be amended and restated in its entirety in the form attached hereto as
<PAGE>
2
Exhibit A and shall, as amended and restated, be the Certificate of
Incorporation of the Surviving Corporation.
3. Bylaws. The Bylaws of TELAC-VA, as in effect immediately prior to the
Effective Time of the Merger, shall continue in full force and effect as the
Bylaws of the Surviving Corporation.
4. Directors and Officers of Surviving Corporation. The directors and
officers of TELAC-VA in office at the Effective Time of the Merger shall
continue in office as, and shall be, the directors and officers of the Surviving
Corporation from and after the Merger for their respective terms of office and
until their successors are elected or appointed and qualified in accordance with
the Bylaws of the Surviving Corporation. If, at the Effective Time of the
Merger, a vacancy shall exist in the Board of Directors, or in any of the
offices of the Surviving corporation, for any reason, such vacancy may be filled
in the manner provided in the Bylaws of the Surviving corporation.
III. PLAN OF MERGER
The manner and basis of effecting the Merger with respect to shares and
certificates of the Constituent Corporations shall be as follows:
1. Outstanding Stock of TELAC-TX. Forthwith upon the Effective Time of the
Merger, each share of common stock of TELAC-TX issued and outstanding
immediately prior to the Effective Time shall, upon and subsequent to the
Effective Time, be converted, without further action, into two thousand one
hundred fifty (2,150) shares of common stock, $.01 par value, of the Surviving
Corporation.
2. Outstanding Stock of TELAC-VA. Forthwith upon the Effective Time of the
Merger, each share of common stock of TELAC-VA issued and outstanding
immediately prior to the Effective Time shall, upon and subsequent to the
Effective Time, be converted, without further action, into two thousand one
hundred fifty (2,150) shares of common stock, $.01 par value, of the Surviving
Corporation.
3. Issuance of Share Certificates. At the Effective Time of the Merger, or
as soon thereafter as is practicable, the stockholders of the Surviving
Corporation shall receive certificates representing the shares of common stock
issuable pursuant to the Merger, and such stockholders' sole rights shall be to
receive such consideration as set forth herein
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
TELEPHONE ACCESS, INC.
By: /s/ John Jordan
________________________
John Jordan
President
TELAC, INC.
By: /s/ John Jordan
________________________
John Jordan
President
<PAGE>
RECAPITALIZATION AND INVESTMENT AGREEMENT
By and Among
TELEPHONE ACCESS, INC.,
THE SHAREHOLDERS OF TELEPHONE ACCESS, INC.,
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP,
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-II
and
ABBINGDON VENTURE PARTNERS LIMITED PARTNERSHIP-III
<PAGE>
<PAGE>
RECAPITALIZATION AND INVESTMENT AGREEMENT
THIS RECAPITALIZATION AND INVESTMENT AGREEMENT dated the 6th
day of December, 1996 by and among Telephone Access, Inc., a Delaware
corporation ("TELAC"), Joseph J. Morrow ("Morrow"), John E. Jordan ("Jordan"),
Thomas Ficker ("Ficker"), Wallace Searle ("Searle"), Ronald Knox ("Knox"), the
estate of Dennis Dee (the "Dee Estate") and Thomas Ball ("Ball"; each of Morrow,
Jordan, Ficker, Searle, Knox, the Dee Estate and Ball, a "Shareholder", and
collectively, the "Shareholders"), Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon- I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), and Abbingdon Venture Partners Limited Partnership-III, a
Delaware limited partnership ("Abbingdon -III"; each of Abbingdon-I,
Abbingdon-II and Abbingdon-III, a "Foster Partnership", and collectively, the
"Foster Partnerships").
W I T N E S S E T H:
WHEREAS, TELAC and Telac, Inc., a Delaware corporation
("Tel"), were engaged in, and TELAC, as successor by merger, is engaged in, the
business of providing multilingual inbound and outbound teleservices through two
hundred thirty-seven (237) workstations at two (2) telephone call centers
located in Arlington, Virginia and Dallas, Texas (such activities being
hereinafter referred to as the "Business");
WHEREAS, TELAC desires to issue and sell to each of the Foster
Partnerships, and each of the Foster Partnerships desires to purchase from
TELAC, for the consideration hereinafter provided, an aggregate of (i) 3,000,000
shares (the "Common Shares") of common stock, $.01 par value, of TELAC (the
"TELAC Common Stock"), (ii) 500,000 shares (the "Non-Voting Common Shares") of
non-voting, convertible common stock, $.01 par value (the "Non-Voting Common
Stock"), of TELAC, and (iii) 18,000 shares (the "Preferred Shares" and together
with the Common Shares and the Non-Voting Shares, the "TELAC Shares") of 8%
cumulative redeemable preferred stock, $0.01 par value (the "TELAC Preferred
Stock"), of TELAC, in such numbers of shares of TELAC Common Stock, Non-Voting
Common Stock and TELAC Preferred Stock as are set forth opposite such Foster
Partnership's name in Schedule I hereto (the purchase of the
<PAGE>
2
TELAC Shares is hereinafter referred to as the "Foster
Purchase");
WHEREAS, in connection with the sale of the TELAC Shares to
the Foster Partnerships, the parties hereto desire to recapitalize TELAC by
virtue of extensions of credit to TELAC by the Foster Partnerships in the form
of 8% subordinated promissory notes (the "Foster Notes") in the aggregate
principal amount of up to $13,300,000 and to effect certain related transactions
as more fully described herein;
WHEREAS, the Shareholders desire to sell to TELAC, and TELAC
desires to redeem from the Shareholders, an aggregate of 3,500,000 shares of
TELAC Common Stock as more fully described herein; and
WHEREAS, to induce the Foster Partnerships to consummate the
transactions hereby and perform their obligations hereunder, each of the
Shareholders and TELAC have agreed to make certain representations, warranties,
covenants and agreements (including the indemnification and non-competition
agreements) set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements hereinafter set forth, and intending to be legally
bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE; RECAPITALIZATION
A. Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements of TELAC and the Shareholders herein
contained, TELAC agrees to sell, assign and convey to each of the Foster
Partnerships, and each of the Foster Partnerships agrees to purchase, acquire
and accept from TELAC, the number of TELAC Shares set forth opposite such Foster
Partnership's name in Schedule I hereto. At the Closing, each of the Foster
Partnerships shall pay to TELAC the purchase price for the TELAC Shares to be
purchased by such Foster Partnership hereunder set forth opposite such Foster
Partnership's name on Schedule II hereto, by direct wire transfer to a bank
account designated by TELAC.
<PAGE>
3
B. Recapitalization and Other Transactions.
(i) Subject to the terms and conditions set
forth in this Agreement, at the Closing, TELAC shall borrow from the Foster
Partnerships and the Foster Partnerships shall lend to TELAC, the sum of
$13,300,000. At the Closing, TELAC shall consummate the borrowings from the
Foster Partnerships by executing and delivering to each of the Foster
Partnerships 8% subordinated notes in the aggregate principal amount of
$13,300,000, each in the form of Exhibit A-1 attached hereto.
(ii) Subject to the terms and conditions set
forth in this Agreement, at the Closing, TELAC shall redeem from the
Shareholders an aggregate of 3,500,000 shares (the "Redemption Shares") of TELAC
Common Stock. At the Closing, TELAC shall pay to the Shareholders the purchase
price for the Redemption Shares by delivery to the Shareholders of promissory
notes (each, a "Closing Note") of TELAC in the aggregate principal amount of
$15,000,000, each in the form of Exhibit A-3 attached hereto and 6% convertible
subordinated notes of TELAC in the aggregate principal amount of $3,000,000,
each in the form of Exhibit A-2 attached hereto (each, a "Purchase Note"). The
number of Redemption Shares to be sold by each of the Shareholders and the
purchase price therefor is set forth in Schedule III hereto.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF TELAC AND THE SHAREHOLDERS
Each of TELAC and each of the Shareholders, severally and not
jointly, hereby represents and warrants to, and covenants and agrees with, the
Foster Partnerships, as of the date of the Closing, that (it being understood
and agreed that, except for the representations and warranties set forth in
Section II(E) below, references to TELAC herein refer to both TELAC and Tel for
periods prior to the merger of such corporations and references to the Business
refer to the Business activities of both TELAC and Tel for periods prior to such
merger):
A. Organization and Qualification; Merger. TELAC is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own its properties and to
conduct the businesses in which it is now engaged. TELAC is in good standing in
each other jurisdiction wherein the
<PAGE>
4
failure so to qualify would have a material adverse effect on the financial
condition, operations, assets and properties of the Business taken as a whole;
provided, however, that any matter that has or may have an industry-wide effect
or any general economic conditions shall not be considered in the determination
of whether such material adverse effect has occurred or would occur (a "Material
Adverse Effect"). Except as set forth in Exhibit B, TELAC does not own any
subsidiaries, nor does it own any capital stock or other proprietary interest,
directly or indirectly, in any other corporation, association, trust,
partnership, joint venture or other entity and has no agreement with any person,
firm or corporation to acquire any such capital stock or other proprietary
interest. Except as set forth in Exhibit B, TELAC has full corporate power,
authority and legal right, and all necessary approvals, permits, licenses and
authorizations, to own its properties and to conduct the Business conducted by
it and to enter into and consummate the transactions contemplated under this
Agreement, except for such approvals, permits, licenses and authorizations, the
absence of which would have a Material Adverse Effect. The copies of the
certificate of incorporation and by-laws of TELAC which have been delivered to
the Foster Partnerships are complete and correct. The merger of Tel into TELAC
pursuant to the Plan of Merger and Certificate of Merger in the forms attached
hereto as Exhibit P-1 and P-2 attached hereto has been validly consummated in
accordance with the laws of the State of Delaware.
B. Authority. The execution and delivery of this Agreement by
TELAC, the performance by TELAC of its covenants and agreements hereunder and
the consummation by TELAC of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes a valid
and legally binding obligation of TELAC, enforceable against TELAC in accordance
with its terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of TELAC
or any statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency or board, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien
<PAGE>
5
pursuant to the terms of any contract or agreement to which TELAC is a party or
by which TELAC or any of the assets of TELAC is bound, except where such
violation, conflict, breach, default, termination or lien creation would not
have a Material Adverse Effect. No consents, approvals or authorizations of, or
filings with, any governmental authority or any other person or entity are
required in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, except for the consents
set forth in Exhibit B attached hereto and consents, approvals or authorizations
the failure of any of which to be obtained would not have a Material Adverse
Effect.
D. Capitalization. Immediately prior to the consummation of
the transactions contemplated hereby, the authorized common stock of TELAC
consists of 20,000,000 shares of TELAC Common Stock, of which 4,300,000 shares
are issued and outstanding. All of the issued and outstanding shares of TELAC
Common Stock have been duly and validly authorized and issued and are fully paid
and non-assessable. Except for this Agreement, there are no outstanding
subscriptions, warrants, options, calls, commitments or other rights or
agreements to which TELAC is bound relating to the issuance, sale or redemption
of shares of TELAC Common Stock. No shares of capital stock or other securities
of TELAC are reserved for any purpose.
E. Financial Statements; No Undisclosed Liabilities. TELAC and
the Shareholders have delivered to the Foster Partnerships the internally
prepared balance sheets of each of Tel and TELAC as of September 30, 1996, the
internally prepared balance sheet of Tel as of December 31, 1995 and the audited
balance sheet of TELAC as of December 31, 1995, which was audited by Jump,
Green, Holman and Company, TELAC's independent public accountants, together with
the related statement of operations and the notes to such audited balance sheet,
if any, for the periods then ended (hereinafter referred to as the "Financial
Statements"). The Financial Statements are true and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied consistently throughout the periods involved, except that the
September 30, 1996 balance sheet of Tel and TELAC and the December 31, 1995
balance sheet of Tel do not contain any notes thereto and are subject to normal
year-end audit adjustments. The Financial Statements fairly present in all
material respects the financial condition of TELAC and Tel and the Business as
at the dates thereof and the results of the operations of TELAC and Tel for the
periods indicated. Except to the extent set forth in or provided
<PAGE>
6
for included in the Financial Statements in the balance sheets of each of Tel
and TELAC as of September 30, 1996 (collectively, the "1996 Balance Sheets") or
as identified in Exhibit B, and except for current liabilities incurred in the
ordinary course of business consistent with past practices (and not materially
different in type or amount), TELAC has no material liabilities or obligations
of any nature, whether accrued, absolute, contingent or otherwise, whether due
or to become due, whether properly reflected under generally accepted accounting
principles as a liability or a charge or reserve against an asset or equity
account, and whether the amount thereof is readily ascertainable or not. A true
and correct copy of the Financial Statements is attached hereto as Exhibit C.
F. Absence of Certain Changes. Except as set forth in Exhibit
B, subsequent to December 31, 1995, there has not been any (i) change in the
financial condition, assets, liabilities, properties or operations of TELAC
which has or could reasonably be expected to result in a Material Adverse
Effect; (ii) damage or destruction (whether or not insured) affecting the
properties or business operations of TELAC which is in excess of $75,000 in the
aggregate; (iii) labor dispute or, to the Knowledge (as hereinafter defined) of
TELAC and each of the Shareholders, threatened labor dispute involving the
employees of TELAC; (iv) actual or, to the Knowledge of TELAC and each of the
Shareholders, threatened verbally or in writing by Sprint or in writing by
others, disputes with any major accounts of TELAC, or actual or threatened loss
of business from any of the major accounts of TELAC, except where such disputes
or losses would not have a Material Adverse Effect; or (v) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts with
respect to TELAC, except in each case in the ordinary course of business.
G. Dividends; Distributions; Liabilities Incurred. Except as
disclosed in Exhibit B, subsequent to December 31, 1995, TELAC has not (i)
declared or paid any dividend or made any other distribution in respect of the
capital stock of TELAC or, directly or indirectly purchased, redeemed, or
otherwise acquired or disposed of any shares of capital stock of TELAC, (ii)
except in the ordinary course of business, paid or discharged any outstanding
indebtedness, (iii) incurred any bank indebtedness, entered into any loan
agreements or, except in the ordinary course of business consistent with past
practices, leases, contracts, obligations or arrangements of any kind,
including, without limitation, for the payment of money or
<PAGE>
7
property to any person, or (iv) except in the ordinary course of business,
permitted any liens or encumbrances to attach to any assets of TELAC.
H. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by TELAC or in which TELAC has any
interest is set forth in Exhibit B. Except as set forth in Exhibit B, all such
leased real property is held subject to written leases or other agreements which
are enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally, and
there are no existing defaults or events of default, or events which with notice
or lapse of time or both would constitute defaults, thereunder on the part of
TELAC, except for defaults, if any, which would not have a Material Adverse
Effect. Neither TELAC nor any of the Shareholders has any Knowledge of any
material default or claimed or purported or alleged material default on the part
of any other party in the performance of any obligation to be performed or paid
by such other party under any lease referred to in Exhibit B. Neither TELAC nor
any of the Shareholders has received any written or oral notice to the effect
that any lease will not be renewed at the termination of the term thereof or
that any such lease will be renewed only at a substantially higher rent.
I. Title to Assets; Condition of Property. TELAC has good and
valid title to all its owned properties and assets, real, personal and mixed,
tangible and intangible used in the operations of the Business as currently
conducted, except where the failure to have good and valid title would not have
a Material Adverse Effect. Except as set forth in Exhibit B, TELAC leases or
owns all properties and assets used in the operations of the Business as
currently conducted. All such properties and assets are in good condition and
repair, consistent with their respective ages and subject to ordinary wear and
tear, and have been maintained and serviced in accordance with the normal
practices of TELAC and as necessary in the normal course of business. None of
the assets or properties of TELAC is subject to any material liens, charges,
encumbrances or security interests, except as set forth in Exhibit B. None of
the assets of TELAC (or uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation in a manner which could
reasonably be expected to have a Material Adverse Effect.
<PAGE>
8
J. Taxes. Each of Tel and TELAC has filed or caused to be
filed on a timely basis all federal, state, local, foreign and other tax
returns, reports and declarations (collectively, "Tax Returns") required to be
filed by it. All Tax Returns filed by or on behalf of each of Tel and TELAC are
true, complete and correct in all material respects. Each of Tel and TELAC has
paid all income, estimated, excise, franchise, gross receipts, capital stock,
profits, stamp, occupation, sales, use, transfer, value added, property (whether
real, personal or mixed), employment, unemployment, disability, withholding,
social security, workers' compensation and other taxes, and interest, penalties,
fines, costs and assessments (collectively, "Taxes"), due and payable with
respect to the periods covered by such Tax Returns (whether or not reflected
thereon). There are no Tax liens on any of the properties or assets, real,
personal or mixed, tangible or intangible, of either of Tel or TELAC. The
accrual for Taxes reflected in the Financial Statements accurately reflects the
total amount of all unpaid Taxes, whether or not disputed and whether or not
presently due and payable, of Tel and TELAC as of the close of the period
covered by the Financial Statements, and the amount of TELAC's unpaid Taxes does
not exceed the accrual for Taxes reflected in the Financial Statements for the
period ended December 31, 1995. Since December 31, 1995, neither Tel nor TELAC
has incurred any tax liability other than in the ordinary course of business. To
the knowledge of TELAC and each of the Shareholders, no Tax Return of either Tel
or TELAC has ever been audited. To the knowledge of TELAC and each of the
Shareholders, no deficiency in Taxes for any period has been asserted by any
taxing authority which remains unpaid at the date hereof (the results of any
settlement being set forth in Exhibit B), no written inquiries or notices have
been received by Tel or TELAC from any taxing authority with respect to possible
claims for Taxes, neither TELAC nor any of the Shareholders has any reason to
believe that such an inquiry or notice is pending or threatened, and there is no
basis for any additional claims or assessments for Taxes. Neither Tel nor TELAC
has agreed to the extension of the statute of limitations with respect to any
Tax Return or Tax period. TELAC has delivered to the Foster Partnerships copies
of the federal and state income Tax Returns filed by each of Tel and TELAC for
the past three years.
The Shareholders at their own expense shall be responsible for
preparing and filing any and all federal, state, municipal and other Tax Returns
of Tel and TELAC required to be filed by Tel and TELAC in respect of any and all
periods up to and including the date of the Closing (including, without
limitation, Tel's and TELAC's federal
<PAGE>
9
and state income Tax Returns for the short taxable year ending with the date of
the Closing) to the extent not already filed, whether or not required to be
filed on or before the date of the Closing, and shall pay all Taxes (and
interest, penalties, fines or assessments thereon) due and payable by Tel and
TELAC for all periods up to and including the date of the Closing to the extent
not already paid (including, without limitation, the federal and state income
Taxes due and payable with respect to the short taxable year referenced in the
preceding sentence.) The Shareholders shall review all such Tax Returns with the
Foster Partnerships prior to filing and shall submit such proof of payment of
the Taxes due as the Foster Partnerships shall reasonably request.
K. Permits; Compliance with Applicable Law.
(i) General. TELAC is not in default under
any, and has complied with all, statutes, including the Federal Telephone
Consumer Act of 1991 and the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, ordinances, regulations, orders, judgments and decrees
of any court or governmental entity or agency, relating to TELAC and the
Business as to which a default or failure to comply might have a Material
Adverse Effect. Within the last two (2) years, neither TELAC nor any of the
Shareholders has received any written notification of any asserted present or
past failure to comply with any of the foregoing which has not been
satisfactorily responded to in the time period required thereunder.
(ii) Permits; Intellectual Property. Set
forth in Exhibit B is a complete and accurate list of all material permits,
licenses, approvals, franchises, notices and authorizations issued by
governmental entities or other regulatory authorities, federal, state or local
(collectively the "Permits"), held by TELAC. The Permits set forth in Exhibit B
are all the material Permits required for the conduct of the Business. To the
Knowledge of TELAC and each of the Shareholders, no action or proceeding looking
to or contemplating the revocation or suspension of any such Permit is pending
or threatened. There are no existing material defaults or events of default or
event or state of facts which with notice or lapse of time or both would
constitute a material default by TELAC under any such Permit. The consummation
of the transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit B.
(iii) Environmental. (a) TELAC has duly
complied with, in all material respects, the provisions of
<PAGE>
10
all federal, state and local environmental, health and safety laws, codes and
ordinances and all rules and regulations promulgated thereunder except where the
failure to so comply would not have a Material Adverse Effect.
(b) Neither TELAC nor any of the
Shareholders has received any written notice of any violations of, any federal,
state or local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, which relate to the use,
ownership or occupancy of any of the real property currently owned, leased or
occupied by TELAC (the "Premises"). To the Knowledge of TELAC and each of the
Shareholders, TELAC is not in violation of any rights-of-way or covenants or
restrictions affecting any of the Premises or any rights appurtenant thereto.
L. Accounts Receivable; Accounts Payable.
(i) The accounts receivable of TELAC are in their entirety
valid accounts receivable, arising in the ordinary course of business. As of the
Closing, TELAC shall have unrestricted cash and cash equivalents of at least
$750,000.
(ii) The accounts and notes payable and other accrued expenses
reflected in the Financial Statements, and the accounts and notes payable and
accrued expenses incurred by the Business subsequent to December 31, 1995, are
in all respects valid claims that arose in the ordinary course of business.
Since December 31, 1995, the accounts and notes payable and other accrued
expenses of the Business have been paid in a manner consistent with past
practice. As of the date of the Closing, TELAC shall have no long-term debt.
M. Contractual and Other Obligations. Set forth in
Exhibit B is a list of all (i) material contracts, agreements, licenses, leases,
arrangements (written or oral) and other documents to which TELAC is a party or
by which TELAC, the Business or any of the assets of TELAC is bound; and (ii)
obligations and liabilities of TELAC pursuant to uncompleted orders for the
purchase of materials, supplies, equipment and services for the requirements of
the Business with respect to which the remaining obligation of TELAC is in
excess of $75,000; all of the foregoing being hereinafter referred to as the
"Contracts". Neither TELAC nor, to the Knowledge of TELAC and each of the
Shareholders, any other party is in default in the performance of any covenant
or condition under any Contract and no claim of such a default has been made
and no event has occurred on behalf of TELAC or, to the Knowledge of TELAC and
each of the Shareholders, any other party, which with the giving of notice or
the
<PAGE>
11
lapse of time would constitute a default under any covenant or condition under
any Contract, except where such default would not have a Material Adverse
Effect. Except as otherwise disclosed in this Agreement, TELAC is not a party to
any Contract which would terminate or be materially adversely affected by
consummation of the transactions contemplated by this Agreement. Originals or
true, correct and complete copies of all written Contracts have been provided to
the Foster Partnerships.
N. Compensation. Set forth in Exhibit D attached hereto is a
list of all material written or oral agreements between TELAC and each natural
person employed by or independently contracting with TELAC with regard to
compensation, whether individually or collectively, and set forth in Exhibit D
is a list of all employees or independent contractors of TELAC entitled to
receive annual compensation in excess of $40,000 and their respective positions
and salaries. Except as set forth in Exhibit B, the transactions contemplated by
this Agreement will not result in any liability for severance pay to any
employee or independent contractor of TELAC. Except as set forth in Exhibit D,
neither TELAC nor any of the Shareholders has informed any employee or
independent contractor providing services to TELAC that such person will receive
any increase in compensation or benefits (except for such increases that are in
the ordinary course of business) or any ownership interest in TELAC or the
Business.
O. Employee Benefit Plans. Except as set forth in Exhibit E
attached hereto, TELAC does not maintain or sponsor, nor does it contribute to,
any pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plan.
All pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements being
hereinafter referred to as the "Benefit Plans") comply in all material respects
with all requirements of the Department of Labor and the Internal Revenue
Service, and with all other applicable laws, and TELAC has not taken or failed
to take any action with respect to the Benefit Plans which might create any
liability for the violation of applicable law on the part of TELAC or the Foster
Partnerships. Each "fiduciary" (within the meaning of
<PAGE>
12
Section 3(21)(A) of ERISA) as to each Benefit Plan has complied in all material
respects with all requirements of ERISA and all other applicable laws in respect
of each such Benefit Plan. TELAC has furnished to the Foster Partnerships copies
of all Benefit Plans and all financial statements, actuarial reports, if any,
and annual reports and returns filed with the Internal Revenue Service with
respect to such Benefit Plans for a period of three years prior to the date
hereof. Such financial statements and actuarial reports, if any, and annual
reports and returns are true and correct in all material respects, and none of
the actuarial assumptions underlying such documents have changed since the
respective dates thereof. In addition:
(i) Each Benefit Plan intended to qualify under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code")
has received a favorable determination letter from the Internal Revenue
Service as to its qualification;
(ii) TELAC does not maintain, sponsor or contribute to, and
has never maintained, sponsored or contributed to a "defined benefit
plan" (within the meaning of Section 3(35) of ERISA) or a Multiemployer
Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code), with respect to
which an exemption is not applicable, has occurred with respect to any
Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement,
and no act or omission of TELAC in any way limits, impairs, modifies or
otherwise affects the right of TELAC or the Foster Partnerships
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) Except as set forth in Exhibit E, there are no
contributions which are or hereafter will be required to have been made
to trusts in connection with any Benefit Plan that would constitute a
"defined contribution plan" (within the meaning of Section 3(34) of
ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
<PAGE>
13
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto) which
circumstances would have a Material Adverse Effect;
(vii) With respect to any Benefit Plan (whether or not
terminated) maintained, sponsored or contributed to (or required to be
contributed to) by TELAC or by any entity under common control with
TELAC, as determined under Section 414(b), (c), (m) or (o) of the Code,
no event has occurred and no condition exists which could on or after
the Closing (except with respect to acts or omissions arising after the
Closing which materially contribute to such event or condition) subject
TELAC, directly or indirectly (through an indemnification agreement or
otherwise), to any material liability under Section 412, 4971 or 4980B
of the Code or Title IV of ERISA;
(viii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any governmental agency
have been so filed on or before their due date (including extensions);
and
(ix) TELAC does not have any obligation to provide health or
other welfare benefits to former, retired or terminated employees,
except as specifically required under Section 4980B of the Code or
Section 601 of ERISA. TELAC has substantially complied with the notice
and continuation requirements of Section 4980B of the Code or Section
601 of ERISA and the regulations thereunder.
As of the Closing Date, the Shareholders shall take any and
all steps necessary to fully vest all employees of TELAC in their account
balances under the Morrow & Company, Inc. Savings Investment Plan (the "401(k)
Plan"), except to the extent such vesting would violate any provision of
applicable tax law that would jeopardize the 401(k) Plan's compliance with or
qualification under Section 401(a) of the Code. As soon as practicable following
the Closing Date, the Shareholders shall cause the trustees of the 401(k) Plan
to distribute such employees' account balances in the 401(k) Plan in accordance
with and subject to the terms of the 401(k) Plan documents and any and all
applicable laws, rules and regulations.
P. Labor Relations. There have been no violations of
any federal, state or local statutes, laws, ordinances, rules, regulations,
orders or directives with
<PAGE>
14
respect to the employment of individuals by, or the employment practices or work
conditions of TELAC, or the terms and conditions of employment, wages and hours,
which violations would have, either individually or in the aggregate, a Material
Adverse Effect. Except as set forth in Exhibit B, TELAC is not engaged in any
unfair labor practice or other unlawful employment practice and there are no
charges of unfair labor practices or other employee-related complaints pending
or, to the Knowledge of TELAC and each of the Shareholders, threatened in
writing against TELAC before the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Occupational Safety and Health Review
Commission, the Department of Labor or any other federal, state, local or other
governmental authority. There is no strike, picketing, slowdown or work stoppage
or organizational attempt pending or, to the Knowledge of TELAC and each of the
Shareholders, threatened in writing against or involving TELAC or the Business.
No union or collective bargaining unit or other labor organization has been
certified or recognized within the past three years by TELAC as the
representative of any of the employees of TELAC or the Business.
Q. Increases in Compensation or Benefits. Except as set forth
in Exhibit D, subsequent to December 31, 1995, there have been no increases in
the compensation payable or to become payable to any of the employees of TELAC
and there have been no payments or provisions for any awards, bonuses, stock
options, loans, profit sharing, pension, retirement or welfare plans or similar
or other disbursements or arrangements for or on behalf of such employees (or
related parties thereof), in each case, other than pursuant to currently
existing plans or arrangements, if any, set forth in Exhibit E. Except as
otherwise disclosed in the Financial Statements, all commissions heretofore
earned and all bonuses heretofore granted to employees or independent
contractors of TELAC have been paid in full to such employees or independent
contractors. The vacation policy of TELAC is set forth in Exhibit E. Except as
set forth in Exhibit E, no employee of TELAC is entitled to vacation time in
excess of three weeks during the current calendar year and no employee of TELAC
has any accrued vacation or sick time with respect to any period prior to the
current calendar year.
R. Insurance. A list of the insurance policies maintained by
TELAC is set forth in Exhibit B. Such insurance policies are in full force and
effect and all premiums due thereon prior to or on the date of the Closing have
been paid. TELAC has complied in all material respects with the provisions of
such policies. Such insurance is of
<PAGE>
15
comparable amounts and coverage as that which companies engaged in similar
businesses maintain in accordance with good business practices. TELAC has
insurance in such amounts and with such coverages as required by the Contracts.
There are no notices of any pending or threatened termination or premium
increases with respect to any such policies except where such terminations or
increases would not have a Material Adverse Effect. TELAC has not had any
casualty loss or occurrence which may give rise to any claim of any kind not
covered by insurance and neither TELAC nor either of the Shareholders is aware
of any occurrence which may give rise to any claim of any kind not covered by
insurance. Within the last two (2) years, no third party has filed any claim
against TELAC or the Business for personal injury or property damage of a kind
for which liability insurance is generally available which is not fully insured,
subject only to the standard deductible. Within the last two (2) years, all
claims against TELAC or the Business covered by insurance have been reported to
the insurance carrier on a timely basis. TELAC has adequate insurance and
reserves to cover any liability that may arise out of any claims, including but
not limited to workers compensation and health insurance claims, that may be
asserted against TELAC for occurrences prior to the date of the Closing.
S. Conduct of Business. TELAC is not restricted from
conducting the Business in any location by agreement or court decree.
T. Allowances. Except as disclosed in Exhibit B, TELAC has
no obligation to make allowances to any of its customers, except allowances
which are consistent with its past practices.
U. Patents, Trademarks, etc. Set forth in Exhibit F attached
hereto is a list and brief description of all of the material patents,
registered and common law trademarks, service marks, tradenames, copyrights,
licenses and other similar rights of TELAC and applications for each of the
foregoing. TELAC owns all right, title and interest in and to all such
proprietary rights. The proprietary rights listed are all such rights necessary
to the conduct of the Business as currently conducted by TELAC, and, within the
last two (2) years, no adverse claims have been made and no dispute has arisen
with respect to any of the said proprietary rights; and, to the Knowledge of
TELAC and each of the Shareholders, the operations of the Business and the use
by TELAC of such proprietary rights do not involve infringement or claimed
infringement of any patent,
<PAGE>
16
trademark, service mark, tradename, copyright, license or similar right.
V. Power of Attorney. Except as set forth in Exhibit B,
TELAC has not granted any power of attorney (revocable or irrevocable) to any
person, firm or corporation for any purpose whatsoever.
W. Use of Names. All names under which TELAC currently
conducts the Business are listed in Exhibit F attached hereto. To the Knowledge
of TELAC and each of the Shareholders, no other person or business has ever
attempted to restrain TELAC from using the names under which TELAC currently
conducts the Business.
X. No Foreign Person. None of the Shareholders is a foreign
person within the meaning of Section 1445(b)(2) of the Code.
Y. Books and Records. The books and records of TELAC are in
all material respects complete and correct with respect to the information
they contain.
Z. Litigation; Disputes. Except as set forth in Exhibit B,
there are no claims, disputes, actions, suits, investigations or proceedings
pending or, to the Knowledge of TELAC and each of the Shareholders, threatened
in writing against or affecting TELAC, except for disputes, claims, actions,
suits, investigations or proceedings that would not have a Material Adverse
Effect. To the Knowledge of TELAC and each of the Shareholders, there is no
basis for any such claim, dispute, action, suit, investigation or proceeding.
Neither TELAC nor any of the Shareholders has any Knowledge of any default under
any such action, suit or proceeding. TELAC is not in default in respect of any
judgment, order, writ, injunction or decree of any court or of any federal,
state, municipal or other government department, commission, bureau, agency or
instrumentality or any arbitrator.
AA. Location of Business and Assets. Set forth in Exhibit B
is each location (specifying state and city) where TELAC (i) has a place of
business, (ii) owns or leases real property and (iii) owns or leases any other
property, including inventory, equipment and furniture.
BB. Bank Accounts. Set forth in Exhibit G attached hereto
is a list of all bank accounts maintained in the name of TELAC or the Business,
and a brief description of the persons having power to sign with respect to
each such account.
<PAGE>
17
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS
Each of the Shareholders, severally and not jointly, hereby
represents and warrants to, and covenants and agrees with, the Foster
Partnerships, as of the date of the Closing, that:
A. Authority. Such Shareholder is fully able to execute and
deliver this Agreement and to perform his covenants and agreements hereunder,
and this Agreement constitutes a valid and legally binding obligation of such
Shareholder, enforceable against him or it in accordance with its terms, except
as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which such Shareholder is a party.
C. Capitalization. All of the issued and outstanding shares of
TELAC Common Stock owned beneficially and of record by such Shareholder,
including all the Redemption Shares listed in Schedule III hereto, are owned by
such Shareholder free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever. Upon consummation of the redemption by TELAC of
the Redemption Shares, TELAC will acquire the Redemption Shares, free and clear
of any lien, encumbrance, charge, security interest or claim whatsoever. Except
for this Agreement, there are no outstanding subscriptions, warrants, options,
calls, commitments or other rights or agreements to which such Shareholder is
bound relating to the issuance, sale or redemption of shares of his or its
shares of TELAC Common Stock. No persons other than such Shareholder has any
interest in such Shareholder's TELAC Shares.
D. Other Interests. Except as set forth in Exhibit B, such
Shareholder has no ownership interests in any businesses other than TELAC, of
providing multilingual
<PAGE>
18
inbound and outbound teleservices and such Shareholder does not perform any
employment, consulting or other services, paid or unpaid, for any businesses
providing multilingual inbound and outbound teleservices.
E. Representations by the Estate of Dennis Dee. The following
representations and warranties are made by the Estate of Dennis Dee only:
The executor of the estate of Dennis Dee (the "Estate") has
the power and authority to execute this Agreement on behalf of the Estate and
has full power and authority to transfer 87,500 shares (the "Estate Shares") of
TELAC Common Stock to TELAC in connection with the Redemption. The Estate Shares
have not been specifically bequeathed by testamentary instrument and there are
no estate tax liens against the Estate which would encumber or restrict the
transfer of the Shares.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE FOSTER PARTNERSHIPS
Each of the Foster Partnerships hereby represents and warrants
to, and covenants and agrees with, TELAC and each of the Shareholders, severally
and not jointly, as of the date of the Closing, that:
A. Organization and Qualification. Each Foster Partnership is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has full power and authority to purchase
the TELAC Shares and consummate the other transactions contemplated by this
Agreement.
B. Authority. The execution and delivery of this Agreement by
such Foster Partnership, the performance by such Foster Partnership of its
covenants and agreements hereunder and the consummation by such Foster
Partnership of the transactions contemplated hereby have been duly authorized by
all necessary partnership action. This Agreement constitutes a valid and legally
binding obligation of such Foster Partnership, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect affecting the enforcement of creditors'
rights generally.
<PAGE>
19
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the limited partnership agreements of such Foster
Partnership or any statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency or board, or conflicts with or will result in
any breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which such Foster Partnership is a party or by which such Foster
Partnership or any of its assets is bound.
D. Investment. (i) Each such Foster Partnership understands
that by the terms of this Agreement it is purchasing the TELAC Shares issued and
delivered by TELAC without compliance with the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the securities laws
of any state, under and in reliance on exemptions from the registration
requirements of the Securities Act and such laws, and without the approval,
disapproval, or passing on the merits by any regulatory authority; that for
purposes of such exemptions, TELAC will rely upon the representations,
warranties and agreements of each such Foster Partnership contained herein; and
that such non-compliance with registration requirements is not permissible
unless such representations and warranties are correct and such agreements
performed.
(ii) Each such Foster Partnership understands
that TELAC is under no obligation to effect a registration under the Securities
Act of the TELAC Shares to be purchased by each such Foster Partnership
hereunder. Each such Foster Partnership understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), each such Foster
Partnership may be unable to sell its TELAC Shares, except to the extent that
the TELAC Shares may be sold (A) in a bona fide private placement to a purchaser
who shall be subject to the same restrictions on sale or (B) subject to the
restrictions contained in Rule 144 under the Securities Act.
(iii) Each such Foster Partnership is fully
familiar with the business, properties and financial condition of TELAC, and
each acknowledges that it has been afforded access to such additional
information concerning TELAC as it considers necessary or appropriate to make an
informed investment decision. Each such Foster Partnership is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act.
<PAGE>
20
(iv) Each such Foster Partnership is a
sophisticated investor familiar with the type of risks inherent in the
acquisition of securities such as the TELAC Common Stock, and its financial
position is such that it can afford to retain the TELAC Shares for an indefinite
period of time without realizing any direct or indirect cash return on its
investment.
(v) Each such Foster Partnership is acquiring
the TELAC Shares pursuant to this Agreement for its own account and not with a
view to or for sale in connection with the distribution thereof within the
meaning of the Securities Act. Each such Foster Partnership shall not effect a
distribution of any TELAC Shares until either (A) it has received the opinion of
counsel for TELAC that registration under the Securities Act is not required or
(B) a registration statement under the Securities Act covering such TELAC Shares
and the disposition thereof has become effective under the Securities Act, and
each such Foster Partnership agrees that the certificates evidencing the TELAC
Shares may bear a restrictive legend to the foregoing effect.
SECTION V
[Intentionally Omitted]
SECTION VI
ADDITIONAL COVENANTS OF TELAC,
THE SHAREHOLDERS AND THE FOSTER PARTNERSHIPS
A. Books and Records. Each of the Shareholders covenants and
agrees, severally and not jointly, that each of them shall give the Foster
Partnerships reasonable access to the historical financial books and records of
TELAC in its or his possession, for a period of five years from the date of the
Closing. The Shareholders shall retain all such books and records in
substantially their condition at the time of the Closing. None of such books and
records shall be destroyed without the prior written approval of TELAC or
without first offering such books and records to TELAC.
B. Working Capital. On or before January 31, 1997, TELAC shall
pay from an account over which Morrow has signatory authority (the "Morrow
Account") Payables (as hereinafter defined) identified by TELAC which are
accepted by the Shareholders as Payables. In the event of any dispute among the
parties concerning Payables, the parties
<PAGE>
21
agree to use their good faith efforts to resolve such dispute by January 31,
1997 or as promptly as practicable thereafter. All Receivables shall be paid
into the Morrow Account. For purposes of this Section, "Receivables" shall mean
all accounts receivables for work performed by TELAC through the date of the
Closing determined in accordance with generally accepted accounting principles.
For purposes of this Section, "Payables" shall mean all current liabilities of
TELAC as of the date of the Closing determined in accordance with generally
accepted accounting principles and shall include, but not be limited to, all
accrued sick time, accrued and used vacation (used between December 1, 1996 and
December 31, 1996) and accrued payroll of the Business, all non-transaction
related professional fees, all non-transaction related audit fees, any gross
receipts tax due in Virginia, one-half of the closing bonuses to be paid to the
Key Employees (as hereinafter defined) on or after the date of Closing, one-half
of the expenses incurred prior to the date of Closing in connection with TELAC's
buildout capital expenditures at its Arlington, Virginia location (approximately
$40,000), one-half of the amount owed for the recent purchase of the Rockwell
cabinet (approximately $91,500), and eleven-twelfths of the amount of year-end
bonuses to be paid to non-key employees (approximately $83,500), but shall not
include any purchase price paid by the Foster Partnerships for the JCSI Purchase
(as hereinafter defined). Payables shall not include any amount in excess of
one-half of the amount owed for the recent purchase of the Rockwell cabinet and
any amount in excess of one-half of the buildout capital expenditures at its
Arlington, Virginia location. TELAC agrees to pay all payables and expenses in a
timely manner in accordance with any Contracts or other vendor credit
arrangements with TELAC.
C. Location of TELAC Subsequent to Closing. Each of the
parties understands and agrees that subsequent to the date of Closing, TELAC's
headquarters will be in King of Prussia, Pennsylvania while TELAC's direct
marketing division will be located in TELAC's existing offices in Arlington,
Virginia. Each of the Foster Partnerships represents that it has no current
plans to move or otherwise close the Arlington, Virginia and Dallas, Texas
facilities of TELAC.
D. Tax Reporting. Each of the parties understands and
agrees that the merger between TELAC and Tel is intended to be treated as a
reorganization within Section
<PAGE>
22
368 of the Code, and the parties hereby agree that they will not report the
transaction in a manner which is inconsistent with such treatment, including
(without limitation) in the tax returns of TELAC.
SECTION VII
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the TELAC Shares and the consummation of the other transactions
contemplated by this Agreement as set forth herein (the "Closing") shall be held
at the offices of Haythe & Curley, 237 Park Avenue, 20th Floor, New York, New
York 10017 at 4:00 P.M. local time on December 6, 1996 or such other time as the
parties shall agree.
B. Delivery of the Shares. Delivery of the TELAC Shares shall
be made by TELAC to the Foster Partnerships at the Closing by delivering one or
more certificates in negotiable form representing the TELAC Shares, each such
certificate to be accompanied by any requisite documentary or stock transfer
Taxes.
C. Tax Matters. All transfer, documentary, stamp,
registration, value added, sales, use and other such taxes and fees (including
any penalties and interest) incurred in connection with this Agreement shall be
borne and paid by the party on which such taxes or fees are imposed, when due,
and the Shareholders will, at its or his, as the case may be, own expense, file
all necessary tax returns and other documentation with respect to all such taxes
and fees.
SECTION VIII
CONDITIONS TO TELAC'S
OBLIGATION TO CLOSE
The obligations of TELAC to sell the TELAC Shares to the
Foster Partnerships and otherwise consummate the transactions contemplated by
this Agreement at the Closing are subject to the following conditions precedent,
any or all of which may be waived by TELAC in its sole discretion and if any
condition precedent is waived, none of the Shareholders shall be entitled to
seek indemnification against TELAC for the failure to fulfill such condition
precedent, and each of which the Foster Partnerships hereby
<PAGE>
23
agrees to use their best efforts to satisfy at or prior to the Closing:
A. Opinion of Counsel. The Shareholders shall have received an
opinion of Haythe & Curley, counsel for the Foster Partnerships, delivered to
the Shareholders pursuant to the instructions of the Foster Partnerships, dated
the date of the Closing, in form and substance satisfactory to the Shareholders
and their counsel, Nelson Mullins Riley & Scarborough L.L.P., in the form of
Exhibit M attached hereto.
B. No Litigation. No action, suit or proceeding against TELAC,
any of the Shareholders or the Foster Partnerships relating to the consummation
of any of the transactions contemplated by this Agreement or any governmental
action seeking to delay or enjoin any such transactions shall be pending or
threatened.
C. Representations and Warranties. The representations and
warranties made by the Foster Partnerships herein shall be correct as of the
date of the Closing in all respects with the same force and effect as though
such representations and warranties had been made as of the date of the Closing.
All the terms, covenants and conditions of this Agreement to be complied with
and performed by the Foster Partnerships on or before the date of the Closing
shall have been duly complied with and performed in all respects.
D. Other Certificates. TELAC shall have received such
additional certificates, instruments and other documents, in form and substance
satisfactory to them and their counsel, as it shall have reasonably requested in
connection with the transactions contemplated hereby.
E. Jordan Employment Agreement; Capital Stock. TELAC and
Jordan shall have entered into an employment agreement in the form of Exhibit H
attached hereto (the "Jordan Employment Agreement"). TELAC and Jordan shall have
entered into a Stock Purchase Agreement in the form of Exhibit I attached
hereto, providing for the sale of 75,000 shares of TELAC Common Stock to Jordan.
F. Employment Agreements for Key Employees; Closing Bonuses;
Stock Purchase Agreements for Capital Stock. TELAC and each of Jared Jordan
("Ted Jordan"), John Allen ("Allen"), Susan Bykofsky ("Bykofsky"), Georges Andre
("Andre"), Chris Purdy ("Purdy"), Laura Kim and David Chong (collectively, the
"Key Employees") shall have entered into an employment agreement in the forms of
Exhibits J-1 through
<PAGE>
24
J-7 attached hereto (the "Key Employee Agreements"). TELAC shall have (i) paid
to each of the Key Employees the cash bonuses provided for in the Key Employee
Agreement for such Key Employee and (ii) entered into stock purchase agreements
with the Key Employees in the form of Exhibit L attached hereto providing for
the sale of 55,000 shares of TELAC Common Stock to such Key Employees.
G. Stockholders Agreement. TELAC and the Shareholders shall
have entered into a stockholders agreement in the form of Exhibit K attached
hereto (the "Stockholders Agreement").
H. JCSI Purchase. Simultaneously with the Closing hereunder,
the Foster Partnerships or their designee shall have acquired the JCSI business
owned by Jared Jordan for $240,000 and otherwise on mutually agreeable terms
(the "JCSI Purchase").
SECTION IX
CONDITIONS TO THE FOSTER PARTNERSHIPS' OBLIGATION TO CLOSE
The obligation of the Foster Partnerships to purchase the
TELAC Shares and otherwise consummate the transactions contemplated by this
Agreement at the Closing is subject to the following conditions precedent, any
or all of which may be waived by the Foster Partnerships in their sole
discretion and if any condition precedent is waived, none of the Foster
Partnerships or TELAC shall be entitled to seek indemnification against any
Shareholder for the failure to fulfill such condition precedent, and each of
which TELAC and each of the Shareholders hereby agrees to use its or his best
efforts to satisfy at or prior to the Closing:
A. Opinion of Counsel. The Foster Partnerships shall have
received an opinion of Nelson Mullins Riley & Scarborough L.L.P., counsel for
TELAC and the Shareholders, delivered to the Foster Partnerships pursuant to the
instructions of TELAC, dated the date of the Closing, in form and substance
satisfactory to the Foster Partnerships and its counsel, Messrs. Haythe &
Curley, in the form of Exhibit N attached hereto.
B. No Litigation. No action, suit or proceeding against
TELAC, any of the Shareholders or the Foster Partnerships relating to the
consummation of any of the transactions contemplated by this Agreement nor any
<PAGE>
25
governmental action seeking to delay or enjoin any such transactions shall be
pending or threatened.
C. Representations and Warranties. The representations and
warranties made by TELAC and each of the Shareholders herein shall be correct as
of the date of the Closing in all respects with the same force and effect as
though such representations and warranties had been made as of the date of the
Closing. All the terms, covenants and conditions of this Agreement to be
complied with and performed by TELAC and each of the Shareholders on or before
the date of the Closing shall have been duly complied with and performed in all
respects.
D. Other Certificates. The Foster Partnerships shall have
received such other certificates, instruments and other documents, in form and
substance satisfactory to the Foster Partnerships and counsel for the Foster
Partnerships, as it shall have reasonably requested in connection with the
transactions contemplated hereby.
E. Third Party Consents. The Foster Partnerships shall have
received all necessary consents of third parties under the contracts,
agreements, leases, insurance policies and other instruments of the Business,
which consents shall not provide for the acceleration of any liabilities or any
other detriment to the Foster Partnerships or the Business.
F. Jordan Employment Agreement. TELAC and Jordan shall have
entered into the Jordan Employment Agreement.
G. Key Employee Agreements. TELAC and each of the Key
Employees shall have entered into the Key Employee Agreements.
H. Stockholders Agreement. TELAC and the Shareholders shall
have entered into the Stockholders Agreement.
I. Governmental Licenses and Permits. TELAC shall have
obtained all required authorizations, permits and licenses required for it to
operate the Business.
J. Sprint Agreement. TELAC shall, at the Foster Partnerships'
discretion, have entered into new agreements with Sprint or shall have received
a consent to assignment from Sprint of the existing Sprint agreement, in either
case, which such new agreements or consent shall be in form and substance
satisfactory to the Foster Partnerships.
<PAGE>
26
K. Evidence of Amendment to Certificate of Incorporation.
TELAC shall have delivered to the Foster Partnerships evidence of the filing of
an amendment to TELAC's Certificate of Incorporation (the "TELAC Certificate")
amending the TELAC Certificate to (i) increase the number of authorized shares
of TELAC Common Stock from 1,000 to 20,000,000 and (ii) reducing the par value
of the Telac Common Stock from $1.00 par value per share to $.01 par value per
share.
L. Evidence of Authorization of Redemption. TELAC shall have
delivered to the Foster Partnerships evidence of the due authorization by TELAC
of the redemption of 3,500,000 shares of TELAC Common Stock from the
Shareholders.
M. Amendment of TELAC Certificate. Simultaneously with the
Closing, TELAC shall file with the Delaware Secretary of State, a new amendment,
in the form of Exhibit O attached hereto, to the TELAC Certificate amending the
TELAC Certificate (i) to provide for the authorization of the TELAC Preferred
Shares and (ii) to provide for the authorization of the Non-Voting Common Stock.
N. Equipment Leases; Bill of Sale. TELAC and Triple J shall
have (i) entered into a renegotiated equipment lease (the "First Triple J
Lease") on the following terms and otherwise on terms mutually agreeable to
TELAC, the Foster Partnerships and the other parties thereto providing for:
Eight (8) remaining payments of $26,793, plus applicable sales taxes with TELAC
becoming the owner of the equipment, free and clear of any lien, encumbrance or
security interest, at the end of the First Triple J Lease and (ii) entered into
a renegotiated equipment lease (the "Second Triple J Lease") providing for the
transfer to TELAC of the equipment covered by the Second Triple J Lease, without
payment of any additional consideration, on January 1, 1997 free and clear of
any lien, encumbrance or security interest or delivered of a Bill of Sale for
the equipment covered by the Second Triple J Lease effective January 1, 1997.
O. Resignations. TELAC shall have received resignations dated
the date of the Closing from its officers and directors.
P. Stock Purchase Agreements. TELAC and each of the Key
Employees shall have entered into the Stock Purchase Agreements.
<PAGE>
27
SECTION X
INDEMNIFICATION
A. Indemnification by the Shareholders. Each of the
Shareholders, severally and not jointly, shall indemnify and hold harmless
TELAC and the Foster Partnerships from and against all losses, claims, taxes,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
whatsoever (hereinafter referred to collectively as the "Foster Partnerships'
Damages"), including, without limitation, Foster Partnerships' Counsel
Expenses (as hereinafter defined), sustained or incurred by TELAC or the
Foster Partnerships as a result of or arising from the breach of any of the
obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by, TELAC or any of the Shareholders herein;
provided, however, with respect to a breach of any representations, warranties
or covenants contained in Section III, TELAC and the Foster Partnerships shall
be indemnified pursuant to this Agreement solely by the Shareholder to which
such representations, warranties or covenants relate, and TELAC and the Foster
Partnerships shall not seek indemnification from the other Shareholders for
such breach. Subject to the limitations set forth herein, for purposes hereof,
"Foster Partnerships' Counsel Expenses" shall mean reasonable fees and
disbursements of counsel actually sustained or incurred by the Foster
Partnerships or TELAC, including, without limitation, in any action or
proceeding between the Foster Partnerships or TELAC and any third party.
B. Indemnification by TELAC. TELAC shall indemnify and hold
harmless each of the Shareholders from and against any and all losses, claims,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
whatsoever (hereinafter referred to collectively as the "Shareholders' Damages";
the Shareholders' Damages and the Foster Partnerships' Damages are sometimes
referred to herein as "Damages"), including, without limitation, Shareholders'
Counsel Expenses (as hereinafter defined) sustained or incurred by the
Shareholders as a result of or arising out of the breach of any of the
obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by, the Foster Partnerships herein. For
purposes hereof, "Shareholders' Counsel Expenses" shall mean reasonable fees and
disbursements of counsel actually sustained or incurred by the Shareholders,
including, without limitation, in any action or proceeding between the
Shareholders and the Foster
<PAGE>
28
Partnerships and/or TELAC or in any action or proceeding between the
Shareholders and a third party.
C. Procedure for Indemnification.
(i) Direct Claims. In the event that any party
hereto shall incur any Damages in respect of which indemnity may be sought by
such party pursuant to this Section X which do not involve a Third Party Claim
(as defined below), the parties from whom such indemnity may be sought (each, an
"Indemnifying Party") shall be given reasonably prompt written notice thereof by
the party seeking such indemnity (the "Indemnified Party"), which notice shall
specify the amount and nature of such Damages and include the request of the
Indemnified Party for indemnification of such amount. The Indemnifying Party
shall within thirty (30) days pay to the Indemnified Party the amount of the
Damages so specified unless the Indemnifying Party contests such claim.
(ii) Third Party Claims.
(a) Notification and Defense Rights. If any
Indemnified Party receives written notice of the assertion of any claim or of
the commencement of any action or proceeding by any entity which is not a party
to this Agreement (a "Third Party Claim") against or affecting such Indemnified
Party, and if such assertion is presumed to be true (regardless of the actual
outcome), such Indemnified Party shall give such Indemnifying Party reasonably
prompt written notice thereof, but in any event no later than twenty (20)
calendar days after receipt of such written notice of such Third Party Claim;
provided, however, that any delay or failure to notify any Indemnifying Party of
any claim shall not relieve it from any liability except to the extent that the
Indemnifying Party demonstrates that the defense of such action is materially
prejudiced by such delay or failure to notify. The Indemnifying Party shall have
the right to control the defense of any Third Party Claim by such Indemnifying
Party's own counsel. The Indemnified Party also will have the right to
participate in the defense of any Third Party Claim assisted by counsel of its
own choosing, but at the sole cost and expense of the Indemnified Party;
provided, however, that if an Indemnifying Party and an Indemnified Party shall
be included as defendants in any action and the Indemnified Party shall have
been reasonably advised by its counsel that there may be legal defenses
available to the Indemnified Party which are different from or in addition to
those available to the Indemnifying Party, the Indemnified Party shall have the
right to employ its own counsel in such action and in such event, the fees and
expenses of such
<PAGE>
29
counsel shall be borne by the Indemnifying Party, but only to the extent such
fees and expenses relate to defenses not being asserted by the Indemnified
Party. The Indemnifying Party and the Indemnified Party will cooperate with each
other in good faith in such defense. Notwithstanding the foregoing, the
Shareholders may, at their option, pay to TELAC any amount remaining under the
Cap (as hereinafter defined) that has not been paid, and upon such payment, the
Shareholders shall be under no further obligation to defend or contest such
proceedings. For purposes of determining whether the Cap has been reached, the
Shareholders' Counsel Expenses incurred in such defense shall be included.
(b) Settlement. If the Indemnifying Party
has reached a good faith, bona fide settlement agreement or compromise which
provides for a general release of the Indemnified Party, and provides only for
payments to settle the claims and not for any other remedy and such payments do
not exceed the Cap, subject only to approval hereunder, with any claimant
regarding a matter which may be the subject of indemnification hereunder and
desires to settle on the basis of such agreement or compromise, the Indemnifying
Party shall notify the Indemnified Party in writing of its desire to settle
setting forth the terms of such settlement or compromise (the "Notice of
Settlement"). The Third Party Claim may be settled or compromised on such basis
unless within twenty (20) days of the receipt of the Notice of Settlement the
Indemnifying Party receives a notice from the Indemnified Party of its desire to
continue to contest the matter (the "Notice to Contest"), and, in such case the
Indemnified Party shall assume all responsibility for the defense of such claim.
If a matter is contested after a Notice to Contest is delivered and is later
adjudicated, settled, compromised or otherwise disposed of and such
adjudication, compromise, settlement or disposition results in a liability,
loss, damage or injury in excess of the amount for which the Indemnifying Party
desired previously to settle the matter, then the liability of the Indemnifying
Party shall be limited to such lesser proposed settlement amount and the
Indemnified Party shall be solely responsible for the amount in excess of such
lesser proposed settlement amount.
D. Agreements Concerning Indemnification. It is
specifically understood and agreed that:
(i) The Shareholders shall not be obligated to
indemnify TELAC and the Foster Partnerships for the Foster Partnerships' Damages
unless and until the aggregate amount of all claims for such Foster
Partnerships' Damages exceeds $500,000 (the "Basket") at which time claims may
be asserted
<PAGE>
30
for the excess of such amount. The Basket shall not apply in the case of a
breach of the representation contained in the second sentence of Section
II.(L)(i) hereof.
(ii) The Shareholders shall not be obligated to
indemnify TELAC and the Foster Partnerships for the Foster Partnerships' Damages
in excess of an aggregate of $3,000,000 (the "Cap") and the obligations of the
Shareholders for indemnification hereunder shall terminate when the Cap has been
paid (except for any Foster Partnerships' Damages arising from any breach of any
of the representations and warranties contained in Section II(J)); provided,
however, that any such Foster Partnership's Damages arising from any breach of
any representations and warranties contained in Section II(J) shall not be
subject to the Cap.
(iii) The indemnification obligations of each of
the Shareholders shall be limited to his or its respective Pro-Rata Share (as
defined herein) for each indemnifiable event pursuant to this Agreement, up to
the Cap and subject to the Basket. For purposes of this Agreement a
Shareholder's "Pro-Rata Share" shall be the percentage set forth opposite such
Shareholder's name on Schedule IV hereto. The aggregate obligation of the
Shareholders for indemnification hereunder will not exceed the Cap and the
aggregate obligation of each Shareholder for indemnification hereunder will not
exceed such Shareholder's Pro-Rata Share of the Cap.
(iv) Damages payable to an Indemnified Party
shall be reduced by (i) any Tax Benefit (as hereinafter defined) actually
received by the Indemnified Party on account of such indemnification and (ii)
any insurance proceeds actually received by the Indemnified Party on account of
such indemnification at the time the indemnification payment occurs, it being
understood that in no event shall any indemnification payment be delayed in
anticipation of the receipt of any Tax Benefit or insurance proceeds. If the
Indemnified Party receives a Tax Benefit after an indemnification payment is
made, TELAC shall pay to the Indemnifying Party, the aggregate amount of such
Tax Benefit at such time or times as and to the extent that such Tax Benefit is
received. If, upon audit by the relevant tax authority, part or all of such Tax
Benefit shall be disallowed, the Indemnifying Party, upon written notice to that
effect from the Indemnified Party, shall promptly reimburse the Indemnified
Party for the full amount so disallowed up to the amount of the Tax Benefit
credited to the Indemnifying Party. For purposes hereof, "Tax Benefit" shall
mean any refund of tax or reduction in the amount of
<PAGE>
31
taxes which would otherwise be payable. The parties hereto shall seek full
recovery under all insurance policies covering any indemnification payment in
the ordinary course of business to the same extent as they would if such claim
were not subject to an indemnification payment hereunder. In the event that an
insurance recovery is made by the Indemnified Party, with respect to any
indemnification payment for which an indemnification claim has been made, the
Indemnified Party shall pay to the Indemnifying Party the amount of the
insurance recovery, but not more than the amount of such indemnification
payment.
(v) Neither TELAC nor the Foster Partnerships
shall have a claim against any Shareholder for indemnification pursuant to this
Agreement in respect of a misrepresentation or breach of any covenant or
warranty of the Shareholders contained in or made pursuant to this Agreement to
the extent and only in the amount that TELAC or the Foster Partnerships have
received a credit with respect to the subject matter of any such breach or
misrepresentation reflected in the calculation of working capital described in
Section VI(C).
(vi) The sole remedy for any misrepresentation,
breach of warranty or failure to fulfill any agreement or covenant to be
performed prior to the Closing (it being understood and agreed that this
limitation shall not apply to covenants or agreements to be performed subsequent
to the Closing) hereunder on the part of any party shall be governed by and
limited to the provisions of this Section X.
SECTION XI
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, none of the Shareholders shall, subsequent
to the date of the Closing and, except as provided herein, until five (5) years
after the date of the Closing, directly or indirectly, (i) engage, whether as
principal, agent, investor (except as an owner of less than a 5% interest in a
publicly held Company), distributor, representative, stockholder, employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture anywhere in the United States which is competitive with the
Business or business of TELAC or any other member of the Company Group (as
hereinafter defined) of providing multilingual inbound and outbound
teleservices, except as specifically allowed as set forth hereinafter, and
related activities, (ii) solicit
<PAGE>
32
or endeavor to solicit away from any member of the Company Group any person who
is or was during the six (6) months prior to solicitation, a director, officer,
employee, agent or consultant of such member of the Company Group, on any of the
Shareholder's own accounts or for any person, firm, corporation or other
organization, whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the service of such member
of the Company Group, (iii) solicit or endeavor to solicit away any of the
clients or customers of any member of the Company Group, on any of the
Shareholder's own accounts or for any other person, firm, corporation or
organization, or (iv) employ any person who is or was during the six (6) months
prior to employment, a director, officer or employee of any member of the
Company Group. Because the remedy at law for any breach of the foregoing
provisions of this Section XI would be inadequate, each of the Shareholders
hereby consents, in case of any such breach, to the granting by any court of
competent jurisdiction of specific enforcement, including, but not limited to
pre-judgment injunctive relief, of such provisions, as provided for in Section
XIII(F) hereof.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
Notwithstanding the foregoing, Jordan shall not be deemed to
be in breach of the provisions of Section XI(i) above following termination of
Jordan's employment by TELAC and none of the other Shareholders shall be deemed
to be in breach of the provisions of Section XI(i) by reason of their employment
by or association with an entity, the business of which is shareholder
communications, proxy solicitation, political polling, surveying or English
language political advocacy communications or public opinion polling, surveying
or English language political advocacy communications.
Each of the parties hereto expressly acknowledges and agrees
that the covenants and agreements of each of the Shareholders set forth in this
Section XI are reasonable in all respects, and necessary in order to protect,
maintain and preserve the value and goodwill of TELAC and the Business, as well
as the proprietary and other legitimate business interests of the members of the
Company Group.
<PAGE>
33
For purposes hereof, "Company Group" shall mean, collectively,
the TELAC and its subsidiaries, affiliates and parent entities operating from
time to time in the same lines of business.
SECTION XII
BROKERS AND FINDERS
A. The Shareholders' Obligations. TELAC and the Foster
Partnerships shall not have any obligation to pay any fee or other compensation
to any person, firm or corporation dealt with by any of the Shareholders in
connection with this Agreement and the transactions contemplated hereby and each
of the Shareholders, severally and not jointly, hereby agree to indemnify and
save TELAC and each of the Foster Partnerships (or its designee) harmless from
any liability, damage, cost or expense arising from any claim for any such fee
or other compensation.
B. The Foster Partnerships's Obligations. The
Shareholders shall have no obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Foster Partnerships in
connection with this Agreement and the transactions contemplated hereby and
the Foster Partnerships agrees to indemnify and save each of the Shareholders
harmless from any liability, damage, cost or expense arising from any claim
for any such fee or other compensation.
SECTION XIII
MISCELLANEOUS
A. Notices. All notices, requests or
instructions hereunder shall be in writing and delivered
personally, sent by Federal Express or sent by registered or
certified mail, postage prepaid, as follows:
(1) If to TELAC (prior to the Closing):
c/o Mr. Joseph Morrow
909 Third Avenue
Suite 20
New York, New York 10022
Telecopy No.: (212) 754-8362
Telephone No.: (212) 754-8000
<PAGE>
34
with a copy to:
Nelson Mullins Riley & Scarborough
L.L.P.
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: Paul A. Quiros, Esq.
Telecopy No.: (404) 817-6050
Telephone No.: (404) 817-6103
(2) If to the Shareholders:
c/o Mr. Joseph Morrow
909 Third Avenue
Suite 20
New York, New York 10022
Telecopy No.: (212) 754-8362
Telephone No.: (212) 754-8000
with a copy to:
Nelson Mullins Riley & Scarborough
L.L.P.
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: Paul A. Quiros, Esq.
Telecopy No.: (404) 817-6050
Telephone No.: (404) 817-6103
(3) If to TELAC (after the Closing) or
to the Foster Partnerships:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
<PAGE>
35
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or sent by Federal Express, and five business days after the
date of mailing, if mailed.
B. Survival of Representations. Subject to the limitations
described in Section X, each representation, warranty, covenant and agreement of
the parties hereto herein contained shall survive the Closing, notwithstanding
any investigation at any time made by or on behalf of any party hereto, for a
period ending the earlier to occur of (i) fifteen (15) months after the last day
of the month on which the Closing occurs (the "Survival Period") or (ii) the
closing of an underwritten public offering of TELAC Common Stock; except (a) for
covenants and agreements to be performed subsequent to the Closing and (b) that
nothing in the foregoing shall be deemed to diminish any Indemnifying Party's
indemnification obligations to an Indemnified Party respecting claims for
Damages properly made prior to the last day of the Survival Period of the date
of the Closing or the applicable statutes of limitations period for claims for
Damages based on any federal or state income tax obligations of TELAC for
periods prior to the Closing or common law fraud which shall survive for the
duration of the applicable statutes of limitations periods. No representation
made by the Foster Partnerships in this Agreement shall be deemed to modify or
waive any rights of the TELAC or the Foster Partnerships under Section X hereof.
No representation made by the Shareholders or TELAC in this Agreement shall be
deemed to modify or waive any rights of the Shareholders under Section X hereof.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's reasonable best efforts to take such actions as may be necessary or
reasonably requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement, including the execution and
delivery of any reasonable and customary management representation letter
requested by the Foster Partnership's independent certified public accountants
in connection with any audit by such accountants of the
<PAGE>
36
financial statements of the Business as required by Regulation S-X under the
Securities Act.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Injunctive Relief. Notwithstanding the provisions of
Section XIII(G) hereof, in the event of a breach or threatened breach by any of
the Shareholders of the provisions of Section XI of this Agreement, each of the
Shareholders hereby agrees that the Foster Partnerships and TELAC may seek an
injunction or similar equitable relief restraining any of the Shareholders from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by each of the
Shareholders under any such provision, without the necessity of showing any
actual damage or that money damages would not afford an adequate remedy and
without the necessity of posting any bond or other security. The parties hereto
hereby consent to the jurisdiction of the federal courts for the Eastern
District of Virginia and the Virginia commonwealth courts located in such
district for any proceedings under this Section XIII(F). The parties hereto
agree that the availability of arbitration in Section XIII(G) hereof shall not
be used by any party as grounds for the dismissal of any injunctive actions
instituted by TELAC or the Foster Partnerships pursuant to this Section XIII(F).
Nothing herein shall be construed as prohibiting the Foster Partnerships and
TELAC from pursuing any other remedies at law or in equity which it may have.
G. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Section XIII(F) hereof, be settled by arbitration in accordance with the rules
of the American Arbitration Association then in effect and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in the Washington, D.C.
metropolitan area.
H. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to
<PAGE>
37
modify any such unenforceable provision of this Agreement in lieu of severing
such unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such other
modifications as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as modified by such court or arbitration
panel shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
I. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of each of TELAC and
the Foster Partnerships, respectively, and the legal representatives and heirs
of each of the Shareholders.
J. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the Commonwealth of Pennsylvania.
K. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
L. Knowledge. Whenever the term "Knowledge" is used in this
Agreement, such term shall, with respect to TELAC, mean the actual knowledge or
awareness of Jordan, Morrow, Ficker or Ralph Bazuro ("Bazuro"), and shall with
respect to each Shareholder or officer named above, mean the actual knowledge or
awareness of such Shareholder or named officer without the duty to conduct any
investigation or inquiry.
M. Agency. Each of the Shareholders hereby authorizes TELAC to
deliver funds in the amount of $15,000,000 to Morgan Guaranty Trust Company of
New York as a deposit for a letter of credit which secures and would entirely
satisfy the obligations of TELAC under the Closing
Notes payable to the Shareholders.
<PAGE>
38
Each of the Shareholders agrees that upon delivery of such
funds to Morgan Guaranty Trust Company of New York 2512091-3, such Shareholder
shall seek payment of the Closing Note of such Shareholder only by drawing
against such letter of credit for satisfaction of TELAC's obligations under such
Closing Note. None of the Shareholders shall seek any recourse from or make any
claim against TELAC or any other person with respect to such funds or the
payment of the Closing Notes.
N. Texas Lease. If necessary, Morrow on behalf of Morrow &
Company agrees to retain the law firm of Thompson & Knight, Dallas, Texas, or
another law firm agreeable to both parties, in order to defend Morrow & Company
and/or TELAC against an action to evict either Morrow & Company or TELAC from
their Dallas premises. Morrow agrees, on behalf of Morrow & Company, to pay the
reasonable attorneys' fees and costs of Thompson & Knight or another law firm
agreeable to both parties in connection with the representation described above.
Morrow agrees that Morrow & Company will not agree to settle any eviction
proceeding if such settlement would result in a dispossession of TELAC from the
current Dallas, Texas premises without the consent of TELAC; provided, however,
that Morrow & Company will not be required to continue to defend any eviction
proceeding after fifteen (15) months from the date hereof.
* * *
<PAGE>
39
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
TELEPHONE ACCESS, INC.
By /s/ John E. Jordan
____________________________
Name: John E. Jordan
Title: President
/s/ Joseph J. Morrow
------------------------------
Joseph J. Morrow
/s/ John E. Jordan
------------------------------
John E. Jordan
/s/ Thomas Ficker
------------------------------
Thomas Ficker
/s/ Wallace Searle
------------------------------
Wallace Searle
/s/ Ronald Knox
------------------------------
Ronald Knox
/s/ Thomas Ball
------------------------------
Thomas Ball
ESTATE OF DENNIS DEE
By /s/ Dennis J. Dee, Jr.
____________________________
Name: Dennis J. Dee, Jr.
Title: Executor
<PAGE>
40
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners,
general partner
By /s/ Stephen F. Nagy
______________________
Name: Stephen F. Nagy
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners,
general partner
By /s/ Stephen F. Nagy
______________________
Name: Stephen F. Nagy
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners,
general partner
By /s/ Stephen F. Nagy
______________________
Name: Stephen F. Nagy
<PAGE>
<PAGE>
AGREEMENT OF PURCHASE AND SALE
By and Among
TELEMANAGEMENT SERVICES, INC.,
LEE H. EDELSTEIN
and
TLM HOLDINGS CORP.
<PAGE>
THIS AGREEMENT dated as of the 1st day of January, 1997 by and
among TeleManagement Services, Inc., a Florida corporation (the "Company"), Lee
H. Edelstein (the "Shareholder") and TLM Holdings Corp., a Delaware corporation
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing
pharmaceutical, medical and other healthcare related teleservices and related
activities at one (1) location in the State of Florida (such activities being
hereinafter referred to as the "Business");
WHEREAS, the Shareholder is the holder of 600 shares of the
common stock, $1.00 par value (the "Common Stock"), of the Company, which shares
constitute all of the issued and outstanding shares of capital stock of the
Company;
WHEREAS, effective on the date of the Closing (as hereinafter
defined), the Purchaser, through its wholly owned subsidiary TLM Acquisition
Corp., a Delaware corporation (the "Designee"), desires to acquire from the
Company certain assets of the Company as described in Section I(C)(i) hereof
(the "Assets") and, through the Designee, to assume certain liabilities and
contractual obligations of the Company as described in Section I(C)(ii) hereof
(the "Assumed Liabilities"), and the Company desires to sell or assign the
Assets and to assign the Assumed Liabilities to the Purchaser, through the
Designee, on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, to induce the Purchaser to enter into this Agreement
and perform its obligations hereunder, the Shareholder has agreed to make the
representations, warranties, covenants and agreements of the Shareholder
(including the indemnification and non-competition agreements) set forth herein.
2
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, and intending to be legally
bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF THE ASSETS
A. Purchase and Sale of the Assets. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained:
(i) The Company hereby sells, assigns and
conveys to the Purchaser (through the Designee), and the Purchaser (through the
Designee) hereby purchases, acquires and accepts from the Company, the Assets.
(ii) The Company hereby assigns to the Purchaser
(through the Designee) and the Purchaser (through the Designee) hereby accepts
and assumes from the Company, the Assumed Liabilities. The Purchaser (and the
Designee) shall not assume and shall have no responsibility with respect to, and
shall be indemnified by each of the Company and the Shareholder, jointly and
severally, against, any and all liabilities or obligations of the Company other
than the Assumed Liabilities.
(iii) The designation of the Designee to acquire
the Assets and assume the Assumed Liabilities will in no event affect the
Purchaser's payment obligations hereunder.
B. Purchase Price. The purchase price (the "Purchase Price")
for the Assets is (i) $7,800,000 which is non-refundable and unconditional,
subject to the terms of this Agreement, and (ii) the contingent payments, if any
(the "Contingent Payments"), provided for in Section I(D) hereof. The Purchase
Price payable at the Closing shall be made by delivery to the Company of (a) a
wire transfer in immediately available funds to an account designated by the
3
<PAGE>
Company in the amount of $6,500,000 and (b) a three-year 6% subordinated
promissory note of the Purchaser in the form of Exhibit A attached hereto,
payable to the order of the Company in the principal amount of $1,300,000 (the
"Note").
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets,
business, contract rights, financial books and records and goodwill of every
kind and nature, real, personal, and mixed, tangible and intangible, wherever
located, of the Company used in or in any way related to the Business as
conducted by the Company. The Assets shall not include the assets listed in
Schedule I hereto (hereinafter, the "Excluded Assets").
(ii) The Assumed Liabilities shall consist of
and shall be limited solely to the obligations and liabilities of the Company
incurred in connection with the Business listed in Schedule II hereto. The
Purchaser (and the Designee) shall not assume, shall have no responsibility with
respect to, and shall be indemnified, by each of the Company and the
Shareholder, jointly and severally, against, any liabilities or obligations of
the Company, except for the Assumed Liabilities set forth in Schedule II hereto.
The Company shall remain liable for, and shall pay when due, any and all
obligations and liabilities of the Company, other than the Assumed Liabilities.
