SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 0-23489
CULTURALACCESSWORLDWIDE, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-1309227
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2200 Clarendon Blvd., 11th Floor
Arlington, Virginia 22201
------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 1 (800) 522-3447
Securities registered pursuant to Section 12(b) of the Act:
Title of each class. Name of each exchange on which registered.
None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period as the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
9,040,685 shares of Common Stock, $.01 par value, as of August 11, 1998
<PAGE>
CULTURALACCESS WORLDWIDE, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements 1-4
Consolidated and Combined Balance Sheets -
June 30, 1998 and December 31, 1997 1
Consolidated and Combined Statements of Operations -
Three Months Ended June 30, 1998 and June 30, 1997
Six Months Ended June 30, 1998 and June 30, 1997 2
Consolidated and Combined Statements of Cash Flows -
Six Months Ended June 30, 1998 and June 30, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information 5-6
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CULTURALACCESSWORLDWIDE, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
CULTURALACCESS-
CONSOLIDATED WORLDWIDE, INC.
CULTURALACCESS- & TLM HOLDINGS
WORLDWIDE, INC. CORP.
DECEMBER 31,
JUNE 30, 1998 1997
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,035,141 $ 2,014,711
Accounts receivable, net of allowance for
doubtful accounts of $208,795 and $279,935,
respectively .................................... 11,945,237 8,077,462
Deferred issuance costs ........................... -- 1,350,594
Other assets ...................................... 1,792,015 941,686
------------ ------------
Total current assets ............................ 15,772,393 12,384,453
Property and equipment, net ....................... 6,385,072 4,171,806
Other assets ...................................... 358,736 265,110
Intangible assets, net ............................ 35,183,784 35,858,750
------------ ------------
Total assets .................................... $57,699,985 $ 52,680,119
============ ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Amount due on line of credit facility ............. $ -- $ 5,810,000
Accounts payable and accrued expenses ............. 3,048,546 2,831,463
Accrued interest and other related party expenses . 1,407,677 2,974,661
Accrued salaries, wages and related benefits ...... 1,800,302 1,308,446
Due to related parties ............................ 144,145 471,925
Deferred revenue .................................. 671,807 666,082
Current portion of indebtedness ................... 75,689 69,940
Current portion of indebtedness -- related parties 707,832 3,203,819
------------ ------------
Total current liabilities ....................... 7,855,998 17,336,336
Long-term portion of indebtedness ................... 47,037 80,013
Long-term portion of indebtedness -- related parties 618,085 34,238,666
Mandatorily redeemable preferred stock, $.01 par
value: 8% cumulative, 2,000,000 shares
authorized, 65,000 shares and 36,000
shares issued and outstanding at
June 30, 1998 and December 31, 1997,
respectively ...................................... 6,689,444 3,888,000
------------ ------------
Total liabilities and mandatorily
redeemable preferred stock ..................... 15,210,564 55,543,015
------------ ------------
Common stockholders' equity (deficit):
Common stock, $.01 par value: voting: 20,000,000
shares authorized; 9,040,685 and 4,264,000
shares issued at June 30, 1998 and December
31, 1997, respectively; 9,038,185 and 4,261,500
shares outstanding at June 30, 1998 and
December 31, 1997, respectively ................. 89,723 42,640
Common stock, $.01 par value: non-voting:
500,000 shares authorized, issued and
outstanding at December 31, 1997 ................ -- 5,000
Additional paid-in capital ........................ 57,846,547 14,013,092
Accumulated deficit ............................... (15,436,816) (16,913,595)
Less: cost of treasury stock, 2,500 shares ........ (143) (143)
Deferred compensation ............................. (9,890) (9,890)
------------ ------------
Total common stockholders' equity (deficit) ..... 42,489,421 (2,862,896)
------------ ------------
Total liabilities, mandatorily redeemable
preferred stock and common stockholders'
equity (deficit) .............................. $ 57,699,985 $ 52,680,119
============ ============
</TABLE>
1
<PAGE>
CULTURALACCESSWORLDWIDE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
COMBINED COMBINED
CULTURALACCESS- CULTURALACCESS-
CONSOLIDATED WORLDWIDE, INC. CONSOLIDATED WORLDWIDE, INC.
