AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998.
REGISTRATION NO. 333-38845
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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. [ ]
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. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER- REGISTRATION
BE REGISTERED REGISTERED (1) PER SHARE (2) ING PRICE (2) FEE (3)
------------- -------------- ------------- ------------- ---------
Common Stock
($.01 par value)................ 4,600,000 $14.00 $64,400,000.00 $19,515.15
</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).
(3) The Registrant paid a fee of $25,091 upon filing the original Registration
Statement.
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>
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 JANUARY 26, 1998
PROSPECTUS
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 $12.00 and $14.00 per share. See "Underwriting" for information
related to the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
Stock Market's National Market under the symbol "CAWW."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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
February , 1998 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167.
BEAR, STEARNS & CO. INC. NATIONSBANC MONTGOMERY SECURITIES LLC
The date of this Prospectus is February , 1998
<PAGE>
[CULTURALACCESSWORLDWIDE, INC. LOGO]
A LEADER IN OUTSOURCED MARKETING SERVICES
[Inside front cover of pictures of clients and employees of the Company]
Ethnic Cultures
Healthcare Cultures
Generational Cultures
Helping Fortune 500 clients penetrate complex and hard-to-reach "Culture
Markets"
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 to make available quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
RESPONDING TO CORPORATE AMERICA'S GROWTH IMPERATIVE
[Gatefold of pictures of clients and employees of the Company]
Sales Force Productivity Programs Multicultural Marketing & Sales
Customer Service & Support Strategic Planning & Market Research
Product Sampling & Fulfillment Physician Detailing
Physician & Pharmacy Databases Interactive Marketing Programs
Pharmacy Marketing Programs Patient Compliance Programs
Direct Mail
[CULTURALACCESSWORLDWIDE, INC. LOGO]
Bridging Cultures and Building Profits
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND COMBINED AND OTHER 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, (II) NO CONVERSION OF THE OUTSTANDING 6%
CONVERTIBLE PROMISSORY NOTES OF THE COMPANY DUE DECEMBER 1, 2000 IN THE
AGGREGATE PRINCIPAL AMOUNT OF $3.0 MILLION AND ISSUED IN DECEMBER 1996 AND (III)
THE ISSUANCE OF 65,000 SHARES OF THE COMPANY'S PREFERRED STOCK, SERIES 1998, IN
EXCHANGE FOR (X) ALL OF THE OUTSTANDING SHARES OF THE COMPANY'S 8% CUMULATIVE
PREFERRED STOCK AND 8% CUMULATIVE PREFERRED STOCK, SERIES 1997, AND (Y) THE
CONVERSION OF $2.9 MILLION OF INDEBTEDNESS OF THE COMPANY. 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 nine 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.
3
<PAGE>
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
32.4% during the first nine months of 1997 compared to the first nine months of
1996. As of September 30, 1997, the Company had approximately 1,160 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.
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 48% and 57%, respectively, between 1996 and 2010, which is
approximately 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 intends to 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
4
<PAGE>
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 intends to continue to
invest in proprietary systems and technologies that it believes provide it with
competitive advantages. The Company's technology strategy is driven by its
objective to maximize reliability, integration and flexibility.
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
investors should consider carefully before purchasing the shares of Common Stock
offered hereby. Such risk factors include the Company's reliance on Sprint; the
Company's reliance on its other major clients; the need for growth management;
the risks related to rapid expansion; acquisition risk; loss of contracts;
dependence on trend toward outsourcing; dependence on labor force; competition;
industry consolidation; potential consumer saturation; reliance on technology;
risk of business interruption; dependence on key personnel; contingent
acquisition consideration; government regulation; effect of potential
fluctuations in quarterly operating results; absence of public market; possible
volatility of stock price; shares eligible for future sale; control by existing
stockholders; substantial portion of proceeds to be used for payments to
principal stockholders; possible effect of anti-takeover provisions; no
dividends; and immediate and substantial dilution to new investors.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock being offered................ 4,000,000 shares
Common Stock to be outstanding after the
Offering (1).............................. 8,953,808 shares
Use of proceeds........................... To repay certain indebtedness, to finance future acquisitions and
internal growth and for other general corporate purposes
Nasdaq National Market symbol............. CAWW
</TABLE>
- ------------
(1) Does not include (i) 800,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option Plan (the "Stock Option Plan") or (ii)
65,000 shares of the Preferred Stock, Series 1998. See
"Management -- Executive Compensation -- Stock Option Plan," "Shares
Eligible for Future Sale," "Description of Capital Stock -- Preferred Stock"
and Note 11 of Notes to the Company's Combined Financial Statements.
Includes (i) 192,308 shares of Common Stock to be issued upon conversion of
the 6% convertible subordinated promissory note of the Company due December
1, 2000 in the principal amount of $2,500,000 and issued in October 1997
(the "Convertible Note") upon the consummation of the Offering, assuming an
initial public offering price of $13.00 per share, provided that the
Convertible Note will be converted into a greater number of shares if the
initial public offering price is less than $13.00 per share, and (ii)
500,000 shares of Non-Voting Common Stock that will be converted into Common
Stock on a share-for-share basis 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.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FIVE MONTHS YEAR ENDED DECEMBER 31, SEPTEMBER 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>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $1,660 $2,796 $4,397 $ 2,728 $9,047 $ 16,286 $ 38,102 $ 13,125 $ 24,039
Cost of revenues..... 514 1,182 1,720 1,437 4,396 8,639 19,026 6,350 14,436
------ ------ ------ ----------- ------ --------- ----------- ----------- -----------
Gross profit......... 1,146 1,614 2,677 1,291 4,651 7,647 19,076 6,775 9,603
Selling, general and
administrative..... 1,073 1,513 2,715 807 4,540 7,754 18,626 4,706 5,877
------ ------ ------ ----------- ------ --------- ----------- ----------- -----------
Income (loss) from
operations......... 73 101 (38) 484 111 (107) 450 2,069 3,726
Interest (expense)
income............. -- (5) (3) (2) 24 (101) (134 ) 13 (1,478)
Other income
(expense).......... -- -- -- -- 5 (200) (153 ) (37) (302)
------ ------ ------ ----------- ------ --------- ----------- ----------- -----------
Income (loss) before
income taxes....... 73 96 (41) 482 140 (408) 163 2,045 1,946
Tax (expense) benefit
(2)................ -- (33) -- -- -- 88 (76 ) -- (941)
------ ------ ------ ----------- ------ --------- ----------- ----------- -----------
Net income (loss).... $ 73 $ 63 $ (41) $ 482 $ 140 $ (320) $ 87 $ 2,045 $ 1,005
====== ====== ======== =========== ====== ========== ============ =========== ===========
<CAPTION>
SEPTEMBER
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 $ 16,963 $ 8,123
Total assets (3)..... 354 705 1,240 1,152 2,749 29,454 28,644
Current
liabilities........ 137 414 996 429 2,159 16,757 11,839
Long-term debt, less
current
maturities......... -- 16 10 6 -- 16,201 17,071
Mandatorily
redeemable
preferred stock.... -- -- -- -- -- 1,800 3,816
Stockholders' equity
(deficit).......... 217 275 234 717 590 (5,304) (4,082)
<CAPTION>
PRO FORMA
AS ADJUSTED
1997 (1)
---------------
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $ 38,801
Cost of revenues..... 22,187
---------------
Gross profit......... 16,614
Selling, general and
administrative..... 12,399
---------------
Income (loss) from
operations......... 4,215
Interest (expense)
income............. (76)
Other income
(expense).......... (309)
---------------
Income (loss) before
income taxes....... 3,830
Tax (expense) benefit
(2)................ (1,696)
---------------
Net income (loss).... $ 2,134
================
PRO FORMA
AS ADJUSTED (4)
---------------
<S> <C>
BALANCE SHEET DATA:
Current assets....... $ 22,750
Total assets (3)..... 59,692
Current
liabilities........ 6,841
Long-term debt, less
current
maturities......... 1,137
Mandatorily
redeemable
preferred stock.... 6,500
Stockholders' equity
(deficit).......... 45,214
</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") outstanding prior to the Offering resulting from the
assumed use, as of January 1, 1996, of the estimated net proceeds of the
Offering to retire outstanding debt, as described under "Use of Proceeds,"
and pay all accrued but unpaid dividends on the Preferred Stock outstanding
prior to the Offering. 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, $0
taxes were recorded by the Company. The data for the nine months ended
September 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
(loss) would have been approximately ($149) and ($260), respectively, for
the year ended December 31, 1996 and $818 and $1,227, respectively, for the
nine months ended September 30, 1996.
(3) Includes $18,500 and $33,100 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 September 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
were effective after September 30, 1997 as if they had occurred on September
30, 1997, the sale of shares of Common Stock offered hereby at the assumed
initial public offering price of $13.00 per share, the assumed conversion of
the Convertible Note into 192,308 shares of Common Stock, the payment of all
accrued but unpaid dividends on the Preferred Stock outstanding prior to the
Offering and the assumed use of the estimated net proceeds as if the
Offering had occurred on September 30, 1997, as described under "Use of
Proceeds." See "Unaudited Pro Forma Financial Information."
6
<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 $15.7
million, or approximately 41%, of the Company's pro forma revenues for the
nine-month period ended September 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. 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. 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. As a result of the Recapitalization
(as defined below) the core management group with which Sprint originally
entered into the master services agreement changed, which had the potential to
affect adversely the Company's on-going relationship with Sprint. However, the
Company's experience since the Recapitalization indicates that the Company's
on-going relationship with Sprint has not been adversely affected, and 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
revenues provided by 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 76% of the Company's combined pro forma revenues for the
nine-month period ended September 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
7
<PAGE>
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 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. Also, the
Company's anticipated credit agreement with NationsBank, N.A. will require the
Company to seek prior approval of acquisitions for which the acquisition
consideration exceeds certain amounts, which may limit the Company's ability to
make such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." In
addition, the Company competes for acquisition and expansion opportunities with
entities that have 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 any 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
8
<PAGE>
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.
RELIANCE ON TECHNOLOGY
The Company has invested significant funds in 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. John
Fitzgerald, Chief Executive Officer and President of the Company, and Michael
Dinkins, Senior Vice President and Chief Financial Officer of the Company, are
considered to be the key management personnel, but no single executive officer
of the Company is critical to the Company's success. Although each of Messrs.
Fitzgerald and Dinkins has an employment agreement with the Company, holds
shares of Common Stock or has stock options which vest over time based on
continued employment with the Company, 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. Also, the Company's anticipated credit agreement with
NationsBank, N.A. will contain a change of control or management provision
whereby (i) a change in any two of the Company's five key executives or a
majority of the Board of Directors, unless such change is approved by
NationsBank, N.A., or (ii) the acquisition
9
<PAGE>
by any person of beneficial ownership of more than 30% of the Company's Common
Stock, would constitute an event of default under such agreement.
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 $5,481,000 and issue approximately
915,000 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
$8,725,000 and issue 1,303,000 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."
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."
10
<PAGE>
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 8,953,808 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 stockholders of the Company beneficially holding in the aggregate
4,934,208 shares of the Company's Common Stock (55.1% 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 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 Bear, Stearns & Co. 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 4,761,500 shares of Common Stock
will be eligible for sale pursuant to Rule 144 under the Securities Act ("Rule
144"), including 537,040 shares which would be freely tradeable under paragraph
(k) of Rule 144 and 4,224,460 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 39% 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.
11
<PAGE>
SUBSTANTIAL PORTION OF PROCEEDS TO BE USED FOR PAYMENTS TO PRINCIPAL
STOCKHOLDERS
The Company intends to apply approximately $38.6 million of the estimated
net proceeds from the Offering to retire certain indebtedness 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, $32.1 million will be applied to the retirement
of debt 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 $1.0 million will be applied to the
retirement of debt guaranteed by such investment partnerships. Additionally, the
Company will pay all accrued but unpaid dividends aggregating approximately
$300,000 on the Preferred Stock outstanding prior to the Offering held by such
investment partnerships and has agreed to pay Foster Management Company a fee of
$750,000 for its assistance in effecting 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. In
addition, pursuant to its anticipated credit agreement with NationsBank, N.A.,
the Company will be prohibited from declaring and paying any dividends during
the term of such agreement. 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 $13.00 per share, dilution to investors in the
Offering will be $10.00 per share, and the net tangible book value of the shares
held by existing stockholders will increase by $7.83 per share. See "Dilution."
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. In January
1997, TLM Holdings Corp. ("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 August 1997, the Company changed
its name to CulturalAccessWorldwide, Inc. 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
12
<PAGE>
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
$13.00 per share, are estimated to be $46.6 million ($53.9 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 $38.6 million of the net
proceeds of the Offering to retire certain indebtedness of the Company as
follows: (i) $11.6 million to repay the outstanding balance of the Company's 8%
subordinated term notes due December 1, 2006, together with accrued interest;
(ii) $5.0 million to repay the outstanding balance of the Company's 8%
subordinated term notes due January 15, 2007, together with accrued interest;
(iii) $15.5 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; and (vi)
$1.0 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 January 15, 1998 was 8.5%), or (y) the federal
funds rate (which at January 15, 1998 was 5.36%) plus 0.5% or (b) the eurodollar
rate (which at January 15, 1998 was 5.59%) plus 2%, together with accrued
interest. 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. Holders of the Company's Preferred Stock,
Series 1998, are entitled to receive ratably such dividends, if any, as the
Board of Directors may declare from time to time with respect to shares of
Common Stock out of funds legally available therefor on the basis of 7.69 times,
assuming an initial public offering price of $13.00 per share, the dividends
paid per share of Common Stock, appropriately adjusted for any stock splits,
stock dividends or similar events affecting the Common Stock. 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. In addition, pursuant to its anticipated
credit agreement with NationsBank, N.A., the Company will be prohibited from
declaring and paying any dividends during the term of such agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
acquisitions which occurred subsequent to September 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 $13.00 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>
SEPTEMBER 30, 1997
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED (5)
-------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Line of credit facility and current portion of indebtedness (1)....................... $ 7,190 $ 723
======== ===============
Long-term debt, net of current portion (1)............................................ $ 17,071 $ 1,137
Mandatorily redeemable preferred stock, $.01 par value; 1,000,000 shares authorized,
36,000 shares issued and outstanding actual; 65,000 shares issued and outstanding as
adjusted (2)........................................................................ 3,816 6,500
Stockholders' equity (deficit):
Common Stock, $.01 par value, voting; 19,500,000 shares authorized, 4,161,500 shares
issued and outstanding actual; 8,853,808 shares issued and outstanding as
adjusted (3)..................................................................... 42 89
Common Stock, $.01 par value, non-voting; 500,000 shares authorized, 500,000 shares
issued and outstanding actual; no shares issued or outstanding as adjusted....... 5 --
Additional paid-in capital.......................................................... 12,811 62,064
Accumulated deficit................................................................. (17,134) (17,134)
Deferred compensation............................................................... (10) (10)
-------- ---------------
Total stockholders' equity (deficit) (4)....................................... (4,286) 45,009
-------- ---------------
Total capitalization........................................................... $ 16,601 $ 52,646
======== =================
</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 Company will pay all accrued but unpaid
dividends on all shares of Preferred Stock outstanding prior to the
Offering. See "Certain Transactions."
(3) Includes 192,308 shares of Common Stock to be issued upon the conversion of
the Convertible Note upon the consummation of the Offering, assuming an
initial public offering price of $13.00 per share, provided that the
Convertible Note will be converted into a greater number of shares if the
initial public offering price is less than $13.00 per share. Does not
include (i) 100,000 shares of Common Stock issued subsequent to September
30, 1997 and (ii) 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) See Note 1 of Notes to the Company's Combined Financial Statements for
information concerning the Company's basis of accounting.
(5) Adjusted to reflect acquisitions made by the Company effective subsequent to
September 30, 1997, the sale of shares of Common Stock offered hereby at the
assumed initial public offering price of $13.00 per share, the application
of the estimated net proceeds therefrom, as described under "Use of
Proceeds," the payment of all accrued but unpaid dividends on the Preferred
Stock outstanding prior to the Offering, the assumed conversion of the
Convertible Note into 192,308 shares of Common Stock and the conversion of
500,000 shares of Non-Voting Common Stock into Common Stock. See "Unaudited
Pro Forma Financial Information."
14
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of September 30,
1997, was approximately $(22.5) million or $(4.83) 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
September 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 $13.00 per
share and after deducting estimated underwriting discounts and commissions and
offering expenses and (ii) 192,308 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 September 30, 1997 would
have been approximately $26.6 million or $3.00 per share. This represents an
immediate increase in pro forma net tangible book value of $7.83 per share to
existing stockholders and an immediate dilution of $10.00 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)................................. $13.00
Net tangible book value (deficit) at September 30, 1997 (2)..... $(4.83)
Increase in net tangible book value attributable to new
investors.................................................... 7.83
------
Pro forma net tangible book value after the Offering (3).......... 3.00
------------
Dilution to new investors (4)..................................... $10.00
============
</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 $(18.5 million), or $(3.96) per share.
(3) The Convertible Note was not outstanding at September 30, 1997 and,
accordingly, is not included in the computation of net tangible book value
(deficit) at September 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 September 30, 1997, the
difference between existing stockholders and new investors (at an assumed
initial public offering price of $13.00 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)........................... 4,661,500 53.8% $ 379,076 0.7% $ 0.08
New investors....................................... 4,000,000 46.2 52,000,000 99.3 13.00
--------- ------- ----------- -------
Total............................................. 8,661,500 100.0% $52,379,076 100.0%
========= ======= =========== ========
</TABLE>
- ------------
(1) Excludes (i) 192,308 shares of Common Stock to be issued upon the conversion
of the Convertible Note upon the consummation of the Offering, assuming an
initial public offering price of $13.00 per share, provided that the
Convertible Note will be converted into a greater number of shares if the
initial public offering price is less than $13.00 per share and (ii) 100,000
shares of Common Stock issued after September 30, 1997. If such shares were
included, the number of shares of Common Stock purchased by existing
stockholders would be 4,953,808 shares (55.3%) for a total consideration of
$2,884,776 (5.3%), 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 September 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 September 30, 1997,
options to purchase 184,000 shares of Common Stock were outstanding, and
subsequent to September 30, 1997, options to purchase 243,500 shares of Common
Stock were granted by the Company to employees and directors. Options to
purchase 60,000 shares of Common Stock are exercisable at the date of the
Offering, all of which are exercisable at the initial public offering price;
accordingly, the exercise of these options would not create additional dilution
to new investors. To the extent 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.
15
<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), 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 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 nine months ended
September 30, 1996 and 1997, have been derived from the unaudited internal
financial statements of the Company. The unaudited financial statements for the
nine months ended September 30, 1996 and 1997 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 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $1,660 $2,796 $4,397 $2,728 $9,047 $ 16,286 $ 38,102 $ 13,125 $ 24,039
Cost of revenues....... 514 1,182 1,720 1,437 4,396 8,639 19,026 6,350 14,436
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Gross profit........... 1,146 1,614 2,677 1,291 4,651 7,647 19,076 6,775 9,603
Selling, general and
administrative....... 1,073 1,513 2,715 807 4,540 7,754 18,626 4,706 5,877
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Income (loss) from
operations........... 73 101 (38) 484 111 (107) 450 2,069 3,726
Interest (expense)
income............... -- (5) (3) (2) 24 (101) (134 ) 13 (1,478 )
Other income
(expense)............ -- -- -- -- 5 (200) (153 ) (37) (302 )
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Income (loss) before
income taxes......... 73 96 (41) 482 140 (408) 163 2,045 1,946
Tax (expense) benefit
(2).................. -- (33) -- -- -- 88 (76 ) -- (941 )
------ ------ ------ ------------ ------ --------- ----------- ----------- ---------
Net income (loss)...... $ 73 $ 63 $ (41) $ 482 $ 140 $ (320) $ 87 $ 2,045 $ 1,005
====== ====== ======= ============ ======= ========== ============ ============ ==========
Net income per common
share................ $ .01 $ .21
=========== =========
Shares used in net
income per common
share computation.... 9,045,641 4,853,333
=========== ===========
<CAPTION>
PRO FORMA
AS ADJUSTED
1997 (1)
---------------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 38,801
Cost of revenues....... 22,187
---------------
Gross profit........... 16,614
Selling, general and
administrative....... 12,399
---------------
Income (loss) from
operations........... 4,215
Interest (expense)
income............... (76)
Other income
(expense)............ (309)
---------------
Income (loss) before
income taxes......... 3,830
Tax (expense) benefit
(2).................. (1,696)
---------------
Net income (loss)...... $ 2,134
===============
Net income per common
share................ $ .24
===============
Shares used in net
income per common
share computation.... 9,045,641
===============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
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 $ 16,963 $ 8,123
Total assets(3)........ 354 705 1,240 1,152 2,749 29,454 28,644
Current liabilities.... 137 414 996 429 2,159 16,757 11,839
Long-term debt, less
current maturities... -- 16 10 6 -- 16,201 17,071
Mandatorily redeemable
preferred
stock................ -- -- -- -- -- 1,800 3,816
Stockholders' equity
(deficit)............ 217 275 234 717 590 (5,304) (4,082 )
<CAPTION>
PRO FORMA
AS ADJUSTED (4)
---------------
<S> <C>
BALANCE SHEET DATA:
Current assets......... $ 22,750
Total assets(3)........ 59,692
Current liabilities.... 6,841
Long-term debt, less
current maturities... 1,137
Mandatorily redeemable
preferred
stock................ 6,500
Stockholders' equity
(deficit)............ 45,214
</TABLE>
16
<PAGE>
- ------------
(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 outstanding prior to
the Offering resulting from the assumed use, as of January 1, 1996, of the
estimated net proceeds of the Offering to retire outstanding debt, as
described in "Use of Proceeds," and pay all accrued but unpaid dividends on
the Preferred Stock outstanding prior to the Offering. 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, $0
taxes were recorded by the Company. The data for the nine months ended
September 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
(loss) would have been approximately ($149) and $(260), respectively, for
the year ended December 31, 1996 and $818 and $1,227, respectively, for the
nine months ended September 30, 1996.