(iii) It is specifically understood and agreed
that the Assumed Liabilities shall not include (a) liabilities of the Company
for expenses incurred or accrued, at any time, in connection with the
transactions contemplated by this Agreement or in any other connection not in
the ordinary course of business, (b) liabilities of the Company for federal,
state and municipal income, sales, franchise and other taxes, including any
interest, penalties and assessments thereon, (c) any liabilities of the Company
to any former owners of the Company except for that promissory note in the
original principal amount of $450,000 payable to the order of Thomas G. Schulte
("Schulte") and the obligations of the Company to Schulte pursuant to that
4
<PAGE>
certain consulting agreement dated February 16, 1996 by and between the Company
and Schulte, and (d) any liabilities or obligations of the Company under the
consulting agreement between the Company and U.S. Healthcare Consultants, Inc.
dated April 15, 1996, including the bonus arrangement thereunder. Neither the
Purchaser nor any designee of the Purchaser assuming the Assumed Liabilities
shall assume any liabilities of the Company in connection with any understanding
or agreement, whether written or oral, with respect to any retirement plan,
including, but not limited to, any profit sharing, 401(k) or defined benefit
plan (as defined in Section 414(j) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. Contingent Payments. Subject to the conditions set forth
herein and in Schedule IV hereto, within ninety (90) days after December 31,
1997, December 31, 1998 and December 31, 1999, the Purchaser shall deliver to
the Company the Contingent Payments, if any, payable with respect to the
twelve-month periods ending December 31, 1997, December 31, 1998 and December
31, 1999, respectively. The amount of the Contingent Payments payable to the
Company with respect to each such twelve-month period (each, a "Contingent
Period") shall be calculated based upon the earnings before interest, taxes and
amortization ("EBITA") achieved by the Contingent Payment Business (as
hereinafter defined) during such Contingent Period. Each of the Contingent
Payments, if any, shall be made by delivery to the Company of (i) a certified or
official bank check payable to the order of the Company and (ii) a certificate
representing shares of common stock, $.01 par value ("Purchaser Common Stock"),
of the Purchaser, registered in the name of the Company, in each case, in such
amounts of cash and in such numbers of shares as are determined in accordance
with Schedule IV hereto.
E. Computation of EBITA. The Purchaser shall, within ninety
(90) days after the end of each Contingent Period, compute the amount of the
EBITA of the Contingent Payment Business for such Contingent Period. The amount
so computed shall be the EBITA for purposes of determining whether or not
Contingent Payments shall be due and payable.
5
<PAGE>
Notwithstanding the determination of EBITA for any applicable period by the
Purchaser, the Company shall receive the information upon which such
determination was made, and shall, in the event of a dispute as to the amount or
method of calculation of such EBITA have the right to review all work papers
relating to the determination of EBITA. For purposes of this Agreement, "EBITA"
shall mean the earnings before interest, taxes and amortization of the
Contingent Payment Business (or, in the event that all or substantially all the
assets and business of the Contingent Payment Business shall have been
transferred to another entity or entities, the allocable portion of the EBITA of
such other entity or entities) for the applicable Contingent Period as
determined in accordance with generally accepted accounting principles
consistent with the Purchaser's accounting practices. For purposes of
calculating EBITA for any Contingent Period, it is agreed that corporate
overhead (including audit fees for the Business and ordinary course corporate
legal fees) directly related to the Contingent Payment Business will be
deducted; however, no deduction will be made (i) for amortization of goodwill in
connection with the Business or the Contingent Payment Business or (ii) for any
salaries or benefits paid to the Chief Executive Officer or Chief Financial
Officer of the Purchaser or any other officer of the Purchaser (other than to
the Shareholder which shall be a deduction) except that the Purchaser may
allocate to the Contingent Payment Business a portion of an officer's salary or
benefits (other than the Chief Executive Officer or Chief Financial Officer of
the Purchaser) which is directly related to that officer's activities for the
Contingent Payment Business which are not part of corporate overhead, or (iii)
for any costs or expenses associated with any public offering involving the
Contingent Payment Business. For purposes of determining the Contingent
Payments, the Contingent Payment Business shall mean the business activities of
the Purchaser and the Designee from the activities set forth in Schedule V
attached hereto.
6
<PAGE>
Numbers of shares of Purchaser Common Stock set forth herein
shall be appropriately adjusted for any stock split, stock dividend, reverse
stock split or other similar event affecting the Purchaser Common Stock.
Fractional shares shall be rounded up to the nearest whole share.
In the event (a "Reorganization") of the consolidation or
merger of the Purchaser with or into another person or the acquisition of all or
substantially all the Purchaser Common Stock or all or substantially all of the
assets of the Purchaser by another person (other than a consolidation or merger
in which the Purchaser is the continuing corporation and which does not result
in any change in the Purchaser Common Stock), the Purchaser shall have the
option to pay the Shareholder at such time as a payment is due pursuant to
Section I(D) hereof, in lieu of the Purchaser Common Stock provided for in such
Section, the consideration (the "Reorganization Consideration") per share in the
form (in stock or cash or other consideration) payable to the other holders of
Purchaser Common Stock in connection with such transaction, multiplied by the
number of shares of Purchaser Common Stock deliverable to the Shareholder
provided for in Section I(D) hereof.
If the Company shall disagree with the Purchaser's
determination of EBITA for any Contingent Period and/or the amount of the
resulting Contingent Payments, the Company shall so notify the Purchaser within
fifteen (15) days of receipt of the Purchaser's computations and the Purchaser
and the Company shall in good faith attempt to agree upon the amount of the
Contingent Payments within ninety (90) days after the end of the Contingent
Period. If the Purchaser and the Company are unable to agree within such period,
then the amount of the Contingent Payments shall be determined as soon as
possible thereafter by the Philadelphia office of one of the six largest
national accounting firms mutually selected by the Purchaser and the Company,
other than any of the six largest national accounting firms which have provided
services to the Purchaser or its parent, subsidiaries or Affiliates (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934), or the Company within the
three year period prior to
7
<PAGE>
the date of the Closing (the "Arbitrator"), for a final and binding
determination. Pending the resolution of such final amount, any amounts not in
dispute shall be paid to the Company within ninety (90) days of the end of each
applicable Contingent Period by certified or official bank check, in the case of
the cash portion, and the parties shall be obligated to act in good faith to
attempt to resolve the disputed amounts.
Any disputed amount of the Contingent Payments shall be paid
by the Purchaser to the Company within five (5) days after the amount thereof
has become final and binding in accordance with the final and binding
determination of the Arbitrator. Any disputed cash amount awarded to the Company
shall be paid with interest at the rate of nine percent (9%) per annum, such
interest to accrue from the date which is ninety (90) days after the end of the
Contingent Period until the date of payment of the disputed cash amount.
F. Allocation. The Purchase Price (including the Assumed
Liabilities) shall be allocated as set forth in Schedule VI hereto. The parties
hereto agree that the allocation of the Purchase Price is intended to comply
with the allocation method required by Section 1060 of the Code. The parties
shall cooperate to comply with all substantive and procedural requirements of
Section 1060 of the Code and any regulations thereunder, and the allocation
shall be adjusted if, and to the extent, necessary to comply with the
requirements of Section 1060 of the Code. Neither the Purchaser nor the Company
will take, nor permit any affiliated person to take, for federal, state or local
income tax purposes, any position inconsistent with the allocation set forth in
Schedule VI hereto, or, if applicable, such adjusted allocation. The Purchaser
and the Company agree that each of them shall attach to its tax returns for the
tax year in which the Closing shall occur an information statement on Form 8594,
which shall be completed in accordance with allocations set forth in Schedule VI
hereto.
8
<PAGE>
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDER
Each of the Company and the Shareholder, jointly and
severally, hereby represents and warrants to, and covenants and agrees with, the
Purchaser, as of the date of the Closing, that:
A. Organization and Qualification. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Florida and has full corporate power and authority to own its properties and to
conduct the businesses in which it is now engaged. The Company is in good
standing in each other jurisdiction wherein the failure so to qualify would have
a material adverse effect on the financial condition, operations, assets and
properties of the Business taken as a whole (a "Material Adverse Effect").
Except as set forth in Exhibit B, the Company does not own any subsidiaries, nor
does it own any capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, joint
venture or other entity and has no agreement with any person, firm or
corporation to acquire any such capital stock or other proprietary interest.
Except as set forth in Exhibit B, the Company has full corporate power,
authority and legal right, and all necessary approvals, permits, licenses and
authorizations, to own its properties and to conduct the Business conducted by
it and to enter into and consummate the transactions contemplated under this
Agreement, except for such approvals, permits, licenses and authorizations, the
absence of which would not have a Material Adverse Effect. The copies of the
certificate of incorporation and by-laws of the Company which have been
delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Company, the performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions contemplated
9
<PAGE>
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Company or any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency or board, or conflicts with or will result in any
breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Company is a party or by which the Company or any of
the Assets is bound, except where such violation, conflict, breach, default,
termination or lien creation would not have a Material Adverse Effect. No
consents, approvals or authorizations of, or filings with, any governmental
authority or any other person or entity are required in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for required consents, if any, to
assignment of permits, certificates, contracts, leases and other agreements as
set forth in Exhibit B attached hereto.
D. Financial Statements; No Undisclosed Liabilities. The
Company and the Shareholder have delivered to the Purchaser the balance sheet of
the Company as of November 30, 1996 and the related statement of income (loss)
and supplementary information and the notes thereto for the one month and eleven
months periods then ended, which financial statements (hereinafter referred to
as the "Financial Statements") have been compiled by Richard H. Harris &
Associates, P.A., the Company's independent accountants. The Financial
Statements are true and correct
10
<PAGE>
in all material respects and have been prepared in accordance with generally
accepted accounting principles applied consistently throughout the periods
involved except that the Company has elected to omit substantially all of the
disclosures and statement of cash flows required by generally accepted
accounting principles. The Financial Statements fully and fairly present the
financial condition of the Company as at the dates thereof and the results of
the operations of the Company for the periods indicated. The balance sheets
contained in the Financial Statements fairly reflect all liabilities of the
Company of the types normally reflected in balance sheets as at the dates
thereof. Except to the extent set forth in or provided for in the balance sheet
of the Company as of November 30, 1996 included in the Financial Statements (the
"1996 Balance Sheet") or as identified in Exhibit B, and except for current
liabilities incurred in the ordinary course of business consistent with past
practices (and not materially different in type or amount), the Company has no
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due, whether properly reflected under
generally accepted accounting principles as a liability or a charge or reserve
against an asset or equity account, and whether the amount thereof is readily
ascertainable or not. A true and correct copy of the Financial Statements is
attached hereto as Exhibit C.
E. Absence of Certain Changes. Except as set forth in
Exhibit B, subsequent to November 30, 1996, there has not been any (i) change in
the condition of the Business, financial or otherwise, or in the results of the
operations of the Company which has or could reasonably be expected to have a
Material Adverse Effect; (ii) material damage or destruction (whether or not
insured) affecting the properties or business operations of the Company; (iii)
labor dispute or, to the best of the knowledge of the Company and the
Shareholder, threatened labor dispute involving the employees of the Company;
(iv) actual or, to the
11
<PAGE>
best of the knowledge of the Company and the Shareholder, threatened disputes
pertaining to the Business with an major accounts of the Company, or actual or,
to the best of the knowledge of the Company and the Shareholder, threatened loss
of business from any of the major accounts of the Company; or (v) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts with
respect to the Company.
F. Liabilities Incurred. Except as disclosed in Exhibit B,
subsequent to November 30, 1996, the Company has not (i) incurred any bank
indebtedness, entered into any leases, loan agreements or, except in the
ordinary course of business consistent with past practices, contracts,
obligations or arrangements of any kind, including, without limitation, for the
payment of money or property to any person, or (ii) permitted any liens or
encumbrances to attach to the Assets.
G. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by the Company or in which the
Company has any interest is set forth in Exhibit B. Except as set forth in
Exhibit B, all such leased real property is held subject to written leases or
other agreements which are enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally, and there are no existing defaults or events of default, or events
which with notice or lapse of time or both would constitute defaults, thereunder
on the part of the Company, except for defaults, if any, which would not have a
Material Adverse Effect. Neither the Company nor the Shareholder has any
knowledge of any material default or claimed or purported or alleged material
default on the part of any other party in the performance of any obligation to
be performed or paid by such other party under any lease referred to in Exhibit
B. Neither the Company nor the Shareholder has received any written or oral
notice to the effect that any lease will not be renewed at the termination of
the term thereof or that any such lease be renewed only at a substantially
higher rent.
12
<PAGE>
H. Title to Assets; Condition of Property. The
Company has good and valid title to all its owned properties
and assets, real, personal and mixed, tangible and
intangible used in the operations of the Business as
currently conducted, except where the failure to have good
and valid title would not have a Material Adverse Effect.
Except as set forth in Exhibit B, the Company leases or owns
all properties and assets used in the operations of the
Business as currently conducted. All such properties and
assets are in good condition and repair, consistent with
their respective ages and subject to ordinary wear and tear,
and have been maintained and serviced in accordance with the
normal practices of the Company and as necessary in the
normal course of business. Except for the liens on the
Assets by Barnett Bank and Schulte, none of the assets or
properties of the Company is subject to any liens, charges,
encumbrances or security interests, except as set forth in
Exhibit B. None of the assets of the Company (or uses to
which they are put) fails to conform with any applicable
agreement, law, ordinance or regulation in a manner which
could reasonably be expected to have a Material Adverse
Effect.
I. Taxes. The Company has filed or caused to be
filed on a timely basis all federal, state, local, foreign
and other tax returns, reports and declarations (collectively, "Tax Returns")
required to be filed by it. All Tax Returns filed by or on behalf of the Company
are true, complete and correct in all material respects. The Company has paid
all income, estimated, excise, franchise, gross receipts, capital stock,
profits, stamp, occupation, sales, use, transfer, value added, property (whether
real, personal or mixed), employment, unemployment, disability, withholding,
social security, workers' compensation and other taxes, and interest, penalties,
fines, costs and assessments (collectively, "Taxes"), due and payable with
respect to the periods covered by such Tax Returns (whether or not reflected
thereon). There are no Tax liens on any of the properties or assets, real,
personal or mixed, tangible or intangible, of the Company. The accrual for Taxes
reflected in the Financial Statements accurately reflects the total amount of
all unpaid Taxes, whether or not
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<PAGE>
disputed and whether or not presently due and payable, of the Company as of the
close of the period covered by the Financial Statements, and the amount of the
Company's unpaid Taxes does not exceed the accrual for Taxes reflected in the
Financial Statements for the period ended December 31, 1995. Since November 30,
1996, the Company has not incurred any tax liability other than in the ordinary
course of business. No Tax Return of the Company has ever been audited. No
deficiency in Taxes for any period has been asserted by any taxing authority
which remains unpaid at the date hereof (the results of any settlement being set
forth in Exhibit B), no written inquiries or notices have been received by the
Company from any Taxing authority with respect to possible claims for Taxes, the
Company has no reason to believe that such an inquiry or notice is pending or
threatened, and there is no basis for any additional claims or assessments for
Taxes. The Company has not agreed to the extension of the statute of limitations
with respect to any Tax Return or Tax period.
J. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default
under any, and has complied with all, statutes, including the Federal Telephone
Consumer Act of 1991 and the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, ordinances, regulations and laws, orders, judgments and
decrees of any court or governmental entity or agency, relating to the Business
or the Assets as to which a default or failure to comply might have a Material
Adverse Effect on the Business or the Assets. Within the last three (3) years,
neither the Company nor the Shareholder has any knowledge of any basis for
assertion of any violation of the foregoing or for any claim for compensation or
damages or otherwise arising out of any violation of the foregoing. Within the
last three (3) years, neither the Company nor the Shareholder has received any
notification of any asserted present or past failure to comply with any of the
foregoing which has not been satisfactorily responded to in the time period
required thereunder.
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<PAGE>
(ii) Permits; Intellectual Property. Set
forth in Exhibit B is a complete and accurate list of all material permits,
licenses, approvals, franchises, patents, registered and common law trademarks,
service marks, tradenames, copyrights (and applications for each of the
foregoing), notices and authorizations issued by governmental entities or other
regulatory authorities, federal, state or local (collectively the "Permits"),
held by the Company in connection with the Business. The Permits set forth in
Exhibit B are all the material Permits required for the conduct of the Business.
All the Permits set forth in Exhibit B are in full force and effect, and the
Company has not engaged in any activity which would cause or permit revocation
or suspension of any such Permit, and to the best of the knowledge of the
Company and the Shareholder, no action or proceeding looking to or contemplating
the revocation or suspension of any such Permit is pending or threatened. There
are no existing material defaults or events of default or event or state of
facts which with notice or lapse of time or both would constitute a default by
the Company under any such Permit. Neither the Company nor the Shareholder has
any knowledge of any default or claimed or purported or alleged default or state
of facts which with notice or lapse of time or both would constitute a material
default on the part of any other party in the performance of any obligation to
be performed or paid by any other party under any Permit set forth in Exhibit B.
The use by the Company of any proprietary rights relating to any Permit does not
involve any claimed infringement of such Permit or rights. The consummation of
the transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit B or require the
consent of any person. Except as set forth in Section II(J)(iii) below, the
Company is not required to be licensed by, nor is it subject to the regulation
of, any governmental or regulatory body by reason of the conduct of the
Business.
(iii) Environmental. (a) The Company has
duly complied in all material respects with the provisions of all federal, state
and local environmental, health and safety laws, codes and ordinances and all
rules and
15
regulations promulgated thereunder, except where the failure to so
comply would not have a Material Adverse Effect.
(b) The Company has not received any
notice of, and neither the Company nor the Shareholder knows of any facts which
might constitute, violations of any federal, state or local environmental,
health or safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder, which relate to the use, ownership or occupancy of any
leased premises by the Company or of any premises formerly owned, leased or
occupied by the Company.
K. Accounts Receivable; Accounts Payable.
(i) The accounts receivable of the Company are in their
entirety valid accounts receivable, arising in the ordinary course of business.
(ii) The accounts and notes payable and other accrued expenses
reflected in the Financial Statements, and the accounts and notes payable and
accrued expenses incurred by the Business subsequent to November 30, 1996, are
in all respects valid claims that arose in the ordinary course of business.
Since November 30, 1996, the accounts and notes payable and other accrued
expenses of the Business have been
paid in a manner consistent with past practice. Set forth in Schedule III is a
good faith itemization of the expected outstanding accounts payable, accrued
expenses and debt of the Business as of the date of the Closing.
L. Contractual and Other Obligations. Set forth in
Exhibit B is a list and brief description of all (i) material contracts,
agreements, licenses, leases, arrangements (written or oral) and other documents
to which the Company is a party or by which the Company or any of the Assets is
bound (including, in the case of loan agreements, a description of the amounts
of any outstanding borrowings thereunder and the collateral, if any, for such
borrowings); (ii) obligations and liabilities of the Company pursuant to
uncompleted orders for the purchase of materials, supplies, equipment and
services for the requirements of the Business with respect to which the
remaining obligation of the
16
<PAGE>
Company is in excess of $25,000; and (iii) material contingent obligations and
liabilities of the Company; all of the foregoing being hereinafter referred to
as the "Contracts". Neither the Company nor, to the best of the knowledge of
the Company and the Shareholder, any other party is in default in the
performance of any covenant or condition under any Contract and no claim of such
a default has been made and no event has occurred which with the giving of
notice or the lapse of time would constitute a default under any covenant or
condition under any Contract, except where such default would not have a
Material Adverse Effect. The Company is not a party to any Contract which would
terminate or be materially adversely affected by consummation of the
transactions contemplated by this Agreement. The Company is not a party to any
Contract expected to be performed at a loss. Originals or true, correct and
complete copies of all written Contracts have been provided to the Purchaser.
M. Compensation. Set forth in Exhibit D attached hereto is a
list of all material agreements between the Company and each person employed by
or independently contracting with the Company with regard to compensation,
whether individually or collectively, and set forth in Exhibit D is a list of
all employees of the Company entitled to receive annual compensation in excess
of $30,000 and their respective salaries. The transactions contemplated by this
Agreement will not result in any liability for severance pay to any employee or
independent contractor of the Company. The Company has not informed any employee
or independent contractor providing services to the Company that such person
will receive any increase in compensation or benefits (except for such increases
that are in the ordinary course of business) or any ownership interest in the
Company or the Business.
N. Employee Benefit Plans. Except as set forth in Exhibit E
attached hereto, the Company does not maintain or sponsor, nor does it
contribute to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. All pension,
17
<PAGE>
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (hereinafter referred to as "ERISA"), in which the employees
participate (such plans and related trusts, insurance and annuity contracts,
funding media and related agreements and arrangements being hereinafter referred
to as the "Benefit Plans") comply with all requirements of the Department of
Labor and the Internal Revenue Service, and with all other applicable laws, and
the Company has not taken or failed to take any action with respect to the
Benefit Plans which might create any liability on the part of the Company or the
Purchaser. Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA) as
to each Benefit Plan has complied with all requirements of ERISA and all other
applicable laws in respect of each such Benefit Plan. The Company has furnished
to the Purchaser copies of all Benefit Plans and all financial statements,
actuarial reports and annual reports and returns filed with the Internal Revenue
Service with respect to such Benefit Plans prior to the date hereof. Such
financial statements and actuarial reports and annual reports and returns are
true and correct in all material respects, and none of the actuarial assumptions
underlying such documents have changed since the respective dates thereof. In
addition:
(i) Each Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to its qualification;
(ii) The Company does not maintain, sponsor or contribute
to, and has never maintained, sponsored or contributed to a "defined
benefit plan" (within the meaning of Section 3(35) of ERISA) or a
Multiemployer Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of
<PAGE>
18
the Code) has occurred with respect to any Benefit
Plan;
(iv) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Company in any way limits, impairs,
modifies or otherwise affects the right of the Company or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will
be required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(vii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any governmental agency
have been so filed on or before their due date; and
(viii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code or Section 601 of ERISA. The Company has complied with the notice
and continuation requirements of Section 4980B of the Code or Section
601 of ERISA and the regulations thereunder.
O. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with
19
<PAGE>
respect to the employment of individuals by, or the employment practices or work
conditions of, the Company, or the terms and conditions of employment, wages and
hours, which violations would have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth in Exhibit B, the Company is not
engaged in any unfair labor practice or other unlawful employment practice and
there are no charges of unfair labor practices or other employee-related
complaints pending or, to the best of the knowledge of the Company and the
Shareholder, threatened against the Company before the National Labor Relations
Board, the Equal Employment Opportunity Commission, the Occupational Safety and
Health Review Commission, the Department of Labor or any other federal, state,
local or other governmental authority. There is no strike, picketing, slowdown
or work stoppage or organizational attempt pending, or, to the best of the
knowledge of the Company and the Shareholder, threatened against or involving
the Business. No issue with respect to union representation is pending or
threatened with respect to the employees of the Company. No union or collective
bargaining unit or other labor organization has ever been certified or
recognized by the Company as the representative of any of the employees of the
Company.
P. Increases in Compensation or Benefits. Except as set forth
in Exhibit D, subsequent to the date of the 1996 Balance Sheet, there have been
no increases in the compensation payable or to become payable to any of the
employees of the Company and there have been no payments or provisions for any
awards, bonuses, loans, profit sharing, pension, retirement or welfare plans or
similar or other disbursements or arrangements for or on behalf of such
employees (or related parties thereof), in each case, other than pursuant to
currently existing plans or arrangements, if any, set forth in Exhibit E;
provided, however, that in no event was any such increase in compensation or any
such payment or provision made with respect to the Shareholder (or any members
of the family of the Shareholder). All bonuses heretofore granted to employees
of the Company have been paid in full to such employees. The vacation policy of
the Company is set forth in
20
<PAGE>
Exhibit E. Except as set forth in Exhibit E, no employee of the Company is
entitled to vacation time in excess of three weeks during the current calendar
year and no employee of the Company has any accrued vacation or sick time with
respect to any prior period.
Q. Insurance. A list and brief description of the insurance
policies maintained by the Company with respect to the Business is set forth in
Exhibit B. Such insurance policies are in full force and effect and all premiums
due thereon prior to or on the date of the Closing have been paid. The Company
has complied in all material respects with the provisions of such policies.
There are no notices of any pending or threatened termination or premium
increases with respect to any such policies, except where such terminations or
increases would not have a Material Adverse Effect. The Company has not had any
casualty loss or occurrence which may give rise to any claim of any kind not
covered by insurance and neither the Company nor the Shareholder is aware of any
occurrence which may give rise to any claim of any kind not covered by
insurance. No third party has filed any claim against the Company or the
Business for personal injury or property damage of a kind for which liability
insurance is generally available which is not fully insured, subject only to the
standard deductible. All claims against the Company or the Business covered by
insurance have been reported to the insurance carrier on a timely basis. The
Company has adequate insurance and reserves to cover any liability that may
arise out of any claims, including but not limited to workers compensation and
health insurance claims, that may be asserted against the Business for
occurrences prior to the date of the Closing.
R. Conduct of Business. The Company is not restricted from
conducting the Business in any location by agreement or court decree.
S. Allowances. The Company has no obligation outside of the
ordinary course of business to make allowances to any customers with respect to
the Business.
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<PAGE>
T. Use of Names. All names under which the Company currently
conducts the Business are listed in Exhibit B. To the best of the knowledge of
the Company and the Shareholder, there are no other persons or businesses
conducting businesses similar to those of the Company in the State of Florida
having the right to use or using the names set forth in Exhibit B or any
variants of such names; and no other person or business has ever attempted to
restrain the Company or the Shareholder from using such names or any variant
thereof.
U. Power of Attorney. The Company has not granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever, except as may have been granted pursuant to leases or as
otherwise disclosed herein.
V. Litigation; Disputes. Except as set forth in Exhibit B,
there are no material claims, disputes, actions, suits, investigations or
proceedings pending or, to the best of the knowledge of the Company and the
Shareholder, threatened against or affecting the Company, the Business or any of
the Assets, no such claim, dispute, action, suit, proceeding or investigation
has been pending or, to the best of the knowledge of the Company and the
Shareholder, threatened during the five-year period preceding the date of the
Closing and, to the best of the knowledge of the Company and the Shareholder,
there is no basis for any such claim, dispute, action, suit, investigation or
proceeding. Neither the Company nor either of the Shareholder has any knowledge
of any default under any such action, suit or proceeding. The Company is not in
default in respect of any judgment, order, writ, injunction or decree of any
court or of any federal, state, municipal or other government department,
commission, bureau, agency or instrumentality or any arbitrator.
W. Location of Business and Assets. Set forth in Exhibit B is
each location (specifying state, county and city) where the Company (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including equipment and furniture.
22
<PAGE>
X. Computer Software. The Company has the right to use all
computer software, including all property rights constituting part of that
computer software, used in connection with the Company's business operations
(the "Computer Software"). A list of all written licenses pertaining to the
Computer Software is set forth in Exhibit B (the "Licenses"). The Company has no
knowledge that any of the Licenses may not be valid or enforceable by the
Company or that the use of the Computer Software or any of the Licenses may
infringe upon or conflict with the rights of any third party. The Company has
not granted any licenses to use the Computer Software or any sub-licenses with
respect to any of the Licenses.
Y. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Company or either of
the Shareholder set forth herein, in the exhibits hereto or in any document
delivered by the Company or the Shareholder to the Purchaser, or any authorized
representative of the Purchaser, pursuant to this Agreement knowingly and
purposefully contains any untrue statement of a material fact or knowingly and
purposefully omits to state a material fact necessary to make the statements
herein or therein not misleading.
Z. Investment. (i) The Company has had access to such
information relating to the business and affairs of the Purchaser which the
Company and the Shareholder have reasonably requested, and all additional
information which the Company and the Shareholder have considered necessary to
verify the accuracy of the information so received. The Company and the
Shareholder have had the opportunity to ask questions of and receive answers
from the Purchaser concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, the Company and
the Shareholder are familiar with the operations, business plans and financial
condition of the Purchaser.
(ii) Each of the Company and the Shareholder
understands that the Purchaser may issue and deliver to the
23
<PAGE>
Company, as part of the Contingent Payments, shares of Purchaser Common Stock
pursuant to this Agreement, without compliance with the registration
requirements of the Securities Act; that for such purpose the Purchaser will
rely upon the representations, warranties, covenants and agreements contained
herein; and that such non-compliance with registration is not permissible unless
such representations and warranties are correct and such covenants and
agreements performed. Each of the Company and the Shareholder is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act.
(iii) Each of the Company and the Shareholder
understands that, under existing rules of the Securities and Exchange Commission
(the "SEC"), the Company may be unable to sell its shares of Purchaser Common
Stock except to the extent that its shares of Purchaser Common Stock may be sold
(i) pursuant to an effective registration statement covering such shares
pursuant to the Securities Act or (ii) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on any resale or (iii)
subject to the restrictions contained in Rule 144 under the Securities Act
("Rule 144"). Each of the Company and the Shareholder understands that the
Purchaser is under no obligation to effect a registration of their shares of
Purchaser Common Stock under the Securities Act.
(iv) Each of the Company and the Shareholder
is familiar with the provisions of Rule 144 and the limitations upon the
availability and applicability of such rule.
(v) Each of the Company and the Shareholder
is a sophisticated investor familiar with the type of risks inherent in the
acquisition of restricted securities such as the shares of Purchaser Common
Stock and their financial position is such that they can afford to retain the
shares of Purchaser Common Stock for an indefinite period of time without
realizing any direct or indirect cash return on their investment.
24
<PAGE>
(vi) The Company is acquiring its shares of
Purchaser Common Stock for its account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to, and
covenants and agrees with, the Purchaser, as of the date of the Closing, that:
A. Authority. The Shareholder is fully able to execute and
deliver this Agreement and to perform the Shareholder's covenants and agreements
hereunder, and this Agreement constitutes a valid and legally binding obligation
of the Shareholder, enforceable against the Shareholder in accordance with its
terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally.
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which the Shareholder is a party or by which the Shareholder or any
of the Shareholder's assets is bound, except as set forth in Exhibit B.
25
<PAGE>
SECTION IV
CONDUCT OF THE BUSINESS
Each of the Company and the Shareholder, jointly and
severally, hereby covenant and agree with the Purchaser that, except as
hereafter consented to in writing by the Purchaser, from and after the date of
this Agreement and until the Closing, the Company shall not:
A. Operation of the Business. Make a purchase, sale or
lease in respect of the Business or introduce any method of management,
accounting or operation in respect of the Business, except in a manner
consistent with prior practice.
B. Accounts Receivable. Fail to maintain sales or accounts
receivable on a normal basis or change the cash equivalent accounts or the
methods or procedures for billing, collecting, or recording customer accounts
receivable or reserves for doubtful accounts.
C. Properties, Plant and Equipment. Fail to maintain, repair,
service, preserve, and in any way further encumber, its properties, other than
accounts receivable collected upon and supplies used in the ordinary course of
business after the date hereof.
D. No Loans, Advances, etc. Make any loans or advances, debt
repayments or forgiveness, interest payments or forgiveness, or grant pay
raises, bonuses or awards, or unusual salary or other payments, disbursements or
other distributions, directly or indirectly, in any form to any management
personnel, employee, director, officer or shareholder of the Company, or any
relative of any such person, or entities or persons affiliated with or related
to any such management personnel, employee, director, officer or shareholder of
the Company other than in the ordinary course of business or as consistent with
prior practices.
E. No Dividends; Distributions; Payment of Certain
Indebtedness. Declare or pay any dividend or make
26
<PAGE>
any other distribution in respect of its capital stock, or, except as
specifically contemplated by this Agreement, directly or indirectly, purchase,
redeem or otherwise acquire or dispose of any shares of its capital stock or,
except in the ordinary course of business, pay or discharge any outstanding
indebtedness and in any event pay or discharge any outstanding indebtedness of
the Shareholder, the relatives or affiliates of the Shareholder or of any of the
management personnel, employees, directors or officers of the Company.
F. Preservation of Organization, Employees and Business
Relationships. Fail to use its best efforts to (i) preserve the present business
organization of the Company intact; (ii) keep available the services of the
present employees of the Business; and (iii) preserve present relationships and
goodwill with entities or persons having business dealings with the Business,
including, without limitation, existing customers of the Business.
G. Books and Records. Fail to maintain the books and
records of the Business in accordance with good business practices, on a basis
consistent with prior practice.
H. Compliance with Laws. Fail to use its best efforts to
comply in all material respects with all statutes, ordinances, regulations,
orders, judgments and decrees of every court or governmental entity or agency
applicable to the Company and to the conduct of the Business and perform all of
its obligations with respect thereto without default.
I. Maintenance of Insurance. Fail to maintain
and pay all premiums with respect to such policies of
insurance as are currently held in the name of the Company.
J. Contracts. Make any change adverse to the
Business in the terms of any Contract or fail to perform any
of its obligations with respect thereto without default.
27
<PAGE>
K. Claims. Waive, cancel, sell or otherwise
dispose of for less than the face value thereof any claim or
right the Company has against others.
L. Bonuses, etc. Take any action described in the first
sentence of Section II(P) hereof.
M. Billings; Accounts Payable. Fail to bill for services
rendered or permit any account payable or accrued expense of the Business to be
outstanding for more than sixty (60) days, other than accounts payable or
accrued expenses being diligently contested in good faith by the Company and as
to which the Purchaser shall have consented in writing.
N. Contracts. Enter into any contract, contractual obligation,
bank debt, lease, loan or other commitment, written or oral, or agreement for
amounts to be due to third parties, other than in the ordinary course of
business.
O. Encumbrances. Permit any encumbrance, lien
or attachment against any of its property.
P. Further Information. Fail to make available to the
Purchaser the books of account, records, Tax Returns, leases, contracts and
other documents or agreements of the Company and the Business as the Purchaser,
its counsel, accountants and its authorized representatives may from time to
time reasonably request.
Q. Cooperation. Fail to cooperate fully with the Purchaser, do
all things reasonably necessary to assist the Purchaser and use its reasonable
best efforts at its own expense to obtain all consents and approvals necessary
for the transfer of the Assets, including the furnishing of all financial and
other information reasonably required by the party whose consent or approval is
being sought.
28
<PAGE>
SECTION V
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDER AND THE PURCHASER
A. Publicity. Each of the Company and the Shareholder
covenants and agrees, jointly and severally, that any and all publicity (whether
written or oral) and notices to third parties (other than employees of the
Company) concerning the sale of the Assets and other transactions contemplated
by this Agreement shall be subject to the prior written approval of the
Purchaser, which approval may be withheld in the sole discretion of the
Purchaser.
B. Correspondence, etc. Each of the Company and the
Shareholder covenants and agrees, jointly and severally, that each of them will
deliver to the Purchaser, promptly after the receipt thereof, all inquiries,
correspondence and other materials received by either of them from any person or
entity relating to the Business or the Assets.
C. Books and Records. Each of the Company and the Shareholder
represents and warrants, jointly and severally, that the books and records of
the Company are in all respects complete and correct, have been maintained in
accordance with good business practices and accurately reflect the basis for the
financial position and results of operations of the Company set forth in the
Financial Statements. All of such books and records have been available for
inspection by the Purchaser and its representatives. Each of the Company and the
Shareholder covenants and agrees, jointly and severally, that each of them shall
give the Purchaser reasonable access to the historical financial books and
records of the Company, to the extent such books and records are not included in
the Assets, for a period of five years from the date of the Closing. The Company
or the Shareholder shall retain all such books and records in substantially
their condition at the time of the Closing. None of such books and records shall
be destroyed without the prior written approval of the
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Purchaser or without first offering such books and records to the Purchaser.
D. Discharge of Obligations. Each of the Company and the
Shareholder covenants and agrees, jointly and severally, to pay promptly and
otherwise to fulfill and discharge all obligations and liabilities of the
Company which are not Assumed Liabilities hereunder when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Assets, the
Business or the Purchaser, result in the imposition of any lien, charge or
encumbrance on any of the Assets, or adversely affect the Purchaser's title to
or use of any of the Assets.
E. Delivery of Funds. Subsequent to the Closing, each of the
Company and/or the Shareholder shall deliver on a daily basis any funds and any
checks, notes, drafts and other instruments for the payment of money, duly
endorsed to the Purchaser, received by any of them (i) comprising payment of any
of the accounts receivable of the Company constituting a part of the Assets and
(ii) comprising payment of any amounts due from customers of the Company or
others for services rendered by the Company prior to the Closing, including
pursuant to any agreements constituting part of the Assets.
F. Pass Through of Rights and Obligations. To the
extent that the Company and the Shareholder are unable to obtain any necessary
consents of third parties prior to the consummation of the transactions
contemplated hereby under the contracts, agreements, leases, insurance policies
and other instruments of the Company which are part of the Assets and are set
forth in Exhibit B (the "Exhibit B Contracts"), each of the Company and the
Shareholder covenant and agree to use their best efforts to obtain such consents
within thirty (30) days after the Closing. The Company and the Shareholder
covenant and agree (i) not to assign any such Exhibit B Contract to any party
other than the Purchaser (or the Designee), (ii) to use their best efforts to
keep such Exhibit B Contract in full force and effect, except as otherwise
directed by the Purchaser, (iii)
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to operate under such Exhibit B Contract only under the direction of the
Purchaser, (iv) to the extent such Exhibit B Contract requires by its terms the
performance of services by the Company, that the Purchaser is hereby
subcontracted and employed to perform all such services on behalf of the
Company, (v) to remit or otherwise provide to the Purchaser all revenues and
other benefits derived from such Exhibit B Contract immediately upon receipt
thereof and (vi) in the case of any Exhibit B Contract, in the event
that such consent cannot be obtained, to cooperate with the Purchaser and the
other party to such Exhibit B Contract to enable the Purchaser to enter into a
contract directly with such other party.
G. Working Capital. On or before 270 days from the date of the
Closing (the "Reconciliation Date"), the Purchaser shall calculate the amount of
the actual collections by the Purchaser after January 1, 1997, and prior to June
30, 1997(the "Collection Period") of the accounts receivable of the Business
which were outstanding on January 1, 1997 (the "Pre-Closing Receivables"). In
the event that the sum of the collections of Pre-Closing Receivables during the
Collection Period plus the amount of cash of the Company on January 1, 1997(the
"Closing Cash") exceeds (the "Excess") the sum of $1,200,000 plus the aggregate
amount of current liabilities per GAAP of the Company as of January 1, 1997 less
the amount of interest and principal of indebtedness to Barnett Bank and other
debt to former owners included in the current liabilities per GAAP as of January
1, 1997 (such amount is hereinafter referred to as the "Target Amount"), the
Purchaser shall pay to the Company the amount of such Excess on or before the
Reconciliation Date. In the event that the sum of the amount collected plus the
Closing Cash shall be less (the "Shortfall") than the Target Amount, each of the
Company and the Shareholder, jointly and severally, shall be obligated to pay on
or before the Reconciliation Date to the Purchaser the amount by which the sum
of the amounts of such collections and of Closing Cash are less than the Target
Amount. The Purchaser shall permit the Company to review the Purchaser's
calculations of collections of Pre-Closing Receivables and the amounts of the
Closing Cash, and the
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current liabilities per GAAP as of January 1, 1997 and the parties agree to
negotiate in good faith to resolve any controversies relating to such
calculations.
Any amount of Excess or Shortfall shall be paid to the Company
or the Purchaser, as the case may be, with interest at the rate of nine percent
(9%) per annum, such interest to accrue from the date of the Closing.
H. Fort Lauderdale Location. The Purchaser covenants and
agrees that the operations of the Business shall remain in the Fort Lauderdale,
Florida area for a period of three (3) years following the date of the Closing
unless the Shareholder consents to a move outside the Fort Lauderdale area.
I. Seniority of the Company's Employees. The Purchaser
covenants and agrees that the current employees of the Company shall be given
credit for their past service with the Company when considering their
eligibility for the Purchaser's employee benefits except with respect to
employee benefit plans such as 401(k), Profit Sharing and Stock Option plans.
SECTION VI
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the Assets as set forth herein (the "Closing") shall be held at the
offices of Kenneth W. Shapiro, P.A., 888 East Las OAS Blvd., Ft. Lauderdale, FL,
at 10:00 am January 15, 1997 or such other time and place as the parties
mutually agree upon.
B. Delivery of Assets. Delivery of the Assets shall be made by
the Company to the Purchaser (or the Designee) at the Closing by delivering such
deeds, bills of sale, assignments and other instruments of conveyance and
transfer, and such powers of attorney, as shall be effective to vest in the
Purchaser (or the Designee) title to or other
32
<PAGE>
interest in, and the right to full custody and control of, the Assets, free and
clear of all liens, charges, encumbrances and security interests whatsoever, all
of which documents shall be prepared by the Purchaser unless specifically
provided otherwise.
C. Sales and Use Taxes. Any and all sales or
use Taxes or any other Taxes or charges assessed in
connection with this transaction shall be paid by the
Company.
SECTION VII
CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE
Notwithstanding the Company's right to bring an action as a
result of the Purchaser's breach of or failure to perform any of its obligations
hereunder, which right the Purchaser hereby acknowledges, the obligation of the
Company to sell the Assets and the obligation of the Company otherwise to
consummate the transactions contemplated by this Agreement at the Closing are
subject to the following conditions precedent, any or all of which may be waived
by the Company in writing in its sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
A. No Litigation. No action, suit or proceeding against the
Company, the Shareholder or the Purchaser relating to the consummation of any of
the transactions contemplated by this Agreement or any governmental action
seeking to delay or enjoin any such transactions shall be pending or threatened.
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and,
on the date of the Closing, the Purchaser shall deliver to the Company a
certificate
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<PAGE>
dated the date of the Closing to such effect. All the terms, covenants and
conditions of this Agreement to be complied with and performed by the Purchaser
on or before the date of the Closing shall have been duly complied with and
performed in all material respects, and, on the date of the Closing, the
Purchaser shall deliver to the Company a certificate dated the date of the
Closing to such effect.
C. Other Certificates. The Company shall have received such
additional certificates, instruments and other documents in form and substance
satisfactory to it and its counsel, as it shall have reasonably requested in
connection with the transactions contemplated hereby.
D. Deliveries. All deliveries by the Purchaser required
hereunder shall have been made.
E. Payment of the Purchase Price. The Company shall have
received from the Purchaser a (i) wire transfer to the account designated by,
the Company in the amount of $6,500,000 and (ii) the Note, representing the
Purchase Price deliverable at Closing.
F. Employment Agreement. The Purchaser (or the Designee) and
the Shareholder shall have entered into an employment agreement (the "Employment
Agreement") substantially in the form of Exhibit F attached hereto.
G. Barnett Bank. The Shareholder, his wife Heather Edelstein,
and the Company shall have been released by Barnett Bank (the "Bank") from all
obligations to the Bank and all pledges of their assets to the Bank relating to
the Company's term loan from the Bank in the original principal amount of
$800,000 and the Company's line of credit with the Bank in the amount of up to
$100,000.
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SECTION VIII
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
Notwithstanding the Purchaser's right to bring an action as a
result of the Company's or the Shareholder's breach of or failure to perform any
of its or his obligations hereunder, which right each of the Company and the
Shareholder hereby acknowledges, the obligation of the Purchaser to purchase the
Assets and otherwise to consummate the transactions contemplated by this
Agreement at the Closing is subject to the following conditions precedent, any
or all of which may be waived by the Purchaser in its sole discretion, and each
of which the Company hereby agrees to use its best efforts to satisfy at or
prior to the Closing:
A. Opinion of the Company's Counsel. The Purchaser shall have
received an opinion of Kenneth W. Shapiro, P.A., counsel for the Company and the
Shareholder, delivered to the Purchaser pursuant to the instructions of the
Company and the Shareholder, dated the date of the Closing, substantially to the
effect set forth in Exhibit J attached hereto.
B. No Litigation. No action, suit or proceeding against the
Company, the Shareholder or the Purchaser relating to the consummation of any of
the transactions contemplated by this Agreement nor any governmental action
seeking to delay or enjoin any such transactions shall be pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Company and the Shareholder herein shall be correct as of
the date of the Closing in all respects with the same force and effect as though
such representations and warranties had been made as of the date of the Closing,
and, on the date of the Closing, the Company and the Shareholder shall deliver
to the Purchaser a certificate dated the date of the Closing to such effect. All
the terms, covenants and conditions of this Agreement to be complied with and
performed by the
<PAGE>
35
Company and the Shareholder on or before the date of the Closing shall have been
duly complied with and performed in all material respects and, on the date of
the Closing, the Company and the Shareholder shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect.
D. Other Certificates. The Purchaser shall have
received such other certificates, instruments and other documents, in form and
substance satisfactory to the Purchaser and its counsel, as it shall have
reasonably requested in connection with the transactions contemplated hereby.
E. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company or the Shareholder to
the consummation of the transactions contemplated hereby which consents shall
not provide for the acceleration of any liabilities or any other detriment to
the Purchaser or the Business.
F. Employment Agreement. The Purchaser (or the
Designee) and the Shareholder shall have entered into the
Employment Agreement.
G. Schulte Release. The Purchaser shall have received from
Schulte (i) a fully executed financing statement on Form UCC-3 releasing the
accounts receivable of the Company from Schulte's lien on such accounts
receivable and (ii) the original promissory note of the Company in the original
principal amount of $450,000 payable to the order of Schulte dated February 16,
1996, marked paid in full.
H. Stockholders Agreement. The Company and the
Purchaser shall have entered into a Stockholders Agreement in the form of
Exhibit G attached hereto.
I. Stock Purchase Agreement. The Shareholder
and the Purchaser shall have entered into a Stock Purchase
Agreement in the form of Exhibit H attached hereto.
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<PAGE>
J. Key Employee Employment Agreements. The Purchaser (or the
Designee) shall have entered into employment agreements with each of Brian
Henderson, Robert Bronner, Fran Lawrence, Mary Sanchez and Barbara Ginn
(collectively the "Key Employees") in the form of Exhibit I attached hereto (the
"Key Employee Employment Agreements").
K. Key Employee Stock Purchase Agreements. The Purchaser shall
issue to the Key Employees an aggregate of 50,000 shares of Purchaser Common
Stock and shall enter into with each of the Key Employees a Stock Purchase
Agreement in the form of Exhibit J attached hereto (collectively, the "Key
Employee Stock Purchase Agreements").
L. Deliveries. All deliveries by the Company and the
Shareholder required hereunder shall have been made, including such deeds, bills
of sale, assignments and other instruments of conveyance and transfer, and such
powers of attorney, as shall be effective to vest in the Purchaser (or the
Designee) title to or other interest in, and the right to full custody and
control of, the Assets, free and clear of all liens, charges, encumbrances and
security interests whatsoever.
M. Change of Name. The Purchaser shall have received evidence
that the Company has taken all steps necessary to change its name to a corporate
name other than Telemanagement Services and a written consent duly executed by
the Company evidencing its consent to the use by the Purchaser and any
subsidiaries, affiliated companies or assigns of the Purchaser of the name
Telemanagement Services and variants thereof.
N. Bank Release of the Company's Receivables. The Purchaser
shall have received from the Bank a fully executed financing statement on Form
UCC-3 releasing the accounts receivable of the Company from the Bank's liens on
such accounts receivable.
<PAGE>
37
SECTION IX
INDEMNIFICATION
A. Indemnification by the Company and the Shareholder. Each of
the Company and the Shareholder, jointly and severally, shall indemnify and hold
harmless the Purchaser from and against any and all losses, claims, assessments,
demands, damages, liabilities, obligations, costs and/or expenses whatsoever
(hereinafter referred to collectively as the "Purchaser's Damages"), including,
without limitation, Purchaser's Counsel Expenses (as hereinafter defined),
sustained or incurred by the Purchaser (or the Designee) as a result of or
arising from (a) the breach of any of the obligations, covenants or provisions
of, or the inaccuracy of any of the representations or warranties made by, the
Company or the Shareholder herein or (b) any liabilities or obligations of the
Company which are not Assumed Liabilities. For purposes hereof "Purchaser's
Counsel Expenses" shall mean reasonable fees and disbursements of counsel
howsoever sustained or incurred by the Purchaser (or the Designee), including,
without limitation, in any action or proceeding between the Purchaser and the
Shareholder and/or the Company or in any action or proceeding between the
Purchaser and any third party. In addition to the right of the Purchaser to
indemnification hereunder, the Purchaser shall have the right from time to time
to set off the amount of any of the Purchaser's Damages against any Contingent
Payments;
provided, however, that the Purchaser shall not have the right to set-off under
this Section IX(A) the amount of the Purchaser's Damages which it may sustain or
incur by reason of a breach of the Company's or Shareholder's covenants
contained in Section X hereof.
In the event that the Purchaser shall determine to exercise
its right to set off the amount of any of the Purchaser's Damages against any
Contingent Payments, the Purchaser shall give the Company sixty (60) days'
written notice (the "Set Off Notice Period") prior to any such set off, which
notice shall specify the amount of such set off and the nature of the
Purchaser's Damages. During the Set
<PAGE>
38
Off Notice Period, the Company shall have the right to attempt to mitigate any
such Purchaser's Damages or pay the amount of such Purchaser's Damages in lieu
of any set off. If the Purchaser and the Company are unable to agree on the
amount or cause of any of the Purchaser's Damages, the parties shall submit
their dispute to arbitration in accordance with Section XII(G) hereof; provided,
however, the Purchaser shall place into escrow any amounts it is seeking to set
off with an escrow agent mutually agreeable to the Company and the Purchaser.
Any amounts of cash set off by the Purchaser which are later awarded to the
Company in accordance with Section XII(G) hereof, shall accrue interest at a
rate of nine percent (9%) per annum from the time of any such set off.
B. Indemnification by the Purchaser. The
Purchaser shall indemnify and hold harmless each of the
Company and the Shareholder from and against any and all
losses, claims, assessments, demands, damages, liabilities,
obligations, costs and/or expenses whatsoever (hereinafter
referred to as the "Shareholder's Damages"; the
Shareholder's Damages and the Purchaser's Damages are
sometimes referred to herein as the "Damages"), including,
without limitation, Shareholder's Counsel Expenses (as
hereinafter defined), sustained or incurred by the Company
and/or the Shareholder as a result of or arising from (a)
the breach of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein
or (b) the Assumed Liabilities. For purposes hereof
"Shareholder's Counsel Expenses" shall mean reasonable fees
and disbursements of counsel howsoever sustained or incurred
by the Company and/or the Shareholder, including, without
limitation, in any action or proceeding between the
Shareholder and/or the Company and the Purchaser or in any
action or proceeding between the Shareholder and/or the
Company and any third party.
C. Procedure for Indemnification. In the event that any party
hereto shall incur (or anticipates that it may incur in the case of third party
claims) any Damages in respect of which indemnity may be sought by such party
<PAGE>
39
pursuant to this Section IX, the party indemnified hereunder (the "Indemnitee")
shall notify the party or parties providing indemnification (the "Indemnitor")
promptly; in the case of third party claims, such notice shall in any event be
given within thirty (30) days of the filing or assertion of any claim against
the Indemnitee stating the nature and basis of such claim; provided, however,
that any delay or failure to notify any Indemnitor of any claim shall not
relieve it from any liability except to the extent that the Indemnitor
demonstrates that the defense of such action is materially prejudiced by such
delay or failure to notify. In the case of third party claims, the Indemnitor
shall, within ten (10) days of receipt of notice of such claim, notify the
Indemnitee of its intention to assume the defense of such claim at its own
expense. If the Indemnitor shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against any such claim
or litigation in such manner as it may deem appropriate and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate. In the
event that a dispute arises concerning the obligation of the Indemnitor to
assume the defense of a claim, or a dispute arises concerning a claim hereunder
which does not involve a third party claim, or in the event that there is any
other dispute relating to indemnification, the parties shall submit any such
dispute to arbitration pursuant to Section XII(G) hereof; provided, however,
that the parties agree to negotiate in good faith for a period of at least sixty
(60) days prior to initiating arbitration to resolve any dispute. If it shall be
finally determined that the Indemnitor failed to assume the defense of any claim
for which the Indemnitor is liable to the Indemnitee for Damages, then the
expense of defending the claim shall be borne by the Indemnitor. Payment of the
Damages shall be made within ten (10) days of a final determination of a claim.
A final determination of a claim shall be (i) a judgment of
any court determining the validity of a disputed claim, if no appeal is pending
from such judgment and if the time to appeal therefrom has elapsed, (ii) an
award of any arbitration determining the validity of such disputed claim, it
there is not pending any motion to set aside such award
<PAGE>
40
or if the time within which to move to set such award aside has elapsed,
(iii) a written termination of the dispute with respect to such claim signed by
all of the parties thereto or their attorneys and the Indemnitors, (iv) a
written acknowledgment of the Indemnitor that he or it no longer disputes the
validity of such claim, or (v) such other evidence of final determination of a
claim as shall be acceptable to the parties.
As used herein, the term "Damages" shall refer to the Purchaser's
Damages or the Shareholder's Damages as the context requires.
D. Agreements Concerning Indemnification. It is
specifically understood and agreed that:
(i) The Company and the Shareholder shall not
be obligated to indemnify the Purchaser for the Purchaser's Damages unless and
until the aggregate amount of all claims for such Purchaser's Damages exceeds
$250,000 (the "Basket") at which time claims may be asserted for the excess of
such amount.
(ii) The Company and the Shareholder shall not
be obligated to indemnify the Purchaser for the Purchaser's Damages in excess of
an aggregate of $1,250,000 (the "Cap") and the obligations of the Company and
the Shareholder for indemnification hereunder shall terminate when the Cap has
been paid.
SECTION X
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither the Company nor the Shareholder
shall, (a) subsequent to the date of the Closing and until the Shareholder is no
longer employed by the Purchaser or other member of the Purchaser Group pursuant
to his Employment Agreement (provided, however, that (q) if the Shareholder's
employment pursuant
<PAGE>
41
to his Employment Agreement is terminated for due cause (as defined in the
Employment Agreement) or (r) if the Shareholder voluntarily resigns his position
under the Employment Agreement or (s) if at the end of the term of the
Employment Agreement there is no renewal of such Employment Agreement, or (t) if
the Shareholder's employment under his Employment Agreement is terminated by the
Purchaser pursuant to Section 6.4 of the Employment Agreement after January 15,
2000, then the length of this non-competition covenant shall be two years from
the date of such due cause termination, resignation, non-renewal or Section 6.4
termination), directly or indirectly, (i) engage, whether as principal, agent,
investor, distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any activity or business venture
which is competitive with the Business as conducted on the date hereof or any
other business of the Purchaser or any other member of the Purchaser Group ( as
hereinafter defined) which the Shareholder has operational or administrative
responsibility for during his employment with the Purchaser, (ii) solicit or
entice or endeavor to solicit or entice away from any member of the Purchaser
Group any person who was or is at the time of the solicitation or enticement a
director, officer, employee, agent or consultant of such member of the Purchaser
Group, either on the Company's or the Shareholder's own account or for any
person, firm, corporation or other organization, whether or not such person
would commit any breach of such person's contract of employment by reason of
leaving the service of such member of the Purchaser Group, (iii) solicit or
entice or endeavor to solicit or entice away any person who was or is at the
time of the solicitation or enticement a client or customer of any member of the
Purchaser Group, either on the Company's or the Shareholder's own account or for
any other person, firm, corporation or organization, or (iv) employ any person
who was a director, officer or employee of any member of the Purchaser Group or
any person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Purchaser Group, or (b) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the
<PAGE>
42
Purchaser Group or the business reputation or good name of any member of the
Purchaser Group, or be otherwise detrimental to the Purchaser, including any
action or statement intended, directly or indirectly, to benefit a competitor of
any member of the Purchaser Group. Because the remedy at law for any breach of
the foregoing provisions of this Section X would be inadequate, the Company and
the Shareholder hereby consent, in case of any such breach, to the granting by
any court of competent jurisdiction of specific enforcement, including, but not
limited to pre-judgment injunctive relief, of such provisions, as provided for
in Section XII(F) hereof.
Notwithstanding anything to the contrary contained in this
Section X, it is understood and agreed that the Shareholder shall be permitted,
subsequent to any termination of his employment with the Purchaser, to work in a
managerial, sales and/or marketing position for a pharmaceutical company.
The Purchaser agrees that in the event of a breach of the
covenants and agreements of the Company and the Shareholder contained herein,
the Purchaser may seek injunctive relief and recovery of its actual monetary
Damages but will not seek rescission of this Agreement unless the applicable
breach by the Company or the Shareholder of the covenants and agreements of the
Company or the Shareholder set forth in this Section X shall include the
Company's or the Shareholder's association (as employer, joint venturer, etc.)
with any of the current or former employees of the Company in a competitive
endeavor or the Company's or the Shareholder's servicing or doing business with
any of the customers or clients of the Purchaser Group or the Business.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the
<PAGE>
43
intention of the parties to the maximum extent permitted by law.
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and parent entities
operating in the same lines of business.
SECTION XI
BROKERS AND FINDERS
A. The Shareholder's Obligation. The Purchaser shall not have
any obligation to pay any fee or other compensation to any person, firm or
corporation dealt with by the Company or the Shareholder in connection with this
Agreement and the transactions contemplated hereby, and the Company and the
Shareholder, jointly and severally, hereby agree to indemnify and save the
Purchaser harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
B. The Purchaser's Obligation. Neither the Company nor the
Shareholder shall have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Purchaser in connection with
this Agreement and the transactions contemplated hereby, and the Purchaser
hereby agrees to indemnify and save the Company and the Shareholder harmless
from any liability, damage, cost or expense arising from any claim for any such
fee or other compensation.
SECTION XII
MISCELLANEOUS
A. Notices. All notices, requests or
instructions hereunder shall be in writing and delivered
personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, as follows:
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44
(1) If to the Company or the Shareholder:
Lee H. Edelstein
4901 Northwest 17 Way, Sixth Floor
Fort Lauderdale, Florida 33309
Telecopy No.: (954) 938-2424
Telephone No.: (954) 938-2400
with a copy to:
Kenneth W. Shapiro, P.A.
888 East Las Olas Boulevard, Suite 200
Fort Lauderdale, Florida 33301
Attention: Kenneth W. Shapiro, Esq.
Telecopy No.: (954) 467-6158
Telephone No.: (954) 523-0900
(2) If to the Purchaser:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
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45
B. Survival of Representations. Subject to the limitations
described in Section IX, each representation, warranty, covenant and agreement
of the parties hereto herein contained shall survive the Closing,
notwithstanding any investigation at any time made by or on behalf of any party
hereto, for a period of one (1) year from the date of the Closing (the "Survival
Period"); except (a) for covenants and agreements to be performed subsequent to
the Closing and (b) that nothing in the foregoing shall be deemed to diminish
any Indemnitor's indemnification obligations to an Indemnitee respecting claims
for Damages properly made prior to the last day of the Survival Period (or the
applicable statutes of limitations period for claims for Damages based on common
law fraud which shall survive for the duration of the applicable statutes of
limitations periods).
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement. The Shareholder agrees to execute
and deliver any reasonable and customary management representation letter
requested by the Purchaser's independent certified public accountants in
connection with their audit of the S-X Financial Statements.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Injunctive Relief. Notwithstanding the provisions of
Section XII(G) hereof, in the event of a breach or threatened breach by the
Company or the Shareholder of the provisions of Section X of this
<PAGE>
46
Agreement, each of the Company and the Shareholder hereby consents and agrees
that the Purchaser shall be entitled in order to maintain the status quo ante
pending the outcome of any arbitration pursuant to XII(G) to an injunction or
similar equitable relief restraining the Company or the Shareholder, as the
case may be, from committing or continuing any such breach or threatened breach
or granting specific performance of any act required to be performed by the
Company or the Shareholder, as the case may be, under any such provision,
without the necessity of showing any actual damage or that money damages would
not afford an adequate remedy and without the necessity of posting any bond in
excess of $50,000. The parties hereto hereby consent to the jurisdiction of the
federal courts for the Southern District of Florida and the Florida state courts
located in such District for any proceedings under this Section XII(F). The
parties hereto agree that the availability of arbitration in Section XII(G)
hereof shall not be used by any party as grounds for the dismissal of any
injunctive actions instituted by the Purchaser pursuant to this Section XII(F).
G. Dispute Resolution.
(i) Arbitration. The parties shall attempt
amicably to resolve disagreements by negotiating with each other. In the event
that the matter is not amicably resolved through negotiation, any controversy,
dispute or disagreement arising out of or relating to this Agreement (a
"Controversy") shall be submitted to the American Arbitration Association for
final binding arbitration, which shall be conducted by a single arbitrator in
the Fort Lauderdale, Florida area, pursuant to the American Arbitration
Association Arbitration Rules (the "Rules"). The parties agree that,
notwithstanding anything to the contrary contained in the Rules, the arbitrator
shall not award consequential, exemplary, incidental, punitive or special
damages.
(ii) Procedure. It is agreed that if any
party shall desire relief of any nature whatsoever from any other party as a
result of any Controversy, such party will
<PAGE>
47
initiate such arbitration proceedings within a reasonable time, but in no
event more than eighteen (18) months after the facts underlying said
Controversy first arise or become known to the party seeking relief (whichever
is later), except for claims for indemnification and/or concerning
representations and warranties, which claims are governed by shorter time
limitations as set forth elsewhere herein. The failure of such party to
institute such proceedings within said period shall be deemed a full waiver of
any claim for such relief. The parties shall bear equally all costs of said
arbitration (other than their own attorney's fees and costs). The parties agree
that the decision and award of the Arbitrator shall be final and conclusive upon
the parties, in lieu of all other legal, equitable (except as provided in
Section XII(F) above), or judicial proceedings between them, and that no appeal
or judicial review of the award or decision of the Arbitrator shall be taken,
but that such award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is sought. Any
equitable relief awarded under Section XII(F) shall be dissolved upon issuance
of the Arbitrator's decision and order.
H. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be unenforceable,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto.
I. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company and
the Purchaser, respectively, and the legal representatives and heirs of the
Shareholder. At the Company's option, the Company may assign the right to
receive the Contingent Payments to another entity of which the Shareholder has a
controlling interest.
J. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement,
<PAGE>
48
shall be construed pursuant to and in accordance with the laws of the State of
Florida, without regard to conflict of laws principles.
K. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
L. Additional Provisions Regarding Representations and
Warranties. By closing on the transaction contemplated herein, the Purchaser
will have acknowledged that, to the best of its knowledge and belief, it has had
full, free and unfettered access to all books, records, documents, personnel and
other information concerning the Company which the Purchaser deemed necessary
for full and complete consideration of the condition of the Assets it is
purchasing, and the Assumed Liabilities it is acquiring, hereby; provided,
however, that this statement shall not be deemed to limit in any manner
whatsoever the Purchaser's rights to indemnification set forth herein.
Furthermore, with respect to each and every representation and warranty made
herein by the Company and/or the Shareholder, jointly and/or severally, neither
the Company nor the Shareholder shall have any liability for any incorrect,
inaccurate, or erroneous representation and/or warranty (hereinafter, "Faulty
Reps") unless and until the aggregate of all Damages arising out of said Faulty
Reps exceeds $250,000, at which time claims may be asserted by the Purchaser for
the excess of such amount; provided, however, that the maximum combined
liability of the Company and the Shareholder for any Faulty Reps shall be
$1,250,000, and provided further that all claims for damages on the basis of
Faulty Reps must be made within one (1) year from the date of Closing (the
"Survival Period") or be deemed waived, it being expressly understood that no
representation, warranty, or claim based on same shall survive beyond the
Survival Period.
* * *
<PAGE>
49
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
TELEMANAGEMENT SERVICES, INC.
By: /s/ Lee H. Edelstein
___________________________
Name: Lee H. Edelstein
Title: President
/s/ Lee H. Edelstein
------------------------------
Lee H. Edelstein
TLM HOLDINGS CORP.
By: /s/ Liam Donohue
---------------------------
Name: Liam S. Donohue
Title: Vice President
<PAGE>
<PAGE>
EXHIBIT 2(d)
<PAGE>
AGREEMENT OF PURCHASE AND SALE
By and Among
HISPANIC MARKET CONNECTIONS, INC.,
M. ISABEL VALDES
and
CULTURALACCESSWORLDWIDE INC.
<PAGE>
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT made as of the 1st day of September, 1997 by
and among Hispanic Market Connections, Inc., a California corporation (the
"Company"), M. Isabel Valdes (the "Shareholder"), and CulturalAccessWorldwide
Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged, among other things, in the
business of providing ethnic market research and related activities in the State
of California (such activities being hereinafter referred to as the "Business");
WHEREAS, the Shareholder is the holder of [100,000] shares of
common stock, without par value (the "Common Stock"), of the Company, which
shares constitute all of the issued and outstanding shares of capital stock of
the Company (all such shares of Common Stock held by the Shareholder being
hereinafter referred to as the "Shares"); and
WHEREAS, the Purchaser desires to acquire all of the Shares
from the Shareholder, and the Shareholder desires to sell all of the Shares to
the Purchaser, on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF THE SHARES
A. Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing (as
hereinafter defined), the Shareholder agrees to sell, assign and convey to the
Purchaser, and the Purchaser agrees to purchase, acquire and accept from the
Shareholder, all of the Shares.
<PAGE>
2
B. Purchase Price for the Shares. The purchase price (the
"Purchase Price") for the Shares is (a) $1,500,000, in cash, (b) a 6.5%
subordinated promissory note of the Purchaser (the "Note"), substantially in the
form of Exhibit A attached hereto, payable to the order of the Shareholder in
the principal amount of $240,000 and (c) the contingent payments, if earned,
provided for in Section I(C) hereof (such payments, the "Earn-Out Payments").
The Purchase Price for the Shares payable at the Closing shall be paid by
delivery to the Shareholder of (i) a wire transfer to an account designated by,
the Shareholder in the amount of $1,500,000 and (ii) the Note.
C. Earn-Out Payments. Subject to the conditions set forth
herein and in Schedule I hereto, within ninety (90) days after December 31,
1998, December 31, 1999, and December 31, 2000, respectively, the Purchaser
shall deliver to the Shareholder, in additional payment for the Shares, the
Earn-Out Payments, if any, payable with respect to the twelve-month periods
(each, an "Earn-Out Period") ending December 31, 1998, December 31, 1999, and
December 31, 2000, respectively. The amount of the Earn-Out Payments payable to
the Shareholder with respect to each Earn-Out Period shall be (i) based upon the
achievement by the Company of targeted "net revenues" (as hereinafter defined)
and targeted "EBITA" (as hereinafter defined) as a percentage of net revenues
and (ii) determined in accordance with the provisions hereof and Schedule I
hereto and the terms of the earn-out matrix set forth in Schedule II hereto (the
"EarnOut Matrix"). Each of the Earn-Out Payments, if earned, shall be made by
delivery to the Shareholder of (i) a wire transfer to an account designated by,
the Shareholder and (ii) a certificate representing shares of the common stock,
$.01 par value, of the Purchaser (the "Purchaser Common Stock") registered in
the name of the Shareholder, in each case, in such amounts of cash and such
number of shares of Purchaser Common Stock as are determined in accordance with
Schedules I and II hereto. It is understood and agreed that the Earn-Out
Payments are not conditioned upon the Purchaser's continued employment of the
Shareholder.
D. Computation of Net Revenues and EBITA. The Purchaser shall,
within ninety (90) days after the end of each Earn-Out Period, compute the
amount of the net revenues and EBITA of the Company for such Earn-Out Period.
For purposes of calculation of net revenues and EBITA, the Business shall be
accounted for as a separate business enterprise with separate financial books
and accounting records, notwithstanding that the Business is owned or operated
by one or more legal entities. The amounts so computed shall be the net revenues
and EBITA for purposes of
<PAGE>
3
determining whether or not Earn-Out Payments shall be due and payable. For
purposes of this Agreement, "net revenues" of the Company shall mean the net
revenues of the Company for the applicable period as determined in accordance
with generally accepted accounting principles consistent with the Purchaser's
accounting practices and "EBITA" shall mean earnings before interest, income
taxes and amortization of the Company for the applicable period as determined in
accordance with generally accepted accounting principles consistent with the
Purchaser's accounting practices. For purposes of determining EBITA, no
deduction will be made for (i) 50% of the Shareholder's salary and 100% of the
Shareholder's bonus payment under the Shareholder's employment agreement with
the Purchaser and (ii) corporate overhead charges. The Purchaser agrees that the
Purchaser will provide the Company with working capital at a level and take such
other actions which, in the Purchaser's reasonable judgment, will permit the
Company to maximize its net revenues and EBITA, subject at all times to the
Purchaser's obligations to its shareholders and any applicable statutory or
regulatory requirements. Notwithstanding the determination of net revenues or
EBITA for any Earn-Out Period by the Purchaser, the Shareholder shall have the
right to receive the information upon which such determination was made, and
shall, in the event of a dispute as to the amount or method of calculation of
such net revenues or EBITA, have the right to review all work papers relating to
the determination of such net revenues or EBITA. If the Shareholder shall
disagree with the Purchaser's determination of net revenues or EBITA for any
Earn-Out Period and/or the amount of the resulting Earn-Out Payments, the
Shareholder shall notify the Purchaser within fifteen (15) days of receipt of
Purchaser's computations and the Purchaser and the Shareholder shall in good
faith attempt to agree upon the amount of the Earn-Out Payments within ninety
(90) days after the end of the Earn-Out Period. If the Purchaser and the
Shareholder are unable to agree within such period, then the amount of the
Earn-Out Payments shall be determined as soon as possible thereafter by the San
Francisco office of one of the six largest national accounting firms mutually
selected by the Purchaser and the Shareholder (the "Earn-Out Arbitrator"), for a
final and binding determination. In the event that the Earn-Out Arbitrator
determines that there is a deficiency of greater than ten percent (10%) in the
amount of the Earn-Out Payments, then the Purchaser shall be obligated to pay
the fees of the Earn-Out Arbitrator. In the event that the Earn-Out Arbitrator
determines that there is a deficiency of greater than five percent (5%) but less
than or equal to ten percent (10%) in the amount of the Earn-Out Payments, then
the Purchaser and the Shareholder shall each pay one-half of
<PAGE>
4
the fees of the Earn-Out Arbitrator. In all other events,
the Shareholder shall pay the fees of the Earn-Out
Arbitrator.
Numbers of shares of Purchaser Common Stock set forth herein
shall be appropriately adjusted for any stock split, stock dividend, reverse
stock split or other similar event affecting the Purchaser Common Stock.
Fractional shares shall be rounded up to the nearest whole share.
In the event (a "Reorganization") of the consolidation or
merger of the Purchaser with or into another person or the acquisition of all or
substantially all the Purchaser Common Stock or all or substantially all of the
assets of the Purchaser by another person (other than a consolidation or merger
in which the Purchaser is the continuing corporation and which does not result
in any change in the Purchaser Common Stock), the Purchaser shall have the
option to pay the Shareholder at such time as a payment is due pursuant to
Section I(C) hereof, in lieu of the Purchaser Common Stock provided for in such
Section, the consideration (the "Reorganization Consideration") per share in the
form (in stock or cash or other consideration) payable to the other holders of
Purchaser Common Stock in connection with such transaction, multiplied by the
number of shares of Purchaser Common Stock deliverable to the Shareholder
provided for in Section I(C) hereof; provided however, that if, (i) following a
Reorganization, John Fitzgerald is not the chief executive officer of the
surviving corporation and (ii) the Reorganization Consideration consists of
common stock of the surviving corporation, then the Shareholder shall have the
right to elect to receive, in lieu of the Reorganization Consideration, 75% of
the portion of the Earn-Out Payments (the "Stock Portion") which would otherwise
have been paid in Purchaser Common Stock in cash and 25% of the Stock Portion in
Reorganization Consideration as provided above, assuming for this purpose that
the portion of the Target 100% Earn-Out Payments to be paid in Purchaser Common
Stock is valued in the aggregate at $420,000.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDER
Each of the Company and the Shareholder, jointly and
severally, hereby represents and warrants to, and covenants and agrees with, the
Purchaser, as of the date of the Closing, that:
<PAGE>
5
A. Organization and Qualification. The Company is duly
organized, validly existing and in good standing under the laws of the State of
California and has full corporate power and authority to own its properties and
to conduct the businesses in which it is now engaged. The Company is in good
standing in each other jurisdiction wherein the failure so to qualify would have
a material adverse effect on the financial condition, business, operations,
results of operations, assets or properties of the Company (a "Material Adverse
Effect"). The Company does not own any subsidiaries, nor does it own any capital
stock or other proprietary interest, directly or indirectly, in any other
corporation, association, trust, partnership, joint venture or other entity and
has no agreement with any person, firm or corporation to acquire any such
capital stock or other proprietary interest. The Company has full corporate
power, authority and legal right, and all necessary approvals, permits, licenses
and authorizations, to own its properties and to conduct the businesses
conducted by it and to enter into and consummate the transactions contemplated
under this Agreement, except for such approvals, permits, licenses and
authorizations, the absence of which would not have a Material Adverse Effect.
The copies of the articles of incorporation and by-laws of the Company which
have been delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Company, the performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the articles of incorporation or by-laws of the
Company or any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency or board, or conflicts with or will result in any
breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Company is a party or by which the
<PAGE>
6
Company or any of the Assets is bound, except where such violation, conflict,
breach, default, termination or lien creation would not have a Material Adverse
Effect. No consents, approvals or authorizations of, or filings with, any
governmental authority or any other person or entity are required in connection
with the execution and delivery of this Agreement by the Shareholder and the
Company and the consummation by the Shareholder of the transactions contemplated
hereby, except for required consents, if any, to assignment of permits,
certificates, contracts, leases and other agreements as set forth in Exhibit B
attached hereto.
D. Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of Common Stock, 1,000,000 shares of preferred
stock, without par value (the "Preferred Stock"), of which 100,000 shares of
Common Stock and no shares of Preferred Stock are issued and outstanding. All of
the issued and outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and non-assessable. All of the issued
and outstanding shares of Common Stock are owned beneficially and of record by
the Shareholder, free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever. There are no outstanding subscriptions, warrants,
options, calls, commitments or other rights or agreements to which the Company
or the Shareholder is bound relating to the issuance, sale or redemption of
shares of Common Stock, Preferred Stock or other securities of the Company. No
person other than the Shareholder has any interest in the Common Stock or
Preferred Stock. No shares of capital stock or other securities of the Company
are reserved for any purpose.
E. Financial Statements; No Undisclosed Liabilities. The
Company and the Shareholder have delivered to the Purchaser balance sheets of
the Company as of July 31, 1997, December 31, 1996, December 31, 1995 and
December 31, 1994 and the related statements of income and cash flows for the
periods then ended, which financial statements (hereinafter referred to as the
"Financial Statements") have been internally prepared by the Company. The
Financial Statements are true and correct in all material respects and have been
prepared in accordance with the cash basis of accounting consistently throughout
the periods involved. The Financial Statements fully and fairly present on the
cash basis of accounting the financial condition of the Company as at the dates
thereof and the results of the operations of the Company for the periods
indicated. The balance sheets contained in the Financial Statements fairly
reflect all liabilities of the Company of
<PAGE>
7
the types normally reflected in balance sheets prepared on the cash basis of
accounting as at the dates thereof. Except to the extent set forth in or
provided for in the balance sheet of the Company as of July 31, 1997 (the
"Balance Sheet Date") included in the Financial Statements (the "1997 Balance
Sheet") or as identified in Exhibit B, and except for current liabilities
incurred in the ordinary course of business consistent with past practices (and
not materially different in type or amount), the Company has no material
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due, whether properly reflected under
generally accepted accounting principles as a liability or a charge or reserve
against an asset or equity account, and whether the amount thereof is readily
ascertainable or not. A true and correct copy of the Financial Statements is
attached hereto as Exhibit C.