CULTURALACCESS- & TLM HOLDINGS CULTURALACCESS- & TLM HOLDINGS
WORLDWIDE, INC. CORP. WORLDWIDE, INC. CORP.
-------------------------------- --------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
-------------- --------------- -------------- --------------
Revenues ................................... $ 15,325,100 $ 8,063,002 $ 31,016,310 $ 15,025,350
Cost of revenues (exclusive of
depreciation) ............................ 8,490,713 4,766,270 17,600,471 8,830,651
------------ ------------ ------------ ------------
Gross profit ............................. 6,834,387 3,296,732 13,415,839 6,194,699
Selling, general and adminis-
trative expenses (selling,
general and administrative
expenses paid to related parties
are $243,829 and $86,427 and $495,340
and $93,625, respectively) ............... 4,678,243 1,909,624 9,482,406 3,301,232
Amortization expense ....................... 309,067 147,426 709,457 355,940
------------ ------------ ------------ ------------
Income from operations ................... 1,847,077 1,239,682 3,223,976 2,537,527
Interest income ............................ 40,999 19,168 92,082 37,274
Interest expense-related parties ........... (143,700) (526,170) (640,073) (1,121,853)
Interest expense ........................... (13,667) -- (34,332) --
Other income (expense)-related party ....... -- 2,977 -- (301,841)
Other (expense)............................. -- (158,608) -- (153,808)
------------ ------------ ------------ ------------
Income before income
taxes .................................. 1,730,709 577,049 2,641,653 997,299
Income tax expense ......................... 766,965 252,860 1,164,874 494,009
------------ ------------ ------------ ------------
Net income ............................... $ 963,744 $ 324,189 $ 1,476,779 $ 503,290
============ ============ ============ ============
Earnings per share of
common stock -- basic and
diluted .................................. $ 0.11 $ 0.07 $ 0.18 $ 0.11
============ ============ ============ ============
</TABLE>
2
<PAGE>
CULTURALACCESSWORLDWIDE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
COMBINED
CULTURALACCESS-
CONSOLIDATED WORLDWIDE, INC.
CULTURALACCESS- & TLM HOLDINGS
WORLDWIDE, INC. CORP.
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 1,476,779 $ 503,290
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ........................... 1,287,301 537,474
Interest expense on mandatorily redeemable
preferred stock ....................................... 231,001 144,000
Changes in operating assets and liabilities,
excluding effects from acquisitions:
Accounts receivable ..................................... (4,004,203) (3,146,197)
Due to related parties and affiliates ................... (302,224) 149,291
Other assets ............................................ (1,025,297) (327,458)
Accounts payable and accrued expenses ................... 216,679 1,698,944
Accrued interest and related party expenses ............. (1,838,788) 685,353
Accrued salaries, wages and related benefits ............ 490,468 (554,691)
Deferred revenue ........................................ 187,711 307,716
------------ ------------
Net cash (used in)
operating activities ................................. (3,280,573) (2,278)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment, net ................. (2,757,378) (486,098)
Use of letter of credit .................................. 15,000,000
Business acquisitions, net of cash
acquired ................................................ (97,055) (6,491,133)
------------ ------------
Net cash (used in) provided by investing activities .... (2,854,433) 8,022,769
------------ ------------
Cash flows from financing activities:
Change in other assets related to deferred
issuance costs........................................... (1,919,328) --
Payments on capital lease ................................ (35,895) (162,727)
Proceeds from notes payable - related
party ................................................... 5,500,000 1,150,000
Proceeds from sale of common and preferred
stock ................................................... 44,640,000 1,999,500
Borrowings under line of credit facility ................. 190,000 5,660,000
Repayments under line of credit facility ................. (6,000,000) (250,000)
Repayment of related party debt .......................... (36,219,341) (15,075,000)
------------ ------------
Net cash provided by (used in) financing
activities............................................ 6,155,436 (6,678,227)
------------ ------------
Net increase in cash ................................... 20,430 1,342,264
Cash and cash equivalents, beginning of
period .................................................. 2,014,711 300,387
------------ ------------
Cash and cash equivalents, end of period ................. $ 2,035,141 $ 1,642,651
============ ============
</TABLE>
3
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes included in the Company's Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts included in the financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of this interim
financial information have been included. Such adjustments consisted only of
normal recurring items. The results of operations for the six months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the year ending December 31, 1998.