(3) Includes $18,500 and $33,100 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 September 30, 1997.
(4) Adjusted on a Pro Forma as Adjusted basis to reflect the acquisition of HMC
and Phoenix which were effective after September 30, 1997 as if they had
occurred on September 30, 1997, the sale of shares of Common Stock offered
hereby at the assumed initial public offering price of $13.00 per share, the
assumed conversion of the Convertible Note into 192,308 shares of Common
Stock, the payment of all accrued but unpaid dividends on the Preferred
Stock outstanding prior to the Offering and the assumed use of the estimated
net proceeds as if the Offering had occurred on September 30, 1997 as
described under "Use of Proceeds." See "Unaudited Pro Forma Financial
Information."
17
<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 nine months ended September 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 effective subsequent to
September 30, 1997. The Unaudited Pro Forma Balance Sheet has been prepared
assuming that the acquisitions which took place after September 30, 1997 and the
Offering had occurred on September 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 outstanding prior to the Offering 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, as described under the "Use of
Proceeds," and to pay all accrued but unpaid dividends on the Preferred Stock of
the Company outstanding prior to the Offering.
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.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- ACQUISITION OFFERING
ACQUIRED PRO FORMA PRO FORMA PRO FORMA
THE COMPANY(1) COMPANIES(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------------- -------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 24,039 $ 14,762 $ -- $ 38,801 $ -- $38,801
Cost of revenues............. 14,436 7,751 -- 22,187 -- 22,187
---------------- -------------- ----------- ---------------- ----------- -----------
Gross profit............... 9,603 7,011 -- 16,614 -- 16,614
Selling, general and
administrative............. 5,877 5,873 649(3) 12,399 -- 12,399
---------------- -------------- ----------- ---------------- ----------- -----------
Income from operations..... 3,726 1,138 (649) 4,215 -- 4,215
Interest income.............. 81 9 -- 90 -- 90
Interest expense............. (1,559) (248) (960)(4) (2,767) 2,601(5) (166)
Other (expense).............. (302) (7) -- (309) -- (309)
---------------- -------------- ----------- ---------------- ----------- -----------
Income before taxes........ 1,946 892 (1,609) 1,229 2,601 3,830
Income tax (expense)
benefit.................... (941) (358) 643(6) (656) (1,040)(6) (1,696)
---------------- -------------- ----------- ---------------- ----------- -----------
Net income................. $ 1,005 $ 534 $ (966) $ 573 $ 1,561 $ 2,134
================ ============== ============ ================ ============= ============
Net income per common
share(7)................... $ .21 $ .12 $ .24
---------------- ================ ===========
Shares used in net income per
common share
computation(7)............. 4,853,333 4,853,333 4,192,308 9,045,641
---------------- ================= ============ =============
</TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- ACQUISITION OFFERING
ACQUIRED PRO FORMA PRO FORMA PRO FORMA
THE COMPANY(1) COMPANIES(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------------- -------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 13,125 $ 16,170 $ -- $ 29,295 $ -- $29,295
Cost of revenues............. 6,350 8,062 -- 14,412 -- 14,412
---------------- -------------- ----------- ---------------- ----------- -----------
Gross profit............... 6,775 8,108 -- 14,883 -- 14,883
Selling, general and
administrative............. 4,706 6,373 467(3) 11,546 -- 11,546
---------------- -------------- ----------- ---------------- ----------- -----------
Income from operations..... 2,069 1,735 (467) 3,337 -- 3,337
Interest income.............. 13 99 -- 112 -- 112
Interest expense............. (37) (497) (1,065)(4) (1,599) 1,280(5) (319)
Other income................. -- 13 -- 13 -- 13
---------------- -------------- ----------- ---------------- ----------- -----------
Income before taxes........ 2,045 1,350 (1,532) 1,863 1,280 3,143
Income tax (expense)
benefit.................... (818) (540) 613(6) (745) (512)(6) (1,257)
---------------- -------------- ----------- ---------------- ------------- -----------
Net income................. $ 1,227 $ 810 $ (919) $ 1,118 $ 768 $ 1,886
================= ============== =========== ================ ============ ============
</TABLE>
19
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<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>
Revenues..................... $16,286 $21,816 $ -- $38,102 $ -- $38,102
Cost of revenues............. 8,639 10,387 -- 19,026 -- 19,026
--------------------- --------------------- ----------- --------- ----------- -----------
Gross profit............... 7,647 11,429 -- 19,076 -- 19,076
Selling, general and
administrative............. 7,754 10,250 622(3) 18,626 -- 18,626
--------------------- --------------------- ----------- --------- ----------- -----------
(Loss) income from
operations.............. (107) 1,179 (622) 450 -- 450
Interest income.............. -- 87 -- 87 -- 87
Interest expense............. (101) (407) (1,420)(4) (1,928) 1,707(5) (221)
Other (expense) income....... (200) 47 -- (153) -- (153)
--------------------- --------------------- ----------- --------- ----------- -----------
(Loss) income before
taxes................... (408) 906 (2,042) (1,544) 1,707 163
Income tax (expense)
benefit.................... 88 (298) 817(6) 607 (683)(6) (76)
--------------------- --------------------- ----------- --------- ----------- -----------
Net (loss) income.......... $ (320) $ 608 $(1,225) $ (937) $ 1,024 $ 87
====================== ===================== =========== =========== ============ ============
Net (loss) income per common
share(7)................... $ (.19) $ .01
========= ===========
Shares used in net income
(loss) per common share
computation(7)............. 4,853,333 4,192,308 9,045,641
========== ========== ===========
</TABLE>
- ------------
(1) For the periods ended September 30, 1996 and December 31, 1996, represents
the historical statements of operations data for CulturalAccess. For the
nine months ended September 30, 1997, represents the historical combined
statements of operations data for the combined CulturalAccess and TLM.
(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 $71 and $598 for nine months ended September 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 $720
and $1,220 for the nine months ended September 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 $25,700. 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 plus common equivalent shares as of January 15, 1998 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 as adjusted basis also include 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, as more fully described under "Use of Proceeds," and to pay all
accrued but unpaid dividends on the Preferred Stock outstanding prior to the
Offering.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<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................... $ 8,123 $ 4,180 $ -- $12,303 $10,447(4) $22,750
Property and equipment, net...... 2,057 1,745 -- 3,802 -- 3,802
Other assets..................... 16 -- -- 16 -- 16
Intangible assets, net........... 18,448 78 14,598(3) 33,124 -- 33,124
----------- ------------- ----------- --------- ----------- -----------
Total assets.................. $28,644 $ 6,003 $14,598 $49,245 $10,447 $59,692
============ ============= =========== ========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Amount due on line of credit
facility...................... $ 5,410 $ -- $ -- $ 5,410 $(5,410)(4) $ --
Current portion of
indebtedness.................. 1,780 461 -- 2,241 (1,518) 723
Other current liabilities........ 4,648 2,337 -- 6,985 (867) 6,118
----------- ------------- ----------- --------- ----------- -----------
Total current liabilities..... 11,838 2,798 -- 14,636 (7,795) 6,841
Long-term indebtedness........... 17,071 2,769 15,034(3) 34,874 (33,737) 1,137
Mandatorily redeemable preferred
stock......................... 3,816 -- -- 3,816 2,684(4) 6,500
Stockholders' (deficit) equity:
Common stock..................... 83 52 (52)(3) 83 42(4) 125
Additional paid-in capital....... 12,980 (45) 45(3) 12,980 49,253(4) 62,233
Retained earnings (accumulated
deficit)...................... (17,134) 429 (429)(3) (17,134) -- (17,134)
Deferred compensation............ (10) -- -- (10) -- (10)
----------- ------------- ----------- --------- ----------- -----------
Total stockholders'
(deficit) equity......... (4,081) 436 (436) (4,081) 49,295 45,214
----------- ------------- ----------- --------- ----------- -----------
Total liabilities, mandatorily
redeemable preferred stock and
stockholders' (deficit)
equity........................ $28,644 $ 6,003 $14,598 $49,245 $10,447 $59,692
============ ============== =========== ========== =========== ===========
</TABLE>
- ------------
(1) Represents the historical balance sheet data for the Company.
(2) The historical balance sheet data for the acquired companies as of September
30, 1997 represent the combined September 30, 1997 balance sheets for HMC
and Phoenix. Both companies were acquired subsequent to September 30, 1997.
See "The Company."
21
<PAGE>
(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.
Information with respect to the businesses acquired is as follows:
<TABLE>
<CAPTION>
HMC PHOENIX TOTAL
------ ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash paid (net of cash acquired)............................................... $1,412 $11,612 $13,024
Notes issued................................................................... 240 5,000 5,240
Liabilities assumed............................................................ 382 1,955 2,337
------ ------- -------
2,034 18,567 20,601
Fair value of assets acquired.................................................. 466 5,537 6,003
------ ------- -------
Costs in excess of fair value of tangible assets acquired...................... $1,568 $13,030 $14,598
======= ======= =======
</TABLE>
A summary of the preliminary allocation of the purchase price to the
intangible assets acquired is as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS HMC PHOENIX TOTAL
----------- ------ ------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Goodwill........................................................... 35 $1,353 $11,287 $12,640
Customer lists..................................................... 5 82 664 746
Assembled workforce................................................ 3 51 415 466
Noncompete......................................................... 7 82 664 746
------ ------- -------
$1,568 $13,030 $14,598
======= ======== ========
</TABLE>
The book value of the acquired companies' assets approximates fair market
value as of the date of acquisition.
The Company is obligated to pay additional consideration to certain sellers
of the businesses acquired upon the businesses' achievement of certain net
revenue and pre-tax earnings goals after the respective 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 the earn-out periods
terminate and achievement of criteria is established. Any amount paid
pursuant to these agreements will be recorded as additional purchase price
for the businesses acquired and will be amortized over 35 years. See "Risk
Factors -- Contingent Acquisition Consideration."
(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 the
Credit Facility and pay all accrued but unpaid dividends on the Preferred
Stock outstanding prior to the Offering; and (iii) the conversion of certain
acquisition debt into 192,308 shares of Common Stock. See "Use of Proceeds."
22
<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 included the following:
(Bullet) On a pro forma basis to reflect acquisitions, the Company's
revenues increased by 32.4% during the first nine months of 1997
compared to the first nine months of 1996.
(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) Effective October 1, 1997, the Company acquired HMC, an ethnic
marketing research and strategic planning company.
(Bullet) Effective October 31, 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 salesperson basis. Data analysis to drive sales
force deployment is billed on a fixed fee basis. Revenues are
recognized as activities are performed.
23
<PAGE>
(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.
(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. Prior to the Recapitalization, the Company was a closely-held S
Corporation and accordingly its financial results are not indicative of those
which would be achieved by a public company.
<TABLE>
<CAPTION>
FIVE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ----------------- --------------------------
1994 1995 1996 1996 1997
------------ ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
Revenues............................................. $2,728 $9,047 $16,286 $13,125 $24,039
Cost of revenues..................................... 1,437 4,396 8,639 6,350 14,436
------------ ------ ------- ----------- -----------
Gross profit....................................... 1,291 4,651 7,647 6,775 9,603
Selling, general and administrative.................. 807 4,540 7,754 4,706 5,877
------------ ------ ------- ----------- -----------
Income (loss) from operations...................... 484 111 (107) 2,069 3,726
Interest income (expense)............................ (2) 24 (101) 13 (1,478)
Other income (expense)............................... -- 5 (200) (37) (302)
------------ ------ ------- ----------- -----------
Income (loss) before taxes......................... 482 140 (408) 2,045 1,946
Income tax (expense) benefit......................... -- -- 88 -- (941)
------------ ------ ------- ----------- -----------
Net income (loss).................................. $ 482 $ 140 $ (320) $ 2,045 $ 1,005
============= ========= ========= =========== ===========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FIVE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 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 48.4 60.1
------------ ------ ------- ----------- -----------
Gross profit....................................... 47.3 51.4 47.0 51.6 39.9
Selling, general and administrative.................. 29.6 50.2 47.7 35.8 24.4
------------ ------ ------- ----------- -----------
Income (loss) from operations...................... 17.7 1.2 (0.7) 15.8 15.5
Interest income (expense)............................ -- 0.2 (0.6) 0.1 (6.1)
Other income (expense)............................... -- 0.1 (1.2) (0.3) (1.3)
------------ ------ ------- ----------- -----------
Income (loss) before taxes......................... 17.7 1.5 (2.5) 15.6 8.1
Income tax (expense) benefit......................... -- -- 0.5 -- (3.9)
------------ ------ ------- ----------- -----------
Net income (loss).................................. 17.7% 1.5% (2.0)% 15.6% 4.2%
============= ======== ======== ============ ============
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues increased $10.9 million, or 83.2%, from $13.1 million for the nine
months ended September 30, 1996 to $24.0 million for the nine months ended
September 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 $8.1 million, or 127.3%, from $6.4 million for
the nine months ended September 30, 1996 to $14.4 million for the nine months
ended September 30, 1997. Cost of revenues as a percentage of revenues increased
from 48.4% for the nine months ended September 30, 1996 to 60.1% for the nine
months ended September 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 $1.2 million, or
24.9%, from $4.7 million for the nine months ended September 30, 1996 to $5.9
million for the nine months ended September 30, 1997. Selling, general and
administrative expenses as a percentage of revenues decreased from 35.8% for the
nine months ended September 30, 1996 to 24.4% for the nine months ended
September 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 expense increased to $1.5 million for the nine months ended
September 30, 1997 compared with interest income of $13,000 for the nine months
ended September 30, 1996 primarily due to interest expense related to certain
indebtedness incurred to finance the Recapitalization and the acquisition of
TMS.
Other income and expense increased from $37,000 for the nine months ended
September 30, 1996 to $302,000 for the nine months ended September 30, 1997 due
to non-capitalizable organizational costs incurred in identifying future
acquisitions.
Income tax expense for the nine months ended September 30, 1997 was
$941,000. 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
nine months ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues increased $7.2 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
25
<PAGE>
Company opened a customer development facility in Dallas, Texas in August 1995,
representing a significant capacity addition. This facility added 125
workstations 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
70.8%, from $4.5 million in 1995 to $7.8 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 47.7% in 1996 reflecting the
spreading of these increased expenses over a larger base of revenues.
Interest expense increased $125,000 from interest income of $24,000 in 1995
to $101,000 of interest expense in 1996 primarily due to interest related to
certain indebtedness incurred to finance the Recapitalization.
Other income and expense increased $205,000 from income of $5,000 in 1995
to $200,000 of expense in 1996 primarily due to the write off of computer
equipment considered to be obsolete as of December 31, 1996.
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.
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 29.6% 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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996 (PRO FORMA)
The following Unaudited Pro Forma Combined Statements of Operations for the
nine months ended September 30, 1996 and September 30, 1997 are based on the
historical combined financial statements of the Company.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(IN THOUSANDS)
----------------------------------------------------------------
PERCENTAGE
OF REVENUES
------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues............................................. $29,295 $38,801 100.0% 100.0%
Cost of revenues..................................... 14,412 22,187 49.2 57.2
------------- ------------- ------------- -------------
Gross profit.................................... 14,883 16,614 50.8 42.8
Selling, general and administrative.................. 11,546 12,399 39.4 31.9
------------- ------------- ------------- -------------
Income from operations.......................... $ 3,337 $ 4,215 11.4% 10.9%
============= ============== ============== =============
</TABLE>
Revenues increased $9.5 million, or 32.4%, from $29.3 million for the nine
months ended September 30, 1996 to $38.8 million for the nine months ended
September 30, 1997. This increase 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. In addition, services which involved physician
detailing and services targeting pharmaceutical Culture Markets, particularly
pharmaceutical marketing support services, along with the sale of an Electronic
Territory Management System to a large pharmaceutical client accounted for the
balance of the increase.
Cost of revenues increased $7.8 million, or 53.9%, from $14.4 million for
the nine months ended September 30, 1996 to $22.2 million for the nine months
ended September 30, 1997. Cost of revenues as a percentage of revenues increased
from 49.2% for the nine months ended September 30, 1996 to 57.2% for the nine
months ended September 30, 1997. The primary reasons for the increase were short
lead times on new projects and significant growth in the number of workstations,
both of which required the Company to utilize overtime and contract labor. The
balance was primarily the cost of Personal Digital Assistance equipment sold to
a large pharmaceutical client for its Electronic Territory Management System.
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.
Selling, general and administrative expenses increased $853,000, or 7.4%,
from $11.5 million for the nine months ended September 30, 1996 to $12.4 million
for the nine months ended September 30, 1997. Selling, general and
administrative expenses as a percentage of revenues decreased from 39.4% for the
nine months ended September 30, 1996 to 31.9% for the nine months ended
September 30, 1997. Prior to the Recapitalization, related-party companies
provided many of the services used by the Company. The Company has since entered
into new contracts that have reduced the costs of such services.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had negative working capital of $3.7
million, a decrease of $3.9 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 September 30, 1997 consisted of cash and cash
equivalents, accounts receivable and borrowing availability under the Credit
Facility. There are no restrictions under any of the Company's financing
arrangements on the Company's ability to: (i) incur any additional debt or
capital expenditure or (ii) further pledge its assets. There are no financial
ratios the Company is required to maintain in connection with any of its
financing arrangements.
During the nine months ended September 30, 1997, the Company used $7.2
million in investing activities to acquire TMS, purchase additional equipment
and expand its technological infrastructure. During this period, the Company
spent $760,000 for capital expenditures primarily for the expansion of its
facilities and upgrading of its systems. Also during this period, the Company
used approximately $15.0 million to repay borrowings incurred in connection with
the Recapitalization.
27
<PAGE>
The Company experienced significant growth during 1996 and expects to
continue to grow through both internal expansion and complementary acquisitions.
The Company expended $6.5 million cash during January 1997 as partial
consideration for the acquisition of TMS. Subsequent to September 30, 1997,
the Company has incurred indebtedness of approximately $13.0 million for cash
payments made in 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
adversely affect the Company's ability to pursue its growth strategy and its
operating results in future periods.
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. The Company does not believe that the
implementation of its internal and external growth strategy and any financing
activities in connection therewith will have an adverse effect on its on-going
relationship with Sprint. 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 revenues provided by Sprint could have a material adverse effect
on the Company.
Immediately subsequent to the consummation of the Offering, the Company
intends to enter into a $30.0 million three-year revolving credit agreement with
NationsBank, N.A. The credit agreement will provide for interest at a variable
rate, depending on certain financial ratios, equal to (a) the LIBOR rate plus
1.25% to 2.00% or (b) the lead bank's prime rate plus 0% to 0.375%. Loans made
under the credit agreement will be secured by a pledge of all of (i) the
Company's interest in the common stock of its subsidiaries and (ii) the assets
of the Company and its subsidiaries. The closing with respect to the credit
agreement will be subject to certain conditions, including (a) receipt by the
Company in the Offering of gross proceeds of not less than $48.0 million and (b)
liquid assets of the Company after the Offering (after the payment of all
underwriting discounts and commissions and offering expenses, retirement of
certain indebtedness of the Company and the payment of all accrued but unpaid
dividends on the Preferred Stock outstanding prior to the Offering) of not less
than $5.0 million.
The Company believes that the proceeds from the Offering, together with
cash generated from operations and cash available to the Company through the
anticipated credit agreement with NationsBank, N.A., will be sufficient to
finance the Company's current operations and planned capital expenditures for at
least the next 12 months.
28
<PAGE>
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 September 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 32.4% during the first
nine months of 1997 compared to the first nine months of 1996. As of September
30, 1997, the Company had approximately 1,160 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
29
<PAGE>
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 27.8 million and 9.7 million people,
respectively, in 1996, will grow at rates of approximately 48% and 57%,
respectively, by 2010, compared to a 12% 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 39% from 69.2 million people
in 1996 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 a large number of 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.
30
<PAGE>
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.
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
31
<PAGE>
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 30-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
MARKETING SERVICES AND SOLUTIONS
The Company provides integrated marketing services and programs across four
distinct competencies: Strategic Planning and Database Management; Product Sales
and Marketing Programs; Sales Organization Productivity Programs; and Customer
Retention and Development Programs.
STRATEGIC PLANNING AND DATABASE MANAGEMENT. The Company provides analysis
and strategic direction as to how its clients should most effectively target and
approach high-potential customers in high-value Culture Markets. Strategic
planning is supported by the Company's research capabilities, which offer
detailed definitions and analyses of the market segments targeted by clients.
The Company's research group has been recognized by AMERICAN DEMOGRAPHICS
MAGAZINE for the last two years as one of the "Best 100 Sources of Marketing
Information." In addition, the Company has significant expertise in collecting,
analyzing, organizing and communicating data. 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.
PRODUCT SALES AND MARKETING PROGRAMS. The Company helps its clients
generate incremental sales by effectively penetrating pharmaceutical, ethnic and
generational Culture Markets. The Company's pharmaceutical programs target
physicians, through focused sales and marketing communications campaigns and
pharmaceutical
32
<PAGE>
sampling programs, and pharmacists, through product promotion and stocking
programs. The Company's Cultural Advantage programs target ethnic and
generational Culture Markets through a variety of services. The Company's
multicultural and multilingual staff executes 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.
SALES ORGANIZATION PRODUCTIVITY PROGRAMS. The Company helps improve the
efficiency of its clients' sales force by providing them with a variety of
services as well as an integrated technological infrastructure and support
system. This is comprised of: an Electronic Territory Management System, which
allows geographically dispersed sales forces to report and track their efforts
electronically; product sample and fulfillment support, to respond to physician
requests from the Company's ethical drug distribution center, one of the largest
outsourcing facilities of its kind; database management; personalized mail
services; and vacant territory management. Typically, these programs require the
Company to be integrated into the systems and sales force management structure
of the client's organization.