F. Absence of Certain Changes. Except as set forth in Exhibit
B, subsequent to the Balance Sheet Date there has not been any (i) change in the
condition of the Business, financial or otherwise, or in the results of the
operations of the Company which has or could reasonably be expected to have a
Material Adverse Effect; (ii) material damage or destruction (whether or not
insured) affecting the properties or business operations of the Company; (iii)
labor dispute or, to the best of the knowledge of the Company and the
Shareholder, threatened labor dispute involving the employees of the Company;
(iv) actual or, to the best of the knowledge of the Company and the Shareholder,
threatened disputes pertaining to the Business with any major accounts of the
Company, or actual or, to the best of the knowledge of the Company and the
Shareholder, threatened loss of business from any of the major accounts of the
Company; or (v) changes in the methods or procedures for billing or collection
of customer accounts or recording of customer accounts receivable or reserves
for doubtful accounts with respect to the Company.
G. No Dividends, Loans, etc. Except as set forth on Exhibit B,
subsequent to the Balance Sheet Date, the Company has not declared or paid any
dividend or made any other distribution in respect of its capital stock or,
directly or indirectly, purchased, redeemed or otherwise acquired or disposed of
any shares of its capital stock; and the Company has not, except in the ordinary
course of business, paid or discharged any outstanding indebtedness. Subsequent
to the Balance Sheet Date, the Company has paid all normal and recurring
installments (i) of bank indebtedness, (ii) under leases and contractual
obligations and (iii) of other amounts due and payable to any persons.
<PAGE>
8
Subsequent to the Balance Sheet Date, except as set forth in Exhibit B, the
Company has not incurred any bank indebtedness, entered into any leases, loan
agreements or contracts, obligations or arrangements for the payment of money or
property to any person, or permitted any liens or encumbrances to attach to its
assets. Subsequent to the Balance Sheet Date, the Company has not (i) made any
loans or advances to the Shareholder or members of the family of the
Shareholder, (ii) repaid the principal of or interest on any indebtedness of the
Company to the Shareholder or members of the family of the Shareholder, or (iii)
forgiven any principal of or interest on any indebtedness of the Shareholder or
members of the family of the Shareholder to the Company.
H. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by the Company or in which the
Company has any interest is set forth in Exhibit B. Except as set forth in
Exhibit B, all such leased real property is held subject to written leases or
other agreements which are enforceable in accordance with their respective
terms, and there are no existing defaults or events of default, or events which
with notice or lapse of time or both would constitute defaults, thereunder on
the part of the Company, except for defaults, if any, which could not have a
Material Adverse Effect. Neither the Company nor the Shareholder has any
knowledge of any material default or claimed or purported or alleged material
default on the part of any other party in the performance of any obligation to
be performed or paid by such other party under any lease referred to in Exhibit
B. Except as set forth in Exhibit B, neither the Company nor the Shareholder has
received any written or oral notice to the effect that any lease will not be
renewed at the termination of the term thereof or that any such lease will be
renewed only at a substantially higher rent.
I. Title to Assets; Condition of Property. The Company has
good and valid title to all its owned properties and assets, real, personal and
mixed, tangible and intangible used in the operations of the Business as
currently conducted, except where the failure to have good and valid title would
not have a Material Adverse Effect. Except as set forth in Exhibit B, the
Company leases or owns all properties and assets used in the operations of the
Business as currently conducted. All such properties and assets are in good
condition and repair, consistent with their respective ages and subject to
ordinary wear and tear, and have been maintained and serviced in accordance with
the normal practices of the Company and as necessary in the normal course of
business. None of the assets or properties
<PAGE>
9
of the Company is subject to any liens, charges, encumbrances or security
interests, except as set forth in Exhibit B. None of the assets or properties of
the Company (or uses to which they are put) fails to conform with any applicable
agreement, law, ordinance or regulation in a manner which could have a Material
Adverse Effect. The Purchaser understands that the items listed in Exhibit B
under the heading "Personal Property of the Shareholder" are the personal
property of the Shareholder and are not part of the Company.
J. Taxes. (i) The Company has filed or caused to be filed on a
timely basis all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by it. All
Tax Returns filed by or on behalf of the Company are true, complete and correct
in all material respects. The Company has paid all income, estimated, excise,
franchise, gross receipts, capital stock, profits, stamp, occupation, sales,
use, transfer, value added, property (whether real, personal or mixed),
employment, unemployment, disability, withholding, social security, workers'
compensation and other taxes, and interest, penalties, fines, costs and
assessments (collectively, "Taxes"), due and payable with respect to the periods
covered by such Tax Returns (whether or not reflected thereon). There are no Tax
liens on any of the properties or assets, real, personal or mixed, tangible or
intangible, of the Company. Since the Balance Sheet Date, the Company has not
incurred any tax liability other than in the ordinary course of business. No Tax
Return of the Company has ever been audited except where issues have been fully
resolved and deficiencies have been fully paid. No deficiency in Taxes for any
period has been asserted by any taxing authority which remains unpaid at the
date hereof (the results of any settlement being set forth in Exhibit B), no
written inquiries or notices have been received by the Company from any Taxing
authority with respect to possible claims for Taxes, the Company has no reason
to believe that such an inquiry or notice is pending or threatened, and there is
no basis for any additional claims or assessments for Taxes. Except as set forth
on Exhibit B, the Company has not agreed to the extension of the statute of
limitations with respect to any Tax Return or Tax period. The Company has
delivered to the Purchaser copies of the federal and state income Tax Returns
filed by the Company for the past three years and for all other past periods as
to which the appropriate statute of limitations has not lapsed.
<PAGE>
10
(ii) Tax Returns. The Shareholder at her own
expense shall be responsible for preparing and filing any and all separate
federal, state, municipal and other income or franchise Tax Returns of the
Company required to be filed by the Company only in respect of any and all
periods up to and including the date of the Closing (including, without
limitation, the Company's federal income Tax Returns for the short taxable year
ending with the date of the Closing) to the extent not already filed, whether or
not required to be filed on or before the date of the Closing, and shall pay all
income or franchise Taxes (and interest, penalties, fines or assessments
thereon) due and payable by the Company for all periods up to and including the
date of the Closing to the extent not already paid (including, without
limitation, the federal income Taxes due and payable with respect to the short
taxable year referenced in the preceding sentence.) The Shareholder shall review
all such Tax Returns with the Purchaser prior to filing and shall submit such
proof of payment of the Taxes due as the Purchaser shall reasonably request.
K. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default
under any, and has complied with all, statutes, ordinances, regulations and
laws, orders, judgments and decrees of any court or governmental entity or
agency, relating to the Business or the assets and properties of the Company as
to which a default or failure to comply could have a Material Adverse Effect on
the Business or the assets and properties of the Company. Neither the Company
nor the Shareholder has any knowledge of any basis for assertion of any
violation of the foregoing or for any claim for compensation or damages or
otherwise arising out of any violation of the foregoing. Within the past three
(3) years, neither the Company nor the Shareholder has received any notification
of any asserted present or past failure to comply with any of the foregoing
which has not been satisfactorily responded to in the time period required
thereunder.
(ii) Permits; Intellectual Property. Set
forth in Exhibit B is a complete and accurate list of all material permits,
licenses, approvals, franchises, patents, registered and common law trademarks,
service marks, tradenames, copyrights (and applications for each of the
foregoing), notices and authorizations issued by governmental entities or other
regulatory authorities, federal, state or local (collectively the "Permits"),
held by the Company. The Permits set forth in Exhibit B are all the material
Permits required for the conduct of the Business. To the Knowledge of each of
the Company and the
<PAGE>
11
Shareholder, all the Permits set forth in Exhibit B are in full force and
effect, and, to the Knowledge of each of the Company and the Shareholder, the
Company has not engaged in any activity which would cause or permit revocation
or suspension of any such Permit, and to the Knowledge of each of the Company
and the Shareholder, no action or proceeding looking to or contemplating the
revocation or suspension of any such Permit is pending or threatened. To the
Knowledge of each of the Company and the Shareholder, there are no existing
material defaults or events of default or event or state of facts which with
notice or lapse of time or both would constitute a default by the Company under
any such Permit. Neither the Company nor the Shareholder has any knowledge of
any default or claimed or purported or alleged default or state of facts which
with notice or lapse of time or both would constitute a material default on the
part of any other party in the performance of any obligation to be performed or
paid by any other party under any Permit set forth in Exhibit B. The use by the
Company of any proprietary rights relating to any Permit does not involve any
claimed infringement of such Permit or rights. The consummation of the
transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit B or require the
consent of any person, except that the Company will cease to be a minority and
female owned business. Except as set forth in Exhibit B, the Company is not
required to be licensed by, nor is it subject to the regulation of, any
governmental or regulatory body by reason of the conduct of the Business.
(iii) Environmental. (a) To the Knowledge of
each of the Company and the Shareholder, (i) the Company has duly complied in
all material respects with and the real estate subject to the leases listed on
Exhibit B and the improvements thereon, and all other real estate leased by the
Company, and (ii) the improvements thereon (all such owned or leased real estate
hereinafter referred to collectively as the "Premises") are in compliance in all
material respects with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder.
(b) Neither the Company nor the Shareholder
has received any notice of, and neither the Company nor the Shareholder knows of
any facts which might constitute, violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder, which relate to the use, ownership or
occupancy of any of the Premises or of any premises formerly owned, leased or
occupied by the Company.
<PAGE>
12
L. Accounts Receivable; Equipment. The accounts receivable of
the Company are in their entirety valid accounts receivable, arising in the
ordinary course of business. The equipment of the Company is in all respects
fully usable in the ordinary course of business. Since the Balance Sheet Date,
the Company has maintained the equipment used in the ordinary course of business
consistent with past practices. Other than in the ordinary course of business,
since the Balance Sheet Date, the Company has not disposed of equipment used in
the Business.
M. Contractual and Other Obligations. Set forth in Exhibit B
is a list and brief description of all (i) material contracts, agreements,
licenses, leases, arrangements (written or oral) and other documents to which
the Company is a party or by which the Company or any of the assets or
properties of the Company is bound (including, in the case of loan agreements, a
description of the amounts of any outstanding borrowings thereunder and the
collateral, if any, for such borrowings); (ii) obligations and liabilities of
the Company pursuant to uncompleted orders for the purchase of materials,
supplies, equipment and services for the requirements of the Business with
respect to which the remaining obligation of the Company is in excess of $5,000;
and (iii) material contingent obligations and liabilities of the Company; all of
the foregoing being hereinafter referred to as the "Contracts". Neither the
Company nor, to the best of the knowledge of the Company and the Shareholder,
any other party is in default in the performance of any covenant or condition
under any Contract, except where such default would not have a Material Adverse
Effect, and no claim of such a default has been made and no event has occurred
which with the giving of notice or the lapse of time would constitute a default
under any covenant or condition under any Contract. Except as set forth in
Exhibit B, the Company is not a party to any Contract which would terminate or
be materially adversely affected by consummation of the transactions
contemplated by this Agreement. The Company is not a party to any Contract
expected to be performed at a loss. Originals or true, correct and complete
copies of all written Contracts have been provided to the Purchaser.
N. Compensation. Set forth in Exhibit D attached hereto is a
list of all material agreements between the Company and each person employed by
or independently contracting with the Company with regard to compensation,
whether individually or collectively, and set forth in Exhibit D is a list of
all employees of the Company entitled to receive annual compensation in excess
of $20,000 and their respective salaries. The transactions contemplated by this
Agreement will not result in any liability for
<PAGE>
13
severance pay to any employee or independent contractor of the Company. The
Company has not informed any employee or independent contractor providing
services to the Company that such person will receive any increase in
compensation or benefits (except for such increases that are in the ordinary
course of business) or any ownership interest in the Company or the Business.
O. Employee Benefit Plans. Except as set forth in Exhibit E
attached hereto, the Company does not maintain or sponsor, nor does it
contribute to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (hereinafter referred to as
"ERISA"), in which the employees participate (such plans and related trusts,
insurance and annuity contracts, funding media and related agreements and
arrangements being hereinafter referred to as the "Benefit Plans") comply with
all requirements of the Department of Labor and the Internal Revenue Service,
and with all other applicable laws, and the Company has not taken or failed to
take any action with respect to the Benefit Plans which might create any
liability on the part of the Company or the Purchaser. Each "fiduciary" (within
the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied
with all requirements of ERISA and all other applicable laws in respect of each
such Benefit Plan. The Company has furnished to the Purchaser copies of all
Benefit Plans and all financial statements, actuarial reports and annual reports
and returns filed with the Internal Revenue Service with respect to such Benefit
Plans for a period of three years prior to the date hereof. Such financial
statements and actuarial reports and annual reports and returns are true and
correct in all material respects, and none of the actuarial assumptions
underlying such documents have changed since the respective dates thereof. In
addition:
(i) Each Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to its qualification;
(ii) The Company does not maintain, sponsor or contribute
to, and has never maintained, sponsored or contributed to a "defined
benefit plan" (within the
<PAGE>
14
meaning of Section 3(35) of ERISA) or a Multiemployer
Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has occurred with
respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Company in any way limits, impairs,
modifies or otherwise affects the right of the Company or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will
be required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(vii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any governmental agency
have been so filed on or before their due date; and
(viii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code or Section 601 of ERISA. The Company has complied with the notice
and continuation requirements of Section 4980B of the Code or Section
601 of ERISA and the regulations thereunder.
The Shareholder agrees that she will cause the Company to (i) terminate
the Hispanic Market Connections 401(k) Plan and Trust (the "Plan"), subject to
fulfillment of the requirements set forth below, as of a date prior to the
Closing, (ii) take any and all steps necessary to effectuate promptly the
termination of the Plan, including, but not limited to, the filing of an
Application for Determination
<PAGE>
15
Upon Termination (Form 5310), (iii) prepare, file and deliver all required forms
with the Internal Revenue Service and the Department of Labor and any notices
required to be delivered to employees and to the trustee(s) of the Plan in
connection with the termination of the Plan, (iv) continue to file any and all
information reports, including annual reports, required with respect to the Plan
until the completion of the termination of the Plan, and (v) fully vest all
employees in their account balances in the Plan.
As soon as practicable following the receipt of a favorable
determination letter from the Internal Revenue Service with respect to the
termination of the Plan, the Shareholder shall cause the trustee(s) of the Plan
to distribute the participants' account balances in the Plan in accordance with
the terms of the Plan documents and any and all applicable laws, rules and
regulations.
The Shareholder agrees that any contributions now due or that may
become due to the Plan shall be the sole responsibility of the Shareholder and
shall be immediately paid, when due, by the Shareholder.
The current trustee(s) of the Plan shall remain as trustee(s) of the
Plan through completion of the termination of the Plan, and the distribution of
the participants' account balances in the Plan.
The Shareholder agrees that all costs incurred in connection with the
operation and termination of the Plan, including, but not limited to, the cost
of filing all required notices, amendments, determination letter requests,
returns and reports, shall be borne by the Shareholder. None of the expenses of
terminating the Plan will be borne by the Purchaser or the Company.
P. Labor Relations. To the Knowledge of each of the Company
and the Shareholder there have been no violations of any federal, state or local
statutes, laws, ordinances, rules, regulations, orders or directives with
respect to the employment of individuals by, or the employment practices or work
conditions of, the Company, or the terms and conditions of employment, wages and
hours, which violations would have, either individually or in the aggregate, a
Material Adverse Effect. To the Knowledge of each of the Company and the
Shareholder, the Company is not engaged in any unfair labor practice or other
unlawful employment practice and there are no charges of unfair labor practices
or other employee-related complaints pending or, to the best of the knowledge of
the Company and the Shareholder, threatened against the Company before the
<PAGE>
16
National Labor Relations Board, the Equal Employment Opportunity Commission, the
Occupational Safety and Health Review Commission, the Department of Labor or any
other federal, state, local or other governmental authority. There is no strike,
picketing, slowdown or work stoppage or organizational attempt pending, or, to
the best of the knowledge of the Company and the Shareholder, threatened against
or involving the Business. No issue with respect to union representation is
pending or threatened with respect to the employees of the Company. No union or
collective bargaining unit or other labor organization has ever been certified
or recognized by the Company as the representative of any of the employees of
the Company.
Q. Increases in Compensation or Benefits. Except as set forth
in Exhibit D, subsequent to the Balance Sheet Date, there have been no increases
in the compensation payable or to become payable to any of the employees of the
Company and there have been no payments or provisions for any awards, bonuses,
loans, profit sharing, pension, retirement or welfare plans or similar or other
disbursements or arrangements for or on behalf of such employees (or related
parties thereof), in each case, other than pursuant to currently existing plans
or arrangements, if any, set forth in Exhibit E; provided, however, that in no
event was any such increase in compensation or any such payment or provision
made with respect to the Shareholder (or any members of the family of the
Shareholder). All bonuses heretofore granted to employees of the Company have
been paid in full to such employees. The vacation policy of the Company is set
forth in Exhibit E. Except as set forth in Exhibit E, no employee of the Company
is entitled to vacation time in excess of three weeks during the current
calendar year and no employee of the Company has any accrued vacation or sick
time with respect to any prior period.
R. Insurance. The Company maintains insurance policies
covering all of its properties and assets and certain occurrences which may
arise in connection with the operation of the Business. A list and brief
description of the insurance policies maintained by the Company with respect to
the Business is set forth in Exhibit B. Such insurance policies are in full
force and effect and all premiums due thereon prior to or on the date of the
Closing have been paid. To the Knowledge of each of the Company and the
Shareholder, the Company has complied in all material respects with the
provisions of such policies. The Company has received no notices of any pending
or threatened termination or premium increases with respect to any such
policies, except where such terminations or increases would
<PAGE>
17
not have a Material Adverse Effect. The Company has not had any casualty loss or
occurrence which may give rise to any claim of any kind not covered by insurance
and neither the Company nor the Shareholder is aware of any occurrence which may
give rise to any claim of any kind not covered by insurance. No third party has
filed any claim against the Company or the Business for personal injury or
property damage of a kind for which liability insurance is generally available
which is not fully insured, subject only to the standard deductible. All
material claims against the Company or the Business covered by insurance have
been reported to the insurance carrier on a timely basis. The Company has
adequate insurance and reserves to cover any liability that may arise out of any
claims, including, but not limited to, workers compensation and health insurance
claims, that may be asserted against the Company for occurrences prior to the
date of the Closing.
S. Conduct of Business. The Company is not
restricted from conducting the Business in any location by
agreement or court decree.
T. Allowances. The Company has no obligation outside of the
ordinary course of business to make allowances to any customers with respect to
the Business.
U. Use of Names. All names under which the Company currently
conducts the Business are listed in Exhibit B. Except as set forth on Exhibit B,
there are no other persons or businesses conducting businesses similar to those
of the Company in the State of California having the right to use or using the
names set forth in Exhibit B or any variants of such names; and no other person
or business has ever attempted to restrain the Company or the Shareholder from
using such names or any variant thereof.
V. Power of Attorney. Except as set forth in
Exhibit B, the Company has not granted any power of attorney
(revocable or irrevocable) to any person, firm or
corporation for any purpose whatsoever.
W. Accounts Payable, Indebtedness, etc. The
------------------------------------
accounts and notes payable and accrued expenses reflected in
the Financial Statements, and the accounts and notes payable
and accrued expenses incurred by the Company subsequent to
the Balance Sheet Date, are in all respects valid claims
that arose in the ordinary course of business. Since the
Balance Sheet Date, the accounts and notes payable and
accrued expenses of the Company have been maintained on a
basis consistent with past practices. The aggregate unpaid
accounts payable and accrued expenses (including, but not
<PAGE>
18
limited to, accrued payroll, accrued vacation and sick time) of the Company on
the date of the Closing shall not exceed $270,000.
X. Bank Accounts. Set forth in Exhibit F attached hereto is a
list of all bank accounts maintained in the name of the Company and a brief
description of persons having power to sign on behalf of the Company with
respect to each such account.
Y. Books and Records. The books and records of the Company are
complete and correct, have been maintained in accordance with good business
practices and accurately reflect the basis for the financial position and
results of operations of the Company set forth in the Financial Statements. All
of such books and records, including true and complete copies of all written
Contracts, have been made available for inspection by the Purchaser and its
representatives.
Z. Litigation; Disputes. Except as set forth in Exhibit B,
there are no material claims, disputes, actions, suits, investigations or
proceedings pending or, to the Knowledge of each of the Company and the
Shareholder, threatened against or affecting the Company, the Business or any of
the assets or properties of the Company, no such claim, dispute, action, suit,
proceeding or investigation has been pending or, to the best of the knowledge of
the Company and the Shareholder, threatened during the five-year period
preceding the date of the Closing and, to the best of the knowledge of the
Company and the Shareholder, there is no basis for any such claim, dispute,
action, suit, investigation or proceeding. Neither the Company nor the
Shareholder has any knowledge of any default under any such action, suit or
proceeding. The Company is not in default in respect of any judgment, order,
writ, injunction or decree of any court or of any federal, state, municipal or
other government department, commission, bureau, agency or instrumentality or
any arbitrator.
AA. Location of Business and Assets. Set forth
in Exhibit B is each location (specifying state, county and
city) where the Company (i) has a place of business, (ii)
owns or leases real property and (iii) owns or leases any
other property, including equipment and furniture.
BB. Computer Software. Except as set forth in
Exhibit B, to the Knowledge of each of the Company and the
Shareholder, the Company has the right to use all computer
software, including all property rights constituting part of
that computer software, used in connection with the
<PAGE>
19
Company's business operations (the "Computer Software"). A list of all written
licenses (other than "shrinkwrap licenses") pertaining to the Computer Software
is set forth in Exhibit B (the "Licenses"). Except as set forth in Exhibit B,
the Company has no knowledge that any of the Licenses may not be valid or
enforceable by the Company or that the use of the Computer Software or any of
the Licenses may infringe upon or conflict with the rights of any third party.
The Company has not granted any licenses to use the Computer Software or any
sub-licenses with respect to any of the Licenses.
CC. Disclosure. No representation or warranty
made under any Section hereof and none of the information
furnished by the Company or the Shareholder set forth
herein, in the exhibits hereto or in any document delivered
by the Company or the Shareholder to the Purchaser or any
authorized representative of the Purchaser which is listed
in the Exhibits hereto, including the Financial Statements
attached hereto as Exhibit C, pursuant to this Agreement
contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements
herein or therein not misleading.
DD. Investment. (i) The Shareholder has had access to such
information relating to the business and affairs of the Purchaser which the
Company and the Shareholder have reasonably requested, and all additional
information which the Company and the Shareholder have considered necessary to
verify the accuracy of the information so received. The Company and the
Shareholder have had the opportunity to ask questions of and receive answers
from the Purchaser concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, the Company and
the Shareholder are familiar with the operations, business plans and financial
condition of the Purchaser.
(ii) The Shareholder understands that the
Purchaser may issue and deliver to the Shareholder, as part of the Earn-Out
Payments, shares of Purchaser Common Stock pursuant to this Agreement, without
compliance with the registration requirements of the Securities Act; that for
such purpose the Purchaser will rely upon the representations, warranties,
covenants and agreements contained herein; and that such non-compliance with
registration is not permissible unless such representations and warranties are
correct and such covenants and agreements performed. The Shareholder is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
<PAGE>
20
(iii) The Shareholder understands that, under
existing rules of the Securities and Exchange Commission (the "SEC") the
Shareholder, may be unable to sell its shares of Purchaser Common Stock except
to the extent that its shares of Purchaser Common Stock may be sold (i) pursuant
to an effective registration statement covering such shares pursuant to the
Securities Act or (ii) in a bona fide private placement to a purchaser who shall
be subject to the same restrictions on any resale or (iii) subject to the
restrictions contained in Rule 144 under the Securities Act ("Rule 144"). Each
of the Company and the Shareholder understands that the Purchaser is under no
obligation to effect a registration of their shares of Purchaser Common Stock
under the Securities Act.
(iv) The Shareholder is familiar with the
provisions of Rule 144 and the limitations upon the
availability and applicability of such rule.
(v) The Shareholder is a sophisticated
investor familiar with the type of risks inherent in the acquisition of
restricted securities such as the shares of Purchaser Common Stock and her
financial position is such that she can afford to retain the shares of Purchaser
Common Stock for an indefinite period of time without realizing any direct or
indirect cash return on her investment.
(vi) The Shareholder is acquiring her shares
of Purchaser Common Stock for her account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to, and
covenants and agrees with, the Purchaser, as of the date hereof and as of the
date of the Closing, that:
A. Authority. The Shareholder is fully able to execute and
deliver this Agreement and to perform the Shareholder's covenants and agreements
hereunder, and this Agreement constitutes a valid and legally binding obligation
of the Shareholder, enforceable against the Shareholder in accordance with its
terms, except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws from
<PAGE>
21
time to time in effect affecting the enforcement of
creditors' rights generally.
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which the Shareholder is a party or by which the Shareholder or any
of the Shareholder's assets is bound.
C. Ownership of Shares. The Shareholder owns the Shares free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever. The Shareholder has the right to transfer the Shares to the
Purchaser and, upon transfer of the Shares to the Purchaser hereunder, the
Purchaser will acquire good and marketable title to the Shares, free and clear
of any lien, encumbrance, charge, security interest or claim whatsoever.
SECTION IV
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE PURCHASER
The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Company and the Shareholder, as of the date hereof and as
of the date of the Closing, that:
A. Organization and Qualification. The Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own its properties and to
conduct the businesses in which it is now engaged. The Purchaser is in good
standing in each other jurisdiction wherein the failure so to qualify would have
a material adverse effect on the financial condition, business, operations,
results of operations, assets or properties of the Purchaser (a "Purchaser
Material Adverse Effect"). The Purchaser has full corporate power, authority and
legal right, and all necessary approvals, permits, licenses and authorizations,
to own its properties and to conduct the businesses conducted by it and to enter
into and consummate the transactions contemplated under this Agreement, except
for such approvals, permits, licenses and authorizations,
<PAGE>
22
the absence of which would not have a Purchaser Material Adverse Effect. The
copies of the certificate of incorporation and by-laws of the Purchaser which
have been delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Purchaser or any statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency or board, or conflicts with or will result in
any breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Purchaser is a party or by which the Purchaser or any
of the assets of the Purchaser is bound, except where such violation, conflict,
breach, default, termination or lien creation would not have a Purchaser
Material Adverse Effect.
D. Capitalization. The authorized capital stock of the
Purchaser consists of 19,500,000 shares of voting common stock, $.01 par value,
500,000 shares of non-voting common stock, $.01 par value, 1,000,000 shares of
preferred stock, $.01 par value, of which 4,364,000 shares of voting common
stock, 500,000 shares of non-voting common stock and 18,000 shares of preferred
stock are issued and outstanding. The Purchaser has reserved 400,000 shares of
voting common stock for issuance pursuant to its employee stock option plan. The
Purchaser has also issued convertible subordinated promissory notes in the
aggregate principal amount of $3,000,000 (the "Convertible Notes") which are
convertible into an aggregate of 200,000 shares of voting common stock. The
Purchaser has the right to cancel the Convertible Notes by the delivery of an
aggregate of 50,000
<PAGE>
23
shares of voting common stock to the makers of the Convertible Notes if certain
conditions have not been met.
E. Financial Statements; No Undisclosed Liabilities. The
Purchaser has delivered to the Shareholder statements of income for the
Purchaser and for TLM Holdings Corp., a Delaware corporation ("TLM"), for the
six-month period ended June 30, 1997, which financial statements (hereinafter
referred to as the "Financial Statements") have been internally prepared by the
Purchaser. The Financial Statements are true and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles consistently throughout the periods involved. The Financial
Statements fully and fairly present the results of the operations of the
Purchaser and TLM for the period indicated.
The Purchaser shall provide the Shareholder with a balance
sheet of the Purchaser as of June 30, 1997 as promptly as practicable after the
Closing.
F. Absence of Certain Changes. Subsequent to December 6, 1996
(the date of initial investment in the Purchaser by Abbingdon Venture Partners
Limited Partnership, a Connecticut limited partnership ("Abbingdon I"),
Abbingdon Venture Partners Limited Partnership-II, a Delaware limited
partnership ("Abbingdon II") and Abbingdon Venture Partners Limited
Partnership-III, a Delaware limited partnership ("Abbingdon III"; Abbingdon I,
Abbingdon II and Abbingdon III are hereinafter collectively referred to as the
"Foster Partnerships")), there has not been any material adverse or prospective
material adverse change in the condition of the Purchaser, financial or
otherwise, or in the results of the operations of the Purchaser.
G. Permits; Compliance with Applicable Law. The
---------------------------------------
Purchaser is not in material default under any, and has
complied in all material respects with all, statutes,
ordinances, regulations, orders, judgments and decrees of
any court or governmental entity or agency, relating to its
businesses or its assets. The Purchaser has no knowledge of
any basis for assertion of any material violation of the
foregoing or for any claim for compensation or damages or
otherwise arising out of any material violation of the
foregoing. The Purchaser has not received any notification
of any asserted present or past failure to comply with any
of the foregoing which has not been satisfactorily responded
to in the time period required thereunder.
H. Litigation; Disputes. There are no material
claims, disputes, actions, suits, investigations or
<PAGE>
24
proceedings pending or, to the best of the knowledge of the Purchaser,
threatened against or naming as a party the Purchaser or any of the properties
or assets of the Purchaser. The Purchaser has no knowledge of any default under
any such material action, suit or proceeding.
I. Title to Assets; Condition of Property. The Purchaser has
good and valid title to all its owned properties and assets, real, personal and
mixed, tangible and intangible used in the operations of its business as
currently conducted, except where the failure to have good and valid title would
not result in a Purchaser Material Adverse Effect.
J. Taxes. The Purchaser has filed or caused to be filed on a
timely basis (or extensions to file) all federal, state, local, foreign and
other tax returns, reports and declarations (collectively, "Purchaser Tax
Returns") required to be filed by it. All Purchaser Tax Returns filed by or on
behalf of the Purchaser are true, complete and correct in all material respects.
H. Foster Partnerships. The Purchaser has delivered to the
Company and the Shareholder copies of each of the (i) 8% Subordinated Promissory
Note dated December 6, 1996 issued jointly and severally by the Purchaser and
Ash Creek, Inc., a Delaware corporation ("Ash Creek"), in the original principal
amount of $1,333,000, (ii) 8% Subordinated Promissory Note dated December 6,
1996 issued jointly and severally by the Purchaser and Ash Creek to Abbingdon II
in the original principal amount of $7,198,200 and (iii) 8% Subordinated
Promissory Note dated December 6, 1996 issued jointly and severally by the
Purchaser and Ash Creek to Abbingdon III in the original principal amount of
$4,798,000, which constitutes all of the issued and outstanding subordinated
notes owing by the Purchaser to the Foster Partnerships (collectively, the
"Foster Notes"). The subordination terms of the Foster Notes and the Note are
substantially the same, except with respect to the standstill provision.
SECTION V
[Intentionally omitted.]
<PAGE>
25
SECTION VI
ADDITIONAL COVENANTS OF THE SHAREHOLDER AND THE PURCHASER
A. Company Acquisition Proposal. Each of the Company and the
Shareholder covenants and agrees, jointly and severally, that, from and after
the date of this Agreement and until the Closing, it or she shall not, directly
or indirectly, (i) take any action to solicit, initiate or encourage any Company
Acquisition Proposal (as hereinafter defined) or (ii) engage in negotiations
with, or disclose any nonpublic information relating to the Company or afford
access to the properties, books or records of the Company to, any person or
entity that may be considering making, or has made, a Company Acquisition
Proposal. The Company or the Shareholder, as the case may be, shall promptly
notify the Purchaser after receipt of any Company Acquisition Proposal or any
indication that any person or entity is considering making a Company Acquisition
Proposal or any request for nonpublic information relating to the Company or for
access to the properties, books or records of the Company by any person or
entity that may be considering making, or has made, a Company Acquisition
Proposal. For purposes of this Agreement, "Company Acquisition Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving the Company or the acquisition of any equity
interest in, or any assets of, the Company, other than the transactions
contemplated by this Agreement or in the ordinary course of business.
B. Goodwill; Publicity. Each of the Company and the
Shareholder covenants and agrees that any and all publicity (whether written or
oral) and notices to third parties concerning the sale of the Shares and other
transactions contemplated by this Agreement shall be subject to the prior
written approval of the Purchaser, which approval may be withheld in the sole
discretion of the Purchaser; provided, however, that any such notices or
publicity with respect to financial terms of this Agreement and the transactions
contemplated hereby, other than filings with governmental authorities and the
distribution of registration statements or prospectuses in connection with
public financings shall be subject to the prior written approval of each party.
C. Working Capital. On or before December 31, 1997 (the
"Reconciliation Date"), the Purchaser shall calculate the amount of the net
accounts receivable of the Company which were outstanding on the date of the
Closing (the "Pre-Closing Receivables"). In the event that the sum
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26
of the Pre-Closing Receivables plus work in process in the amounts listed on
Exhibit B plus the amount of cash of the Company on the date of the Closing
available to the Purchaser (the "Closing Cash") plus documented expenses of up
to $30,000 for Angelina Villareal's hiring and relocation expenses exceeds (the
"Excess") the sum of $500,000 plus the amount of the current liabilities of the
Company determined in accordance with generally accepted accounting principles
(the "Company Liabilities") as of the date of the Closing (such sum of $500,000
plus the amount of the Company Liabilities is hereinafter referred to as the
"Target Amount"), the Purchaser shall pay to the Shareholder in additional
payment for the Shares, the amount of the Excess on or before the Reconciliation
Date. In the event that the sum of the Pre-Closing Receivables plus the Closing
Cash shall be less (the "Shortfall") than the Target Amount, the Shareholder
shall be obligated to pay on or before the Reconciliation Date to the Purchaser
the amount of the Shortfall. The Purchaser shall permit the Company to review
the Purchaser's work papers (the "Working Capital Work Papers") related to and
calculations of the amount of the Pre-Closing Receivables and the amounts of the
Closing Cash and the Company Liabilities and the parties agree to negotiate in
good faith to resolve any controversies relating to such calculations. After
such good faith negotiation, if the Purchaser and the Shareholder are unable to
agree with respect to the Purchaser's calculation of the Excess or the
Shortfall, as the case may be, then the amount of the Excess or the Shortfall,
as the case may be, shall be determined as soon as possible thereafter by the
San Francisco office of one of the six largest national accounting firms
mutually selected by the Purchaser and the Shareholder (the "Working Capital
Arbitrator"), for a final and binding determination. In the event that the
Working Capital Arbitrator determines that the Purchaser has overstated the
Shortfall, or understated the Excess, as the case may be, by more than ten
percent (10%), then the Purchaser shall be obligated to pay the fees of the
Working Capital Arbitrator. In the event that the Working Capital Arbitrator
determines that the Purchaser has overstated the Shortfall, or understated the
Excess, as the case may be, by greater than five percent (5%) but less than or
equal to ten percent (10%) then the Purchaser and the Shareholder shall each pay
one-half of the fees of the Working Capital Arbitrator. In all other events, the
Shareholder shall pay the fees of the Working Capital Arbitrator.
D. [Intentionally Omitted.]
E. Company Transaction Expenses. The Purchaser
shall pay the reasonable expenses incurred by the Company
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27
prior to the date of the Closing in connection with the negotiation, execution
and delivery of this Agreement and the transactions contemplated hereby (the
"Company Transaction Expenses"); provided, however, that in no event shall the
Purchaser pay Company Transaction Expenses in excess of $8,000. The Shareholder
covenants and agrees that she shall pay or reimburse the Company for, all
Company Transaction Expenses incurred by the Company in excess of $8,000.
F. Shareholder Guarantees. The Purchaser covenants and agrees
to use its reasonable best efforts (but not including the payment of monies) to
arrange for the release of the Shareholder from each personal guarantee made by
the Shareholder for the benefit of the Company set forth in Exhibit B (the
"Shareholder Guarantees") and the Purchaser shall indemnify the Shareholder in
accordance with Section X(B)(ii) hereof with respect to such Shareholder
Guarantees.
G. Latin Market Connections and Other Entities. The
Shareholder covenants and agrees that from and after the Closing, all entities
other than the Company and Canela, Inc., a California corporation ("Canela"),
controlled by the Shareholder, shall cease to have business operations.
Subsequent to the Closing, the Shareholder and the Purchaser, together with
Selman Carranza ("Carranza"), shall organize an entity to be named Latin Market
Connections ("LMC"), it being understood and agreed that the Company and
Carranza shall each have a 50% ownership interest in such entity. Promptly after
the organization of LMC, the Purchaser shall reimburse Canela for any reasonable
expenses incurred by Canela in connection with the organization of LMC (the "LMC
Expenses"); provided however, that in no event shall the Purchaser be obligated
or required to reimburse Canela for LMC Expenses in excess of $5,000.
H. Indebtedness. The Company shall provide the Purchaser with
evidence reasonably satisfactory to the Purchaser of the repayment of all
long-term or short-term borrowed funds (excluding leases, which the Company
shall continue to perform) of the Company.
I. Canela, Inc. The Shareholder covenants and agrees that from
and after the date of the Closing, Canela will generate revenues from activities
and in amounts only to the extent pre-approved in writing by the chief executive
officer of the Purchaser, but in no event shall Canela generate revenues in
excess of $10,000 per year. The Shareholder shall deliver to the Purchaser,
promptly after
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preparation, all Tax Returns required to be filed by or on
behalf of Canela.
SECTION VII
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the Shares as set forth herein (the "Closing") shall be held at the
offices of Coblentz, Cahen, McCabe & Breyer LLP, 222 Kearney Street, 7th Floor,
San Francisco, California 94108, at 10:00 A.M., local time, on September __,
1997 or such other time and place as the parties may mutually agree.
B. Delivery of the Shares. Delivery of the Shares shall be
made by the Shareholder to the Purchaser at the Closing by delivering one or
more certificates in negotiable form representing the Shares, each such
certificate to be accompanied by any requisite documentary or stock transfer
Taxes, against payment of the Purchase Price payable at the Closing.
C. Tax Matters. All transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be borne and paid
by the Shareholder when due, and the Shareholder will, at her own expense, file
all necessary Tax Returns and other documentation with respect to all such Taxes
and fees, and, if required by applicable law, the Purchaser will join in the
execution of any such Tax Returns and other documentation.
SECTION VIII
CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE
The obligations of the Shareholder to sell the Shares and
otherwise consummate the transactions contemplated by this Agreement at the
Closing are subject to the following conditions precedent, any or all of which
may be waived by the Shareholder in her sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
A. No Litigation. No action, suit or proceeding
against the Company, either of the Shareholder or the
Purchaser relating to the consummation of any of the
<PAGE>
29
transactions contemplated by this Agreement or any governmental action seeking
to delay or enjoin any such transactions shall be pending or threatened.
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and
on the date of the Closing, the Purchaser shall deliver to the Shareholder a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the date of the Closing shall have been duly complied
with and performed in all material respects, and on the date of the Closing, the
Purchaser shall deliver to the Shareholder a certificate dated the date of the
Closing to such effect.
C. Other Certificates. The Shareholder shall have received
such additional certificates, instruments and other documents, in form and
substance satisfactory to them and their counsel, as they shall have reasonably
requested in connection with the transactions contemplated hereby.
D. Payment of the Purchase Price. The Shareholder shall have
received from the Purchaser a (i) certified check made payable to the order of,
or wire transfer to the account designated by, the Shareholder in the amount of
$1,500,000 and (ii) the Note, representing the Purchase Price deliverable at
Closing.
E. Valdes Employment Agreement. The Purchaser
and the Shareholder shall have entered into an employment
agreement (the "Valdes Employment Agreement") substantially
in the form of Exhibit G attached hereto.
F. Key Employee Employment Agreements. The Purchaser shall
have entered into employment agreements with each of Angelina Villareal (the
"Villareal Employment Agreement"), Isabel Balboa (the "Balboa Employment
Agreement"), and Janet Torres (the "Torres Employment Agreement") substantially
in the forms of Exhibit H-1, Exhibit H-2 and H-3, respectively, attached hereto.
G. Opinion of Counsel. The Shareholder shall have received an
opinion of Haythe & Curley, counsel for the Purchaser, delivered to the
Shareholder pursuant to the instructions of the Purchaser, dated the date of the
Closing, in form and substance satisfactory to the Purchaser
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30
and its counsel, Messrs. Coblentz, Cahen, McCabe & Breyer
LLP, to the effect that:
(i) The Purchaser is a corporation duly organized and
validly existing under the laws of the State of Delaware and has full
corporate power and authority to own its properties and to conduct the
businesses in which it is now engaged.
(ii) This Agreement has been duly authorized, executed and
delivered by the Purchaser and constitutes the valid and legally
binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors' rights generally or by general principles of
equity.
(iii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, violates
any provision of the certificate of incorporation or by-laws of the
Purchaser or to our knowledge any statute, ordinance, regulation,
order, judgment or decree of any court or governmental agency or
conflicts with or will result in any breach of any of the terms of or
constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any contract or agreement
known to us to which the Purchaser is a party or by which the Purchaser
or any of the assets of the Purchaser is bound.
(iv) The holding period of the Earn-Out Shares will commence
on the date of the Closing pursuant to Rule 144(d)(3)(iii) of the
Securities Act of 1933, as amended.
(v) Based upon our review of the stock records of the
Purchaser, the authorized voting capital stock of the Purchaser
consists of 19,500,000 shares of voting common stock, $.01 par value,
500,000 shares of non-voting common stock, $.01 par value, 1,000,000
shares of preferred stock, $.01 par value, of which 4,364,000 shares of
voting common stock, 500,000 shares of non-voting common stock and
18,000 shares of preferred stock are issued and outstanding. The
Purchaser has reserved 400,000 shares of voting common stock for
issuance pursuant to its employee stock option plan.
(vi) To our knowledge, there are no claims, disputes,
actions, suits or proceedings pending or
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31
threatened against the Purchaser which would result in a Purchaser
Material Adverse Effect.
SECTION IX
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Shares and
otherwise consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company and the Shareholder hereby agrees to use their best efforts to satisfy
at or prior to the Closing:
A. Opinion of Counsel. The Purchaser shall have received an
opinion of Coblentz, Cahen, McCabe & Breyer LLP, counsel for the Company and the
Shareholder, delivered to the Purchaser pursuant to the instructions of the
Company and the Shareholder, dated the date of the Closing, in form and
substance satisfactory to the Purchaser and its counsel, Messrs. Haythe &
Curley, to the effect that:
(i) The Company is a corporation duly organized and validly
existing under the laws of the State of California and has full
corporate power and authority to own its properties and to conduct the
businesses in which it is now engaged.
(ii) The authorized capital stock of the Company consists of
1,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock of which 100,000 shares of Common Stock and no shares of
Preferred Stock are issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and non-assessable. All of the
issued and outstanding shares of Common Stock are owned beneficially
and of record by the Shareholder, free and clear of any lien,
encumbrance, charge, security interest or claim whatsoever (including
any restriction on the right to vote, sell or otherwise dispose of such
Common Stock). To the knowledge of such counsel, there are no
outstanding subscriptions, warrants, options, calls, commitments or
other rights or agreements to purchase or acquire shares of capital
stock or other securities of the Company. No shares of capital stock of
the Company are reserved for any purpose.
<PAGE>
32
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and duly executed and delivered by the
Shareholder and constitutes the valid and legally binding obligation of
the Company and the Shareholder, enforceable against each of them in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by general principles of equity..
(iv) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, violates
any provision of the articles of incorporation or by-laws of the
Company or to our knowledge any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency or conflicts
with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any
lien pursuant to the terms of any contract or agreement known to us to
which the Company or the Shareholder is a party or by which the Company
or the Shareholder or any of the assets of the Company or the
Shareholder is bound.
(v) Except as set forth in the Agreement, to the best of
the knowledge of such counsel, there are no claims, disputes, actions,
suits or proceedings pending or threatened against the Company or the
Shareholder.
B. No Litigation. No action, suit or proceeding against the
Company, the Shareholder or the Purchaser relating to the consummation of any of
the transactions contemplated by this Agreement nor any governmental action
seeking to delay or enjoin any such transactions shall be pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Company and the Shareholder herein shall be correct as of
the date of the Closing in all respects with the same force and effect as though
such representations and warranties had been made as of the date of the Closing,
and on the date of the Closing, the Company and the Shareholder shall deliver to
the Purchaser a certificate dated the date of the Closing to such effect. All
the terms, covenants and conditions of this Agreement to be complied with and
performed by the Company and the Shareholder on or before the date of the
Closing shall have been duly complied with and performed in all material
respects, and on the date of the Closing, the
<PAGE>
33
Company and the Shareholder shall deliver to the Purchaser a certificate dated
the date of the Closing to such effect.
D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and counsel for the Purchaser, as it shall have
reasonably requested in connection with the transactions contemplated hereby.
E. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments to the consummation of the transactions
contemplated hereby, which consents shall not provide for the acceleration of
any liabilities or any other detriment to the Purchaser or the Company.
F. Resignations. The Company shall have
delivered to the Purchaser resignations of all of the
officers and directors of the Company, such resignations to
be effective as of the Closing.
G. Valdes Employment Agreement. The Purchaser
and the Shareholder shall have entered into the Valdes
Employment Agreement.
H. Other Employment Agreements. The Purchaser
and each of Angelina Villareal, Isabel Balboa and Janet
Torres shall have entered into the Villareal Employment
Agreement, the Balboa Employment Agreement and the Torres
Employment Agreement, respectively.
I. Delivery of Shares. All of the Shares shall
be concurrently sold, assigned and conveyed to the
Purchaser.
J. Shareholder Agreement. The Purchaser and the
Shareholder shall have entered into a Shareholder Agreement
substantially in the form attached hereto.
K. Pay Off of Company Indebtedness. All of the Company's
indebtedness to Comerica Bank, California ("Comerica") shall have been paid in
full and all mortgages, security interests and other liens securing or otherwise
arising under or relating to such indebtedness shall have been released,
discharged and terminated in full, in each case in form and substance
satisfactory to the Purchaser and its counsel, and all assets, property or other
collateral of any kind held by Comerica or any other person as security
<PAGE>
34
for such Company indebtedness shall have been delivered to
the Company.
SECTION X
INDEMNIFICATION
A. Indemnification by the Shareholder. The
----------------------------------
Shareholder shall indemnify and hold harmless the Purchaser
and the Company and each of their officers, directors,
employees, shareholders and affiliates (collectively, the
"Purchaser Indemnified Parties") from and against any and
all losses, claims, assessments, demands, damages,
liabilities, obligations, costs and/or expenses whatsoever
(hereinafter referred to collectively as the "Purchaser's
Damages"), including, without limitation, Purchaser's
Counsel Expenses (as hereinafter defined), sustained or
incurred by any of the Purchaser Indemnified Parties as a
result of or arising from (i) the breach of any of the
obligations, covenants or provisions of, or the inaccuracy
of any of the representations or warranties made by, the
Company or the Shareholder herein, (ii) any claim asserted
against any of the Purchaser Indemnified Parties with
respect to the Computer Software and (iii) any claim
asserted against any of the Purchaser Indemnified Parties
arising out of the Employment Agreement dated as of April
27, 1997 between the Company and Angelina Villareal. For
purposes hereof "Purchaser's Counsel Expenses" shall mean
reasonable fees and disbursements of counsel howsoever
sustained or incurred by any of the Purchaser Indemnified
Parties, including, without limitation, in any action or
proceeding between any of the Purchaser Indemnified Parties
and the Shareholder or in any action or proceeding between
any of the Purchaser Indemnified Parties and any third
party. In addition to the right of the Purchaser to
indemnification hereunder, the Purchaser shall have the
right from time to time to set off the amount of any of the
Purchaser's Damages against any payments of principal and/or
interest due and payable to the Shareholder under the Note
and/or the Earn-Out Payments; provided, however, that the
-------- -------
Purchaser agrees that it will not exercise its right to set
off under this Section X(A) the amount of any of the
Purchaser's Damages which it may sustain or incur by reason
of a breach of the Shareholder's covenants contained in
Section XI hereof. The Purchaser shall place into escrow
any amounts it is seeking to set off with an escrow agent
mutually agreeable to the Shareholder and the Purchaser.
Any amounts of cash set off by the Purchaser which are later
awarded to the Shareholder in accordance with Section
XIII(G) hereof, shall accrue interest at a rate of six and
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35
one-half percent (6.5%) per annum from the time of any such
set off.
B. Indemnification by the Purchaser. The
--------------------------------
Purchaser shall indemnify and hold harmless the Shareholder,
her heirs, legal representatives and assigns (the
"Shareholder Indemnified Parties"), from and against any and
all losses, claims, assessments, demands, damages,
liabilities, obligations, costs and/or expenses whatsoever
(hereinafter referred to as the "Shareholder's Damages"; the
Shareholder's Damages and the Purchaser's Damages are
sometimes referred to herein as the "Damages"), including,
without limitation, Shareholder's Counsel Expenses (as
hereinafter defined), sustained or incurred by any of the
Shareholder Indemnified Parties as a result of or arising
from (i) the breach of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein
and (ii) any claim asserted against the Shareholder with
respect to the Shareholder Guarantees. For purposes hereof
"Shareholder's Counsel Expenses" shall mean reasonable fees
and disbursements of counsel howsoever sustained or incurred
by any of the Shareholder Indemnified Parties, including,
without limitation, in any action or proceeding between any
of the Shareholder Indemnified Parties and the Purchaser
and/or the Company or in any action or proceeding between
any of the Shareholder Indemnified Parties and any third
party.
C. Procedure for Indemnification. In the event that any party
hereto shall incur (or anticipates that it may incur in the case of third party
claims) any Damages in respect of which indemnity may be sought by such party
pursuant to this Section X, the party indemnified hereunder (the "Indemnified
Party") shall notify the party or parties providing indemnification (the
"Indemnifying Party") promptly; in the case of third party claims, such notice
shall in any event be given within thirty (30) days of the filing or assertion
of any claim against the Indemnified Party stating the nature and basis of such
claim; provided, however, that any delay or failure to notify any Indemnifying
Party of any claim shall not relieve it from any liability except to the extent
that the Indemnifying Party demonstrates that the defense of such action is
materially prejudiced by such delay or failure to notify. In the case of third
party claims, the Indemnifying Party shall, within ten (10) days of receipt of
notice of such claim, notify the Indemnified Party of its intention to assume
the defense of such claim at its own expense. If the Indemnifying Party shall
not assume the defense of any such claim or litigation resulting therefrom, the
Indemnified
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36
Party may defend against any such claim or litigation in such manner as it may
deem appropriate and the Indemnified Party may settle such claim or litigation
on such terms as it may deem appropriate. In the event that a dispute arises
concerning the obligation of the Indemnifying Party to assume the defense of a
claim, or a dispute arises concerning a claim hereunder which does not involve a
third party claim, or in the event that there is any other dispute relating to
indemnification, the parties shall submit any such dispute to arbitration
pursuant to Section XIII(G) hereof; provided, however, that the parties agree to
negotiate in good faith for a period of at least sixty (60) days prior to
initiating arbitration to resolve any dispute. If it shall be finally determined
that the Indemnifying Party failed to assume the defense of any claim for which
the Indemnifying Party is liable to the Indemnified Party for Damages, then the
expense of defending the claim shall be borne by the Indemnifying Party. Payment
of the Damages shall be made within ten (10) days of a final determination of a
claim.
A final determination of a claim shall be (i) a judgment of
any court determining the validity of a disputed claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed, (ii) an award
of any arbitration determining the validity of such disputed claim, it there is
not pending any motion to set aside such award or if the time within which to
move to set such award aside has elapsed, (iii) a written termination of the
dispute with respect to such claim signed by all of the parties thereto or their
attorneys, (iv) a written acknowledgement of the Indemnifying Party that she or
it no longer disputes the validity of such claim, or (v) such other evidence of
final determination of a claim as shall be acceptable to the parties.
D. No Contribution. The Purchaser shall not be required to
make any claim against the Company or any other party in order to pursue any
claim against the Shareholder and provided further, that the Shareholder shall
not be entitled to any indemnification or right of contribution from the Company
or have any other rights against the Company in connection with any claim made
hereunder.
E. Agreements Concerning Indemnification. It is
specifically understood and agreed that:
(i) The Shareholder shall not be obligated
to indemnify the Purchaser for the Purchaser's Damages
arising out of a breach of any representation or warranty of
the Company or the Shareholder contained in Sections II and
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37
III hereof, unless and until the aggregate amount of all claims for such
Purchaser's Damages exceeds $50,000 (the "Basket") at which time claims may be
asserted for the excess of such amount.
(ii) The Shareholder shall not be obligated
to indemnify the Purchaser for the Purchaser's Damages in excess of an aggregate
of the amount actually received by the Shareholder as part of the Purchase
Price, whether in cash, by delivery of the Note or payment of any Earn-Out
Payments (the "Cap") and the obligations of the Shareholder for indemnification
hereunder shall terminate when the Cap has been paid.
SECTION XI
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, the Shareholder shall not, (a) subsequent
to the date of the Closing, and until three (3) years after the date of the
Closing, directly or indirectly, (i) engage, whether as principal, agent,
investor, distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any activity or business
venture, which is competitive with the business of providing ethnic market
research and business consulting on ethnic marketing strategies of the Purchaser
or any member of the Purchaser Group which the Shareholder has operational or
administrative responsibility for during her employment with the Purchaser, (ii)
solicit or entice or endeavor to solicit or entice away from any member of the
Purchaser Group (as hereinafter defined) any person who was during the prior six
(6) month period or is at the time of the solicitation or enticement a director,
officer, employee, agent or consultant of such member of the Purchaser Group, on
the Shareholder's own account or for any person, firm, corporation or other
organization, whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the service of such member
of the Purchaser Group, (iii) solicit or entice or endeavor to solicit or entice
away any person who was during the prior six (6) month period or is at the time
of the solicitation or enticement a client or customer or active prospect of any
member of the Purchaser Group, on the Shareholder's own account or for any other
person, firm, corporation or organization, or (iv) employ any person who was a
director, officer or employee of any member of the Purchaser Group or any person
who is known to be in
<PAGE>
38
possession of any confidential information or trade secrets relating to the
business of any member of the Purchaser Group, or (b) subsequent to the date of
the Closing and until two (2) years after the date of the Closing, take any
action or make any statement the effect of which would be, directly or
indirectly, to impair the good will of any member of the Purchaser Group or the
business reputation or good name of any member of the Purchaser Group, or be
otherwise detrimental to the Purchaser, including any action or statement
intended, directly or indirectly, to benefit a competitor of any member of the
Purchaser Group. The Purchaser shall not, subsequent to the date of the Closing
and until two (2) years after the date of the Closing, take any action or make
any statement the effect of which would be, directly or indirectly, to impair
the good will of the Company or the business reputation or good name of the
Company or the shareholder, or be otherwise detrimental to the Company or the
Shareholder. Because the remedy at law for any breach of the foregoing
provisions of this Section XI would be inadequate, the Shareholder hereby
consents, in case of any such breach, to the granting by any court of competent
jurisdiction of specific enforcement, including, but not limited to pre-judgment
injunctive relief, of such provisions, as provided for in Section XIII(F)
hereof.
Notwithstanding anything to the contrary contained in this
Section XI, it is understood and agreed that the Shareholder shall be permitted,
subsequent to the termination of the Shareholder's employment with the
Purchaser, to work in an academic, in-house or general market research
(excluding ethnic market research) position.
Notwithstanding anything to the contrary contained in this
Section XI, it is understood and agreed that the restrictions set forth in
clause (a)(i) of this Section XI shall not apply in the event that the Purchaser
has not, on or prior to the second anniversary of the date of the Closing,
consummated an initial public offering of the Purchaser Common Stock.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
<PAGE>
39
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and parent entities
operating in the same lines of business.
SECTION XII
BROKERS AND FINDERS
A. The Shareholder's Obligation. The Purchaser shall not have
any obligation to pay any fee or other compensation to any person, firm or
corporation dealt with by the Company or the Shareholder in connection with this
Agreement and the transactions contemplated hereby, and the Company and the
Shareholder, jointly and severally, hereby agree to indemnify and save the
Purchaser harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
B. The Purchaser's Obligation. Neither the Company nor the
Shareholder shall have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Purchaser in connection with
this Agreement and the transactions contemplated hereby, and the Purchaser
hereby agrees to indemnify and save the Company and the Shareholder harmless
from any liability, damage, cost or expense arising from any claim for any such
fee or other compensation.
SECTION XIII
MISCELLANEOUS
A. Notices. All notices, requests or
instructions hereunder shall be in writing and delivered
personally, sent by telecopier, or sent by registered or
certified mail, postage prepaid, as follows:
(1) If to the Shareholder or the Company
(prior to the Closing):
Isabel Valdes
1329 Waverley Street
Palo Alto, California 94301
Telecopy No.: (650) 327-7024
Telephone No.: (650) 322-9991
<PAGE>
40
with a copy to:
Coblentz, Cahen, McCabe & Breyer LLP
222 Kearney Street, 7th Floor
San Francisco, California 94108
Attention: Barry Reder, Esq.
Telecopy No.: (415) 989-1663
Telephone No.: (415) 391-4800
(2) If to the Purchaser or the Company
(subsequent to the Closing):
2200 Clarendon Boulevard, 11th Floor
Arlington, Virginia 22201
Attention: President
Telecopy: 703-812-9552
Telephone: 800-522-3447
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telephone No.: (212) 880-6000
Facsimile No.: (212) 682-0200
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, and two business days after the date of mailing, if mailed.
B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties
hereto shall use such party's best efforts to take such
actions as may be necessary or reasonably requested by the
<PAGE>
41
other parties hereto to carry out and consummate the transactions contemplated
by this Agreement. At the Purchaser's expense, the Shareholder agrees to execute
and deliver any reasonable and customary management representation letter
requested by the Purchaser's independent certified public accountants in
connection with their audit of the Financial Statements. In addition, at the
Purchaser's expense, the Shareholder agrees to take all other actions as may be
reasonably necessary to assist the Purchaser in preparing financial statements
with respect to the Company for such periods ending on or prior to the Closing
as are required by Regulation S-X under the Securities Act of 1933, as amended,
which statements are to be presented in conformity with the accounting rules of
Regulation S-X and are to be audited by the Purchaser's independent certified
public accountants.
E. Expenses. Except for the Company Transaction Expenses as
set forth in Section 6(E) hereof, each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby; provided, however, that the Company shall not bear any of
such expenses.
F. Injunctive Relief. Notwithstanding the provisions of
Section XIII(G) hereof, in the event of a breach or threatened breach by the
Shareholder of the provisions of Section XI of this Agreement, the Shareholder
hereby consents and agrees that the Purchaser shall be entitled to an injunction
or similar equitable relief restraining the Shareholder from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by the Shareholder under any such provision,
without the necessity of showing any actual damage or that money damages would
not afford an adequate remedy and without the necessity of posting any bond or
other security. The parties hereto hereby consent to the jurisdiction of the
federal courts for the Northern District of California and the California state
courts located in such District for any proceedings under this Section XIII(F).
The parties hereto agree that the availability of arbitration in Section XIII(G)
hereof shall not be used by any party as grounds for the dismissal of any
injunctive actions instituted by the Purchaser pursuant to this Section XIII(F).
Nothing herein shall be construed as prohibiting the Purchaser from pursuing any
other remedies at law or in equity which it may have.
G. Arbitration. Any controversy or claim
arising out of or relating to this Agreement, or any breach
hereof shall, except as provided in Sections I(D), VI(C) and
<PAGE>
42
XIII(F) hereof, be settled by arbitration in accordance with the rules of the
American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in the San Francisco, California area.
The arbitrator shall award attorney's fees to the prevailing party.
H. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the arbitration panel shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
I. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the successors
and assigns of the Company and the Purchaser, respectively,
and the legal representatives and heirs of the Shareholder.
J. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of California, without regards to conflict of laws
principles.
K. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the
same instrument.
<PAGE>
43
L. Knowledge. Whenever the term "Knowledge" is used in this
Agreement, such term shall, with respect to the Company, mean the actual
knowledge or awareness of the Shareholder, Angelina Villareal, Isabel Balboa,
Julio Aranovich, and Janet Torres and shall with respect to each individual
named above, mean the actual knowledge or awareness of such individual, after
the exercise of reasonable diligence or after due inquiry, as to matters to
which such knowledge or awareness relates; and shall, with respect to the
Shareholder, mean the actual knowledge or awareness of the Shareholder after the
exercise of reasonable diligence or after due inquiry, as to matters to which
such knowledge or awareness relates.
M. Additional Provisions Regarding Representations and
Warranties. By closing on the transaction contemplated herein, the Purchaser
will have acknowledged that, to the best of its knowledge and belief, it has had
full, free and unfettered access to all books, records, documents, personnel and
other information concerning the Company which the Purchaser deemed necessary
for full and complete consideration of its decision to purchase the Shares
hereby; provided, however, that this statement shall not be deemed to limit in
any manner whatsoever the Purchaser's rights to indemnification set forth
herein.
* * *
<PAGE>
44
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
HISPANIC MARKET CONNECTIONS, INC.
By: /s/ Isabel Valdes
_____________________________
Name: Isabel Valdes
Title: President
/s/ Isabel Valdes
----------------------------------
Isabel Valdes
CULTURALACCESSWORLDWIDE INC.
By: /s/ Liam Donohue
_____________________________
Name: Liam Donohue
Title: Vice President
<PAGE>
EXHIBIT 2(e)
AGREEMENT OF PURCHASE AND SALE
By and Among
PHOENIX MARKETING GROUP, INC.,
DOUGLAS REBAK,
JOSEPH MACALUSO
and
CULTURALACCESSWORLDWIDE, INC.
<PAGE>
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT dated as of the 1st day of October, 1997 by and
among Phoenix Marketing Group, Inc., a New Jersey corporation (the "Company"),
Douglas Rebak and Joseph Macaluso (each a "Shareholder" and, collectively the
"Shareholders") and CulturalAccessWorldwide, Inc., a Delaware corporation (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged, among other things, in the
business of database driven support and sample fulfillment to meet the rapidly
changing needs of sales and marketing executives in the healthcare industry and
related services including those set forth on Annex A attached hereto (such
activities being hereinafter referred to as the "Business");
WHEREAS, the Shareholders are the holders of an aggregate of 155
shares of the class A common stock, no par value (the "Common Stock"), of the
Company, which shares constitute all of the issued and outstanding voting shares
of capital stock of the Company;
WHEREAS, effective on the date of the Closing (as hereinafter
defined), the Purchaser, through its indirect wholly owned subsidiary PM
Acquisition Corp., a Delaware corporation (the "Designee"), desires to acquire
from the Company certain assets of the Company as described in Section I(C)(i)
hereof (the "Assets") and, through the Designee, to assume certain liabilities
and contractual obligations of the Company as described in Section I(C)(ii)
hereof (the "Assumed Liabilities"), and the Company desires to sell or assign
the Assets and to assign the Assumed Liabilities to the Purchaser, through the
Designee, on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, to induce the Purchaser to enter into this Agreement
and perform its obligations hereunder, each of the Shareholders has agreed to
make the representations, warranties, covenants and agreements of the
Shareholders (including the indemnification and non-competition agreements) set
forth herein.
NOW, THEREFORE, in consideration of the premises
and the mutual covenants and agreements hereinafter set
<PAGE>
2
forth, and intending to be legally bound, the parties hereto
hereby agree as follows:
SECTION I
PURCHASE AND SALE OF THE ASSETS
A. Purchase and Sale of the Assets. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained:
(i) The Company hereby sells, assigns and
conveys to the Purchaser, and the Purchaser hereby purchases, acquires and
accepts from the Company, the Assets.
(ii) The Company hereby assigns to the Purchaser
and the Purchaser hereby accepts and assumes from the
Company, the Assumed Liabilities.
(iii) The designation of the Designee to acquire
the Assets and assume the Assumed Liabilities will in no event affect or limit
in any respect the Purchaser's payment obligations hereunder.
B. Purchase Price. The purchase price (the "Purchase Price")
for the Assets is: (i) $10,000,000, payable in cash; (ii) $2,500,000, by
delivery of a 6.0% subordinated redeemable promissory note of the Purchaser (the
"Redeemable Note"), substantially in the form of Exhibit A-1 attached hereto,
payable to the order of the Company; (iii) $2,500,000, by delivery of a 6.0%
convertible subordinated promissory note of the Purchaser (the "Convertible
Note," and together with the Redeemable Note, the "Notes"), substantially in the
form of Exhibit A-2 attached hereto, payable to the order of the Company; and
(iv) the contingent payments, if earned (the "Contingent Payments"), payable as
provided in Section I(D) hereof. The Purchase Price payable at the Closing shall
be made by delivery to the Company of (a) a wire transfer in immediately
available funds to an account designated by the Company in the amount of
$7,920,898.50 and, at the direction of the Company, a wire transfer in
immediately available funds to accounts designated by Douglas Rebak and Joseph
Macaluso in the amounts of $1,396,080.41 and $683,021.09, respectively, (in
repayment of amounts owed by the Company to the Shareholders) and (b) the Notes.
<PAGE>
3
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets,
business, contract rights, financial books and records and goodwill of every
kind and nature, real, personal, and mixed, tangible and intangible, wherever
located, of the Company used in or in any way related to the Business as
conducted by the Company including but not limited to those Assets listed in
Schedule I hereto. The Assets shall not include the assets listed in Schedule II
hereto (hereinafter, the "Excluded Assets").
(ii) The Assumed Liabilities shall consist of
and shall be limited solely to the obligations and liabilities of the Company
incurred in connection with the Business listed in Schedule III hereto. The
Company shall remain liable for, and shall pay when due, any and all obligations
and liabilities of the Company, other than the Assumed Liabilities.
D. Contingent Payments. In accordance with the provisions of
Schedule V hereto, within ninety (90) days after December 31, 1998, December 31,
1999 and December 31, 2000, the Purchaser shall deliver to the Company the
Contingent Payments, if earned, payable with respect to the twelve-month periods
ending December 31, 1998, December 31, 1999 and December 31, 2000, respectively.
The amount of the Contingent Payments payable to the Company with respect to
each such twelve-month period (each, a "Contingent Period") shall be based upon
the EBITA (as defined in Section I(E) hereof) achieved by the Business during
such Contingent Period. Each of the Contingent Payments, if any, shall be made
by delivery to the Company of a certificate representing shares of common stock,
$.01 par value ("Purchaser Common Stock"), of the Purchaser, registered in the
name of the Company, in such numbers of shares as are determined in accordance
with Schedule V hereto.
E. Computation of EBITA; Certain Adjustments. The Purchaser
shall, within ninety (90) days after the end of each Contingent Period, compute
the amount of the EBITA of the Business for such Contingent Period. The amount
so computed shall be the EBITA for purposes of determining whether or not
Contingent Payments shall be due and payable. Notwithstanding the determination
of EBITA for any applicable period by the Purchaser, the Company shall receive
the information upon which such determination was made, and shall, in the event
of a dispute as to the amount or method of calculation of such net revenues and
EBITA have the right to review all work papers relating to the determination of
EBITA. For purposes of this Agreement,
<PAGE>
4
"EBITA" shall mean the earnings before interest, taxes and amortization of the
Business (or, in the event that all or substantially all the assets and business
of the Business shall have been transferred to another entity or entities, the
allocable portion of the EBITA of such other entity or entities) for the
applicable Contingent Period as determined in accordance with generally accepted
accounting principles consistent with the Purchaser's accounting practices. For
purposes of calculating EBITA for any Contingent Period, no deduction will be
made for amortization of goodwill, corporate overhead charges and the Executive
Expenses (as hereinafter defined).
Numbers of shares of Purchaser Common Stock
set forth herein shall be appropriately adjusted for any stock split, stock
dividend, reverse stock split or other similar event affecting the Purchaser
Common Stock. Fractional shares shall be rounded to the nearest whole share.
In the event (a "Reorganization") of the consolidation or
merger of the Purchaser with or into another person or the acquisition of all or
substantially all the Purchaser Common Stock or all or substantially all of the
assets of the Purchaser by another person (other than a consolidation or merger
in which the Purchaser is the continuing corporation and which does not result
in any change in the Purchaser Common Stock), the Purchaser shall have the
option to pay the Company at such time as a payment is due pursuant to Section
I(D) hereof, in lieu of the Purchaser Common Stock provided for in such Section,
the consideration (the "Reorganization Consideration") per share in the form (in
stock or cash or other consideration) payable to the other holders of Purchaser
Common Stock in connection with such transaction, multiplied by the number of
shares of Purchaser Common Stock deliverable to the Company provided for in
Section I(D) hereof.
F. Allocation. The Purchase Price for the Assets (including
the Assumed Liabilities assumed by the Purchaser (or the Designee)) shall be
allocated to the Assets and the Assumed Liabilities at their fair market values.
The portion of the Purchase Price not allocated to specific Assets and Assumed
Liabilities shall be allocated to goodwill.
<PAGE>
5
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and
severally, hereby represent and warrant to, and covenant and agree with, the
Purchaser, as of the date of the Closing, that:
A. Organization and Qualification. The Company is duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has full corporate power and authority to own its properties and
to conduct the businesses in which it is now engaged. The Company is in good
standing in each other jurisdiction wherein the failure so to qualify would have
a material adverse effect on the financial condition, operations, assets and
properties of the Business taken as a whole (a "Material Adverse Effect"). The
Company has no subsidiaries, owns no capital stock or other proprietary
interest, directly or indirectly, in any other corporation, association, trust,
partnership, joint venture or other entity and has no agreement with any person,
firm or corporation to acquire any such capital stock or other proprietary
interest. The Company has full power, authority and legal right, and all
necessary approvals, permits, licenses and authorizations, to own its properties
and to conduct the Business and to enter into and consummate the transactions
contemplated under this Agreement, except for such approvals, permits, licenses
and authorizations, the absence of which would not have a Material Adverse
Effect. The copies of the articles of incorporation and by-laws of the Company
which have been delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Company, the performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
C. No Legal Bar; Conflicts. Neither the
execution and delivery of this Agreement, nor the
<PAGE>
6
consummation of the transactions contemplated hereby, violates any provision of
the certificate of incorporation or by-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency or board, or conflicts with or will result in any breach of any of the
terms of or constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any contract or agreement to which
the Company is a party or by which the Company or any of the Assets is bound,
except where such violation, conflict, breach, default, termination or lien
creation would not have a Material Adverse Effect. No consents, approvals or
authorizations of, or filings with, any governmental authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
except for required consents, if any, to assignment of permits, certificates,
contracts, leases and other agreements as set forth in Exhibit B attached
hereto.
D. Financial Statements; No Undisclosed Liabilities. The
Company and the Shareholders have delivered to the Purchaser balance sheets of
the Company as of December 31, 1996, 1995 and 1994 and as of June 30, 1997 and
the related statements of income, retained earnings and cash flows and the notes
thereto for the periods then ended (hereinafter referred to as the "Financial
Statements"). The Financial Statements with respect to the periods ended
December 31, 1996, 1995 and 1994 have been audited by Price Waterhouse L.L.P.,
the Company's independent accountants, and the Financial Statements with respect
to the period ended June 30, 1997 has been compiled by Simon, Tapper and
Company, P.A., independent accountants. The Financial Statements are true and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied consistently throughout the
periods involved. The Financial Statements fully and fairly present the
financial condition of the Company as at the dates thereof and the results of
the operations of the Company for the periods indicated. The balance sheets
contained in the Financial Statements fairly reflect all liabilities of the
Company of the types normally reflected in balance sheets as at the dates
thereof. Except to the extent set forth in or provided for in the balance sheet
of the Company as of December 31, 1996 included in the Financial Statements (the
"1996 Balance Sheet") or as identified in Exhibit B, and except for current
liabilities incurred in the ordinary course of business consistent with past
practices (and not materially different in type or amount), the Company has no
material liabilities or
<PAGE>
7
obligations of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due, whether properly reflected under generally
accepted accounting principles as a liability or a charge or reserve against an
asset or equity account, and whether the amount thereof is readily ascertainable
or not. A true and correct copy of the Financial Statements is attached hereto
as Exhibit C.
E. Absence of Certain Changes. Except as set forth in Exhibit
B, subsequent to the date of the 1996 Balance Sheet, there has not been any (i)
material adverse or prospective material adverse change in the condition of the
Business, financial or otherwise, or in the results of the operations of the
Company which has or could reasonably be expected to have a Material Adverse
Effect; (ii) material damage or destruction (whether or not insured) affecting
the properties or business operations of the Company; (iii) labor dispute or, to
the best of the knowledge of the Company and each of the Shareholders,
threatened labor dispute involving the employees of the Company; (iv) actual or,
to the best of the knowledge of the Company and each of the Shareholders,
threatened disputes pertaining to the Business with any major accounts of the
Company, or actual or, to the best of the knowledge of the Company and each of
the Shareholders, threatened loss of business from any of the major accounts of
the Company; (v) changes in the methods or procedures for billing or collection
of customer accounts or recording of customer accounts receivable or reserves
for doubtful accounts with respect to the Company; or (vi) other event or
condition of any character, known to the Company or either of the Shareholders
or which in the exercise of reasonable diligence should be known to the Company
or either of the Shareholders, not disclosed in this Agreement pertaining to and
materially adversely affecting the Assets or the Business.
F. Liabilities Incurred. Except as disclosed in Exhibit B,
subsequent to the date of the 1996 Balance Sheet, the Company has not (i)
incurred any bank indebtedness, entered into any leases, loan agreements or,
except in the ordinary course of business consistent with past practices,
contracts, obligations or arrangements of any kind, including, without
limitation, for the payment of money or property to any person, or (ii)
permitted any liens or encumbrances to attach to the Assets.
G. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by the Company or in which the
Company has any interest is set forth in Exhibit B. All such leased real
property is held
<PAGE>
8
subject to written leases or other agreements which are valid and effective in
accordance with their respective terms, and there are no existing defaults or
events of default, or events which with notice or lapse of time or both would
constitute defaults, thereunder on the part of the Company, except for defaults,
if any, which would not have a Material Adverse Effect. Neither the Company nor
either of the Shareholders has any knowledge of any material default or claimed
or purported or alleged material default or state of facts which with notice or
lapse of time or both would constitute a material default on the part of any
other party in the performance of any obligation to be performed or paid by such
other party under any lease referred to in Exhibit B. Neither the Company nor
either of the Shareholders has received any written or oral notice to the effect
that any lease will not be renewed at the termination of the term thereof or
that any such lease will be renewed only at a substantially higher rent.