2. INCOME TAXES
The Company's effective tax rate of 44% in the first half of 1998 differs
from the Federal Statutory rate due primarily to state income taxes,
non-deductible goodwill amortization, and non-deductible preferred stock
dividends.
3. EARNINGS PER COMMON SHARE
Earnings per common share are calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
For the Three Months Ended
------------------------------------
June 30, 1998 June 30, 1997
------------------------------------ ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------- --------- -------- --------- --------- --------
Basic ................................. $ 963,744 8,969,834 $ 0.11 $ 324,189 4,764,000 $ 0.07
Effect of dilutive securities:
Stock options ..................... -- 100,682 -- -- 6,528 --
Earnout contingency ............... -- 70,851 -- -- -- --
--------- --------- -------- --------- --------- --------
Earnings per share of common
stock - dilutive .................. $ 963,744 9,141,367 $ 0.11 $ 324,189 4,770,528 $ 0.07
========= ========= ======== ========= ========= ========
For the Six Months Ended
------------------------------------
June 30, 1998 June 30, 1997
------------------------------------ ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------- --------- -------- --------- --------- --------
Basic $1,476,779 8,268,445 $0.18 $ 503,290 4,649,000 $ 0.11
Effect of dilutive securities
Stock options...................... -- 95,789 -- -- 3,264 --
Earnout contingency ............... -- 63,570 -- -- -- --
---------- --------- ----- --------- --------- --------
Earnings per share of common
stock - dilutive .................. $1,476,779 8,427,804 $0.18 $ 503,290 4,652,264 $ 0.11
========== ========= ===== ========= ========= ========
</TABLE>
4
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues for the second quarter of 1998 increased $7.3 million, or 90.1%, to
$15.3 million compared to $8.1 million for the second quarter of 1997. In
September of 1997, the Company acquired substantially all of the assets of
Market Connections Group, Inc. ("MCG" previously known as Hispanic Market
Connections, Inc.). In October of 1997, the Company acquired substantially all
of the assets of Phoenix Marketing Group, Inc. ("Phoenix"). The combined
revenues for these two companies included in the results of operations for the
second quarter of 1998 is approximately $5.1 million, or 70.1% of the increase.
The remaining increase is due primarily to the expansion of services provided to
the Company's top ten clients.
Costs of revenues increased to $8.5 million for the second quarter of 1998, from
$4.8 million in the second quarter of 1997, an increase of $3.7 million. Cost of
revenues as a percentage of sales decreased to 55.4% for the second quarter of
1998, compared to 59.1% for the second quarter of 1997. This reduction was
primarily the result of the Company being able to better utilize its existing
work force despite substainally increased revenues.
Selling, general and administrative expenses, increased $2.8 million, to $4.7
million for the second quarter of 1998, from $1.9 million for the second quarter
of 1997. Selling, general and administrative expenses as a percentage of
revenues increased to 30.5% for the second quarter of 1998, from 23.7% for the
second quarter of 1997. Approximately 54.8% of the increase was due to the
acquisition of MCG and Phoenix which have a different cost structure than the
other businesses. In addition, approximately 7.9% of the increase is due to the
creation of a corporate infrastructure needed to support the Company's future
growth.