CUSTOMER RETENTION AND DEVELOPMENT PROGRAMS. The Company assists its
clients in increasing the lifetime value of their current customer relationships
by strengthening and expanding these customer relationships. The Company
provides customer loyalty and win-back programs, and customer service and
support. For its healthcare clients, the Company has the capability to deliver
direct-to-patient communications programs as well as patient monitoring and
compliance programs.
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.
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.
33
<PAGE>
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.
Sprint is the only client that represented over 10% of the Company's total
revenues for the nine months ended September 30, 1997. 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
34
<PAGE>
includes the distribution of product samples to physicians. The FDA also
regulates all promotional activities involving prescription drugs. There can be
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 and related logos. The Company believes the
CULTURALACCESSWORLDWIDE 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 name.
35
<PAGE>
EMPLOYEES
At September 30, 1997, the Company had approximately 1,160 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. In January 1998,
the Company entered into lease agreements for additional space in Florida and
Virginia in order to accommodate the Company's anticipated growth. 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.
INSURANCE
The Company believes that it maintains the types and amounts of insurance
customary in the industry, including coverage for general liability, product
liability, property damage and workers' compensation. Although there can be no
assurance that the Company's property damage and business interruption insurance
will adequately compensate the Company for losses that it may incur in any such
event, 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.
36
<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
---------------- --- ------------------------------------------------------------
Executive Officers
<S> <C> <C> <C>
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 54 President, Phoenix Marketing Group
Beth Broderson 42 Senior Vice President, Strategic Planning
Mary Sanchez 38 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 30 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 Worldwide (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 Corporation. Mr. Dinkins has a
Bachelor of Science degree in Financial Administration from Michigan State
University.
37
<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 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 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 and a Managing
Director of Phoenix Realty Partners.
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,
38
<PAGE>
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.
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
39
<PAGE>
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.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected or until their earlier death,
resignation or removal. Each executive officer serves at the discretion of the
Board of Directors, subject to certain contractual rights described below. No
family relationship exists between any of the directors or executive officers of
the Company.
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.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1997 concerning the compensation paid or awarded to the Chief
Executive Officer of the Company and each other executive officer whose salary
and bonus exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (#) COMPENSATION (1)
- -------------------------------------- -------- ----- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
John Fitzgerald $191,125 $ 0 $0 100,000 $0
President and Chief Executive Officer
John Jordan 221,451 0 0 5,000 0
President, TelAc Teleservices Group
Lee Edelstein 150,000 0 0 5,000 0
President, Professional Markets Group
</TABLE>
- ------------
(1) The Company provides its officers with certain non-cash group life and
health benefits generally available to all salaried employees. Such benefits
are not included in the above table pursuant to applicable Securities and
Exchange Commission (the "Commission") rules. No Named Executive Officer
received aggregate personal benefits or perquisites that exceed the lesser
of $50,000 or 10% of his total annual salary and bonus for such year.
The following table sets forth certain information with respect to the
grants of stock options to the Named Executive Officers during the fiscal year
ended December 31, 1997:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
% OF OPTIONS APPRECIATION FOR OPTION
GRANTED TO EXERCISE TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($ /SHARE) (1) DATE 5% 10%
- ---------------- -------- ------------ -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Fitzgerald 50,000 11.7% $13.00 5/1/07 $368,796 $913,794
50,000 11.7 13.00 10/24/07 393,048 987,340
John Jordan 5,000 1.2 13.00 10/25/07 39,305 98,734
Lee Edelstein 5,000 1.2 13.00 10/25/07 39,305 98,734
- -------------- ------- ----- -------- -------- ------- ---------
</TABLE>
- ------------
(1) Exercise price per share is equal to the price per share to the public in
the Offering. For purposes of the tables, the Company has assumed an initial
public offering price of $13.00 per share in the Offering.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The fair market value of the Common Stock underlying
the options is equal to the initial public offering price.
41
<PAGE>
No options were exercised by the Named Executive Officers during the fiscal
year ended December 31, 1997. The following table sets forth for the Named
Executive Officers certain information concerning the value of unexercised stock
options at the end of the fiscal year ended December 31, 1997:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Fitzgerald 0 100,000 $ 0 $ 0
John Jordan 0 5,000 0 0
Lee Edelstein 0 5,000 0 0
- -------------- -------- ----------- -------- ---------
</TABLE>
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. Mr. Fitzgerald's employment agreement is
automatically renewable for successive one year terms at the end of the initial
term and each extended term, unless either party provides notice of termination
at least six months prior to the expiration of such term. If Mr. Fitzgerald's
employment is terminated by the Company for "cause" or, in certain cases with
notice from the Company, upon disability, he is entitled to receive all salary
accrued to the effective date of termination and not theretofore paid to him. If
Mr. Fitzgerald is terminated without "cause" during the term of his employment
agreement, he is entitled to severance pay equal to one year's base salary due
under the agreement, 100% of his bonus opportunity for the year of termination
prorated through the date of such termination, health and medical insurance
coverage for one year following the date of such termination, and, in certain
cases, a car allowance for no more than three months following the date of such
termination.
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 agreed upon with
the Chief Executive Officer 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. If Mr. Dinkins' employment is terminated by the
Company for "cause," he is entitled to receive all salary accrued to the
effective date of termination and not theretofore paid to him. If Mr. Dinkins is
terminated without "cause" during the term of his employment agreement, he is
entitled to severance pay equal to
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<PAGE>
six months' base salary due under the agreement, plus an additional two months'
base salary for each year of service with the Company up to a maximum of 12
months' total severance.
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.
If Mr. Jordan's employment is terminated by the Company for "cause" or, in
certain cases with notice from the Company, upon disability, he is entitled to
receive all salary (and bonus, if earned and determined in accordance with the
terms of the agreement) accrued to the effective date of termination and not
theretofore paid to him, and any expense reimbursement due and not yet paid. If
Mr. Jordan is terminated without "cause" during the term of his employment
agreement, he is entitled to severance pay equal to all salary accrued to the
effective date of such termination and not theretofore paid, a lump sum payment
in the amount of $300,000, the prorated portion of any bonus earned in
accordance with the terms of the agreement, and any expense reimbursement due
and not yet paid.
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. If Mr. Edelstein's
employment is terminated by the Company for "cause" or, in certain cases with
notice from the Company, upon disability, he is entitled to receive all salary
(and bonus, if earned and determined in accordance with the terms of the
agreement) accrued to the effective date of termination and not theretofore paid
to him, and any expense reimbursement due and not yet paid. Mr. Edelstein's
employment with the Company may be terminated by the Company at any time after
January 15, 2000 for whatever reason the Company deems appropriate. If Mr.
Edelstein is terminated without "cause" after January 15, 2000, he is entitled
to severance pay equal to the lesser of (i) annual base salary paid through the
scheduled expiration of the term of the agreement or (ii) six months' annual
base salary, plus any expense reimbursement due and not yet paid.
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 $11.00
per share, one-half of which vest on December 31, 2000 and one-half on December
31, 2001. If Mr. Rebak's employment is terminated by the Company for "cause" or,
in certain cases with notice from the Company, upon disability, he is entitled
to receive all salary accrued to the effective date of termination and not
theretofore paid to him. Mr. Rebak's employment with the Company may be
terminated by the Company at any time after November 1, 2000 for whatever reason
the Company deems appropriate. If Mr. Rebak is terminated without "cause" after
November 1, 2000, he is entitled to severance pay equal to the lesser of (i)
annual base salary paid through the scheduled expiration of the term of the
agreement or (ii) six months' annual base salary. In certain cases, prior to
November 1, 2000, the agreement may be terminated by Mr. Rebak upon 30 days'
prior written notice to the Company.
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
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<PAGE>
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 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 or, if approved by the Compensation Committee, to immediate family
members or charitable organizations. 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 the maximum number of shares of Common
Stock which may be subject to options granted to any person during any fiscal
year of the Company is 150,000 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 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 May 1, 1997 and December 31, 1997, the Company granted options to
purchase a total of 427,500 shares of Common Stock. Between May 1, 1997 and
October 17, 1997, the Company granted options to purchase 245,000 shares of
Common Stock to certain members of the Company's management at a weighted
average exercise price of $8.12 per share (assuming an offering price of $13.00
per share). In addition to any options granted under their respective employment
agreements, between October 18, 1997 and December 31, 1997 the Company granted
options to purchase 50,000 shares to John Fitzgerald, 25,000 shares to Michael
Dinkins and an aggregate of 107,500 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 1998 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, Mr. Nagy is Managing Partner and Mr. Donohue
is a Principal. For a more detailed description of such relationships and
transactions, see "Certain Transactions."
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<PAGE>
CERTAIN TRANSACTIONS
In December 1996, in connection with the Recapitalization:
(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 and (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, (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 and (z) certain other stockholders of the Company (collectively, the
"Individuals") an aggregate of 787,500 shares of Common Stock of the Company
held by them in exchange for (i) 6% convertible promissory notes in the
aggregate principal amount of $721,500 due December 1, 2000 and (ii)
non-interest bearing promissory notes in the aggregate principal amount of
$3,607,500 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 $15,000,000
from the Company. On January 2, 1997, the $4,630,500 note to Mr. Jordan, the
$6,672,000 note to Mr. Morrow and the $3,607,500 of notes to the other
Individuals were repaid. At any time after ten days after the consummation of
the Offering, each of Mr. Morrow, Mr. Jordan and the other Individuals 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 $112,000
to the Company for working capital purposes. 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,
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<PAGE>
the Company and Ash Creek have borrowed an aggregate of approximately $2,070,541
from Abbingdon-II and $2,530,662 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 $6,975,000 from Abbingdon-II and $8,525,000 from Abbingdon-III
under these notes.
The Company intends to apply a portion of the net proceeds from the
Offering to repay certain of these notes and the other promissory notes issued
to the Partnerships and to pay all accrued but unpaid dividends on the shares of
Preferred Stock outstanding prior to the Offering held by the Partnerships. The
Partnerships have agreed with the Company that simultaneously with the
consummation of the Offering, the Partnerships will (x) exchange the 36,000
shares of the Preferred Stock held by them and (y) convert $2.9 million of the
principal amount of the notes due December 1, 2006 for an aggregate of 65,000
shares of Preferred Stock, Series 1998, in a recapitalization. After the
Offering, the Company's loan agreements with the Partnerships will be
terminated. See "Use of Proceeds."
Through December 31, 1997, the Company has been billed by Foster Management
Company an aggregate of $80,000 for management fees (at the rate of $6,667 per
month) plus reimbursement of out-of-pocket expenses of approximately $520,000.
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 effecting 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 $6.5 million 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. If the criteria for the contingent payments are achieved but not
exceeded, the Company would be obligated to make cash payments of $5,049,000,
and issue approximately 336,616 shares of Common Stock, to TMS over the next
three years. If the criteria for the contingent payments are exceeded by 20%,
the Company would be obligated to make cash payments of $8,207,000, and issue
approximately 455,939 shares of Common Stock, to TMS over the next three years.
Douglas Rebak was a stockholder of Phoenix, substantially all the assets of
which were acquired by a subsidiary of the Company effective 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. If
the criteria for the contingent payments are achieved but not exceeded, the
Company would be obligated to issue approximately 502,991 shares of Common Stock
to Phoenix over the next three years. If the criteria for the contingent
payments are exceeded by 20%, the Company would be obligated to issue
approximately 757,056 shares of Common Stock to Phoenix over the next three
years. The principal amount of the Convertible Note is convertible into 192,308
shares of Common Stock at the rate of $13.00 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
$13.00 per share. The Redeemable Note will be repaid from the net proceeds of
the Offering. See "Use of Proceeds."
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<PAGE>
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 under the Credit Facility 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 January
15, 1998 was 8.5%, or (ii) the federal funds rate (which at January 15, 1998 was
5.36%) plus 0.5% or (b) the Eurodollar rate (which at January 15, 1998 was
5.59%) plus 2%, together with accrued interest. The Partnerships 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 $13.00 per 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 and professional 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
$1,175,000, respectively, and professional fees of $40,300 and $342,000,
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 $386,734,
$462,662 and $219,165 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 January 15, 1998 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 Named Executive Officers 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(1)
STOCK -------------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING(2)
- ---------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Abbingdon Venture Partners............................................ 1,575,000(3) 35.1% 18.0%
Limited Partnership-II
1018 West Ninth Avenue
King of Prussia, PA 19406
Abbingdon Venture Partners............................................ 1,925,000(4) 42.4% 22.0%
Limited Partnership-III
1018 West Ninth Avenue
King of Prussia, PA 19406
John H. Foster........................................................ 3,500,000(5) 73.5% 39.9%
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Stephen F. Nagy....................................................... 3,500,000(5) 73.5% 39.9%
Foster Management Company
1018 West Ninth Avenue
King of Prussia, PA 19406
Joseph J. Morrow...................................................... 356,340 8.4% 4.1%
47 Lafayette Place
Greenwich, CT 06830
John Jordan........................................................... 321,960 7.6% 3.7%
1791 Crestwood Drive, N.W.
Washington, D.C. 20011
Peter D. Bewley....................................................... -- -- --
Lee Edelstein......................................................... 50,000 1.2% *
John Fitzgerald....................................................... 280,000(6) 6.5% 3.2%
Shawkat Raslan........................................................ -- -- --
Directors and executive............................................... 4,161,960(7) 86.3% 47.2%
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 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
January 15, 1998 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. Excludes 192,308 shares
of Common Stock to be issued upon conversion of the Convertible Note upon
the consummation of the Offering assuming an initial public offering price
of
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$13.00 per share. The Convertible Note will be converted into a greater
number of shares if the initial public offering price is less than $13.00
per share.
(2) Assumes the conversion of 500,000 shares of Non-Voting Common Stock into
500,000 shares of Common Stock upon the consummation of the Offering.
(3) 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 exchanged for shares of
Preferred Stock, Series 1998, concurrently with the consummation of the
Offering. In addition, concurrently with the consummation of the Offering,
$1.3 million of indebtedness owed to Abbingdon-II will be converted into
13,000 shares of Preferred Stock, Series 1998. See "Use of Proceeds" and
"Certain Transactions."
(4) 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 exchanged for shares of
Preferred Stock, Series 1998, concurrently with the consummation of the
Offering. In addition, concurrently with the consummation of the Offering,
$1.6 million of indebtedness owed to Abbingdon-III will be converted into
16,000 shares of Preferred Stock, Series 1998. See "Use of Proceeds" and
"Certain Transactions."
(5) 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 exchanged for shares of Preferred Stock, Series 1998, simultaneously
with the Offering. In addition, concurrently with the consummation of the
Offering, an aggregate of $2.9 million of indebtedness owed to Abbingdon-II
and Abbingdon-III will be converted into $29,000 shares of Preferred Stock,
Series 1998. See "Use of Proceeds" and "Certain Transactions."
(6) Includes options to purchase 50,000 shares of Common Stock that will become
exercisable upon the consummation of the Offering.
(7) Includes the shares of Common Stock owned by Abbingdon-II and Abbingdon-III
and also includes options to purchase 60,000 shares of Common Stock that
will become exercisable upon the consummation of the Offering. See Footnotes
(3), (4), (5) and (6).
49
<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 December 31, 1997 and as of the date of this Prospectus,
approximately 33 persons were holders of the 4,261,500 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 December 31, 1997 and as of the date of this
Prospectus, 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
December 31, 1997 and as of the date of this Prospectus, the Company had issued
and outstanding (i) 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 pay all accrued but unpaid dividends on such shares,
outstanding prior to the Offering.
The Partnerships have agreed with the Company that simultaneously with the
consummation of the Offering, the Partnerships will (x) exchange the (a) 18,000
shares of the Original Preferred Stock, (b) 18,000 shares of the 1997 Preferred
Stock and (y) convert $2.9 million of the principal amount of the notes due to
the Partnerships for an aggregate of 65,000 shares of Preferred Stock, Series
1998 (the "1998 Preferred Stock"). Holders of the 1998 Preferred Stock are
entitled to receive ratably such dividends, if any, as the Board of Directors
may declare from time to time with respect to shares of Common Stock out of
funds legally available therefor on the basis of 7.69 times, assuming an initial
public offering price of $13.00 per share, the dividends paid per share of
Common Stock, appropriately adjusted for any stock splits, stock dividends or
similar events affecting the Common Stock. In the event of the liquidation of
the Company, the holders of the 1998 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 1998 Preferred Stock does not have any voting rights and is
not convertible. The 1998 Preferred Stock is required to be redeemed upon the
earliest to occur of (i) the consummation of a sale by the Company to the public
of shares of the Common Stock subsequent to the Offering
50
<PAGE>
(other than pursuant to a registration statement on Forms S-4 or S-8 or similar
forms), (ii) the sale of more than 50% of the Common Stock then outstanding, or
substantially all of the assets of the Company, to a third party (or related
group of persons), (iii) a merger between the Company and any other person or
the consolidation of the Company with any other person if, immediately after
such event, the stockholders of the Company immediately prior to such event
shall in the aggregate hold less than 50% of the outstanding equity interests in
the entity surviving such merger or consolidation or (iv) the achievement by the
Company of net income of aggregate aggregating not less than $10 million over
any four consecutive quarters.
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 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.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,953,808 shares of
Common Stock outstanding, of which 4,953,808 shares (approximately 55.3% 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 certain of 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
options or warrants to purchase Common Stock except, in the case of the Company,
in certain limited circumstances, without the prior written consent of Bear,
Stearns & Co. 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. See "Risk Factors -- Shares Eligible for Future
Sale."
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."
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company, Bear, Stearns & Co. Inc. and NationsBanc Montgomery Securities LLC as
Representatives of the Underwriters, each of the Underwriters named below has
severally agreed to purchase from the Company, and the Company has agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------- -------------
<S> <C>
Bear, Stearns & Co. Inc..............................
NationsBanc Montgomery Securities LLC................
-------------
Total................................................ 4,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per
share of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share to certain
other dealers. After the 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 Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to 600,000 additional shares of Common Stock at the
public offering price less the underwriting discounts and commissions only to
cover over-allotments, if any, made in connection with the sale of shares of
Common Stock offered hereby. If the Underwriters exercise such over-allotment
options, then each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof as the number
of shares of Common Stock to be purchased by it as shown in the above table
bears to the 4,000,000 shares of Common Stock offered hereby.
The Company, its officers and directors and stockholders of the Company
owning an aggregate of 4,934,208 shares of Common Stock have agreed not to
offer, sell, transfer, assign or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock or grant any options or warrants to purchase Common Stock for a period of
180 days after the date of the final prospectus relating to the Offering without
the prior written consent of Bear, Stearns & Co. Inc. except, in the case of the
Company, in certain limited circumstances.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain civil liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.
53
<PAGE>
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilizing transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market and, if commenced,
may be discontinued at any time.
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.
Immediately subsequent to the consummation of the Offering, the Company
intends to enter into a $30.0 million three-year revolving credit agreement with
NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC, one of
the Representatives of the Underwriters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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, TMS as of December 31, 1995 and 1996 and for each
of the three years in the period ended December 31, 1996, Phoenix as of December
31, 1995 and 1996 and October 31, 1997 and for the periods then ended and HMC as
of December 31, 1996 and September 30, 1997 and for the periods then ended
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.
54
<PAGE>
In December 1996, the Company engaged Price Waterhouse LLP as its
independent accountants and dismissed Green, Holman, Frenia and Company, L.L.P.
as its independent accountants. The reports of Green, Holman, Frenia and
Company, L.L.P. on the financial statements for the year ended July 31, 1994,
the five months ended December 31, 1994 and the year ended December 31, 1995
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Company's
Board of Directors participated in and approved the decision to change
independent accountants. In connection with its audits for such periods and
through December 1996, there were no disagreements with Green, Holman, Frenia
and Company, L.L.P. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements if not resolved to the satisfaction of Green, Holman, Frenia and
Company, L.L.P. would have caused them to make reference thereto in their report
on the financial statements for such periods. The Company has requested that
Green, Holman, Frenia and Company, L.L.P. furnish it with a letter addressed to
the Commission stating whether or not it agrees with the above statements. A
copy of such letter, dated December 2, 1997, has been filed as an exhibit to the
Registration Statement.
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.
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.
55
<PAGE>
CULTURALACCESSWORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMBINED CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
Reports of Independent Accountants......................................................................... F-2
Combined Balance Sheets as of July 31, 1994; December 31, 1994, 1995, and 1996; and September 30, 1997
(unaudited).............................................................................................. F-4
Combined Statements of Operations for the Year Ended July 31, 1994; for the Five Months Ended December 31,
1994; for the Years Ended December 31, 1995 and 1996; and for the Nine Months Ended September 30, 1996
and 1997 (unaudited)..................................................................................... F-5
Combined Statements of Changes in Common Stockholders' Equity (Deficit) for the Year Ended July 31, 1994;
for the Five Months Ended December 31, 1994; for the Years Ended December 31, 1995 and 1996; and for the
Nine Months Ended September 30, 1997 (unaudited)......................................................... F-6
Combined Statements of Cash Flows for the Year Ended July 31, 1994; for the Five Months Ended December 31,
1994; for the Years Ended December 31, 1995 and 1996; and for the Nine Months Ended September 30, 1996
and 1997 (unaudited)..................................................................................... F-7
Notes to Combined Financial Statements..................................................................... F-8
TELEMANAGEMENT SERVICES, INC.
Report of Independent Accountants.......................................................................... F-22
Balance Sheets as of December 31, 1995 and 1996............................................................ F-23
Statements of Operations and Retained Earnings for the Years Ended December 31, 1994, 1995 and 1996........ F-24
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996.............................. F-25
Notes to Financial Statements.............................................................................. F-26
HISPANIC MARKET CONNECTIONS, INC.