H. Title to Assets; Condition of Property. The
Company has good and valid title to the Assets, including,
without limitation, the properties and assets reflected in
the 1997 Balance Sheet (except for assets leased under
leases set forth in Exhibit B, assets sold or retired and
accounts receivable collected upon, since the date of the
1997 Balance Sheet in the ordinary course of business
consistent with past practices). The Company has the right,
power and authority to sell and transfer the Assets to the
Purchaser (or the Designee) and upon such transfer, the
Purchaser (or the Designee), will acquire good and
marketable title to the Assets, free and clear of all liens,
charges, encumbrances, security interests or claims
whatsoever. The Assets include all properties and assets
used in the operations of the Business as currently
conducted. All such properties and assets are in good
condition and repair, consistent with their respective ages,
and have been maintained and serviced in accordance with the
normal practices of the Company and as necessary in the
normal course of business. None of the Assets is subject to
any liens, charges, encumbrances or security interests,
except as set forth in Exhibit B. None of the Assets (or
uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation in a
manner which could reasonably be expected to have a Material
Adverse Effect. The books and records of the Company
accurately reflect the materials of customers and clients
held on the premises of the Company.
I. Taxes. Except as set forth in Exhibit B, the
Company has filed or caused to be filed on a timely basis
all federal, state, local, foreign and other tax returns,
<PAGE>
9
reports and declarations (collectively, "Tax Returns") required to be filed by
it. All Tax Returns filed by or on behalf of the Company are true, complete and
correct in all material respects. The Company has paid all income, estimated,
excise, franchise, gross receipts, capital stock, profits, stamp, occupation,
sales, use, transfer, value added, property (whether real, personal or mixed),
employment, unemployment, disability, withholding, social security, workers'
compensation and other taxes, and interest, penalties, fines, costs and
assessments (collectively, "Taxes"), due and payable with respect to the periods
covered by such Tax Returns (whether or not reflected thereon). There are no Tax
liens on any of the properties or assets, real, personal or mixed, tangible or
intangible, of the Company. The accrual for Taxes reflected in the Financial
Statements accurately reflects the total amount of all unpaid Taxes, whether or
not disputed and whether or not presently due and payable, of the Company as of
the close of the period covered by the Financial Statements, and the amount of
the Company's unpaid Taxes does not exceed the accrual for Taxes reflected in
the Financial Statements for the period ended December 31, 1996. Since the date
of the 1996 Balance Sheet, the Company has not incurred any tax liability other
than in the ordinary course of business. No Tax Return of the Company has ever
been audited. No deficiency in Taxes for any period has been asserted by any
taxing authority which remains unpaid at the date hereof (the results of any
settlement being set forth in Exhibit B), no written inquiries or notices have
been received by the Company from any Taxing authority with respect to possible
claims for Taxes, the Company has no reason to believe that such an inquiry or
notice is pending or threatened, and there is no basis for any additional claims
or assessments for Taxes. The Company has not agreed to the extension of the
statute of limitations with respect to any Tax Return or Tax period. The Company
has delivered to the Purchaser copies of the federal and state income Tax
Returns filed by the Company for the past three years and for all other past
periods as to which the appropriate statute of limitations has not lapsed.
J. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default
under any, and has complied with all applicable, statutes, ordinances,
regulations and laws, orders, judgments and decrees of any court or governmental
entity or agency, relating to the Business or the Assets as to which a default
or failure to comply might have a Material Adverse Effect. Neither the Company
nor either of the Shareholders has any knowledge of any basis for assertion of
any violation of the
<PAGE>
10
foregoing or for any claim for compensation or damages or otherwise arising out
of any violation of the foregoing. Neither the Company nor either of the
Shareholders has received any notification of any asserted present or past
failure to comply with any of the foregoing which has not been satisfactorily
responded to in the time period required thereunder.
(ii) Permits; Intellectual Property. Set
forth in Exhibit B is a complete and accurate list of all material permits,
licenses, approvals, franchises, patents, registered and common law trademarks,
service marks, tradenames, copyrights (and applications for each of the
foregoing), notices and authorizations issued by governmental entities or other
regulatory authorities, federal, state or local (collectively the "Permits"),
held by the Company in connection with the Business. The Permits set forth in
Exhibit B are all the Permits required for the conduct of the Business. All the
Permits set forth in Exhibit B are in full force and effect, and the Company has
not engaged in any activity which would cause or permit revocation or suspension
of any such Permit, and, to the best of the knowledge of the Company and each of
the Shareholders, no action or proceeding looking to or contemplating the
revocation or suspension of any such Permit is pending or threatened. There are
no existing material defaults or events of default or event or state of facts
which with notice or lapse of time or both would constitute a default by the
Company under any such Permit. Neither the Company nor either of the
Shareholders has any knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or both would
constitute a material default on the part of any other party in the performance
of any obligation to be performed or paid by any other party under any Permit
set forth in Exhibit B. The use by the Company of any proprietary rights
relating to any Permit does not involve any claimed infringement of such Permit
or rights. Except as set forth in Section II(J)(iii) below, the Company is not
required to be licensed by, nor is it subject to the regulation of, any
governmental or regulatory body by reason of the conduct of the Business.
(iii) Environmental. (a) The Company has
duly complied in all material respects with and the real estate subject to the
leases listed on Exhibit B and improvements thereon, and all other real estate
leased by the Company, and the improvements thereon (all such owned or leased
real estate hereinafter referred to collectively as the "Premises") are in
compliance in all material respects with, the provisions of all federal, state
and local
<PAGE>
11
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder, except where the failure to so comply would
not have a Material Adverse Effect.
(b) The Company has not received any
notice of, and neither the Company nor either of the Shareholders knows of any
facts which might constitute, violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder, which relate to the use, ownership or
occupancy of any of the Premises or of any premises formerly owned, leased or
occupied by the Company.
K. Accounts Receivable; Accounts Payable.
(i) The accounts receivable of the Company are in their
entirety valid accounts receivable, arising in the ordinary course of business.
(ii) The accounts and notes payable and other accrued expenses
reflected in the Financial Statements, and the accounts and notes payable and
accrued expenses incurred by the Business subsequent to the date of the 1996
Balance Sheet, are in all respects valid claims that arose in the ordinary
course of business. Since the date of the 1996 Balance Sheet, the accounts and
notes payable and other accrued expenses of the Business have been paid in a
manner consistent with past practice.
L. Contractual and Other Obligations. Set
forth in Exhibit B is a list and brief description of all
material (i) contracts, agreements, licenses, leases,
arrangements (written or oral) and other documents to which
the Company is a party or by which the Company or any of the
Assets is bound (including, in the case of loan agreements,
a description of the amounts of any outstanding borrowings
thereunder and the collateral, if any, for such borrowings);
(ii) obligations and liabilities of the Company pursuant to
uncompleted orders for the purchase of materials, supplies,
equipment and services for the requirements of the Business
with respect to which the remaining obligation of the
Company is in excess of $50,000; and (iii) material
contingent obligations and liabilities of the Company; all
of the foregoing being hereinafter referred to as the
"Contracts". Neither the Company nor, to the best of the
knowledge of the Company and each of the Shareholders, any
other party is in default in the performance of any covenant
or condition under any Contract and no claim of such a
default has been made and no event has occurred which with
the giving of notice or the lapse of time would constitute a
<PAGE>
12
default under any covenant or condition under any Contract, except where such
default would not have a Material Adverse Effect. The Company is not a party to
any Contract which would terminate or be materially adversely affected by
consummation of the transactions contemplated by this Agreement. The Company is
not a party to any Contract expected to be performed at a loss. Originals or
true, correct and complete copies of all written Contracts have been provided to
the Purchaser.
M. Compensation. Set forth in Exhibit D attached hereto is a
list of all material agreements between the Company and each person employed by
or independently contracting with the Company with regard to compensation,
whether individually or collectively, and set forth in Exhibit D is a list of
all employees of the Company entitled to receive annual compensation in excess
of $40,000 and their respective salaries. The transactions contemplated by this
Agreement will not result in any liability for severance pay to any employee or
independent contractor of the Company. The Company has not informed any employee
or independent contractor providing services to the Company that such person
will receive any increase in compensation or benefits or any ownership interest
in the Company or the Business.
N. Employee Benefit Plans. Except as set forth in Exhibit E
attached hereto, the Company does not maintain or sponsor, nor does it
contribute to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (hereinafter referred to as
"ERISA"), in which the employees participate (such plans and related trusts,
insurance and annuity contracts, funding media and related agreements and
arrangements being hereinafter referred to as the "Benefit Plans") comply with
all requirements of the Department of Labor and the Internal Revenue Service,
and with all other applicable laws, and the Company has not taken or failed to
take any action with respect to the Benefit Plans which might create any
liability on the part of the Company or the Purchaser. Each "fiduciary" (within
the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied
with all requirements of ERISA and all other applicable laws in respect of each
such Benefit Plan. The Company has furnished to the Purchaser copies of all
Benefit Plans and
<PAGE>
13
all financial statements, actuarial reports and annual reports and returns filed
with the Internal Revenue Service with respect to such Benefit Plans prior to
the date hereof. Such financial statements and actuarial reports and annual
reports and returns are true and correct in all material respects, and none of
the actuarial assumptions underlying such documents have changed since the
respective dates thereof. In addition:
(i) Each Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to its qualification;
(ii) The Company does not maintain, sponsor or contribute
to, and has never maintained, sponsored or contributed to a "defined
benefit plan" (within the meaning of Section 3(35) of ERISA) or a
Multiemployer Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has occurred with
respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Company in any way limits, impairs,
modifies or otherwise affects the right of the Company or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will
be required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(vii) Except as set forth in Exhibit E, all reports, returns
and similar documents with respect to the Benefit Plans required to be
filed with any
<PAGE>
14
governmental agency have been so filed on or before
their due date; and
(viii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code or Section 601 of ERISA. The Company has complied with the notice
and continuation requirements of Section 4980B of the Code or Section
601 of ERISA and the regulations thereunder.
O. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company, or the terms and
conditions of employment, wages and hours, which violations would have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
in Exhibit B, the Company is not engaged in any unfair labor practice or other
unlawful employment practice and there are no charges of unfair labor practices
or other employee-related complaints pending or, to the best of the knowledge of
the Company and each of the Shareholders, threatened against the Company before
the National Labor Relations Board, the Equal Employment Opportunity Commission,
the Occupational Safety and Health Review Commission, the Department of Labor or
any other federal, state, local or other governmental authority. There is no
strike, picketing, slowdown or work stoppage or organizational attempt pending,
or, to the best of the knowledge of the Company and each of the Shareholders,
threatened against or involving the Business. No issue with respect to union
representation is pending or threatened with respect to the employees of the
Company. No union or collective bargaining unit or other labor organization has
ever been certified or recognized by the Company as the representative of any of
the employees of the Company.
P. Increases in Compensation or Benefits. Except as set forth
in Exhibit D, subsequent to the date of the 1996 Balance Sheet, there have been
no increases in the compensation payable or to become payable to any of the
employees of the Company and there have been no payments or provisions for any
awards, bonuses, loans, profit sharing, pension, retirement or welfare plans or
similar or other disbursements or arrangements for or on behalf of such
employees (or related parties thereof), in each case, other than pursuant to
currently existing plans or arrangements, if any, set forth in Exhibit E;
provided, however, that in no event was any such increase in compensation or any
<PAGE>
15
such payment or provision made with respect to either of the Shareholders (or
any members of the families of either of the Shareholders). Except as set forth
in Exhibit D, all bonuses heretofore granted to employees of the Company have
been paid in full to such employees. The vacation policy of the Company is set
forth in Exhibit E. Except as set forth in Exhibit E, no employee of the Company
is entitled to vacation time in excess of three weeks during the current
calendar year and no employee of the Company has any accrued vacation or sick
time with respect to any prior period.
Q. Insurance. A list and brief description of the insurance
policies maintained by the Company with respect to the Business is set forth in
Exhibit B. Such insurance policies are in full force and effect and all premiums
due thereon prior to or on the date of the Closing have been paid. The Company
has adequate insurance and reserves to cover any liability that may arise out of
any claims, including but not limited to workers compensation and health
insurance claims, that may be asserted against the Business for occurrences
prior to the date of the Closing.
R. Conduct of Business. The Company is not
restricted from conducting the Business in any location by
agreement or court decree.
S. Allowances. The Company has no obligation outside of the
ordinary course of business to make allowances to any customers with respect to
the Business.
T. Use of Names. All names under which the Company currently
conducts the Business are listed in Exhibit B. To the best of the knowledge of
the Company and each of the Shareholders, there are no other persons or
businesses conducting businesses similar to those of the Company in the State of
New Jersey having the right to use or using the names set forth in Exhibit B or
any variants of such names; and no other person or business has ever attempted
to restrain the Company or either of the Shareholders from using such names or
any variant thereof.
U. Power of Attorney. The Company has not granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever.
V. Litigation; Disputes. Except as set forth in
Exhibit B, there are no material claims, disputes, actions,
suits, investigations or proceedings pending or, to the best
of the knowledge of the Company and each of the
Shareholders, threatened against or affecting the Company,
<PAGE>
16
the Business or any of the Assets, no such claim, dispute, action, suit,
proceeding or investigation has been pending, or, to the best of the knowledge
of the Company and each of the Shareholders, threatened during the five-year
period preceding the date of the Closing and, to the best of the knowledge of
the Company and each of the Shareholders, there is no basis for any such claim,
dispute, action, suit, investigation or proceeding. Neither the Company nor
either of the Shareholders has any knowledge of any default under any such
action, suit or proceeding. The Company is not in default in respect of any
judgment, order, writ, injunction or decree of any court or of any federal,
state, municipal or other government department, commission, bureau, agency or
instrumentality or any arbitrator.
W. Location of Business and Assets. Set forth in Exhibit B is
each location (specifying state, county and city) where the Company (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including equipment and furniture.
X. Computer Software. The Company has the right to use all
computer software, including all property rights constituting part of that
computer software, used in connection with the Company's business operations
(the "Computer Software"). A list of all written licenses pertaining to the
Computer Software is set forth in Exhibit B (the "Licenses"). The Company has no
knowledge that any of the Licenses may not be valid or enforceable by the
Company or that the use of the Computer Software or any of the Licenses may
infringe upon or conflict with the rights of any third party. The Company has
not granted any licenses to use the Computer Software or any sub-licenses with
respect to any of the Licenses, except with respect to its electronic territory
management systems (ETMS) business.
Y. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Company or either of
the Shareholders set forth herein, in the exhibits hereto or in any document
delivered by the Company or either of the Shareholders to the Purchaser, or any
authorized representative of the Purchaser, pursuant to this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading.
Z. Investment. (i) The Company has had access
to such information relating to the business and affairs of
the Purchaser which the Company and the Shareholders have
reasonably requested, and all additional information which
<PAGE>
17
the Company and the Shareholders have considered necessary to verify the
accuracy of the information so received. The Company and the Shareholders have
had the opportunity to ask questions of and receive answers from the Purchaser
concerning the terms and conditions of the transactions contemplated by this
Agreement. On the basis of the foregoing, each of the Company and the
Shareholders is familiar with the operations, business plans and financial
condition of the Purchaser.
(ii) Each of the Company and each of the
Shareholders understands that the Purchaser may issue and deliver to the
Company, as part of the Contingent Payments and upon conversion of the
Convertible Note, shares of Purchaser Common Stock pursuant to this Agreement,
without compliance with the registration requirements of the Securities Act;
that for such purpose the Purchaser will rely upon the representations,
warranties, covenants and agreements contained herein; and that such
non-compliance with registration is not permissible unless such representations
and warranties are correct and such covenants and agreements performed. Each of
the Company and each of the Shareholders is an "accredited investor" as such
term is defined in Rule 501 under the Securities Act.
(iii) Each of the Company and each of the
Shareholders understands that, under existing rules of the Securities and
Exchange Commission (the "SEC") the Company, may be unable to sell its shares of
Purchaser Common Stock except to the extent that its shares of Purchaser Common
Stock may be sold (i) pursuant to an effective registration statement covering
such shares pursuant to the Securities Act or (ii) in a bona fide private
placement to a purchaser who shall be subject to the same restrictions on any
resale or (iii) subject to the restrictions contained in Rule 144 under the
Securities Act ("Rule 144"). Each of the Company and each of the Shareholders
understands that the Purchaser is under no obligation to effect a registration
of their shares of Purchaser Common Stock under the Securities Act.
(iv) Each of the Company and each of the
Shareholders is familiar with the provisions of Rule 144 and the limitations
upon the availability and applicability of such rule.
(v) Each of the Company and each of the
Shareholders is a sophisticated investor familiar with the type of risks
inherent in the acquisition of restricted securities such as the shares of
Purchaser Common Stock and their financial position is such that they can afford
to retain the shares of Purchaser Common Stock for an
<PAGE>
18
indefinite period of time without realizing any direct or indirect cash return
on their investment.
(vi) The Company is acquiring its shares of
Purchaser Common Stock for its account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to,
and covenants and agrees with, the Purchaser, as of the date of the Closing,
that:
A. Authority. Such Shareholder is fully able to execute and
deliver this Agreement and to perform such Shareholder's covenants and
agreements hereunder, and this Agreement constitutes a valid and legally binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium
and similar laws from time to time in effect affecting the enforcement of
creditors' rights generally.
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which such Shareholder is a party or by which such Shareholder or
any of such Shareholder's assets is bound.
SECTION IV
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDERS AND THE PURCHASER
A. Publicity. Each of the Company and each of
the Shareholders covenants and agrees, jointly and
severally, that any and all publicity (whether written or
<PAGE>
19
oral) and notices to third parties (other than employees of the Company)
concerning the sale of the Assets and other transactions contemplated by this
Agreement shall be subject to the prior written approval of the Purchaser, which
approval may be withheld in the sole discretion of the Purchaser.
B. Correspondence, etc. Each of the Company and each of the
Shareholders covenants and agrees, jointly and severally, that each of them will
deliver to the Purchaser, promptly after the receipt thereof, all inquiries,
correspondence and other materials received by either of them from any person or
entity relating to the Business or the Assets.
C. Books and Records. Each of the Company and each of the
Shareholders represents and warrants, jointly and severally, that the books and
records of the Company are in all respects complete and correct, have been
maintained in accordance with good business practices and accurately reflect the
basis for the financial position and results of operations of the Company set
forth in the Financial Statements. All of such books and records have been
available for inspection by the Purchaser and its representatives. Each of the
Company and each of the Shareholders covenants and agrees, jointly and
severally, that each of them shall give the Purchaser reasonable access to the
historical financial books and records of the Company, to the extent such books
and records are not included in the Assets, for a period of five years from the
date of the Closing. The Company and each of the Shareholders shall retain all
such books and records in substantially their condition at the time of the
Closing. None of such books and records shall be destroyed without the prior
written approval of the Purchaser or without first offering such books and
records to the Purchaser.
D. Discharge of Obligations. Each of the Company and each of
the Shareholders covenants and agrees, jointly and severally, to pay promptly
and otherwise to fulfill and discharge all obligations and liabilities of the
Company which are not Assumed Liabilities hereunder when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Assets, the
Business or the Purchaser, result in the imposition of any lien, charge or
encumbrance on any of the Assets, or adversely affect the Purchaser's title to
or use of any of the Assets.
E. Delivery of Funds. Each of the Company
and/or the Shareholders shall deliver on a daily basis any
<PAGE>
20
funds and any checks, notes, drafts and other instruments for the payment of
money, duly endorsed to the Purchaser, received by any of them (i) comprising
payment of any of the accounts receivable of the Company constituting a part of
the Assets and (ii) comprising payment of any amounts due from customers of the
Company or others for services rendered by the Company prior to the Closing,
including pursuant to any agreements constituting part of the Assets.
F. Pass Through of Rights and Obligations. To
the extent that the Company and the Shareholders are unable
to obtain any necessary consents of third parties prior to
the consummation of the transactions contemplated hereby
under the contracts, agreements, leases, insurance policies
and other instruments of the Company which are part of the
Assets and are set forth in Exhibit B (the "Exhibit B
Contracts"), each of the Company and each of the
Shareholders covenants and agrees to use their best efforts
to obtain such consents within thirty (30) days after the
Closing. The Company and the Shareholders covenant and
agree (i) not to assign any such Exhibit B Contract to any
party other than the Purchaser (or the Designee), (ii) to
use their best efforts to keep such Exhibit B Contract in
full force and effect, except as otherwise directed by the
Purchaser, (iii) to operate under such Exhibit B Contract
only under the direction of the Purchaser, (iv) to the
extent such Exhibit B Contract requires by its terms the
performance of services by the Company, that the Purchaser
is hereby subcontracted and employed to perform all such
services on behalf of the Company, (v) to remit or otherwise
provide to the Purchaser all revenues and other benefits
derived from such Exhibit B Contract immediately upon
receipt thereof and (vi) in the case of any Exhibit B
Contract, in the event that such consent cannot be obtained,
to cooperate with the Purchaser and the other party to such
Exhibit B Contract to enable the Purchaser to enter into a
contract directly with such other party.
G. Working Capital. On or before 270 days from the date of the
Closing (the "Reconciliation Date"), the Purchaser shall calculate the amount of
the actual collections by the Purchaser after the date of the Closing and prior
to 180 days from the date of Closing (the "Collection Period") of the accounts
receivable of the Business which were outstanding on the date of the Closing
(the "Pre-Closing Receivables"). In the event that the sum of the collections of
Pre-Closing Receivables during the Collection Period plus the amount of cash of
the Company on the date of the Closing available to the Purchaser (the "Closing
Cash") exceeds (the "Excess") the sum of $1,800,000 plus the aggregate amount of
the accounts payable and
<PAGE>
21
accrued expenses of the Company included in the Assumed Liabilities as of the
date of the Closing (such sum is herein after referred to as the "Target
Amount"), the Purchaser shall pay to the Company the amount of such Excess on or
before the Reconciliation Date. In the event that the sum of the amount
collected plus the Closing Cash shall be less (the "Shortfall") than the Target
Amount, each of the Company and the Shareholders, jointly and severally, shall
be obligated to pay on or before the Reconciliation Date to the Purchaser the
amount of the Shortfall. The Purchaser shall permit the Company to review the
Purchaser's calculations of collections of Pre-Closing Receivables and the
amounts of the Closing Cash, the accounts payable and accrued expenses of the
Business and the parties agree to negotiate in good faith to resolve any
controversies relating to such calculations.
H. Post-Closing Operations. Subsequent to the Closing, the
Shareholders shall assist the Purchaser and do all things reasonably requested
by the Purchaser in connection with the recruitment of an executive (the
"Executive") who will be groomed to manage the day-to-day operations of the
Business. The Executive shall report to the President of the Phoenix Marketing
Group Division of the Purchaser. In addition, the Purchaser agrees to pay all
recruiting related costs with respect to the Executive and the Executive's
salary for the first six months of his employment (such expenses, the "Executive
Expenses"). The Purchaser agrees that, subsequent to the Closing, the Business
shall have its offices at One Phoenix Drive, Lincoln Park, New Jersey and 99
Beaver Brook Road, Lincoln Park, New Jersey. In addition, the Purchaser agrees
to cause its Phoenix Marketing Group Division to offer employment to Robert
Taylor under a three-year employment agreement.
I. Note Payments. The Purchaser hereby acknowledges that it
will have sufficient resources to pay the Notes, if a cash payment thereunder is
required, and a sufficient number of authorized but unissued shares of Purchaser
Common Stock to issue the number of shares of Purchaser Common Stock required to
be issued upon conversion of the Convertible Note.
SECTION V
CLOSING
A. Time and Place of Closing. The closing
of the purchase and sale of the Assets as set forth herein
<PAGE>
22
(the "Closing") shall be held at the offices of Haythe & Curley, 20th Floor, 237
Park Avenue, New York, NY 10017, on October 16, 1997 or such other time and
place as the parties
mutually agree upon.
B. Delivery of Assets. Delivery of the Assets shall be made by
the Company to the Purchaser (or the Designee) at the Closing by delivering such
deeds, bills of sale, assignments and other instruments of conveyance and
transfer, and such powers of attorney, as shall be effective to vest in the
Purchaser (or the Designee) title to or other interest in, and the right to full
custody and control of, the Assets, free and clear of all liens, charges,
encumbrances and security interests whatsoever.
C. Sales and Use Taxes. Any and all sales or
use Taxes or any other Taxes or charges assessed in
connection with this transaction shall be paid by the
Company.
SECTION VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE
The obligation of the Company to sell the Assets and the
obligation of the Company otherwise to consummate the transactions contemplated
by this Agreement at the Closing are subject to the following conditions
precedent, any or all of which may be waived by the Company in writing in its
sole discretion, and each of which the Purchaser hereby agrees to use its best
efforts to satisfy at or prior to the Closing:
A. No Litigation. No action, suit or proceeding against the
Company, either of the Shareholders or the Purchaser relating to the
consummation of any of the transactions contemplated by this Agreement or any
governmental action seeking to delay or enjoin any such transactions shall be
pending or threatened.
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and,
on the date of the Closing, the Purchaser shall deliver to the Company a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the date of
<PAGE>
23
the Closing shall have been duly complied with and performed in all material
respects, and, on the date of the Closing, the Purchaser shall deliver to the
Company a certificate dated the date of the Closing to such effect.
C. Other Certificates. The Company shall have received such
additional certificates, instruments and other documents in form and substance
satisfactory to it and its counsel, as it shall have reasonably requested in
connection with the transactions contemplated hereby.
D. Deliveries. All deliveries by the Purchaser
required hereunder, including the Purchase Price deliverable
at the Closing, shall have been made.
E. Employment Agreements. The Purchaser (or the Designee) and
each of the Shareholders shall have entered into employment agreements (the
"Employment Agreements") substantially in the form of Exhibits F-1 and F-2,
respectively, attached hereto.
F. Lease. The Purchaser (or the Designee) and
Phoenix Realty Partners shall have entered into a lease (the
"Lease") substantially in the form of Exhibit I attached
hereto.
G. Opinion of the Purchaser's Counsel. The Company and the
Shareholder shall have received an opinion of Haythe & Curley, counsel for the
Purchaser, delivered to the Company and the Shareholders, pursuant to the
instructions of the Purchaser, dated the date of Closing, in form and substance
reasonably satisfactory to counsel for the Company and the Shareholders.
H. Security Agreement. The Purchaser (or the
Designee) and the Company shall have entered into a security
agreement (the "Security Agreement") substantially in the
form of Exhibit J attached hereto.
SECTION VII
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Assets and
otherwise to consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
<PAGE>
24
A. Opinion of the Company's Counsel. The Purchaser shall have
received an opinion of Winne, Banta, Rizzi, Hetherington & Basralian P.C.,
counsel for the Company and the Shareholders, delivered to the Purchaser
pursuant to the instructions of the Company and the Shareholders, dated the date
of the Closing, substantially to the effect set forth in Exhibit G attached
hereto.
B. No Litigation. No action, suit or proceeding against the
Company, either of the Shareholders or the Purchaser relating to the
consummation of any of the transactions contemplated by this Agreement nor any
governmental action seeking to delay or enjoin any such transactions shall be
pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Company and each of the Shareholders herein shall be
correct as of the date of the Closing in all respects with the same force and
effect as though such representations and warranties had been made as of the
date of the Closing, and, on the date of the Closing, the Company and the
Shareholders shall deliver to the Purchaser a certificate dated the date of the
Closing to such effect. All the terms, covenants and conditions of this
Agreement to be complied with and performed by the Company and each of the
Shareholders on or before the date of the Closing shall have been duly complied
with and performed in all material respects and, on the date of the Closing, the
Company and each of the Shareholders shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect.
D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and its counsel, as it shall have reasonably
requested in connection with the transactions contemplated hereby.
E. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company or each of the
Shareholders to the consummation of the transactions contemplated hereby which
consents shall not provide for the acceleration of any liabilities or any other
detriment to the Purchaser or the Business.
F. Employment Agreements. The Purchaser (or the
Designee) and the Shareholders shall have entered into the
Employment Agreements.
<PAGE>
25
G. Deliveries. All deliveries by the Company and the
Shareholders required hereunder shall have been made, including such deeds,
bills of sale, assignments and other instruments of conveyance and transfer, and
such powers of attorney, as shall be effective to vest in the Purchaser (or the
Designee) title to or other interest in, and the right to full custody and
control of, the Assets, free and clear of all liens, charges, encumbrances and
security interests whatsoever.
H. Change of Name. The Company acknowledges that the Company's
name is included in the Assets being purchased hereunder, and accordingly, the
Purchaser shall have received evidence that the Company has taken all steps
necessary to change its name to a corporate name other than Phoenix Marketing
Group, Inc. and a written consent duly executed by the Company evidencing its
consent to the use by the Purchaser and any subsidiaries, affiliated companies
or assigns of the Purchaser of the name "Phoenix Marketing" and variants
thereof.
I. Shareholder Agreement. The Company and the
Purchaser shall have entered into a Shareholder Agreement in
the form of Exhibit H attached hereto.
J. Key Employee Options. The Purchaser shall grant to the Key
Employees options to acquire an aggregate of up to 25,000 shares of Purchaser
Common Stock pursuant to the Purchaser's Stock Option Plan.
K. Lease. The Purchaser (or the Designee) and Phoenix Realty
Partners shall have entered into the Lease.
L. Release of Liens. The Purchaser shall have received
evidence satisfactory to the Purchaser and its counsel of the release of the
liens and security interests related to the Assets described in Exhibit B
attached hereto, including, but not limited to, the release of any liens and
security interests of Fleet Bank, for itself and as successor in interest to
National Westminster Bank, against receipt by Fleet Bank from the Purchaser of
$1,046,247.51.
SECTION VIII
INDEMNIFICATION
A. Indemnification by the Company and the
Shareholders. Each of the Company and each of the
Shareholders, jointly and severally, shall indemnify and
<PAGE>
26
hold harmless the Purchaser from and against any and all losses, claims,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
whatsoever (hereinafter referred to collectively as the "Purchaser's Damages"),
including, without limitation, Purchaser's Counsel Expenses (as hereinafter
defined), sustained or incurred by the Purchaser (or the Designee) as a result
of or arising from (a) the breach of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the representations or warranties
made by the Company or each of the Shareholders herein or (b) any liabilities or
obligations of the Company which are not Assumed Liabilities. For purposes
hereof "Purchaser's Counsel Expenses" shall mean reasonable fees and
disbursements of counsel howsoever sustained or incurred by the Purchaser (or
the Designee), including, without limitation, in any action or proceeding
between the Purchaser and either of the Shareholders and/or the Company or in
any action or proceeding between the Purchaser and any third party. In addition
to the right of the Purchaser to indemnification hereunder, the Purchaser shall
have the right from time to time to set off the amount of any of the Purchaser's
Damages against any payment of principal of or interest on the Convertible Note
and, after conversion of the Convertible Note, against the Escrowed Stock (as
hereinafter defined); provided, however, that the Purchaser shall not have the
right to set-off under this Section VIII(A) the amount of the Purchaser's
Damages which it may sustain or incur by reason of a breach of either of the
Shareholders' covenants contained in Section IX hereof. Upon conversion of the
Convertible Note in accordance with the terms thereof, the Company and the
Shareholders agree that the Company shall place in escrow with the Purchaser
such number of shares of Purchaser Common Stock (the "Escrowed Stock") issued
upon conversion of the Convertible Note such that the value of the Escrowed
Stock multiplied by the Market Value (as hereinafter defined) shall equal
$1,500,000 on the date of conversion. For purposes hereof, "Market Value" shall
mean the price per share to the public in the IPO (as defined in the Convertible
Note) of the Purchaser Common Stock. The Purchaser shall be entitled to set off
the amount of any Purchaser's Damages against the Escrowed Stock (either by
cancelling such number of shares of Escrowed Stock equal in value (based on the
average closing price of the Purchaser Common Stock as reported in The Wall
Street Journal, Eastern Division) to the amount of the Purchaser's Damages or by
causing the Company to sell shares of Escrowed Stock, the net proceeds of which
shall be equal to the amount of the Purchaser's Damages and to remit the net
proceeds thereof to the Purchaser). The Purchaser shall hold the Escrowed Stock
in escrow for a period commencing on the date of conversion
<PAGE>
27
and ending one year from the date of Closing, unless prior to such date notice
has been given by the Purchaser to the Company of a claim for Purchaser's
Damages, in which case Purchaser shall be entitled to retain an amount of
Escrowed Stock equal in value (based on the average closing price of the
Purchaser Common Stock as reported in the Wall Street Journal, Eastern Division)
to the amount of such claim until the resolution of such claim.
B. Indemnification by the Purchaser. The
Purchaser shall indemnify and hold harmless each of the
Company and either of the Shareholders from and against any
and all losses, claims, assessments, demands, damages,
liabilities, obligations, costs and/or expenses whatsoever
(hereinafter referred to as the "Shareholders' Damages"; the
Shareholders' Damages and the Purchaser's Damages are
sometimes referred to herein as the "Damages"), including,
without limitation, Shareholders' Counsel Expenses (as
hereinafter defined), sustained or incurred by the Company
and/or either of the Shareholders as a result of or arising
from (a) the breach of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein
or (b) the Assumed Liabilities. For purposes hereof
"Shareholders' Counsel Expenses" shall mean reasonable fees
and disbursements of counsel howsoever sustained or incurred
by the Company and/or either of the Shareholders, including,
without limitation, in any action or proceeding between
either of the Shareholders and/or the Company and the
Purchaser or in any action or proceeding between either of
the Shareholders and/or the Company and any third party.
C. Procedure for Indemnification. In the event that any party
hereto shall incur any Damages in respect of which indemnity may be sought by
such party pursuant to this Section VIII, the party from whom such indemnity may
be sought (the "Indemnifying Party") shall be given written notice thereof by
the party seeking such indemnity (the "Indemnified Party"), which notice shall
specify the amount and nature of such Damages and include the request of the
Indemnified Party for indemnification of such amount. The Indemnifying Party
shall within 30 days pay to the Indemnified Party the amount of the Damages so
specified
D. Agreements Concerning Indemnification. It is
specifically understood and agreed that:
(i) The Company and the Shareholders shall not
be obligated to indemnify the Purchaser for the Purchaser's Damages unless and
until the aggregate amount of all claims for such Purchaser's Damages exceeds
$50,000 (the "Basket")
<PAGE>
28
at which time claims may be asserted for the excess of such
amount.
(ii) The Company and the Shareholders shall not
be obligated to indemnify the Purchaser for the Purchaser's Damages in excess of
an aggregate of $1,500,000 (the "Cap") and the obligations of the Company and
the Shareholders for indemnification hereunder shall terminate when the Cap has
been paid.
SECTION IX
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither the Company nor either of the
Shareholders shall, (a) subsequent to the date of the Closing and until five
years after the date of the Closing, directly or indirectly, (i) engage, whether
as principal, agent, investor, distributor, representative, stockholder,
employee, consultant, volunteer or otherwise, with or without pay, in any
activity or business venture which is competitive with the business of database
driven support and sample fulfillment to meet the rapidly changing needs of
sales and marketing executives in the healthcare industry and related services
including those set forth on Annex A attached hereto, (ii) solicit or entice or
endeavor to solicit or entice away from any member of the Purchaser Group (as
hereinafter defined) any person who was or is at the time of the solicitation or
enticement a director, officer, employee, agent or consultant of such member of
the Purchaser Group, either on the Company's or the Shareholder's own account or
for any person, firm, corporation or other organization, whether or not such
person would commit any breach of such person's contract of employment by reason
of leaving the service of such member of the Purchaser Group, (iii) solicit or
entice or endeavor to solicit or entice away any person who was or is at the
time of the solicitation or enticement a client or customer of any member of the
Purchaser Group, either on the Company's or the Shareholder's own account or for
any other person, firm, corporation or organization, or (iv) employ any person
who was a director, officer or employee of any member of the Purchaser Group or
any person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Purchaser Group, or (b) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the Purchaser Group or the business reputation or good name of
<PAGE>
29
any member of the Purchaser Group, or be otherwise detrimental to the Purchaser,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Purchaser Group. Because the remedy at law for
any breach of the foregoing provisions of this Section IX would be inadequate,
the Company and each of the Shareholders hereby consent, in case of any such
breach, to the granting by any court of competent jurisdiction of specific
enforcement, including, but not limited to pre-judgment injunctive relief, of
such provisions, as provided for in Section XI(F) hereof.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and parent entities
operating in the same lines of business.
SECTION X
BROKERS AND FINDERS
A. The Company's and the Shareholders' Obligation. The
Purchaser shall not have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Company or either of the
Shareholders in connection with this Agreement and the transactions contemplated
hereby, and the Company and each of the Shareholders, jointly and severally,
hereby agree to indemnify and save the Purchaser harmless from any liability,
damage, cost or expense arising from any claim for any such fee or other
compensation.
B. The Purchaser's Obligation. Neither the Company nor either
of the Shareholders shall have any obligation to pay any fee or other
compensation to any person, firm or corporation dealt with by the Purchaser in
connection with this Agreement and the transactions contemplated hereby, and the
Purchaser hereby agrees to indemnify and save the Company and each of the
Shareholders harmless from any liability, damage, cost or expense arising from
any claim for any such fee or other compensation.
<PAGE>
30
SECTION XI
MISCELLANEOUS
A. Notices. All notices, requests or
instructions hereunder shall be in writing and delivered
personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, as follows:
(1) If to the Company or the Shareholders:
c/o Phoenix Realty Partners
One Phoenix Drive
Lincoln Park, New Jersey
with a copy to:
Winne, Banta, Rizzi,
Hetherington & Basralian, P.C.
Court Plaza North
25 Main Street, 5th Floor
Hackensack, New Jersey 07602
Attention: Joseph L. Basralian, Esq.
Telecopy No.: (201) 525-9460
Telephone No.: (201) 487-3800
(2) If to the Purchaser:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No: (212) 682-0200
Telephone No.: (212) 880-6000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
<PAGE>
31
B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto, for a period of twelve (12) months, except (a) for covenants
and agreements to be performed subsequent to the Closing and (b) that nothing in
the foregoing shall be deemed to diminish any Indemnifying Party's
indemnification obligations to an Indemnified Party respecting (x) any claim for
Damages under Section VIII hereof for which notice to the Indemnifying Party has
been given prior to the end of such twelve (12) month period, (y) the
representations and warranties contained in Sections II(H), (I), (V) and (Z) and
claims for common law fraud, each of which shall survive for the duration of the
applicable statutes of limitations or (z) claims based upon the Purchaser's
failure to pay any Assumed Liabilities or the Company's failure to pay any of
its liabilities (other than the Assumed Liabilities), which shall survive for
the duration of any applicable statutes of limitations governing third party
claims made with respect thereto.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement. Each of the Shareholders agrees to
execute and deliver any reasonable and customary management representation
letter requested by the Purchaser's independent certified public accountants in
connection with their audit of the S-X Financial Statements.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Injunctive Relief. Notwithstanding the provisions of
Section XI(G) hereof, in the event of a breach or threatened breach by the
Company or either of the Shareholders of the provisions of Section IX of this
Agreement, each of the Company and each of the Shareholders hereby consents and
agrees that the Purchaser shall be entitled in order to maintain the status quo
ante pending the outcome of any arbitration pursuant to XI(G) to an
<PAGE>
32
injunction or similar equitable relief restraining the Company or either of the
Shareholders, as the case may be, from committing or continuing any such breach
or threatened breach or granting specific performance of any act required to be
performed by the Company or either of the Shareholders, as the case may be,
under any such provision, without the necessity of showing any actual damage or
that money damages would not afford an adequate remedy and without the necessity
of posting any bond or other security. The parties hereto hereby consent to the
jurisdiction of the federal courts for the District of New Jersey and the New
Jersey state courts located in such District for any proceedings under this
Section XI(F). The parties hereto agree that the availability of arbitration in
Section XI(G) hereof shall not be used by any party as grounds for the dismissal
of any injunctive actions instituted by the Purchaser pursuant to this Section
XI(F).
G. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof shall, except as provided in
Section XI(F) hereof, be settled by arbitration in accordance with the rules of
the American Arbitration Association for a single arbitrator then in effect and
judgment upon such award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration shall be held in the Hackensack,
New Jersey area. The arbitrator shall award attorney's fees to the prevailing
party.
H. Invalidity. Should any provision of this Agreement be held
by a court or arbitrator of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitrator is expressly authorized to modify any such unenforceable
provision of this Agreement in lieu of severing such unenforceable provision
from this Agreement in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree that
this Agreement as modified by the court or the arbitrator shall be binding upon
and enforceable against each of them. In any event, should one or more of the
provisions of this Agreement be held to be invalid, illegal or unenforceable in
any respect, such invalidity,
<PAGE>
33
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
I. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the successors
and assigns of the Company and the Purchaser, respectively,
and the legal representatives and heirs of the Shareholders.
J. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the State of New Jersey, without regard to conflict of laws principles.
K. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the
same instrument.
* * *
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
PHOENIX MARKETING GROUP, INC.
By: /s/ Douglas Rebak
___________________________
Name: Douglas Rebak
Title: President
/s/ Douglas Rebak
------------------------------
Douglas Rebak
/s/ Joseph Macaluso
------------------------------
Joseph Macaluso
CULTURALACCESSWORLDWIDE, INC.
By:____________________________
Name: ______________________
Title:______________________
<PAGE>
35
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TELEPHONE ACCESS, INC.
Pursuant to Sections 242 and 245 of the
Delaware General Corporation Law
Telephone Access, Inc., a corporation existing under the laws of the
State of Delaware (the "Corporation"), does hereby certify as follows:
(a) the name of the Corporation is Telephone Access, Inc.;
(b) the Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware, on the 11th day of
August, 1983;
(c) this Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware, (i) the Board of
Directors of the Corporation having duly adopted a resolution approving
such amendment and declaring its advisability by means of a unanimous
written consent in lieu of a meeting of the Board of Directors of the
Corporation and (ii) in lieu of a meeting and vote of stockholders, the
holders of the
<PAGE>
2
capital stock of the Corporation having not less than the minimum number
of votes necessary to approve such amendment at a meeting at which all
stockholders having a right to vote thereon were present and voted having
duly consented in writing to the adoption of such amendment and written
notice thereof in accordance with Section 228(c) of the General
Corporation Law of the State of Delaware having been given to the
stockholders who did not so consent; and
(d) the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in full as follows:
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TELEPHONE ACCESS, INC.
THE UNDERSIGNED, for the purpose of forming a corporation pursuant
to the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the corporation is Telephone Access, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, which address
is located in the County of New Castle, and the name of the Corporation's
registered agent at such address is the Corporation Service Company.
THIRD: The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock"), and 20,000,000 shares
of common stock, $.01 par value per share (the "Common Stock"). The powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions of the Preferred Stock and
the Common Stock shall be as follows:
I. Common Stock
1. The Corporation hereby constitutes two classes of its Common
Stock as follows:
An aggregate of 19,500,000 shares of Common Stock are hereby
constituted as a class designated as "Common Stock" and an aggregate of 500,000
shares of Common Stock are hereby constituted as a class designated as
"Non-Voting Common Stock".
<PAGE>
2
2. Except as set forth in paragraph 3 below, the Common Stock and
the Non-Voting Common Stock shall be identical in all respects, except that the
holders of NonVoting Common Stock shall have no voting power for any purpose
whatsoever and the holders of Common Stock shall, to the exclusion of the
holders of the Non-Voting Common Stock, have full voting powers for all
purposes.
3. Each share of Non-Voting Common Stock shall be convertible at any
time, at the option of the holders of the Non-Voting Common Stock, into shares
of Common Stock at the rate of one share of Common Stock for each share of
NonVoting Common Stock converted, on or after the earlier to occur of (i)
December 31, 2000 or (ii) the closing of the initial sale by the Corporation to
the public, through an underwritten public offering, of shares of Common Stock,
pursuant to a registration statement, under the Securities Act of 1933, as
amended (the "Act"). In order to exercise such conversion privilege, the holder
of any shares of NonVoting Common Stock shall surrender the certificate or
certificates for the shares of Non-Voting Common Stock to be converted,
accompanied by appropriate instruments of surrender or transfer, to the
Corporation at the office of any transfer agent designated by the Corporation
for that purpose. The certificate or certificates for such shares of Non-Voting
Common Stock shall also be accompanied by a written notice to the effect that
the holder elects to convert all, or a number less than all, of such shares of
Non-Voting Common Stock. In case the number of shares of Non-Voting Common Stock
which such holder so elects to convert would, but for the provisions of this
sentence, result in the issuance of a fraction of a share of Common Stock, the
number of shares of Common Stock issuable on such conversion shall be reduced to
the next lower whole number of shares of Common Stock and no adjustments, by way
of cash, scrip, fractional shares or otherwise, shall be made. Such notice shall
state the name or names in which shall be issued the certificate or certificates
for shares of Common Stock issuable upon such conversion and the certificate or
certificates, if any, for shares of Non-Voting Common Stock covered by the
certificate or certificates so surrendered but not intended to be converted. In
case a certificate so to be issued is to be issued in a name or names different
from the name or names in which the shares of Non-Voting Common Stock so
surrendered were registered, the holder surrendering the same shall pay or cause
provision to be made for the payment of all applicable stock transfer taxes. As
promptly as practicable after the receipt of such notice and the surrender of
such certificate or certificates, the Corporation shall, without charge (other
than stock transfer taxes, as stated), issue and deliver to such holder or
<PAGE>
3
pursuant to the written instructions of such holder (i) a certificate or
certificates for the number of shares of Common Stock issuable upon conversion
of such shares of Non-Voting Common Stock in accordance with such notice and
(ii) a certificate or certificates for a number of shares of Non-Voting Common
Stock equal to the number, if any, by which the number of shares represented by
the certificate or certificates so surrendered shall exceed the number of shares
converted into shares of Common Stock. Such conversion shall be deemed to have
been effected at the close of business on the date on which such certificate or
certificates for shares of Non-Voting Common Stock, accompanied by instruments
of transfer or surrender and written notice as stated above, shall have been
received by the Corporation, so that the rights of the holder or holders of such
converted shares as a holder or holders of NonVoting Common Stock shall cease at
such time and the person or persons entitled to receive shares of Common Stock
upon such conversion shall be treated for all purposes as having become the
record holder or holders of such shares of NonVoting Common Stock at such time;
provided that any shares of Non-Voting Common Stock so received by the
Corporation on a date which is not a business day or on a date when the stock
transfer books of the Corporation shall be closed or on a date fixed by the
Board of Directors as a record date for the determination of the stockholders of
record for any purpose shall be deemed to have been received on the next
succeeding business day on which such stock transfer books shall be open or
following such record date.
4. In the event that any dividend or other distribution shall be
made on the Common Stock payable in shares of Common Stock, a dividend or
distribution on the Non-Voting Common Stock payable in shares of Non-Voting
Common Stock shall simultaneously be made in such amount that the number of
outstanding shares of Non-Voting Common Stock shall be increased as a result of
the dividend or distribution on the Non-Voting Common Stock in the same
proportion as the number of outstanding shares of Common Stock are increased as
a result of the dividend or distribution on the Common Stock.
5. The shares of Common Stock shall not be split up or subdivided,
or combined, whether by stock distribution, reclassification, recapitalization
or otherwise, so as to increase or decrease the number of shares thereof
outstanding unless at the same time the shares of the Non-Voting Common Stock
are split up or subdivided or combined, so that the number of shares of that
stock outstanding shall be proportionately increased or decreased.
<PAGE>
4
6. Any shares of Common Stock reacquired by the Corporation in
exchange for shares of Non-Voting Common Stock shall be cancelled and retired
and may not be reissued nor may any other shares of Common Stock or of
Non-Voting Common Stock be issued in lieu of that stock, and the number of
shares of Common Stock, and the total number of shares, which the Corporation is
authorized to have outstanding shall be accordingly reduced. Any shares of
Non-Voting Common Stock converted into Common Stock shall be cancelled and
retired and may not be reissued nor may any other shares of Common Stock or of
Non-Voting Common Stock be issued in lieu of that stock, and the number of
shares of Non-Voting Common Stock, and the total number of shares, which the
Corporation is authorized to have outstanding shall be accordingly reduced.
II. Blank Check Preferred Stock
1. (a) Shares of Preferred Stock may be issued by the Corporation
from time to time as shares of one or more series of Preferred Stock, and in the
resolution or resolutions providing for the issue of shares of each particular
series, before issuance, the Board of Directors of the Corporation is expressly
authorized to fix:
(i) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be increased
(except where otherwise provided by the Board of Directors in creating
such series) or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of Directors;
(ii) the rate of dividends payable on such series, whether or not
dividends shall be cumulative, the date or dates from which dividends
shall accrue and, if cumulative, the relationship which such dividends
shall bear to dividends payable on any other series;
(iii) whether or not the shares of such series shall be subject to
redemption by the Corporation and, if so, the times, prices and other
terms and conditions of such redemption;
(iv) whether or not the shares of such series shall be subject to
the operation of a sinking fund or a fund of a similar nature and, if so,
the terms thereof;
<PAGE>
5
(v) the rights of the shares of each series in case of liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, or upon any distribution of its assets;
(vi) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other series or class of stock of
the Corporation and, if so, the terms of conversion or exchange;
(vii) whether or not the shares of such series shall have voting
rights in addition to the voting rights provided by law and in paragraph 5
below and, if so, the nature and extent thereof; and
(viii) the consideration to be received by the Corporation for the
shares of such series.
(b) The shares of the Preferred Stock of any one series shall be
identical with each other in all respects except as to the dates from which
dividends thereon shall accrue or be cumulative.
(c) In case the stated dividends and the amounts, if any, payable on
liquidation, dissolution or winding up of the Corporation are not paid in full,
the shares of each series of the Preferred Stock, after the payment in full of
such dividends and amounts to all series of the Preferred Stock ranking senior
to such series and before any payment to any series ranking junior thereto,
shall share ratably in the payment of dividends, including accumulations, if
any, in accordance with the sums which would be payable on said shares if all
dividends were declared and paid in full, and in any distribution of assets
other than by way of dividends, in accordance with the sums which would be
payable on such distribution if all sums payable were discharged in full.
(d) Upon the issuance of any series of Preferred Stock, a
certificate setting forth the resolution or resolutions (including the
designation, description and terms of such series) adopted by the Board of
Directors with respect to such series shall be made and filed in accordance with
the then applicable requirements, if any, of the laws of the State of Delaware,
or, if no certificate is then so required, such certificate shall be signed and
acknowledged on behalf of the Corporation by its President or a Vice President,
and its corporate seal shall be affixed thereto
<PAGE>
6
and attested by its Secretary or an Assistant Secretary, and such certificate
shall be filed and kept on file at the principal office of the Corporation in
the State of Delaware or at such other place or places as the Board of Directors
shall designate.
2. The holders of each series of the Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of funds of the Corporation legally available for the payment of dividends,
dividends in cash at the annual rate for such series provided by the Board of
Directors in the certificate made pursuant to subparagraph (d) of paragraph 1
above with respect to such series, before any dividends, other than dividends
payable in shares of Common Stock to all holders of Common Stock, shall be
declared and paid upon or set apart for the holders of any series of the
Preferred Stock ranking junior to such series as to dividends or of any Junior
Stock (as hereinafter defined), payable in respect of each calendar quarter on a
date, which shall be provided by the Board of Directors in such certificate with
respect to such series, within fifty (50) days following the end of such
quarter. Such dividends on the Preferred Stock shall be payable to holders of
such series of record on the date, not exceeding fifty (50) days preceding the
dividend payment date, fixed for such purpose by the Board of Directors with
respect to such series in advance of the payment of each particular dividend.
3. If so provided by the Board of Directors in the certificate made
pursuant to subparagraph (d) of paragraph 1 above with respect to any series of
the Preferred Stock, the Corporation may redeem the whole or any part of such
series, at such time or times and from time to time and at such redemption price
or prices as may be provided by the Board of Directors in such certificate and
otherwise upon the terms and conditions fixed by the Board of Directors in such
certificate for any such redemptions.
4. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of each series of the
Preferred Stock then outstanding shall be entitled to receive, after the payment
in full of all amounts to which the holders of all series of the Preferred Stock
ranking senior thereto are entitled, out of the assets of the Corporation,
before any distribution or payment shall be made to the holders of any series of
the Preferred Stock ranking junior to such series upon liquidation, dissolution
or winding up of the Corporation, or of any Junior Stock, the amount, if any,
for each share provided by the Board of Directors in the
<PAGE>
7
certificate made pursuant to subparagraph (d) of paragraph 1 of this subsection
II above. If payment shall have been made in full to the holders of each series
of the Preferred Stock, the remaining assets of the Corporation shall be
distributed among the holders of the Junior Stock, according to their respective
rights and preferences and pro rata in accordance with their respective
holdings.
5. On all matters with respect to which holders of the Preferred
Stock or of certain series thereof are entitled to vote as a single class, each
holder of Preferred Stock afforded such class voting right shall be entitled to
one vote for each share held.
6. For purposes of this Article FOURTH, the term "Junior Stock"
shall mean the Common Stock and any other class of stock of the Corporation
hereafter authorized which shall rank junior to all series of the Preferred
Stock as to all dividends or preference on dissolution, liquidation or winding
up of the Corporation.
7. Subject to all rights of the Preferred Stock, dividends may be
paid on the Common Stock as and when declared by the Board of Directors of the
Corporation out of any funds of the Corporation legally available for the
payment thereof.
8. After payment shall have been made in full to the holders of the
Preferred Stock in the event of any liquidation, dissolution or winding-up of
the affairs of the Corporation, the remaining assets of the Corporation shall be
distributed to the holders of the Common Stock on a pro rata basis.
9. Unless the Board of Directors shall provide in any certificate
made pursuant to subparagraph (d) of paragraph 1 of this subsection II above
with respect to a series of the Preferred Stock that the holders of shares of
such series shall have voting rights for the election of directors and for all
other purposes, the holders of the Common Stock shall possess full voting power
for the election of directors and for all other purposes, each holder of Common
Stock entitled to vote being entitled to one vote for each share of Common Stock
held of record by such holder.
III. 8% Cumulative Preferred Stock
The first series of Preferred Stock designated by the Corporation
and the designation and amount thereof and the voting powers, preferences and
relative, participating,
<PAGE>
8
optional and other special rights of the shares of such class, and the
qualifications, limitations or restrictions thereof, are as follows:
(1) Designation and Amount. An aggregate of 18,000 shares of
Preferred Stock, $.01 par value, of the Corporation, are hereby
constituted as a class designated as "8% Cumulative Preferred
Stock." Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of such class to a number less
than the number of shares of such class then outstanding plus the
number of shares of such class reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into shares of such class.
(2) Dividends. The holders of the 8% Cumulative Preferred
Stock shall be entitled to receive dividends in cash, when and as
declared by the Board of Directors, but only out of any funds of the
Corporation legally available therefor. The dividend rate for the 8%
Cumulative Preferred Stock shall be $8.00 per share per annum, and
shall be payable quarterly on March 31, June 30, September 30 and
December 31 in each year commencing March 31, 1997. If dividends
with respect to the 8% Cumulative Preferred Stock are to be declared
for any dividend period, then not less than 20 days prior to the
date for payment of such dividend, the Board of Directors shall by
resolution declare a dividend for such quarterly period, out of
funds legally available therefor, at the rate prescribed herein.
Dividends shall be cumulative on shares of 8% Cumulative Preferred
Stock from the date of original issuance thereof. If the full amount
of the dividends on the 8% Cumulative Preferred Stock, including all
accumulated and unpaid
<PAGE>
9
dividends, payable upon any quarterly payment date is not so paid,
then such dividends shall cumulate until so paid. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the 8% Cumulative Preferred Stock
that may be in arrears. If full cumulative dividends are not paid on
the 8% Cumulative Preferred Stock, all dividends declared on shares
of the 8% Cumulative Preferred Stock shall be paid pro rata to the
holders of the outstanding 8% Cumulative Preferred Stock. So long as
any shares of 8% Cumulative Preferred Stock are outstanding, the
Corporation shall not declare, pay or set aside for payment any
dividends or other distributions in respect of Junior Stock (as
hereinafter defined), other than dividends payable in shares of
Common Stock to all holders of Common Stock, or call for redemption
or redeem any shares of Junior Stock unless full cumulative
dividends for all past dividend periods shall have been declared and
paid on the 8% Cumulative Preferred Stock.
(3) Liquidation, Dissolution or Winding Up. The amount payable
on the 8% Cumulative Preferred Stock in the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be $100 per share plus an amount
equal to all dividends per share accrued (whether or not declared)
during the dividend period in which such liquidation, dissolution or
winding up occurs and all cumulated and unpaid dividends per share
accrued during prior dividend periods. The merger or consolidation
of the Corporation into or with another corporation, the merger or
consolidation of any other corporation into or with the Corporation,
or the sale, transfer, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall not be deemed
to be a
<PAGE>
10
liquidation, dissolution or winding up of the Corporation.
(4) Redemption. (a) The Corporation shall have the right, but
not the obligation, to redeem all or part of the outstanding shares
of the 8% Cumulative Preferred Stock at any time or from time to
time. The price at which such stock shall be redeemed shall be $100
per share plus an amount equal to all dividends per share accrued
(whether or not declared) during the dividend period in which the
redemption occurs and all cumulated and unpaid dividends per share,
if any, accrued during prior dividend periods. If less than all of
the outstanding shares of the 8% Cumulative Preferred Stock shall be
redeemed, the particular shares to be redeemed shall be allocated
among the holders of the 8% Cumulative Preferred Stock on a pro rata
basis.
(b) Notice of any redemption specifying the date fixed
for said redemption and the place where the amount to be paid upon
redemption is payable shall be mailed, postage prepaid, at least 30
days, but not more than 60 days, prior to said redemption date to
the holders of record of the 8% Cumulative Preferred Stock to be
redeemed at their respective addresses as the same shall appear on
the books of the Corporation. If such notice of redemption shall
have been so mailed, and if on or before the redemption date
specified in such notice all funds necessary for such redemption
shall have been set aside by the Corporation separate and apart from
its other funds, in trust for the account of the holders of the
shares to be redeemed (and so as to be and continue to be available
therefor), then, on and after said redemption date, notwithstanding
that any certificate for shares of the 8% Cumulative Preferred Stock
so called for redemption shall not have been surrendered for
cancellation, the shares
<PAGE>
11
represented thereby so called for redemption shall be deemed to be
no longer outstanding, the right to receive dividends thereon shall
cease to accrue, and all rights with respect to such shares of the
8% Cumulative Preferred Stock so called for redemption shall
forthwith cease and terminate, except only the right of the holders
thereof to receive out of the funds so set aside in trust, the
amount payable on redemption thereof, but without interest. However,
if such notice of redemption shall have been so mailed, and if prior
to the date of redemption specified in such notice said funds shall
be deposited in trust for the account of the holders of the shares
to be redeemed (and so as to be and continue to be available
therefor), with a bank or trust company named in such notice doing
business in the Borough of Manhattan in the City of New York and
having capital, surplus and undivided profits of at least
$50,000,000, thereupon and without awaiting the redemption date, all
shares of 8% Cumulative Preferred Stock with respect to which such
notice shall have been mailed and such deposit shall have been so
made shall be deemed to be no longer outstanding, and all rights
with respect to such shares of 8% Cumulative Preferred Stock shall
forthwith, upon such deposit in trust, cease and terminate, except
only the right of the holders thereof on or after the redemption
date to receive from such deposit the amount payable on redemption
thereof, but without interest. In case the holders of shares of 8%
Cumulative Preferred Stock which shall have been redeemed shall not
within three years after the redemption date claim any amount so
deposited in trust for the redemption of such shares, such bank or
trust company shall, upon demand, pay over to the Corporation any
such unclaimed amount so deposited with it, and shall thereupon be
relieved of all responsibility in respect thereof, and thereafter
the holders of such shares
<PAGE>
12
shall look only to the Corporation for payment of the redemption
price thereof, but without interest.
(c) Any then outstanding shares of 8% Cumulative
Preferred Stock shall be redeemed by the Corporation on December 31,
2000. Such redemption shall be at a redemption price and shall be
effected in the same manner and with the same effect as provided in
paragraphs (a) and (b) hereof for the redemption of shares of 8%
Cumulative Preferred Stock at the option of the Corporation.
(d) Any then outstanding shares of 8% Cumulative
Preferred Stock shall be redeemed by the Corporation upon the
closing of the initial sale to the public by the Corporation of
shares of its capital stock pursuant to a registration statement
filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. Such
redemption shall be at a redemption price and shall be effected in
the same manner and with the same effect as provided in paragraphs
(a) and (b) hereof for the redemption of shares of 8% Cumulative
Preferred Stock at the option of the Corporation.
(e) For purposes hereof:
"Junior Stock" shall mean the Common Stock of the Corporation,
any other stock over which the 8% Cumulative Preferred Stock has a
preference as to payment of dividends or as to distribution of
assets and any securities of whatever form which are convertible
into or exchangeable for Junior Stock.
(5) Amendment. The consent of the holders of at least
two-thirds of the outstanding shares of the 8% Cumulative Preferred
Stock, given in person or by proxy, either in writing or at a
special
<PAGE>
13
meeting called for the purpose, shall be necessary to effect or
validate any one or more of the following:
(a) the authorization of, or any increase in the
authorized amount of, any additional class of stock of the
Corporation ranking prior to or on a parity with the 8% Cumulative
Preferred Stock; or
(b) the amendment, change or alteration of the
Certificate of Incorporation of the Corporation so as to affect
adversely the rights or preferences of the 8% Cumulative Preferred
Stock or the holders thereof.
(6) Limitations. The shares of Preferred Stock shall not have
any voting powers and, except as set forth in this Article FOURTH,
Section III, designations, preferences or relative, participating,
operating or other special rights, qualifications, limitations or
restrictions.
FIFTH: Subject to the provisions of the General Corporation Law of
the State of Delaware, the number of Directors of the Corporation shall be
determined as provided by the By-Laws.
SIXTH: To the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, or any comparable successor law, as the same
may be amended and supplemented from time to time, the Corporation (i) may
indemnify all persons whom it shall have power to indemnify thereunder from and
against any and all of the expenses, liabilities or other matters referred to in
or covered thereby, (ii) shall indemnify each such person if he is or is
threatened to be made a party to an action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Corporation
or because he was serving the Corporation or any other legal entity in any
capacity at the request of the Corporation while a director, officer, employee
or agent of the Corporation and (iii) shall pay the expenses of such a current
or former director, officer, employee or agent incurred in connection with any
such action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding. The indemnification and
<PAGE>
14
advancement of expenses provided for herein shall not be deemed exclusive of any
other rights to which those entitled to indemnification or advancement of
expenses may be entitled under any by-law, agreement, contract or vote of
stockholders or disinterested directors or pursuant to the direction (however
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SEVENTH: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the Corporation,
except as specifically stated therein.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of ss.291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
NINTH: Except as otherwise required by the laws of the State of
Delaware, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and papers of the Corporation outside
of
<PAGE>
15
the State of Delaware, and the Corporation shall have the power to have one or
more offices within or without the State of Delaware, at such places as may be
from time to time designated by the By-Laws or by resolution of the stockholders
or directors. Elections of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends or
unlawful stock purchases under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived any
improper personal benefit. If the General Corporation Law of Delaware is amended
to further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended. Any repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
* * *
<PAGE>
IN WITNESS WHEREOF, the Corporation caused its corporate seal to be
hereunto affixed and this Amended and Restated Certificate of Incorporation to
be signed by John E. Jordan, its President, and attested by Joseph J. Morrow,
its Secretary, this 6th day of December, 1996.
TELEPHONE ACCESS, INC.
By /s/ John E. Jordan
------------------------
John E. Jordan
President
(Corporate Seal)
ATTEST:
/s/ Joseph J. Morrow
- ---------------------------------
Joseph J. Morrow
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TELEPHONE ACCESS, INC.
Pursuant to Section 242 of
the General Corporation Law of
the State of Delaware
Telephone Access, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting Article FIRST of the Amended and
Restated Certificate of Incorporation in its present form and substituting
therefor a new Article FIRST in the following form:
"FIRST: The name of the corporation is
CulturalAccessWorldwide, Inc. (the "Corporation")."
SECOND: The amendment to the Amended and Restated Certificate of
Incorporation of the Corporation set forth in this Certificate of Amendment has
been duly adopted in accordance with the applicable provisions of Section 242 of
the General Corporation Law of the State of Delaware, (a)
<PAGE>
2
the Board of Directors of the Corporation, in lieu of a meeting and vote of
Directors, having duly adopted a resolution setting forth such amendment and
declaring its advisability by unanimous written consent and (b) in lieu of a
meeting and vote of stockholders, the holders of the capital stock of the
Corporation having not less than the minimum number of votes that would have
been necessary to adopt such an amendment at a meeting at which all stockholders
having a right to vote thereon were present and voted having duly consented in
writing to the adoption of such amendment and written notice thereof in
accordance with Section 228 (d) of the General Corporation Law of the State of
Delaware having been given to the holders who did not so consent.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of the 28th day of August, 1997.
TELEPHONE ACCESS, INC.
By: /s/ Liam S. Donahue
--------------------------
Name: Liam S. Donohue
Title: Vice President
ATTEST:
By: /s/ Robert A. Ouimette
----------------------------
Name: Robert A. Ouimette
Title: Assistant Secretary
CERTIFICATE OF DESIGNATION OF
8% CUMULATIVE PREFERRED STOCK, SERIES 1997
OF
CULTURALACCESSWORLDWIDE, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, Liam S. Donohue, Vice President, and Robert A. Ouimette,
Assistant Secretary, of CulturalAccessWorldwide, Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Amended and Restated Certificate of
Incorporation of the Corporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, on October
21, 1997, the Board of Directors of the Corporation adopted the following
resolution creating a class of its Preferred Stock, $.01 par value, designated
as 8% Cumulative Preferred Stock, Series 1997:
RESOLVED, that pursuant to the authority
vested in the Board of Directors of this Corporation in
accordance with the provisions of Article Fourth of its
Certificate of Incorporation (the "Certificate of
Incorporation"), a class of Preferred Stock, $.01 par value,
of the Corporation be, and it hereby is, created, and that the
designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other
special rights of the shares of such class, and the
qualifications, limitations or restrictions thereof, are as
follows:
(1) Designation and Amount. An aggregate of
18,000 shares of Preferred Stock, $.01 par value, of the
Corporation, are hereby constituted as a class designated as
"8% Cumulative
<PAGE>
2
Preferred Stock, Series 1997." Such number of
shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce
the number of shares of such class to a number less than the
number of shares of such class then outstanding plus the
number of shares of such class reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the
Corporation convertible into shares of such class.
(2) Dividends. The holders of the 8%
Cumulative Preferred Stock, Series 1997 shall be entitled to
receive dividends in cash, when and as declared by the Board
of Directors, but only out of any funds of the Corporation
legally available therefor. The dividend rate for the 8%
Cumulative Preferred Stock, Series 1997 shall be $8.00 per
share per annum, and shall be payable quarterly on March 31,
June 30, September 30 and December 31 in each year commencing
September 30, 1997. If dividends with respect to the 8%
Cumulative Preferred Stock, Series 1997 are to be declared for
any dividend period, then not less than 20 days prior to the
date for payment of such dividend, the Board of Directors
shall by resolution declare a dividend for such quarterly
period, out of funds legally available therefor, at the rate
prescribed herein. Dividends shall be cumulative on shares of
8% Cumulative Preferred Stock, Series 1997 from January 15,
1997, the date of original issuance of the 8% cumulative
preferred stock, $.01 par value, of TLM Holdings Corp., which
will be exchanged for shares of 8% Cumulative Preferred Stock,
Series 1997 and for which no dividends have been paid to date.
If the full amount of the dividends on the 8% Cumulative
Preferred Stock, Series 1997, including all accumulated and
unpaid dividends, payable upon any quarterly payment date is
not so paid,
<PAGE>
3
then such dividends shall cumulate until so paid.
No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the
8% Cumulative Preferred Stock, Series 1997 that may be in
arrears. If full cumulative dividends are not paid on the 8%
Cumulative Preferred Stock, Series 1997, all dividends
declared on shares of the 8% Cumulative Preferred Stock,
Series 1997 shall be paid pro rata to the holders of the
outstanding 8% Cumulative Preferred Stock, Series 1997. So
long as any shares of 8% Cumulative Preferred Stock, Series
1997 are outstanding, the Corporation shall not declare, pay
or set aside for payment any dividends or other distributions
in respect of Junior Stock (as hereinafter defined), other
than dividends payable in shares of Common Stock to all
holders of Common Stock, or call for redemption or redeem any
shares of Junior Stock unless full cumulative dividends for
all past dividend periods shall have been declared and paid on
the 8% Cumulative Preferred Stock, Series 1997.
(3) Liquidation, Dissolution or Winding Up.
The amount payable on the 8% Cumulative Preferred Stock,
Series 1997 in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, shall be $100 per share plus an amount equal to
all dividends per share accrued (whether or not declared)
during the dividend period in which such liquidation,
dissolution or winding up occurs and all cumulated and unpaid
dividends per share accrued during prior dividend periods. The
merger or consolidation of the Corporation into or with
another corporation, the merger or consolidation of any other
corporation into or with the Corporation, or the sale,
transfer, mortgage, pledge or lease of all or substantially
all the assets of the Corporation shall not be deemed to be a
<PAGE>
4
liquidation, dissolution or winding up of the Corporation.
(4) Redemption. (a) The Corporation shall
have the right, but not the obligation, to redeem all or part
of the outstanding shares of the 8% Cumulative Preferred
Stock, Series 1997 at any time or from time to time. The price
at which such stock shall be redeemed shall be $100 per share
plus an amount equal to all dividends per share accrued
(whether or not declared) during the dividend period in which
the redemption occurs and all cumulated and unpaid dividends
per share, if any, accrued during prior dividend periods. If
less than all of the outstanding shares of the 8% Cumulative
Preferred Stock, Series 1997 shall be redeemed, the particular
shares to be redeemed shall be allocated among the holders of
the 8% Cumulative Preferred Stock, Series 1997 on a pro rata
basis.
(b) Notice of any redemption
specifying the date fixed for said redemption and the place
where the amount to be paid upon redemption is payable shall
be mailed, postage prepaid, at least 30 days, but not more
than 60 days, prior to said redemption date to the holders of
record of the 8% Cumulative Preferred Stock, Series 1997 to be
redeemed at their respective addresses as the same shall
appear on the books of the Corporation. If such notice of
redemption shall have been so mailed, and if on or before the
redemption date specified in such notice all funds necessary
for such redemption shall have been set aside by the
Corporation separate and apart from its other funds, in trust
for the account of the holders of the shares to be redeemed
(and so as to be and continue to be available therefor), then,
on and after said redemption date, notwithstanding that any
certificate for shares of the 8% Cumulative Preferred Stock,
Series 1997 so called for redemption shall not
<PAGE>
5
have been surrendered for cancellation, the shares represented
thereby so called for redemption shall be deemed to be no
longer outstanding, the right to receive dividends thereon
shall cease to accrue, and all rights with respect to such
shares of the 8% Cumulative Preferred Stock, Series 1997 so
called for redemption shall forthwith cease and terminate,
except only the right of the holders thereof to receive out of
the funds so set aside in trust, the amount payable on
redemption thereof, but without interest. However, if such
notice of redemption shall have been so mailed, and if prior
to the date of redemption specified in such notice said funds
shall be deposited in trust for the account of the holders of
the shares to be redeemed (and so as to be and continue to be
available therefor), with a bank or trust company named in
such notice doing business in the Borough of Manhattan in the
City of New York and having capital, surplus and undivided
profits of at least $50,000,000, thereupon and without
awaiting the redemption date, all shares of 8% Cumulative
Preferred Stock, Series 1997 with respect to which such notice
shall have been mailed and such deposit shall have been so
made shall be deemed to be no longer outstanding, and all
rights with respect to such shares of 8% Cumulative Preferred
Stock, Series 1997 shall forthwith, upon such deposit in
trust, cease and terminate, except only the right of the
holders thereof on or after the redemption date to receive
from such deposit the amount payable on redemption thereof,
but without interest. In case the holders of shares of 8%
Cumulative Preferred Stock, Series 1997 which shall have been
redeemed shall not within three years after the redemption
date claim any amount so deposited in trust for the redemption
of such shares, such bank or trust company shall, upon demand,
pay over to the Corporation any such unclaimed amount so
deposited with it, and shall thereupon
<PAGE>
6
be relieved of all responsibility in respect thereof, and
thereafter the holders of such shares shall look only to the
Corporation for payment of the redemption price thereof, but
without interest.
(c) Any then outstanding shares of
8% Cumulative Preferred Stock, Series 1997 shall be redeemed
by the Corporation on December 31, 2000. Such redemption shall
be at a redemption price and shall be effected in the same
manner and with the same effect as provided in paragraphs (a)
and (b) hereof for the redemption of shares of 8% Cumulative
Preferred Stock, Series 1997 at the option of the Corporation.
(d) Any then outstanding shares of
8% Cumulative Preferred Stock, Series 1997 shall be redeemed
by the Corporation upon the closing of the initial sale to the
public by the Corporation of shares of its capital stock
pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended. Such redemption shall be
at a redemption price and shall be effected in the same manner
and with the same effect as provided in paragraphs (a) and (b)
hereof for the redemption of shares of 8% Cumulative Preferred
Stock, Series 1997 at the option of the Corporation.
(e) For purposes hereof:
"Junior Stock" shall mean the Common Stock
of the Corporation, any other stock over which the 8%
Cumulative Preferred Stock, Series 1997 has a preference as to
payment of dividends or as to distribution of assets and any
securities of whatever form which are convertible into or
exchangeable for Junior Stock.
<PAGE>
7
(5) Amendment. The consent of the holders of
at least two-thirds of the outstanding shares of the 8%
Cumulative Preferred Stock, Series 1997, given in person or by
proxy, either in writing or at a special meeting called for
the purpose, shall be necessary to effect or validate any one
or more of the following:
(a) the authorization of, or any
increase in the authorized amount of, any additional class of
stock of the Corporation ranking prior to or on a parity with
the 8% Cumulative Preferred Stock, Series 1997; or
(b) the amendment, change or
alteration of the Certificate of Incorporation of the
Corporation so as to affect adversely the rights or
preferences of the 8% Cumulative Preferred Stock, Series 1997
or the holders thereof.
(6) Voting Rights. The holders of the 8%
Cumulative Preferred Stock, Series 1997 shall be entitled to
one vote for each share held on all matters submitted to a
vote of the stockholders of the Corporation and shall vote as
a single class with the holders of the Common Stock of the
Corporation and the holders of any other shares of capital
stock of the Corporation accorded such right at all meetings
of stockholders and upon all matters that are submitted to the
stockholders of the Corporation except upon such matters with
respect to which the holders of 8% Cumulative Preferred Stock,
Series 1997 or Common Stock or any other capital stock of the
Corporation shall have the right to vote as a separate class
pursuant to applicable law.