Amortization expense increased for the second quarter of 1998 to $309,000, from
$147,000 for the second quarter of 1997. The increase is due to the acquisitions
indicated above.
Net interest expense decreased from $507,000 for the second quarter of 1997, to
$116,000 for the second quarter of 1998, a decrease of $391,000. The decrease
is the result of paying off the debt incurred in acquiring all business units.
The proceeds from the initial public offering ("Offering") were used to reduce
borrowings.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues for the first half of 1998 increased $16 million, or 106%, to $31.0
million, compared to $15.0 million for the same period in 1997. Of this
increase, approximately $10.8 million, or 67.3%, resulted from the acquisitions
of MCG and Phoenix. In addition, approximately $4.9 million of the increase came
from additional services rendered to the Company's 1998 top ten clients.
Cost of revenues increased $8.8 million, to $17.6 million for the first half of
1998, from $8.8 million for the first half of 1997. Cost of revenues as a
percentage of sales declined to 56.7% for the first half of 1998, when compared
to 58.8% for the first half of 1997. The 2.1% decrease was due primarily to the
Company's ability to more effectively utilize its workforce.
Selling, general and administrative expenses increased $6.2 million, to
$9.5 million for the first half of 1998, from $3.3 million for the first half of
1997. Selling, general and administrative expenses as a percentage of revenues
increased to 30.6% for the first half of 1998, from 22.0% for the first half of
1997. Approximately 58.4% of the increase was due to the acquisition of MCG and
Phoenix which have a different cost structure than the other businesses.
Approximately 12.1% of the increase is due to the creation of a corporate
infrastructure needed to support the Company's future growth.
Amortization expense increased $354,000, to $710,000 for the first half of 1998,
from $356,000 for the first half of 1997, due to the acquisitions of MCG and
Phoenix which did not occur until the later part of 1997.
Net interest expense decreased $502,000, to $582,000 for the first half of 1998,
from $1.1 million for the first half of 1997, as proceeds from the Offering were
used to reduce borrowings.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $7.9 million, an increase
of $12.9 million from ($5.0) million at December 31, 1997. As described below,
substantially all of the Company's net working capital resulted from the
completion of its Offering in February 1998. The Company's primary sources of
liquidity as of June 1998 consist of cash and cash equivalents, accounts
receivable and borrowing availability under the Credit Facility (as defined in
the Company's Annual Report on Form 10-K).
The Company's accounts receivable turnover averaged 69 days for the period ended
June 30, 1998, and 58 days for the period ended December 31, 1997. The increase
was due largely to the timing of payments. A substantial portion of the
outstanding receivables were collected in July 1998.
Net cash used for operating activities during the first half of 1998 was $3.3
million, compared to $2,300 during the first half of 1997. Approximately $2.5
million of the increase in the cash used for operating activities for 1998 as
compared to 1997, was primarily the result of accrued interest paid on related
party debt. Approximately $858,000 of the increase in cash used for operating
activities is the result of increases in accounts receivable due to increased
sales and an increase in days sales outstanding.
The net cash used for investing activities during the first half of 1998 was
$2.9 million compared to the net cash provided from investing activities for the
first half of 1997 of $8.0 million. Cash utilized for capital expenditures
increased by $2.3 million due to the expansion of the Company's facilities, and
upgrading of computer systems. During the first half of 1997, the Company
used $6.5 million in investing activities to acquire TeleManagement Services
Inc. and received $15.0 million to repay borrowings incurred in connection with
the recapitalization of the Company on December 6, 1996.
On February 19, 1998, the Company raised net proceeds of $44.6 million in the
Offering. The Company expects to meet its short term liquidity requirements
through net cash provided by operations and borrowing under the Credit Facility
(as defined in the Company's Annual Report on Form 10-K). Management believes
that these sources of cash will be sufficient to meet the Company's operating
needs and planned capital expenditures for at least the next 12 months.