Report of Independent Accountants.......................................................................... F-31
Balance Sheets as of December 31, 1996 and September 30, 1997.............................................. F-32
Statements of Operations and Retained Earnings for the Year Ended December 31, 1996 and for the Nine Months
Ended September 30, 1997................................................................................. F-33
Statements of Cash Flows for the Year Ended December 31, 1996 and for the Nine Months Ended September 30,
1997..................................................................................................... F-34
Notes to Financial Statements.............................................................................. F-35
PHOENIX MARKETING GROUP, INC.
Report of Independent Accountants.......................................................................... F-39
Balance Sheets as of December 31, 1996 and October 31, 1997................................................ F-40
Statements of Operations and Accumulated Deficit for the Years Ended December 31, 1995 and 1996 and for the
Ten Months Ended October 31, 1997........................................................................ F-41
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and for the Ten Months Ended
October 31, 1997......................................................................................... F-42
Notes to Financial Statements.............................................................................. F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in common stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of CulturalAccessWorldwide, Inc. and TLM Holdings Corp.
(collectively, "the Company") at December 31, 1996 and the results of their
operations and their 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 22, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CULTURALACCESSWORLDWIDE, INC.
We have audited the accompanying combined balance sheets of
CulturalAccessWorldwide, Inc. as of July 31, 1994, December 31, 1994 and
December 31, 1995 and the combined statements of operations and changes in
common stockholders' equity 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
CulturalAccessWorldwide, 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-3
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
COMBINED
CULTURALACCESSWORLDWIDE,
INC. AND TLM HOLDINGS
CULTURALACCESSWORLDWIDE, INC. CORP.
--------------------------------------------------------- ------------------------
JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1994 1995 1996 1997
---------- ----------------- ------------ ------------ ------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash........................................ $ 101,241 $ 406,094 $ 773,287 $ 300,387 $ 1,817,718
Restricted cash............................. -- -- -- 15,000,000 --
Accounts receivable, net of allowance for
doubtful accounts of $33,000, $18,000,
$18,000, $0, $11,532, and $182,604,
respectively.............................. 969,193 547,083 1,501,946 1,488,173 5,725,510
Due from employees.......................... -- -- -- -- 15,382
Due from related party...................... -- -- -- -- 50,000
Deferred tax asset.......................... -- -- -- 87,533 41,074
Other receivables........................... -- -- -- -- --
Other assets................................ 39,549 40,444 187,296 86,500 473,428
---------- ----------------- ------------ ------------ ------------
Total current assets...................... 1,109,983 993,621 2,462,529 16,962,593 8,123,112
Property and equipment, net................. 119,123 122,364 200,338 1,127,239 2,057,462
Other assets................................ 10,800 35,800 85,800 -- 15,250
Intangible assets, net...................... -- -- -- 11,363,827 18,448,185
---------- ----------------- ------------ ------------ ------------
Total assets.............................. $1,239,906 $ 1,151,785 $2,748,667 $ 29,453,659 $ 28,644,009
=========== ================= ============= ============= ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Amount due on line of credit facility....... $ -- $ -- $ -- $ -- $ 5,410,000
Accounts payable............................ 590,460 334,727 1,898,361 185,525 1,633,797
Accrued recruiting expenses................. -- -- -- 100,000 --
Accrued interest expense related party...... -- -- -- 95,617 995,134
Accrued salaries, wages and related
benefits.................................. -- -- -- 807,820 1,030,646
Other accrued expenses...................... 324,720 58,019 39,000 20,120 237,805
Due to related parties...................... 74,379 29,297 215,300 328,747 443,224
Deferred revenue............................ -- -- -- -- 307,716
Capital lease obligation.................... 6,066 6,996 6,186 219,165 --
Current portion of indebtedness -- related
parties................................... -- -- -- 15,000,000 1,780,255
---------- ----------------- ------------ ------------ ------------
Total current liabilities................. 995,625 429,039 2,158,847 16,756,994 11,838,577
Long-term portion of capital lease
obligation.................................. 10,150 6,187 -- -- --
Long-term portion of indebtedness -- related
parties..................................... -- -- -- 16,201,000 17,071,015
Mandatorily redeemable preferred stock, $.01
par value: 8% cumulative, 2,000,000 shares
authorized, 18,000 shares and 36,000 shares
issued and outstanding at December 31, 1996
and September 30, 1997, respectively........ -- -- -- 1,800,000 3,816,000
---------- ----------------- ------------ ------------ ------------
Total liabilities......................... 1,005,775 435,226 2,158,847 34,757,994 32,725,592
---------- ----------------- ------------ ------------ ------------
Commitments and contingencies (Notes 8 and 14)
Common stockholders' equity (deficit):
Common stock of CulturalAccess (Note 9)..... 1,000 1,000 1,670 39,300 41,640
Common stock subscribed, $1 par value: 330
shares issued and outstanding at December
31, 1995.................................. -- -- 330 -- --
Common stock of CulturalAccess, $.01 par
value: non-voting: 500,000 shares
authorized, issued and outstanding at
December 31, 1996 and September 30, 1997,
respectively.............................. -- -- -- 5,000 5,000
Common stock of TLM, $.01 par value: voting
20,000,000 shares authorized, 3,600,000
issued and outstanding at September 30,
1997...................................... -- -- -- -- 36,000
Additional paid-in capital.................. 24,000 24,000 217,000 12,789,892 12,979,980
Accumulated equity (deficit)................ 209,131 691,559 370,820 (18,138,527) (17,134,170)
Less: cost of treasury stock, 2,500
shares.................................... -- -- -- -- (143)
Deferred compensation....................... -- -- -- -- (9,890)
---------- ----------------- ------------ ------------ ------------
Total common stockholders' equity
(deficit)............................... 234,131 716,559 589,820 (5,304,335) (4,081,583)
---------- ----------------- ------------ ------------ ------------
Total liabilities, mandatorily redeemable
preferred stock and common stockholders'
equity (deficit)........................ $1,239,906 $ 1,151,785 $2,748,667 $ 29,453,659 $ 28,644,009
=========== ================= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED
CULTURAL-
ACCESS-
WORLDWIDE,
INC. AND TLM
CULTURALACCESSWORLDWIDE, INC. HOLDINGS
-------------------------------------------------------------------- CORP.
FOR THE ------------
FIVE MONTHS FOR THE FOR THE NINE FOR THE NINE
FOR THE ENDED FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED
YEAR ENDED DECEMBER YEAR ENDED DECEMBER SEPTEMBER SEPTEMBER
JULY 31, 31, DECEMBER 31, 31, 30, 30,
1994 1994 1995 1996 1996 1997
---------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues......................... $4,396,550 $ 2,727,704 $9,047,323 $16,286,280 $13,124,800 $24,038,772
Cost of revenues................. 1,719,732 1,436,646 4,396,712 8,639,578 6,350,184 14,435,838
---------- ----------- ------------ ----------- ------------ ------------
Gross profit................... 2,676,818 1,291,058 4,650,611 7,646,702 6,774,616 9,602,934
Selling, general and adminis-
trative expenses (selling,
general and administrative
expenses paid to related
parties are $936,543, $88,952,
$1,868,089, $2,196,094,
$1,522,000 and $241,137,
respectively).................. 2,714,918 807,296 4,539,955 7,754,127 4,705,993 5,877,033
---------- ----------- ------------ ----------- ------------ ------------
(Loss) income from
operations.................. (38,100) 483,762 110,656 (107,425) 2,068,623 3,725,901
Interest income.................. -- -- 26,524 -- 13,532 80,518
Interest expense-related
parties........................ -- -- -- (100,733) -- (1,514,123)
Interest expense................. (3,308) (1,334) (2,358) -- -- (44,633)
Other expense-related party...... -- -- -- -- (22,901 ) (301,841)
Other income (expense)........... -- -- 5,131 (200,322) (14,222 ) (549)
---------- ----------- ------------ ----------- ------------ ------------
(Loss) income before income
taxes....................... (41,408) 482,428 139,953 (408,480) 2,045,032 1,945,273
Income tax benefit (expense)..... -- -- -- 87,533 -- (940,916)
---------- ----------- ------------ ----------- ------------ ------------
Net (loss) income.............. $ (41,408) $ 482,428 $ 139,953 $ (320,947) $ 2,045,032 $ 1,004,357
============ =========== ============ ============ ============ =============
Historical information --
Note 1:
Net income per common share.... $ .21
=============
Weighted average shares
outstanding................. 4,853,333
============
Pro forma data (unaudited) --
Notes 1 and 6:
Historical income (loss) before
taxes....................... $ 482,428 $ 139,953 $ (408,480) $ 2,045,032
Pro forma (provision) benefit
for income taxes............ (185,075) (99,584) 148,934 (818,013)
----------- ------------ ----------- ------------
Net income (loss) adjusted for
pro forma income tax
provision................... $ 297,353 $ 40,369 $ (259,546) $ 1,227,019
============ ============ ============ ============
Supplemental earnings per share
data (unaudited) --
Note 1:
Net (loss) income per common
share....................... $ (.04) $ .25 $ .26
=========== ============ ============
Weighted average number of
shares outstanding.......... 5,211,319 4,853,333 7,475,343
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
COMBINED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CULTURALACCESS CULTURALACCESS TLM CULTURALACCESS
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
(VOTING-ISSUED) SUBSCRIBED (VOTING) (NON-VOTING)
-------------------- -------------- -------------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- ------ ------ ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1993..................... 1,000 $ 1,000
Net loss for the year ended July 31, 1994... -- --
---------- -------- ------ ------ ---------- -------- -------- ------
Balance, July 31, 1994...................... 1,000 1,000
Net income for the five months ended
December 31, 1994......................... -- --
---------- -------- ------ ------ ---------- -------- -------- ------
Balance, December 31, 1994.................. 1,000 1,000
Issuance of common stock.................... 670 670 330 $ 330
Stockholder distributions................... -- -- -- --
Net income for the year ended December 31,
1995...................................... -- -- -- --
---------- -------- ------ ------ ---------- -------- -------- ------
Balance, December 31, 1995.................. 1,670 1,670 330 330
Payment of subscribed common stock.......... 330 330 (330) (330 )
Stock split effective
December 6, 1996.......................... 4,298,000 41,000 -- --
Merger of TelAc, Inc. and Telephone Access,
Inc.......................................
Assumption of net liabilities by Former
Principal Stockholders.................... -- -- -- --
Sale of common stock to management.......... 130,000 1,300 -- --
Sale of common stock to investors........... 3,000,000 30,000 -- -- 500,000 $5,000
Purchase of common
shares.................................... -- -- -- -- -- --
Retirement of treasury
stock..................................... (3,500,000) (35,000) -- -- -- --
Revocation of S Corporation status.......... -- -- -- -- -- --
Net loss for the year ended December 31,
1996...................................... -- -- -- -- -- --
---------- -------- ------ ------ ---------- -------- -------- ------
Balance, December 31, 1996.................. 3,930,000 39,300 -- -- 500,000 5,000
Sale of common stock to management
(unaudited)............................... 234,000 2,340 -- -- 100,000 $ 1,000 -- --
Purchase of TMS by TLM (Note 1)
(unaudited)............................... -- -- -- -- 3,500,000 35,000 -- --
Purchase of common shares................... -- -- -- -- -- -- -- --
Net income for the nine months ended
September 30, 1997 (unaudited)............ -- -- -- -- -- -- -- --
---------- -------- ------ ------ ---------- -------- -------- ------
Balance, September 30, 1997 (unaudited)..... 4,164,000 $ 41,640 -- -- 3,600,000 $ 36,000 500,000 $5,000
=========== ========= ======= ======= ========== ========= ======== =======
<CAPTION>
ADDITIONAL ACCUMULATED
PAID-IN TREASURY EQUITY DEFERRED
CAPITAL STOCK (DEFICIT) COMPENSATION TOTAL
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1993..................... $24,000 $ 250,539 $ 275,539
Net loss for the year ended July 31, 1994... -- (41,408) (41,408)
----------- ------------ ------------ ------------ ------------
Balance, July 31, 1994...................... 24,000 209,131 234,131
Net income for the five months ended
December 31, 1994......................... -- 482,428 482,428
----------- ------------ ------------ ------------ ------------
Balance, December 31, 1994.................. 24,000 691,559 716,559
Issuance of common stock.................... 193,000 -- 194,000
Stockholder distributions................... -- (460,692) (460,692)
Net income for the year ended December 31,
1995...................................... -- 139,953 139,953
----------- ------------ ------------ ------------ ------------
Balance, December 31, 1995.................. 217,000 370,820 589,820
Payment of subscribed common stock.......... -- -- --
Stock split effective
December 6, 1996.......................... (41,000) -- --
Merger of TelAc, Inc. and Telephone Access,
Inc....................................... 11,170,882 -- 11,170,882
Assumption of net liabilities by Former
Principal Stockholders.................... 936,500 -- 936,500
Sale of common stock to management.......... 6,110 -- 7,410
Sale of common stock to investors........... 277,000 -- 312,000
Purchase of common
shares.................................... -- $(18,000,000) -- (18,000,000)
Retirement of treasury
stock..................................... (147,420) 18,000,000 (17,817,580) --
Revocation of S Corporation status.......... 370,820 -- (370,820) --
Net loss for the year ended December 31,
1996...................................... -- -- (320,947) (320,947)
----------- ------------ ------------ ------------ ------------
Balance, December 31, 1996.................. 12,789,892 -- (18,138,527) (5,304,335)
Sale of common stock to management
(unaudited)............................... 25,588 -- -- $ (9,890) 19,038
Purchase of TMS by TLM (Note 1)
(unaudited)............................... 164,500 -- -- -- 199,500
Purchase of common shares................... -- (143) -- -- (143)
Net income for the nine months ended
September 30, 1997 (unaudited)............ -- -- 1,004,357 -- 1,004,357
----------- ------------ ------------ ------------ ------------
Balance, September 30, 1997 (unaudited)..... $12,979,980 $ (143) $(17,134,170) $ (9,890) $ (4,081,583)
=========== ============ ============= ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMBINED
CULTURALACCESSWORLDWIDE,
CULTURALACCESSWORLDWIDE, INC. INC. AND TLM HOLDINGS
----------------------------------------------------------------- CORP.
FOR THE FOR THE NINE ------------------------
YEAR FOR THE FIVE FOR THE FOR THE MONTHS ENDED FOR THE NINE
ENDED MONTHS ENDED YEAR ENDED YEAR ENDED SEPTEMBER MONTHS ENDED
JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 30, SEPTEMBER 30,
1994 1994 1995 1996 1996 1997
--------- ------------ ------------ ------------ ------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net (loss) income.................... $ (41,408) $ 482,428 $ 139,953 $ (320,947) $ 2,045,032 $ 1,004,357
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 40,911 28,126 54,270 184,056 117,000 830,570
Deferred tax provision............. -- -- -- (87,533) -- 46,459
Interest expense on mandatorily
redeemable preferred stock....... -- -- -- -- -- 216,000
Loss on disposition of property.... -- -- -- 200,238 -- --
Changes in operating assets and
liabilities, excluding effects from
acquisitions:
Accounts receivable................ (528,868) 422,110 (954,863) (2,351,438) (1,690,005) (4,218,799)
Due from employees................. -- -- -- -- -- (15,382)
Due to related parties and
affiliate........................ -- -- -- 288,438 1,117,656 64,477
Other assets....................... (38,021) (25,895) (196,852) 186,596 175,001 (402,178)
Accounts payable and accrued
expenses......................... 733,797 (522,434) 1,544,615 2,573,539 (1,419,639) 2,688,300
Deferred revenue................... -- -- -- -- -- 307,716
--------- ------------ ------------ ------------ ------------ -----------
Net cash provided by operating
activities..................... 166,411 384,335 587,123 672,949 345,045 521,520
--------- ------------ ------------ ------------ ------------ -----------
Cash flows from investing activities:
Additions to property and equipment,
net................................ (115,511) (31,367) (132,244) (1,045,073) (323,094) (756,033)
(Funding) use of letter of credit.... -- -- -- (15,000,000) -- 15,000,000
Business acquisitions, net of cash
acquired........................... -- -- -- (60,000) -- (6,491,133)
--------- ------------ ------------ ------------ ------------ -----------
Net cash (used in) provided by
investing activities........... (115,511) (31,367) (132,244) (16,105,073) (323,094) 7,752,834
--------- ------------ ------------ ------------ ------------ -----------
Cash flows from financing activities:
Payments on capital lease............ (5,270) (3,033) (6,997) (6,186) (776) (219,165)
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 -- -- --
Distribution to Former Principal
Stockholders....................... -- -- -- (175,000) (175,000) --
Proceeds from sale of common and
preferred stock.................... -- -- -- 2,119,410 6,000 1,999,500
Repayment of amount due to former
stockholders....................... -- -- -- -- -- (97,215)
Borrowings under line of credit
facility........................... -- -- -- -- -- 5,660,000
Repayments under line of credit
facility........................... -- -- -- -- -- (250,000)
Repayment of related party debt...... -- -- -- -- -- (15,000,000)
Proceeds from subordinated notes
payable............................ -- -- -- 13,021,000 -- 1,150,000
Purchase of common shares............ -- -- -- -- -- (143)
--------- ------------ ------------ ------------ ------------ -----------
Net cash (used in) provided by
financing activities........... (157,861) (48,115) (87,686) 14,959,224 (169,776) (6,757,023)
--------- ------------ ------------ ------------ ------------ -----------
Net (decrease) increase in
cash........................... (106,961) 304,853 367,193 (472,900) (147,825) 1,517,331
Cash, beginning of period.............. 208,202 101,241 406,094 773,287 773,287 300,387
--------- ------------ ------------ ------------ ------------ -----------
Cash, end of period.................... $ 101,241 $ 406,094 $ 773,287 $ 300,387 $ 625,462 $ 1,817,718
========= ============ ============ ============= ============= ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest........................... $ 3,308 $ -- $ -- $ 8,335 $ -- $ 659,000
========== ============ ============ ============= ============ ===========
Income taxes....................... $ -- $ -- $ -- $ -- $ -- $ 950,500
=========== ============ ============ ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
CulturalAccessWorldwide, Inc. ("CulturalAccess" or "the Company") 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 incorporated in Delaware in 1983) and its
subsidiaries. TelAc (which operates in Arlington, Virginia) was formed and was
wholly-owned by several individuals (the "Former Principal Stockholders"). The
Former Principal Stockholders also formed and wholly owned another corporation,
TelAc, Inc. (incorporated in Delaware in June 1995), which operates in Dallas,
Texas. On December 6, 1996, the Former Principal Stockholders merged TelAc, Inc.
into TelAc. The merger was accounted for using the purchase method of
accounting. See Note 3.
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 $2,100,000; (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
$13,000,000 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 $18,000,000. 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.
On January 1, 1997, TLM Holdings Corp. ("TLM") purchased through a
subsidiary certain assets and assumed certain liabilities of TeleManagement
Services, Inc. ("TMS") for $7.8 million. In connection with the initial
capitalization of TLM, the Investors purchased (a) 3,500,000 shares of common
stock of TLM for an aggregate purchase price of $199,500 and (b) 18,000 shares
of mandatorily redeemable preferred stock of TLM for an aggregate purchase price
of $1,800,000. Since CulturalAccess and TLM are commonly controlled companies
effective January 1, 1997, unaudited financial statements as of and for the nine
months ended September 30, 1997 are presented on a combined basis. All
intercompany transactions and balances have been eliminated. On October 21,
1997, the Investors merged their interests in CulturalAccess and TLM. As part of
the merger, the Investors made a capital contribution to the Company of the
3,500,000 shares of TLM common stock which the Investors held. In addition, the
18,000 shares of TLM mandatorily redeemable preferred stock held by the
Investors were converted into 18,000 shares of CulturalAccess mandatorily
redeemable preferred stock. The remaining stockholders received a one-for-one
share exchange of 100,000 shares of TLM voting common stock for CulturalAccess
voting common stock. This merger was treated as a merger of entities under
common control using the historical costs of the respective businesses in a
manner similar to a pooling of interests. 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.
F-8
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The interim financial statements 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.
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.
COMPUTER SOFTWARE
The Company has developed certain computer software and technically-derived
procedures intended to maximize the quality and efficiency of its services.
Costs of purchased internal-use computer and telephone software are capitalized
and costs of internally developed internal-use computer software are expensed as
incurred.
REVENUE RECOGNITION
Revenue, which is received for market research, database analysis,
strategic planning, telesales/services, direct mail, sales force, support
systems, sales territory management and product sampling and fulfillment, 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-
F-9
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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
Beginning August 1, 1994 and through 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.
Accordingly, no income tax provision has been recorded for the periods ended
December 31, 1994 and 1995, and December 6, 1996.
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
and prior to August 1, 1994) under the Internal Revenue Code of 1986, as
amended, for the five months ended December 31, 1994, for the years ended
December 31, 1995 and 1996 and for the unaudited nine month period ended
September 30, 1996.
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.
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 January 15, 1998. Common equivalent 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.
F-10
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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 January 15, 1998.
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 January 15, 1998
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:
F-11
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
2. LEVERAGED RECAPITALIZATION -- Continued
(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.
(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 borrowing of $13,000,000 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 promissory notes due January 2, 1997 and $3,000,000
in 6% convertible subordinated notes. The Company secured the promissory notes
with an irrevocable letter of credit and fully funded the letter of credit on
December 6, 1996. This funding is classified as restricted cash as of December
31, 1996. The $15,000,000 was paid to the Former Principal Stockholders on
January 2, 1997.