(7) Priority. The 8% Cumulative Preferred
Stock, Series 1997 shall be senior to the Junior Stock of the
Corporation but shall be of equal rank with the 8% Cumulative
Preferred Stock
<PAGE>
8
of the Corporation in all respects including, but not limited
to, payment of dividends, redemption, liquidation,
dissolution, winding up or any other preferences or rights and
the shares of 8% Cumulative Preferred Stock, Series 1997 shall
be identical with the 8% Cumulative Preferred Stock in all
respects, except as to voting rights as provided in paragraph
6 above and except as to the dates from and after which
dividends thereon shall be cumulative.
This Certificate of Designation was authorized by resolution
duly adopted by the Board of Directors of the Corporation by unanimous written
consent on October 21, 1997.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunder affixed and this Certificate of Designation to be signed by
Liam S. Donohue, its President, and attested to by Robert A. Ouimette, its
Assistant Secretary, as of the 21st day of October, 1997.
CULTURALACCESSWORLDWIDE, INC.
/s/ Liam S. Donohue
--------------------
Liam S. Donohue
Vice President
[SEAL]
Attest:
/s/ Robert A. Ouimette
- ------------------------
Robert A. Ouimette
Assistant Secretary
<PAGE>
TELEPHONE ACCESS, INC.
BY-LAWS
ARTICLE I
Offices
The Corporation may have offices at such places, both within and
without the State of Delaware, as may from time to time be designated by the
Board of Directors.
ARTICLE II
Books
The books and records of the Corporation may be kept (except as
otherwise provided by the laws of the State of Delaware) outside of the State of
Delaware and at such place or places as may from time to time be designated by
the Board of Directors.
ARTICLE III
Stockholders
Section 1. Annual Meetings. The annual meeting of the stockholders
of the Corporation for the election of Directors and the transaction of such
other business as may properly come before said meeting shall be held at the
principal business office of the Corporation or at such other place or places
either within or without the State of Delaware as may be designated by the Board
of Directors and stated in the notice of the meeting, on the first Monday of May
in each year, if not a legal holiday, and, if a legal
<PAGE>
2
holiday, then on the next day not a legal holiday, at 10:00 o'clock in the
forenoon, or such other day as shall be determined by the Board of Directors.
Written notice of the place designated for the annual meeting of the
stockholders of the Corporation shall be delivered personally or mailed to each
stockholder entitled to vote thereat not less than ten (10) and not more than
sixty (60) days prior to said meeting, but at any meeting at which all
stockholders shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above described may be
dispensed with. If mailed, said notice shall be directed to each stockholder at
his address as the same appears on the stock ledger of the Corporation unless he
shall have filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which case it shall
be mailed to the address designated in such request.
Section 2. Special Meetings. Special meetings of the stockholders of
the Corporation shall be held whenever called in the manner required by the laws
of the State of Delaware for purposes as to which there are special statutory
provisions, and for other purposes whenever called by resolution of the Board of
Directors, or by the Chairman of the Board, or by the President, or by the
holders of a majority of the outstanding shares of capital stock of the
Corporation the holders of which are entitled to vote on matters that are to be
voted on at such meeting. Any such special meeting of stockholders may be held
at the principal business office of the Corporation or at such other place or
places, either within or without the State of Delaware, as may be specified in
the notice thereof. Business transacted at any special meeting of stockholders
of the Corporation shall be limited to the purposes stated in the notice
thereof.
<PAGE>
3
Except as otherwise expressly required by the laws of the State of
Delaware, written notice of each special meeting, stating the day, hour and
place, and in general terms the business to be transacted thereat, shall be
delivered personally or mailed to each stockholder entitled to vote thereat not
less than ten (10) and not more than sixty (60) days before the meeting. If
mailed, said notice shall be directed to each stockholder at his address as the
same appears on the stock ledger of the Corporation unless he shall have filed
with the Secretary of the Corporation a written request that notices intended
for him be mailed to some other address, in which case it shall be mailed to the
address designated in said request. At any special meeting at which all
stockholders shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above described may be
dispensed with.
Section 3. List of Stockholders. The officer of the Corporation who
shall have charge of the stock ledger of the Corporation shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
<PAGE>
4
Section 4. Quorum. At any meeting of the stockholders of the
Corporation, except as otherwise expressly provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws, there must be
present, either in person or by proxy, in order to constitute a quorum,
stockholders owning a majority of the issued and outstanding shares of the
capital stock of the Corporation entitled to vote at said meeting. At any
meeting of stockholders at which a quorum is not present, the holders of, or
proxies for, a majority of the stock which is represented at such meeting, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 5. Organization. The Chairman of the Board, or in his
absence the President, or in his absence any Vice President, shall call to order
meetings of the stockholders and shall act as chairman of such meetings. The
Board of Directors or the stockholders may appoint any stockholder or any
Director or officer of the Corporation to act as chairman of any meeting in the
absence of the Chairman of the Board, the President and all of the Vice
Presidents.
<PAGE>
5
The Secretary of the Corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the Secretary the presiding
officer may appoint any other person to act as secretary of any meeting.
Section 6. Voting. Except as otherwise provided in the Certificate
of Incorporation or these By-Laws, each stockholder of record of the Corporation
shall, at every meeting of the stockholders of the Corporation, be entitled to
one (1) vote for each share of stock standing in his name on the books of the
Corporation on any matter on which he is entitled to vote, and such votes may be
cast either in person or by proxy, appointed by an instrument in writing,
subscribed by such stockholder or by his duly authorized attorney, and filed
with the Secretary before being voted on, but no proxy shall be voted after
three (3) years from its date, unless said proxy provides for a longer period.
If the Certificate of Incorporation provides for more or less than one (1) vote
for any share of capital stock of the Corporation, on any matter, then any and
every reference in these By-Laws to a majority or other proportion of capital
stock shall refer to such majority or other proportion of the votes of such
stock.
The vote on all elections of Directors and on any other questions
before the meeting need not be by ballot, except upon demand of any stockholder.
When a quorum is present at any meeting of the stockholders of the
Corporation, the vote of the holders of a majority of the capital stock entitled
to vote at such meeting and present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, under any provision of the laws of the State of Delaware or of the
Certificate of Incorporation, a different
<PAGE>
6
vote is required in which case such provision shall govern and control the
decision of such question.
Section 7. Consent. Except as otherwise provided by the Certificate
of Incorporation, whenever the vote of the stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provision of the laws of the State of Delaware or of the Certificate of
Incorporation, such corporate action may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding capital stock of
the Corporation having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented thereto in writing.
Section 8. Judges. At every meeting of the stockholders of the
Corporation at which a vote by ballot is taken, the polls shall be opened and
closed, the proxies and ballots shall be received and taken in charge, and all
questions touching the qualifications of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided by, one (1) judge. Said judge
shall be appointed by the Board of Directors before the meeting, or, if no such
appointment shall have been made, by the presiding officer of the meeting. If
for any reason any judge previously appointed shall fail to attend or refuse or
be unable to serve, a judge in place of any so failing to attend, or refusing or
unable to serve, shall be appointed in like manner.
<PAGE>
7
ARTICLE IV
Directors
Section 1. Number, Election and Term of Office. The business and
affairs of the Corporation shall be managed by the Board of Directors. The
number of Directors which shall constitute the whole Board shall be between one
(1) and twelve (12). Within such limits, the number of Directors may be fixed
from time to time by vote of the stockholders or of the Board of Directors, at
any regular or special meeting, subject to the provisions of the Certificate of
Incorporation. Directors need not be stockholders. Directors shall be elected at
the annual meeting of the stockholders of the Corporation, except as provided in
Section 2 of this Article, to serve until the next annual meeting of
stockholders and until their respective successors are duly elected and have
qualified.
In addition to the powers by these By-Laws expressly conferred upon
them, the Board may exercise all such powers of the Corporation as are not by
the laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws required to be exercised or done by the stockholders.
Section 2. Vacancies and Newly Created Directorships. Except as
hereinafter provided, any vacancy in the office of a Director occurring for any
reason other than the removal of a Director pursuant to Section 3 of this
Article, and any newly created Directorship resulting from any increase in the
authorized number of Directors, may be filled by a majority of the Directors
then in office or by a sole remaining Director. In the event that any vacancy in
the office of a Director occurs as a result of the removal of a Director
pursuant to Section 3 of this Article, or in the event
<PAGE>
8
that vacancies occur contemporaneously in the offices of all of the Directors,
such vacancy or vacancies shall be filled by the stockholders of the Corporation
at a meeting of stockholders called for the purpose. Directors chosen or elected
as aforesaid shall hold office until the next annual meeting of stockholders and
until their respective successors are duly elected and have qualified.
Section 3. Removals. At any meeting of stockholders of the
Corporation called for the purpose, the holders of a majority of the shares of
capital stock of the Corporation entitled to vote at such meeting may remove
from office, with or without cause, any or all of the Directors.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall from time to time be determined by
resolution of the Board.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President or any
two Directors on notice given to each Director, and such meetings shall be held
at the principal business office of the Corporation or at such other place or
places, or either within or without the State of Delaware, as shall be specified
in the notices thereof.
Section 6. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held as soon as practicable after each annual
election of Directors and on the same day, at the same place at which regular
meetings of the Board of Directors are held, or at such other time and place as
may be provided by resolution of the Board. Such meeting may be held at any
other time or place which shall be
<PAGE>
9
specified in a notice given, as hereinafter provided, for special meetings of
the Board of Directors.
Section 7. Notice. Notice of any meeting of the Board of Directors
requiring notice shall be given to each Director by mailing the same, addressed
to him at his residence or usual place of business, at least forty-eight (48)
hours, or shall be sent to him at such place by facsimile transmission, courier,
telegraph, cable or wireless, or shall be delivered personally or by telephone,
at least twelve (12) hours, before the time fixed for the meeting. At any
meeting at which every Director shall be present or at which all Directors not
present shall waive notice in writing, any and all business may be transacted
even though no notice shall be given.
Section 8. Quorum. At all meetings of the Board of Directors, the
presence of one-third or more of the Directors constituting the Board shall
constitute a quorum for the transaction of business. Except as may be otherwise
specifically provided by the laws of the State of Delaware, the Certificate of
Incorporation or these By-Laws, the affirmative vote of a majority of the
Directors present at the time of such vote shall be the act of the Board of
Directors if a quorum is present. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Consent. Unless otherwise restricted by the Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting, if all
members of the
<PAGE>
10
Board consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board.
Section 10. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of Directors
may participate in a meeting of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other, and participation in a meeting pursuant to
this Section 10 shall constitute presence in person at such meeting.
Section 11. Compensation of Directors. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. Resignations. Any Director of the Corporation may resign
at any time by giving written notice to the Board of Directors or to the
Chairman of the Board or to the President or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or, if the
time be not specified, upon receipt thereof; and unless otherwise specified
therein, acceptance of such resignation shall not be necessary to make it
effective.
<PAGE>
11
ARTICLE V
Officers
Section 1. Number, Election and Term of Office. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and may at the discretion of the Board
of Directors include one or more Assistant Treasurers and Assistant Secretaries.
The officers of the Corporation shall be elected annually by the Board of
Directors at its meeting held immediately after the annual meeting of the
stockholders, and shall hold their respective offices until their successors are
duly elected and have qualified. Any number of offices may be held by the same
person. The Chairman of the Board may from time to time appoint such other
officers and agents as the interest of the Corporation may require and may their
duties and terms of office.
Section 2. Chairman of the Board. The Chairman of the Board shall be
the chief executive officer of the Corporation and shall have general and active
management of the business of the Corporation, and shall see that all orders and
resolutions of the Board are carried into effect. He shall ensure that the
books, reports, statements, certificates and other records of the Corporation
are kept, made or filed in accordance with the laws of the State of Delaware.
He shall preside at all meetings of the Board of Directors and at all meetings
of the stockholders. He shall cause to be called regular and special meetings of
the stockholders and of the Board of Directors in accordance with these By-Laws.
He may sign, execute and deliver in the name of the Corporation all deeds,
mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, except in cases where the signing, execution or delivery thereof
<PAGE>
12
shall be expressly delegated by the Board of Directors or by these By-Laws to
some other officer or agent of the Corporation or where any of them shall be
required by law otherwise to be signed, executed or delivered. He may sign, with
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, certificates of stock of the Corporation. He shall appoint and
remove, employ and discharge, and fix the compensation of all servants, agents,
employees and clerks of the Corporation other than the duly elected or appointed
officers, subject to the approval of the Board of Directors.
In addition to the powers and duties expressly conferred upon him by these
By-laws, he shall, except as otherwise specifically provided by the laws of the
State of Delaware, have such other powers and duties as shall from time to time
be assigned to him by the Board of Directors.
Section 3. President. The President shall be the chief operating
officer, or, if the office of Chairman of the Board shall be vacant, the chief
executive officer of the Corporation. At the request of the Chairman of the
Board, or in the case of his absence or inability to act, or if the office of
Chairman of the Board shall bc vacant, the President shall perform the duties of
the Chairman of the Board, and when so acting, shall have all the powers of the
Chairman of the Board. He may sign, with the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, certificates of stock of
the Corporation. In addition to the powers and duties expressly conferred upon
him by these By-Laws, he shall, except as otherwise specifically provided by the
laws of the State of Delaware, have such other powers and duties as shall from
time to time be assigned to him by the Chairman of the Board or by the Board of
Directors.
<PAGE>
13
Section 4. Vice Presidents. The Vice Presidents shall perform such
duties as the Chairman of the Board, the President or the Board of Directors
shall require. Any Vice President shall, during the absence or incapacity of the
President, assume and perform his duties.
Section 5. Secretary. The Secretary may sign all certificates of
stock of the Corporation. He shall record all the proceedings of the meetings of
the Board of Directors and of the stockholders of the Corporation in books to be
kept for that purpose. He shall have custody of the seal of the Corporation and
may affix the same to any instrument requiring such seal when authorized by the
Board of Directors, and when so affixed he may attest the same by his signature.
He shall keep the transfer books, in which all transfers of the capital stock of
the Corporation shall be registered, and the stock books, which shall contain
the names and addresses of all holders of the capital stock of the Corporation
and the number of shares held by each; and he shall keep such stock and transfer
books open daily during business hours to the inspection of every stockholder
and for transfer of stock. He shall notify the Directors and stockholders of
their respective meetings as required by law or by these By-Laws, and shall
perform such other duties as may be required by law or by these By-Laws, or
which may be assigned to him from time to time by the Board of Directors.
Section 6. Assistant Secretaries. The Assistant Secretaries shall,
during the absence or incapacity of the Secretary, assume and perform all
functions and duties which the Secretary might lawfully do if present and not
under any incapacity.
Section 7. Treasurer. The Treasurer shall have charge of the funds
and securities of the Corporation. He may sign all certificates of stock. He
shall keep full
<PAGE>
14
and accurate accounts of all receipts and disbursements of the Corporation in
books belonging to the Corporation and shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board, and shall render to
the Chairman of the Board or the President or the Directors, whenever they may
require it, an account of all his transactions as Treasurer and an account of
the business and financial position of the Corporation.
Section 8. Assistant Treasurers. The Assistant Treasurers shall,
during the absence or incapacity of the Treasurer, me and perform all functions
and duties which the Treasurer might lawfully do if present and not under any
incapacity.
Section 9. Treasurer's Bond. The Treasurer and Assistant Treasurers
shall, if required so to do by the Board of Directors, each give a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as the Board of Directors may require.
Section 10. Transfer of Duties. The Board of Directors or the
Chairman of the Board in its or his absolute discretion may transfer the power
and duties, in whole or in part, of any officer to any other officer, or
persons, notwithstanding the provisions of these By-Laws, except as otherwise
provided by the laws of the State of Delaware.
Section 11. Vacancies. If the office of Chairman of the Board,
President. Vice President, Secretary or Treasurer, or of any other officer or
agent becomes vacant for any reason, the Board of Directors may choose a
successor to hold office for the unexpired term.
<PAGE>
15
Section 12. Removals. At any meeting of the Board of Directors
called for the purpose, any officer or agent of the Corporation may be removed
from office, with or without cause, by the affirmative vote of a majority of the
entire Board of Directors.
Section 13. Compensation of Officers. The officers shall receive
such salary or compensation as may be determined by the Board of Directors.
Section 14. Resignations. Any officer or agent of the Corporation
may resign at any time by giving written notice to the Board of Directors or to
the Chairman of the Board or the President or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
be not specified, upon receipt thereof; and unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective.
ARTICLE VI
Contracts, Checks and Notes
Section 1. Contracts. Unless the Board of Directors shall otherwise
specifically direct, all contracts of the Corporation shall be executed in the
name of the Corporation by the Chairman of the Board, the President or a Vice
President.
Section 2. Checks and Notes. All checks, drafts, bills of exchange
and promissory notes and other negotiable instruments of the Corporation shall
be signed by such officers or agents of the Corporation as may be designated by
the Board of Directors.
<PAGE>
16
ARTICLE VII
Stock
Section 1. Certificates of Stock. The certificates for shares of the
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be prepared or approved by the Board of
Directors. Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board, the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary certifying the number of
shares owned by him and the date of issue; and no certificate shall be valid
unless so signed. All certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued.
Where a certificate is countersigned (l) by a transfer agent other
than the Corporation or its employee, or, (2) by a registrar other than the
Corporation or its employee, any other signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
All certificates surrendered to the Corporation shall be cancelled
and, except in the case of lost or destroyed certificates, no new certificates
shall be issued until the former certificates for the same number of shares of
the same class of stock shall have been surrendered and cancelled.
<PAGE>
17
Section 2. Transfer of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
ARTICLE VIII
Registered Stockholders
The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to, or interest in,
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE IX
Lost Certificates
Any person claiming a certificate of stock to be lost or destroyed,
shall make an affidavit or affirmation of the fact and advertise the same in
such manner as the Board of Directors may require, and the Board of Directors
may, in its discretion, require the owner of the lost or destroyed certificate,
or his legal representative, to give the Corporation a bond in a sum sufficient,
in the opinion of the Board of Directors, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss of any such
certificate. A new certificate of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed may be issued without
requiring any bond when, in the judgment of the Directors, it is proper so to
do.
<PAGE>
18
ARTICLE X
Fixing of Record Date
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE XI
Dividends
Subject to the relevant provisions of the Certificate of
Incorporation, dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies,
<PAGE>
19
or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall think conducive to
the interest of the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE XII
Waiver of Notice
Whenever any notice whatever is required to be given by statute or
under the provisions of the Certificate of Incorporation or these By-Laws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be equivalent
thereto.
ARTICLE XIII
Seal
The corporate seal of the Corporation shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware."
<PAGE>
20
ARTICLE XIV
Amendments
Subject to the provisions of the Certificate of Incorporation, these
By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the
stockholders or by the Board of Directors, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment or repeal of the By-Laws or of adoption of new By-Laws be contained in
the notice of such special meeting.
<PAGE>
EXHIBIT 4
TELEPHONE ACCESS, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF PLAN. The purposes of this Plan, which shall be
known as the Telephone Access, Inc. 1997 Stock Option Plan and is hereinafter
referred to as the "Plan", are (i) to provide incentives for key employees,
directors, consultants and other individuals providing services to Telephone
Access, Inc. (the "Company") and its subsidiary or parent corporations (within
the respective meanings of Sections 424(f) and 424(e) of the Internal Revenue
Code of 1986, as amended (the "Code"), and referred to herein as "Subsidiary"
and "Parent", respectively, and such Parent and each Subsidiary are referred to
herein individually as an "Affiliate" and collectively as "Affiliates") by
encouraging their ownership of the common stock, $.01 par value, of the Company
(the "Stock") and (ii) to aid the Company in retaining such key employees,
directors, consultants and other individuals upon whose efforts the Company's
success and future growth depends and in attracting other such employees,
directors, consultants and individuals.
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board of Directors or a subcommittee of the
Compensation Committee appointed by the Compensation Committee, as hereinafter
provided (the committee or subcommittee administering the Plan is hereinafter
referred to as the "Committee"). For purposes of administration, the Committee,
subject to the terms of the Plan, shall have plenary authority to establish such
rules and regulations, to make such determinations and interpretations, and to
take such other administrative actions as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be final,
conclusive and binding on all persons, including Optionees (as hereinafter
defined) and their legal representatives and beneficiaries.
The Committee shall consist of not fewer than two members of
the Board of Directors. Unless otherwise determined by the Board of Directors,
all members of the Board of Directors who serve on the Committee shall be "Non-
Employee Directors" (as defined in Rule 16b-3 under the Securities Exchange Act
of 1934, as amended) and "outside directors" as defined in Treasury Regulation
ss. 1.162- 27(e)(3). The Compensation Committee shall designate one of the
members of the Committee as its Chairman. The Committee shall hold its meetings
at such times and places as it may
<PAGE>
2
determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to his service on the Committee if he acts in good faith and in a
manner he reasonably believes to be in or not opposed to the best interests of
the Company.
3. STOCK AVAILABLE FOR OPTIONS. There shall be available for
options under the Plan a total of 800,000 shares of Stock, subject to any
adjustments which may be made pursuant to Section 5(f) hereof. Shares of Stock
used for purposes of the Plan may be either authorized and unissued shares, or
previously issued shares held in the treasury of the Company, or both. Shares of
Stock covered by options which have terminated or expired prior to exercise
shall be available for further options hereunder. The maximum number of options
which may be granted to any person under the Plan during any fiscal year of the
Company shall not exceed 150,000 shares.
4. ELIGIBILITY. Options under the Plan may be granted to key
employees of the Company or any Affiliate, including officers or directors of
the Company or any Affiliate, and to consultants and other individuals providing
services to the Company or any Affiliate (each such grantee, an "Optionee").
Options may be granted to eligible individuals whether or not they hold or have
held options previously granted under the Plan or otherwise granted or assumed
by the Company. In selecting individuals for options, the Committee may take
into consideration any factors it may deem relevant, including its estimate of
the individual's present and potential contributions to the success of the
Company and its Affiliates. Service as an employee, director, officer or
consultant of or to the Company or any Affiliate shall be considered employment
for purposes of the Plan (and the period of such service shall be considered the
period of employment for purposes of Section 5(d) of this Plan); provided,
however, that incentive stock options may be granted under the Plan only to an
individual who is an "employee" (as such term is used in Section 422 of the
Code) of the Company or any Affiliate.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall, in
its discretion, prescribe the terms and conditions of the options to be granted
hereunder, which
<PAGE>
3
terms and conditions need not be the same in each case,
subject to the following:
(a) OPTION PRICE. The price at which each
share of Stock covered by an option granted under the Plan may be purchased
shall not be less than the Market Value (as defined in Section 5(c) hereof) per
share of Stock on the date of grant of the option. The date of the grant of an
option shall be the date specified by the Committee in its grant of the option.
(b) OPTION PERIOD. The period for exercise
of an option shall in no event be more than ten years from the date of grant, or
in the case of any option intended to be an incentive stock option granted to an
individual owning, on the date of grant, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary, more than five years from the date of grant. Options may, in the
discretion of the Committee, be made exercisable in installments during the
option period. Any shares not purchased on any applicable installment date may
be purchased thereafter at any time before the expiration of the option period.
(c) EXERCISE OF OPTIONS. In order to
exercise an option, the Optionee shall deliver to the Company written notice
specifying the number of shares of Stock to be purchased, together with cash or
a certified or bank cashier's check payable to the order of the Company in the
full amount of the purchase price therefor; provided that, for the purpose of
assisting an Optionee to exercise an option, the Company may make loans to the
Optionee or guarantee loans made by third parties to the Optionee, on such terms
and conditions as the Board of Directors may authorize; and provided further
that such purchase price may be paid in shares of Stock owned by the Optionee
having an aggregate Market Value on the date of exercise equal to the aggregate
purchase price, or in a combination of cash and Stock. For purposes of the Plan,
the Market Value per share of Stock shall be the last sale price regular way on
the date of reference, or, in case no sale takes place on such date, the average
of the closing high bid and low asked prices regular way, in either case on the
principal national securities exchange on which the Stock is listed or admitted
to trading, or if the Stock is not listed or admitted to trading on any national
securities exchange, the last sale price reported on the National Market System
of the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on such date, or the last sale price reported on the NASDAQ SmallCap
Market on such date, or the average of
<PAGE>
4
the closing high bid and low asked prices in the over-the-counter market on such
date, whichever is applicable, or if there are no such prices reported on NASDAQ
or in the over-the-counter market on such date, as furnished to the Committee by
any New York Stock Exchange member selected from time to time by the Committee
for such purpose. If there is no bid or asked price reported on any such date,
the Market Value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee. If the Optionee so requests,
shares of Stock purchased upon exercise of an option may be issued in the name
of the Optionee or another person. An Optionee shall have none of the rights of
a stockholder until the shares of Stock are issued to him.
(d) EFFECT OF TERMINATION OF EMPLOYMENT. An
option may not be exercised after the Optionee has ceased to be in the employ of
the Company or any Affiliate, except in the following circumstances:
(i) If the Optionee's employment is terminated by
action of the Company or an Affiliate, or by reason of disability or
retirement under any retirement plan maintained by the Company or any
Affiliate, the option may be exercised by the Optionee within three
months after such termination, but only as to any shares exercisable on
the date the Optionee's employment so terminates;
(ii) In the event of the death of the Optionee
during the three month period after termination of employment covered
by (i) above, the person or persons to whom his rights are transferred
by will or the laws of descent and distribution shall have a period of
one year from the date of his death to exercise any options which were
exercisable by the Optionee at the time of his death; and
(iii) In the event of the death of the Optionee while
employed, the option shall thereupon become exercisable in full, and
the person or persons to whom the Optionee's rights are transferred by
will or the laws of descent and distribution shall have a period of one
year from the date of the Optionee's death to exercise such option. The
provisions of the foregoing sentence shall apply to any outstanding
options which are incentive stock options to the extent permitted by
Section 422(d) of the Code and such outstanding options in excess
thereof shall, immediately upon the occurrence of the event described
<PAGE>
5
in the preceding sentence, be treated for all purposes of the Plan as
nonstatutory stock options and shall be immediately exercisable as such
as provided in the foregoing sentence.
In no event shall any option be exercisable more than ten
years from the date of grant thereof. Nothing in the Plan or in any option
granted pursuant to the Plan (in the absence of an express provision to the
contrary) shall confer on any individual any right to continue in the employ of
the Company or any Affiliate or interfere in any way with the right of the
Company or any Affiliate to terminate his employment at any time.
(e) LIMITATION ON TRANSFERABILITY OF
OPTIONS. Except as provided in this Section 5(e), during the lifetime of an
Optionee, options held by such Optionee shall be exercisable only by him and no
option shall be transferable other than by will or the laws of descent and
distribution. The Committee may, in its discretion, provide that during the
lifetime of an Optionee, options held by such Optionee may be transferred to or
for the benefit of a member of his immediate family or to a charitable
organization exempt from income tax under Section 501(c)(3) of the Code. For
purposes hereof, the term "immediate family" of an Optionee shall mean such
Optionee's spouse and children (both natural and adoptive), and the direct
lineal descendants of his children.
(f) ADJUSTMENTS FOR CHANGE IN STOCK SUBJECT
TO PLAN. In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering, or any
other change in the corporate structure or shares of the Company, the Committee
shall make such adjustments, if any, as it deems appropriate in the number and
kind of shares subject to the Plan, in the number and kind of shares covered by
outstanding options, or in the option price per share, or both, and, in the case
of a merger, consolidation or other transaction pursuant to which the Company is
not the surviving corporation or pursuant to which the holders of outstanding
Stock shall receive in exchange therefor shares of capital stock of the
surviving corporation or another corporation, the Committee may require an
Optionee to exchange options granted under the Plan for options issued by the
surviving corporation or such other corporation.
(g) ACCELERATION OF EXERCISABILITY OF
OPTIONS UPON OCCURRENCE OF CERTAIN EVENTS. The Committee
may, in its discretion, provide in the case of any option
<PAGE>
6
granted under the Plan that, in connection with any merger or consolidation
which results in the holders of the outstanding voting securities of the Company
(determined immediately prior to such merger or consolidation) owning less than
a majority of the outstanding voting securities of the surviving corporation
(determined immediately following such merger or consolidation), or any sale or
transfer by the Company of all or substantially all its assets or any tender
offer or exchange offer for or the acquisition, directly or indirectly, by any
person or group of all or a majority of the then outstanding voting securities
of the Company, such option shall become exercisable in full or part,
notwithstanding any other provision of the Plan or of any outstanding options
granted thereunder, on and after (i) the fifteenth day prior to the effective
date of such merger, consolidation, sale, transfer or acquisition or (ii) the
date of commencement of such tender offer or exchange offer, as the case may be.
The provisions of the foregoing sentence shall apply to any outstanding options
which are incentive stock options to the extent permitted by Section 422(d) of
the Code and such outstanding options in excess thereof shall, immediately upon
the occurrence of the event described in clause (i) or (ii) of the foregoing
sentence, be treated for all purposes of the plan as nonstatutory stock options
and shall be immediately exercisable as such as provided in the foregoing
sentence. Notwithstanding the foregoing, in no event shall any option be
exercisable after the date of termination of the exercise period of such option
specified in Sections 5(b) and 5(d).
(h) REGISTRATION, LISTING AND QUALIFICATION
OF SHARES OF STOCK. Each option shall be subject to the requirement that if at
any time the Board of Directors shall determine that the registration, listing
or qualification of the shares of Stock covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of Stock
thereunder, no such option may be exercised unless and until such registration,
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The Company may
require that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing or any other applicable legal requirement.
(i) OTHER TERMS AND CONDITIONS. The
Committee may impose such other terms and conditions, not
<PAGE>
7
inconsistent with the terms hereof, on the grant or exercise
of options, as it deems advisable.
6. ADDITIONAL PROVISIONS APPLICABLE TO INCENTIVE STOCK
OPTIONS. The Committee may, in its discretion, grant options under the Plan to
eligible employees which constitute "incentive stock options" within the meaning
of Section 422 of the Code; provided, however, that (a) the aggregate Market
Value of the Stock with respect to which incentive stock options are exercisable
for the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code; (b) if the Optionee owns on
the date of grant securities possessing more than 10% of the total combined
voting power of all classes of securities of the Company or of any Affiliate,
the price per share shall not be less than 110% of the Market Value per share on
the date of grant and (c) Section 5(d)(ii) hereof shall not apply to any
incentive stock option.
7. AMENDMENT AND TERMINATION. Unless the Plan shall
theretofore have been terminated as hereinafter provided, the Plan shall
terminate on, and no option shall be granted hereunder after May 1, 2007;
provided, however, that the Board of Directors may at any time prior to that
date terminate the Plan. The Board of Directors may at any time amend the Plan
or any outstanding options. No termination or amendment of the Plan may, without
the consent of an Optionee, adversely affect the rights of such Optionee under
any option held by such Optionee.
8. STOCKHOLDER APPROVAL OF PLAN. The establishment of the Plan
shall be subject to approval by a majority of the votes cast thereon by the
stockholders of the Company at a meeting of stockholders duly called and held
for such purpose or by a method and in a degree that would be treated as
adequate under the applicable law of the Company's state of incorporation, and
no option granted hereunder shall be exercisable prior to such approval.
9. WITHHOLDING. It shall be a condition to the obligation of
the Company to issue shares of Stock upon exercise of an option, that the
Optionee (or any beneficiary, transferee or person entitled to act under
Sections 5(d) or 5(e) hereof) pay to the Company, upon its demand, such amount
as may be requested by the Company for the purpose of satisfying any liability
to withhold federal, state or local income or other taxes. If the amount
requested is not paid, the Company may refuse to issue such shares of Stock.
<PAGE>
8
10. ISSUANCE OF CERTIFICATES; LEGENDS. The Company may endorse
such legend or legends upon the certificates for shares of Stock issued upon the
exercise of an option granted hereunder and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as, in its absolute
discretion, it determines to be necessary or appropriate.
12. OTHER ACTIONS. Nothing contained in this Plan shall be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the Plan
with respect to any employee or other person, firm, corporation or association.
May 1, 1997
<PAGE>
THIS NOTE AND THE SECURITIES INTO WHICH IT MAY BE CONVERTED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE AND SUCH SECURITIES MAY
NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
6% Convertible Subordinated Promissory Note
due December 1, 2000
-------------------------------------------
$ King of Prussia,
December 6, 1996 Pennsylvania
Section 1. Payment.
Section 1.1 General. FOR VALUE RECEIVED, Telephone Access, Inc., a
Delaware corporation (the "Maker"), hereby promises to pay to the order of
[ ] (the "Payee"), at [ ] (or
such other address as the Payee shall from time to time designate in writing to
the Maker), the principal sum of [
] ( ), in lawful money of the United States of America.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money at such place, from the date hereof until
payment of the principal amount hereof has been made in full, at the rate of six
percent (6%) per annum, payable quarterly on the first day of March, June,
September and December each year, commencing on March 1, 1997, which first
payment shall include interest accrued from the date hereof.
Section 1.2 Principal Payment Due. The entire principal amount of
this Note together with any accrued and unpaid interest thereon shall be payable
(i) at the request of the Payee, ten (10) days after the closing of the initial
sale (the "Effective Date") by the Maker to the public through an underwritten
public offering of shares of Common Stock (as defined in Section 2.1 below),
pursuant to a registration statement filed under the Securities Act of 1933 (the
"Securities Act"), as amended, other than a registration statement covering
securities of the Maker to be issued pursuant to an employee benefit plan, the
gross proceeds of such offering to the Maker being in excess of $33,000,000
(such offering, a "Successful IPO") or, in any event, on (ii) December 1, 2000.
<PAGE>
2
Section 2. Conversion
Section 2.1 Conversion of this Note at the Payee's Option.
(a) The Payee shall have the right at any time after the Effective
Date and until payment in full of this Note to convert, subject to and in
compliance with the terms and provisions hereof, all, but not less than all, of
the outstanding principal amount of this Note into 90,160 shares of Common
Stock. Any outstanding and unpaid interest thereon accrued through the
Conversion Date (as hereinafter defined) shall be paid in cash at the time of
delivery of certificates representing the Common Stock into which this Note
shall be converted. Upon the surrender hereof, accompanied by the Payee's
written request in the form attached hereto as Annex A for conversion of this
Note (sometimes herein, the "Conversion Notice"), the Maker shall issue and
deliver to the Payee within ten (10) business days after the surrender of this
Note pursuant hereto, one or more certificates evidencing the shares of Common
Stock into which this Note shall be converted. All shares of Common Stock issued
upon conversion shall be deemed issued as of the close of business on the
Conversion Date. The "Conversion Date" is the date this Note is surrendered for
conversion pursuant to this paragraph; provided, however, that if such date is a
date on which banks in New York City are generally not open for business, then
the Conversion Date shall be the next date on which such banks are open. The
term "Common Stock" shall mean the class of stock which, at the date of
execution of this Note, is designated voting common stock, par value $.01, of
the Maker, and stock of any class or classes into which such voting common stock
or any such other class may thereafter be changed or reclassified and which has
voting powers which are the same as the voting powers of such voting common
stock and which has no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Maker and is entitled to receive distributions in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Maker
after payments of all debts and obligations of the Maker and all preferences. In
case, by reason of the operation hereof, this Note shall be convertible into any
other shares of stock, other securities, property or cash of the Maker or any
other corporation, any reference herein to the conversion of this Note shall be
deemed to refer to and include conversion of this Note into such other shares,
securities, property, or cash.
<PAGE>
3
(b) The conversion terms shall be subject to adjustment from time to
time upon the occurrence of certain events while this Note remains outstanding,
as follows:
(c) If the Maker at any time shall consolidate with or merge into or
sell or convey all or substantially all of its assets to any other corporation,
this Note shall thereafter be convertible into such kind and amount of shares of
stock, other securities, property, cash or any combination thereof receivable
upon such consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which this Note would have been converted had it
been converted immediately prior to such consolidation, merger, sale, or
conveyance, subject to adjustments equivalent to the adjustments provided in
this Note. In the event of a consolidation or merger of another corporation into
the Maker in which the Maker is the continuing corporation and in which there is
a reclassification or change (including a change to the right to receive, or a
change into, as the case may be, shares of stock, other securities, property,
cash or any combination thereof) of the shares of Common Stock, this Note shall
thereafter be convertible solely into the kind and amount of shares of stock,
other securities, property, cash or any combination thereof receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock into
which this Note would have been converted had it been converted immediately
prior to such consolidation or merger. The foregoing provisions shall similarly
apply to successive transactions of a similar nature by any such successor or
purchaser. Without limiting the generality of the foregoing, the adjustment
provisions of this Note shall apply to such securities of such successor or
purchaser after any such consolidation, merger, sale or conveyance.
(d) In case the Maker shall (i) declare a dividend or make a
distribution on the outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a smaller number of shares, the Payee after such
time shall be entitled to receive upon surrender hereof for conversion the
number of shares of Common Stock which the Payee would have owned or been
entitled to receive had this Note been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event specified above
shall occur. All calculations under this paragraph shall be made to the nearer
cent or to the nearer one-hundredth of a share, as the case may be.
<PAGE>
4
(e) The Maker agrees that its issuance of this Note shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note. During the period within which
this Note may be converted into shares of Common Stock, the Maker shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of this Note in accordance with the terms hereof.
(f) The issuance of certificates for shares of Common Stock upon the
conversion of this Note shall be made without charge for any tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Payee; provided, however,
that the Maker shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Payee.
(g) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon the conversion of this Note. If the
conversion of this Note results in a fraction of a share, an amount equal to
such fraction multiplied by the then current market value of the Common Stock
shall be paid in cash to the Payee by the Maker on or prior to the Conversion
Date.
(h) The shares of Common Stock issuable by the Maker upon the
conversion of this Note shall be issued without compliance with the registration
requirements of the Securities Act and the Payee may be unable to sell its
shares of Common Stock except (i) pursuant to an effective registration
statement covering the Common Stock pursuant to the Securities Act, (ii) in a
bona fide private placement to a purchaser who shall be subject to the same
restrictions on any resale or (iii) subject to the restrictions contained in
Rule 144 under the Securities Act
(i) Each certificate representing shares of Common Stock of the
Maker issued upon conversion of this Note shall, if applicable, contain upon its
face or upon the reverse side thereof a legend to the following effect:
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of the Act."
<PAGE>
5
Notwithstanding the foregoing, if the conditions to the
applicability of Rule 144(k) under the Securities Act (or its successor) are all
satisfied (i) prior to the issuance of such certificates, the Maker shall not
place such legend on the certificates, or (ii) after the issuance of such
certificates, the Maker shall promptly reissue certificates without such legend
upon the request of Payee or the holder of this Note.
2.2 Conversion by the Maker.
(a) If EBIT (as hereinafter defined) of the Business (as hereinafter
defined) as a percentage of net revenues (as hereinafter defined) for a
Calculation Period (as hereinafter defined) is less than five percent (5%) of
the net revenues of the Business for such Calculation Period, then the
obligation of the Maker to make any further payments to the Payee under this
Note shall automatically cease as of the end of such Calculation Period, without
any further action on the part of the Maker, and the only obligation of the
Maker with respect hereto shall be to deliver to the Payee 22,540 shares of
Common Stock, subject to adjustment in the same manner as is described as
provided in clauses (c) and (d) of Section 2.1 hereof. This provision for
automatic conversion shall terminate on the Effective Date of a Successful IPO.
(b) Within ninety (90) days after December 31, 1997 and December 31,
1998, the Maker shall calculate the "net revenues" achieved by the Business (as
defined in the Recapitalization Agreement (as hereinafter defined) during the
twelve-month periods ending December 31, 1997, and December 31, 1998,
respectively (each period, a "Calculation Period"), and the earnings before
interest and taxes ("EBIT") as a percentage of net revenues achieved by the
Business during each such Calculation Period which shall be determined in
accordance with the provisions hereof. The amounts so computed shall be the net
revenues and EBIT for purposes of determining whether or not this Note shall be
automatically converted into shares of Common Stock. Notwithstanding the
determination of net revenues and EBIT for any applicable Calculation Period by
the Maker, the Payee shall receive the information upon which such determination
was made, and shall, in the event of a dispute as to the amount or method of
calculation of such net revenues and EBIT have the right to review all work
papers relating to the determination of net revenues and EBIT. The Maker and the
Payee shall use their reasonable best efforts to determine the net revenues and
EBIT described herein and the Maker shall deliver a work sheet showing in
reasonable detail the calculation of such net revenues and EBIT to the
<PAGE>
6
Payee as soon as practicable after each Calculation Period, but in any event no
more than thirty (30) days from the end of each Calculation Period. The Payee
shall have thirty (30) days after receipt of such calculation to advise the
Maker of any objections thereto. The parties agree to negotiate in good faith to
resolve any controversies relating to such calculation. If such controversies
cannot be resolved within ten (10) days following the delivery by the Payee to
the Maker of his objections to such calculations, the Payee and the Maker shall
jointly engage Arthur Andersen LLP (the "Neutral Accounting Firm") in a jointly
signed written engagement letter to resolve the disputed portions of such
calculations. The parties shall each have thirty (30) days after the date of
such engagement to prepare their respective presentation to the Neutral
Accounting Firm. During such period, each of the parties shall cooperate with
the other parties to make reasonably available all pertinent documents and
records. At the end of such period, the parties shall make their presentation to
the Neutral Accounting Firm, which shall make its determination based solely
upon such presentations by the parties and not by independent review, and the
Neutral Accounting Firm shall make such determination as soon as practicable,
but in any event within thirty (30) days from the date of the presentations by
the parties. The determination of the Neutral Accounting Firm shall be in
written form and shall be final and binding upon the parties. One-half of the
fees and expenses of the Neutral Accounting Firm shall be paid by the Payee, on
the one hand, and one-half of such fees shall be payable by the Maker, on the
other hand. For purposes of this Note, (i) "net revenues" of the Business shall
mean gross charges billed for all services provided by the Business (or, in the
event that all or substantially all of the assets and business of the Business
shall have been transferred to another entity or entities, the allocable portion
of the gross charges of such other entity or entities attributable to the
Business) during the applicable Calculation Period less any necessary
adjustments to reflect amounts which are determined to be uncollectible at the
time of billing (contractual allowances) or in the future (billing errors) as
determined in accordance with generally accepted accounting principles
consistent with the Maker's accounting practices; and (ii) "EBIT" shall mean the
earnings before interest and taxes of the Business (or, in the event that all or
substantially all the assets and business of the Business shall have been
transferred to another entity or entities, the allocable portion of the EBIT of
such other entity or entities) for the applicable Calculation Period as
determined in accordance with generally accepted accounting principles
consistent with the Maker's accounting practices.
<PAGE>
7
For purposes of calculating EBIT for any Calculation Period, a deduction will be
made for corporate office overhead expenses in the amount of $375,000 and no
deduction will be made for amortization of goodwill.
Section 3. Subordination.
Section 3.1 Indebtedness Subordinated to Senior Debt. The Maker
hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 3. Defined terms
used herein shall have the meanings set forth in Section 5 hereof, unless
otherwise specified or defined herein.
This Section 3 shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 3.2 Payment Permitted if No Default. Nothing contained in
this Section 3 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 3.3,
3.4 and 3.5, other than as provided in Section 3.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 3.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
<PAGE>
8
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on account of principal of, interest on or
otherwise in respect of this Note, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If this Note is declared due and payable before its stated maturity,
then and in such event the holders of the Senior Debt outstanding at the time
this Note so becomes due and payable shall be entitled to receive indefeasible
payment in cash in full of all amounts due or to become due on or in respect of
all such Senior Debt (whether or not an event of default has occurred thereunder
or the maturity of such Senior Debt has been declared due and payable prior to
the date on which it would otherwise have become due and payable) before the
holder of this Note is entitled to receive any payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinate to or pari passu with the payment of this Note by the
Maker), on account of the principal of or interest hereon.
If, after the occurrence of any of the events set forth in Section
3.3(a), (b) or (c) above, the holder of this Note shall have received any
payment or distribution of assets of the Maker of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Maker being subordinated to the payment of this Note, before
all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full.
For purposes of this Section 3 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other
<PAGE>
9
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinated at least to the extent provided in this Section 3 with
respect to this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 3.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt (or the representative or
agent of such holders, if there is one), commence, prosecute or participate in,
prior to the expiration of three hundred sixty-five (365) days after the
occurrence of any default under this Note which is a ground for acceleration of
this Note (the date of such default is hereinafter referred to as the "Sub-Debt
Default Date"), any suit, action or proceeding against the Maker with respect to
this Note, or assert, collect or enforce, or take any action to foreclose or
realize upon, prior to the 366th day following the Sub-Debt Default Date, any
security interest, lien or encumbrance on any property of the Maker pursuant to
any security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result in a
payment in contravention of any provision of this Section 3 until the Senior
Debt shall have been indefeasibly paid in cash in full, and any such security
agreements, pledge agreements, mortgages, lien instruments or other documents
shall contain the subordination provisions set forth in this Section 3.
Notwithstanding the foregoing, the holder of this Note may take
legal action to compel the Maker to perform any obligation hereunder or to
enjoin the Maker from violating any obligation hereunder so long as such
obligation is not a payment obligation and the performance or observance of such
obligation would not prohibit, impair, conflict with or be inconsistent with the
performance or observance of any of the Maker's obligations to any holder of
Senior Debt.
If, notwithstanding the foregoing, the Maker shall make any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 3, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders
<PAGE>
10
of the Senior Debt notify the holder of this Note of the amounts then due and
owing on the Senior Debt, if any, and only such amount so notified to the holder
of this Note shall be paid to the holders of the Senior Debt.
The provisions of this Section 3.4 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
Section 3.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the holder of any Senior Debt gives written notice of such default to the
holder of this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or waived or
shall have ceased to exist and any such acceleration shall have been rescinded
or annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise in
respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to
the holder of this Note prohibited by the foregoing provisions of this Section
3, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 3.5 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
<PAGE>
11
Section 3.6 Subrogation to Rights of Holders of Senior Debt. Subject
to the indefeasible payment in full in cash of all Senior Debt, the holder of
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Section 3 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
3, and no payments over pursuant to the provisions of this Section 3 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 3.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 3 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
3 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Maker, or is
intended to or shall affect the relative rights against the Maker of the holder
of this Note and creditors of the Maker other than the holders of Senior Debt,
nor shall anything herein or therein prevent the holder of this Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Note, subject to the rights, if any, under this Section 3 of the holders of
Senior Debt to receive cash, property or securities otherwise payable or
deliverable to the holder of this Note.
Section 3.8 Proof of Claim. If the holder of this Note does not file
a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to
<PAGE>
12
file an appropriate proof of claim or debt for and on behalf of the holder of
this Note and such holder hereby appoints the holders of Senior Debt or their
representative or representatives the attorney-in-fact of such holder for such
purposes.
Section 3.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 3 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 3.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in
<PAGE>
13
bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the holder of this Note, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
the Senior Debt and other Indebtedness of the Maker, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Note.
Section 3.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall
be in writing and shall be delivered personally or sent by Federal Express or
sent by registered or certified mail, postage prepaid, as set forth below:
If to the holder of this Note:
[ ]
[ ]
[ ]
If to the Maker:
Telephone Access, Inc.
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier numbers as are
hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be deemed received on the date of delivery,
if hand delivered or sent by Federal Express, and five days after the date of
mailing, if mailed.
(b) Severability of Provisions; Captions. Any provision of
this Section 3 which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or
<PAGE>
14
enforceability of such provision in any other jurisdiction. The several captions
to sections and subsections herein are inserted for convenience only and shall
be ignored in interpreting the provisions of this Section.
Section 4. Events of Default and Remedies. Subject to Section 3
hereof, the holder of this Note shall have the right, without demand or notice,
to accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay any installment of principal payable under
this Note or interest thereon within thirty (30) days after receipt of written
notice from the holder of this Note to the effect that such installment or
interest has not been paid when due, (b) the Maker admits in writing its
inability to pay its debts generally as they become due, files a case or
petition in bankruptcy or a case or petition to take advantage of any
bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or, on a petition in bankruptcy
filed against it, is adjudicated a bankrupt, which judgment, order or decree
shall not be appealed within the permitted time period from the date of entry
thereof and subsequently vacated. Upon such declaration by the holder of this
Note, the obligations evidenced by this Note shall be immediately due and
payable.
If the indebtedness evidenced by this Note shall not be paid on the
date when due, thereafter the unpaid principal balance of such indebtedness
shall bear interest at the rate of twelve percent (12%) per annum until the past
due portion of the indebtedness (including all accrued and unpaid interest) is
paid, but in no event shall such rate of interest exceed the highest rate
permitted by applicable law.
In the event of any event of default hereunder, the Maker agrees to
pay to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following terms shall
have the following respective meanings:
<PAGE>
15
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any other person in any
manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any agreement to indemnify or hold harmless any
other person, any performance bond or other suretyship arrangement and any other
form of assurance against loss, except endorsement of negotiable or other
instruments for deposit or collection in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to
Post-Petition Interest), unless such Indebtedness, by its terms or the terms of
the instrument creating or evidencing it is subordinate in right of payment to
or pari passu with this Note. Senior Debt shall continue to constitute Senior
Debt for all purposes and the provisions of Section 3 of this Note shall
continue to apply to such Senior Debt, notwithstanding the fact that such Senior
Debt, or any claim in respect thereof, shall be disallowed, avoided,
subordinated or determined to be a fraudulent conveyance
<PAGE>
16
pursuant to the provisions of the United States Bankruptcy Code or other
applicable federal, state or local law.
Section 6. Foster Partnerships Debt. This Note shall be pari passu
in right of payment with respect to any note issued by the Maker to any of
Abbingdon Venture Partners Limited Partnership, a Connecticut limited
partnership, Abbingdon Venture Partners Limited Partnership-II, a Delaware
limited partnership, and Abbingdon Venture Partners Limited Partnership-III, a
Delaware limited partnership, or any other investment partnership affiliated
with Foster Management Company.
Section 7. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 8. Severability. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE>
17
TELEPHONE ACCESS, INC.
By____________________________
Name:
Title:
SCHEDULE TO EXHIBIT 10(a)
Exhibit 10(a) is a form for two promissory notes that were issued by the
Company to each of Joseph T. Morrow, having an address at 47 Lafayette Pl., 1E,
Greenwich, CT 06830, and John E. Jordan, having an address at 1791 Crestwood
Drive, Washington, DC 20011, in the principal amount of $1,352,400 and $926,100,
respectively.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
8% Subordinated Promissory Note
due December 1, 2006
-------------------------------
$ King of Prussia,
December 6, 1996 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, TELEPHONE ACCESS, INC., a
Delaware corporation ("TELAC"), and ASH CREEK, INC., a Delaware corporation
("ASH"), jointly and severally as obligors (TELAC and ASH are collectively
referred to herein as the "Maker"), hereby promise to pay to [
], a Connecticut limited partnership (herein called
"[ ]"), or order, the principal amount of [
] ($ ), in full on December 1,
2006 (subject to prepayment in whole or in part in the manner hereinafter in
Section 3 hereof provided), in such coin or currency of the United States of
America as at the time of payment shall be legal tender therein for the payment
of public and private debts, and to pay interest on the unpaid balance of the
principal hereof from the date hereof, at the rate of 8% per annum, in like coin
or currency, quarterly on March 31, June 30, September 30 and December 31 each
year commencing March 31,
<PAGE>
2
1997 (the payment due on such date to include all accrued interest from the date
hereof), and to pay interest at the rate of 10% per annum on any overdue
principal and (to the extent permitted by law) on any overdue interest, from the
due date thereof until the obligation of the Maker with respect to the payment
thereof shall be discharged; all payments and prepayments of principal of this
Note and all payments of interest on this Note to be made to the holder hereof
at the office of such holder at c/o Foster Management Company, 1018 West Ninth
Avenue, King of Prussia, Pennsylvania 19406 or such other office hereafter
designated by such holder. Interest hereon for any period other than a full
quarterly period shall be computed on the basis of a 360-day year of twelve
30-day months.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The Maker
hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 2. Defined terms
used herein shall
<PAGE>
3
have the meanings set forth in Section 5 hereof, unless otherwise specified or
defined herein.
This Section 2 shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained in
this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the
<PAGE>
4
benefit of creditors or any other marshalling of assets and/or liabilities of
the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on account of principal of, interest on or
otherwise in respect of this Note, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If this Note is declared due and payable before its stated maturity,
then and in such event the holders of the Senior Debt outstanding at the time
this Note so becomes due and payable shall be entitled to receive indefeasible
payment in cash in full of all amounts due or to become due on or in respect of
all such Senior Debt (whether or not an event of default has occurred thereunder
or the maturity of such Senior Debt has been declared due and payable prior to
the date on which it would otherwise have become due and
<PAGE>
5
payable) before the holder of this Note is entitled to receive any payment
(including any payment which may be payable by reason of the payment of any
other Indebtedness of the Maker being subordinate to or pari passu with the
payment of this Note by the Maker), on account of the principal of or interest
hereon.
If, after the occurrence of any of the events set forth in Section
2.3(a), (b) or (c) above, the holder of this Note shall have received any
payment or distribution of assets of the Maker of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Maker being subordinated to the payment of this Note, before
all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full.
For purposes of this Section 2 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other
<PAGE>
6
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinated at least to the extent provided in this Section 2 with
respect to this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, (or the representative or
agent of such holders, if there is one) commence, prosecute or participate in,
prior to the expiration of three hundred sixty-five (365) days after the
occurrence of any default under this Note which is a ground for acceleration of
this Note (the date of such default is hereinafter referred to as the "Sub-Debt
Default Date"), any suit, action or proceeding against the Maker with respect to
this Note, or assert, collect or enforce, or take any action to foreclose or
realize upon, prior to the 366th day following the Sub-Debt Default Date, any
security interest, lien or encumbrance on any property of the Maker pursuant to
any security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result
<PAGE>
7
in a payment in contravention of any provision of this Section 2 until the
Senior Debt shall have been indefeasibly paid in cash in full, and any such
security agreements, pledge agreements, mortgages, lien instruments or other
documents shall contain the subordination provisions set forth in this Section
2.
Notwithstanding the foregoing, the holder of this Note may take
legal action to compel the Maker to perform any obligation hereunder or to
enjoin the Maker from violating any obligation hereunder so long as such
obligation is not a payment obligation and the performance or observance of such
obligation would not prohibit, impair, conflict with or be inconsistent with the
performance or observance of any of the Maker's obligations to any holder of
Senior Debt.
If, notwithstanding the foregoing, the Maker shall make any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
<PAGE>
8
The provisions of this Section 2.4 shall not apply to any payment
with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the holder of any Senior Debt gives written notice of such default to the
holder of this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or waived or
shall have ceased to exist and any such acceleration shall have been rescinded
or annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise
<PAGE>
9
in respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to
the holder of this Note prohibited by the foregoing provisions of this Section
2, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 2.5 shall not apply to any payment
with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt. Subject
to the indefeasible payment in full in cash of all Senior Debt, the holder of
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Section 2 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no
<PAGE>
10
payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the holder of this Note would be entitled except
for the provisions of this Section 2, and no payments over pursuant to the
provisions of this Section 2 to the holders of Senior Debt by the holder of this
Note, shall, as between the Maker, its creditors other than holders of Senior
Debt, and the holder of this Note, be deemed to be a payment or distribution by
the Maker of or on account of this Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Maker, or is
intended to or shall affect the relative rights against the Maker of the holder
of this Note and creditors of the Maker other
<PAGE>
11
than the holders of Senior Debt, nor shall anything herein or therein prevent
the holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Section 2 of the holders of Senior Debt to receive cash, property or
securities otherwise payable or deliverable to the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does not file
a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of
<PAGE>
12
any knowledge thereof any such Senior Debt holder may have or be otherwise
charged with. The holder of this Note by such holder's acceptance hereof agrees
that, so long as there is indebtedness outstanding under this Note, the holder
of this Note shall not agree to compromise, release, forgive or otherwise
discharge the obligations of the Maker with respect to this Note without the
prior written consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from
<PAGE>
13
exercising any rights against the Maker and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
Section 2.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall
be by telephone, in person or in writing (including telex or facsimile
communication) and shall be delivered or sent by telex or facsimile to the
respective party at the addresses and numbers set forth below:
<PAGE>
14
If to the holder of this Note:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier numbers as are
hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any provision of
this Section 2 which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
<PAGE>
15
The several captions to sections and subsections herein are inserted for
convenience only and shall be ignored in interpreting the provisions of this
Section.
Section 3. Optional Prepayment. The Maker may at any time with the
prior written consent of the holders of Senior Debt so long as any Senior Debt
is outstanding, prepay the whole or any part of the unpaid principal amount of
this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount
<PAGE>
16
hereof being prepaid in the case of a prepayment of this Note in part only, this
Note or portion hereof so specified for prepayment shall be paid by the Maker at
the prepayment price aforesaid. Any prepayment of this Note in part shall be
applied to the installments of principal payable hereunder in the order of
maturity thereof.
Section 4. Events of Default and Remedies. Subject to Section 2
hereof, the holder of this Note shall have the right, without demand or notice,
to accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay any installment of principal payable under
this Note or any installment of interest payable thereon within thirty (30) days
after receipt of written notice from the holder of this Note to the effect that
such installment of principal or such installment of interest has not been paid
when due, (b) the Maker admits in writing its inability to pay its debts
generally as they become due, files a case or petition in bankruptcy or a case
or petition to take advantage of any bankruptcy, reorganization or insolvency
act, makes an assignment for the benefit of creditors, or consents to the
appointment of a receiver for itself or for all or substantially all of its
property or, on a petition in bankruptcy filed against it, is adjudicated a
bankrupt,
<PAGE>
17
which judgment, order or decree shall not be appealed within the permitted time
period from the date of entry thereof and subsequently vacated. Upon such
declaration by the holder of this Note, the obligations evidenced by this Note
shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to
pay to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following terms shall
have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and
<PAGE>
18
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note),
or (v) any Guaranty of Indebtedness for borrowed money. For purposes hereof,
"Guaranty" shall mean any obligation of the Maker guaranteeing or in effect
guaranteeing any liability or obligation of any other person in any manner,
whether directly or indirectly, including, without limiting the generality of
the foregoing, any agreement to indemnify or hold harmless any other person, any
performance bond or other suretyship arrangement and any other form of assurance
against loss, except endorsement of negotiable or other instruments for deposit
or collection in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created,
<PAGE>
19
incurred or assumed (including but not limited to Post-Petition Interest),
unless such Indebtedness, by its terms or the terms of the instrument creating
or evidencing it is subordinate in right of payment to or pari passu with this
Note. Senior Debt shall continue to constitute Senior Debt for all purposes and
the provisions of Section 2 of this Note shall continue to apply to such Senior
Debt, notwithstanding the fact that such Senior Debt, or any claim in respect
thereof, shall be disallowed, avoided, subordinated or determined to be a
fraudulent conveyance pursuant to the provisions of the United States Bankruptcy
Code or other applicable federal, state or local law.
Section 6. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in person or by
duly authorized attorney surrender one or more thereof for exchange, at the
principal executive offices of the Maker, and at the expense of the Maker
receive in exchange therefor a new Note or Notes in the same aggregate principal
amount as the aggregate unpaid principal amount of the Note or Notes so
surrendered and bearing interest at the same annual rate as the Note or Notes so
surrendered, each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such principal amount
and payable to such person or persons, or order, as such holder may designate in
writing; provided, however, that the Maker
<PAGE>
20
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any new Note in the name other
than that of the holder of the Note or Notes surrendered in exchange therefor.
Five days' prior written notice of the holder's intention to make such exchange
shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to it (it being understood
that in the case of Abbingdon-I an unsecured written indemnification agreement
shall be satisfactory to the Maker), and upon surrender and cancellation of this
Note, if mutilated, the Maker, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of like tenor in
lieu of this Note. Any Note made and delivered in accordance with the provisions
of this paragraph (b) shall be dated as of the date to which interest has been
paid on this Note.
Section 7. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor
<PAGE>
21
or successor corporation, either directly or through the Maker or otherwise,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise, all such liability being
by the acceptance hereof and as part of the consideration for the issue hereof
expressly waived and released; provided, however, that nothing herein contained
shall be taken to prevent recourse to and the enforcement of the liability, if
any, of any stockholder or subscriber to capital stock upon or in respect of
shares of capital stock not fully paid.
Section 8. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 9. Severability. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE>
22
TELEPHONE ACCESS, INC., a
Delaware corporation
By____________________________
Name:
Title:
ASH CREEK, a Delaware
corporation
By____________________________
Name:
Title:
SCHEDULE TO EXHIBIT 10(b)
Exhibit 10(b) is a form for four promissory notes that were issued by
the Company and Ash Creek, Inc., jointly and severally, to each of Abbingdon
Venture Partners Limited Partnership-II ("Abbingdon-II") and Abbingdon Venture
Partners Limited Partnership-III ("Abbingdon-III") in the principal amount of
$5,998,500 with respect to Abbingdon-II and $4,798,800, $1,333,000 and
$1,199,700 with respect to Abbingdon-III.
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
8% Subordinated Promissory Note
due January 15, 2007
$ King of Prussia,
January 15, 1997 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, TELEPHONE ACCESS,
INC., a Delaware corporation ("TAI"), and ASH CREEK, INC., a Delaware
corporation ("ACI"), jointly and severally as obligors (TAI and ACI are
collectively referred to herein as the "Maker"), hereby promise to pay to
[ ], a Delaware limited
partnership (herein called "[ ]"), or order, the principal amount of
[ ] ($ ), or, if less, the aggregate outstanding principal amount of
all loans which are made by [ ] to the Maker on or prior to January
15, 2007 and which are intended to be evidenced by this Note as conclusively
evidenced by a written endorsement with respect thereto by a general partner of
Abbingdon-III on the schedule annexed hereto, in full on January 15, 2007
(subject to prepayment in whole or in part in the manner hereinafter in Section
3 hereof provided), in such coin or currency of the United States of America as
at the time of
<PAGE>
2
payment shall be legal tender therein for the payment of public and private
debts, and to pay interest on the unpaid balance of the principal hereof from
the date hereof, at the rate of 8% per annum, in like coin or currency,
quarterly on March 31, June 30, September 30 and December 31 each year
commencing June 30, 1997 (the payment due on such date to include all accrued
interest from the date hereof), and to pay interest at the rate of 12% per annum
on any overdue principal and (to the extent permitted by law) on any overdue
interest, from the due date thereof until the obligation of the Maker with
respect to the payment thereof shall be discharged; all payments and prepayments
of principal of this Note and all payments of interest on this Note to be made
to the holder hereof at the office of such holder at c/o Foster Management
Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406 or such
other office hereafter designated by such holder. Interest hereon for any period
other than a full quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The
Maker hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this
<PAGE>
3
Note, and the payment of the principal of and interest (whether by redemption or
otherwise) on this Note, is hereby expressly made subordinate and subject in
right of payment to the prior indefeasible payment in full in cash of all Senior
Debt to the extent and in the manner hereinafter set forth in this Section 2.
Defined terms used herein shall have the meanings set forth in Section 5 hereof,
unless otherwise specified or defined herein.
This Section 2 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and they or each of them may enforce such
provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained
in this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc.
Upon any payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other
<PAGE>
4
similar case or proceeding in connection therewith, relative to the Maker or to
its creditors, or to its assets, whether voluntary or involuntary, or (b) any
liquidation, dissolution or other winding-up of the Maker, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit of creditors or any other marshalling of assets
and/or liabilities of the Maker, then and in any such event the holders of
Senior Debt shall be entitled to receive indefeasible payment in full in cash of
all amounts due or to become due on or in respect of all Senior Debt before the
holder of this Note is entitled to receive any payment on account of principal
of, interest on or otherwise in respect of this Note, and to that end the
holders of Senior Debt shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Maker being subordinated to the payment of this Note, which
may be payable or deliverable in respect of this Note in any such case,
proceeding, dissolution, liquidation, reorganization or other winding-up or
event.
If this Note is declared due and payable before its stated
maturity, then and in such event the holders of the Senior Debt outstanding at
the time this Note so becomes
<PAGE>
5
due and payable shall be entitled to receive indefeasible payment in cash in
full of all amounts due or to become due on or in respect of all such Senior
Debt (whether or not an event of default has occurred thereunder or the maturity
of such Senior Debt has been declared due and payable prior to the date on which
it would otherwise have become due and payable) before the holder of this Note
is entitled to receive any payment (including any payment which may be payable
by reason of the payment of any other Indebtedness of the Maker being
subordinate to or pari passu with the payment of this Note by the Maker), on
account of the principal of or interest hereon.
If, after the occurrence of any of the events set forth in
Section 2.3(a), (b) or (c) above, the holder of this Note shall have received
any payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of the Maker being subordinated to the payment of this Note,
before all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining
<PAGE>
6
unpaid to the extent necessary to pay all Senior Debt in full.
For purposes of this Section 2 only, the words "cash, property
or securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 2 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, (or the representative or
agent of such holders, if there is one) commence, prosecute or participate in,
prior to the expiration of three hundred sixty-five (365) days after the
occurrence of any default under this Note which is a ground for acceleration of
this Note (the date of such default is hereinafter referred to as the "Sub- Debt
Default Date"), any suit, action or proceeding against the Maker with respect to
this Note, or assert, collect or
<PAGE>
7
enforce, or take any action to foreclose or realize upon, prior to the 366th day
following the Sub-Debt Default Date, any security interest, lien or encumbrance
on any property of the Maker pursuant to any security agreements, pledge
agreements, mortgages, lien instruments or other documents which secure this
Note or take any action which might result in a payment in contravention of any
provision of this Section 2 until the Senior Debt shall have been indefeasibly
paid in cash in full, and any such security agreements, pledge agreements,
mortgages, lien instruments or other documents shall contain the subordination
provisions set forth in this Section 2.
Notwithstanding the foregoing, the holder of this Note may
take legal action to compel the Maker to perform any obligation hereunder or to
enjoin the Maker from violating any obligation hereunder so long as such
obligation is not a payment obligation and the performance or observance of such
obligation would not prohibit, impair, conflict with or be inconsistent with the
performance or observance of any of the Maker's obligations to any holder of
Senior Debt.
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing provisions of
this Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice
<PAGE>
8
from the holder of this Note to the holders of the Senior Debt that such
prohibited payment has been made, the holders of the Senior Debt notify the
holder of this Note of the amounts then due and owing on the Senior Debt, if
any, and only such amount so notified to the holder of this Note shall be paid
to the holders of the Senior Debt.
The provisions of this Section 2.4 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the
event any default on any Senior Debt shall have occurred and be continuing which
permits (or with notice or lapse of time, or both, would permit) the holders of
such Senior Debt (or a trustee or agent on behalf of the holders thereof) to
declare such Senior Debt due and payable prior to the date on which it would
otherwise have become due and payable (whether or not such holders have
accelerated such Senior Debt) or such a default would result from or exist after
giving effect to a payment with respect to this Note, and if the holder of any
Senior Debt gives written notice of such default to the holder of this Note and
designates the same as a "Senior Default Notice" hereunder, unless and until
such default shall have been cured or waived or shall have ceased to exist and
any such acceleration shall have been rescinded or annulled, or if any judicial
proceeding shall be pending with respect to any
<PAGE>
9
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise in
respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
Senior Debt.
The provisions of this Section 2.5 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt.
Subject to the indefeasible payment in full in cash of all Senior Debt, the
holder of this Note shall be subrogated to the extent of the payments or
distributions
<PAGE>
10
made to the holders of such Senior Debt pursuant to the provisions of this
Section 2 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
2, and no payments over pursuant to the provisions of this Section 2 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when
<PAGE>
11
the same shall become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior Debt, is intended
to rank equally with all other general obligations of the Maker, or is intended
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 2 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does
not file a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination
Provisions. No right of any current or future holder of any
<PAGE>
12
Senior Debt to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Maker or by any act or failure to act, in good faith, by any such Senior Debt
holder, or by any non-compliance by the Maker with the terms, provisions and
covenants of this Note, regardless of any knowledge thereof any such Senior Debt
holder may have or be otherwise charged with. The holder of this Note by such
holder's acceptance hereof agrees that, so long as there is indebtedness
outstanding under this Note, the holder of this Note shall not agree to
compromise, release, forgive or otherwise discharge the obligations of the Maker
with respect to this Note without the prior written consent of the holders of
the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
<PAGE>
13
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
<PAGE>
14
Section 2.11 Miscellaneous.
(a) Notices. All communications provided
for hereunder shall be by telephone, in person or in writing (including telex or
facsimile communication) and shall be delivered or sent by telex or facsimile to
the respective party at the addresses and numbers set forth below:
If to the holder of this Note:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and
telecopier numbers as are hereafter provided to
the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
<PAGE>
15
(b) Severability of Provisions; Captions.
Any provision of this Section 2 which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any time with
the prior written consent of the holders of Senior Debt so long as any Senior
Debt is outstanding, prepay the whole or any part of the unpaid principal amount
of this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and
<PAGE>
16
payable, and from and after the prepayment date so specified (unless the Maker
shall default in making such prepayment), interest on this Note or portion
hereof so specified for prepayment shall cease to accrue and, on presentation
and surrender hereof to the Maker for cancellation in the case of this Note
being prepaid as a whole, or for notation hereon of the payment of the portion
of the principal amount hereof being prepaid in the case of a prepayment of this
Note in part only, this Note or portion hereof so specified for prepayment shall
be paid by the Maker at the prepayment price aforesaid. Any prepayment of this
Note in part shall be applied to the installments of principal payable hereunder
in the order of maturity thereof.
The holder of this Note shall have the right to require the
Maker to prepay this Note in whole or in part, without premium or penalty, upon
the consummation of an underwritten initial public offering of TAI's common
stock. Interest on the principal amount of this Note accrued to the date of such
prepayment shall be paid concurrently therewith. Notice of the consummation of
such initial public offering shall be given by the Maker to the holder of this
Note not less than 30 days prior to the date of such consummation. Notice of the
exercise of the foregoing prepayment option shall be given by the holder of this
Note to the Maker not less than ten business days prior to such consummation
date. In case this Note is to be prepaid in
<PAGE>
17
part only, the notice given by the holder of this Note shall specify the
principal amount thereof to be prepaid and shall state that this Note shall be
submitted to the Maker for notation thereon of the principal amount thereof to
be prepaid. Upon giving of notice of prepayment as aforesaid, this Note or the
portion thereof so specified for prepayment shall become due and payable on such
consummation date; and from and after such date (unless the Maker shall default
in making such prepayment) interest on this Note or the portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or the portion thereof so specified for prepayment shall
be paid by the Maker at the prepayment price aforesaid.
Section 4. General Covenants. The Maker covenants and agrees
with the holder of this Note as hereinbelow set forth, namely:
Section 4.1 The Maker will punctually pay or cause to be paid
the principal of and interest on this Note according to the terms hereof.
Section 4.2 The Maker will, and will cause each
Subsidiary, if any, to
<PAGE>
18
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided, however, that neither the Maker nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Maker
or such Subsidiary, as the case may be, shall have set aside on its
books reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 5 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such
<PAGE>
19
Subsidiary; provided, however, that nothing in this paragraph shall
prevent the abandonment or termination of the corporate existence,
rights and franchises of any Subsidiary if, in the opinion of the Board
of Directors of the Maker, such abandonment or termination is in the
interest of the Maker and not disadvantageous in any material respect
to the holder of this Note.
Section 5. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
<PAGE>
20
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 8 hereof after such assumption
shall, unless executed in the name of such corporation, have a similar
legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
Section 6. Events of Default and Remedies.
Section 6.1 Subject to Section 2 hereof, the entire unpaid
principal amount of this Note, together with all accrued interest thereon,
shall, at the option of the holder hereof exercised by written notice to the
Corporation at its principal executive offices, forthwith become and be due and
payable if any one or more of the following events (herein called "Events of
Default") shall have occurred (for any reason whatsoever and whether such
happening shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and be continuing at the time of such notice or at the time
of a similar notice from the holder of this Note, that is to say:
<PAGE>
21
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the
Corporation contained in this Note, and such default shall have
continued for a period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond
any period of grace provided with respect thereto in the payment of
principal of or interest on any obligation (other than this Note) in
respect of borrowed money when due, whether by acceleration or
otherwise; or if the Corporation or any Subsidiary shall default in the
performance or observance of any other agreement, term or condition
contained in such obligation or in any agreement under which any such
obligation is created, if the effect of
<PAGE>
22
any such default is to cause or permit the holder or holders of such
obligations (or a trustee on behalf of such holder or holders) to cause
such obligation to become due prior to the date of its stated maturity,
unless such holder or holders or trustee shall have waived such default
after its occurrence or unless such holder or holders or trustee shall
have failed to give any notice required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver
of itself or of the whole or any substantial part
of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE>
23
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or of
the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from the date
of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Corporation or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$25,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
<PAGE>
24
terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
Section 6.2 In case any one or more of the Events of Default
specified in Section 6.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
Section 6.3 No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
Section 6.4 No course of dealing between the Corporation and the
holder hereof or any delay on the part of the holder hereof in exercising any
rights hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE>
25
Section 7. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any other person in any
manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any
<PAGE>
26
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to Post-
Petition Interest), unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with this Note. Senior Debt shall continue to constitute Senior Debt
for all purposes and the provisions of Section 2 of this Note shall continue to
apply to such Senior Debt, notwithstanding the fact that such Senior Debt, or
any claim in respect thereof, shall be disallowed, avoided, subordinated or
determined to be a fraudulent conveyance
<PAGE>
27
pursuant to the provisions of the United States Bankruptcy Code or other
applicable federal, state or local law.
Section 8. Exchange or Replacement of Notes. (a) The holder of
any Note or Notes, at its option, may in person or by duly authorized attorney
surrender one or more thereof for exchange, at the principal executive offices
of the Maker, and at the expense of the Maker receive in exchange therefor a new
Note or Notes in the same aggregate principal amount as the aggregate unpaid
principal amount of the Note or Notes so surrendered and bearing interest at the
same annual rate as the Note or Notes so surrendered, each such new Note to be
dated as of the date to which interest has been paid on the Note or Notes so
surrendered and to be in such principal amount and payable to such person or
persons, or order, as such holder may designate in writing; provided, however,
that the Maker shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any new Note in
the name other than that of the holder of the Note or Notes surrendered in
exchange therefor. Five days' prior written notice of the holder's intention to
make such exchange shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it (it
<PAGE>
28
being understood that in the case of Abbingdon-II an unsecured written
indemnification agreement shall be satisfactory to the Maker), and upon
surrender and cancellation of this Note, if mutilated, the Maker, upon
reimbursement to it of all reasonable expenses incidental thereto, will make and
deliver a new Note, of like tenor in lieu of this Note. Any Note made and
delivered in accordance with the provisions of this paragraph (b) shall be dated
as of the date to which interest has been paid on this Note.