5
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains certain forward-looking statements which are based on
management's current views and assumptions. These statements are qualified by
reference to "Risk Factors" in the Prospectus in the Company's registration
statement on Form S-1 which lists important factors that could cause actual
results to differ materially from those discussed in this report.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.2 Employment Agreement between the Company and Mary Sanchez
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CULTURALACCESSWORLDWIDE, INC.
Date: __________ By: /s/ John Fitzgerald
-------------------------------
John Fizgerald, President and
Chief Executive Officer
(principal executive officer)
Date: __________ By: /s/ Michael Dinkins
-------------------------------
Michael Dinkins, Senior Vice
President of Finance and Administration
and Chief Financial Officer
(principal financial officer)
6
EMPLOYMENT AGREEMENT
AGREEMENT made the 15th day of January, 1997 by and between TLM
Acquisition Corp., a Delaware corporation (the "Company"), and Mary Sanchez (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
31, 2002, unless sooner terminated in accordance with this Agreement.
2. Position, Duties. The Employee shall serve the Company as Chief
Financial Officer of the TeleManagement Services 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 President of the TeleManagement
Services Division of the Company, or his designee or successor. The Employee
shall perform her duties and responsibilities hereunder faithfully and
diligently. The Employee shall devote her full business time and attention to
the performance of her duties and responsibilities hereunder. The Employee
hereby represents that she is not bound by any confidentiality agreements or
restrictive covenants which restrict or may restrict her ability to perform her
duties hereunder, and agrees that she will not enter into any such agreements or
covenants during the term of her 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
her 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
$95,000 per annum, payable in accordance with the standard
<PAGE>
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.
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 her in connection with the performance of her
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 two 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.
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 sixty (60) consecutive days be unable to perform her 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.
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"
2
<PAGE>
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); or (b) that the Employee, in carrying out
her 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 she 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
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 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 her estate or other legal
representative in the case of the death of the Employee subsequent to such
termination), in the same periodic installments as her 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) three
(3) 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 Rights to Benefits. Upon termination of employment under
any provision contained in this Section 6, rights and benefits of the Employee,
her 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 prior
written consent of the President of the Company, disclose such confidential
3
<PAGE>
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 (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.
8. Non-Competition.
8.1 The Employee acknowledges that the services to be rendered
by her to the Company are of a special and unique character. The Employee agrees
that, in consideration of her employment hereunder, the Employee will not, (a)
during the term of this Agreement so long as she 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 her 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
4
<PAGE>
of this Agreement or (O) if the Employee's employment is terminated by the
Company pursuant to Section 6.4 hereunder, then the length of this
non-competition covenant shall be for an additional period of two years in the
case of (L), (M) and (N) and three months in the case of (O) above, 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 anywhere within a one hundred (100) mile
radius of any location of the Company at which the Employee has provided
services hereunder, which is competitive with the business of the Company or any
other member of the Company Group of providing pharmaceutical, medical and other
healthcare related teleservices businesses and related activities or any other
business of the Company conducted at the location of the Company at which the
Employee has provided services hereunder, (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
solicitation, 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 make any statement intended to impair the
business reputation of any member of the Company Group.
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
5
<PAGE>
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 President 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 President and/or the Board of
Directors all papers, drawings, models, data and other material relating to any
Invention made, developed or created by her 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.
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 Southern District of Florida 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
6
<PAGE>
all the assets and business of the Company, and the Employee hereby consents to
such assignment.
11.2 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.
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 Florida 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: President
Telecopy No. (610) 992-3390
Telephone No. (610) 992-7650
If to the Employee:
8412 Dundee Terrace
Miami Lakes, Florida 33016
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.
7
<PAGE>
16. 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 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.
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.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
TLM ACQUISITION CORP.
By___________________________
Name:
Title:
------------------------------
Mary Sanchez
8
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