3. PURCHASE BUSINESS COMBINATIONS
On December 6, 1996, TelAc, Inc. merged into TelAc and 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 NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(UNAUDITED)
Fair value of consideration......................................................... $ 11,057,143 $ --
Cash paid (net of cash acquired).................................................... 240,000 6,491,133
Notes issued........................................................................ -- 1,300,000
Liabilities assumed................................................................. 1,944,645 1,866,607
------------ -------------
13,241,788 9,657,740
Fair value of tangible assets acquired.............................................. 1,850,906 1,806,242
------------ -------------
Cost in excess of fair value of tangible assets acquired............................ $ 11,390,882 $ 7,851,498
============ ==============
</TABLE>
F-12
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
3. PURCHASE BUSINESS COMBINATIONS -- Continued
<TABLE>
<CAPTION>
AS OF AS OF
USEFUL LIFE DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
-------------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill............................................................ 35 $ 11,390,882 $ 17,972,380
Customer lists...................................................... 5 -- 400,000
Assembled workforce................................................. 3 -- 250,000
Noncompete agreements............................................... 7 -- 400,000
------------ -------------
11,390,882 19,022,380
Less: Accumulated amortization...................................... (27,055) (574,195)
------------ -------------
Net intangible assets............................................... $ 11,363,827 $ 18,448,185
============ =============
</TABLE>
Amortization expense was $27,055 for the year ended December 31, 1996.
Effective October 1, 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. Effective
November 1, 1997, the Company purchased assets and liabilities of Phoenix
Marketing Group, Inc. ("Phoenix"), a New Jersey company. The purchase price was
$10,000,000 in cash (including an assumption of $1,000,000 in debt), a
$2,500,000 redeemable note at 6.0% interest, a $2,500,000 convertible note at
6.0% interest automatically convertible into 192,308 shares of common stock at
the closing of 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. These
acquisitions will be accounted for using the purchase method of accounting.
The unaudited results of operations on a pro forma basis as if each of the
acquisitions had been made as of the beginning of the respective periods are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues................................................................... $38,102,000 $ 38,801,000
Operating income........................................................... 450,000 4,215,000
Net (loss) income.......................................................... (937,000) 573,000
Net (loss) income per common share......................................... $ (.19) $ .12
</TABLE>
F-13
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
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 JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
IN YEARS 1994 1994 1995 1996 1997
-------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Furniture and fixtures.. 7 $ 55,333 $ 59,167 $ 64,490 $ 247,210 $ 389,281
Office equipment........ 3-7 133,994 161,527 288,448 887,521 2,002,152
Leasehold
improvements.......... life of lease 1,427 1,427 1,427 8,252 91,840
------------ ------------ ------------ ------------ -------------
190,754 222,121 354,365 1,142,983 2,483,273
Less: Accumulated
depreciation.......... (71,631) (99,757) (154,027) (15,744) (425,811)
------------ ------------ ------------ ------------ -------------
Property and equipment,
net................... $119,123 $122,364 $ 200,338 $1,127,239 $ 2,057,462
============= ============= ============= ============ =============
</TABLE>
Depreciation expense was $40,911, $28,126, $54,270 and $157,001 for the
year ended July 31, 1994, the five months ended December 31, 1994, and the years
ended December 31, 1995 and 1996, respectively.
5. REVENUE FROM SIGNIFICANT CUSTOMER
A substantial portion of the Company's revenue is derived from one
customer. For the year ended July 31, 1994 the five months ended December 31,
1994, the years ended December 31, 1995 and 1996, and the nine months ended
September 30, 1997, revenues to that customer amounted to approximately 85%,
90%, 76%, 96% and 65% (unaudited) of revenues, respectively. At July 31, 1994,
December 31, 1994, 1995 and 1996, and September 30, 1997, amounts due from that
customer included in accounts receivable amounted to approximately 89%, 88%,
79%, 83% and 60% (unaudited) 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, beginning August 1, 1994 and through 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 from August 1, 1994 through December 7,
1996.
F-14
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES -- Continued
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(UNAUDITED)
Current tax (benefit) expense:
Federal........................................................................... $ -- $ 808,469
State............................................................................. -- 92,988
------------ -------------
-- 901,457
------------ -------------
Deferred tax (benefit) expense:
Federal........................................................................... (74,604) 35,543
State............................................................................. (12,929) 3,916
------------ -------------
(87,533) 39,459
------------ -------------
$(87,533) $ 940,916
============ ===============
</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.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(UNAUDITED)
Gross deferred tax assets:
Depreciation...................................................................... $ -- $ 7,669
Allowance for doubtful accounts................................................... -- 66,558
Net operating loss carryforwards.................................................. 87,533 --
------------ -------------
87,533 74,227
------------ -------------
Gross deferred tax liabilities:
Amortization of intangible assets................................................. -- (33,153)
------------ -------------
Net deferred tax asset.............................................................. $ 87,533 $ 41,074
============ ==============
</TABLE>
The effective tax rate was different from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(UNAUDITED)
Statutory rate...................................................................... 34% 34%
Income taxed directly to shareholders............................................... (16) --
State income taxes, net of Federal benefit.......................................... 4 4
Preferred stock dividend treated as interest expense................................ -- 4
Other items, net.................................................................... 1 1
------------ -------------
23% 43%
============ ==============
</TABLE>
F-15
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES -- Continued
At December 31, 1996, the Company had Federal tax net operating loss
carryforwards available of $207,889.
7. INDEBTEDNESS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
(UNAUDITED)
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 of (x) PNC Bank's prime rate (8.5% at
September 30, 1997) or (y) the Federal funds rate (5.68% at September 30,
1997) plus 0.5% or (b) the eurodollar rate (5.66% at September 30, 1997 at the
30 day rate) plus 2%.......................................................... $ -- $ 5,410,000
============= ===============
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
Non-interest bearing notes payable to former shareholders due January 2, 1997.... 15,000,000 --
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% subordinated promissory note due to a stockholder; 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; at the
request of the payee either: (i) ten days after the closing of the initial
public offering of the Company's common stock or (ii) 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.......................... -- 200,270
------------ -------------
31,201,000 18,851,270
Less: current portion (due within one year)........................................ (15,000,000) (1,780,255)
------------ -------------
$ 16,201,000 $ 17,071,015
============== ==============
</TABLE>
The non-interest bearing notes payable to former stockholders relate to the
repurchase of shares as part of the Recapitalization. The Company secured these
promissory notes with a funded irrevocable letter of credit. See Note 2.
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.
F-16
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
7. INDEBTEDNESS -- Continued
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........................................................... $ 1,183,717
1998........................................................... 635,134
1999........................................................... 518,085
2000........................................................... 493,334
2001........................................................... 3,000,000
Thereafter..................................................... 13,021,000
------------
$ 18,851,270
============
</TABLE>
8. 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.
OPERATING LEASES
The Company also leases a telephone and computer system from an affiliated
company under two leases. The first lease, beginning in August 1995, 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 years ended December 31, 1995 and 1996
amounted to $257,872 and $343,713. Beginning on December 6, 1996, the lease
provided 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 beginning December 6,
1996. The second lease, beginning in January 1995 and expiring December 1996,
requires monthly payments of $9,912, plus sales tax. Lease payments for the
years ended December 31, 1995 and 1996 amounted to $128,862 and $118,949,
respectively.
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 for the years ended December 31, 1996.
F-17
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
8. LEASES -- Continued
Aggregate future minimum lease payments under all operating leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
---------------
<S> <C>
1997............................................................ $ 121,692
1998............................................................ 624,817
1999............................................................ 619,406
2000............................................................ 531,432
2001............................................................ 182,269
-----------
$ 2,079,616
=============
</TABLE>
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.
9. CULTURALACCESS CAPITAL STRUCTURE
COMMON STOCK
Prior to the recapitalization on December 6, 1996 (See Note 1),
CulturalAccess authorized, issued and outstanding capital included 1,000 shares
of $1 par value common stock at July 31, 1994 and December 31, 1994. At December
31, 1995, CulturalAccess authorized capital included 2,000 shares of $1 par
value common stock, of which 1,670 shares were issued and outstanding and 330
shares were subscribed.
Subsequent to the recapitalization on December 6, 1996 (See Note 1),
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. At December 31, 1996 and September 30,
1997, 3,930,000 shares and 4,164,000 shares (unaudited) of the voting stock were
issued and 3,930,000 shares and 4,161,500 shares (unaudited) of the voting stock
were outstanding, respectively.
MANDATORILY REDEEMABLE PREFERRED STOCK
Subsequent to the recapitalization, 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.
F-18
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
10. TLM CAPITAL STRUCTURE
COMMON STOCK
TLM's authorized capital includes 20,000,000 voting shares of common stock,
$.01 par value per share.
MANDATORILY REDEEMABLE 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 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 (UNAUDITED)
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. The exercise price of each option
must equal or exceed the fair market value of the Company's stock on the date of
the grant. An option's maximum term is 10 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. 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, excluding options with performance
conditions, the Company's net income and earnings per share would have been
reduced to the pro forma amounts of:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Net income
As reported.......................................... $1,004,357
Pro forma............................................ 1,000,242
Earnings per share
As reported.......................................... $ .21
Pro forma............................................ .21
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in the nine months ended September 30, 1997: dividend yield of 0%;
expected volatility of 0%; risk-free interest rate of 6.4% and expected life of
10 years.
F-19
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
11. STOCK OPTION PLAN (UNAUDITED) -- Continued
A summary of the status of the Plan, excluding options with performance
conditions, as of September 30, 1997 and changes during the period then ended is
presented below.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at beginning of period........................... -- --
Granted...................................................... 124,000 $ 4.94
-------
Outstanding at end of period................................. 124,000
-------
-------
Options exercisable at period end............................ -- --
Weighted-average fair value of options granted during the
period....................................................... $ 1.27
</TABLE>
In addition to the options shown above, the Company has issued 242,500
options whose exercise is contingent upon the successful completion of an
initial public offering of the Company's common stock, at the initial public
offering price. Of these options, 60,000 would be exercisable immediately upon
the completion of an initial public offering, while 182,500 would be exercisable
over five years. If the Company completes an initial public offering, the
estimated fair value of these options, at an assumed offering price of $13 per
share and using the other assumptions disclosed above, would be approximately
$1,474,400. Although the Company will not record any expense relative to these
options, had compensation expense been recorded in accordance with FAS 123,
$364,800 would be recorded at the date of the completion of the initial public
offering and the balance would be recorded over the five-year vesting period.
These amounts will be adjusted when the final exercise price is known and
compliance with the performance conditions determined.
Subsequent to September 30, 1997, the Company issued 36,000 options
exercisable at $11 per share and 25,000 options exercisable at $8 per share, all
of which options vest over five years. Using the assumptions above, the fair
value of these options would be $353,540.
12. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to a company owned by a stockholder's
brother totaling $70,164, $59,665, $155,799 and $216,432 for the year ended July
31, 1994, the five months ended December 31, 1994 and the years ended December
31, 1995 and 1996, 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,
$1,500,000 and $1,175,000 to a partnership related by common interest during the
years ended July 31, 1994 and December 31, 1995 and 1996, respectively.
The Company has a note payable with an affiliated company amounting to
$175,000. This unsecured loan bears interest at 10% per annum.
For the year ended December 31, 1996, the Company paid professional fees
and equipment rental fees of $342,000 and $462,662, respectively, to companies
owned by Former Principal Stockholders.
F-20
<PAGE>
CULTURALACCESSWORLDWIDE, INC. AND TLM HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
12. RELATED PARTY TRANSACTIONS -- Continued
The Company has agreed to pay a $750,000 fee to the Investors for their
assistance in effecting the initial public offering of the Company's common
stock, contingent upon the occurrence of the initial public offering of the
Company. This fee will be charged against the proceeds of the Company's initial
public offering.
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.
14. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
In connection with the acquisitions referred to in Note 3, 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 $138,500.
CONTINGENT CONSIDERATION IN BUSINESS ACQUISITIONS
In connection with the acquisitions referred to in Note 3 (see Notes 1 and
3), 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 September 30, 1997 is 915,000 shares
and $5,481,000, 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 and subsequent to September 30, 1997 is 1,303,000 shares and
$8,725,000, respectively. 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
$18,851,270.
F-21
<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-22
<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
Intangible asset, net............................................................... -- 1,350,853
---------- ----------
Total assets..................................................................... $1,510,653 $3,156,505
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 37,939 $ 21,483
Accrued salaries, wages and 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 1,394,890
Loan receivable from stockholder.................................................... -- (633,330)
Retained earnings................................................................... 1,371,717 1,426,618
---------- ----------
Total stockholders' equity....................................................... 1,381,717 2,188,778
---------- ----------
Total liabilities and stockholders' equity....................................... $1,510,653 $3,156,505
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<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 1,728,870
----------- ---------- ----------
Income from operations.............................................. 567,821 879,424 867,184
Interest income....................................................... 7,156 42,085 86,819
Interest expense...................................................... (5,600) (4,391) (61,347)
----------- ---------- ----------
Net income.......................................................... 569,377 917,118 892,656
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 $1,426,618
============= =========== ===========
Pro forma data (unaudited) Note 1:
Historical income before taxes................................... $ 569,377 $ 917,118 $ 892,656
Pro forma provision for income taxes............................. 216,363 348,505 339,209
----------- ---------- ----------
Net income adjusted for pro forma income tax provision........... $ 353,014 $ 568,613 $ 553,447
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<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 $ 892,656
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 38,511 61,084 126,233
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-25
<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.
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.
F-26
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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.
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.
LONG-LIVED ASSETS
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 TO BE DISPOSED OF.
2. STOCKHOLDER PURCHASE
On February 15, 1996, a stockholder purchased 300 shares (the remaining 50%
of the shares issued and outstanding) of TMS stock from another stockholder to
become the sole stockholder. This transaction was accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the pro rata assets and liabilities acquired based on their estimated fair
values. The excess of the purchase price over the fair value of net assets
consists of goodwill and is amortized on a straight-line basis over the
estimated useful lives of the assets which are thirty-five years. The financial
statements reflect the results of this transaction from the date it occurred.
F-27
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. STOCKHOLDER PURCHASE -- Continued
Information with respect to the shareholder purchase transaction is as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C>
Cash paid (net of cash acquired).......................... $ 1,423,277
Notes issued.............................................. 700,000
Liabilities assumed....................................... 57,748
------------------
2,181,025
Fair value of tangible assets purchased................... 795,535
------------------
Goodwill.................................................. 1,385,490
LESS: Accumulated amortization............................ (34,637)
------------------
$ 1,350,853
==================
</TABLE>
Amortization expense was $34,637 for the year ended December 31, 1996.
3. 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.
4. 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
F-28
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. NOTES PAYABLE -- Continued
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.
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>
5. 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.
6. 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.
F-29
<PAGE>
TELEMANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7. 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.
8. 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.)
9. SUBSEQUENT EVENT
Effective January 1, 1997, TLM Holdings Corp. (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 CulturalAccess.
F-30
<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 September 30, 1997 and December 31, 1996, and the results of its operations
and its cash flows for the nine months ended September 30, 1997 and 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
November 21, 1997
F-31
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 36,767 $ 87,924
Accounts receivable............................................................... 346,616 304,814
Deferred tax asset................................................................ 46,530 52,913
Other assets...................................................................... 19,553 25,540
------------ -------------
Total current assets........................................................... 449,466 471,191
Property and equipment, net......................................................... 84,644 89,192
------------ -------------
Total assets................................................................... $534,110 $ 560,383
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amount due on line of credit facility............................................. $ 40,508 $ --
Accounts payable.................................................................. 214,285 249,327
Accrued salaries, wages and related benefits...................................... 48,018 38,396
Other accrued expenses............................................................ 8,258 8,258
Deferred revenue.................................................................. 107,715 81,498
Capital lease obligation.......................................................... 6,974 13,759
Due to affiliate.................................................................. -- 50,000
------------ -------------
Total current liabilities...................................................... 425,758 441,238
------------ -------------
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 1,728
Retained earnings................................................................. 106,624 117,417
------------ -------------
Total stockholder's equity..................................................... 108,352 119,145
------------ -------------
Total liabilities and stockholder's equity..................................... $534,110 $ 560,383
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER
1996 30, 1997
------------ ------------
<S> <C> <C>
Revenues............................................................................ $2,811,566 $2,438,650
Cost of revenues.................................................................... 1,563,616 1,256,175
------------ ------------
Gross profit...................................................................... 1,247,950 1,182,475
General and administrative expenses................................................. 1,414,328 1,154,922
------------ ------------
(Loss) income from operations..................................................... (166,378) 27,553
------------ ------------
Interest expense.................................................................... (12,796) (5,722)
Other expense....................................................................... (1,768) (773)
------------ ------------
(Loss) income before income taxes................................................. (180,942) 21,058
Income tax benefit (expense)........................................................ 38,272 (10,265)
------------ ------------
Net (loss) income................................................................. (142,670) 10,793
Retained earnings, beginning of period.............................................. 249,294 106,624
------------ ------------
Retained earnings, end of period.................................................... $ 106,624 $ 117,417
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER
1996 30, 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................................. $ (142,670) $ 10,793
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................... 26,325 20,777
Deferred tax benefit........................................................... (38,272) (6,383)
Changes in operating assets and liabilities:
Accounts receivable............................................................ 126,253 41,802
Other assets................................................................... 1,278 (5,987)
Accounts payable and accrued expenses.......................................... 1,776 25,420
Deferred revenue............................................................... 63,201 (26,217)
Capital lease obligation....................................................... 2,255 6,785
------------ ------------
Net cash provided by operating activities................................. 40,146 66,990
------------ ------------
Cash flows from investing activities:
Additions to property and equipment............................................... (43,924) (25,325)
------------ ------------
Net cash used in investing activities..................................... (43,924) (25,325)
------------ ------------
Cash flows from financing activities:
Borrowings under line of credit facility.......................................... 100,012 (40,508)
Repayments under line of credit facility.......................................... (159,504) 50,000
------------ ------------
Net cash used in financing activities..................................... (59,492) 9,492
------------ ------------
Net decrease in cash and cash equivalents................................. (63,270) 51,157
Cash and cash equivalents, beginning of year........................................ 100,037 36,767
------------ ------------
Cash and cash equivalents, end of year.............................................. $ 36,767 $ 87,924
============ ==============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest....................................................................... $ 15,712 $ 7,435
============ ============
Income taxes................................................................... $ 3,967 $ 10,360
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Hispanic Market Connections, Inc. ("HMC" or the "Company") was formed on
April 27, 1988. The Company offers qualitative and quantitative research
services throughout the United States, the Caribbean, and Latin America. The
Company's services include focus groups; one-on-one, telephone, and door-to-door
interviews; mall and point-of-purchase intercepts; copy testing for print and
broadcast media; market studies; opinion polls and market consulting to the
Hispanic consumer. The Company is owned by a sole stockholder who is also
President of the Company.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of investments with maturities of 90 days
or less at the date of purchase.
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 respective assets, which range from five to seven years.
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 the useful lives are capitalized.
REVENUE, EXPENSE AND DEFERRED INCOME RECOGNITION
Revenue is recognized using the percentage of completion method as contract
services are delivered. Expenses are recognized on the accrual basis of
accounting. Deferred income represents customer deposits for services that have
been contracted for but have not been fully performed.
INCOME TAXES
Income taxes are provided following the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.
Accordingly, deferred tax assets and liabilities are recognized at the
applicable income tax rates based upon future tax consequences of temporary
differences between the tax basis and financial reporting basis. The Company
recognizes revenue and expenses on the cash basis for the purpose of filing
federal and state income taxes.
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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-35
<PAGE>
HISPANIC MARKET CONNECTIONS, 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 creditworthiness 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.
The Company has recorded no allowance for doubtful accounts or bad debt
expense as of December 31, 1996 or as of September 30, 1997 as management
anticipates that all the accounts receivable balances are collectible.
REVENUES FROM SIGNIFICANT CUSTOMERS
Approximately 12% of total revenues for the year ended December 31, 1996
were from one customer. Total receivables from this customer approximated 7% of
total receivables at December 31, 1996. There were no significant customers for
the nine months ended September 30, 1997.
2. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------- ----------------- ------------------
<S> <C> <C> <C>
Office equipment.............................................. 5-7 $ 33,247 $ 34,272
Computer equipment............................................ 3-5 109,784 119,209
Furniture and fixtures........................................ 5-7 56,024 70,898
----------------- ------------------
199,055 224,379
LESS: Accumulated depreciation.............................. (114,411) (135,187)
----------------- ------------------
Property and equipment, net................................. $ 84,644 $ 89,192
================= ===================
</TABLE>
Depreciation expense was $26,325 and $20,777 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively.
3. LINE OF CREDIT
On April 17, 1995, the Company entered into a revolving line of credit with
Wells Fargo Bank for $175,000 which matured on March 10, 1996. Subsequent to
March 10, 1996, the line of credit was renewed for up to $250,000 and matured on
April 10, 1997. The sole stockholder personally guaranteed $250,000. Interest
per year accrued at the bank's prime rate (8.25% at December 31, 1996) plus two
percentage points. Interest was due monthly on the outstanding principal balance
and all accrued interest and principal was paid on April 10, 1997.
On March 10, 1997 the Company entered into a revolving line of credit with
Comerica Bank for $300,000. Interest per year accrues at the bank prime rate
(8.5% at September 30, 1997) plus one and a half percentage points. Interest was
due monthly on the outstanding principal balance and all accrued interest and
principal was repaid. This line of credit has been closed by the Company.