Section 9. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to
<PAGE>
29
capital stock upon or in respect of shares of capital stock not fully paid.
Section 10. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 11. Severability. If any term or
provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
TELEPHONE ACCESS, INC., a
Delaware corporation
By /s/ Stephen F. Nagy
----------------------------------
Name: Stephen F. Nagy
Title: Chairman of the Board and
Chief Executive Officer
ASH CREEK, INC., a Delaware
corporation
By /s/ Robert A. Ouimette
----------------------------------
Name: Robert A. Ouimette
Title: President
Schedule to Exhibit 10(c)
Exhibit 10(c) is a form for two Promissory Notes that were issued by the
Company and Ash Creek, Inc., jointly and severally, to each of Abbingdon Venture
Partners Limited Partnership-II and Abbington Venture Partners Limited
Partnership-III in the principal amount of $2,250,000 and $2,750,000,
respectively.
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
8% Subordinated Promissory Note
due January 15, 2007
$_____________ King of Prussia,
January 15, 1997 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, TLM HOLDINGS CORP., a
Delaware corporation ("TLM"), and STURGES POND, INC., a Delaware corporation
("STURGES"), jointly and severally as obligors (TLM and STURGES are collectively
referred to herein as the "Maker"), hereby promise to pay to [
], a Delaware limited partnership (herein called
"[ ]"), or order, the principal amount of [
] ($ ), or, if less, the aggregate outstanding
principal amount of all loans which are made by Abbingdon-II to the Maker on or
prior to January 15, 2007 and which are intended to be evidenced by this Note as
conclusively evidenced by a written endorsement with respect thereto by a
general partner of [ ] on the schedule annexed hereto, in full on
January 15, 2007 (subject to prepayment in whole or in part in the manner
hereinafter in Section 3 hereof provided), in such coin or currency of the
United States of America as at the time of
<PAGE>
2
payment shall be legal tender therein for the payment of public and private
debts, and to pay interest on the unpaid balance of the principal hereof from
the date hereof, at the rate of 8% per annum, in like coin or currency,
quarterly on March 31, June 30, September 30 and December 31 each year
commencing June 30, 1997 (the payment due on such date to include all accrued
interest from the date hereof), and to pay interest at the rate of 12% per annum
on any overdue principal and (to the extent permitted by law) on any overdue
interest, from the due date thereof until the obligation of the Maker with
respect to the payment thereof shall be discharged; all payments and prepayments
of principal of this Note and all payments of interest on this Note to be made
to the holder hereof at the office of such holder at c/o Foster Management
Company, 1018 West Ninth Avenue, King of Prussia, Pennsylvania 19406 or such
other office hereafter designated by such holder. Interest hereon for any period
other than a full quarterly period shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The
Maker hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this
<PAGE>
3
Note, and the payment of the principal of and interest (whether by redemption or
otherwise) on this Note, is hereby expressly made subordinate and subject in
right of payment to the prior indefeasible payment in full in cash of all Senior
Debt to the extent and in the manner hereinafter set forth in this Section 2.
Defined terms used herein shall have the meanings set forth in Section 5 hereof,
unless otherwise specified or defined herein.
This Section 2 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and they or each of them may enforce such
provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained
in this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc.
Upon any payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other
<PAGE>
4
similar case or proceeding in connection therewith, relative to the Maker or to
its creditors, or to its assets, whether voluntary or involuntary, or (b) any
liquidation, dissolution or other winding-up of the Maker, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit of creditors or any other marshalling of assets
and/or liabilities of the Maker, then and in any such event the holders of
Senior Debt shall be entitled to receive indefeasible payment in full in cash of
all amounts due or to become due on or in respect of all Senior Debt before the
holder of this Note is entitled to receive any payment on account of principal
of, interest on or otherwise in respect of this Note, and to that end the
holders of Senior Debt shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Maker being subordinated to the payment of this Note, which
may be payable or deliverable in respect of this Note in any such case,
proceeding, dissolution, liquidation, reorganization or other winding-up or
event.
If this Note is declared due and payable before its stated
maturity, then and in such event the holders of the Senior Debt outstanding at
the time this Note so becomes
<PAGE>
5
due and payable shall be entitled to receive indefeasible payment in cash in
full of all amounts due or to become due on or in respect of all such Senior
Debt (whether or not an event of default has occurred thereunder or the maturity
of such Senior Debt has been declared due and payable prior to the date on which
it would otherwise have become due and payable) before the holder of this Note
is entitled to receive any payment (including any payment which may be payable
by reason of the payment of any other Indebtedness of the Maker being
subordinate to or pari passu with the payment of this Note by the Maker), on
account of the principal of or interest hereon.
If, after the occurrence of any of the events set forth in
Section 2.3(a), (b) or (c) above, the holder of this Note shall have received
any payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of the Maker being subordinated to the payment of this Note,
before all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining
<PAGE>
6
unpaid to the extent necessary to pay all Senior Debt in full.
For purposes of this Section 2 only, the words "cash, property
or securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 2 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, (or the representative or
agent of such holders, if there is one) commence, prosecute or participate in,
prior to the expiration of three hundred sixty-five (365) days after the
occurrence of any default under this Note which is a ground for acceleration of
this Note (the date of such default is hereinafter referred to as the "Sub- Debt
Default Date"), any suit, action or proceeding against the Maker with respect to
this Note, or assert, collect or
<PAGE>
7
enforce, or take any action to foreclose or realize upon, prior to the 366th day
following the Sub-Debt Default Date, any security interest, lien or encumbrance
on any property of the Maker pursuant to any security agreements, pledge
agreements, mortgages, lien instruments or other documents which secure this
Note or take any action which might result in a payment in contravention of any
provision of this Section 2 until the Senior Debt shall have been indefeasibly
paid in cash in full, and any such security agreements, pledge agreements,
mortgages, lien instruments or other documents shall contain the subordination
provisions set forth in this Section 2.
Notwithstanding the foregoing, the holder of this Note may
take legal action to compel the Maker to perform any obligation hereunder or to
enjoin the Maker from violating any obligation hereunder so long as such
obligation is not a payment obligation and the performance or observance of such
obligation would not prohibit, impair, conflict with or be inconsistent with the
performance or observance of any of the Maker's obligations to any holder of
Senior Debt.
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing provisions of
this Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice
<PAGE>
8
from the holder of this Note to the holders of the Senior Debt that such
prohibited payment has been made, the holders of the Senior Debt notify the
holder of this Note of the amounts then due and owing on the Senior Debt, if
any, and only such amount so notified to the holder of this Note shall be paid
to the holders of the Senior Debt.
The provisions of this Section 2.4 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the
event any default on any Senior Debt shall have occurred and be continuing which
permits (or with notice or lapse of time, or both, would permit) the holders of
such Senior Debt (or a trustee or agent on behalf of the holders thereof) to
declare such Senior Debt due and payable prior to the date on which it would
otherwise have become due and payable (whether or not such holders have
accelerated such Senior Debt) or such a default would result from or exist after
giving effect to a payment with respect to this Note, and if the holder of any
Senior Debt gives written notice of such default to the holder of this Note and
designates the same as a "Senior Default Notice" hereunder, unless and until
such default shall have been cured or waived or shall have ceased to exist and
any such acceleration shall have been rescinded or annulled, or if any judicial
proceeding shall be pending with respect to any
<PAGE>
9
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise in
respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
Senior Debt.
The provisions of this Section 2.5 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt.
Subject to the indefeasible payment in full in cash of all Senior Debt, the
holder of this Note shall be subrogated to the extent of the payments or
distributions
<PAGE>
10
made to the holders of such Senior Debt pursuant to the provisions of this
Section 2 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
2, and no payments over pursuant to the provisions of this Section 2 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when
<PAGE>
11
the same shall become due and payable in accordance with its terms and which,
subject to the rights under this Note of the holders of Senior Debt, is intended
to rank equally with all other general obligations of the Maker, or is intended
to or shall affect the relative rights against the Maker of the holder of this
Note and creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 2 of the holders of Senior
Debt to receive cash, property or securities otherwise payable or deliverable to
the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does
not file a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination
Provisions. No right of any current or future holder of any
<PAGE>
12
Senior Debt to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Maker or by any act or failure to act, in good faith, by any such Senior Debt
holder, or by any non-compliance by the Maker with the terms, provisions and
covenants of this Note, regardless of any knowledge thereof any such Senior Debt
holder may have or be otherwise charged with. The holder of this Note by such
holder's acceptance hereof agrees that, so long as there is indebtedness
outstanding under this Note, the holder of this Note shall not agree to
compromise, release, forgive or otherwise discharge the obligations of the Maker
with respect to this Note without the prior written consent of the holders of
the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
<PAGE>
13
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
<PAGE>
14
Section 2.11 Miscellaneous.
(a) Notices. All communications provided
for hereunder shall be by telephone, in person or in writing (including telex or
facsimile communication) and shall be delivered or sent by telex or facsimile to
the respective party at the addresses and numbers set forth below:
If to the holder of this Note:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and
telecopier numbers as are hereafter provided to
the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
<PAGE>
15
(b) Severability of Provisions; Captions.
Any provision of this Section 2 which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any time with
the prior written consent of the holders of Senior Debt so long as any Senior
Debt is outstanding, prepay the whole or any part of the unpaid principal amount
of this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and
<PAGE>
16
payable, and from and after the prepayment date so specified (unless the Maker
shall default in making such prepayment), interest on this Note or portion
hereof so specified for prepayment shall cease to accrue and, on presentation
and surrender hereof to the Maker for cancellation in the case of this Note
being prepaid as a whole, or for notation hereon of the payment of the portion
of the principal amount hereof being prepaid in the case of a prepayment of this
Note in part only, this Note or portion hereof so specified for prepayment shall
be paid by the Maker at the prepayment price aforesaid. Any prepayment of this
Note in part shall be applied to the installments of principal payable hereunder
in the order of maturity thereof.
The holder of this Note shall have the right to require the
Maker to prepay this Note in whole or in part, without premium or penalty, upon
the consummation of an underwritten initial public offering of TLM's common
stock. Interest on the principal amount of this Note accrued to the date of such
prepayment shall be paid concurrently therewith. Notice of the consummation of
such initial public offering shall be given by the Maker to the holder of this
Note not less than 30 days prior to the date of such consummation. Notice of the
exercise of the foregoing prepayment option shall be given by the holder of this
Note to the Maker not less than ten business days prior to such consummation
date. In case this Note is to be prepaid in
<PAGE>
17
part only, the notice given by the holder of this Note shall specify the
principal amount thereof to be prepaid and shall state that this Note shall be
submitted to the Maker for notation thereon of the principal amount thereof to
be prepaid. Upon giving of notice of prepayment as aforesaid, this Note or the
portion thereof so specified for prepayment shall become due and payable on such
consummation date; and from and after such date (unless the Maker shall default
in making such prepayment) interest on this Note or the portion thereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender thereof to the Maker for cancellation in the case of this Note being
prepaid in whole, or for notation thereon of the payment of the portion of the
principal amount thereof being prepaid in the case of a prepayment of this Note
in part only, this Note or the portion thereof so specified for prepayment shall
be paid by the Maker at the prepayment price aforesaid.
Section 4. General Covenants. The Maker
covenants and agrees with the holder of this Note as
hereinbelow set forth, namely:
Section 4.1 The Maker will punctually pay or cause to be paid
the principal of and interest on this Note according to the terms hereof.
Section 4.2 The Maker will, and will cause each
Subsidiary, if any, to
<PAGE>
18
(a) pay and discharge promptly, or cause to be paid and
discharged promptly, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or upon any of its property,
real, personal or mixed, or upon any part thereof, as well as all
claims of any kind (including claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon its
property); provided, however, that neither the Maker nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Maker
or such Subsidiary, as the case may be, shall have set aside on its
books reserves (segregated to the extent required by sound accounting
practice) reasonably deemed by it adequate with respect thereto; and
(b) except as otherwise specifically permitted in this Note
and as contemplated by Section 5 hereof, do or cause to be done all
things necessary or appropriate to preserve and keep in full force and
effect its corporate existence, rights and franchises, and use its best
efforts to qualify as a foreign corporation entitled to do business in
every jurisdiction in which the failure so to qualify would materially
adversely affect the Maker or such
<PAGE>
19
Subsidiary; provided, however, that nothing in this paragraph shall
prevent the abandonment or termination of the corporate existence,
rights and franchises of any Subsidiary if, in the opinion of the Board
of Directors of the Maker, such abandonment or termination is in the
interest of the Maker and not disadvantageous in any material respect
to the holder of this Note.
Section 5. Consolidation, Merger or Disposition of Assets. The
Maker will not consolidate with, merge into, or sell or otherwise dispose of all
or substantially all its properties as an entirety to, any person unless:
(a) the successor formed by or resulting from such
consolidation or merger or to which such sale or other disposition
shall have been made shall be a corporation organized under the laws of
the United States of America or any State, district or territory
thereof;
(b) such successor corporation shall expressly assume the due
and punctual payment of the principal of and interest on this Note
according to its tenor, and the due and punctual performance and
observance of all the covenants, agreements and conditions of this Note
to be performed or observed by the Maker to the same extent as if such
successor corporation had been the original maker of this Note (and
such assumption shall, upon the request of the holder of this Note, be
<PAGE>
20
evidenced by the endorsing of an appropriate legend upon this Note, and
each Note executed pursuant to Section 8 hereof after such assumption
shall, unless executed in the name of such corporation, have a similar
legend endorsed thereon); and
(c) immediately after such consolidation, merger, sale or
other disposition, such successor corporation shall not be in default
in the performance of any of the covenants, agreements or conditions
contained in this Note.
Section 6. Events of Default and Remedies.
Section 6.1 Subject to Section 2 hereof, the entire unpaid
principal amount of this Note, together with all accrued interest thereon,
shall, at the option of the holder hereof exercised by written notice to the
Corporation at its principal executive offices, forthwith become and be due and
payable if any one or more of the following events (herein called "Events of
Default") shall have occurred (for any reason whatsoever and whether such
happening shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body) and be continuing at the time of such notice or at the time
of a similar notice from the holder of this Note, that is to say:
<PAGE>
21
(a) if default shall be made in the due and punctual payment
of the principal of this Note when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise;
(b) if default shall be made in the due and punctual payment
of any interest on this Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 10
days;
(c) if default shall be made in the performance or observance
of any covenant, agreement or condition contained in Section 6 hereof;
(d) if default shall be made in the performance or observance
of any of the other covenants, agreements or conditions of the
Corporation contained in this Note, and such default shall have
continued for a period of 30 days;
(e) if the Corporation or any Subsidiary shall default beyond
any period of grace provided with respect thereto in the payment of
principal of or interest on any obligation (other than this Note) in
respect of borrowed money when due, whether by acceleration or
otherwise; or if the Corporation or any Subsidiary shall default in the
performance or observance of any other agreement, term or condition
contained in such obligation or in any agreement under which any such
obligation is created, if the effect of
<PAGE>
22
any such default is to cause or permit the holder or holders of such
obligations (or a trustee on behalf of such holder or holders) to cause
such obligation to become due prior to the date of its stated maturity,
unless such holder or holders or trustee shall have waived such default
after its occurrence or unless such holder or holders or trustee shall
have failed to give any notice required to create a default thereunder;
(f) if the Corporation or any Subsidiary shall:
(i) admit in writing its inability to pay its
debts generally as they become due;
(ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver
of itself or of the whole or any substantial part
of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
State, district or territory thereof;
<PAGE>
23
(g) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Corporation
or any Subsidiary, a receiver of the Corporation or any Subsidiary or of
the whole or any substantial part of its property, or approving a
petition filed against it seeking reorganization or arrangement of the
Corporation or any Subsidiary under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
State, district or territory thereof, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from the date
of entry thereof;
(h) if, under the provisions of any other law for the relief or
aid of debtors, any court of competent jurisdiction shall assume custody
or control of the Corporation or any Subsidiary or of the whole or any
substantial part of its property and such custody or control shall not
be terminated or stayed within 60 days from the date of assumption of
such custody or control; or
(i) if final judgment for the payment of money in excess of
$25,000 shall be rendered by a court of record against the Corporation
or any Subsidiary and the Corporation or such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its
<PAGE>
24
terms, or shall not procure a stay of execution thereon within 60 days
from the date of entry thereof and within the period during which
execution of such judgment shall have been stayed, appeal therefrom, and
cause the execution thereof to be stayed during such appeal.
Section 6.2 In case any one or more of the Events of Default
specified in Section 6.1 hereof shall have occurred and be continuing, the
holder of this Note may proceed to protect and enforce its rights either by suit
in equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the holder of this Note may proceed to enforce
the payment of all sums due upon this Note or to enforce any other legal or
equitable right of the holder of this Note.
Section 6.3 No remedy herein conferred upon the holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
Section 6.4 No course of dealing between the Corporation and the
holder hereof or any delay on the part of the holder hereof in exercising any
rights hereunder shall operate as a waiver of any rights of any holder hereof.
<PAGE>
25
Section 7. Definitions. As used herein, the
following terms shall have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of the Maker guaranteeing
or in effect guaranteeing any liability or obligation of any other person in any
manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any
<PAGE>
26
agreement to indemnify or hold harmless any other person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including but not limited to Post-
Petition Interest), unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with this Note. Senior Debt shall continue to constitute Senior Debt
for all purposes and the provisions of Section 2 of this Note shall continue to
apply to such Senior Debt, notwithstanding the fact that such Senior Debt, or
any claim in respect thereof, shall be disallowed, avoided, subordinated or
determined to be a fraudulent conveyance
<PAGE>
27
pursuant to the provisions of the United States Bankruptcy Code or other
applicable federal, state or local law.
Section 8. Exchange or Replacement of Notes. (a)
The holder of any Note or Notes, at its option, may in person or by duly
authorized attorney surrender one or more thereof for exchange, at the principal
executive offices of the Maker, and at the expense of the Maker receive in
exchange therefor a new Note or Notes in the same aggregate principal amount as
the aggregate unpaid principal amount of the Note or Notes so surrendered and
bearing interest at the same annual rate as the Note or Notes so surrendered,
each such new Note to be dated as of the date to which interest has been paid on
the Note or Notes so surrendered and to be in such principal amount and payable
to such person or persons, or order, as such holder may designate in writing;
provided, however, that the Maker shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and delivery of
any new Note in the name other than that of the holder of the Note or Notes
surrendered in exchange therefor. Five days' prior written notice of the
holder's intention to make such exchange shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in case of loss,
theft or destruction) of indemnity reasonably satisfactory to it (it
<PAGE>
28
being understood that in the case of Abbingdon-II an unsecured written
indemnification agreement shall be satisfactory to the Maker), and upon
surrender and cancellation of this Note, if mutilated, the Maker, upon
reimbursement to it of all reasonable expenses incidental thereto, will make and
deliver a new Note, of like tenor in lieu of this Note. Any Note made and
delivered in accordance with the provisions of this paragraph (b) shall be dated
as of the date to which interest has been paid on this Note.
Section 9. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor or successor corporation, either
directly or through the Maker or otherwise, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty, or otherwise, all such liability being by the acceptance hereof and as
part of the consideration for the issue hereof expressly waived and released;
provided, however, that nothing herein contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to
<PAGE>
29
capital stock upon or in respect of shares of capital stock
not fully paid.
Section 10. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 11. Severability. If any term or
provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
TLM HOLDINGS CORP., a
Delaware corporation
By /s/ Stephen F. Nagy
____________________________
Name: Stephen F. Nagy
Title: Chairman of the Board
and President
STURGES POND, INC., a Delaware
corporation
By /s/ Robert A. Ouimette
____________________________
Name: Robert A. Ouimette
Title: President
<PAGE>
SCHEDULE TO EXHIBIT 10(d)
Exhibit 10(d) is a form for two promissory notes that were issued by TLM
Holdings Corp. and Sturges Pond, Inc. to each of Abbingdon Venture Partners
Limited Partnership-II and Abbingdon Venture Partners Limited Partnership-III in
the principal amount of $1,350,000 and $1,650,000, respectively.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
8% Subordinated Promissory Note
due October 15, 2007
-------------------------------
$[ ] King of Prussia,
October 15, 1997 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, TELEPHONE ACCESS, INC., a
Delaware corporation ("TELAC"), and ASH CREEK, INC., a Delaware corporation
("ASH"), jointly and severally as obligors (TELAC and ASH are collectively
referred to herein as the "Maker"), hereby promise to pay to [
], a Connecticut limited partnership (herein called
"Abbingdon-I"), or order, the principal amount of [
] ($ ), in full on December 1, 2006 (subject to
prepayment in whole or in part in the manner hereinafter in Section 3 hereof
provided), in such coin or currency of the United States of America as at the
time of payment shall be legal tender therein for the payment of public and
private debts, and to pay interest on the unpaid balance of the principal hereof
from the date hereof, at the rate of 8% per annum, in like coin or currency,
quarterly on March 31, June 30, September 30 and December 31 each year
commencing March 31,
<PAGE>
2
1997 (the payment due on such date to include all accrued interest from the date
hereof), and to pay interest at the rate of 10% per annum on any overdue
principal and (to the extent permitted by law) on any overdue interest, from the
due date thereof until the obligation of the Maker with respect to the payment
thereof shall be discharged; all payments and prepayments of principal of this
Note and all payments of interest on this Note to be made to the holder hereof
at the office of such holder at c/o Foster Management Company, 1018 West Ninth
Avenue, King of Prussia, Pennsylvania 19406 or such other office hereafter
designated by such holder. Interest hereon for any period other than a full
quarterly period shall be computed on the basis of a 360-day year of twelve
30-day months.
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The Maker
hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that the indebtedness
of the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt to the
extent and in the manner hereinafter set forth in this Section 2. Defined terms
used herein shall
<PAGE>
3
have the meanings set forth in Section 5 hereof, unless otherwise specified or
defined herein.
This Section 2 shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 2.2 Payment Permitted if No Default. Nothing contained in
this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the
<PAGE>
4
benefit of creditors or any other marshalling of assets and/or liabilities of
the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due on or in respect of all Senior Debt before the holder of this Note
is entitled to receive any payment on account of principal of, interest on or
otherwise in respect of this Note, and to that end the holders of Senior Debt
shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, which may be payable or
deliverable in respect of this Note in any such case, proceeding, dissolution,
liquidation, reorganization or other winding-up or event.
If this Note is declared due and payable before its stated maturity,
then and in such event the holders of the Senior Debt outstanding at the time
this Note so becomes due and payable shall be entitled to receive indefeasible
payment in cash in full of all amounts due or to become due on or in respect of
all such Senior Debt (whether or not an event of default has occurred thereunder
or the maturity of such Senior Debt has been declared due and payable prior to
the date on which it would otherwise have become due and
<PAGE>
5
payable) before the holder of this Note is entitled to receive any payment
(including any payment which may be payable by reason of the payment of any
other Indebtedness of the Maker being subordinate to or pari passu with the
payment of this Note by the Maker), on account of the principal of or interest
hereon.
If, after the occurrence of any of the events set forth in Section
2.3(a), (b) or (c) above, the holder of this Note shall have received any
payment or distribution of assets of the Maker of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Maker being subordinated to the payment of this Note, before
all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full.
For purposes of this Section 2 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other
<PAGE>
6
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinated at least to the extent provided in this Section 2 with
respect to this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, (or the representative or
agent of such holders, if there is one) commence, prosecute or participate in,
prior to the expiration of three hundred sixty-five (365) days after the
occurrence of any default under this Note which is a ground for acceleration of
this Note (the date of such default is hereinafter referred to as the "Sub-Debt
Default Date"), any suit, action or proceeding against the Maker with respect to
this Note, or assert, collect or enforce, or take any action to foreclose or
realize upon, prior to the 366th day following the Sub-Debt Default Date, any
security interest, lien or encumbrance on any property of the Maker pursuant to
any security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result
<PAGE>
7
in a payment in contravention of any provision of this Section 2 until the
Senior Debt shall have been indefeasibly paid in cash in full, and any such
security agreements, pledge agreements, mortgages, lien instruments or other
documents shall contain the subordination provisions set forth in this Section
2.
Notwithstanding the foregoing, the holder of this Note may take
legal action to compel the Maker to perform any obligation hereunder or to
enjoin the Maker from violating any obligation hereunder so long as such
obligation is not a payment obligation and the performance or observance of such
obligation would not prohibit, impair, conflict with or be inconsistent with the
performance or observance of any of the Maker's obligations to any holder of
Senior Debt.
If, notwithstanding the foregoing, the Maker shall make any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
<PAGE>
8
The provisions of this Section 2.4 shall not apply to any payment
with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the event any
default in the payment of principal of or interest on any Senior Debt shall have
occurred and be continuing which permits (or with notice or lapse of time, or
both, would permit) the holders of such Senior Debt (or a trustee or agent on
behalf of the holders thereof) to declare such Senior Debt due and payable prior
to the date on which it would otherwise have become due and payable (whether or
not such holders have accelerated such Senior Debt) or such a default would
result from or exist after giving effect to a payment with respect to this Note,
and if the holder of any Senior Debt gives written notice of such default to the
holder of this Note and designates the same as a "Senior Default Notice"
hereunder, unless and until such default shall have been cured or waived or
shall have ceased to exist and any such acceleration shall have been rescinded
or annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or other default, no payment (including any payment
which may be payable by reason of the payment of any other Indebtedness of the
Maker being subordinated to or pari passu with the payment of this Note) shall
be made by the Maker on account of principal of, interest on or otherwise
<PAGE>
9
in respect of this Note or on account of the purchase or other acquisition of
subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to
the holder of this Note prohibited by the foregoing provisions of this Section
2, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 2.5 shall not apply to any payment
with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt. Subject
to the indefeasible payment in full in cash of all Senior Debt, the holder of
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Section 2 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no
<PAGE>
10
payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the holder of this Note would be entitled except
for the provisions of this Section 2, and no payments over pursuant to the
provisions of this Section 2 to the holders of Senior Debt by the holder of this
Note, shall, as between the Maker, its creditors other than holders of Senior
Debt, and the holder of this Note, be deemed to be a payment or distribution by
the Maker of or on account of this Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Maker, or is
intended to or shall affect the relative rights against the Maker of the holder
of this Note and creditors of the Maker other
<PAGE>
11
than the holders of Senior Debt, nor shall anything herein or therein prevent
the holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Section 2 of the holders of Senior Debt to receive cash, property or
securities otherwise payable or deliverable to the holder of this Note.
Section 2.8 Proof of Claim. If the holder of this Note does not file
a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of
<PAGE>
12
any knowledge thereof any such Senior Debt holder may have or be otherwise
charged with. The holder of this Note by such holder's acceptance hereof agrees
that, so long as there is indebtedness outstanding under this Note, the holder
of this Note shall not agree to compromise, release, forgive or otherwise
discharge the obligations of the Maker with respect to this Note without the
prior written consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from
<PAGE>
13
exercising any rights against the Maker and any other person.
Section 2.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
Section 2.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall
be by telephone, in person or in writing (including telex or facsimile
communication) and shall be delivered or sent by telex or facsimile to the
respective party at the addresses and numbers set forth below:
<PAGE>
14
If to the holder of this Note:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Stephen F. Nagy
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt:
to such addresses and such telephone and telecopier numbers as are
hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any provision of
this Section 2 which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
<PAGE>
15
The several captions to sections and subsections herein are inserted for
convenience only and shall be ignored in interpreting the provisions of this
Section.
Section 3. Optional Prepayment. The Maker may at any time with the
prior written consent of the holders of Senior Debt so long as any Senior Debt
is outstanding, prepay the whole or any part of the unpaid principal amount of
this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount
<PAGE>
16
hereof being prepaid in the case of a prepayment of this Note in part only, this
Note or portion hereof so specified for prepayment shall be paid by the Maker at
the prepayment price aforesaid. Any prepayment of this Note in part shall be
applied to the installments of principal payable hereunder in the order of
maturity thereof.
Section 4. Events of Default and Remedies. Subject to Section 2
hereof, the holder of this Note shall have the right, without demand or notice,
to accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay any installment of principal payable under
this Note or any installment of interest payable thereon within thirty (30) days
after receipt of written notice from the holder of this Note to the effect that
such installment of principal or such installment of interest has not been paid
when due, (b) the Maker admits in writing its inability to pay its debts
generally as they become due, files a case or petition in bankruptcy or a case
or petition to take advantage of any bankruptcy, reorganization or insolvency
act, makes an assignment for the benefit of creditors, or consents to the
appointment of a receiver for itself or for all or substantially all of its
property or, on a petition in bankruptcy filed against it, is adjudicated a
bankrupt,
<PAGE>
17
which judgment, order or decree shall not be appealed within the permitted time
period from the date of entry thereof and subsequently vacated. Upon such
declaration by the holder of this Note, the obligations evidenced by this Note
shall be immediately due and payable.
In the event of any event of default hereunder, the Maker agrees to
pay to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the following terms shall
have the following respective meanings:
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including without limitation forward sale or purchase agreements, capitalized
leases and
<PAGE>
18
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note),
or (v) any Guaranty of Indebtedness for borrowed money. For purposes hereof,
"Guaranty" shall mean any obligation of the Maker guaranteeing or in effect
guaranteeing any liability or obligation of any other person in any manner,
whether directly or indirectly, including, without limiting the generality of
the foregoing, any agreement to indemnify or hold harmless any other person, any
performance bond or other suretyship arrangement and any other form of assurance
against loss, except endorsement of negotiable or other instruments for deposit
or collection in the ordinary course of business.
"Post Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created,
<PAGE>
19
incurred or assumed (including but not limited to Post-Petition Interest),
unless such Indebtedness, by its terms or the terms of the instrument creating
or evidencing it is subordinate in right of payment to or pari passu with this
Note. Senior Debt shall continue to constitute Senior Debt for all purposes and
the provisions of Section 2 of this Note shall continue to apply to such Senior
Debt, notwithstanding the fact that such Senior Debt, or any claim in respect
thereof, shall be disallowed, avoided, subordinated or determined to be a
fraudulent conveyance pursuant to the provisions of the United States Bankruptcy
Code or other applicable federal, state or local law.
Section 6. Exchange or Replacement of Notes.
(a) The holder of any Note or Notes, at its option, may in person or by
duly authorized attorney surrender one or more thereof for exchange, at the
principal executive offices of the Maker, and at the expense of the Maker
receive in exchange therefor a new Note or Notes in the same aggregate principal
amount as the aggregate unpaid principal amount of the Note or Notes so
surrendered and bearing interest at the same annual rate as the Note or Notes so
surrendered, each such new Note to be dated as of the date to which interest has
been paid on the Note or Notes so surrendered and to be in such principal amount
and payable to such person or persons, or order, as such holder may designate in
writing; provided, however, that the Maker
<PAGE>
20
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any new Note in the name other
than that of the holder of the Note or Notes surrendered in exchange therefor.
Five days' prior written notice of the holder's intention to make such exchange
shall be given to the Maker.
(b) Upon receipt by the Maker of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to it (it being understood
that in the case of Abbingdon-I an unsecured written indemnification agreement
shall be satisfactory to the Maker), and upon surrender and cancellation of this
Note, if mutilated, the Maker, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of like tenor in
lieu of this Note. Any Note made and delivered in accordance with the provisions
of this paragraph (b) shall be dated as of the date to which interest has been
paid on this Note.
Section 7. Immunity of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of or interest on this
Note or for any claim based hereon or otherwise in respect hereof against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Maker or of any predecessor
<PAGE>
21
or successor corporation, either directly or through the Maker or otherwise,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise, all such liability being
by the acceptance hereof and as part of the consideration for the issue hereof
expressly waived and released; provided, however, that nothing herein contained
shall be taken to prevent recourse to and the enforcement of the liability, if
any, of any stockholder or subscriber to capital stock upon or in respect of
shares of capital stock not fully paid.
Section 8. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 9. Severability. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
* * *
<PAGE>
22
TELEPHONE ACCESS, INC., a
Delaware corporation
By____________________________
Name:
Title:
ASH CREEK, a Delaware
corporation
By____________________________
Name:
Title:
SCHEDULE TO EXHIBIT 10(e)
Exhibit 10(e) is a form for two promissory notes that were issued by the
Company and Ash Creek, Inc., to each of Abbingdon Venture Partners Limited
Partnership-II and Abbingdon Venture Partners Limited Partnership-III in the
principal amount of $6,975,000 and $8,525,000, respectively.
DISCRETIONARY LINE OF CREDIT LETTER AGREEMENT
January 14, 1997
TLM Holdings Corp.
1018 West Ninth Avenue
King of Prussia, PA 19406
Attention: Stephen F. Nagy
Chairman and CEO
Re: $6,000,000 Discretionary Line of Credit
Letter Agreement
Dear Steve:
I am pleased to confirm that PNC Bank, National Association (the
"Bank") has approved a $6,000,000 discretionary line of credit to TLM Holdings
Corp. a Delaware corporation (the "Borrower"). Loans made under the line of
credit, if any, shall be due and payable on demand. All loans will bear interest
and will be subject to the terms and conditions set forth in this Agreement and
in the enclosed Note. Assuming that (i) the Borrower is in compliance with the
terms and conditions herein and under the Loan Documents, (ii) no event
specified in clauses (i) - (ix) on pages 3 through 4 hereof has occurred and
(iii) no demand has been made hereunder, the Bank agrees only to review Loan
requests by the Borrower until the earlier of (i) January 13, 1998, or (ii) the
date of the closing of the initial public offering of capital stock of the
Borrower (the "Review Date").
In addition to the words and terms defined elsewhere in this
Agreement, capitalized terms shall have the meanings given to them as set forth
on Exhibit A hereto.
This is not a committed line of credit. The Borrower acknowledges
and agrees that Loans under this line of credit, if any, shall be made at the
sole discretion of the Bank. The Bank may decline to make Loans under the line,
terminate the line or demand repayment of all outstanding obligations
thereunder, at any time and for any reason without prior notice to the Borrower.
Subject to the sole discretion of the Bank to make Loans under this line of
credit, the Borrower may request Loans, repay and request additional Loans
hereunder, subJect to the terms and conditions of this Agreement and the other
Loan Documents.
In no event shall the aggregate unpaid principal amount of Loans under this
Agreement exceed the face amount of the Note. This Agreement sets forth certain
terms and conditions solely to assure that the parties understand each other's
expectations and to assist the Bank in evaluating the status, on an ongoing
basis, of the discretionary line of credit.
<PAGE>
2
The Borrower may irrevocably request the Bank to make a Loan three
(3) Business Days prior to the date for making the Loan ("Borrowing Date"), and
request that such Loan shall bear interest at the Base Rate Option or Euro-Rate
Option, which shall be acceptable to the Bank in its sole discretion. The
parties acknowledge that (i) the foregoing provision that Lender may, in its
sole discretion, accept a Euro-Rate Option with respect to any Loan does not
alter the discretionary nature of the line of credit and the agreement that all
Loans made pursuant to this Agreement are payable upon demand of the Bank for
any or no reason whatsoever and (ii) if demand is made during a Euro-Rate
Interest Period, the Bank may incur losses or expenses for which the Borrower is
obligated to indemnify the Bank as set forth more fully herein. Interest shall
be payable at the applicable rate on the dates as provided in the Note.
A request for a Loan made by telephone must be promptly confirmed in
writing by letter, facsimile or telex in such form as the Bank may require. The
Borrower authorizes the Bank to accept telephonic requests for Loans, and the
Bank shall be entitled to rely upon the authority of any person providing such
instructions without the necessity of receipt of such written confirmation. The
Borrower hereby indemnifies and holds the Bank harmless from and against any and
all damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses) which may arise or be created by the acceptance of
such telephone requests or making such Loans pursuant to such telephonic
requests. The Bank will enter on its books and records, which entry when made
will be presumed correct, the date and amount of each Loan, the option, rate and
interest period applicable thereto, as well as the date and amount of each
payment made by the Borrower.
The Bank's willingness to consider making Loans under this facility
is subject to (i) the truth and accuracy at all times of the Representations and
Warranties of the Loan Parties contained on Exhibit B attached hereto and made a
part hereof; (ii) the compliance by the Loan Parties with the Affirmative
Covenants contained on Exhibit C attached hereto and made a part hereof; and
(iii) the compliance by the Loan Parties with the Negative Covenants contained
on Exhibit D attached hereto and made a part hereof. However, the Loan Parties'
compliance with such representations, warranties and covenants shall not alter
the discretionary nature of the line of credit and shall not in any way obligate
the Bank to make any Loans under the line of credit.
Upon the happening of any of the following:
(i) failure of any Loan Party to pay any principal or interest of
any Loan, fees or any other amount owing hereunder or under the other Loan
Documents upon request of the Bank;
(ii) failure of any Loan Party to perform any obligation, covenant
or liability (other than those contained in clause (i) above) contained or
referred to herein or in the Note or any other Loan Document and such failure to
perform shall continue unremedied for a period of ten (10) days after any
officer of such Loan Party becomes aware of the occurrence thereof;
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3
(iii) any warranty, representation or statement made or furnished to
the Bank by or on behalf of Borrower or any other Loan Party proves to have been
false or misleading at any time in any material respect;
(iv) any event occurs which constitutes a default under or permits
or causes any holder (including the Bank) of any Indebtedness owing by any Loan
Party in excess of $250,000 to accelerate such Indebtedness of any Loan Party
including, without limitation, under any note, indenture, agreement or
undertaking to which any Loan Party is a party or by which any Loan Party is
bound;
(v) the occurrence of any Material Adverse Change;
(vi) a final judgment for the payment of money in excess of $250,000
is entered against any Loan Party or its assets in excess of $250,000 in value
are attached in a legal proceeding which judgment or attachment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
(vii) dissolution or termination of existence of the Borrower,
Abbingdon Partners-II or Abbingdon Partners-III or insolvency, appointment of a
receiver of any part of the property of, assignment for the benefit of creditors
by or the commencement of proceedings under any bankruptcy or insolvency laws by
or against any Loan Party which appointment, assignment or proceeding remains
unstayed, undismissed and in effect for a period of thirty (30) days;
(viii) the revocation or attempted revocation, in whole or in part,
of any Guaranty Agreement;
(ix) the withdrawal of Abbingdon-II Partners as general partner of
Abbingdon Partners-II or the withdrawal of Abbingdon-II Partners as general
partner of Abbingdon Partners-III; or
(x) the occurrence of any of the events set forth in clauses (i) -
(ix) on pages 23 of the Discretionary Line of Credit Letter Agreement dated July
27, 1995 between the Bank, XYAN, Inc. (formerly Quik Print, Inc.) and the
Subsidiaries and Guarantors set forth therein, as amended or modified from time
to time (the "XYAN Letter Agreement"); the Bank shall not be obligated to review
or respond to any request for Loans under this Agreement. The foregoing
provision is in addition to the agreement of the parties hereto that all Loans
made pursuant to this Agreement are subject to the Bank's sole and absolute
discretion, as provided herein.
The Note is a demand note and the liability thereunder and any other
liability of the Borrower under this Agreement for payment of money are payable
forthwith, upon demand of the Bank, for any or no reason whatsoever, and without
any showing of insecurity on the part
<PAGE>
4
of the Bank, with the result that the Note and any such other liability are by
their very nature due and payable commencing on the date of the execution and
delivery thereof and hereof without regard as to whether the Bank has made any
request for payment or presentment whatsoever. The representations, warranties
and covenants contained in this Agreement, the Note and all other Loan Documents
have been relied upon by the Bank in entering into this Agreement and in making
the Loans, if any, hereunder, but are not to be construed as altering the demand
character of the Note evidencing the Loans made pursuant to this Agreement or
the Borrower's liability hereunder or under the Note.
To compensate the Bank for its approval of this discretionary line
of credit and its periodic review and analysis of the Borrower's financial
condition, the Borrower shall pay to the Bank a non-refundable fee in the amount
of $60,000 to be received by the Bank prior to the date hereof. This fee shall
in no way obligate the Bank to make any Loans hereunder or alter the
discretionary nature of the line of credit.
If any Law, guideline or interpretation or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance with any request
or directive (whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects the Bank to any tax or changes the basis of taxation
with respect to this Agreement, the Note, the Loans or payments by the Borrower
of principal, interest, or other amounts due from the Borrower hereunder or
under the Note (except for taxes on the net income of the Bank),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, the Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or letters of
credit, other credits or commitments to extend credit extended by, the Bank, or
(B) otherwise applicable to the obligations of the Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon the
Bank or its parent with respect to this Agreement, the Note or the making,
maintenance or funding of any part of the Loans (or, in the case of any capital
adequacy or similar requirement, to have the effect of reducing the rate of
return on the capital of the Bank or its parent, taking into consideration the
Bank's customary policies with respect to capital adequacy) by an amount which
the Bank in its sole discretion deems to be material, the Bank shall from time
to time notify the Borrower of the amount determined in good faith (using any
averaging and attribution methods employed in good faith)
<PAGE>
5
by the Bank (which determination shall be conclusive absent manifest error) to
be necessary to compensate the Bank for such increase in cost, reduction of
income or additional expense. Such notice shall set forth in reasonable detail
the basis for such determination. Such amount shall be due and payable by the
Borrower to the Bank ten (10) Business Days after such notice is given. For
purposes of this paragraph, in calculating the amount necessary to compensate
the Bank for any such increase in cost, reduction of income or additional
expense, the Bank shall calculate the amount payable to it in a manner
consistent with the manner in which it shall calculate similar compensation
payable to it by other borrowers in the industry of the Borrower having
provisions in their credit agreements comparable to this paragraph.
In addition to the compensation required in the preceding paragraph,
the Borrower shall indemnify the Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by the Bank to fund or maintain Loans subject to
the Euro-Rate Option) which the Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to which
the Euro-Rate Option applies on a day other than the last day of the
corresponding Euro-Rate Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
requests or prepayments, or
(iii) failure by any Loan Party in the performance or observance of
any covenant contained in this Agreement or any other Loan Document, including
without limitation any failure of any Loan Party to pay when due (by
acceleration or otherwise) any principal, interest, or any other amount due
hereunder.
If the Bank sustains or incurs any such loss or expense it shall
from time to time notify the Borrower of the amount determined in good faith by
the Bank (which determination shall be conclusive absent manifest error and may
include such assumptions, allocations of costs and expenses and averaging or
attribution methods as the Bank shall deem reasonable) to be necessary to
indemnify the Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due and
payable by the Borrower to the Bank ten (10) Business Days after such notice is
given.
This Agreement shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania without regard to its conflict of laws principles.
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6
This Agreement shall be binding upon and shall inure to the benefit
of the Bank, the Loan Parties and their respective successors and assigns,
except that the Loan Parties may not assign or transfer any of their rights and
obligations hereunder or any interest herein.
This Agreement and the other Loan Documents constitute the entire
agreement among the Bank and the Loan Parties and supersede all prior
communications, oral and written, as well as all contemporaneous oral
communications among the parties with respect hereto. No amendment to or
modification of this Agreement or the other Loan Documents shall be effective
unless set forth in writing and signed by each of the parties to this Agreement.
Enclosed for execution is the Note evidencing this facility. Please
indicate each Loan Party's agreement to the terms and conditions of this
Agreement by having the enclosed copy of this Agreement executed where indicated
and returning it to me. Prior to the making of any Loans hereunder, the Loan
Parties must deliver to the Bank a duly executed original of the Loan Documents
and a certified copy of resolutions authorizing the transactions contemplated by
the Loan Documents, an incumbency certificate and an opinion of counsel, each in
form and substance satisfactory to the Bank.
[INTENTIONALLY LEFT BLANK]
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7
I am pleased to offer support for your banking needs and look
forward to working with you.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Maycie D. Knittel
_________________________________
Title: Vice President
______________________________
Address for Notices:
249 Fifth Avenue
One PNC Plaza, 5th Floor
Pittsburgh, Pennsylvania 15265-0001
Attention: Ms. Marcie Knittel
Telephone No. (412) 762-8343
Telecopier No. (412) 762-2784
<PAGE>
8
Agreed, accepted and intending to be legally bound hereby this 14th day of
January, 1997
TLM Holdings Corp. and
the Subsidiaries listed
on Schedule 1 hereto
By: /s/ Stephen F. Nagy
_________________________
Stephen F. Nagy,
Chairman and CEO
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. Stephen F. Nagy
Telephone No. (610) 992-7651
Telecopier No. (610) 992-3392
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - II
By: Abbingdon-II Partners
as general partner
By: /s/ Stephen F. Nagy
_________________________
Stephen F. Nagy,
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610) 992-7650
Telecopier No. (610) 992-3390
<PAGE>
9
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - III
By: Abbingdon-II Partners
as general partner
By: /s/ Stephen F. Nagy
_________________________
general partner
Address for Notices:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Mr. John H. Foster
Telephone No. (610)992-7650
Telecopier No. (610) 992-3390
DEMAND NOTE
$6,000,000 Pittsburgh, Pennsylvania
January 14, 1997
FOR VALUE RECEIVED, TLM Holdings Corp., a Delaware corporation (the
"Borrower"), with an address at 1012 West Ninth Avenue, King of Prussia,
Pennsylvania 19406 promises to pay ON DEMAND to the order of PNC BANK, NATIONAL
ASSOCIATION (the "Bank") in lawful money of the United States of America in
immediately available funds at the Bank's offices located at 249 Fifth Avenue,
Pittsburgh, Pennsylvania 15265, or at such other location as the Bank may
designate from time to time, the principal sum of SIX MILLION U.S. DOLLARS
($6,000,000) (the "Facility") or such lesser amount as may be advanced to or for
the benefit of the Borrower by the Bank pursuant to the Discretionary Line of
Credit Letter Agreement dated as of January 14, 1997 agreed to and accepted by
the Borrower, each whollyowned Subsidiary of the Borrower identified on Schedule
1 thereto, Abbingdon Venture Partners Limited Partnership - II, a Delaware
limited partnership and Abbingdon Venture Partners Limited Partnership - III, a
Delaware limited partnership (as the same may be modified or amended hereafter
from time to time, the "Agreement"), together with interest accruing on the
outstanding principal balance from the date hereof, as provided below.
Capitalized terms used herein and not otherwise defined herein shall have such
meanings as given to them in the Agreement
1. Rate of Interest. Each advance outstanding under this Note will
bear interest at a rate per annum determined pursuant to the Agreement,
provided, however, that in no event will the rate of interest hereunder exceed
the maximum rate allowed by Law
2. Payment Terms. THE BORROWER ACKNOWLEDGES AND AGREES THAT THE BANK
MAY AT ANY TIME AND IN ITS SOLE DISCRETION REQUEST IMMEDIATE PAYMENT OF ALL
AMOUNTS OUTSTANDING UNDER THIS NOTE WITHOUT PRIOR NOTICE TO THE BORROWER. In the
absence of a request by the Bank for immediate payment of all amounts
outstanding under this Note (i) interest on Loans to which the Base Rate Option
applies shall be due and payable in arrears on the first Business Day of each
April, July, October and January after the date hereof; (ii) and interest on
Loans to which a Euro-Rate Option applies shall be due and payable on the last
day of each Euro-Rate Interest Period for those Loans; provided that any
Euro-Rate Interest Period which would otherwise end on a date which is not a
Business Day shall be extended to the next Business Day unless such Business Day
falls in the next calendar month, in which case such Euro-Rate Interest Period
shall end on the next preceding Business Day.
If the time for making any payment under this Note falls on a Saturday, Sunday
or public holiday under the laws of the Commonwealth of Pennsylvania, such
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in computing interest in connection with such payment.
The Borrower hereby authorizes the Bank to charge the
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2
Borrower's deposit account at the Bank for any payment. Payments received will
be applied to charges, fees and expenses (including attorneys' fees), accrued
interest and principal in any order the Bank may choose, in its sole discretion.
3. Increased Interest Rate. If any Loans or other amount is not paid
when requested, any principal, interest, fee or other amount payable hereunder
shall bear interest for each day thereafter until paid in full (before and after
judgment) at a rate per annum which shall be equal to two hundred (200) basis
points (2% per annum) above the rate of interest otherwise applicable with
respect to such amount or the Base Rate if no rate of interest is otherwise
applicable (the "Increased Interest Rate,").
4. Repayment, Additional Borrowings. The Borrower may request Loans,
repay Loans and request additional Loans subject to the discretion of the Bank
and the terms and conditions of the Agreement and the other Loan Documents.
5. Right of Setoff. In addition to all liens upon and rights of
setoff against the money, securities or other property of the Borrower given to
the Bank by Law, the Bank shall have, with respect to the Borrower's obligations
to the Bank under this Note and to the extent permitted by Law, a contractual
possessory security interest in and a right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with the Bank whether held in a general or special account or deposit,
whether held jointly with someone else, or whether held for safekeeping or
otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such
security interest and right of setoff may be exercised without demand upon or
notice to the Borrower.
6. Miscellaneous. No delay or omission of the Bank to exercise any
right or power arising hereunder shall impair any such right or power or be
considered to be a waiver of any such right or power or any acquiescence therein
nor shall the action or inaction of the Bank impair any right or power
hereunder. The Borrower agrees to pay on demand, to the extent permitted by Law,
all costs and expenses incurred by the Bank in the enforcement of its rights in
this Note and in any security therefor, including without limitation reasonable
fees and expenses of the Bank's counsel. If any provision of this Note is found
to be invalid by a court, all the other provisions of this Note will remain in
full force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waiver presentment, protest, notice of dishonor and notice of non-payment.
This Note shall bind the Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of Bank and its successors and
assigns, provided, however, that the Borrower may not assign or transfer any of
its rights and obligations hereunder or any interest herein.
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3
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Borrower hereby irrevocably consents to the exclusive jurisdiction of
any state or federal court located in the county or judicial district where the
Bank's of indicated above is located, and consents that all service of process
be sent by nationally recognized overnight courier service directed to the
Borrower at the Borrower's address set forth herein and service so made will be
deemed to be completed on the Business Day after deposit with such courier;
provided that nothing contained in this Note will prevent the Bank from bringing
any action, enforcing any award or judgment or exercising any rights against the
Borrower individually, against any security or against any property of the
Borrower within any other county, state or nation. The Bank and the Borrower
agree that the venue provided above is the most convenient forum for both the
Bank and the Borrower. The Borrower waives any objection to venue and any
objection based on a more convenient forum in any action instituted under this
Note.
7. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL
RIGHTS THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM OF ANY NATURE RELATING TO THIS NOTE, THE LOAN DOCUMENTS, OR ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED
IN ANY OF SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS
KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] TLM Holdings Corp.
By: /s/ Stephen F. Nagy
_________________________
Name: Stephen F. Nagy
Title: Chairman and CEO
Address for Notices:
1018 West Ninth Avenue
King of Prussia, PA 19406
GUARANTY AND SURETYSHIP AGREEMENT
(Partnership Guaranty)
This Agreement (the "Agreement") dated as of January 14, 1997, is
made and given by Abbingdon Venture Partners Limited Partnership - II, a
Delaware limited partnership ("Abbingdon Partners - II"), and Abbingdon Venture
Partners Limited Partnership - III, a Delaware limited partnership (Abbingdon
Partners - III") (Abbingdon Partners - II and Abbingdon Partners - III are
referred to collectively to as the "Guarantors" and individually as a
"Guarantor") in favor of PNC Bank, National Association (the "Bank") pursuant to
that certain Discretionary Line of Credit Letter Agreement dated as of even date
herewith (as it may hereinafter from time to time be amended, restated, modified
or supplemented, the "Discretionary Line Agreement") agreed to and accepted by
TLM Holdings Corp., a Delaware corporation (the "Borrower"), each Subsidiary of
the Borrower identified on Schedule 1 of the Discretionary Line Agreement, the
Guarantors and the Bank.
W I T N E S S E T H:
WHEREAS, the Loan Parties have agreed to and accepted the
Discretionary Line Agreement; and
WHEREAS, this Agreement is made by the Guarantors among other things
to induce the Bank to consider requests for loan advances pursuant to the
Discretionary Line Agreement; and
WHEREAS, the business and investments of the Loan Parties are
interdependent and loans, if any, made to the Borrower pursuant to the
Discretionary Line Agreement are with the expectation that the profits and other
opportunities from such businesses and investments will directly or indirectly
inure to the benefit of each Guarantor, each other Loan Party and to all of them
taken as an affiliated group.
NOW, THEREFORE, in consideration of the premises, and intending to
be legally bound, the Guarantors hereby agree as follows:
1. DEFINITIONS
1.1 Definitions. Capitalized terms used herein and not otherwise
defined herein shall have such meanings as given to them in the Discretionary
Line Agreement. In addition to the other terms defined elsewhere in this
Agreement, the following terms shall have the following meanings:
"Guaranteed Obligations" shall mean all obligations from time to
time of the Borrower to the Bank under or in connection with the Discretionary
Line Agreement, the Demand Note dated the date of this Agreement in the face
amount of $6,000,000 of the Borrower in favor of the Bank (the "Note"), or any
other Loan Document or which arise in any other manner, whether for principal,
interest, fees, indemnities, expenses or
<PAGE>
2
otherwise, and all refinancings or refundings thereof, whether such obligations
are direct or indirect, otherwise secured or unsecured, absolute or contingent,
due or to become due, whether for payment or performance, now existing or
hereafter arising (specifically including but not limited to obligations arising
or accruing after the commencement of any bankruptcy, insolvency, reorganization
or similar proceeding with respect to the Borrower, any other Loan Party or any
other individuals or entities including any Guarantor (a "Person") or which
would have arisen or accrued but for the commencement of such proceeding, even
if the claim for such obligation is not enforceable or allowable in such
proceeding). Without limitation of the foregoing, such obligations include all
obligations arising from any extensions of credit under or in connection with
the Loan Documents from time to time, regardless of whether any such extensions
of credit are in excess of the amount set forth under or contemplated by the
Loan Documents or are made in circumstances in which any condition to extension
of credit is not satisfied. Without limitation of the foregoing, the Bank (or
any successive assignee or transferee) from time to time may assign or otherwise
transfer all of its rights and obligations under the Loan Documents (including,
without limitation, all of any option to extend credit), or any other Guaranteed
Obligations, to any other Person, and such Guaranteed Obligations (including,
without limitation, any Guaranteed Obligations resulting from extension of
credit by such other Person under or in connection with the Loan Documents)
shall be and remain Guaranteed Obligations entitled to the benefit of this
Agreement.
2. GUARANTY AND SURETYSHIP
2.1 Guaranty and Suretyship. Subject to the limitations set forth in
Section 4. 17 hereof, the Guarantors hereby absolutely, unconditionally and
irrevocably guarantee and become surety for the full and punctual payment and
performance of the Guaranteed Obligations. This Agreement is an agreement of
suretyship as well as of guaranty, is a guarantee of payment and performance and
not merely of collectibility, and is in no way conditioned upon any attempt to
collect from or proceed against the Borrower or any other Persons or any other
event or circumstance. The obligations of the Guarantors under this Agreement
are direct and primary obligations of each Guarantor and are independent of the
Guaranteed Obligations, and a separate action or actions may be brought against
any one or more of the Guarantors regardless of whether action is brought
against the Borrower, any other Guarantor or any other Persons or whether the
Borrower, any other Guarantor or any other Persons are joined in any such action
or actions.
2.2 Obligations Absolute. The Guarantors agree that the Guaranteed
Obligations will be paid and performed strictly in accordance with the terms of
the Loan Documents, regardless of any Law, regulation or order now or hereafter
in effect in any jurisdiction affecting the Guaranteed Obligations, any of the
terms of the Loan Documents or the rights of the Bank or any other Person with
respect thereto. The obligations of the Guarantors under this Agreement shall be
absolute, unconditional and irrevocable, irrespective of any of the following:
<PAGE>
3
(a) Any lack of genuineness, legality, validity,
enforceability or allocability (in a bankruptcy, insolvency, reorganization or
similar proceeding, or otherwise), or any avoidance or subordination, in whole
or in part, of any Loan Document or any of the Guaranteed Obligations.
(b) Any increase, decrease or change in the amount, nature,
type or purpose of any of the Guaranteed Obligations (whether or not
contemplated by the Loan Documents as presently constituted); any change in the
time, manner, method or place of payment or performance of, or in any other term
of, any of the Guaranteed Obligations; any execution or delivery of any
additional Loan Documents; or any amendment, modification or supplement to, or
refinancing or refunding of, any Loan Document or any of the Guaranteed
Obligations.
(c) Any extensions of credit in excess of the amount committed
under or contemplated by the Loan Documents, or in circumstances in which any
condition to such extensions of credit has not been satisfied; any other
exercise or non-exercise, or any other failure, omission, breach, default, delay
or wrongful action in connection with any exercise or non-exercise, of any right
or remedy against the Borrower or any other Persons under or in connection with
any Loan Document or any of the Guaranteed Obligations; any refusal of payment
or performance of any of the Guaranteed Obligations, whether or not with any
reservation of rights against any Guarantor; or any application of collections
(including but not limited to collections resulting from realization upon any
direct or indirect security for the Guaranteed Obligations) to other
obligations, if any, not entitled to the benefits of this Agreement, in
preference to Guaranteed Obligations entitled to the benefits of this Agreement,
or if any collections are applied to Guaranteed Obligations, any application to
particular Guaranteed Obligations.
(d) Any taking, exchange, amendment, modification, supplement,
termination, subordination, release, loss or impairment of, or: any failure to
protect, perfect, or preserve the value of, or any enforcement of, realization
upon, or exercise of rights, or remedies under or in connection with, or any
failure, omission, breach, default, delay or wrongful action by the Bank, or any
other Person in connection with the enforcement of, realization upon, or
exercise of rights or remedies under or in connection with, or, any other action
or inaction by the Bank, or any other Person in respect of, any direct or
indirect security for any of the Guaranteed Obligations. As used in this
Agreement, "direct or indirect security" for the Guaranteed Obligations, and
similar phrases, includes but is not limited to any collateral security,
guaranty, suretyship, letter of credit, capital maintenance agreement, put
option, subordination agreement or other right or arrangement of any nature
providing direct or indirect assurance of payment or performance of any of the
Guaranteed Obligations, made by or on behalf of any Person.
(e) Any merger, consolidation, liquidation, dissolution,
winding-up, charter revocation or forfeiture, or other change in, restructuring
or termination of the corporate structure or existence of, the Borrower or any
other Persons; any bankruptcy, insolvency, reorganization or similar proceeding
with respect to the Borrower or any other Persons; or any action taken or
election made by the Bank, (including but not limited to any election under
Section 1111(b)(2) of the United States Bankruptcy Code), the Borrower or any
other Persons in connection with any such proceeding.
<PAGE>
4
(f) Any defense, setoff or counterclaim (excluding only the
defense of full, strict and indefeasible payment and performance), which may at
any time be available to or be asserted by the Borrower or any other Persons
with respect to any Loan Document or any of the Guaranteed Obligations; or any
discharge by operation of law or release of the Borrower or any other Persons
from the performance or observance of any Loan Document or any of the Guaranteed
Obligations.
(g) Any other event or circumstance, whether similar or
dissimilar to the foregoing, and whether known or unknown, which might otherwise
constitute a defense available to, or limit the liability of, any Guarantor, a
guarantor or a surety, excepting only full, strict and indefeasible payment and
performance of the Guaranteed Obligations in full.
2.3 Waivers, etc. The Guarantors hereby waive any defense to or
limitation on their obligations under this Agreement arising out of or based on
any event or circumstance referred to in Section 2.2 hereof. Without limitation,
the Guarantors waive each of the following:
(a) All notices, disclosures and demands of any nature which
otherwise might be required from time to time to preserve intact any rights
against any Guarantor, including without limitation the following: any notice of
any event or circumstance described in Section 2.2 hereof; any notice required
by any Law, regulation or order now or hereafter in effect in any jurisdiction;
any notice of nonpayment, nonperformance, dishonor, or protest under any Loan
Document or any of the Guaranteed Obligations; any notice of the incurrence of
any Guaranteed Obligation; any notice of any default or any failure on the part
of the Borrower or any other Persons to comply with any Loan Document or any of
the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; and any notice of any information pertaining to the
business, operations, condition (financial or otherwise) or prospects of the
Borrower or any other Persons.
(b) Any right to any marshalling of assets, to the filing of
any claim against the Borrower or any other Persons in the event of any
bankruptcy, insolvency, reorganization or similar proceeding, or to the exercise
against the Borrower or any other Persons of any other right or remedy under or
in connection with any Loan Document or any of the Guaranteed Obligations or any
direct or indirect security for any of the Guaranteed Obligations; any
requirement of promptness or diligence on the part of the Bank, or any other
Person; any requirement to exhaust any remedies under or in connection with, or
to mitigate the damages resulting from default under, any Loan Document or any
of the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; any benefit of any statute of limitations; and any
requirement of acceptance of this Agreement, and any requirement that any
Guarantor receive notice of such acceptance.
(c) Any defense or other right arising by reason of any law
now or hereafter in effect in any jurisdiction pertaining to election of
remedies (including but not limited to antideficiency laws, "one action" laws or
the like), or by reason of any election of remedies or other action or inaction
by the Bank, (including but not limited to commencement or completion of any
judicial proceeding or nonjudicial sale or other action in respect of collateral
security for any of the Guaranteed Obligations), which results in denial or
impairment of the right of the Bank to
<PAGE>
5
seek a deficiency against the Borrower or any other Persons or which otherwise
discharges or impairs any of the Guaranteed Obligations.
2.4 Reinstatement. This Agreement shall continue to be effective, or
be automatically reinstated, as the case may be, if at any time payment of any
of the Guaranteed Obligations is avoided, rescinded or must otherwise be
returned by the Bank for any reason (including, without limitation, by reason of
such payment being a preference, fraudulent transfer or fraudulent conveyance),
all as though such payment had not been made.
2.5 No Stay. Without limitation of any other provision of this
Agreement, if any exercise or condition to exercise of rights or remedies under
or with respect to any Guaranteed Obligation shall at any time be stayed,
enjoined or prevented for any reason (including but not limited to stay or
injunction resulting from the pendency against the Borrower or any other Persons
of a bankruptcy, insolvency, reorganization or similar proceeding), the
Guarantors agree that, for the purposes of this Agreement and their obligations
hereunder, the Guaranteed Obligations shall be deemed to have been requested and
such other exercise or conditions to exercise shall be deemed to have been taken
or met.
2.6 Payments. All payments to be made by any Guarantor pursuant to
this Agreement shall be made without setoff, counterclaim, withholding or other
deduction of any nature.
2.7 Continuing Guaranty. This Agreement is a continuing agreement
and shall continue in full force and effect (notwithstanding that no Guaranteed
Obligations may be outstanding from time to time, or any other event or
circumstance) until all Guaranteed Obligations and all other amounts payable
under this Agreement have been paid and performed in full, subject in any event
to reinstatement in accordance with Section 2.4 hereof. Any purported
termination, revocation or discharge of this Agreement shall be void and of no
effect. For purposes of this Agreement, the Guaranteed Obligations shall not be
deemed to have been paid in full until the Bank shall have indefeasibly received
payment of the Guaranteed Obligations in full and in cash.
3. REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby represents and warrants to the Bank as
follows:
3.1 No Reliance. The Guarantor has, independently and without
reliance upon the Bank, and based upon such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement.
3.2 Partnership Agreement. The Guarantor has provided to the Bank a
true and correct copy of the Agreement of Limited Partnership of the Guarantor
together with all amendments thereto.
<PAGE>
6
4. MISCELLANEOUS
4.1 Amendments, etc. No amendment to or waiver of any provision of
this Agreement, and no consent to any departure by any Guarantor herefrom, shall
in any event be effective unless in a writing manually signed by or on behalf of
the Bank. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
4.2 No Implied Waiver: Remedies Cumulative. No delay or failure of
the Bank in exercising any right or remedy under this Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise thereof or the exercise of any
other right or remedy. The rights and remedies of the Bank under this Agreement
are cumulative and not exclusive of any other rights or remedies available
hereunder, under any other agreement or instrument, by law, or otherwise.
4.3 Notices. Each Guarantor agrees that all notices, statements,
requests, demands and other communications under this Agreement shall be given
to such Guarantor at the address set forth below the signature line for the
Guarantors to the Discretionary Line Agreement on the signature page thereof.
The Bank may rely on any notice (whether or not made in a manner contemplated by
this Agreement) purportedly made by or on behalf of a Guarantor, and the Bank
shall have no duty to verify the identity or authority of the Person giving such
notice.
4.4 Expenses. Each Guarantor agrees unconditionally upon demand to
pay or reimburse to the Bank, and to save the Bank harmless against liability
for the payment of, all reasonable out-of-pocket costs, expenses and
disbursements (including fees and expenses of counsel for the Bank) incurred by
the Bank, (i) in connection with the administration and interpretation of this
Agreement and any other instruments and documents delivered hereunder, (ii)
relating to any amendments, waivers or consents pursuant to the provisions
hereof, (iii) in connection with the enforcement of this Agreement or collection
of amounts due hereunder or thereunder or the proof and allocability of any
claim arising under this Agreement whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or in connection with any
foreclosure, collection or bankruptcy proceedings.
4.5 Prior Understandings. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings and agreements.
4.6 Survival. All representations and warranties of the Guarantors
contained in or made in connection with this Agreement shall survive, and shall
not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Bank, any extension of credit, or any other
event or circumstance whatsoever.
<PAGE>
7
4.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
4.8 Setoff. The Bank shall have the right from time to time, without
notice to any Guarantor, to set off against and apply to such due and payable
amount any obligation of any nature of the Bank to any Guarantor, including but
not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, however evidenced) now or hereafter
maintained by any Guarantor with the Bank. The Bank agrees promptly to notify
the Borrower on behalf of the Guarantors after any such set-off and application,
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. Such right shall be absolute and
unconditional in all circumstances and, without limitation, shall exist whether
or not the Bank shall have given any notice under this Agreement or under such
obligation to such Guarantor, whether such obligation to such Guarantor is
absolute or contingent, matured or unmatured (it being agreed that the Bank may
deem such obligation to be then due and payable at the time of such setoff), and
regardless of the existence or adequacy of any collateral, guaranty or other
direct or indirect security, right or remedy available to the Bank. The rights
of the Bank under this Section are in addition to such other rights and remedies
(including, without limitation, other rights of setoff end banker's lien) which
the Bank may have, and nothing in this Agreement or in any other Loan Document
shall be deemed a waiver of or restriction on the right of setoff or banker's
lien of the Bank. The Guarantors hereby agree that, to the fullest extent
permitted by Law, any affiliate of the Bank and any holder of a participation in
any obligation of any Guarantor under this Agreement, shall have the same rights
of setoff as the Bank as provided in this Section 4.8 (regardless of whether
such affiliate or participant otherwise would be deemed a creditor of such
Guarantor).
4.9 Construction. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect interpretation of
this Agreement in any respect. This Agreement has been fully negotiated between
the applicable parties, each party having the benefit of legal counsel, and
accordingly neither any doctrine of construction of guaranties or suretyship in
favor of the guarantor or surety, nor any doctrine of construction of
ambiguities in agreements or instruments against the party controlling the
drafting thereof, shall apply to this Agreement.
4.10 Successors and Assigns. This Agreement shall be binding upon
each Guarantor, its successors and assigns, and shall inure to the benefit of
and be enforceable by the Bank and its successors and assigns. Without
limitation of the foregoing, the Bank (and any successive assignee or
transferee), from time to time may assign or otherwise transfer all or any
portion of its rights or obligations under the Loan Documents or any other
Guaranteed Obligations, to any other Person and such Guaranteed Obligations
(including, without limitation, any Guaranteed Obligations resulting from
extension of credit by such other Person under or in connection with the Loan
Documents) shall be and remain Guaranteed Obligations entitled to the benefit of
this Agreement, and to the extent of its interest in such Guaranteed Obligations
such other Person shall be vested with all the benefits in respect thereof
granted to the Bank in this Agreement or otherwise.
<PAGE>
8
4.11 Governing Law: Submission to Jurisdiction: Waiver of Jury
Trial.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) Certain Waivers. EACH GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY
PERSON ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT
OCCURRING IN CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY
"RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION SITTING IN ALLEGHENY COUNTY,
PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND
TO THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT IT WILL NOT
BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION,
SUIT OR PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBLIGATION WHICH IT MAY HAVE AT ANY TIME
TO THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN
ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY SUCH RELATED
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND
WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED
LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT
HAVE JURISDICTION OVER THE GUARANTOR;
(iii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY
REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE
GUARANTOR AT THE ADDRESS FOR NOTICES DESCRIBED IN THIS
AGREEMENT, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT
NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF
PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW); AND
(iv) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
(c) Limitation of Liability. TO THE FULLEST EXTENT PERMITTED
BY LAW, NO CLAIM MAY BE MADE BY ANY GUARANTOR OR ANY OTHER PERSON AGAINST THE
BANK, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR AGENT OF THE
BANK FOR ANY SPECIAL, INDIRECT,
<PAGE>
9
CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM ARISING FROM OR
RELATING TO THIS AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION,
OR EVENT OCCURRING IN CONNECTION HEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT
OR ANY OTHER THEORY OF LIABILITY); AND EACH GUARANTOR HEREBY WAIVES, RELEASES
AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT
ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
4.12 Severability; Modification to Conform to Law.
(a) It is the intention of the parties that this Agreement be
enforceable to the fullest extent permissible under applicable Law, but that the
unenforceability (or modification to conform to such Law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
hereof. If any provision in this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement shall, as
to such jurisdiction, be deemed amended to modify or delete, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it or them valid and enforceable to the maximum extent permitted by
applicable Law, without in any manner affecting the validity or enforceability
of such provision or provisions in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
(b) Without limitation of the preceding subsection (a), to the
extent that mandatory applicable Law (including but not limited to applicable
laws pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of any Guarantor's obligations hereunder invalid or
unenforceable, such Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
(c) Notwithstanding anything to the contrary in this Section
4.12 or elsewhere in this Agreement, this Agreement shall be presumptively valid
and enforceable to its full extent in accordance with its terms, as if this
Section 4.12 (and references elsewhere in this Agreement to enforceability to
the fullest extent permitted by Law) were not a part of this Agreement, and in
any related litigation the burden of proof shall be on the party asserting the
invalidity or unenforceability of any provision hereof or asserting any
limitation on any Guarantor's obligations hereunder as to each element of such
assertion.
4.13 Additional Guarantors. At any time after the initial execution
and delivery of this Agreement to the Bank, additional Persons may become
parties to this Agreement and thereby acquire the duties and rights of being
Guarantors hereunder by executing and delivering to the Bank a counterpart
signature page for attachment hereto. No notice of the addition of any Guarantor
shall be required to be given to any pre-existing Guarantor.
4.14 Cash on Hand and Capital: Organizational Documents. Each
Guarantor expressly covenants to the Bank as follows: (i) it will at all times
maintain cash on hand and capital subject to call without any right of set off
or counterclaim in accordance with the provisions of its Agreement of Limited
Partnership in an aggregate amount equal to the sum of (a) the amount
<PAGE>
10
of Guaranteed Obligations for which it is liable; and (b) the amount of all
commitments to make future advances or guarantees pursuant to any agreement to
which the Guarantor is a party or by which it is bound; (ii) it will not amend
in any respect its Agreement of Limited Partnership or other organizational
documents without providing at least thirty (30) calendar days' prior written
notice to the Bank and, in the event such change would be materially adverse to
the Bank as determined by the Bank in its sole discretion obtaining the prior
written consent of the Bank; and (iii) John H. Foster shall at all times control
the management of and shall own a majority of the equity interests of the
general partner of the Guarantor.
4.15 Reports and Information.
(a) Each Guarantor shall furnish or cause to be furnished to
the Bank, in addition to all other information as the Bank may reasonably
request, as soon as available and in any event within one hundred and twenty
(120) days after the end of each fiscal year, financial statements of such
Guarantor consisting of a balance sheet as of the end of such fiscal year, and
related statements of income, partners' equity and cash flows for the fiscal
year then ended, all in reasonable detail and setting forth in comparative form
the financial statements as of the end of and for the preceding fiscal year, and
certified by Price Waterhouse LLP or other independent certified public
accountants of nationally recognized standing reasonably satisfactory to the
Bank except it is acknowledged that the balance sheet of such financial
statements may include securities which, in accordance with GAAP, will be valued
either at their readily ascertainable market value, or in the absence of readily
ascertainable market value, by the good faith estimate of Abbingdon - II
Partners. The certificate or report of accountants shall be free of
qualifications (other than any consistency qualification that may result from a
change in the method used to prepare the financial statements as to which such
accountants concur and except as noted above with respect to securities for
which there is no readily ascertainable market value) and shall not indicate the
occurrence or existence of any event, condition or contingency which would
materially impair the prospect of payment or performance of any covenant,
agreement or duty of such Guarantor under any of the Loan Documents.
(b) Each Guarantor shall furnish or cause to be furnished to
the Bank, in addition to all other information as the Bank may reasonably
request, as soon as available and in any event within forty-five (45) calendar
days after the end of each fiscal quarter in each fiscal year or other times as
the Bank may reasonably request, a statement setting forth the ratio of (a) the
sum of (i) Guaranteed Obligations for which such Guarantor is liable and (ii)
the amount of all commitments of such Guarantor to make future advances or loans
and all other amounts pursuant to any Guaranty for which such Guarantor is
liable, in either case pursuant to any agreement to which such Guarantor is a
party or by which it is bound as of the end of such fiscal quarter; to (b) cash
as of the end of such fiscal quarter and capital subject to call without right
of setoff or counterclaim as of the end of such fiscal quarter, certified by the
Chief Financial Officer of such Guarantor.
(c) Concurrently with the financial statements of each
Guarantor furnished to the Bank pursuant to Section (a) above of this Section
4.15, each Guarantor shall furnish a certificate, signed by the Chief Financial
Officer of such Guarantor, to the effect that, (i) the representations and
warranties of the Guarantor contained in Exhibit B of the Discretionary Line
<PAGE>
11
Agreement and in this Agreement are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time) and (ii) the Guarantor
has performed and complied with all applicable covenants contained in Exhibits C
and D of the Discretionary Line Agreement and this Agreement.
4.16 Nonrecourse. No partner of any Guarantor or any partner of a
general partner of any Guarantor shall have any personal liability for payment
of the Guaranteed Obligations, and in any action or suit to collect the
Guaranteed Obligations, the Bank shall not seek any in personam judgment against
any partner of any Guarantor or any partner of a general partner of any
Guarantor or any judgment for a deficiency against any such partner. Nothing
contained in this Section shall be construed to impair the validity of the
Guaranteed Obligations or this Agreement or affect or impair in any way the
right of the Bank to exercise its rights and remedies under the Discretionary
Line Agreement, the Note and any other Loan Documents in accordance with their
terms.
4.17 Limitation of Liability. Notwithstanding anything to the
contrary contained herein, the liability of Abbingdon Partners - II as surety
and guarantor hereunder shall be limited to sixty percent (60%) of the
Guaranteed Obligations and the liability of Abbingdon Partners - III as surety
and guarantor hereunder shall be limited to forty percent (40%) of the
Guaranteed Obligations.
[INTENTIONALLY LEFT BLANK]
<PAGE>
12
[SIGNATURE PAGE TO THE
GUARANTY AND SURETYSHIP AGREEMENT
(PARTNERSHIP GUARANTY)]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered as of the date first above written.
GUARANTORS:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - II
By: Abbingdon- II Partners, general
partner of Abbingdon Venture
Partners Limited Partnership - II
By: /s/ Stephen F. Nagy
___________________________
Stephen F. Nagy,
general partner
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP - III
By: Abbingdon - II Partners,
general partner of Abbingdon
Venture Partners Limited
Partnership - III
By: /s/ Stephen F. Nagy
___________________________
Stephen F. Nagy
general partner
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE MAKER THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO A RIGHT OF OFFSET AS
PROVIDED FOR HEREIN.
6.0% Convertible Subordinated Promissory Note
$2,500,000 King of Prussia,
October 17, 1997 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, CULTURALACCESSWORLDWIDE, INC., a
Delaware corporation, and PM ACQUISITION CORP., a Delaware corporation
(collectively, the "Maker"), hereby promise to pay, on a joint and several
basis, to the order of PHOENIX MARKETING GROUP, INC., a New Jersey corporation
(the "Payee"), such payments to be made by wire transfer to an account
designated in writing to the Maker by the Payee, the principal sum of Two
Million Five Hundred Thousand Dollars ($2,500,000), in lawful money of the
United States of America or such lesser amount as may be payable due to offsets,
if any, as provided for herein.
The principal amount hereof shall be payable on December 31, 2000
unless earlier converted to shares of the Common Stock (as defined in Section
2(a) below), pursuant to Section 2 below.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money, payable semi-annually on April 30 and
October 31 of each year, commencing on April 30, 1998 and ending with the final
payment of the principal due hereunder, such payments to be made by wire
transfer to an account designated in writing to the Maker by the Payee, from the
date hereof until payment of the principal amount hereof has been made in full,
at a fixed rate of six percent (6.0%) per annum.
<PAGE>
2
Section 2. Conversion.
(a) Effective with the closing of the initial sale (the "Effective
Date") by the Maker to the public through an underwritten public offering of
shares of Common Stock, pursuant to a registration statement filed under the
Securities Act of 1933 (the "Securities Act"), as amended, other than a
registration statement covering securities of the Maker to be issued pursuant to
an employee benefit plan (such offering, an "IPO"), the principal amount hereof
shall be automatically converted, without any further action of the Maker or the
Payee, into such number of shares of Common Stock (as hereinafter defined) as
are determined in accordance with paragraph (b) hereof and this Note shall for
all purposes be deemed cancelled. Any outstanding and unpaid interest on the
principal amount of this Note accrued through the Effective Date shall be paid
in cash at the time of delivery of certificates representing the Common Stock
into which this Note shall be automatically converted. Promptly after the
Effective Date, the Payee shall surrender this Note to the Maker at the Maker's
office and, upon such surrender, the Maker shall issue and deliver to the Payee
within five (5) business days after the surrender of this Note pursuant hereto,
one or more certificates evidencing the shares of Common Stock into which this
Note shall be converted. All shares of Common Stock issued upon conversion shall
be deemed issued as of the close of business on the Effective Date. The term
"Common Stock" shall mean the class of stock which, at the date of execution of
this Note, is designated voting common stock, par value $.01, of the Maker. In
case, by reason of the provisions of paragraph (c) below, this Note shall be
convertible into other shares of stock, other securities, property or cash of
the Maker or any other corporation, any reference herein to the conversion of
this Note shall be deemed to refer to and include conversion of this Note into
such other shares, securities, property, or cash.
(b) In the event that on the Effective Date the Market Price (as
hereinafter defined) of the Common Stock is equal to or greater than $15.00,
upon conversion of this Note the Payee shall be entitled to receive that number
of shares of Common Stock equal to (x) the principal amount of this Note
outstanding on the Effective Date divided by (y) $15.00. In the event that on
the Effective Date the Market Price of the Common Stock is less than $15.00,
upon conversion of this Note the Payee shall be entitled to receive that number
of shares of Common Stock equal to (x) the principal amount of this Note
outstanding on the Effective Date divided by (y) the Market Price. For
<PAGE>
3
purposes hereof, "Market Price" shall mean the price per share to the public in
the IPO of the Common Stock.
(c) The conversion terms shall be subject to adjustment from time to
time upon the occurrence of certain events while this Note remains outstanding,
as follows:
(i) If the Maker at any time shall consolidate with or
merge into or sell or convey all or substantially all of its assets to any
other corporation, this Note shall thereafter be convertible into such
kind and amount of shares of stock, other securities, property, cash or
any combination thereof receivable upon such consolidation, merger, sale
or conveyance by a holder of the number of shares of Common Stock into
which this Note would have been converted had it been converted
immediately prior to such consolidation, merger, sale, or conveyance,
subject to adjustments equivalent to the adjustments provided in this
Note. In the event of a consolidation or merger of another corporation
into the Maker in which the Maker is the continuing corporation and in
which there is a reclassification or change (including a change to the
right to receive, or a change into, as the case may be, shares of stock,
other securities, property, cash or any combination thereof) of the shares
of Common Stock, this Note shall thereafter be convertible solely into the
kind and amount of shares of stock, other securities, property, cash or
any combination thereof receivable upon such consolidation or merger by a
holder of the number of shares of Common Stock into which this Note would
have been converted had it been converted immediately prior to such
consolidation or merger. The foregoing provisions shall similarly apply to
successive transactions of a similar nature by any such successor or
purchaser. Without limiting the generality of the foregoing, the
adjustment provisions of this Note shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or
conveyance.
(ii) In case the Maker shall (i) declare a dividend or make a
distribution on the outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares, the
Payee after such time shall be entitled to receive upon surrender hereof
for conversion the number of shares of Common Stock which the Payee would
have owned or been entitled
<PAGE>
4
to receive had this Note been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event specified
above shall occur. All calculations under this paragraph shall be made to
the nearer cent or to the nearer one-hundredth of a share, as the case may
be.
(d) The Maker agrees that its issuance of this Note shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note. During the period within which
this Note may be converted into shares of Common Stock, the Maker shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of this Note in accordance with the terms hereof.
(e) The issuance of certificates for shares of Common Stock upon the
conversion of this Note shall be made without charge for any tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Payee; provided, however,
that the Maker shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Payee.
(f) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon the conversion of this Note. If the
conversion of this Note results in a fraction of a share, an amount equal to
such fraction multiplied by the then current market value of the Common Stock
shall be paid in cash to the Payee by the Maker on or prior to the conversion of
this Note.
(g) The shares of Common Stock issuable by the Maker upon the
conversion of this Note shall be issued without compliance with the registration
requirements of the Securities Act and the Payee may be unable to sell its
shares of Common Stock except (i) pursuant to an effective registration
statement covering the Common Stock pursuant to the Securities Act, (ii) in a
bona fide private placement to a purchaser who shall be subject to the same
restrictions on any resale or (iii) subject to the restrictions contained in
Rule 144 under the Securities Act
(h) Each certificate representing shares of Common Stock of the
Maker issued upon conversion of this Note shall, if applicable, contain upon its
face or upon the reverse side thereof a legend to the following effect:
<PAGE>
5
"This Certificate represents securities which are restricted and
which are subject to certain terms and conditions of a Shareholder
Agreement dated October ___, 1997 by and between Phoenix Marketing
Group, Inc. and the Corporation (a copy of which is on file at the
principal office of the Corporation)."
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of the Act."
Section 3. Subordination.
Section 3.1 Indebtedness Subordinated to Senior Debt. The Maker
hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that, to the extent
and in the manner hereinafter set forth in this Section 3, the indebtedness of
the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt. Defined
terms used herein shall have the meanings set forth in Section 6 hereof, unless
otherwise specified or defined herein.
This Section 3 shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
THIS NOTE IS SECURED BY, AND IS ENTITLED TO THE BENEFITS OF, A
SECURITY AGREEMENT AS SET FORTH IN SECTION 10 OF THIS NOTE. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 3, UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT (AS DEFINED IN THE SECURITY AGREEMENT), THE HOLDER OF THIS NOTE
SHALL HAVE THE RIGHT TO PURSUE IMMEDIATELY (WITHOUT REGARD TO SECTION 3 OF THIS
NOTE) THE REMEDIES PROVIDED IN THE SECURITY AGREEMENT, TO REALIZE UPON THE
COLLATERAL (AS DEFINED IN THE SECURITY AGREEMENT) AND TO APPLY THE PROCEEDS OF
THE COLLATERAL TO THE PAYMENT OF ANY OUTSTANDING INDEBTEDNESS UNDER THIS NOTE.
IN THE EVENT THAT THE REALIZED VALUE OF THE COLLATERAL IS INSUFFICIENT TO PAY IN
FULL THE OUTSTANDING INDEBTEDNESS UNDER THIS NOTE, THE PROVISIONS OF THIS
SECTION 3 SHALL APPLY TO THE COLLECTION OF THE AMOUNT OF SUCH DEFICIENCY AND ANY
REMAINING
<PAGE>
6
LIABILITIES OF THE MAKER TO THE HOLDER OF THIS NOTE IN EXCESS OF THE REALIZED
VALUE OF THE COLLATERAL SHALL BE SUBJECT TO THE PROVISIONS OF THIS SECTION 3.
Section 3.2 Payment Permitted if No Default. Nothing contained in
this Section 3 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 3.3,
3.4 and 3.5, other than as provided in Section 3.5, from making scheduled
payments at any time of principal of or interest on this Note.
Section 3.3 Payment Over of Proceeds Upon Dissolution; Etc. Upon any
payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due (whether or not an event of default has occurred under the Senior
Debt or the maturity of such Senior Debt has been declared due and payable prior
to the date on which it would otherwise have become due and payable) on or in
respect of all Senior Debt before the holder of this Note is entitled to receive
any payment on account of principal of, interest on or otherwise in respect of
this Note, and to that end the holders of Senior Debt shall be entitled to
receive, for application to the payment thereof, any payment or distribution of
any kind or character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Maker being subordinated to the
payment of this Note, which may be payable or deliverable in respect of this
Note in any such case, proceeding, dissolution, liquidation, reorganization or
other winding-up or event.
If, notwithstanding the foregoing provisions of this Section 3, the
holder of this Note shall have received any payment or distribution of assets of
the Maker of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other
<PAGE>
7
Indebtedness of the Maker being subordinated to the payment of this Note, before
all Senior Debt is indefeasibly paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Maker for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full.
For purposes of this Section 3 only, the words "cash, property or
securities" shall not be deemed to include securities of the Maker as
reorganized or readjusted, or securities of the Maker or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinated at least to the extent provided in this Section 3 with respect to
this Note to the payment of all Senior Debt which may at the time be
outstanding.
Section 3.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of six (6) months after the occurrence
of any default under this Note which is a ground for acceleration of this Note
(the date of such default is hereinafter referred to as the "Sub-Debt Default
Date"), any suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action to foreclose or realize
upon, prior to the 183rd day following the Sub-Debt Default Date, any security
interest, lien or encumbrance on any property of the Maker pursuant to any
security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result in a
payment in contravention of any provision of this Section 3 until the Senior
Debt shall have been indefeasibly paid in cash in full, and any such security
agreements, pledge agreements, mortgages, lien instruments or other documents
shall contain the subordination provisions set forth in this Section 3.
If this Note is declared due and payable before its stated maturity,
then and in such event the holders of the Senior Debt outstanding at the time
this Note so becomes due and payable shall be entitled to receive indefeasible
payment in cash in full of all amounts due or to become due
<PAGE>
8
on or in respect of all such Senior Debt (whether or not an event of default has
occurred thereunder or the maturity of such Senior Debt has been declared due
and payable prior to the date on which it would otherwise have become due and
payable) before the holder of this Note is entitled to receive any payment
(including any payment which may be payable by reason of the payment of any
other Indebtedness of the Maker being subordinate to or pari passu with the
payment of this Note by the Maker), on account of the principal of or interest
hereon.
If, notwithstanding the foregoing, the Maker shall make any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 3, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
The provisions of this Section 3.4 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
Section 3.5 No Payment When Senior Debt in Default. In the event any
default on any Senior Debt shall have occurred and be continuing which permits
(or with notice or lapse of time, or both, would permit) the holders of such
Senior Debt (or a trustee or agent on behalf of the holders thereof) to declare
such Senior Debt due and payable prior to the date on which it would otherwise
have become due and payable (whether or not such holders have accelerated such
Senior Debt) or such a default would result from or exist after giving effect to
a payment with respect to this Note, and if the holder of any Senior Debt gives
written notice of such default to the holder of this Note and designates the
same as a "Senior Default Notice" hereunder, unless and until such default shall
have been cured or waived or shall have ceased to exist and any such
acceleration shall have been rescinded or annulled, or if any judicial
proceeding shall be pending with respect to any such default in payment or other
default, no payment (including any payment which may be payable by reason of the
payment of any other Indebtedness of the Maker being subordinated to or pari
passu with the payment of this Note) shall be made by the Maker on account of
principal of, interest on or otherwise in respect of this Note or on
<PAGE>
9
account of the purchase or other acquisition of subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment to
the holder of this Note prohibited by the foregoing provisions of this Section
3, such payment shall be paid over and delivered forthwith to the holders of the
Senior Debt but only to the extent that, upon notice from the holder of this
Note to the holders of the Senior Debt that such prohibited payment has been
made, the holders of the Senior Debt notify the holder of this Note of the
amounts then due and owing on the Senior Debt, if any, and only such amount so
notified to the holder of this Note shall be paid to the holders of Senior Debt.
The provisions of this Section 3.5 shall not apply to any payment
with respect to which Section 3.3 of this Note would be applicable.
Section 3.6 Subrogation to Rights of Holders of Senior Debt. Subject
to the indefeasible payment in full in cash of all Senior Debt, the holder of
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Section 3 to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Maker applicable to the
Senior Debt until the principal of and interest on this Note shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
holder of this Note would be entitled except for the provisions of this Section
3, and no payments over pursuant to the provisions of this Section 3 to the
holders of Senior Debt by the holder of this Note, shall, as between the Maker,
its creditors other than holders of Senior Debt, and the holder of this Note, be
deemed to be a payment or distribution by the Maker of or on account of this
Note.
Section 3.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 3 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
3 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its
<PAGE>
10
terms and which, subject to the rights under this Note of the holders of Senior
Debt, is intended to rank equally with all other general obligations of the
Maker, or is intended to or shall affect the relative rights against the Maker
of the holder of this Note and creditors of the Maker other than the holders of
Senior Debt, nor shall anything herein or therein prevent the holder of this
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if any, under this Section 3 of
the holders of Senior Debt to receive cash, property or securities otherwise
payable or deliverable to the holder of this Note.
Section 3.8 Proof of Claim. If the holder of this Note does not file
a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 3.9 No Waiver of Subordination Provisions. No right of any
current or future holder of any Senior Debt to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Maker or by any act or failure to act, in good
faith, by any such Senior Debt holder, or by any non-compliance by the Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 3 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment
<PAGE>
11
or extend the time of payment, renew or alter, Senior Debt, or otherwise amend
or supplement in any manner Senior Debt or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any person liable in any manner for the
payment or collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Maker and any other person.
Section 3.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Maker, the
holder of this Note shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other Indebtedness of the Maker, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Note.
Section 3.11 Miscellaneous.
(a) Notices. All communications provided for hereunder shall
be by telephone, in person or in writing (including telex or facsimile
communication) and shall be delivered or sent by telex or facsimile to the
respective party at the addresses and numbers set forth below:
If to the holder of this Note:
Phoenix Marketing Group, Inc.
One Phoenix Drive
Lincoln Park, NJ 07035
Attention: President
Telecopy No.: (201) 633-8707
Telephone No.: (800) 633-8900
<PAGE>
12
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt, to such addresses and such
telephone and telecopier numbers as are hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned, provided that
written confirmation must be provided the next day by letter, facsimile or
telex.
(b) Severability of Provisions; Captions. Any provision of
this Section 3 which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Section.
Section 4. Optional Prepayment. The Maker may at any time after six
months from the date hereof with the prior written consent of the holders of
Senior Debt so long as any Senior Debt is outstanding, upon 90 days prior
written notice to the Payee, prepay the whole or any part of the unpaid
principal amount of this Note, without penalty or premium, but with interest
accrued to the date fixed for prepayment. Notices of prepayment shall be given
by the Maker by mail and shall be mailed to the holder of this Note not less
than thirty (30) days from the date fixed for prepayment. In case this Note is
to be prepaid in part only, such notice shall specify the principal amount
hereof to be prepaid, and shall state that this Note shall be submitted to the
Maker for notation hereon of the principal amount hereof to be prepaid. Upon
giving of notice of prepayment as aforesaid, this Note or portion hereof so
specified for prepayment shall on the prepayment date specified in such notice
become due and payable, and from and after the prepayment date so specified
(unless the Maker shall default in making such prepayment), interest on this
Note or portion hereof so specified for prepayment shall
<PAGE>
13
cease to accrue and, on presentation and surrender hereof to the Maker for
cancellation in the case of this Note being prepaid as a whole, or for notation
hereon of the payment of the portion of the principal amount hereof being
prepaid in the case of a prepayment of this Note in part only, this Note or
portion hereof so specified for prepayment shall be paid by the Maker at the
prepayment price aforesaid. Any prepayment of this Note in part shall be applied
to the installments of principal payable hereunder in the order of maturity
thereof.
Section 5. Events of Default and Remedies. Subject to Section 3
hereof, the holder of this Note shall have the right, without demand or notice,
to accelerate this Note and to declare the entire unpaid balance hereof and the
obligations evidenced hereby immediately due and payable and to seek and obtain
payment of this Note upon the occurrence of any of the following events of
default: (a) the Maker fails to pay the principal payable under this Note when
due, or (b) the Maker fails to pay any payment of interest payable under this
Note within ten (10) days after receipt of written notice from the holder of
this Note to the effect that such interest has not been paid when due, or (c)
the Maker admits in writing its inability to pay its debts generally as they
become due, files a petition in bankruptcy or a petition to take advantage of
any bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or, on a petition in bankruptcy
filed against it, is adjudicated a bankrupt, which judgment, order or decree
shall not be appealed within the permitted time period from the date of entry
thereof and subsequently vacated, or (d) an event of default shall have occurred
and be continuing under the 6.0% Redeemable Subordinated Promissory Note of the
Maker to the Payee of even date herewith. Upon such declaration by the holder of
this Note, the obligations evidenced by this Note shall be immediately due and
payable.
In the event of any event of default hereunder, the Maker agrees to
pay to the holder of this Note all expenses incurred by such holder, including,
without limitation, reasonable fees and disbursements of counsel, incurred by
such holder in the enforcement and collection of this Note.
Section 6. Definitions. As used herein, the following terms shall
have the following respective meanings:
<PAGE>
14
"Indebtedness" shall mean as to any person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including, without limitation, forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of any person guaranteeing
or in effect guaranteeing any liability or obligation of any other person in any
manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any agreement to indemnify or hold harmless any
other person, any performance bond or other suretyship arrangement and any other
form of assurance against loss, except endorsement of negotiable or other
instruments for deposit or collection in the ordinary course of business.
"Post-Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including, but not limited to, Post-
Petition Interest), unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with this Note. Senior Debt shall continue to constitute Senior Debt
for all purposes and the provisions of Section 3 of this Note shall continue to
apply to such Senior Debt, notwithstanding the fact that such Senior Debt, or
any claim in respect thereof, shall be disallowed, avoided, subordinated or
determined to be a fraudulent conveyance pursuant to the provisions of the
United States Bankruptcy
<PAGE>
15
Code or other applicable Federal, State or local law. Senior Debt shall not
include any Indebtedness of the Maker to Abbingdon Venture Partners Limited
Partnership-II, a Delaware limited partnership, or Abbingdon Venture Partners
Limited Partnership-III, a Delaware limited partnership, the
majority shareholders of the Maker.
Section 7. Right of Offset. Prior to the Effective Date, the
principal amount of and interest accrued on this Note may be offset at any time
or from time to time to the extent of the full amount of any Purchaser's Damages
(as defined in the Agreement of Purchase and Sale dated as of October 1, 1997,
by and among the Maker, the Payee and the other parties thereto (the "Purchase
Agreement")), except for any Purchaser's Damages arising from a breach of
Section X of the Purchase Agreement. The Maker shall have the right to offset
the full amount of any such Purchaser's Damages by reducing the amount of the
principal of and accrued but unpaid interest on this Note by the amount of such
Purchaser's Damages. Interest after the date of any offset shall accrue on the
amount of principal which remains after such offset. The exercise of the right
of offset provided for in this Section 7 is not an exclusive remedy, and the
provisions of this Section 7 shall not prevent the Maker from exercising all
remedies otherwise permitted under applicable law, the terms of the Purchase
Agreement or the terms of this Note.
Section 8. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
<PAGE>
Section 9. Severability. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
Section 10. Security Agreement. This Note is secured by, and is
entitled to the benefits of, a security agreement dated the date hereof executed
by PM Acquisition Corp., a Delaware corporation, in favor of the Payee.
CULTURALACCESSWORLDWIDE, INC.
By
-------------------------
Name:
Title:
PM ACQUISITION CORP.
By
-------------------------
Name:
Title:
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT
MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE MAKER THAT
SUCH REGISTRATION IS NOT REQUIRED.
6.0% Redeemable Subordinated Promissory Note
$2,500,000 King of Prussia,
October 17, 1997 Pennsylvania
Section 1. General. FOR VALUE RECEIVED, CULTURALACCESSWORLDWIDE, INC., a
Delaware corporation, and PM ACQUISITION CORP., a Delaware corporation
(collectively, the "Maker") hereby promise to pay on a joint and several basis
to the order of PHOENIX MARKETING GROUP, INC., a New Jersey corporation (the
"Payee"), such payments to be made by wire transfer to an account designated in
writing to the Maker by the Payee, the principal sum of Two Million Five Hundred
Thousand Dollars ($2,500,000), in lawful money of the United States of America.
The principal amount hereof shall be payable on the earlier
(such date, the "Payment Date") of (a) ten (10) days after the closing of the
initial sale by the Maker to the public through an underwritten public offering
of shares of common stock $.01 par value, of the Maker, pursuant to a
registration statement filed under the Securities Act of 1933, as amended, other
than a registration statement covering securities of the Maker to be issued
pursuant to an employee benefit plan and (b) December 31, 1998.
The Maker hereby also promises to pay interest on the unpaid
principal amount hereof in like money, from the date hereof until payment of the
principal amount hereof has been made in full, at a fixed rate of six percent
(6.0%) per annum, payable on the Payment Date such payments to be made by wire
transfer to an account designated in writing to the Maker by the Payee.
<PAGE>
2
Section 2. Subordination.
Section 2.1 Indebtedness Subordinated to Senior Debt. The
Maker hereby covenants and agrees, and the holder of this Note, by such holder's
acceptance hereof, hereby consents, covenants and agrees, that, to the extent
and in the manner hereinafter set forth in this Section 2, the indebtedness of
the Maker for or on account of principal and interest on this Note, and the
payment of the principal of and interest (whether by redemption or otherwise) on
this Note, is hereby expressly made subordinate and subject in right of payment
to the prior indefeasible payment in full in cash of all Senior Debt. Defined
terms used herein shall have the meanings set forth in Section 5 hereof, unless
otherwise specified or defined herein.
This Section 2 shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and they or each of them may enforce such
provisions.
THIS NOTE IS SECURED BY, AND IS ENTITLED TO THE BENEFITS OF, A
SECURITY AGREEMENT AS SET FORTH IN SECTION 8 OF THIS NOTE. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 2, UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT (AS DEFINED IN THE SECURITY AGREEMENT), THE HOLDER OF THIS NOTE
SHALL HAVE THE RIGHT TO PURSUE IMMEDIATELY (WITHOUT REGARD TO SECTION 2 OF THIS
NOTE) THE REMEDIES PROVIDED IN THE SECURITY AGREEMENT, TO REALIZE UPON THE
COLLATERAL (AS DEFINED IN THE SECURITY AGREEMENT) AND TO APPLY THE PROCEEDS OF
THE COLLATERAL TO THE PAYMENT OF ANY OUTSTANDING INDEBTEDNESS UNDER THIS NOTE.
IN THE EVENT THAT THE REALIZED VALUE OF THE COLLATERAL IS INSUFFICIENT TO PAY IN
FULL THE OUTSTANDING INDEBTEDNESS UNDER THIS NOTE, THE PROVISIONS OF THIS
SECTION 2 SHALL APPLY TO THE COLLECTION OF THE AMOUNT OF SUCH DEFICIENCY AND ANY
REMAINING LIABILITIES OF THE MAKER TO THE HOLDER OF THIS NOTE IN EXCESS OF THE
REALIZED VALUE OF THE COLLATERAL SHALL BE SUBJECT TO THE PROVISIONS OF THIS
SECTION 2.
Section 2.2 Payment Permitted if No Default. Nothing contained
in this Section 2 or elsewhere in this Note shall prevent the Maker, at any time
except during the pendency of any of the conditions described in Sections 2.3,
2.4 and 2.5, other than as provided in Section 2.5, from making scheduled
payments at any time of principal of or interest on this Note.
<PAGE>
3
Section 2.3 Payment Over of Proceeds Upon Dissolution; Etc.
Upon any payment or distribution of assets of the Maker in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, total or
partial liquidation, winding-up, reorganization or other similar case or
proceeding in connection therewith, relative to the Maker or to its creditors,
or to its assets, whether voluntary or involuntary, or (b) any liquidation,
dissolution or other winding-up of the Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshalling of assets and/or liabilities
of the Maker, then and in any such event the holders of Senior Debt shall be
entitled to receive indefeasible payment in full in cash of all amounts due or
to become due (whether or not an event of default has occurred under the Senior
Debt or the maturity of such Senior Debt has been declared due and payable prior
to the date on which it would otherwise have become due and payable) on or in
respect of all Senior Debt before the holder of this Note is entitled to receive
any payment on account of principal of, interest on or otherwise in respect of
this Note, and to that end the holders of Senior Debt shall be entitled to
receive, for application to the payment thereof, any payment or distribution of
any kind or character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Maker being subordinated to the
payment of this Note, which may be payable or deliverable in respect of this
Note in any such case, proceeding, dissolution, liquidation, reorganization or
other winding-up or event.
If, notwithstanding the foregoing provisions of this Section
2, the holder of this Note shall have received any payment or distribution of
assets of the Maker of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Maker
being subordinated to the payment of this Note, before all Senior Debt is
indefeasibly paid in full, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other person making
payment or distribution of assets of the Maker for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all Senior Debt
in full.
For purposes of this Section 2 only, the words "cash, property
or securities" shall not be deemed to
<PAGE>
4
include securities of the Maker as reorganized or readjusted, or securities of
the Maker or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinated at least to the extent
provided in this Section 2 with respect to this Note to the payment of all
Senior Debt which may at the time be outstanding.
Section 2.4 Standstill; Prior Payment of Senior Debt Upon
Acceleration of Subordinated Indebtedness. Notwithstanding any provision herein
or in any other writing or agreement to the contrary, the holder of this Note
shall not, unless all Senior Debt shall have been declared due and payable by
acceleration of maturity pursuant to the terms thereof, without the prior
written consent of the holders of the Senior Debt, commence, prosecute or
participate in, prior to the expiration of six (6) months after the occurrence
of any default under this Note which is a ground for acceleration of this Note
(the date of such default is hereinafter referred to as the "Sub-Debt Default
Date"), any suit, action or proceeding against the Maker with respect to this
Note, or assert, collect or enforce, or take any action to foreclose or realize
upon, prior to the 183rd day following the Sub-Debt Default Date, any security
interest, lien or encumbrance on any property of the Maker pursuant to any
security agreements, pledge agreements, mortgages, lien instruments or other
documents which secure this Note or take any action which might result in a
payment in contravention of any provision of this Section 2 until the Senior
Debt shall have been indefeasibly paid in cash in full, and any such security
agreements, pledge agreements, mortgages, lien instruments or other documents
shall contain the subordination provisions set forth in this Section 2.
If this Note is declared due and payable before its stated
maturity, then and in such event the holders of the Senior Debt outstanding at
the time this Note so becomes due and payable shall be entitled to receive
indefeasible payment in cash in full of all amounts due or to become due on or
in respect of all such Senior Debt (whether or not an event of default has
occurred thereunder or the maturity of such Senior Debt has been declared due
and payable prior to the date on which it would otherwise have become due and
payable) before the holder of this Note is entitled to receive any payment
(including any payment which may be payable by reason of the payment of any
other Indebtedness of the Maker being subordinate to or pari passu with the
payment of this Note by the Maker), on account of the principal of or interest
hereon.
<PAGE>
5
If, notwithstanding the foregoing, the Maker shall make any
payment to the holder of this Note prohibited by the foregoing provisions of
this Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and only such
amount so notified to the holder of this Note shall be paid to the holders of
the Senior Debt.
The provisions of this Section 2.4 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.5 No Payment When Senior Debt in Default. In the
event any default on any Senior Debt shall have occurred and be continuing which
permits (or with notice or lapse of time, or both, would permit) the holders of
such Senior Debt (or a trustee or agent on behalf of the holders thereof) to
declare such Senior Debt due and payable prior to the date on which it would
otherwise have become due and payable (whether or not such holders have
accelerated such Senior Debt) or such a default would result from or exist after
giving effect to a payment with respect to this Note, and if the holder of any
Senior Debt gives written notice of such default to the holder of this Note and
designates the same as a "Senior Default Notice" hereunder, unless and until
such default shall have been cured or waived or shall have ceased to exist and
any such acceleration shall have been rescinded or annulled, or if any judicial
proceeding shall be pending with respect to any such default in payment or other
default, no payment (including any payment which may be payable by reason of the
payment of any other Indebtedness of the Maker being subordinated to or pari
passu with the payment of this Note) shall be made by the Maker on account of
principal of, interest on or otherwise in respect of this Note or on account of
the purchase or other acquisition of subordinated Indebtedness.
If, notwithstanding the foregoing, the Maker makes any payment
to the holder of this Note prohibited by the foregoing provisions of this
Section 2, such payment shall be paid over and delivered forthwith to the
holders of the Senior Debt but only to the extent that, upon notice from the
holder of this Note to the holders of the Senior Debt that such prohibited
payment has been made, the holders of the Senior Debt notify the holder of this
Note of the amounts then due and owing on the Senior Debt, if any, and
<PAGE>
6
only such amount so notified to the holder of this Note shall be paid to the
holders of Senior Debt.
The provisions of this Section 2.5 shall not apply to any
payment with respect to which Section 2.3 of this Note would be applicable.
Section 2.6 Subrogation to Rights of Holders of Senior Debt.
Subject to the indefeasible payment in full in cash of all Senior Debt, the
holder of this Note shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt pursuant to the provisions
of this Section 2 to the rights of the holders of such Senior Debt to receive
payments or distributions of cash, property or securities of the Maker
applicable to the Senior Debt until the principal of and interest on this Note
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holder of this Note would be entitled except for the
provisions of this Section 2, and no payments over pursuant to the provisions of
this Section 2 to the holders of Senior Debt by the holder of this Note, shall,
as between the Maker, its creditors other than holders of Senior Debt, and the
holder of this Note, be deemed to be a payment or distribution by the Maker of
or on account of this Note.
Section 2.7 Provisions Solely to Define Relative Rights. The
provisions of this Section 2 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of Senior Debt, on the other hand. Nothing contained in this Section
2 or elsewhere in this Note is intended to or shall impair, as between the
Maker, its creditors other than the holders of Senior Debt and the holder of
this Note, the obligation of the Maker, which is absolute and unconditional, to
pay to the holder of this Note the principal of and interest on this Note as and
when the same shall become due and payable in accordance with its terms and
which, subject to the rights under this Note of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Maker, or is
intended to or shall affect the relative rights against the Maker of the holder
of this Note and creditors of the Maker other than the holders of Senior Debt,
nor shall anything herein or therein prevent the holder of this Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Note, subject to the rights, if any, under this Section 2 of the holders of
Senior Debt to receive cash, property or securities otherwise payable or
deliverable to the holder of this Note.
<PAGE>
7
Section 2.8 Proof of Claim. If the holder of this Note does
not file a proper proof of claim or debt in the form required in any bankruptcy,
insolvency or receivership proceeding prior to 30 days before the expiration of
the time to file such proof of claim or debt, then the holders of Senior Debt
are hereby authorized to file an appropriate proof of claim or debt for and on
behalf of the holder of this Note and such holder hereby appoints the holders of
Senior Debt or their representative or representatives the attorney-in-fact of
such holder for such purposes.
Section 2.9 No Waiver of Subordination Provisions. No right of
any current or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Maker or by any act or failure to act,
in good faith, by any such Senior Debt holder, or by any non-compliance by the
Maker with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such Senior Debt holder may have or be otherwise charged
with. The holder of this Note by such holder's acceptance hereof agrees that, so
long as there is indebtedness outstanding under this Note, the holder of this
Note shall not agree to compromise, release, forgive or otherwise discharge the
obligations of the Maker with respect to this Note without the prior written
consent of the holders of the Senior Debt.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the holder of this Note, without incurring
responsibility to the holder of this Note and without impairing or releasing the
subordination provided in this Section 2 or the obligations hereunder of the
holder of this Note to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment, renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the Maker
and any other person.
Section 2.10 Reliance on Judicial Order or
Certificate of Liquidating Agent. Upon any payment or
<PAGE>
8
distribution of assets of the Maker, the holder of this Note shall be entitled
to rely upon any order or decree entered by any court of competent jurisdiction
in which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the holder of this Note, for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other Indebtedness of the
Maker, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Note.
Section 2.11 Miscellaneous.
(a) Notices. All communications provided
for hereunder shall be by telephone, in person or in writing (including telex or
facsimile communication) and shall be delivered or sent by telex or facsimile to
the respective party at the addresses and numbers set forth below:
If to the holder of this Note:
Phoenix Marketing Group, Inc.
One Phoenix Drive
Lincoln Park, NJ 07035
Attention: President
Telecopy No.: (201) 633-8707
Telephone No.: (800) 633-8900
If to the Maker:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
If to the holders of the Senior Debt, to such addresses and
such telephone and telecopier numbers as are hereafter provided to the holder,
or to such other addresses and numbers as any party hereto shall specify to the
others in writing. All notices shall be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
delivered and (c) in the case of telephone, when telephoned,
<PAGE>
9
provided that written confirmation must be provided the next day by letter,
facsimile or telex.
(b) Severability of Provisions; Captions.
Any provision of this Section 2 which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. The several captions to sections and subsections
herein are inserted for convenience only and shall be ignored in interpreting
the provisions of this Section.
Section 3. Optional Prepayment. The Maker may at any time with
the prior written consent of the holders of Senior Debt so long as any Senior
Debt is outstanding, prepay the whole or any part of the unpaid principal amount
of this Note, without penalty or premium, but with interest accrued to the date
fixed for prepayment. Notices of prepayment shall be given by the Maker by mail
and shall be mailed to the holder of this Note not less than thirty (30) days
from the date fixed for prepayment. In case this Note is to be prepaid in part
only, such notice shall specify the principal amount hereof to be prepaid, and
shall state that this Note shall be submitted to the Maker for notation hereon
of the principal amount hereof to be prepaid. Upon giving of notice of
prepayment as aforesaid, this Note or portion hereof so specified for prepayment
shall on the prepayment date specified in such notice become due and payable,
and from and after the prepayment date so specified (unless the Maker shall
default in making such prepayment), interest on this Note or portion hereof so
specified for prepayment shall cease to accrue and, on presentation and
surrender hereof to the Maker for cancellation in the case of this Note being
prepaid as a whole, or for notation hereon of the payment of the portion of the
principal amount hereof being prepaid in the case of a prepayment of this Note
in part only, this Note or portion hereof so specified for prepayment shall be
paid by the Maker at the prepayment price aforesaid. Any prepayment of this Note
in part shall be applied to the installments of principal payable hereunder in
the order of maturity thereof.
Section 4. Events of Default and Remedies. Subject to Section
2 hereof, the holder of this Note shall have the right, without demand or
notice, to accelerate this Note and to declare the entire unpaid balance hereof
and the obligations evidenced hereby immediately due and payable and to seek and
obtain payment of this Note upon the occurrence of any of the following events
of default: (a) the Maker
<PAGE>
10
fails to pay the principal payable under this Note or interest thereon when due,
or (b) the Maker admits in writing its inability to pay its debts generally as
they become due, files a petition in bankruptcy or a petition to take advantage
of any bankruptcy, reorganization or insolvency act, makes an assignment for the
benefit of creditors, or consents to the appointment of a receiver for itself or
for all or substantially all of its property or, on a petition in bankruptcy
filed against it, is adjudicated a bankrupt, which judgment, order or decree
shall not be appealed within the permitted time period from the date of entry
thereof and subsequently vacated, or (c) an event of default shall have occurred
and be continuing under the 6.0% Convertible Subordinated Promissory Note of the
Maker to the Payee of even date herewith. Upon such declaration by the holder of
this Note, the obligations evidenced by this Note shall be immediately due and
payable.
In the event of any event of default hereunder, the Maker
agrees to pay to the holder of this Note all expenses incurred by such holder,
including, without limitation, reasonable fees and disbursements of counsel,
incurred by such holder in the enforcement and collection of this Note.
Section 5. Definitions. As used herein, the
following terms shall have the following respective
meanings:
"Indebtedness" shall mean as to any person at any time, any
and all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other transaction
(including, without limitation, forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business which are not represented by a
promissory note), or (v) any Guaranty of Indebtedness for borrowed money. For
purposes hereof, "Guaranty" shall mean any obligation of any person guaranteeing
or in effect guaranteeing any liability or obligation of any other person in any
manner, whether directly or indirectly, including,
<PAGE>
11
without limiting the generality of the foregoing, any agreement to indemnify or
hold harmless any other person, any performance bond or other suretyship
arrangement and any other form of assurance against loss, except endorsement of
negotiable or other instruments for deposit or collection in the ordinary course
of business.
"Post-Petition Interest" means interest accruing after the
commencement of any bankruptcy or insolvency case or proceeding with respect to
the Maker or any receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, at the rate applicable to such
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding.
"Senior Debt" means all Indebtedness of the Maker to any bank,
insurance company or other institutional lender, whether currently outstanding
or hereafter created, incurred or assumed (including, but not limited to, Post-
Petition Interest), unless such Indebtedness, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with this Note. Senior Debt shall continue to constitute Senior Debt
for all purposes and the provisions of Section 2 of this Note shall continue to
apply to such Senior Debt, notwithstanding the fact that such Senior Debt, or
any claim in respect thereof, shall be disallowed, avoided, subordinated or
determined to be a fraudulent conveyance pursuant to the provisions of the
United States Bankruptcy Code or other applicable Federal, State or local law.
Senior Debt shall not include any Indebtedness of the Maker to Abbingdon Venture
Partners Limited Partnership-II, a Delaware limited partnership, or Abbingdon
Venture Partners Limited Partnership-III, a Delaware limited partnership, the
majority shareholders of the Maker.
Section 6. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania and
shall be binding upon the successors and assigns of the Maker and inure to the
benefit of the Payee, the Payee's successors, endorsees and assigns.
Section 7. Severability. If any term or
provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
<PAGE>
12
Section 8. Security Agreement. This Note is secured by, and is
entitled to the benefits of, a security agreement dated the date hereof executed
by PM Acquisition Corp., a Delaware corporation, in favor of the Payee.
CULTURALACCESSWORLDWIDE, INC.
By_________________________
Name:
Title:
PM ACQUISITION CORP.
By_________________________
Name:
Title:
<PAGE>
Telephone Access, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
December 6, 1996
Mr. John E. Jordan
1791 Crestwood Drive, N.W.
Washington, D.C. 20011
Dear John:
The undersigned, Telephone Access, Inc., a Delaware corporation (the
"Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto an aggregate of 75,000 shares (collectively the "Shares" and individually
a "Share") of its common stock, $.01 par value (the "Common Stock"), at a price
of $.057 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon his representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $4,275, in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company, enforceable in
<PAGE>
2
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by limitations on the availability of equitable remedies.
The Shares, when issued and delivered in accordance with this Agreement, shall
have been duly issued and shall be validly outstanding, fully paid and
nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE>
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold
(A) in a bona fide private placement to a purchaser who shall be subject to the
same restrictions on sale or (B) subject to the restrictions contained in
Rule 144 under the Securities Act.
(iii) As the President of the Direct Marketing Division of the
Company, the Purchaser is fully familiar with the business, properties and
financial condition of the Company, and acknowledges that he has been afforded
access to such additional information concerning the Company as he considers
necessary or appropriate to make an informed investment decision. The Purchaser
is an "accredited investor" as such term is defined in Rule 501 under the
Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this Agreement
for his own account and not with a view to or for sale in connection with the
distribution thereof within the meaning of the Securities Act. The Purchaser
shall not effect a distribution of any Shares until either (A) he has received
the opinion of counsel for the Company that registration under the Securities
Act is not required or (B) a registration statement under the Securities Act
covering such Shares and the disposition thereof has become effective under the
Securities Act, and the Purchaser agrees that the certificates evidencing the
Shares may bear a restrictive legend to the foregoing effect.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be
<PAGE>
4
recorded on the books of the Company. Notwithstanding the foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares") may be disposed of in the manner set forth in Subsection (b) or
(d) of this Section 5.
Cumulative percentage
of Shares which are
Vested Shares
---------------------
On or before December 5, 1999.................. 0%
December 6, 1999 to
December 5, 2000 .............................. 33 1/3
December 6, 2000 to
December 5, 2001............................... 66 2/3
On or after December 6, 2001................... 100
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of
<PAGE>
5
the Offer. Such right must be exercised by the Company by giving notice to that
effect to the Purchaser within a period of 20 days after the date of receipt of
the Offer Notice (any such notice of the exercise of such right being herein
referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Termination of the Purchaser's Employment. (i) If the Purchaser
shall cease to be employed by the Company, for any reason whatsoever, the
Company shall have
<PAGE>
6
the right (but not the obligation) to purchase from the Purchaser all or any
portion of the Unvested Shares owned by the Purchaser at the time the Purchaser
ceases to be employed by the Company. Such right to purchase shall be
exercisable by written notice to that effect given by the Company to the
Purchaser within 60 days after the Purchaser has ceased to be employed by the
Company, as aforesaid. Upon the giving of such written notice, the Purchaser
shall for all purposes cease to be a stockholder of the Company as to the
Unvested Shares covered by such notice and shall have no rights against the
Company or any other person in respect of such Unvested Shares except the right
to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable by
the Company pursuant to clause (c)(ii) shall be $0.057. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
(d) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his
<PAGE>
7
immediate family. For the purpose of this Agreement, the term "immediate family"
of the Purchaser shall mean his spouse and children (and the direct lineal
descendants of his children). It shall be a condition to the validity of any
transfer of Shares permitted by the provisions of this Subsection (d) that the
transferee shall execute a copy of this Agreement, shall hold such Shares
subject to the provisions of this Agreement, and shall make no further transfer
of such Shares, except in compliance with the terms and conditions of this
Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until December 31, 2001
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon the occurrence of the Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II") and Abbingdon Venture Partners Limited Partnership-III, a
Delaware limited partnership ("Abbingdon-III" and together with Abbingdon-I and
Abbingdon-II, the "Partnerships"), propose to transfer substantially all of the
shares of the Common Stock held by them (a "Sale of Securities") other than to
the public for cash pursuant to a registration statement filed under the
Securities Act, then the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
<PAGE>
8
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by certified mail, return receipt requested), and within such
ten business day period the Purchaser has not given notice of exercise of such
rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$4,275, in payment of the Purchase Price. Promptly upon receipt of such check or
checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at his
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
10. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
<PAGE>
9
11. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
12. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
17. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities
<PAGE>
10
resulting from any recapitalization, consolidation, merger or reorganization of
the Company and to any shares or other securities of the Company or any
successor company or of any parent of such successor company which may be
received by the Purchaser by virtue of his ownership of any shares of Common
Stock of the Company.
19. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are subject to the terms and conditions of a Stock Purchase
Agreement dated as of December 6, 1996 by and between John E. Jordan
and the Company (a copy of which is on file at the principal office
of the Company) and the rights, privileges and options therein
contained. No sale, transfer, assignment, pledge, hypothecation or
other disposition of this Certificate or any of the securities
represented hereby shall be made except in compliance with the terms
and conditions of said Stock Purchase Agreement."
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE>
11
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
Telephone Access, Inc.
By /s/ Stephen F. Nagy
-----------------------------------
Stephen F. Nagy
Accepted and agreed to as
aforesaid:
/s/ John E. Jordan
- -------------------------------
John E. Jordan
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
<PAGE>
12
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
------------------------------------
Stephen F. Nagy
TLM HOLDINGS CORP.
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
January 15, 1997
Mr. Lee H. Edelstein
4901 Northwest 17 Way, Sixth Floor
Fort Lauderdale, Florida 33309
Dear Lee:
The undersigned, TLM Holdings Corp., a Delaware corporation (the
"Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto an aggregate of 50,000 shares (collectively the "Shares" and individually
a "Share") of its common stock, $.01 par value (the "Common Stock"), at a price
of $.057 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon his representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $2,850, in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and
<PAGE>
2
legally binding agreement of the Company enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
or other laws affecting generally the enforceability of creditors' rights and by
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall conflict with or
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
<PAGE>
3
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), he may be unable
to sell any of the Shares except to the extent that the Shares may be sold (A)
in a bona fide private placement to a purchaser who shall be subject to the same
restrictions on sale or (B) subject to the restrictions contained in Rule 144
under the Securities Act.
(iii) As the President of the TeleManagement Services Division of
the Company, the Purchaser is fully familiar with the business, properties and
financial condition of the Company, and acknowledges that he has been afforded
access to such additional information concerning the Company as he considers
necessary or appropriate to make an informed investment decision. The Purchaser
is an "accredited investor" as such term is defined in Rule 501 under the
Securities Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this Agreement
for his own account and not with a view to or for sale in connection with the
distribution thereof within the meaning of the Securities Act. Except as
permitted hereby, the Purchaser shall not effect a distribution of any Shares
until either (A) he has received the opinion of counsel for the Company that
registration under the Securities Act is not required or (B) a registration
statement under the Securities Act covering such Shares and the disposition
thereof has become effective under the Securities Act, and the Purchaser agrees
that the certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be
<PAGE>
4
recorded on the books of the Company. Notwithstanding the foregoing:
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule (the
"Vested Shares") may be disposed of in the manner set forth in Subsection (b) or
(d) of this Section 5.
Cumulative percentage
of Shares which are
Vested Shares
---------------------
On or before December 31, 2000.................. 0%
January 1, 2001 to
December 31, 2001............................... 50
On or after January 1, 2002..................... 100
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by the
Purchaser provided that the Purchaser first complies with the right to purchase
set forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of 20
days after the date of receipt of the Offer
<PAGE>
5
Notice (any such notice of the exercise of such right being herein referred to
as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase the
Offered Securities within the 20-day period provided for in clause (b)(ii), then
the Purchaser shall have the right and privilege to sell all (but not less than
all) the Offered Securities, within 60 days after the expiration of such 20-day
period, to the bona fide purchaser named in the Offer Notice, at the price and
on terms of payment specified in the Offer. If, for any reason, the Offered
Securities are not sold within such 60-day period, the Offered Securities shall
again become subject to the terms and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of the closing of the initial sale by
the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act, other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan (such occurrence, the "Termination Event").
(c) Termination of the Purchaser's Employment. (i) If the Purchaser
shall cease to be employed by the Company by reason of (x) the Purchaser's
voluntary resignation from his employment with the Company or (y) the
termination by the Company of his employment for due cause pursuant to his
employment agreement dated the date hereof
<PAGE>
6
by and between the Company and the Purchaser, the Company shall have the right
(but not the obligation) to purchase from the Purchaser all or any portion of
the Unvested Shares owned by the Purchaser at the time the Purchaser ceases to
be employed by the Company in accordance with clause (c)(i)(x) or (c)(i)(y) of
this Section 5. Such right to purchase shall be exercisable by written notice to
that effect given by the Company to the Purchaser within 60 days after the
Purchaser has ceased to be employed in accordance with clause (c)(i)(x) or
(c)(i)(y) of this Section 5 by the Company, as aforesaid. Upon the giving of
such written notice, the Purchaser shall for all purposes cease to be a
stockholder of the Company as to the Unvested Shares covered by such notice and
shall have no rights against the Company or any other person in respect of such
Unvested Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the expiration of the 60-day period for the exercise of the right
to purchase set forth therein, the Purchaser shall deliver to the Company, at
the business headquarters of the Company, the Unvested Shares to be sold by the
Purchaser in due and proper form for transfer, against payment by the Company of
the purchase price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to in
clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable by
the Company pursuant to clause (c)(ii) shall be $0.057. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
<PAGE>
7
(d) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his immediate family. For the purpose of this Agreement, the term
"immediate family" of the Purchaser shall mean his spouse and children (and the
direct lineal descendants of his children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until January 15, 2002
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that in the event that the voting
agreement set forth in this Section 6 shall terminate upon the occurrence of the
Termination Event.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership-II, a Delaware limited partnership ("Abbingdon-II") and Abbingdon
Venture Partners Limited Partnership-III, a Delaware limited partnership
("Abbingdon-III" and together with Abbingdon-II, the "Partnerships"), propose to
transfer substantially all of the shares of the Common Stock held by them (a
"Sale of Securities") other than to the public for cash pursuant to a
registration statement filed under the Securities Act, then the following
provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the same consideration
and otherwise on the same terms and conditions to be received by the
Partnerships in the Sale of Securities.
<PAGE>
8
(iii) The Partnerships shall have the right to request the Purchaser
to sell or cause to be sold the number of shares of the Common Stock held by the
Purchaser which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser as the number of shares of the Common Stock
being sold by the Partnerships bears to the total number of shares of the Common
Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by certified mail, return receipt requested), and within such
ten business day period the Purchaser has not given notice of exercise of such
rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) the Termination Event.
8. Purchaser Ratio. On the date hereof, the Purchaser is the owner
of 50,000 shares of Common Stock. Such shares represent 1/70 (the "ratio") of
the number of shares of Common Stock owned by the Partnerships (3,500,000
shares) on the date hereof. It is the intention of the parties hereto that the
Purchaser shall be given the opportunity to maintain the ratio with respect to
his shares of Common Stock in relation to the number of shares of Common Stock
owned by the Partnerships. Therefore, the parties agree that at any time that
the Partnerships acquire additional shares of Common Stock from the Company, the
Purchaser shall be offered the opportunity to acquire, for the same
consideration and otherwise on the same terms and conditions to be received by
the Partnerships, that number of shares of Common Stock necessary to maintain
the ratio. In the event that the Purchaser declines the opportunity to acquire
shares of Common Stock when offered by the Company, the Company shall
recalculate the ratio based on the number of shares owned by the Purchaser and
the number of shares of Common Stock owned by the Partnerships after the
<PAGE>
9
Partnerships' acquisition of such additional shares. For purposes of calculating
the ratio, the number of Purchaser's shares of Common Stock shall not include
(a) any shares acquired by the Purchaser as part of any contingent payments
pursuant to an Agreement of Purchase and Sale dated the date hereof by and among
the Company, the Purchaser and Telemanagement Services, Inc. and (b) any other
shares acquired by the Purchaser not pursuant to this Section 8. The provisions
of this Section 8 shall terminate upon the occurrence of the Termination Event.
9. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$2,850, in payment of the Purchase Price. Promptly upon receipt of such check or
checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
10. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at his
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
11. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
12. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
13. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
<PAGE>
10
14. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
15. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
16. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
17. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
18. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
19. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
20. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
21. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are
<PAGE>
11
subject to the terms and conditions of a Stock Purchase Agreement
dated as of January 15, 1997 by and between Lee Edelstein and the
Company (a copy of which is on file at the principal office of the
Company) and the rights, privileges and options therein contained.
No sale, transfer, assignment, pledge, hypothecation or other
disposition of this Certificate or any of the securities represented
hereby shall be made except in compliance with the terms and
conditions of said Stock Purchase Agreement.
The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE>
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
TLM HOLDINGS CORP.
By /s/ Liam Donohue
---------------------------
Liam Donohue
Accepted and agreed to as
aforesaid:
/s/ Lee H. Edelstein
- ----------------------------------
Lee H. Edelstein
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------------
Stephen F. Nagy
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
----------------------------------
Stephen F. Nagy
Telephone Access, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
April 1, 1997
Mr. John Fitzgerald
29 Long Lots Road
Westport, Connecticut 06880
Dear John:
The undersigned, Telephone Access, Inc., a Delaware corporation (the
"Company"), and you (the "Purchaser"), hereby agree as follows:
1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser pursuant
hereto, an aggregate of 230,000 shares (collectively the "Shares" and
individually a "Share") of its common stock, $.01 par value (the "Common
Stock"), at a price of $.057 per Share.
2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon his representations and warranties herein contained, at an aggregate
purchase price (the "Purchase Price") of $13,110, in cash.
3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:
(a) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(b) The Company has duly authorized the execution and delivery of
this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company, enforceable in
accordance with its terms, except as such enforceability may
<PAGE>
2
be limited by bankruptcy, insolvency, or other laws affecting generally the
enforceability of creditors' rights and by limitations on the availability of
equitable remedies. The Shares, when issued and delivered in accordance with
this Agreement, shall have been duly issued and shall be validly outstanding,
fully paid and nonassessable shares of the Common Stock.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein shall violate any provision
of the Certificate of Incorporation or By-laws of the Company or any statute,
ordinance, regulation, order, judgment or decree of any court or governmental
agency, or conflict with or result in any breach of any of the terms of,
constitute a default under, or result in the termination of or the creation of
any lien pursuant to the terms of, any contract or agreement to which the
Company is a party or by which the Company or any of its assets is bound.
4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein conflict with or shall
result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.
(b) (i) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed.
(ii) The Purchaser understands that the Company is under no
obligation to effect a registration under the
<PAGE>
3
Securities Act of the Shares to be purchased by him hereunder. The Purchaser
understands that, under existing rules of the Securities and Exchange Commission
(the "Commission"), he may be unable to sell any of the Shares except to the
extent that the Shares may be sold (A) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on sale or (B) subject
to the restrictions contained in Rule 144 under the Securities Act.
(iii) As the President and Chief Executive Officer of the Company,
the Purchaser is fully familiar with the business, properties and financial
condition of the Company, and acknowledges that he has been afforded access to
such additional information concerning the Company as he considers necessary or
appropriate to make an informed investment decision. The Purchaser is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.
(iv) The Purchaser is a sophisticated investor familiar with the
type of risks inherent in the acquisition of securities such as the Common
Stock, and his financial position is such that he can afford to retain the
Shares for an indefinite period of time without realizing any direct or indirect
cash return on his investment.
(v) The Purchaser is acquiring the Shares pursuant to this
Agreement for his own account and not with a view to or for sale in connection
with the distribution thereof within the meaning of the Securities Act. The
Purchaser shall not effect a distribution of any Shares until either (A) he has
received the opinion of counsel for the Company that registration under the
Securities Act is not required or (B) a registration statement under the
Securities Act covering such Shares and the disposition thereof has become
effective under the Securities Act, and the Purchaser agrees that the
certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.
5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:
<PAGE>
4
(a) Disposition of Vested Shares and Shares which are not Vested
Shares. Shares which are "vested" in accordance with the following schedule or
in accordance with clause 5(a)(ii) below (the "Vested Shares") may be disposed
of in the manner set forth in Subsection (b) or (d) of this Section 5.
(i) Vesting. The Shares shall vest as follows:
Cumulative percentage
of Shares which are
Vested Shares
---------------------
On or before March 31, 1998.................... 0%
April 1, 1998 to
March 31, 1999 ................................ 17.39%
April 1, 1999 to
March 31, 2000................................. 34.78%
April 1, 2000 to
March 31, 2001................................. 52.17%
April 1, 2001 to
March 31, 2002................................. 69.57%
April 1, 2002 to
March 31, 2003................................. 84.78%
On or after April 1, 2003...................... 100%
(ii) Acceleration of Vesting of Certain Shares. The Shares which
are scheduled to vest on or after April 1, 2002 in accordance with the schedule
set forth above shall, notwithstanding the terms of such schedule, become vested
on an accelerated basis upon the occurrence of a successful IPO (as hereinafter
defined) provided that the Purchaser is employed by the Company on the date of
the Successful IPO.
For the purposes hereof, a "Successful IPO" shall mean the closing
of the initial sale by the Company to the public through an underwritten public
offering of shares of Common Stock, pursuant to a registration statement filed
under the Securities Act, other than a registration statement covering
securities of the Company to be issued pursuant to an employee benefit plan.
<PAGE>
5
Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.
(b) Vested Shares.
(i) Vested Shares held by the Purchaser may be transferred by
the Purchaser provided that the Purchaser first complies with the right to
purchase set forth in this Subsection (b). The Company shall have a right to
purchase any Vested Shares proposed to be sold by the Purchaser on the terms set
forth in this Subsection (b).
(ii) If the Purchaser wishes to dispose of Vested Shares, the
Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of 20
days after the date of receipt of the Offer Notice (any such notice of the
exercise of such right being herein referred to as an "Acceptance Notice").
(iii) In the event of the exercise by the Company of its right to
purchase pursuant to this Subsection (b), the Acceptance Notice shall specify
the time and date for purchase of the Offered Securities (the "Share Closing")
which shall be not more than 30 days after the expiration of the 20-day period
set forth in clause (b)(ii). The Purchaser shall deliver to the Company at the
Share Closing, which shall be held at the business headquarters of the Company,
the Offered Securities in due and proper form for transfer, against payment of
the purchase price by the Company.
(iv) If the Company shall fail or decline to agree to purchase
the Offered Securities within the 20-day period provided for in clause (b)(ii),
then the Purchaser shall have the right and privilege to sell all (but not less
than all) the Offered Securities, within 60 days after the expiration of such
20-day period, to the bona fide purchaser
<PAGE>
6
named in the Offer Notice, at the price and on terms of payment specified in the
Offer. If, for any reason, the Offered Securities are not sold within such
60-day period, the Offered Securities shall again become subject to the terms
and conditions of this Agreement.
(v) If, as of the Share Closing, any amount of principal of and
interest on any indebtedness of the Purchaser to the Company shall then be
outstanding, payment of the purchase price for the Offered Securities at the
Closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).
(vi) The Company's right to purchase set forth in this Subsection
(b) shall terminate upon the occurrence of a Successful IPO.
(c) Termination of the Purchaser's Employment. (i) If the Purchaser
shall cease to be employed by the Company for any reason whatsoever, including,
by reason of death, disability or resignation or termination by the Company for
"cause" (pursuant to Paragraph 9(c) of the Employment Letter dated the date
hereof by and between the Purchaser and the Company (the "Employment Letter"))
or pursuant to Paragraph 9(d) of the Employment Letter, the Company shall have
the right (but not the obligation) to purchase from the Purchaser all or any
portion of the Unvested Shares (for this purpose, Unvested Shares shall not
include Shares vesting during the Severance Period (as defined in the Employment
Letter) to the extent provided in Subsection (d) of this Section 5 below) owned
by the Purchaser at the time the Purchaser ceases to be employed by the Company.
Such right to purchase shall be exercisable by written notice to that effect
given by the Company to the Purchaser within 60 days after the Purchaser has
ceased to be employed by the Company, as aforesaid. Upon the giving of such
written notice, the Purchaser shall for all purposes cease to be a stockholder
of the Company as to the Unvested Shares covered by such notice and shall have
no rights against the Company or any other person in respect of such Unvested
Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 60-day period become Vested Shares.
(ii) At the time and date specified in the notice given by the
Company referred to in clause (c)(i), which date shall in no event be more than
15 days after the
<PAGE>
7
expiration of the 60-day period for the exercise of the right to purchase set
forth therein, the Purchaser shall deliver to the Company, at the business
headquarters of the Company, the Unvested Shares to be sold by the Purchaser in
due and proper form for transfer, against payment by the Company of the purchase
price therefor, as determined in accordance with clause (c)(iv).
(iii) If at the time of payment of the purchase price referred to
in clause (c)(ii), any amount of principal of or interest on any indebtedness of
the Purchaser to the Company shall be outstanding, payment of the purchase price
for the Unvested Shares shall be made, at the Company's option, as a credit
against such indebtedness to the extent of the principal thereof and interest
thereon then outstanding (whether or not such principal and interest is then due
and payable).
(iv) The per Share purchase price for the Unvested Shares payable
by the Company pursuant to clause (c)(ii) shall be $.057. The number of Unvested
Shares to be purchased and the per Share purchase price pursuant to this clause
(c)(iv) shall be appropriately adjusted by the Board of Directors of the Company
to reflect any subdivision or combination of the Common Stock of the Company or
any stock dividend or like event.
(d) Termination Without Cause. If the Purchaser shall be terminated
by the Company pursuant to Paragraph 9(d) of the Employment Letter, any Shares
scheduled to vest during the Severance Period shall vest on the scheduled
vesting date set forth in clause (i) of Subsection 5(a) above during the
Severance Period; provided, however, that no Shares shall accelerate on the
accelerated basis provided for in clause (ii) of Subsection 5(a), which clause
(ii) shall be of no force and effect after termination of the Purchaser's
employment.
(e) Disposition to Family Members. Shares held by the Purchaser may
be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of his immediate family. For the purpose of this Agreement, the term
"immediate family" of the Purchaser shall mean his spouse and children (and the
direct lineal descendants of his children). It shall be a condition to the
validity of any transfer of Shares permitted by the provisions of this
Subsection (d) that the transferee shall execute a copy of this Agreement, shall
hold such Shares subject to the provisions of this Agreement, and shall make no
further transfer of such Shares, except in compliance with the terms and
conditions of this Agreement.
<PAGE>
8
(f) Change in Ownership. If any person or group within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), as
amended, and the rules and regulations promulgated thereunder, other than John
H. Foster, Stephen F. Nagy, or a person or group controlled, directly or
indirectly, by John H. Foster or Stephen F. Nagy, shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible into
such securities) representing 50% or more of combined voting power of all
securities of the Company entitled to vote in the election of directors, then
any remaining Unvested Shares shall become fully vested, effective immediately
upon such change in ownership.
6. Voting Agreement. (a) Except as hereinafter set forth, the
Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until March 31, 2002
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster as shall together with John H. Foster
constitute a majority of such members.
(b) Notwithstanding any of the other terms or conditions set forth
in this Agreement, the parties hereto agree that the voting agreement set forth
in this Section 6 shall terminate upon a Successful IPO.
7. Come Along/Take Along.
(a) (i) In the event that Abbingdon Venture Partners Limited
Partnership, a Connecticut limited partnership ("Abbingdon-I"), Abbingdon
Venture Partners Limited Partnership-II, a Delaware limited partnership
("Abbingdon-II"), and Abbingdon Venture Partners Limited Partnership-III, a
Delaware limited partnership ("Abbingdon-III" and together with Abbingdon-I and
Abbingdon-II, the "Partnerships"), propose to transfer substantially all of the
shares of the Common Stock held by them (a "Sale of Securities") other than to
the public for cash pursuant to a registration statement filed under the
Securities Act, then the following provisions of this Section 7 shall apply.
(ii) The Partnerships shall permit the Purchaser, or cause the
Purchaser to be permitted, to sell the same proportionate number of shares of
the Common Stock held by the Purchaser as the Partnerships shall sell of the
shares of the Common Stock held by the Partnerships, for the
<PAGE>
9
same consideration and otherwise on the same terms and conditions to be received
by the Partnerships in the Sale of Securities.
(iii) The Partnerships shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser which bears the same proportion to the number of shares of
the Common Stock then held by the Purchaser as the number of shares of the
Common Stock being sold by the Partnerships bears to the total number of shares
of the Common Stock owned by the Partnerships (a "Purchaser Request").
(iv) Upon receipt by the Purchaser of a Purchaser Request, the
Purchaser will sell or will cause to be sold the appropriate number of shares of
the Common Stock held by the Purchaser for the consideration and otherwise on
the same terms and conditions received by the Partnerships.
(b) The obligations of the Partnerships under Section 7(a) hereof to
afford the Purchaser, or cause the Purchaser to be afforded, the rights referred
to therein will be discharged if the Purchaser is given written notice which
allows the Purchaser ten business days to exercise such rights (by written reply
addressed to such person as may be designated in the notice, and if requested in
such notice, sent by certified mail, return receipt requested), and within such
ten business day period the Purchaser has not given notice of exercise of such
rights.
(c) All rights and obligations created by this Section 7 shall
terminate upon the earlier to occur of (i) the written agreement of the parties
hereto, or (ii) a Successful IPO.
8. The Closing. As soon as practicable after the execution and
delivery of this Agreement, the Purchaser shall cause to be delivered to the
Company a check or checks payable to the order of the Company in the amount of
$13,110, in payment of the Purchase Price. Promptly upon receipt of such check
or checks, the Company shall deliver to the Purchaser a stock certificate
registered in the name of the Purchaser and representing the Shares.
9. Conditions to the Obligations of the Purchaser. The obligations
of the Purchaser to purchase the Shares pursuant hereto are subject, at his
option, to the accuracy of the representations and warranties of the Company
contained in Section 3.
<PAGE>
10
10. Conditions to the Obligations of the Company. The obligations of
the Company to sell the Shares pursuant hereto are subject, at its option, to
the accuracy of the representations and warranties of the Purchaser contained in
Section 4.
11. Expenses. Each of the parties hereto shall pay its own expenses
in connection with the preparation, execution and delivery of this Agreement.
12. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at his address set forth at the head of this Agreement or
such other address as may hereafter be designated by the Purchaser by notice to
the Company in the manner provided herein. All notices personally delivered
shall be deemed to have been given when delivered and all notices sent by mail
shall be deemed to have been given three business days after mailing.
13. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.
16. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.
17. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
<PAGE>
11
18. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandis to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of any shares of Common Stock of the Company.
19. Captions. The captions appearing herein are for the convenience
of the parties only and shall not be construed to affect the meaning of the
provisions of this Agreement.
20. Legends on Certificates. During the term of this Agreement, each
of the certificates representing Shares shall contain upon its face or upon the
reverse side thereof legends to the following effect:
"This Certificate represents securities which are restricted and
which are subject to the terms and conditions of a Stock Purchase
Agreement dated as of April 1, 1997 by and between John Fitzgerald
and the Company (a copy of which is on file at the principal office
of the Company) and the rights, privileges and options therein
contained. No sale, transfer, assignment, pledge, hypothecation or
other disposition of this Certificate or any of the securities
represented hereby shall be made except in compliance with the terms
and conditions of said Stock Purchase Agreement."
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred in violation of such Act."
* * *
<PAGE>
12
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.
Very truly yours,
Telephone Access, Inc.
By
----------------------------------
Accepted and agreed to as
aforesaid:
/s/ John Fitzgerald
- ----------------------------------
John Fitzgerald
The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP
By: BDC-III Partners, general
partner
By /s/ Stephen F. Nagy
--------------------------------------
Stephen F. Nagy
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-II
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
--------------------------------------
Stephen F. Nagy
<PAGE>
13
ABBINGDON VENTURE PARTNERS
LIMITED PARTNERSHIP-III
By: Abbingdon-II Partners, general
partner
By /s/ Stephen F. Nagy
--------------------------------------
Stephen F. Nagy
EMPLOYMENT AGREEMENT
AGREEMENT made the 6th day of December, 1996 by and between
Telephone Access, Inc., a Delaware corporation (the "Company"), and John E.
Jordan (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company wishes to assure itself of the services of the
Employee, and the Employee wishes to serve in the employ of the Company, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the
Employee agrees to serve in the employ of the Company, for the term set forth in
Section 1.2, in the position and with the responsibilities, duties and authority
set forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
shall be the period commencing on the date hereof and continuing through
December 5, 2001, unless sooner terminated in accordance with this Agreement.
<PAGE>
2
2. Position, Duties. The Employee shall serve as (i) President and
Chief Operating Officer of the Direct Marketing Group of the Company,
responsible for the Telac Division and certain other divisions of the Company
including all direct marketing and direct mailing divisions of the Company as
such position develops and evolves and (ii) as the President of the Telac
Division within the Direct Marketing Group of the Company until such time as a
successor is chosen for the President of the Telac Division upon the mutual
agreement of the Employee and the Company, and shall have such duties and
responsibilities consistent with such positions as are requested of him by the
President of the Company or his successor. The Employee shall report to the
President of the Company and to the designees or successors of such person. The
Employee shall devote his full business time and attention to the performance of
his duties and responsibilities hereunder; provided, however,
that the Employee may engage in personal investment activities that do not
unreasonably interfere with the Employee's obligations hereunder; and provided,
further, however, that the Employee agrees that he will cease engaging in his
personal Internet business activities during the term of his employment
hereunder and will take all steps to dissolve any corporation or other business
entity owned by him operating any Internet business activities. The Employee
hereby represents that he is not bound by any confidentiality agreements or
restrictive covenants which restrict or may restrict his ability to perform his
duties hereunder, and agrees that he will not enter into any such agreements or
covenants during the term of his employment hereunder, except such restrictive
covenants or confidentiality agreements which are required by the Company. The
Employee's home office shall be located in Arlington, Virginia.
The Company agrees that the Company shall not assign the Employee to
a position with scope and responsibility that is not substantially similar to
the positions and responsibilities set forth in this Section 2 without the
consent of the Employee.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, in consideration
of the performance by the Employee of the services set forth in Section 2 and
his observance of the other covenants set forth herein, the Company shall pay
the Employee, and the Employee shall accept, a base salary at the rate of
$220,000 per annum, payable in accordance with the standard payroll practices of
the Company. In addition to the base salary payable hereunder, the Employee may
be entitled to receive merit increases in salary during the term hereof in
amounts and at such times as shall be determined by the President of the Company
in his sole discretion. In no event shall the failure to grant any such increase
(or the amount of any such increase) give rise to a claim by the Employee under
this Agreement.
3.2 Bonus. During the term of the Employee's employment by the
Company pursuant to this Agreement, the Employee shall be eligible to receive an
annual bonus (the "Bonus") of up
<PAGE>
3
to 35% of his annual salary based upon the achievement of certain operational,
financial and performance objectives and certain corporate growth objectives
established by the President of the Company or his successor. For the purposes
of determining the Bonus for the year ended December 31, 1997, the Bonus shall
be based upon the criteria set forth in Schedule I attached hereto. Bonuses, if
earned, shall be paid in accordance with the standard practices of the Company
for the payment of bonuses.
The Company shall deliver to the Employee a schedule supporting the
calculation of each Bonus (or calculation showing why no such Bonus is payable)
within thirty (30) days after the end of the fiscal year relating to such Bonus.
4. Expense Reimbursement. During the term of the Employee's
employment by the Company pursuant to this Agreement, consistent with the
Company's policies and procedures as may be in effect from time to time, the
Company shall reimburse the Employee for all reasonable and necessary
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, upon the presentation of proper receipts therefor in
accordance with the Company's policies.
5. Other Benefits. During the term of the Employee's employment by
the Company pursuant to this Agreement, the Employee shall be entitled to
receive four (4) weeks paid vacation time per annum and such other benefits and
customary medical and life insurance as are from time to time made available to
other similarly situated employees of the Company, on the same terms as are
available to such similarly situated employees, it being understood that the
Employee shall be required to make the same contributions and payments in order
to receive any of such benefits as may be required of such similarly situated
employees. The Company shall continue to pay premiums in a timely manner on that
certain life insurance policy issued by Mass Mutual on the life of the Employee
(Policy No. 8847337).
<PAGE>
4
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during
the term of this Agreement, the Company shall pay to the estate or other legal
representative of the Employee (x) the salary provided for in Section 3.1 (at
the annual rate then in effect) accrued to the Employee's date of death and not
theretofore paid, (y) the Bonus, if it has been determined and earned in
accordance with Section 3.2 but not yet paid, and (z) any expense reimbursement
due to the Employee pursuant to Section 4 but not yet paid, and the estate or
other legal representative of the Employee shall have no further rights under
this Agreement. Rights and benefits of the Employee, his estate or other legal
representative under the employee benefit plans and programs of the Company, if
any, will be determined in accordance with the terms and provisions of such
plans and programs.
6.2 Disability. If the Employee shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall
for a period of sixty (60) consecutive days be unable to materially perform his
duties hereunder, with reasonable accommodation, the employment of the Employee
hereunder may be terminated by the Company upon thirty (30) days' prior written
notice to the Employee. Within thirty (30) days after such termination, the
Company shall pay to the Employee (x) the salary provided for in Section 3.1 (at
the annual rate then in effect) accrued to the date of such termination and not
theretofore paid, (y) the Bonus, if it has been determined and earned in
accordance with Section 3.2 but not yet paid, and (z) any expense reimbursement
due to the Employee pursuant to Section 4 but not yet paid. Rights and benefits
of the Employee, his estate or other legal representative under the employee
benefit plans and programs of the Company, if any, will be determined in
accordance with the terms and provisions of such plans and programs. Neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8 and 9.
<PAGE>
5
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (as hereinafter defined). In the event of such termination, the Company
shall pay to the Employee (x) the salary provided for in Section 3.1 (at the
annual rate then in effect) accrued to the date of such termination and not
theretofore paid to the Employee, (y) the Bonus, if it has been determined and
earned in accordance with Section 3.2 but not yet paid, and (z) any expense
reimbursement due to the Employee pursuant to Section 4 but not yet paid, and,
after the satisfaction of any claim of the Company against the Employee arising
as a direct and proximate result of such Due Cause, neither the Employee nor the
Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8 and 9. Rights and benefits of the Employee,
his estate or other legal representative under the employee benefit plans and
programs of the Company, if any, will be determined in accordance with the terms
and provisions of such plans and programs. For purposes hereof, "Due Cause"
shall mean (a) a material breach of any of the Employee's material obligations
hereunder (it being understood that any breach of the provisions of Sections 2,
7 or 8 hereof shall be considered material) (b) that the Employee, in carrying
out his duties hereunder, has been guilty of (i) willful or gross neglect or
(ii) willful or gross misconduct, resulting in either case in material harm to
any member of the Company Group (as hereinafter defined); or (c) that the
Employee has been convicted with respect to (i) a felony or (ii) any offense
involving moral turpitude. In the event of an occurrence of an event
constituting Due Cause under this Section 6.3, the Employee shall be given
written notice by the Company that it intends to terminate the Employee's
employment for Due Cause under this Section, which written notice shall specify
in detail the act or acts upon the
<PAGE>
6
basis of which the Company intends so to terminate the Employee's employment. If
the basis for such written notice is an act or acts described in clause (a)
above and not involving moral turpitude, the Employee shall be given twenty (20)
days to cease or correct the performance (or nonperformance) giving rise to such
written notice and, upon failure of the Employee within such twenty (20) days to
cease or correct such performance (or nonperformance), the Employee's employment
by the Company shall automatically be terminated hereunder for Due Cause.