F-36
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Current tax expense:
Federal.............................. $ 5,436 $ 10,851
State................................ 2,822 5,787
----------------- ------------------
8,258 16,638
----------------- ------------------
Deferred tax benefit:
Federal.............................. (30,472) (6,171)
State................................ (16,058) (202)
----------------- ------------------
(46,530) (6,373)
----------------- ------------------
Income tax benefit (expense)........... $ (38,272) $ 10,265
================= ===================
</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.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Gross deferred tax assets:
Cash versus accrual tax payer................. $ 49,012 $55,395
------------ -------------
Gross deferred tax liabilities:
Depreciation.................................. (1,860) (1,860)
Contributions................................. (622) (622)
------------ -------------
(2,482) (2,482)
------------ -------------
Net deferred asset.............................. $ 46,530 $52,913
============= ==============
</TABLE>
The provision for income taxes was different from the Federal statutory
rate applied to income before income taxes, and is reconciled as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------ -------------------------
<S> <C> <C>
Statutory rate................................................. 15% 15%
State income taxes, net of Federal benefit..................... 8 8
Non-deductible expenses........................................ (1) 18
---------- ----------
22% 41%
========== ===========
</TABLE>
F-37
<PAGE>
HISPANIC MARKET CONNECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. OPERATING LEASE AND CAPITAL LEASE COMMITMENTS
The Company is obligated under noncancelable operating leases for office
space, a vehicle and operating equipment with terms ranging from three to five
years and expiring at various dates through February, 2002. Aggregate future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------------
<S> <C>
1997.............................................................. $ 43,414
1998.............................................................. 177,746
1999.............................................................. 80,013
2000.............................................................. 78,434
2001.............................................................. 76,973
Thereafter........................................................ 6,628
--------
$463,208
========
</TABLE>
Rent expense was $96,285 and $123,491 for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
The Company leases operating equipment under non-cancelable leases ending
at various dates through August, 1999. The leases provide for a bargain purchase
option to the Company at the end of the lease term and, as such, have been
accounted for as a capital lease.
6. CAPITAL STRUCTURE
The Company's authorized capital includes 1,000,000 shares of common stock,
no par value per share and 1,000,000 shares of preferred stock, no par value.
The Company's issued and outstanding capital consists of 100,000 shares of
issued and outstanding common stock.
7. DEFINED CONTRIBUTION PLAN
Effective January 1, 1996, the Company maintains a profit sharing plan
which covers substantially all full-time employees. The Company made
contributions of $2,563 and $5,223 to the plan for the plan year ended December
31, 1996 and during the nine months ended September 30, 1997, respectively.
8. 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, other assets, accounts
payable, and accrued expenses approximate fair value.
The fair value of the Company's 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 line of credit approximates the carrying value.
9. SUBSEQUENT EVENT
Effective October 1, 1997, CulturalAccess purchased all the issued and
outstanding shares of the Company's stock from the sole stockholder.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PHOENIX MARKETING GROUP, INC.
In our opinion, the accompanying balance sheet 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
October 31, 1997 and December 31, 1996, and the results of its operations and
its cash flows for the ten-month period ended October 31, 1997 and for each of
the two 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 audits 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
November 30, 1997
F-39
<PAGE>
PHOENIX MARKETING GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 OCTOBER 31, 1997
----------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 110,051 $ 255,920
Accounts receivable, net of allowance for doubtful accounts of $90,480 and
$107,383, respectively.................................................. 2,591,494 2,884,176
Other current assets....................................................... 403,501 409,839
Restricted cash............................................................ -- 500,000
----------------- ----------------
Total current assets.................................................... 3,105,046 4,049,935
Property and equipment, net.................................................. 1,717,384 1,528,206
Other assets................................................................. 182,636 87,515
----------------- ----------------
Total assets............................................................ $ 5,005,066 $5,665,656
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses...................................... $ 972,973 $ 998,290
Accrued salaries, wages and related benefits............................... 79,095 75,790
Current portion of long-term borrowings.................................... 741,830 44,142
Customer deposits.......................................................... 111,683 88,340
Amounts due stockholders................................................... -- 162,253
----------------- ----------------
Total current liabilities............................................... 1,905,581 1,368,815
Long-term borrowings......................................................... 1,065,581 42,186
Amounts due stockholders..................................................... 2,241,102 --
Advance from CulturalAccessWorldwide......................................... -- 11,546,248
----------------- ----------------
Total liabilities....................................................... 5,212,264 12,957,249
----------------- ----------------
Commitments and contingencies (Note 5)
Stockholders' deficit:
Common stock
Class A voting common stock, no par value: authorized 2,500 shares, 205
shares issued and outstanding......................................... 41,000 41,000
Class B non voting common stock, no par value: authorized 2,500 shares,
45 shares issued and outstanding...................................... 9,000 9,000
Accumulated deficit........................................................ (212,198) (7,296,593)
----------------- ----------------
Subtotal................................................................ (162,198) (7,246,593)
Less treasury stock -- 50 shares of Class A common stock at cost........... (45,000) (45,000)
----------------- ----------------
Total stockholders' deficit............................................. (207,198) (7,291,593)
----------------- ----------------
Total liabilities and stockholders' deficit............................. $ 5,005,066 $5,665,656
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
PHOENIX MARKETING GROUP, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------- FOR THE TEN MONTHS ENDED
1995 1996 OCTOBER 31, 1997
----------- ----------- ------------------------
<S> <C> <C> <C>
Revenues................................................. $13,849,031 $13,048,989 $ 13,750,187
Cost of revenues......................................... 6,287,524 5,462,962 7,107,880
----------- ----------- ------------------------
Gross profit........................................ 7,561,507 7,586,027 6,642,307
----------- ----------- ------------------------
Selling, general and administrative expenses:
Salaries, wages and related benefits................... 4,873,524 4,409,297 3,200,968
Depreciation and amortization expense.................. 435,180 526,473 380,342
Other selling, general and administrative expenses..... 2,054,008 2,205,775 1,885,816
----------- ----------- ------------------------
Total selling, general and administrative expenses.. 7,362,712 7,141,545 5,467,126
----------- ----------- ------------------------
Loss on disposal of fixed assets......................... -- -- 103,181
----------- ----------- ------------------------
Income from operations.............................. 198,795 444,482 1,072,000
Interest expense......................................... (313,317) (331,826) (261,738)
Other income............................................. 38,546 44,592 37,982
----------- ----------- ------------------------
(Loss) income before income taxes................... (75,976) 157,248 848,244
Income tax expense....................................... (3,275) (6,001) (11,749)
----------- ----------- ------------------------
Net (loss) income................................... (79,251) 151,247 836,495
Accumulated deficit, beginning of period................. (284,194) (363,445) (212,198)
Stockholder distributions.............................. -- -- (7,920,890)
----------- ----------- ------------------------
Accumulated deficit, end of period....................... $ (363,445) $ (212,198) $ (7,296,593)
============ ============ ========================
Pro forma data (unaudited) Note 1:
Historical (loss) income before taxes............... $ (79,251) $ 151,247 $ 836,495
Pro forma provision for income taxes................ 46,265 146,774 358,182
----------- ----------- ------------------------
Net (loss) income adjusted for pro forma income tax
provision.............................................. $ (125,516) $ 4,473 $ 478,313
============= =========== ========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
PHOENIX MARKETING GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------ FOR THE TEN MONTHS ENDED
1995 1996 OCTOBER 31, 1997
---------- ---------- ------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................ $ (79,251) $ 151,247 $ 836,495
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization......................... 569,172 658,473 490,213
Loss on disposal of equipment......................... -- -- 103,181
Changes in operating assets and liabilities:
Accounts receivable................................... 237,536 174,321 (292,682)
Other current assets.................................. (75,805) (178,737) (44,325)
Other assets.......................................... (36,798) 14,298 94,675
Accounts payable and accrued expenses................. (455,050) 40,813 25,317
Accrued payroll and related taxes..................... 322 (25,719) (3,305)
Customer deposits..................................... 43,090 47,593 (23,343)
Deferred compensation................................. (30,000) (15,000) --
---------- ---------- ------------------------
Net cash provided by operating activities........... 173,216 867,289 1,186,226
---------- ---------- ------------------------
Cash flows from investing activities:
Additions to property and equipment...................... (865,557) (528,917) (366,229)
Employee loan (net of repayments)........................ -- (69,961) 446
---------- ---------- ------------------------
Net cash used in investing activities............... (865,557) (598,878) (365,783)
---------- ---------- ------------------------
Cash flows from financing activities:
Proceeds from bank borrowing............................. 1,050,000 850,000 --
Payments of bank borrowing............................... (179,171) (987,675) (1,687,319)
Payments of borrowing-former stockholders................ (375,540) (122,106) --
Proceeds from borrowing-stockholders..................... 508,985 82,750 --
Payments of borrowing-stockholders....................... (97,200) (145,500) (2,078,849)
Payments pursuant to restrictive covenant................ -- (8,837) (23,422)
Payments of obligation under capital lease............... (42,019) (11,459) (10,342)
Distributions to stockholders............................ -- -- (7,920,890)
Advances from CulturalAccess............................. -- -- 11,546,248
---------- ---------- ------------------------
Net cash provided by (used in) financing
activities....................................... 865,055 (342,827) (174,574)
---------- ---------- ------------------------
Net increase (decrease) in cash............................ 172,714 (74,416) 645,869
Cash and cash equivalents, beginning of period............. 11,753 184,467 110,051
---------- ---------- ------------------------
Cash and cash equivalents, end of period................... $ 184,467 $ 110,051 $ 755,920
============ ========== =========================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest.............................................. $ 318,785 $ 331,826 $ 101,364
=========== ========== =========================
Noncash activities:
Debt obligation incurred on extension of covenant not to
compete............................................... $ -- $ 91,168 $ --
========== =========== =========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND OCTOBER 31, 1997
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
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could 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 19% and 12% in
1995, 21% and 10% in 1996 and 30% and 9% for the ten months ended October 31,
1997.
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.
Fully depreciated assets aggregating $1,307,227 were written off during the
ten-month period ended October 31, 1997.
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 $82,750 in
1996. No amounts were reinvested during the ten months ended October 31, 1997.
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 31, 1997)
under the Internal Revenue Code of 1986, as amended, for all periods presented.
F-43
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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 and
the ten months ended October 31, 1997 totaled $79,800 and $113,271,
respectively. No contributions were made for the year ended December 31, 1995.
Additionally, the Company implemented a 401(k) deferred compensation plan in
1993. The Company incurred an expense of $48,839, $46,909, and $43,629 for the
portion of employee contributions matched in 1995 and 1996 and the ten months
ended October 31, 1997, 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.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE DECEMBER 31, OCTOBER 31,
IN YEARS 1996 1997
-------------- ------------ -----------
<S> <C> <C> <C>
Equipment..................................... 5-10 $3,010,756 $ 1,937,073
Computer equipment held for lease............. 5-10 322,425 336,571
Furniture and fixtures........................ 5-10 836,610 735,629
Leasehold improvements........................ life of lease 812,055 824,921
------------ -----------
4,981,846 3,834,194
Less-accumulated depreciation................. 3,264,462 2,305,988
------------ -----------
Net property and equipment.................. $1,717,384 $ 1,528,206
============== ============
</TABLE>
Depreciation expense amounted to $569,172, $639,480 and $452,226 for the
years ended December 31, 1995 and 1996 and the ten months ended October 31,
1997, respectively.
Property and equipment includes the following amounts held under capital
leases:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<S> <C> <C>
Equipment..................................................... $ 68,331 $68,331
Less-accumulated depreciation................................. 21,151 30,913
------------ -----------
Net......................................................... $ 47,180 $37,418
============= =============
</TABLE>
On June 10, 1997, the Company provided advance written notice of its intent
to cancel its lease of certain warehouse space no later than December 15, 1997.
The Company will lease larger warehouse space owned by a partnership comprised
of stockholders and certain former stockholders. As a result of this lease
cancellation, the Company expects to dispose of certain furniture and fixtures
and leasehold improvements. The Company has recorded a loss on assets to be
disposed in the amount of $103,181.
F-44
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1996 1997
------------ -----------
<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.................................................................... $ 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.............................................................. 300,000 --
Term loan to bank for $250,000; repayable in 60 monthly installments of $4,167 plus
interest at prime plus .5%.......................................................... 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.............. 144,000 --
Term loan to bank for $500,000; repayable in 48 monthly installments of $10,417 plus
interest at prime plus .5%.......................................................... 125,000 --
Term loan to bank for $250,000; repayable in 60 monthly installments of $4,167 plus
interest at prime plus 1%........................................................... 124,990 --
Note payable; repayable in monthly installments of $2,942 including interest at 10%
through July 1999................................................................... 82,331 58,909
Capital lease payable in monthly installments of $1,276 through November 30, 1999..... 37,761 27,419
------------ -----------
Total............................................................................... 1,807,411 86,328
Less-current portion.................................................................. 741,830 42,186
------------ -----------
Long-term borrowings................................................................ $1,065,581 $44,142
============ ============
</TABLE>
4. AMOUNTS DUE STOCKHOLDERS
Amounts due stockholders consist of interest payable on stockholder notes
accrued at 9%. Interest is paid annually in December. Stockholder notes were
paid in full on October 17, 1997.
F-45
<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
$257,260, $269,420 and $224,517 for the years ended December 31, 1995
and 1996 and the ten months ended October 31, 1997, 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 October
31, 1997 are as follows:
<TABLE>
<CAPTION>
ANNUAL RENTALS UNDER
--------------------
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Two-month period ending December 31, 1997.......................................... $ 2,552 $ 84,387
Year ending December 31, 1998...................................................... 15,312 304,031
Year ending December 31, 1999...................................................... 12,352 11,509
------- ---------
Total minimum lease payments..................................................... 30,216 $ 399,927
=========
Less-portion representing interest................................................. 2,797
-------
Present value of minimum lease payments, including current maturity of $13,353..... $27,419
========
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and the ten
months ended October 31, 1997 totaled $493,918, and $510,149 and
$421,274, 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
$3,275, $6,001 and $11,749 for the years ended December 31, 1995 and 1996 and
the ten months ended October 31, 1997, respectively.
Income tax expense for each of the years ended December 31, 1995 and 1996
and the ten months ended October 31, 1997 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
On October 17, 1997, and effective as of the close of business on October
31, 1997, CulturalAccess (the "Purchaser") acquired substantially all of the
assets and liabilities of the Company for $10,500,000 of cash and $5,000,000 of
notes receivable. Additionally, the Purchaser repaid $1,046,248 of the Company's
third-party debt.
F-46
<PAGE>
PHOENIX MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7. SUBSEQUENT EVENT -- Continued
The Company subsequently repaid $2,079,101 of principal amounts due to
shareholders, and distributed $7,920,890 to its shareholders. As part of the
sale agreement, the Company shall receive from the Purchaser contingent
payments, payable in shares of the Purchaser's common stock, based upon the
achievement of predefined earnings before interest, taxes and amortization
targets for each of the years ending December 31, 1998, 1999 and 2000.
F-47
GROWING IN A GROWTH ENVIRONMENT
GROWTH IN OUTSOURCING
GROWTH IN DIRECT MARKETING
GROWTH IN PHARMACEUTICAL MARKETING SPENDING
GROWTH IN ETHNIC AND MATURE POPULATIONS
GROWTH IN ACCOUNTABILITY OF MARKETING AND SALES
GROWTH IN CUSTOMER-FOCUSED MANAGEMENT
[CULTURALACCESSWORLDWIDE, INC. LOGO]
Bridging Cultures and Building Profits
<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................................... 7
The Company.................................... 12
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Financial Information................. 16
Unaudited Pro Forma Financial
Information.................................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 29
Management..................................... 37
Certain Transactions........................... 45
Principal Stockholders......................... 48
Description of Capital Stock................... 50
Shares Eligible for Future Sale................ 52
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Available Information.......................... 55
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL MARCH , 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
COMMON STOCK
------------------------
PROSPECTUS
------------------------
Bear, Stearns & Co. Inc.
NationsBanc Montgomery
Securities LLC
February , 1998
====================================================================
<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, John Jordan, Thomas Ficker, Thomas
Ball and Ronald Knox 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
II-1
<PAGE>
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.
In connection with the Company's recapitalization in December 1996, the
Company issued 6% convertible promissory notes in the aggregate principal amount
of $3,000,000 to Joseph Morrow, John Jordan, Thomas Ficker, Thomas Ball, Ronald
Knox, Wallace Searle, the Estate of Dennis Dee and Nelson Mullins Riley &
Scarborough L.L.P., which notes are convertible into an aggregate of 200,000
shares of Common Stock at any time after ten days after the closing of the
Offering.
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.
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 December 6, 1996, as part of the consideration for all of the capital
stock of Jordan Computer Specialists Incorporated ("JCSI"), the Company issued a
6% convertible subordinated promissory note in the principal amount of $180,000
to Jared Jordan, which note is convertible at $14.00 per share in the event
certain financial criteria of JCSI are met over a three-year period.
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.
On October 17, 1997, as part of the consideration for substantially all of
the assets of Phoenix Marketing Group, Inc. ("Phoenix"), the Company issued a 6%
convertible subordinated promissory note, in the principal amount of $2,500,000
to Phoenix, which note will be converted into 178,572 shares of Common Stock at
the closing of the Offering.
II-2
<PAGE>
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 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 Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Arlington, Commonwealth of Virginia, on the 23rd day of
January, 1998.
CULTURALACCESSWORLDWIDE, INC.
By /s/ JOHN FITZGERALD
-----------------------
JOHN FITZGERALD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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 January 23, 1998
- ------------------------------------------------------
(STEPHEN F. NAGY)
/s/ JOHN FITZGERALD President, Chief Executive Officer January 23, 1998
- ------------------------------------------------------ and Director (principal
(JOHN FITZGERALD) executive officer)
/s/ MICHAEL DINKINS Chief Financial Officer and Senior January 23, 1998
- ------------------------------------------------------ Vice President (principal
(MICHAEL DINKINS) financial and accounting
officer)
/s/ LIAM S. DONOHUE Director January 23, 1998
- ------------------------------------------------------
(LIAM S. DONOHUE)
/s/ JOHN H. FOSTER* Director January 23, 1998
- ------------------------------------------------------
(JOHN H. FOSTER)
/s/ PETER D. BEWLEY* Director January 23, 1998
- ------------------------------------------------------
(PETER D. BEWLEY)
/s/ SHAWKAT RASLAN* Director January 23, 1998
- ------------------------------------------------------
(SHAWKAT RASLAN)
/s/ LEE EDELSTEIN* Director January 23, 1998
- ------------------------------------------------------
(LEE EDELSTEIN)
* By /s/ JOHN FITZGERALD
- ------------------------------------------------------
(JOHN FITZGERALD
ATTORNEY IN FACT)
</TABLE>
II-4
<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. *
3(c) Form of Certificate of Designation of Series 1998 Preferred Stock 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. *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- ------ --------
<C> <S> <C>
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. *
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) Commitment Letter dated December 22, 1997 between the Company and
NationsBank, N.A. **
11 Statement regarding computation of per share earnings. **
16 Letter from Green, Holman, Frenia, and Company, L.L.P., dated December
2, 1997, regarding change in certifying accountant. *
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 September 30, 1997 **
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
4,000,000 Shares of Common Stock
CULTURALACCESSWORLDWIDE, INC.
UNDERWRITING AGREEMENT
February , 1998
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
As Representatives of the several Underwriters
named in Schedule I attached hereto
c/o BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Dear Sirs:
CulturalAccessWorldwide, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 4,000,000 shares (the "Firm Shares")
of its common stock, $.01 par value per share (the "Common Stock"), to the
several Underwriters named in Schedule I hereto (the "Underwriters"). The
Company also proposes to sell to the Underwriters, upon the terms and conditions
set forth in Section 2 hereof, up to an additional 600,000 shares (the
"Additional Shares") of Common Stock. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares".
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 333-38845) under the Act
(the "registration statement"), including a prospectus subject to completion,
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as
<PAGE>
amended by said post-effective amendment. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in
this Agreement means the prospectus subject to completion in the form included
in the registration statement at the time of the initial filing of the
registration statement with the Commission, and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus. If the
Company elects to rely on Rule 434 under the Act, all references to the
Prospectus shall be deemed to include, without limitation, the form of
prospectus and the term sheet contemplated by Rule 434, taken together, provided
to the Underwriters by the Company in reliance on Rule 434 under the Act (the
"Rule 434 Prospectus"). If the Company has filed or files another registration
statement with the Commission to register a portion of the Shares pursuant to
Rule 462(b) under the Act (the "Rule 462 Registration Statement"), then any
reference to "Registration Statement" herein shall be deemed to include the
registration statement on Form S-1 (File No. 333-38845) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the Act.
2. Agreements to Sell and Purchase. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $_____ per Share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 11 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 P.M., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 600,000
Additional Shares. Additional Shares may be purchased only for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. Upon any exercise of the over-allotment option, each Underwriter,
severally and not
-2-
<PAGE>
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments as you may determine in order to avoid fractional
shares) which bears the same proportion to the number of Additional Shares to be
purchased by the Underwriters as the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I hereto (or such number of Firm
Shares increased as set forth in Section 11 hereof) bears to the aggregate
number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, at 10:00
A.M., New York City time, on February __, 1998 (the "Closing Date"). The place
of closing for the Firm Shares and the Closing Date may be varied by agreement
between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Bear, Stearns & Co. Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice (it being understood that a facsimile
transmission shall be deemed written notice) prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered to
you on the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor by wire transfer of immediately available
funds to the accounts specified in writing by the Company.
5. Agreements of the Company. The Company agrees with the
-3-
<PAGE>
several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, three
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits thereto, and will also furnish to you, without charge, such number of
conformed copies of the registration statement as originally filed and of each
amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the
Registration Statement (or file any Rule 462 Registration Statement) or make any
amendment or supplement to the Prospectus of which you shall not previously have
been advised or to which you shall object after being so advised or (ii) so long
as, in the opinion of counsel for the Underwriters, a Prospectus is required to
be delivered in connection with sales by any Underwriter or dealer, file any
information, documents or reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without delivering a copy of
-4-
<PAGE>
such information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer. If during
such period of time any event shall occur that in the judgment of the Company or
in the reasonable opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto, and will expeditiously furnish to the Underwriters and dealers a
reasonable number of copies thereof. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should be
amended or supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may designate and
will file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other
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<PAGE>
than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section ll(a) of the Act and Rule 158 thereunder.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or the Nasdaq Stock Market
and (ii) from time to time such other information concerning the Company as you
may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 11 hereof or by notice given by you terminating
this Agreement pursuant to Section 11 or Section 12 hereof) or if this Agreement
shall be terminated by the Underwriters because of any inability, failure or
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement, the Company agrees to reimburse the Repre
sentatives for all out-of-pocket expenses (including fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise
you of the time and manner of such filing.
(m) Except as provided in this Agreement and except for (i)
issuances of Common Stock in connection with acquisitions, both future and
already consummated, provided that such issuances do not involve any public
offerings within the meaning of Section 4(2) of the Act, and provided further
that the recipients of such Common Stock are prohibited from publicly offering,
selling, contracting to sell or otherwise disposing of such Common Stock for the
remainder of the Lock-up Period (as hereafter defined) and (ii) issuances of up
to an aggregate of 800,000 shares of Common Stock or options with respect
thereto, pursuant to employee benefit plans existing on the date hereof,
including the Company's 1997 Stock Option Plan, the Company will not, directly
or indirectly, issue, sell, contract to sell or otherwise assign, transfer or
dispose of any Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or issue, grant or sell any options or warrants
to purchase Common Stock, for a period of 180 days after the date of the
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<PAGE>
Prospectus (the "Lock-up Period"), without the prior written consent of
Bear, Stearns & Co. Inc.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by (i) each of its
current officers and directors and (ii) the other stockholders of the Company.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(p) The Shares have been duly approved for inclusion in the
Nasdaq National Market under the symbol "CAWW" subject to notice of issuance of
the Shares being sold by the Company, and upon consummation of the offering
contemplated hereby the Company will be in compliance with the designation and
maintenance criteria applicable to Nasdaq National Market issuers.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement, including any Rule 462
Registration Statement, in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment thereto shall
become effective and the Prospectus and any supplement or amendment thereto when
filed with the Commission under Rule 424(b) under the Act, complied or will
comply in all material respects with the provisions of the Act and did not or
will not at any such times contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
(c) On the Closing Date, the capitalization of the Company
will be as set forth in the Prospectus. All the outstanding shares of Common
Stock of the Company have been duly authorized and validly issued, are fully
paid and nonassessable and are free of any preemptive or similar rights; the
Shares have been duly authorized and, when issued and delivered to the
Underwriters against payment there-
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<PAGE>
for in accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; and the capital
stock of the Company conforms in all material respects to the description
thereof in the Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole.
(e) All the Company's subsidiaries (collectively, the
"Subsidiaries") are listed on Exhibit 21 to the Registration Statement. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole; all
the outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, and are
owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity, or other encumbrance.
(f) Except as described in the Prospectus, there is no action,
suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the knowledge of the Company, threatened, against or involving the
Company or any of the Subsidiaries, or to which the Company or any of the
Subsidiaries, or to which any of their respective properties is subject, that is
required to be described in the Registration Statement or the Prospectus or
which might individually or in the aggregate prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole nor is there any basis for any such action, suit, inquiry, proceeding or
investiga-
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<PAGE>
tion. There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.
(g) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body
having jurisdiction over the Company or any of the Subsidiaries, except for any
such violations which, individually or in the aggregate, might result in a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole or in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, and no condition or state of facts exists, which with
the passage of time or the giving of notice or both, could constitute a default.
(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration of
the Shares under the Act and the Exchange Act and compliance with the securities
or Blue Sky laws of various jurisdictions, all of which have been or will be
effected in accordance with this Agreement and except for the NASD's clearance
of the underwriting terms of the offering contemplated hereby as required under
the NASD's Rules of Fair Practice and the Nasdaq Stock Market's approval of the
listing of the Shares on the Nasdaq National Market) or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation or by-laws, or other organizational
documents, of the Company or any of the Subsidiaries or (iii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
any agreement, indenture, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or (iv) violates or will violate any stat-
ute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or (v) will result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property
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<PAGE>
or assets of any of them is subject.
(i) The accountants, Price Waterhouse LLP and Green, Holman,
Frenia and Company, L.L.P., who have certified the financial statements included
in the Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(j) The historical financial statements, together with related
schedules and notes, included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), comply in all material respects with
the requirements of the Act and present fairly (i) the combined financial
position, results of operations, cash flows and stockholders' equity of the
Company and TLM Holdings, Inc., (ii) the financial condition, results of
operations, cash flows and stockholders' equity of Telephone Access, Inc. and
Telac, Inc., (iii) the financial condition, results of operations, cash flows
and stockholders' equity of Telemanagement Services, Inc., (iv) the financial
condition, results of operations, cash flows and stockholders' equity of
Hispanic Market Connections, Inc. and (v) the financial condition, results of
operations, cash flows and stockholders' equity of Phoenix Marketing Group,
Inc., in each case on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed in the pro forma financial
information, and the related notes thereto, included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) have been
prepared in accordance with the applicable requirements of the Act and the
assumptions used in preparing such information are reasonable; and the other
financial and statistical information and data included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are
accurately presented and, to the extent applicable, have been prepared on a
basis consistent with such financial statements and the books and records of the
Company and the Subsidiaries. No other financial statements or schedules are
required to be included in the Registration Statement.
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles and except as rights to indemnity
and contribution hereunder may be limited by federal or state securities laws.
(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent
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<PAGE>
to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), (i) neither the Company nor any of the Subsidiaries has incurred any
liability or obligation, direct or contingent, or entered into any transaction,
not in the ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, (ii) there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or (iii) there has not been any material
adverse change, or any development involving or which may reasonably be expected
to involve, a prospective material adverse change, in the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole.
(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectus or in a document filed as an exhibit to the Registration
Statement or such as do not materially affect, individually or in the aggregate,
the value of property that is material to the Company and the Subsidiaries,
taken as a whole, and do not interfere, individually or in the aggregate, with
the use made or proposed to be made of such property by the Company and the
Subsidiaries, and all the property described in the Prospectus as being held
under lease by each of the Company and the Subsidiaries is held by it under
valid, subsisting and enforceable leases with such exceptions as are not,
individually or in the aggregate, material and do not interfere, individually or
in the aggregate, with the use made or proposed to be made of such property by
the Company or the Subsidiaries.
(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted
by the Act.
(o) The Company and each of the Subsidiaries have such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own their respective properties and
to conduct their respective businesses in the manner described in the
Prospectus, including, without limitation, all permits required under federal
and state laws relating to telemarketing services and the distribution of
pharmaceutical samples, except where the failure to obtain any such permit has
not resulted in and will not result in a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole; the
Company and each of the Subsidiaries have fulfilled and performed all their
material obligations with respect to such permits and no event has occurred
which allows, or after notice
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<PAGE>
or lapse of time would allow, revocation or termination thereof or results
in any other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the Prospectus
or except in any such case where the failure to fulfill or perform such
obligation or the occurrence of such event will not have, individually or in the
aggregate, a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole; and, except as described in the
Prospectus, none of such permits contains any restriction that is materially
burdensome to the Company or any of the Subsidiaries. The Company has complied
and complies with the requirements of the Americans with Disabilities Act of
1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income
Security Act, the Civil Rights Act of 1964 (Title VII), as amended, the Age
Discrimination in Employment Act and other applicable federal and state
employment and labor laws, and the various other federal and state laws and
regulations to which the Company and the Subsidiaries are subject including,
without limitation, the laws and regulations referenced in the Prospectus
regarding the handling and distribution of samples of pharmaceutical products
and telephone sales and customer sales activities, except where the lack of any
such compliance has not had and will not have, individually or in the aggregate,
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(p) The Company and the Subsidiaries have obtained all
required permits, licenses and other authorizations, if any, which are required
under federal, state, local and foreign statutes, ordinances and other laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, hazardous or toxic materials or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
hazardous or toxic materials or wastes or any regulation, rule, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder ("Environmental Laws"), except where the
failure to obtain any such permit, license or other authorization has not
resulted in and will not result in a material adverse effect on the condition
(financial and other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole. The Company and
the Subsidiaries are in material compliance with all terms and conditions of all
required permits, licenses and authorizations, and are also in material
compliance with all other applicable requirements, limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws. There is no
pending or, to the best knowledge of the Company after due inquiry, threatened
civil or criminal litigation, notice of violation or
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<PAGE>
administrative proceeding relating in any way to the Environmental Laws
(including but not limited to notices, demand letters or claims under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"),
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Emergency Planning and Community Right to Know Act of
1986, as amended ("EPCRA"), the Clean Air Act, as amended ("CAA"), or the Clean
Water Act, as amended ("CWA") and similar federal, foreign, state or local laws)
involving the Company or any Subsidiary. To the Company's knowledge, there have
not been and there are not any past, present or foreseeable future events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with the Environmental
Laws, or which may give rise to any common law or legal liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, chemical or industrial, hazardous or toxic material or waste,
including, without limitation, any liability arising, or any claim, action,
demand, suit, proceeding, hearing, study or investigation which may be brought,
under RCRA, CERCLA, EPCRA, CAA, CWA or similar federal, foreign, state or local
laws.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) To the Company's knowledge, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus, and is not otherwise disclosed in the Prospectus.
(s) The Company and each of the Subsidiaries have filed all
tax returns required to be filed under all applicable laws, except for state or
local tax returns which the failure to file would not have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole, which returns are complete and correct, and neither the Company nor
any Subsidiary is in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect
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<PAGE>
thereto.
(t) Except as described in the Prospectus, the Company does
not have outstanding and at the Closing Date (and the Option Closing Date) will
not have outstanding any options to purchase, or any warrants to subscribe for,
or any securities or obligations convertible into shares of Common Stock or
other securities of the Company, or any contract or commitments to issue or
sell, any shares of Common Stock or any such warrants or convertible securities
or obligations. None of the Subsidiaries has outstanding, nor will have
outstanding at the Closing Date, any options to purchase, or any warrants to
subscribe for, or any securities or obligations convertible into shares of
capital stock or other securities of such Subsidiary, or any contracts or
commitments to issue or sell, any such shares of capital stock or any such
warrants or convertible securities or obligations. No holder of any security of
the Company has any right to require registration of shares of Common Stock or
any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement.
(u) The Company and the Subsidiaries own and have full right,
title and interest in and to all patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being owned
by them or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the Subsidiaries
with respect to such properties, and neither the Company nor any Subsidiary has
granted or created any lien or encumbrance on, or granted any right or license
with respect to, any such properties.
(v) Neither the Company nor any of the Subsidiaries is, nor
will the Company or any of the Subsidiaries be after the sale of the Shares to
be sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds," an "investment
company" or a person "controlled" by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(w) All offers, sales, exchanges, issuances, conversions and
redemptions of the Company's and the Subsidiaries' respective capital stock and
other securities through the date hereof and hereafter, including pursuant to
the Recapitalization (as defined in the Prospectus), have been or will be made
in compliance with the Act and all other applicable state and federal laws and
regulations.
(x) The Shares have been duly approved for inclusion in the
Nasdaq National Market under the symbol "CAWW" subject to notice of issuance of
the Shares being sold by the Company, and upon consummation of the offering
contemplated hereby the Company will be in compliance with the designation and
maintenance criteria applicable
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<PAGE>
to Nasdaq National Market issuers.
(y) Except as set forth in the Prospectus, there are no
transactions with "affiliates" (as defined in Rule 405 promulgated under the
Act) or any officer, director or security holder of the Company (whether or not
an affiliate) which are required by the Act and the applicable rules and
regulations thereunder to be disclosed in the Registration Statement.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any litiga-
tion, commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation), joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration statement for
the registration of the Shares, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any supplement
thereto or amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the Company will not be liable in any such case to the extent but only to
the extent that any such loss, liability, claim, damage or expense arises out of
or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Underwriter through you expressly for use therein; and provided, further, that
this indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any such amendments or supple-
ments thereto) was not sent or given by or on behalf of such Underwriter to
such person, if such is required by law, at or prior to the written confirmation
of the sale of such Shares to such person and if the Prospectus (as so amended
or supplemented) would have corrected the defect giving rise to such loss,
liability, claim, damage or expense. This indemnity agreement will be in
addition to any liability which the Company may otherwise have including under
this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
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indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any litiga-
tion, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), jointly or several,
to which they or any of them may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares, as originally filed
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page, the stabilization legend on the inside cover page and the statements in
the first, third and fifth paragraphs under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing by or on behalf
of any Underwriter expressly for use in the registration statement relating to
the Shares as originally filed or in any amendment thereof, any related
preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving
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the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by one of the
indemni fying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to have charge
of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
par ties), in any of which events such fees and expenses shall be borne by the
indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unrea sonably withheld.
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Underwriters shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
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and (y) the underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and of the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Underwrit-
ers and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8 and the
preceding sentence, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company withing the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to clauses (i) and (ii) of this Section 8. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; provided, however, that such consent was not unreasonably
withheld.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder
are subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a
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post-effective amendment thereto to be declared effective before the
offering of the Shares may commence, the registration statement or such
post-effective amendment shall have become effective not later than 5:30 P.M.,
New York City time, on the date hereof, or at such later date and time as shall
be consented to in writing by you, and all filings, if any, required by Rules
424 and 430A under the Act shall have been timely made; no stop order suspending
the effectiveness of the registration statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company which makes any
statement made in the Prospectus untrue or which, in the opinion of the Company
and its counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
Representatives of the several Underwriters, materially adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Haythe & Curley, counsel for the Company, dated the Closing Date and addressed
to you, as Representatives of the several Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated
and validly existing in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries is a corporation
duly organized and validly existing in good standing under the laws of the
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jurisdiction of its organization, with full corporate power and authority
to own, lease, and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus (and any amendment or
supplement thereto); and all the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company directly, or indirectly through
one of the other Subsidiaries, free and clear of any perfected security
interest, or, to the best knowledge of such counsel after reasonable inquiry,
any other security interest, lien, adverse claim, equity or other encumbrance;
(iii) The authorized and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly authorized and
validly issued, and are fully paid and nonassessable;
(v) The Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable and
free of any preemptive, or to the best knowledge of such counsel after
reasonable inquiry, similar rights that entitle or will entitle any person to
acquire any Shares upon the issuance thereof by the Company;
(vi) The form of certificates for the Shares
conforms to the requirements of the Delaware General Corporation Law;
(vii) The Registration Statement and all
post-effective amendments, if any, have become effective under the Act and, to
the best knowledge of such counsel after reasonable inquiry, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b);
(viii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver the Shares
to the Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other
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laws relating to or affecting creditors' rights generally and by general
equitable principles;
(ix) Neither the Company nor any of the Subsidiaries
is in violation of its respective certificate or articles of incorporation or
bylaws, or other organizational documents, or to the best knowledge of such
counsel after reasonable inquiry, is in default in the performance of any
material obligation, agreement or condition contained in any bond, debenture,
note or other evidence of indebtedness, except as may be disclosed in the
Prospectus;
(x) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, the certificate or articles
of incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or any agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound that is an exhibit to the
Registration Statement, or is known to such counsel after reasonable inquiry, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries, nor will
any such action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky laws),
judgment, injunction, order or decree known to such counsel after reasonable
inquiry, applicable to the Company, the Subsidiaries or any of their respective
properties;
(xi) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act
and the Exchange Act or such as may be required under state securities or Blue
Sky laws governing the purchase and distribution of the Shares) for the valid
issuance and sale of the Shares to the Underwriters as contemplated by this
Agreement;
(xii) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act;
(xiii) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus
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(or any amendment or supplement thereto) and (B) there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to the Registration Statement
that are not described or filed as required, as the case may be;
(xiv) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Subsidiaries is in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries including,
without limitation, the various federal, state and local laws referenced in the
Prospectus regarding labor, employment, taxation, the handling and distribution
of samples of pharmaceutical products and telephone sales and customer sales
activities or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, except for any such
violations which have not had and will not have, individually or in the
aggregate, a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole;
(xv) The statements in the Registration Statement and
the Prospectus, insofar as they are descriptions of contracts, agreements or
other legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
(xvi) Neither the Company nor any of the
Subsidiaries is, nor will the Company or any of the Subsidiaries be after the
sale of the Shares to be sold hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds," an
"investment company" or a person "controlled" by an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended;
(xvii) Although counsel has not undertaken, except
as otherwise indicated in its opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has participated in the preparation of
the Registration Statement and the Prospectus, including review and discussion
of the contents thereof, and nothing has come to the attention of such counsel
that has caused it to believe that the Registration Statement at the time the
Registration Statement became effective, or the Prospectus, as of its date and
as of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
the case of the Prospectus, in light of the circumstances under which they were
made, not misleading or that any amendment or supplement to the Prospectus, as
of its respective date, and as of the Closing Date or the Option Closing Date,
as the case may be, contained any untrue statement of a mate-
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rial fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and the notes thereto and the
schedules and other financial data included in the Registration Statement or the
Prospectus).
In rendering its opinion as aforesaid, counsel may rely upon an opinion
or opinions, each dated the Closing Date, of other counsel retained by them or
the Company as to laws of any jurisdiction other than the United States or the
State of New York, provided that (1) each such local counsel is acceptable to
the Representatives, (2) such reliance is expressly authorized by each opinion
so relied upon and a copy of each such opinion is delivered to the
Representatives and is in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Duane, Morris & Heckscher LLP, counsel for the Underwriters, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters, with
respect to the matters referred to in clauses (v), (vii), (viii), (xii) and
(xvii) of the foregoing paragraph (c) and such other related matters as you may
request.
(e) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Price Waterhouse LLP, independent accountants, and from Green,
Holman, Frenia and Company, L.L.P., independent auditors, substantially in the
forms heretofore approved by you.
(f)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), any material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), that are material to the
Company and the Subsidiaries taken as a whole, other than those reflected in
the Registration Statement or the Prospectus (or any amendment or supplement
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thereto); and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 9(f) and in Section 9(g) hereof.
(g) The Company shall not have failed at or prior to the
Closing Date to have performed or complied in all material respects with any of
its agreements herein contained and required to be performed or complied with by
it hereunder at or prior to the Closing Date.
(h) The Shares shall have been listed or approved for listing
upon notice of issuance on the Nasdaq National Market.
(i) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have reasonably
requested.
(j) The Company shall have delivered to you the "lock-up"
letters required by Section 5(n) of this Agreement, duly executed and delivered
by each of the required parties.
(k) At or prior to the effective date of the Registration
Statement, you shall have received a letter from the Corporate Financing
Department of the NASD confirming that such Department has determined to raise
no objections with respect to the fairness or reasonableness of the underwriting
terms and arrangements of the offering contemplated hereby.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 9, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in this Section 9 shall be dated the Option Closing Date in
question and the opinions called for by paragraphs (c), (d) and (e) shall be
revised to reflect the sale of Additional Shares.
10. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the perfor-
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mance by it of its obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the Blue Sky Memorandum and all other agreements or documents printed (or
reproduced) and delivered in connection with the offering of the Shares; (v) the
registration of the Common Stock under the Exchange Act and the listing of the
Shares on the Nasdaq National Market; (vi) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the Blue Sky Memorandum
and such registration and qualification); (vii) the filing fees and the fees and
expenses of counsel for the Underwriters in connection with any filings
required to be made with the National Association of Securities Dealers, Inc.;
(viii) the transportation and other expenses incurred by or on behalf of
Company representatives in connection with presentations to prospective
purchasers of the Shares; (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and (x) all other fees, costs and expenses referenced
in Item 13 of the Registration Statement.
11. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission; provided,
however, that the provisions of Sections 7 and 10 of this Agreement shall at all
times be effective. Until such time as this Agreement shall have become
effective, it may be terminated by the Company, by notifying you, or by you, as
Representatives of the several Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the
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Closing Date, each non-defaulting Underwriter shall be obligated,
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section ___ of the Master
Agreement Among Underwriters of Bear, Stearns & Co. Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the re-
quired changes, if any, in the Registration Statement and the Prospectus or any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company, purchases Shares which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 11 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement.
(a) You shall have the right to terminate this Agreement at
any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the New York or American Stock Exchanges or the
Nasdaq National Market System shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required, on the New York or American Stock Exchanges
by the New York or American Stock Exchanges or the Nasdaq National Market System
or by order of the Commission or any other governmental authority having
jurisdiction; or (C) if a banking moratorium has been declared by a state or
federal authority or if any new restriction materially adversely affecting the
distribution of the Firm Shares or the Additional
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Shares, as the case may be, shall have become effective; or (D) (i) if the
United States becomes engaged in hostilities or there is an escalation of
hostilities involving the United States or there is a declaration of a national
emergency or war by the United States or (ii) if there shall have been such
change in political, financial or economic conditions if the effect of any such
event in (i) or (ii) as in your judgment makes it impracticable or inadvisable
to proceed with the offering, sale and delivery of the Firm Shares or the
Additional Shares, as the case may be, on the terms contemplated by the
Prospectus.
(b) Any notice of termination pursuant to this Section 12
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(c) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11 hereof or (ii) Section 12(a) hereof), or if the sale of
the Shares provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth herein is not satisfied or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, the Company will, subject
to demand by you, reimburse the Underwriters for all out-of-pocket expenses
(including the fees and expenses of their counsel), incurred by the Underwriters
in connection herewith.
13. Miscellaneous. Except as otherwise provided in Sections 5, 11 and
12 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 2200 Clarendon Boulevard, 11th Floor, Arlington, Virginia 22201,
Attention: John Fitzgerald, President and Chief Executive Officer; or (ii) if to
you, as Representatives of the several Underwriters, care of Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, New York 10167, Attention:
- -----------------------.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Sections 7 and 8 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in
-27-
<PAGE>
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
CULTURALACCESSWORLDWIDE, INC.
By:____________________________________
Stephen F. Nagy, Chairman of the
Board
Confirmed as of the date first above
mentioned on behalf of themselves
and the other several Underwriters
named in Schedule I hereto.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
As Representatives of the Several Underwriters
By: BEAR, STEARNS & CO. INC.
By:____________________
Managing Director
-28-
<PAGE>
SCHEDULE I
CULTURALACCESSWORLDWIDE, INC.