6.4 Other Termination by the Company. The Company may
terminate, upon thirty (30) days prior written notice to the Employee, the
Employee's employment prior to the expiration of the term of this Agreement for
whatever reason it deems appropriate; provided, however, that in the event that
such termination is not pursuant to Sections 6.1, 6.2 or 6.3, the Company shall
pay to the Employee (or his estate or other legal representative in the case of
the death of the Employee subsequent to such termination), (w) the salary
provided for in Section 3.1 (at the annual rate then in effect) accrued to the
date of such termination and not theretofore paid, (x) the sum of $300,000, (y)
the prorated portion of the Bonus provided for in Section 3.2 only with respect
to the year during which such termination under this Section 6.4 occurs and
payable when such Bonus would have been paid to the Employee, determined by
annualizing the Bonus objectives and criteria achieved by the Company and the
Employee on the date of termination, pro-rated for the applicable period and (z)
any expense reimbursement due to the Employee pursuant to Section 4 but not yet
paid. Rights and benefits of the Employee, his estate or other legal
representative under the employee benefit plans and programs of the Company, if
any, will be determined in accordance with the terms and provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 9.
7. Confidential Information.
7.1 (a) The Employee shall, during the Employee's employment
with the Company and for a period of two (2) years thereafter, treat all
confidential material (as hereinafter defined) of the Company or any of the
Company's subsidiaries, affiliates or parent entities (the Company and the
Company's subsidiaries, affiliates and parent entities operating in the same
lines of business
<PAGE>
7
being hereinafter collectively referred to as the "Company Group")
confidentially. The Employee shall not, without the prior written consent of the
President of the Company, disclose such confidential material, directly or
indirectly, to any party, who at the time of such disclosure is not an employee
or agent of any member of the Company Group, or remove from the Company's
premises any notes or records relating thereto, copies or facsimiles thereof
(whether made by electronic, electrical, magnetic, optical, laser, acoustic or
other means), or any other property of any member of the Company Group. The
Employee agrees that all confidential material, together with all notes and
records of the Employee relating thereto, and all copies or facsimiles thereof
in the possession of the Employee (whether made by the foregoing or other means)
are the exclusive property of the Company. The Employee shall not in any manner
use any confidential material of the Company Group, or any other property of any
member of the Company Group, in any manner not specifically directed by the
Company.
(b) For the purposes hereof, the term "confidential material"
shall mean all information in any way concerning the activities, business or
affairs of any member of the Company Group or any of the customers of any member
of the Company Group, including, without limitation, information concerning
trade secrets, together with all sales and financial information concerning any
member of the Company Group and any and all information concerning projects in
research and development or marketing plans for any products or projects of the
Company Group, and all information concerning the practices and customers of any
member of the Company Group, and all information in any way concerning the
activities, business or affairs of any of such customers, as such, which is
furnished to the Employee by any member of the Company Group or any of its
agents or customers, as such, or otherwise acquired by the Employee in the
course of the Employee's employment with the Company; provided, however, that
the term "confidential material" shall not include information which (i) becomes
generally available to the public other than as a result of a disclosure by the
Employee in violation of this Agreement, (ii) was available to the
<PAGE>
8
Employee on a non-confidential basis prior to his employment with any member of
the Company Group, (iii) becomes available to the Employee on a non-confidential
basis from a source other than any member of the Company Group or any of its
agents or customers, as such, provided that such source is not known by the
Employee to be bound by a confidentiality agreement with any member of the
Company Group or any of such agents or customers; or (iv) which is required to
be disclosed by a law, rule or regulation.
7.2 Promptly upon the request of the Company, the Employee
shall deliver to the Company all confidential material relating to any member of
the Company Group in the possession of the Employee without retaining a copy
thereof (provided, however, that the Employee shall be entitled to retain a list
of such confidential material so long as the form of such list is reasonably
acceptable to the Company), unless, in the written opinion of counsel for the
Company delivered to the Employee, either returning such confidential material
or failing to retain a copy thereof would violate any applicable Federal, state,
local or foreign law, in which event such confidential material shall be
returned without retaining any copies thereof as soon as practicable after such
counsel advises in writing to the Employee that the same may be lawfully done.
7.3 In the event that the Employee is required, by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process, to disclose any confidential
material relating to any member of the Company Group, the Employee shall provide
the Company with reasonably prompt notice thereof so that the Company may seek
an appropriate protective order and/or waive compliance by the Employee with the
provisions hereof; provided, however, that if in the absence of a protective
order or the receipt of such a waiver, the Employee is, in the opinion of
counsel reasonably acceptable to the Company, compelled to disclose confidential
material not otherwise disclosable hereunder to any legislative, judicial or
regulatory body, agency or authority, or else be exposed to liability for
contempt, fine or penalty or to other censure, such confidential material may be
so disclosed.
<PAGE>
9
8. Non-Competition.
8.1 (i) The Employee acknowledges that the services to be
rendered by him to the Company are of a special and unique character. The
Employee agrees that, in consideration of his employment hereunder, the Employee
will not, (a) (A) during the term of this Agreement and (B) prior to two years
from the date of termination of the Employee's employment by the Company or any
other member of the Company Group, directly or indirectly, (w) engage, whether
as principal, agent, investor (except as an owner of less than a 5% interest in
a publicly traded company), distributor, representative, stockholder, employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture anywhere in the United States which is competitive with the
Business (as defined in the Recapitalization Agreement (as hereinafter defined))
or the business of the Company or any other member of the Company Group of
providing multilingual inbound and outbound teleservices, except as hereinafter
set forth, and related activities, (x) solicit or endeavor to solicit away from
any member of the Company Group any person who was or is during the six (6)
months prior to solicitation, a director, officer, employee, agent or consultant
of such member of the Company Group, on the Employee's own account or for any
person, firm, corporation or other organization, whether or not such person
would commit any breach of such person's contract of employment by reason of
leaving the service of such member of the Company Group, (y) solicit or entice
or endeavor to solicit or entice away any of the clients or customers of any
member of the Company Group, either on the Employee's own account or for any
other person, firm, corporation or organization, or (z) employ any person who
was or is during the six (6) months prior to employment, a director, officer or
employee of any
<PAGE>
10
member of the Company Group or any person who is or may be likely to be in
possession of any confidential information or trade secrets relating to the
business of any member of the Company Group, or (b) at any time take any action
or make any statement the effect of which would be, directly or indirectly, to
impair the goodwill of any member of the Company Group or the business
reputation or good name of any member of the Company Group, or be otherwise
detrimental to the Company, including any action or statement intended, directly
or indirectly, to benefit a competitor of any member of the Company Group.
(ii) Notwithstanding the foregoing, the Employee shall not be
deemed to be in breach of the provisions of Section 8.1.(i)(a)(w) above
following termination of his employment by the Company by reason of the
Employee's employment by or association with an entity, the business of which is
shareholder communications, proxy solicitation, political polling, surveying or
public opinion polling, surveying or English language political advocacy
communications.
8.2 The Employee and the Company agree that if, in any
proceeding, the court or authority shall refuse to enforce the covenants herein
set forth because such covenants cover too extensive a geographic area or too
long a period of time, any such covenant shall be deemed appropriately amended
and modified in keeping with the intention of the parties to the maximum extent
permitted by law.
8.3 The Employee expressly acknowledges and agrees that the
covenants and agreements set forth in this Section 8 are reasonable in all
respects, and necessary in order to protect, maintain and preserve the value and
goodwill of the Company Group, as well as the proprietary and other legitimate
business interests of the members of the Company Group. The Employee
acknowledges and agrees that the covenants and agreements of the Employee set
forth in this Section 8 constitute a significant part of the
<PAGE>
11
consideration given by the Employee to the Company in exchange for the salary
and benefits provided for in this Agreement, and are a material reason for such
payment.
9. Equitable Relief. In the event of a breach or threatened breach
by the Employee of any of the provisions of Sections 7 or 8 of this Agreement,
the Employee hereby consents and agrees that the Company shall be entitled to
pre-judgment injunctive relief or similar equitable relief restraining the
Employee from committing or continuing any such breach or threatened breach or
granting specific performance of any act required to be performed by the
Employee under any of such provisions, without the necessity of showing any
actual damage or that money damages would not afford an adequate remedy and
without the necessity of posting any bond or other security. The parties hereto
hereby consent to the jurisdiction of the federal courts located in the Eastern
District of Virginia and the state courts located in such District for any
proceedings under this Section 9. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company may assign this
Agreement to any member of the Company Group or to any entity which acquires
substantially all the assets and business of the Company, and the Employee
hereby consents to such assignment. As used in this Section, the "Company" shall
mean
<PAGE>
12
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Employee. The Employee may not assign
this Agreement or any part hereof without the prior written consent of the
President of the Company; provided, however, that nothing herein shall preclude
one or more beneficiaries of the Employee from receiving any amount that may be
payable following the occurrence of his legal incompetency or his death and
shall not preclude the legal representative of his estate from receiving such
amount or from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate.
11. Governing Law. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the District of Columbia applicable to contracts to be performed entirely within
such District.
12. Entire Agreement. This Agreement is entered into pursuant to a
recapitalization and investment agreement dated December 5, 1996 by and among
the Company, the Employee and the other parties thereto (the "Recapitalization
Agreement"). This Agreement and the other agreements executed contemporaneously
herewith and therewith contain all the understandings and representations
between the parties hereto pertaining to the subject matter hereof and supersede
all undertakings and agreements, whether oral or in writing, if there be any,
previously entered into by them with respect thereto; provided, however, that
Section 8 shall not serve as a limitation of the terms of any other
non-competition agreement between the Employee and any member of the Company
Group. No modification of this Agreement shall be effective unless in writing
and signed by the party against which enforcement is sought to be enforced. Any
oral agreements or representations respecting the transactions contemplated by
the Recapitalization Agreement, not reduced to writing in the Recapitalization
Agreement or in any of the documents referred to therein (including this
Agreement), are null and void.
<PAGE>
13
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
14. Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally, sent by Federal Express or sent by
registered or certified mail, postage prepaid, as follows:
If to the Company:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No. (610) 992-3390
Telephone No. (610) 992-7650
<PAGE>
14
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No. (212) 682-0200
Telephone No. (212) 880-6000
If to the Employee:
1791 Crestwood Drive, N.W.
Washington, D.C. 20011
Telephone No.: (202) 723-7490
with a copy to:
Nelson Mullins Riley & Scarborough
L.L.P.
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: Paul A. Quiros, Esq.
Telecopy No.: (404) 817-6050
Telephone No.: (404) 817-6103
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or sent by Federal Express and five business days after the
date of mailing, if mailed.
15. Severability. Should any provision of this Agreement be held by
a court of competent jurisdiction to be enforceable only if modified, such
holding shall not affect the validity of the remainder of this Agreement, the
balance of which shall continue to be binding upon the parties hereto with any
such modification to become a part hereof and treated as though originally set
forth in this
<PAGE>
15
Agreement. The parties further agree that any such court is expressly
authorized to modify any such unenforceable provision of this Agreement in lieu
of severing such unenforceable provision from this Agreement in its entirety,
whether by rewriting the offending provision, deleting any or all of the
offending provision, adding additional language to this Agreement, or by making
such other modifications as it deems warranted to carry out the intent and
agreement of the parties as embodied herein to the maximum extent permitted by
law. The parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them.
In any event, should one or more of the provisions of this Agreement be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof,
and if such provision or provisions are not modified as provided above, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
16. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
17. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
18. Expenses. Each of the parties hereto shall bear his or its own
costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
19. Titles. Titles of the sections of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
<PAGE>
16
20. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21. Termination by the Employee. In the event that the Company (a)
breaches its obligations to make the salary payments pursuant to Section 3.1
hereunder, or (b) breaches its obligations to provide the payments provided for
in Section 6.4, the Employee shall have the right to terminate this Agreement
upon thirty (30) days prior written notice to the Company, provided, that, the
Company has not corrected such breaches during such thirty day period. Upon
termination of this Agreement by the Employee, the provisions of this Agreement
with respect to restrictions on the Employee's activities as provided in Section
8.1 shall also terminate and shall no longer be applicable and neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7 and 9 and Employee's right to
receive any payments due under this Agreement.
* * *
<PAGE>
17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
TELEPHONE ACCESS, INC.
By /s/ John E. Jordan
-----------------------------
Name: John E. Jordan
Title: President
/s/ John E. Jordan
-------------------------------
John E. Jordan
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made the 15th day of January, 1997 by and between
TLM Holdings Corp., a Delaware corporation (the "Company"), and Lee Edelstein
(the "Employee").
W I T N E S S E T H :
WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the
Employee, and the Employee agrees to serve in the employ of the Company, for the
term set forth in Section 1.2, in the position and with the responsibilities,
duties and authority set forth in Section 2 and on the other terms and
conditions set forth in this Agreement.
1.2 The term of the Employee's employment
under this Agreement shall be the period commencing on the date hereof and
continuing through January 14, 2002, unless sooner terminated in accordance with
this Agreement.
1.3 The parties hereto acknowledge that the
Company may designate another direct or indirect wholly owned subsidiary of the
Company to employ the Employee and to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform this
Agreement, so long as the Company remains an unconditional guarantor of its
obligations hereunder.
<PAGE>
2
2. Position, Duties. The Employee shall serve as President of
the TeleManagement Services Division of the Company and of TLM Acquisition
Corp., a Delaware corporation which is a wholly owned subsidiary of the
Company,and shall have such duties and responsibilities consistent with such
position as are reasonably requested of him by the President of the Company. The
Employee shall perform his duties and responsibilities hereunder faithfully and
diligently. The Employee shall report to the President of the Company. The
Employee shall devote his full business time and attention to the performance of
his duties and responsibilities hereunder. The Employee hereby represents that
he is not bound by any confidentiality agreements or restrictive covenants which
restrict or may restrict his ability to perform his duties hereunder, and agrees
that he will not enter into any such agreements or covenants during the term of
his employment hereunder, except such restrictive covenants or confidentiality
agreements which are required by the Company.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, in
consideration of the performance by the Employee of the services set forth in
Section 2 and his observance of the other covenants set forth herein, the
Company shall pay the Employee, and the Employee shall accept, a base salary at
the rate of $150,000 per annum, payable in accordance with the standard payroll
practices of the Company, but in no event less than semi-monthly. In addition to
the base salary payable hereunder, the Employee may be entitled to receive merit
increases in salary during the term hereof in amounts and at such times as shall
be determined by the President of the Company and the Board of Directors of the
Company in an annual review of the Employee. In no event shall the failure to
grant any such increase (or the amount of any such increase) give rise to a
claim by the Employee under this Agreement.
3.2 Bonus. During the term of the Employee's employment by the
Company pursuant to this Agreement, the Employee shall be eligible to receive an
annual bonus of up to
<PAGE>
3
25% of his annual salary based upon the achievement of certain performance
objectives established annually by the President of the Company. The performance
objectives for 1997 are set forth in Exhibit A attached hereto. Bonuses, if
earned, shall be paid in accordance with the standard practices of the Company
for the payment of bonuses, but in no event later than March 31 of the following
year.
4. Expense Reimbursement. During the term of the Employee's
employment by the Company pursuant to this Agreement, consistent with the
Company's reasonable policies and procedures as may be in effect from time to
time, the Company shall reimburse the Employee for all reasonable and necessary
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, upon the presentation of proper accounts therefor in
accordance with the Company's policies. The Company agrees that the Employee
shall have an expense account with the Company of up to $2,000 per month
(exclusive of travel) for properly documented business-related expenses.
5. Other Benefits. During the term of the Employee's
employment by the Company pursuant to this Agreement, the Employee shall be
entitled to receive four (4) weeks paid vacation time per annum and such other
benefits and customary medical and life insurance as are from time to time made
available to other similarly situated employees of the Company, on the same
terms as are available to such similarly situated employees, it being understood
that, except for health insurance for the Employee and his family, which the
Company shall pay for in full for the Company's standard plan, the Employee
shall be required to make the same contributions and payments in order to
receive any of such benefits as may be required of such similarly situated
employees.
<PAGE>
4
6. Termination of Employment.
6.1 Death. In the event of the death of the
Employee during the term of this Agreement, the Company shall pay to the estate
or other legal representative of the Employee (x) the salary provided for in
Section 3.1 (at the annual rate then in effect) accrued to the Employee's date
of death and not theretofore paid, (y) the Bonus, if it has been determined and
earned in accordance with Section 3.2 but not yet paid, and (z) any expense
reimbursement due to the Employee pursuant to Section 4 but not yet paid, and
the estate or other legal representative of the Employee shall have no further
rights under this Agreement. Rights and benefits of the Employee, his estate or
other legal representative under the employee benefit plans and programs of the
Company, if any, will be determined in accordance with the terms and provisions
of such plans and programs.
6.2 Disability. If the Employee shall
become incapacitated by reason of sickness, accident or other physical or mental
disability and shall for a period of ninety (90) consecutive days be unable to
perform his normal duties hereunder, with or without reasonable accommodation,
the employment of the Employee hereunder may be terminated by the Company upon
ten (10) days' prior written notice to the Employee. Within thirty (30) days
after such termination, the Company shall pay to the Employee (x) the salary
provided for in Section 3.1 (at the annual rate then in effect) accrued to the
date of such termination and not theretofore paid, (y) the Bonus, if it has been
determined and earned in accordance with Section 3.2 but not yet paid, and (z)
any expense reimbursement due to the Employee pursuant to Section 4 but not yet
paid. Rights and benefits of the Employee, his estate or other legal
representative under the employee benefit plans and programs of the Company, if
any, will be determined in accordance with the terms and provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 9.
<PAGE>
5
6.3 Due Cause. The employment of the
Employee hereunder may be terminated by the Company at any time during the term
of this Agreement for Due Cause (as hereinafter defined). In the event of such
termination, the Company shall pay to the Employee (x) the salary provided for
in Section 3.1 (at the annual rate then in effect) accrued to the date of such
termination and not theretofore paid to the Employee, (y) the Bonus, if it has
been determined and earned in accordance with Section 3.2 but not yet paid, and
(z) any expense reimbursement due to the Employee pursuant to Section 4 but not
yet paid, and, after the satisfaction of any claim of the Company against the
Employee arising as a direct and proximate result of such Due Cause, neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8 and 9. Rights and benefits of the
Employee, his estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. For purposes hereof, "Due
Cause" shall mean (a) a material breach of any of the Employee's obligations
hereunder (it being understood that any breach of the provisions of Sections 7
or 8 hereof shall be considered material); or (b) that the Employee, in carrying
out his duties hereunder, has been guilty of (i) willful or gross neglect or
(ii) willful or gross misconduct, resulting in either case in material harm to
any member of the Company Group (as hereinafter defined); or (c) that the
Employee has been convicted of the commission of or entered a plea of nolo
contendere with respect to (i) a felony or (ii) any crime or offense involving
moral turpitude (provided that the Company may, in its sole discretion, suspend
the Employee during the period from the date of charge or indictment until the
date of conviction or other conclusion of criminal proceedings and provided
further that if the Employee is not convicted or does not enter a plea of nolo
contendere he will be entitled to full back pay). In the event of an occurrence
under this Section 6.3, the Employee shall be given written notice by the
Company that it intends to terminate the Employee's employment for Due Cause
under this Section, which written notice shall specify the act or acts upon the
<PAGE>
6
basis of which the Company intends so to terminate the Employee's employment. If
the basis for such written notice is an act or acts described in clause (a)
above and not involving moral turpitude, the Employee shall be given thirty (30)
days to cease or correct the performance (or nonperformance) giving rise to such
written notice and, upon failure of the Employee within such thirty (30) days to
cease or correct such performance (or nonperformance), the Employee's employment
by the Company shall automatically be terminated hereunder for Due Cause.
6.4 Other Termination by the Company. The
Company may terminate the Employee's employment at anytime after January 15,
2000 and prior to the expiration of the term of this Agreement for whatever
reason it deems appropriate; provided, however, that in the event that such
termination is not pursuant to Sections 6.1, 6.2 or 6.3, the Company shall pay
to the Employee (or his estate or other legal representative in the case of the
death of the Employee subsequent to such termination), (x) in the same periodic
installments as his annual salary was paid, the salary provided for in Section
3.1 (at the annual rate then in effect) until the earlier of (a) the then
scheduled expiration of the term hereof or (b) six (6) months following the date
of such termination and (y) any expense reimbursement due to the Employee
pursuant to Section 4 but not yet paid. Rights and benefits of the Employee, his
estate or other legal representative under the employee benefit plans and
programs of the Company, if any, will be determined in accordance with the terms
and provisions of such plans and programs. Neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8 and 9.
7. Confidential Information.
7.1 (a) The Employee shall, during the
Employee's employment with the Company and for a period of two years thereafter,
treat all confidential material (as hereinafter defined) of the Company or any
of the Company's subsidiaries, affiliates or parent entities (the Company and
the Company's subsidiaries, affiliates and parent entities
<PAGE>
7
being hereinafter collectively referred to as the "Company Group")
confidentially. The Employee shall not, without the prior written consent of the
President of the Company, disclose such confidential material, directly or
indirectly, to any party, who at the time of such disclosure is not an employee
or agent of any member of the Company Group, or remove from the Company's
premises other than for proper business purposes any notes or records relating
thereto, copies or facsimiles thereof (whether made by electronic, electrical,
magnetic, optical, laser, acoustic or other means), or any other property of any
member of the Company Group. The Employee agrees that all confidential material,
together with all notes and records of the Employee relating thereto, and all
copies or facsimiles thereof in the possession of the Employee (whether made by
the foregoing or other means) are the exclusive property of the Company. The
Employee shall not in any manner use any confidential material of the Company
Group, or any other property of any member of the Company Group, in any manner
not specifically directed by the Company.
(b) For the purposes hereof, the term
"confidential material" shall mean all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers of any member of the Company Group, including, without limitation,
information concerning trade secrets, together with all sales and financial
information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information
concerning the practices and customers of any member of the Company Group, and
all information in any way concerning the activities, business or affairs of any
of such customers, as such, which is furnished to the Employee by any member of
the Company Group or any of its agents or customers, as such, or otherwise
acquired by the Employee in the course of the Employee's employment with the
Company; provided, however, that the term "confidential material" shall not
include information which (i) is or becomes generally available to the public
other than as a result of a disclosure by the Employee, (ii) was available to
the
<PAGE>
8
Employee prior to his employment with any member of the Company Group, or
(iii) becomes available to the Employee on a non-confidential basis from a
source other than any member of the Company Group or any of its agents or
customers, as such, provided that such source is not bound by a confidentiality
agreement with any member of the Company Group or any of such agents or
customers.
7.2 Promptly upon the request of the
Company, the Employee shall deliver to the Company all confidential material
relating to any member of the Company Group in the possession of the Employee
without retaining a copy thereof (provided, however, that the Employee shall be
entitled to retain a list of such confidential material so long as the form of
such list is reasonably acceptable to the Company), unless, in the written
opinion of counsel for the Company delivered to the Employee, either returning
such confidential material or failing to retain a copy thereof would violate any
applicable Federal, state, local or foreign law, in which event such
confidential material shall be returned without retaining any copies thereof as
soon as practicable after such counsel advises in writing to the Employee that
the same may be lawfully done.
7.3 In the event that the Employee is
required, by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process, to disclose
any confidential material relating to any member of the Company Group, the
Employee shall provide the Company with prompt notice thereof so that the
Company may seek an appropriate protective order and/or waive compliance by the
Employee with the provisions hereof; provided, however, that if in the absence
of a protective order or the receipt of such a waiver, the Employee is compelled
to disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
confidential material may be so disclosed.
<PAGE>
9
8. Non-Competition.
8.1 The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character. The Employee agrees that, in consideration of his employment
hereunder, the Employee will not, (a) during the term of this Agreement so long
as he is employed pursuant to this Agreement (provided, however, that (L) if the
Employee's employment pursuant to this Agreement is terminated for due cause (as
defined in Section 6.3), or (M) if the Employee voluntarily resigns his position
under this Agreement prior to the end of its term or (N) if at the end of the
term of this Agreement, there is no renewal of this Agreement or (O) if the
Employee's employment is terminated by the Company pursuant to Section 6.4
hereunder subsequent to January 15, 2000, then the length of this
non-competition covenant shall be for an additional period of two years from the
date of such termination of the Employee's employment), directly or indirectly,
(w) engage, whether as principal, agent, investor, distributor, representative,
stockholder, employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture, which is competitive with the Business (as
defined in the Purchase Agreement (as hereinafter defined)) on the date hereof
or any other business of the Company which the Employee has operational or
administrative responsibility for during his employment with the Company, (x)
solicit or entice or endeavor to solicit or entice away from any member of the
Company Group any person who was or is at the time of solicitation, a director,
officer, employee, agent or consultant of such member of the Company Group, on
the Employee's own account or for any person, firm, corporation or other
organization, whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the service of such member
of the Company Group, (y) solicit or entice or endeavor to solicit or entice
away any of the clients or customers of any member of the Company Group, either
on the Employee's own account or for any other person, firm, corporation or
organization, or (z) employ any person who was or is at the time of
solicitation, a director, officer or employee of any
<PAGE>
10
member of the Company Group or any person who is or may be likely to be in
possession of any confidential information or trade secrets relating to the
business of any member of the Company Group, or (b) at any time take any action
or make any statement the effect of which would be, directly or indirectly, to
impair the goodwill of any member of the Company Group or the business
reputation or good name of any member of the Company Group, or be otherwise
detrimental to the Company, including any action or statement intended, directly
or indirectly, to benefit a competitor of any member of the Company Group.
Notwithstanding anything to the contrary contained in this
Section 8, it is understood and agreed that the Employee shall be permitted,
subsequent to any termination of his employment with the Company, to work in a
managerial, sales and/or marketing position for a pharmaceutical company.
For purposes hereof, the "Company Group" shall mean,
collectively, the Company and the Company's subsidiaries, affiliates and parent
entities operating in the same lines of business.
8.2 The Employee and the Company agree that
if, in any proceeding, the court or authority shall refuse to enforce the
covenants herein set forth because such covenants cover too extensive a
geographic area or too long a period of time or any other reason, any such
covenant shall be deemed appropriately amended and modified in keeping with the
intention of the parties to the maximum extent permitted by law.
8.3 The Employee expressly acknowledges and
agrees that the covenants and agreements set forth in this Section 8 are
reasonable in all respects, and necessary in order to protect, maintain and
preserve the value and goodwill of the Company Group, as well as the proprietary
and other legitimate business interests of the members of the Company Group. The
Employee acknowledges and agrees that the covenants and agreements of the
Employee set forth in this Section 8 constitute a significant part of the
<PAGE>
11
consideration given by the Employee to the Company in exchange for the salary
and benefits provided for in this Agreement, and are a material reason for such
payment, although in no event shall the Employee be obliged or requested to
return any salary or benefits unless any breach by the Employee of the covenants
and agreements of the Employee set forth in this Section 8 shall include the
Employee's association (as employer, joint venturer, etc.) with any of the
current or former employees of the Company in a competitive endeavor or the
Employee's servicing or doing business with any of the customers or clients of
the Company.
9. Equitable Relief. In the event of a breach or threatened
breach by the Employee of any of the provisions of Sections 7 or 8 of this
Agreement, the Employee hereby consents and agrees that the Company shall be
entitled to pre-judgment injunctive relief or similar equitable relief
restraining the Employee from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Employee under any of such provisions, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond in excess of $50,000. The
parties hereto hereby consent to the jurisdiction of the federal courts located
in the Southern District of Florida and the state courts located in such
District for any proceedings under this Section 9. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have, other than seeking a return of salary or benefits,
except in the circumstances described in the last sentence of Section 8.3.
10. Successors and Assigns.
10.1 Assignment by the Company. Subject to
the Employee's consent, which shall not be unreasonably withheld, the Company
may assign this Agreement to any member of the Company Group or to any entity
which acquires substantially all the assets and business of the Company. As used
in this Section, the "Company" shall mean
<PAGE>
12
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Employee. The
Employee may not assign this Agreement or any part hereof without the prior
written consent of the President of the Company; provided, however, that nothing
herein shall preclude one or more beneficiaries of the Employee from receiving
any amount that may be payable following the occurrence of his legal
incompetency or his death and shall not preclude the legal representative of his
estate from receiving such amount or from assigning any right hereunder to the
person or persons entitled thereto under his will or, in the case of intestacy,
to the person or persons entitled thereto under the laws of intestacy applicable
to his estate.
11. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of Florida applicable to contracts to be performed entirely within
such State.
12. Entire Agreement. This Agreement is entered into pursuant
to an agreement of purchase and sale dated as of January 1, 1997 by and among
the Company, TeleManagement Services, Inc., a Florida corporation, and the
Employee (the "Purchase Agreement"). This Agreement and the other agreements
executed contemporaneously herewith and therewith contain all the understandings
and representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, if there be any, previously entered into by them with respect thereto;
provided, however, that Sections 7 and 8 shall not serve as a limitation of the
terms of any other non-competition agreement between the Employee and any member
of the Company Group. No modification of this Agreement shall be effective
unless in writing and signed by the party against which enforcement is sought to
be enforced. Any oral agreements or representations respecting the transactions
contemplated by the Purchase Agreement, not reduced to writing in the Purchase
Agreement or in any of the documents referred to therein (including this
Agreement), are null and void.
<PAGE>
13
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
14. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopier or sent by
registered or certified mail, postage prepaid, as follows:
If to the Company:
c/o Foster Management Company
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3390
Telephone No.: (610) 992-7650
with a copy to:
Haythe & Curley
237 Park Avenue
New York, N.Y. 10017
Attention: Robert A. Ouimette, Esq.
Telecopy No.: (212) 682-0200
Telephone No.: (212) 880-6000
<PAGE>
14
If to the Employee:
Lee H. Edelstein
4901 Northwest 17 Way, Sixth Floor
Fort Lauderdale, Florida 33309
Telecopy No.: (954) 938-2424
Telephone No.: (954) 938-2400
with a copy to:
Kenneth W. Shapiro, P.A.
888 Las Olas Boulevard
Suite 200
Fort Lauderdale, Florida 33301
Attention: Kenneth W. Shapiro, Esq.
Telecopy No.: (954) 467-6158
Telephone No.: (954) 523-0900
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
15. Severability. Should any provision of this Agreement be
held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this
<PAGE>
15
Agreement. In any event, should one or more of the provisions of this Agreement
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, and
if such provision or provisions are not modified as provided above, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
16. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
17. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
18. Expenses. Each of the parties hereto shall bear his or its
own costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
19. Titles. Titles of the sections of this
Agreement are intended solely for convenience and no
provision of this Agreement is to be construed by reference
to the title of any section.
<PAGE>
16
20. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the
same instrument.
* * *
<PAGE>
17
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
TLM HOLDINGS CORP.
By /s/ Lee H. Edelstein
___________________________
Name:
Title:
/s/ Lee H. Edelstein
-----------------------------
Lee H. Edelstein
<PAGE>
<PAGE>
Telephone Access, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
April 1, 1997
Mr. John Fitzgerald
29 Long Lots Road
Westport, Connecticut 06880
Dear John:
This letter sets forth our agreement on matters relating to
your employment with Telephone Access, Inc., a Delaware corporation doing
business under the name TelAc (the "Company"), as its President and Chief
Executive Officer and your service as a Director of the Company.
1. You (the "CEO") shall be employed by the Company as
President and Chief Executive Officer of the Company for an initial term of four
(4) years, commencing on April 1, 1997 (the "Effective Date"), unless sooner
terminated by you or the Company as provided herein. This Agreement shall be
automatically renewed for successive one (1) year terms upon the expiration of
the initial term of this Agreement, or any renewal term of this Agreement,
unless either the Company or the CEO gives the other party at least six (6)
months written notice prior to the scheduled expiration of the initial term of
this Agreement, or any renewal term of this Agreement, that such party does not
intend to renew the Agreement. As President and Chief Executive Officer of the
Company, the CEO shall have such responsibilities and perform such duties as set
forth in Exhibit A hereto and such other duties and responsibilities appropriate
to such position as shall be assigned to the CEO by the Board of Directors of
the Company. The CEO shall report to the Board of Directors of the Company. The
CEO shall devote all his working time and efforts to the business of the
Company. The CEO represents that the CEO is not bound by the provisions of any
non-competition, confidentiality or similar agreement not heretofore disclosed
by the CEO in writing to the Company. It is our intention that your service as
Director of the Company will commence at the first meeting of the Board of
Directors after the Effective Date.
2. The CEO's salary shall be at a rate per annum of $250,000,
payable in accordance with the normal payroll practices of the Company (the
"Base Salary"); provided, however, that the Base Salary shall be increased to
$300,000 per annum upon the occurrence of a Successful IPO (as hereinafter
defined). In
<PAGE>
2
addition, the CEO may be entitled to receive merit increases in salary during
the term hereof in amounts and at such times as shall be determined by the Board
of Directors of the Company in its sole discretion. In addition to the CEO's
salary, the CEO shall be entitled to payments pursuant to an annual bonus
program. Under the bonus program, the CEO shall have an annual bonus opportunity
of up to fifty (50%) percent of the Base Salary at the then current rate in
effect (the "Bonus"). The bonus program shall be apportioned as follows: (i)
sixty (60%) percent based upon the achievement of quantitative goals and (ii)
forty (40%) percent based upon the achievement of qualitative goals, in each
case, to be mutually agreed upon between the CEO and the Company for the first
year within ninety (90) days of the Effective Date. Bonus goals for years after
the first year shall be mutually agreed upon by the CEO and the Compensation
Committee of the Company prior to January 31 of the applicable year.
Except as otherwise provided herein, the CEO must continue in
the employment of the Company through the end of the applicable year in order to
be entitled to a bonus for such year. The bonus for 1997 shall be prorated based
on the portion of the year during which the CEO was employed by the Company
(i.e., 9/12 of a full bonus). The bonus award shall be paid in cash, not later
than two weeks following the completion of the annual audit of the Company by
the Company's independent accountants for the applicable year.
For the purposes hereof, a "Successful IPO" shall mean the
closing of the initial sale by the Company to the public through an underwritten
public offering of shares of common stock, $.01 par value ("Common Stock"), of
the Company, pursuant to a registration statement (the "Registration Statement")
filed under the Securities Act of 1933 (the "Securities Act"), as amended, other
than a registration statement covering securities of the Company to be issued
pursuant to an employee benefit plan.
3. In the event that the CEO is employed by the Company
pursuant to this Agreement on the date the Registration Statement has been
declared effective, the Company shall cause to be granted to the CEO on the date
of the effectiveness of such Registration Statement, fully vested options to
purchase 50,000 shares of Common Stock of the Company at an exercise price per
share equal to the initial public offering price of the Common Stock in
connection with the Successful IPO (the "Options"). The Options shall be
exercisable by the CEO any time within ten (10) years from the date of grant
thereof; provided, however, that the Options may not be exercised after the CEO
has ceased to be in the employ of the Company, except in the following
circumstances:
(i) If the CEO's employment is terminated
by action of the Company, or by reason of disability or
<PAGE>
3
retirement under any retirement plan maintained by the Company, the
Options may be exercised by the CEO within three months after such
termination, but only as to any shares exercisable on the date the
CEO's employment so terminates;
(ii) In the event of the death of the CEO during
the three month period after termination of employment covered by (i)
above, the person or persons to whom his rights are transferred by will
or the laws of descent and distribution shall have a period of one year
from the date of his death to exercise any Options which were
exercisable by the CEO at the time of his death; and
(iii) In the event of the death of the CEO while
employed, the Options shall thereupon become exercisable in full, and
the person or persons to whom the CEO's rights are transferred by will
or the laws of descent and distribution shall have a period of one year
from the date of the CEO's death to exercise such Options.
4. The CEO shall be entitled to participate in the employee
benefit plans and programs offered by the Company from time to time applicable
to executives of the Company, including group insurance plans, subject to the
provisions of such plans and programs from time to time in effect. The CEO shall
be entitled to three weeks vacation per year, to accrue and to be taken in
accordance with Company policy. In addition, the CEO shall be entitled to
receive a car allowance of $700 per month plus reimbursement for gasoline, tolls
and parking in connection with business related travel upon the presentation of
proper accounts therefor in accordance with the Company's policies.
5. (a) In the event the Board of Directors determines that the
CEO is required to relocate his personal residence to carry out the CEO's duties
hereunder (a "Relocation"), the Company shall reimburse the CEO for the
following moving expenses: (i) a brokerage commission at the standard rate
prevailing in Westport, Connecticut incurred by the CEO in connection with the
sale of the CEO's current residence, (ii) the travel and lodging expenses
associated with ten (10) trips to the business location where the CEO is to be
relocated (provided that such location is one hundred (100) miles or more from
the CEO's current residence) incurred by the CEO's spouse to look for a new
personal residence, (iii) any mortgage points paid by the CEO in connection with
the purchase of a new personal residence resulting from such Relocation, (iv)
the expenses associated with transportation of the CEO's personal belongings
from the CEO's current residence to the CEO's new personal residence, (v) any
closing costs incurred in connection with the purchase of the CEO's personal
residence resulting from such Relocation, and (vi) any other identifiable
miscellaneous
<PAGE>
4
Relocation costs not to exceed $5,000 upon the presentation of proper accounts
therefor. In the event of a Relocation, the Company shall pay directly or
reimburse the CEO for club dues for one country club in the vicinity of the
CEO's new personal residence in such reasonable amount as shall be approved by
the Company in advance on an annual basis. At the CEO's request, the Company
shall advance to the CEO up to $75,000 for a club membership deposit, such
advance to be refunded by the CEO (i) if the CEO resigns his employment with the
Company less than two (2) years from the date of any Relocation, or (ii) in the
event that such amount for a club membership deposit is refunded to the CEO from
the country club at any time.
(b) During the term of this Agreement and prior
to a Relocation, the Company shall reimburse the CEO for the reasonable and
necessary out-of-pocket costs incurred by the CEO in connection with his living
accommodations in the vicinity of his principal office. In the event that the
Company determines that the CEO should rent an apartment, the Company shall
provide the CEO with an apartment for the CEO in the vicinity of his principal
office and shall reimburse him for his reasonable rental expenses. The Company
shall reimburse the CEO for all of the expenses set forth in this paragraph 5
upon the presentation of proper receipts therefor in accordance with the
Company's policies.
6. The CEO agrees that the CEO shall not, at any time, use any
Confidential Information (as hereinafter defined) except in the regular course
of the CEO's employment hereunder, or disclose any Confidential Information to
any person or entity other than an employee or professional adviser of the
Company. "Confidential Information" means any information of a confidential or
proprietary nature relating to the business of the Company and its clients;
provided, however, that Confidential Information shall not include information
which (i) becomes generally available to the public other than as a result of an
unauthorized disclosure by the CEO, (ii) was available to the CEO on a
non-confidential basis prior to the CEO's employment with the Company or (iii)
becomes available to the CEO on a non-confidential basis from a source other
than the Company or any of its affiliates, provided that such source is not
bound by a confidentiality agreement with the Company.
7. The CEO agrees that the CEO shall not, during the period of
the CEO's employment, and for a period of eighteen (18) months (the "Section 7
Period") following termination of the CEO's employment, whether by the CEO or by
the Company, (a) engage, whether as principal, agent, investor (except as an
owner of less than a 5% interest in a publicly held company), distributor,
representative, stockholder, employee, consultant, volunteer or otherwise, with
or without pay, in any activity or business venture anywhere in the United
States which is directly
<PAGE>
5
competitive with the business of the Company or any other member of the Company
Group (as hereinafter defined) of providing telemarketing and ethnic marketing
services, including ethnic advertising and ethnic direct marketing, and related
activities, (b) solicit or entice or endeavor to solicit or entice away from the
Company any person who was or is at the time of solicitation an employee of the
Company, either for the CEO's own account or for any individual, firm or
corporation, whether or not such person would commit any breach of his contract
of employment by reason of leaving the service of the Company, (c) employ,
directly or indirectly, any person who was an employee of the Company at the
date of termination of the CEO's employment or within six (6) months prior to
such date of termination, or (d) solicit or entice or endeavor to solicit or
entice away from the Company (i) any client or customer of the Company or (ii)
any corporation, individual or firm with which the Company is, or has been
during the last six (6) months of the CEO's employment with the Company, in
active negotiations in connection with becoming a client, customer, acquisition
candidate, vendor, supplier or joint venture partner of the Company, either for
the CEO's own account or for any individual, firm or corporation.
For purposes hereof, "Company Group" shall mean, collectively,
the Company and its subsidiaries, affiliates and parent entities operating from
time to time in the same lines of business for which the CEO has been
responsible for.
8. In the event of a breach or threatened breach by the CEO of
any of the provisions of Paragraphs 6 or 7 of this Agreement, the CEO hereby
consents and agrees that the Company shall be entitled to an injunction or
similar equitable relief from any court of competent jurisdiction restraining
the CEO from committing or continuing any such breach or threatened breach or
granting specific performance of any act required to be performed by the CEO
under any of such provisions, without the necessity of showing any actual damage
or that money damages would not afford an adequate remedy and without the
necessity of posting any bond or other security. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have.
9. (a) Upon the CEO's death, the Company will pay the CEO's
estate or other legal representative the (i) CEO's salary accrued to the date of
death and not theretofore paid to the CEO and (ii) 100% of the CEO's bonus
opportunity for the year of death, prorated through the date of death. The
rights and benefits of the CEO's estate or other legal representative under the
benefit plans and programs of the Company shall be determined by reference to
the provisions of such plans and programs of the Company at the time in effect.
The estate or other legal representative of the CEO and the Company shall have
no further rights or obligations under this Agreement.
<PAGE>
6
(b) If the CEO shall become incapacitated
by reason of sickness, accident or other physical or mental disability and shall
for a period of sixty (60) consecutive days be unable to materially perform his
duties hereunder, with reasonable accommodation, the employment of the CEO
hereunder may be terminated by the Company upon thirty (30) days' (the "Notice
Period") notice to the CEO; provided, however, that the CEO's employment by the
Company shall not be terminated pursuant to this Paragraph 9(b) if the CEO
returns to work and is able to materially perform his duties hereunder during
the Notice Period. In the event of such termination, the Company shall pay the
CEO his salary (at the annual rate then in effect) accrued to the effective date
of such termination and not theretofore paid to the CEO. The CEO's rights under
the benefit plans and programs of the Company shall be determined by reference
to the provisions of such plans and programs at the time in effect. In the event
of such termination, neither the CEO nor the Company shall have any further
rights or obligations under this Agreement, except as set forth in Paragraphs 6,
7 and 8.
(c) The employment of the CEO hereunder may be
terminated by the Company at any time during the term of this Agreement for
Cause (as hereinafter defined). In the event of such termination, the Company
shall pay to the CEO his salary (at the annual rate then in effect) accrued to
the date of such termination and not theretofore paid to the CEO, and, after the
satisfaction of any claim of the Company against the CEO arising as a direct and
proximate result of such Cause, neither the CEO nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Paragraphs 6, 7 and 8. Rights and benefits of the CEO under the benefit plans
and programs of the Company will be determined in accordance with the terms and
provisions of such plans and programs. For purposes hereof, "Cause" shall mean
(i) a material breach of any of the CEO's material obligations hereunder, (ii)
that the CEO, in carrying out his duties hereunder, has been guilty of (A)
willful or gross neglect or (B) willful or gross misconduct, resulting in either
case in material harm to any member of the Company Group (as hereinafter
defined); or (iii) that the CEO has been convicted of (A) a felony or (B) any
offense involving moral turpitude. In the event of an occurrence of an event
constituting Cause under this Paragraph 9(c), the CEO shall be given written
notice by the Company that it intends to terminate the CEO's employment for
Cause under this Paragraph 9(c), which written notice shall specify in detail
the act or acts upon the basis of which the Company intends so to terminate the
CEO's employment. If the basis for such written notice is an act or acts
described in clause (i) above and not involving moral turpitude, the CEO shall
be given fourteen (14) days to cease or correct the performance (or
nonperformance) giving rise to such written notice and, upon failure of the CEO
within such fourteen (14) days to cease or correct such performance (or
<PAGE>
7
nonperformance), the CEO's employment by the Company shall
automatically be terminated hereunder for Cause.
(d) The Company may terminate the CEO's
employment at any time for whatever reason it deems appropriate; provided,
however, that in the event that such termination is not pursuant to Paragraphs
9(a), 9(b) or 9(c), the Company shall pay to the CEO (i) severance pay in the
form of salary continuation (at the annual rate then in effect) until (the
"Severance Period") the expiration of a period of twelve (12) months beginning
on the date of termination of employment hereunder, (ii) 100% of the CEO's bonus
opportunity for the year of termination, prorated through the date of
termination, (iii) health and medical insurance coverage through the end of the
Severance Period, and (iv) the car allowance set forth in Paragraph 4 of this
Agreement if, and only if, the CEO informs the Company that he is forced to
dispose of his work related automobile after such termination until the earlier
to occur of the disposition of the automobile or three months after the date of
termination. In addition, in the event of termination hereunder, the Shares (as
defined in the Stockholders Agreement by and between the CEO and the Company
dated the date hereof (the "Stockholders Agreement")), shall continue to vest
during the Severance Period to the extent provided in Section 5(d) of the
Stockholders Agreement. The CEO's rights and benefits under the benefit plans
and programs shall be determined by reference to the provisions of such plans
and programs at the time in effect. In the event of such termination, neither
the CEO nor the Company shall have any further rights or obligations under this
Agreement, except as set forth in Paragraphs 6, 7 and 8. An election by the
Company not to renew this Agreement made in accordance with the second sentence
of Paragraph 1 shall not be treated as a termination pursuant to this Paragraph
9(d).
(e) In the event of a reorganization or merger of
the Company with or into TLM Holdings Corp., a Delaware corporation, which is in
the business of providing healthcare teleservices, which results in the CEO no
longer being the Chief Executive Officer of the surviving or resulting company,
then the CEO shall be entitled to terminate this Agreement. Upon such
termination, the Company shall pay to the CEO (i) severance pay in the form of
salary continuation (at the annual rate then in effect), until the expiration of
a period of twelve (12) months beginning on the date of termination of
employment hereunder, (ii) 100% of the CEO's bonus opportunity for the year of
termination, prorated through the date of termination, (iii) health and medical
insurance coverage through the end of the Severance Period, and (iv) the car
allowance set forth in Paragraph 4 of this Agreement if, and only if, the CEO
informs the Company he is forced to dispose of his work related automobile after
such termination until the earlier to occur of the disposition of the automobile
or three months after the date
<PAGE>
8
of termination. The CEO's rights and benefits under the benefit plans and
programs of the Company shall be determined by reference to the provisions of
such plans and programs at the time in effect. In the event of such termination,
neither the CEO nor the Company shall have any further rights or obligations
under this Agreement, except as set forth in Paragraphs 6, 7 and 8.
10. This Agreement contains all the understandings and
representations between the CEO and the Company pertaining to the subject matter
hereof and supersedes all undertakings and agreements, whether oral or written,
if any there be, previously entered into by the CEO and the Company with respect
thereto.
11. No provision of this Agreement may be amended or modified
unless such amendment or modification is agreed to in writing and signed by the
CEO and by a duly authorized representative of the Company.
12. Any notice to be given hereunder shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed to the party concerned at the address indicated below or at such other
address as such party may subsequently designate by like notice:
If to the Company:
Telephone Access, Inc.
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chairman of the Board
If to the CEO:
Mr. John Fitzgerald
29 Long Lots Road
Westport, Connecticut 06880
13. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the CEO shall be subject to
withholding of such amounts relating to taxes as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
14. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania applicable in the case of agreements made and entirely performed in
such Commonwealth.
15. Any controversy or claim arising out of or relating to
this Agreement, or any breach hereof, shall, except as provided in Paragraph 8
hereof, be settled by arbitration in
<PAGE>
9
accordance with the rules of the American Arbitration Association then in effect
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration award shall include an award
of attorneys' fees to the prevailing party. The arbitration shall be held in the
Philadelphia, Pennsylvania metropolitan area.
If the foregoing accurately sets forth our agreement, please
indicate the CEO's acceptance hereof on the enclosed counterpart of this letter
and return such counterpart to the Company.
Very truly yours,
TELEPHONE ACCESS, INC.
By /s/ Stephen F. Nagy
_____________________________
Name: Stephen F. Nagy
Title: Chairman of the Board
Accepted:
/s/ John Fitzgerald
----------------------
John Fitzgerald
<PAGE>
<PAGE>
CULTURALACCESSWORLDWIDE
August 1, 1997
Mr. Michael Dinkins
3725 Glades End Lane
Richmond, VA 23233
Dear Michael:
This letter will constitute a binding agreement concerning the terms of your
employment at CulturalAccessWorldwide that we agreed upon earlier this week:
Position: Senior Vice President of Finance and
Administration and Chief Financial Officer.
This position will be based in Arlington,
VA.
Reporting to: President and Chief Executive Officer
Direct Reports: Corporate controller and divisional CFOs.
Base Salary: $175,000 increasing to $200,000 at
the earlier of July 1, 1998 or an initial
public offering (IPO).
Bonus Opportunity: $25,000 for calendar year 1997
40% of base salary for each calendar year
thereafter
Bonus Criteria: 40% qualitative goals; 60% quantitative
goals as agreed with CEO
Options: 50,000 options vesting over 5-years with
strike price between $5-6 per share. All
options will vest immediately upon change of
control (e.g., acquisition of the Company,
but not IPO).
The first 10,000 of the 5-year vesting
options may vest following an IPO if the
following conditions are met:
o The proceeds from the exercise of
these options and the sale of the
underlying stock are used to
supplement the down payment for
your permanent residence in the
Arlington, VA area.
o You have already applied $100,000
of your personal funds to the down
payment of the home.
An additional 10,000 options will be awarded
at IPO with a strike price equal to the IPO
price. These options will be 100% vested at
time of issuance.
<PAGE>
Moving Expenses: Covered expenses include -
o Brokerage fee (at customary rate)
for sale of home
o Reasonable and customary closing
costs
o Three trips to Arlington, VA for
spouse in connection with move
o Up to two mortgage points in
connection with purchase of new
home in Northern, VA
o Temporary housing near headquarters
office in Northern VA for up to 90
days (maximum $2,000 per month)
o Storage of household items for up
to one year
o Reasonable moving expenses for
moves between Richmond, temporary
residence and final residence.
Vacation: Three weeks; increasing to four weeks after
three years and five weeks after 10 years.
Benefits: TelAc health and dental package. Long-term
disability program of
CulturalAccessWorldwide plus an allowance in
the first year of employment for up to
$2,500 to reimburse additional coverage at
the $200,000 per year compensation level.
You will be eligible to participate in
CulturalAccessWorldwide's 401K plan. The
Company will provide you with parking at the
2200 Clarendon building.
Salary Continuation: Your employment may be terminated by
CulturalAccess with or without "cause."
Should your employment at
CulturalAccessWorldwide be terminated for
cause, no severance or other termination
benefits would be due or payable. Likewise,
should you decide to leave
CulturalAccessWorldwide voluntarily, no
severance or other termination benefits
would be payable. However, if your
employment is terminated by
CulturalAccessWorldwide without cause nor
voluntarily then the Company will provide
you with continuous payment of your base
salary in effect for six months from the
date of such termination, plus two months
for each year of service with the Company
with a maximum of 12 months total severance.
In the event that your employment is
terminated without cause or involuntarily as
a result of a change of control (e.g.,
acquisition of the Company, but not IPO),
the Company will provide you with continuous
payment of your base salary in effect for
six months from the date of such
termination, plus two months for each year
of service with the Company with a maximum
of 12 months total severance.
For the purpose hereof, "cause" shall mean
(a) breach of any of your obligations in
your position as Senior Vice President of
Finance and Administration-Chief Financial
Officer, or (b) any material act of
dishonest involving CulturalAccessWorldwide,
or (c) repeated failure to follow the
reasonable instructions of the President in
connection your with duties, or (d) repeated
significant carelessness in the performance
of duties, or (e) repeated unexcused
absences during normal working hours, or (f)
repeated insobriety at the work place, or
(g) that you have been charged with
committing and have been convicted of (i) a
felony or, (ii) any crime or offense
involving moral turpitude. If the basis for
cause is an act or acts described in clause
(a), (c) or (d) above, you shall be given
ten (10) days to cease or correct the
performance (or non performance) giving rise
to such cause.
No Compete: You agree not to be employed by companies
competing with CulturalAccessWorldwide in
the teleservices or marketing services
industry for two years after termination of
employment for any reason.
<PAGE>
No Solicitation: You agree not to solicit any clients of
CulturalAccessWorldwide to provide them with
work or services that is competitive to
CulturalAccessWorldwide for a period of two
years after termination for any reason. You
also agree not to solicit, recruit or hire
any employees or strategically important and
unique vendors or consultants (e.g.,
pharmaceutical marketing partners, but not
audit firms or banks) of the Company for a
period of two years after termination for
any reason.
Start Date: Your start date will be August 19, 1997.
Please sign and return one copy of this letter. I very much look forward to
working with you to build this very exciting company.
Sincerely,
/s/ John Fitzgerald
--------------------
John Fitzgerald
Accepted & Agreed:
/s/ Michael Dinkins
- -------------------
Michael Dinkins
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made the 17th day of October, 1997 by and between
CulturalAccessWorldwide, Inc., a Delaware corporation (the "Company"), and
Douglas Rebak (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the
Employee, and the Employee agrees to serve in the employ of the Company, for the
term set forth in Section 1.2, in the position and with the responsibilities,
duties and authority set forth in Section 2 and on the other terms and
conditions set forth in this Agreement.
1.2 The term of the Employee's employment
under this Agreement shall be the period commencing on the date hereof and
continuing through October 31, 2002, unless sooner terminated in accordance with
this Agreement.
2. Position, Duties. The Employee shall serve the Company as
President of the Phoenix Marketing Group Division of the Company. The Employee
shall report to, and shall have such duties and responsibilities as shall be
assigned to the Employee by, the Chief Executive Officer of the Company, or his
designee or successor, which such duties and responsibilities shall include
responsibility for running the Phoenix Marketing Group Division of the Company
in the context of the Company's business plans and budgets and corporate
policies and programs. The Employee shall perform his duties and
responsibilities hereunder faithfully and diligently. The Employee shall devote
his full business time and attention to the performance of his duties and
<PAGE>
2
responsibilities hereunder. The Employee hereby represents that he is not bound
by any confidentiality agreements or restrictive covenants which restrict or may
restrict his ability to perform his duties hereunder, and agrees that he will
not enter into any such agreements or covenants during the term of his
employment hereunder, except such restrictive covenants or confidentiality
agreements which are required by the Company. The Employee shall be based at the
offices of the Phoenix Marketing Group Division in Lincoln Park, New Jersey for
the duration of the term of this Agreement.
3. Compensation.
3.1 Base Salary. During the term of this
Agreement, in consideration of the performance by the Employee of the services
set forth in Section 2 and his observance of the other covenants set forth
herein, the Company shall pay the Employee, and the Employee shall accept, a
base salary at the rate of $225,000 per annum, payable in accordance with the
standard payroll practices of the Company. In addition to the base salary
payable hereunder, the Employee may be entitled to receive merit increases in
salary during the term hereof in amounts and at such times as shall be
determined by the Chief Executive Officer of the Company in his sole discretion.
In no event shall the failure to grant any such increase (or the amount of any
such increase) give rise to a claim by the Employee under this Agreement.
3.2 Bonus. The Employee shall be eligible
to receive an annual bonus of up to 20% of his base salary based on achievement
by Phoenix Marketing Division of financial performance goals significantly
exceeding budget as established by the Chief Executive Officer of the Company,
in his sole discretion.
3.3 Stock Options. The Employee shall be
granted employee stock options to purchase 24,000 shares of common stock, $.01
par value per share ("Company Common Stock"), of the Company pursuant to the
Company's Stock Option Plan. One-half of such options shall vest on December 31,
2000 and one-half of such options shall vest on December 31, 2001 contingent
upon continued employment. The option price shall be equal to the fair market
value of the Company Common Stock on the date of grant.
4. Expense Reimbursement. During the term of the Employee's
employment by the Company pursuant to this Agreement, consistent with the
Company's policies and procedures as may be in effect from time to time, the
Company shall reimburse the Employee for all reasonable and
<PAGE>
3
necessary out-of-pocket expenses incurred by him in connection with the
performance of his duties hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies.
5. Other Benefits. During the term of the Employee's
employment by the Company pursuant to this Agreement, the Employee shall be
entitled to receive four weeks paid vacation time per annum and such other
benefits and customary medical and life insurance as are from time to time made
available to other similarly situated employees of the Company, on the same
terms as are available to such similarly situated employees, it being understood
that the Employee shall be required to make the same contributions and payments
in order to receive any of such benefits as may be required of such similarly
situated employees. In addition, the Employee shall be entitled to receive (i) a
monthly car allowance of $700, (ii) disability insurance with coverage
reasonably comparable to the disability insurance covering the Employee on the
day prior to the date of this Agreement and (iii) payment of the unpaid premiums
on the two existing life insurance policies on the life of the Employee in
effect on the date hereof, as and when such premiums become due and payable
until the end of the current policies.
6. Termination of Employment.
6.1 Death. In the event of the death of the
Employee during the term of this Agreement, the Company shall pay to the estate
or other legal representative of the Employee the salary provided for in Section
3.1 (at the annual rate then in effect) accrued to the Employee's date of death
and not theretofore paid, and the estate or other legal representative of the
Employee shall have no further rights under this Agreement.
6.2 Disability. If the Employee shall
become incapacitated by reason of sickness, accident or other physical or mental
disability and shall for a period of ninety (90) consecutive days be unable to
perform his normal duties hereunder, with or without reasonable accommodation,
the employment of the Employee hereunder may be terminated by the Company upon
thirty (30) days' prior written notice to the Employee. Promptly after such
termination, the Company shall pay to the Employee the salary provided for in
Section 3.1 (at the annual rate then in effect) accrued to the date of such
termination and not theretofore paid. Neither the Employee nor the Company shall
have any further rights or obligations under this Agreement, except as provided
in Sections 7, 8, 9 and 10.
<PAGE>
4
6.3 Due Cause. The employment of the
Employee hereunder may be terminated by the Company at any time during the term
of this Agreement for Due Cause (as hereinafter defined). In the event of such
termination, the Company shall pay to the Employee the salary provided for in
Section 3.1 (at the annual rate then in effect) accrued to the date of such
termination and not theretofore paid to the Employee, and, after the
satisfaction of any claim of the Company against the Employee arising as a
direct and proximate result of such Due Cause, neither the Employee nor the
Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause"
shall mean (a) a material breach of any of the Employee's obligations hereunder
(it being understood that any breach of the provisions of Sections 2, 7, 8 or 9
hereof shall be considered material);(b) the habitual abuse of alcohol or
unprescribed drugs by the Employee to an extent that such use interferes with
the performance by the Employee of his responsibilities hereunder; or (c) that
the Employee, in carrying out his duties hereunder, has been guilty of gross
mismanagement resulting in material harm to any member of the Company Group (as
hereinafter defined); or (d) that the Employee has been convicted of, or entered
a plea of nolo contendere to, (i) a felony or (ii) any lesser crime or offense
involving moral turpitude. In the event of an occurrence under this Section 6.3,
the Employee shall be given written notice by the Company that it intends to
terminate the Employee's employment for Due Cause under this Section, which
written notice shall specify the act or acts upon the basis of which the Company
intends so to terminate the Employee's employment. If the basis for such written
notice is an act or acts described in clause (a) or (b) above (and not involving
moral turpitude), the Employee shall be given twenty (20) days with respect to
an act or acts described in clause (a) and sixty (60) days with respect to an
act or acts described in clause (b) to cease or correct the performance (or
nonperformance) giving rise to such written notice and, upon failure of the
Employee within such twenty (20) days or sixty (60 days, as applicable, to cease
or correct such performance (or nonperformance), the Employee's employment by
the Company shall automatically be terminated hereunder for Due Cause.
6.4 Other Termination by the Company.
Commencing November 1, 2000 (but not before), the Company may terminate the
Employee's employment prior to the expiration of the term of this Agreement for
whatever reason it deems appropriate; provided, however, that in the event that
such termination is not pursuant to Sections 6.1, 6.2 or 6.3, the Company shall
continue to pay to the Employee (or his estate or other legal representative in
the case of
<PAGE>
5
the death of the Employee subsequent to such termination), in the same periodic
installments as his annual salary was paid, the salary provided for in Section
3.1 (at the annual rate then in effect) until the earlier of (a) the then
scheduled expiration of the term hereof or (b) six (6) months following the date
of such termination. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8,
9 and 10.
6.5 Termination by the Employee by
Resignation. This Agreement may be terminated by the Employee, at any time prior
to November 1, 2000, upon 30 days prior written notice to the Company, upon (i)
the occurrence of a change in the Employee's responsibilities which represents a
material adverse change from his responsibilities as described in Section 2
(which, is not cured within such 30-day period) or (ii) a change in the location
of the principal office of the Phoenix Marketing Group Division of the Company
to a location other than its present location in Lincoln Park, New Jersey other
than by reason of an act of God or casualty to the property.
Upon any such termination in accordance with this Section 6.5,
the Company shall continue to pay to the Employee (or his estate or other legal
representative in the case of the death of the Employee subsequent to such
termination), in the same periodic installments as his annual salary was paid,
the salary provided for in Section 3.1 (at the annual rate then in effect) until
April 30, 2001.
6.6 Rights to Benefits. Upon termination of
employment under any provision contained in this Section 6, rights and benefits
of the Employee, his estate or other legal representative under the employee
benefit plans and programs of the Company, if any, will be determined in
accordance with the terms and provisions of such plans and programs. Neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8, 9 and 10.
7. Confidential Information.
7.1 (a) The Employee shall, during the
Employee's employment with the Company and at all times thereafter, treat all
confidential material (as hereinafter defined) of the Company or any of the
Company's subsidiaries, affiliates or parent entities (the Company and the
Company's subsidiaries, affiliates and parent entities being hereinafter
collectively referred to as the "Company Group") confidentially. The Employee
shall not, without the
<PAGE>
6
prior written consent of the Chief Executive Officer of the Company, disclose
such confidential material, directly or indirectly, to any party, who at the
time of such disclosure is not an employee or agent of any member of the Company
Group, or remove from the Company's premises any notes or records relating
thereto, copies or facsimiles thereof (whether made by electronic, electrical,
magnetic, optical, laser, acoustic or other means), or any other property of any
member of the Company Group. The Employee agrees that all confidential material,
together with all notes and records of the Employee relating thereto, and all
copies or facsimiles thereof in the possession of the Employee (whether made by
the foregoing or other means) are the exclusive property of the Company.
(b) For the purposes hereof, the term
"confidential material" shall mean all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers of any member of the Company Group, including, without limitation,
information concerning trade secrets, together with all sales and financial
information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information
concerning the practices and customers of any member of the Company Group;
provided, however, that the term "confidential material" shall not include
information which becomes generally available to the public other than as a
result of a disclosure by the Employee.
7.2 Promptly upon the request of the
Company, the Employee shall deliver to the Company all confidential material
relating to any member of the Company Group in the possession of the Employee
without retaining a copy thereof, unless, in the written opinion of counsel for
the Company delivered to the Employee, either returning such confidential
material or failing to retain a copy thereof would violate any applicable
Federal, state, local or foreign law, in which event such confidential material
shall be returned without retaining any copies thereof as soon as practicable
after such counsel advises in writing to the Employee that the same may be
lawfully done.
7.3 In the event that the Employee is
required, by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process, to disclose
any confidential material relating to any member of the Company Group, the
Employee shall provide the Company with prompt notice thereof so that the
Company may seek an appropriate
<PAGE>
7
protective order and/or waive compliance by the Employee
with the provisions hereof.
8. Non-Competition.
8.1 The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character. The Employee agrees that, in consideration of his employment
hereunder, the Employee will not, (a) (A) during the term of this Agreement and
(B) until two (2) years from the date of termination of the Employee's
employment with the Company or any other member of the Company Group, directly
or indirectly, (w) engage, whether as principal, agent, investor, distributor,
representative, stockholder, employee, consultant, volunteer or otherwise, with
or without pay, in any activity or business venture which is competitive with
the Business (as hereinafter defined), (x) solicit or entice or endeavor to
solicit or entice away from any member of the Company Group any person who was
or is at the time of solicitation, a director, officer, employee, agent or
consultant of such member of the Company Group, on the Employee's own account or
for any person, firm, corporation or other organization, whether or not such
person would commit any breach of such person's contract of employment by reason
of leaving the service of such member of the Company Group, (y) solicit or
entice or endeavor to solicit or entice away any of the clients or customers or
potential clients or customers of any member of the Company Group, either on the
Employee's own account or for any other person, firm, corporation or
organization, or (z) employ any person who was or is at the time of employment,
a director, officer or employee of any member of the Company Group or any person
who is or may be likely to be in possession of any confidential information or
trade secrets relating to the business of any member of the Company Group, or
(b) at any time, take any action or make any statement, the effect of which
would be, directly or indirectly, to impair the good will of any member of the
Company Group or the business reputation or good name of any member of the
Company Group, or be otherwise detrimental to the Company, including any action
or statement intended, directly or indirectly, to benefit a competitor of any
member of the Company Group. For purposes hereof, "Business" shall mean the
business of the Company and any member of the Company Group of providing
database driven support and sample fulfillment to meet the rapidly changing
needs of sales and marketing executives in the healthcare industry and related
services including those set forth in Exhibit A attached hereto and any other
related activities developed by the Company or any member of the Company Group.
<PAGE>
8
8.2 The Employee and the Company agree that
if, in any proceeding, the court or authority shall refuse to enforce the
covenants herein set forth because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant shall be deemed
appropriately amended and modified in keeping with the intention of the parties
to the maximum extent permitted by law.
8.3 The Employee expressly acknowledges and
agrees that the covenants and agreements set forth in this Section 8 are
reasonable in all respects, and necessary in order to protect, maintain and
preserve the value and goodwill of the Company Group, as well as the proprietary
and other legitimate business interests of the members of the Company Group. The
Employee acknowledges and agrees that the covenants and agreements of the
Employee set forth in this Section 8 constitute a significant part of the
consideration given by the Employee to the Company in exchange for the salary
and benefits provided for in this Agreement, and are a material reason for such
payment.
9. Intellectual Property.
9.1 Any and all intellectual property,
inventions or software made, developed or created by the Employee (a) during the
term of this Agreement or (b) within a period of one year after the termination
of the Employee's employment with the Company or any other member of the Company
Group, which reasonably relate to the business of the Company or any other
member of the Company Group or which reasonably relate to any business conducted
by the Company during the term of the Employee's employment by the Company
(each, an "Invention"), whether at the request or suggestion of the Company or
otherwise, whether alone or in conjunction with others, and whether during
regular working hours of work or otherwise, shall be promptly and fully
disclosed by the Employee to the Chief Executive Officer and/or the Board of
Directors of the Company and shall be the Company's exclusive property as
against the Employee, and the Employee shall promptly deliver to the Chief
Executive Officer and/or the Board of Directors all papers, drawings, models,
data and other material relating to any Invention made, developed or created by
him as aforesaid. In addition, the Employee covenants and agrees to disclose to
the Board of Directors any Invention developed or created by the Employee during
the term of this Agreement, whether or not such Invention relates to the
business being conducted by the Company or any other member of the Company Group
at the time of development or creation of such Invention.
<PAGE>
9
9.2 The Employee hereby expressly
acknowledges and agrees that any Invention developed or created by the Employee
during the term of this Agreement which reasonably relates to the business of
the Company or any other member of the Company Group or which reasonably relates
to the business conducted by the Company during the Employee's employment by the
Company shall be considered "works made for hire" within the meaning of the
Copyright Act of 1976, as amended (17 U.S.C. ss. 101). Each such Invention as
well as all copies of such Invention in whatever medium fixed or embodied, shall
be owned exclusively by the Company as of the date of creation.
9.3 The Employee shall, upon the Company's
request and without any payment therefor, execute any documents necessary or
advisable in the opinion of the Company's counsel to direct issuance of patents
or copyrights of the Company with respect to such Invention as are to be in the
Company's exclusive property as against the Employee under this Section 9 or to
vest in the Company title to such inventions as against the Employee, the
expense of securing any such patent or copyright, to be borne by the Company. In
addition, the Employee agrees not to file any patent, copyright or trademark
applications related to such Invention.
10. Equitable Relief. In the event of a breach or threatened
breach by the Employee of any of the provisions of Sections 7, 8 or 9 of this
Agreement, the Employee hereby consents and agrees that the Company shall be
entitled to pre-judgment injunctive relief or similar equitable relief
restraining the Employee from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Employee under any of such provisions, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the federal courts located
in the District of New Jersey and the state courts located in such District for
any proceedings under this Section 10. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have.
11. Successors and Assigns.
11.1 Assignment by the Company. The Company may assign this Agreement to
any member of the Company Group or to any entity which acquires substantially
all the assets and business of the Company, and the Employee hereby consents to
such assignment.
<PAGE>
10
11.2 Assignment by the Employee. The
Employee may not assign this Agreement or any part hereof without the prior
written consent of the Chief Executive Officer of the Company.
12. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of New Jersey or such other State in which the Employee's principal
business office is located if his principal business office no longer is in the
State of New Jersey, applicable to contracts to be performed entirely within
such State.
13. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof and supersede all undertakings and agreements, whether
oral or in writing, if there be any, previously entered into by them with
respect thereto; provided, however, that Section 8 shall not serve as a
limitation of the terms of any other non-competition agreement between the
Employee and any member of the Company Group.
14. Modification and Amendment; Waiver. The provisions of this Agreement
may be modified, amended or waived, but only upon the written consent of the
party against whom enforcement of such modification, amendment or waiver is
sought and then such modification, amendment or waiver shall be effective only
to the extent set forth in such writing. No delay or failure on the part of any
party hereto in exercising any right, power or remedy hereunder shall effect or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
15. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopier or sent by
registered or certified mail, postage prepaid, as follows:
If to the Company:
1018 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
Telecopy No. (610) 992-3390
Telephone No. (610) 992-7650
<PAGE>
11
If to the Employee:
820 Minsi Trail
Franklin Lake, New Jersey 07417
Either of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
16. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Section 10 hereof, be settled by arbitration in accordance with the rules of the
American Arbitration Association for a single arbitrator then in effect and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration shall be held in the Hackensack,
New Jersey area.
17. Consulting Arrangement. In the event that the Employee's
employment hereunder terminates prior to December 31, 2001, for any reason other
than pursuant to Sections 6.1 or 6.3 hereof, the Company agrees to enter into a
consulting arrangement with the Employee commencing on the date of the
termination of the Employee's employment hereunder and continuing to December
31, 2001. The sole compensation for this consulting arrangement will be the
continuation of the vesting of the stock options granted under Section 3.3
hereof.
18. Expenses. Each of the parties hereto shall bear his or its
own costs and expenses, including attorneys fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
19. Titles. Titles of the sections of this
Agreement are intended solely for convenience and no
provision of this Agreement is to be construed by reference
to the title of any section.
20. Severability. Should any provision of this Agreement be
held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this
<PAGE>
12
Agreement. The parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in lieu of severing
such unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such other
modifications as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as so modified by the court shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
21. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
CULTURALACCESSWORLDWIDE, INC.
By /s/ Douglas Rebak
____________________________
Name:
Title:
/s/ Douglas Rebak
------------------------------
Douglas Rebak
<PAGE>
EXHIBIT 21
List of Subsidiaries
TLM Holdings Corp., a Delaware corporation
Ash Creek, Inc., a Delaware corporation
Hispanic Market Connections, Inc., a California corporation
KW Acquisition Corp., a Delaware corporation
Sturges Pond, Inc., a Delaware corporation
Telemanagement Services, Inc., a Delaware corporation
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports related to the financial
statements of the companies listed below, which reports appear in such
Prospectus:
<TABLE>
<CAPTION>
COMPANY DATE OF REPORT
<S> <C>
Phoenix Marketing Group, Inc. March 7, 1997
TeleManagement Services, Inc. September 22, 1997
Hispanic Market Connections, Inc October 17, 1997
Combined CulturalAccessWorldwide, Inc. and TLM Holdings, Inc. October 22, 1997
</TABLE>
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
PHILADELPHIA, PA
OCTOBER 24, 1997
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 23, 1997 relating
to the financial statements of Telephone Access, Inc. and TelAc, Inc. as of and
for the year ended December 31, 1995 as of and for the five months ended
December 31, 1994, and as of and for the year ended July 31, 1994, which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
GREEN, HOLMAN, FRENIA AND COMPANY, L.L.P.
Woodbridge, NJ
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,642,651
<SECURITIES> 0
<RECEIVABLES> 4,634,370
<ALLOWANCES> 116,977
<INVENTORY> 0
<CURRENT-ASSETS> 6,727,042
<PP&E> 1,659,579
<DEPRECIATION> 202,162
<TOTAL-ASSETS> 16,295,284
<CURRENT-LIABILITIES> 11,012,957
<BONDS> 0
3,744,000
0
<COMMON> 82,640
<OTHER-SE> 1,800,010
<TOTAL-LIABILITY-AND-EQUITY> (15,566,406)
<SALES> 15,025,350
<TOTAL-REVENUES> 15,025,350
<CGS> 8,830,651
<TOTAL-COSTS> 8,830,651
<OTHER-EXPENSES> (455,649)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,121,853)
<INCOME-PRETAX> 1,156,853
<INCOME-TAX> (494,009)
<INCOME-CONTINUING> 662,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 662,874
<EPS-PRIMARY> .14
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 300,387
<SECURITIES> 0
<RECEIVABLES> 1,488,173
<ALLOWANCES> 11,532
<INVENTORY> 0
<CURRENT-ASSETS> 1,962,593
<PP&E> 1,127,239
<DEPRECIATION> 15,744
<TOTAL-ASSETS> 3,309,374
<CURRENT-LIABILITIES> 1,750,992
<BONDS> 0
1,800,000
0
<COMMON> 44,300
<OTHER-SE> 1,625,012
<TOTAL-LIABILITY-AND-EQUITY> 3,309,374
<SALES> 16,286,280
<TOTAL-REVENUES> 16,286,280
<CGS> 8,639,578
<TOTAL-COSTS> 8,639,578
<OTHER-EXPENSES> (200,322)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,733
<INCOME-PRETAX> (381,883)
<INCOME-TAX> 87,533
<INCOME-CONTINUING> (294,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,350)
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