<TABLE>
<CAPTION>
<S> <C>
Number of
Underwriter Firm Shares
- ---------------------- ---------------
Bear, Stearns & Co. Inc.........................................
NationsBanc Montgomery Securities LLC...........................
---------
Total . . . . .................... 4,000,000
=========
</TABLE>
<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERRED STOCK, SERIES 1998
OF
CULTURALACCESSWORLDWIDE, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, John Fitzgerald, President, and Liam S. Donohue,
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 January
21, 1998, the Board of Directors of the Corporation adopted the following
resolution creating a class of its Preferred Stock, $.01 par value, designated
as Preferred Stock, Series 1998:
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 65,000
shares of Preferred Stock, $.01 par value, of the Corporation,
are hereby constituted as a class designated as "Preferred
Stock,
<PAGE>
2
Series 1998." 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. Holders of shares of Preferred Stock,
Series 1998 will be entitled to receive per share cash
dividends and non-cash distributions equal to the product of
(x) 7.69 and (y) any per share dividends and distributions
paid on shares of the Common Stock, payable on the same dates
as dividends or distributions are paid on the Common Stock.
Each dividend or distribution will be payable to holders of
record of the Preferred Stock, Series 1998 on a date selected
by the Board of Directors which is the same date as the record
date for the payment of the related dividend or distribution
on the Common Stock. Any dividend paid or distribution made
with regard to shares of Preferred Stock, Series 1998 will be
paid or made on an equal per share basis with regard to each
outstanding share of Preferred Stock, Series 1998.
(3) Liquidation, Dissolution or Winding Up. The
amount payable on the Preferred Stock, Series 1998 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
theretofor declared but unpaid. 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,
<PAGE>
3
mortgage, pledge or lease of all or substantially all the
assets of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation.
(4) Redemption. (a) Any then outstanding shares of
Preferred Stock, Series 1998 shall be redeemed by the
Corporation upon (x) the closing of the 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 (other than a Registration Statement
on Form S-4 or S-8 or other similar form and other than the
initial public offering of the Corporation's Common Stock
pursuant to the Corporation's Registration Statement on Form
S-1, Registration No. 333-38845), (y) a Change of Control (as
defined herein) or (z) the achievement by the Corporation of
after-tax net income (without taking into account any
extraordinary items and as conclusively shown on the
Corporation's financial statements) aggregating not less than
$10 million over any four consecutive calendar quarters. The
price at which such stock shall be redeemed shall be $100 per
share plus an amount equal to all dividends per share
theretofor declared but unpaid. Such redemption shall be
effected in the manner and with the effect as provided in
paragraph (b) hereof.
(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 Preferred
Stock, Series 1998 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
<PAGE>
4
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 Preferred Stock, Series 1998 so called for
redemption shall not 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 Preferred Stock, Series 1998 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 Preferred Stock,
Series 1998 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 Preferred Stock, Series 1998 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 Preferred
<PAGE>
5
Stock, Series 1998 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
shall look only to the Corporation for payment of the
redemption price thereof, but without interest.
(c) For purposes hereof:
"Change of Control" means (i) the acquisition of
beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (the "1934
Act")) of 50% or more of the outstanding shares of securities
the holders of which are generally entitled to vote for the
election of directors of the Corporation (including securities
convertible into, or exchangeable for, such securities or
rights to acquire such securities or securities convertible
into, or exchangeable for such securities, "Voting Stock"), on
a fully diluted basis, by any Person or group of Persons
(within the meaning of Section 13 or 14 of the 1934 Act); (ii)
any merger, consolidation, combination or similar transaction
of the Corporation, with or into any other Person, whether or
not the Corporation is the surviving entity in any such
transaction, if, immediately after such transaction, the
stockholders of the Corporation immediately prior to such
transaction shall in the aggregate hold less than 50% of the
outstanding equity interests in the entity surviving such
merger, consolidation, combination or similar transaction;
(iii) any sale, lease, assignment, transfer or other
disposition of the beneficial ownership
<PAGE>
6
in all or substantially all of the property, business or
assets of the Corporation; (v) a Person, other than the
current stockholders of the Corporation, obtains, directly or
indirectly, the power to direct or cause the direction of the
management or policies of the Corporation, whether through the
ownership of capital stock, by contract or otherwise; or (vi)
any liquidation, dissolution or winding up of the Corporation.
"Junior Stock" shall mean the Common Stock of the
Corporation, any other stock over which the Preferred Stock,
Series 1998 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 Preferred Stock,
Series 1998, 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 Preferred
Stock, Series 1998; 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 Preferred
Stock, Series 1998 or the holders thereof.
(6) Limitations. The shares of Preferred Stock,
Series 1998 shall not have any voting powers except as set
forth in this Certificate of Designation or as otherwise
required by law and,
<PAGE>
7
except as set forth in this Certificate of Designation,
designations, preferences or relative, participating,
operating or other special rights, qualifications, limitations
or restrictions.
(7) Priority. The Preferred Stock, Series 1998 shall
be pari passu with the Common Stock of the Corporation with
respect to the payment of dividend, (on the basis set forth in
the Certificate of Designation) and shall be senior to the
Junior Stock of the Corporation in all other respects
including, but not limited to, redemption, liquidation,
dissolution, winding up or any other preferences or rights.
This Certificate of Designation was authorized by resolution
duly adopted by the Board of Directors of the Corporation at a meeting duly
called and held on January 21, 1998.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunder affixed and this Certificate of Designation to be signed by
John Fitzgerald, its President, and attested to by Liam S. Donohue, its
Secretary, as of the day of , 1998.
CULTURALACCESSWORLDWIDE, INC.
By:
John Fitzgerald
President
[SEAL]
Attest:
Liam S. Donohue
Secretary
EXHIBIT 10(s)
MASTER SERVICES AGREEMENT
BETWEEN
SPRINT/UNITED MANAGEMENT COMPANY
AND
TELEPHONE ACCESS, INC.
This MASTER SERVICES AGREEMENT ("Agreement") effective January 1, 1997
("Effective Date"), between Sprint/United Management Company, a Kansas
corporation ("Sprint"), with offices located at 2330 Shawnee Mission Parkway,
Westwood Kansas and Telephone Access, Inc. dba TELAC, a Delaware corporation
("Supplier"), with offices at located at 2200 Clarendon Blvd., Suite 1109,
Arlington VA, 22201.
The parties agree as follows:
1. SERVICES
1.1. This Agreement is for the provision of Services, including
incidental deliverables or goods, to Sprint by Supplier, as
authorized and specified in a written Contract Order,
described below.
1.2. Sprint will issue a written Contract Order to Supplier that
will include:
1.2.1. delivery or work performance location;
1.2.2. invoicing instructions;
1.2.3. incorporation of the terms of this Agreement; and
1.2.4. the contract number set forth in the upper right-hand
corner of this Agreement.
1.3. This Agreement does not authorize or commit Sprint to any
quantity or dollar amount of Services. Supplier may not
perform any Services without a Contract Order authorizing the
Services, signed by both Sprint and Supplier.
1.4. Supplier's performance will represent its best efforts and be
of the highest
<PAGE>
2
professional standards. Sprint may inspect Supplier's
performance and Supplier will facilitate inspection. Sprint's
inspection (or lack of inspection) will not be an acceptance
of Services or a waiver of any right or warranty or preclude
Sprint from rejecting defective Services.
1.5. Sprint may change the Services by additional or revised
drawings, specifications, exhibits or written change orders.
If Supplier believes the compensation should be modified as a
result of a change made by Sprint, Supplier must give Sprint
written notice of claim within 7 days after notice of Sprint's
change. Supplier must include with its notice a detailed
estimate of the effect on compensation and the Contract Order.
Supplier agrees to continue performance pending resolution of
its claim. Supplier waives any claim not made by Supplier in
accordance with this paragraph.
2. COMPENSATION
2.1. Rates. Sprint will pay Supplier in accordance with the billing
rate set forth in the applicable Contract Order.
2.2. Reimbursement. Supplier will be reimbursed for travel, living,
and other expenses authorized by Sprint in the Contract Order
at reasonable and actual costs. Travel and living expenses
will not be reimbursed unless they are in conformance with
Sprint's travel reimbursement policies.
2.3. All travel (coach and economy class only) which is to be
reimbursed by Sprint and/or its affiliates should be booked
through the Sprint Business Travel Center by calling * .
When making travel arrangements, please acknowledge that you
are a supplier for Sprint. Booking through the Sprint Business
Travel Center will allow for least cost to Sprint. The
passenger flight coupon and travel itinerary must be attached
to the Supplier's expense report.
2.4. The Supplier's travel (coach and economy class only)
expenditures should be
<PAGE>
3
appropriate to Sprint's business undertaken, and reasonable in
the judgment of both Sprint and the Supplier. Foreimbursement,
Supplier must submit original receipts greater
than * for meals (tear tab receipts are not accepted);
however, hotel, car rental, fuel for rental cars require
receipts regardless of the amount. Supplier will be reimbursed
for use of a personal vehicle for business purposes at the
current rate (based on current IRS regulations) in effect,
plus parking and toll fees. Supplier will utilize reasonable
parking facilities and rates. Parking receipts are required
for reimbursement of * or more.
2.5. Sprint will not reimburse Supplier for personal expenses
including long distance phone calls.
2.6. Taxes, Duties and Fees. Supplier is responsible for any local,
state or federal sales, use or other excise taxes upon the
fees to be paid by Sprint for the Services rendered by
Supplier. In the event the governing law does not permit
Supplier to absorb any such tax, such tax will be separately
stated on the invoice and will be paid by Sprint in addition
to the fees or other compensation owed supplier.
2.7. Invoicing, Itemization and Payment Procedures. The Contract
Order will state specific invoicing instructions.
2.8. Supplier will invoice twice per month. Invoices must be sent
in accordance with the invoicing instructions provided with
the Contract Order. Supplier must maintain and submit itemized
time records and expense reports with each invoice. Unless
stated otherwise in the Contract Order, undisputed amounts
will be paid within 30 days of receipt. Disputed amounts will
be paid, if owed, within 30 days of resolution of the dispute.
2.9. Right to Offset. Sprint, without waiver or limitation of any
rights, may deduct (pound)rom any amounts due Supplier in
connection with this Agreement, or any other Agreement between
<PAGE>
4
Supplier and Sprint, liquidated amounts owed by Supplier to
Sprint.
3. AFFILIATE TRANSACTIONS
3.1. This Agreement is entered into by Sprint on its own behalf and
for the benefit of all Sprint Corporation affiliated entities
("Sprint Affiliates"). The term Sprint Affiliate includes: a)
controlled Sprint Affiliates, meaning any entity in which
Sprint Corporation or its wholly-owned affiliates has
practical management control over the entity by virtue of
majority stock ownership or an equivalent ownership interest,
b) uncontrolled Sprint Affiliates, meaning any entity in which
Sprint Corporation directly or indirectly holds an equity or
similar interest, but the interest does not give practical
management control, or c) remote Sprint Affiliates, meaning
parent entities of joint ventures of which Sprint or Sprint
Affiliates are a part, telecommunications entities which have
an affiliation with those joint ventures, and business
customers of Sprint of Sprint Affiliates.
3.2. Any controlled Sprint Affiliate may automatically execute a
Contract Order under this Agreement. Upon approval by Sprint's
Materials & Services Management Department ("M&SM"), Supplier
will accept any uncontrolled Sprint Affiliate Contract Order,
and may not unreasonably reject that offer. Upon notice by
M&SM, any remote Sprint Affiliate Contract Order will be
subject to negotiation between the parties. Supplier will
refer inquiries regarding Contract Orders from remote and
uncontrolled Sprint Affiliates to M&SM at the address listed
below. All references to Sprint refer equally to Sprint
Affiliates executing Contract Orders with terms in accordance
with this Agreement. No commitment is made by Sprint or any
Sprint Affiliate, nor any liabilities accepted, except that is
set forth in a properly signed Contract Order. All
communications and invoices must be directed to the Affiliate
issuing the Contract Order under the instructions issued in
the Contract
<PAGE>
5
Order. Services performed on behalf of any Sprint Affiliate
will be billed to or collected from only that Affiliate. Only
the Sprint Affiliate issuing a specific Contract Order under
this Agreement will incur any obligation or liability to
Supplier for any claim which may arise from or relate to that
Contract Order.
3.2.1. Sprint Materials and Services Management Department
Sprint Affiliate Contract Order ATTN: Lead Negotiator
903 East 104th Street Kansas City, MO 64131
4. TERM AND TERMINATION
4.1. The term of this Agreement begins on the Effective Date and
ends December 31, 2001. The terms of this Agreement will
continue in effect for any Contract Order that is outstanding
at the time of termination under this Agreement or expiration
of the term.
4.2. This Agreement and any Contract Order may be terminated, in
whole or in part, at any time with notice from Sprint without
cause. Supplier will cease work on the termination date in
Sprint's notice and take all reasonable actions to minimize
expenses applicable to terminated work. *
4.3. Sprint may terminate this Agreement and any Contract Order,
upon * days prior written notice to Supplier upon the
occurrence of one or more of the following:
4.3.1. In the event Supplier's productivity is, for one
month, * or less of the performance standards set
forth in the applicable Contract Order.
4.3.2. In the event Supplier's productivity is for any one
month at least * but less than * of the
Performance Standards set forth in the applicable
Contract Order, provided that Sprint has given
<PAGE>
6
Supplier * days notice of such failure to meet
Performance Standards and Supplier has failed to cure
such failure and meet the * level during the 30
days.
4.3.3. In the event Supplier submits to Sprint unconfirmed
sales in excess of the levels set forth in the
applicable Contract Order.
4.3.4. In the event of insolvency of Supplier or the
institution of voluntary or involuntary proceedings
in bankruptcy or under other insolvency laws, or in
the event Supplier enters into a receivership, or
makes an assignment or other arrangement with
creditors for all or substantially all of its assets.
4.3.5. In the event of an assignment or attempted assignment
by Supplier of all or any interest or right under
this Agreement without the prior written consent of
Sprint.
4.3.6. In the event of a civil judgment against Supplier or
any officer, director or major stockholder of Suppler
which in the opinion of Sprint, adversely affects the
interests of the parties.
4.3.7. In the event there is any change in control or
ownership of Supplier, whereby any new single owner
has the authority to appoint a member of the
corporate board of directors. Supplier must give
Sprint no less than * days written notice of any
such change.
4.3.8. In the event that there is a significant change in
the Supplier's management team dedicated to the
performance of the Services pursuant to this
Agreement. Supplier's management team is composed of
John Allen,
<PAGE>
7
Georges Andre, Susan Bykofsky, David Chong, Jared
Jordan and John Jordan.
4.4. Upon termination of this Agreement or any Contract Order,
Supplier must, within * days, return all data,
equipment, materials, and properties of Sprint.
5. INDEPENDENT CONTRACTOR
5.1. Supplier must comply with laws, regulations and orders
relating to equal employment opportunity, workers'
compensation, unemployment compensation and FICA. Upon
request, Supplier will furnish Sprint with its EEO policies
and procedures, verification of workers' compensation,
unemployment compensation, FICA and the number of hours any
individual performs Services for Sprint within any 12
consecutive month period.
5.2. Supplier, its subcontractors, employees or agents are
independent contractors for all purposes and at all times.
Supplier has the responsibility for, and control over, the
means and details of performing the Services, subject to
Sprint's inspection. Supplier will provide all training,
hiring, supervising, hours of work, work policies and
procedures, work rules, compensation, payment for expenses and
discipline and termination of its employees.
5.3. Sprint will incur no responsibility or obligation to
employees, agents, subcontractors or other parties utilized by
Supplier to perform the Services set forth in this Agreement.
Such person or parties will, at all times, remain employees,
agents or subcontractors (whichever is applicable) of
Supplier.
5.4. Supplier is solely responsible for payment of wages, salaries,
fringe benefits and other compensation of, or claimed by,
Supplier's employees including, without limitations,
contributions to any employee benefit, medical or savings plan
and is responsible for all payroll taxes including, without
limitation, the withholding and payment of
<PAGE>
8
all federal, state and local income taxes, FICA, unemployment
taxes and all other payroll taxes. Supplier is also solely
responsible for compliance with applicable Workers'
Compensation laws with respect to maintenance of workers'
compensation coverages on Supplier's employees. Supplier will
indemnify and defend Sprint from all claims by any person,
government or agency relating to payment of taxes and
benefits, including without limitation, any penalties and
interest which may be assessed against Sprint. Supplier will
similarly indemnify and defend Sprint from all claims by any
person or governmental agency which arise directly or
indirectly from any failure by Supplier to comply with
applicable Workers' Compensation laws with respect to
maintenance of Workers' Compensation coverage on Supplier's
employees.
5.5. If Sprint determines that an employee, agent, or Subcontractor
provided by Supplier is not providing satisfactory service,
Sprint will advise Supplier and may require Supplier to remove
that individual or Subcontractor. In the case of Supplier's
employees, such request shall apply only to such employee's
performance of the Services under this Agreement and shall not
be intended nor construed by Supplier as directing or
suggesting that Supplier terminate or discipline said
employee. The employee's employment status with Supplier is in
all circumstances a matter solely between the employee and
Supplier. Sprint will only pay for Services actually performed
by the removed individual or Subcontractor prior to Sprint's
notice for removal and not for transportation, per diem,
mobilization or other costs associated with replacing an
individual or Subcontractor.
5.6. Supplier will require its employees, agents and subcontractors
to comply with the terms and conditions of this Agreement.
6. PROPRIETARY INFORMATION
6.1. Supplier acknowledges that while performing this Agreement it
may have access to
<PAGE>
9
Sprint-owned trade secrets, including but not limited to
products, planned products, service or planned service,
suppliers, customers, prospective customers, data, financial
information, computer software, processes, methods, knowledge,
inventions, ideas, marketing promotions, discoveries, current
or planned activities, research, development or other
information relating to Sprint's business activities or
operations or those of its customers or suppliers
("Proprietary Information").
6.2. This Agreement creates a confidential relationship between
Sprint and Supplier. Supplier will keep Proprietary
Information confidential and, except as authorized by Sprint
in writing, Supplier may only use Proprietary Information to
perform the Services as required under this Agreement, and may
only make copies necessary for performing the Services. Sprint
will label all Proprietary Information as proprietary to
Sprint. Upon cessation of work, or upon Sprint's request,
Supplier will return all documents and other materials in
Supplier's control that contain or relate to Proprietary
Information.
6.3. Sprint may require signed Non-Disclosure Agreements from
Supplier's employees, agents or subcontractors.
6.4. Proprietary Information does not include information that
Supplier can demonstrate by written documentation:
6.4.1. is rightfully known to Supplier prior to negotiations
leading to this Agreement;
6.4.2. is independently developed by Supplier without any
reliance on Proprietary Information; or
6.4.3. is or later becomes part of the public domain or is
lawfully obtained by Supplier from a third party.
<PAGE>
10
6.5. Supplier agrees that during the performance of Services
Supplier will not perform the same or substantially similar
services for any competitor of Sprint or any affiliate or
subsidiary of a Sprint competitor in the same location where
Supplier is performing Services for Sprint. The above
notwithstanding, Supplier may continue performing competitor's
services at the same locations at volumes not to exceed *
hours per month, for the same products and in the same
languages for services Supplier performed during * ,
and so long as the services are not performed by the same
TSR's, Supervisors, or management personnel as are providing
Services to Sprint. This provision will only become effective
upon the issuance of at least one Contract Order under this
Agreement. For the purposes of this Agreement, Supplier shall
not be considered a competitor of Sprint Telecenters, Inc. or
Asian American Council.
6.6. Supplier acknowledges that disclosure of Proprietary
Information by Supplier will cause irreparable injury to
Sprint, its customers and other suppliers, that is
inadequately compensable in monetary damages. Accordingly,
Sprint may seek injunctive relief in any court of competent
jurisdiction for the breach or threatened breach of this
section, in addition to any other remedies in law or equity.
7. OWNERSHIP
7.1. All equipment, materials, drawings, software or data of every
description that Supplier receives directly or indirectly from
Sprint or from a third party on behalf of Sprint, or that is
paid for, in whole or in part, by Sprint, is the property of
Sprint ("Sprint-owned"). Supplier must mark all such property
as Sprint-owned, and must return all Sprint-owned property to
Sprint upon Sprint's request, or upon the termination or
expiration of this Agreement, whichever is earlier. Supplier
is responsible and must account for all Sprint-owned property,
and bears the risk of loss while the property is in Supplier's
possession. Sprint-owned
<PAGE>
11
property may only be used in Supplier's performance of this
Agreement. Sprint may inspect any agreements and associated
records including invoices by which Supplier acquires
Sprint-owned property.
7.2. Supplier must promptly disclose and assign to Sprint all
intellectual property generated directly at Sprint's expense,
conceived or developed under this Agreement, including but not
limited to Proprietary Information, inventions conceived or
reduced to practice as a result of this Agreement and any
resulting patents. Any works of authorship in any form of
expression, including but not limited to manuals and software
developed under this Agreement and paid for by Sprint, are
works for hire and belong exclusively to Sprint. Supplier
warrants to Sprint that Supplier's employees are subject to
agreements which will secure Sprint's rights under this
section.
7.3. Supplier grants to Sprint a fully paid-up, worldwide license
to utilize any work previously owned by Supplier but delivered
to Sprint under this Agreement.
8. SUPPLIER WARRANTIES
8.1. Individuals assigned to provide Services will have the
expertise, skills, training and professional education to
perform the Services in a professional manner.
8.2. Sprint will receive clear title to all goods incidental to
Services performed as defined in the applicable Contract
Order.
8.3. Supplier warrants Services and goods to conform to the
Contract Order specifications. Any materials and equipment
that may be provided will be state of the art and in good
working order. At Sprint's request and at no charge, Supplier
will promptly correct defects or provide replacement Services
for any non-conforming Services. If Supplier fails to correct
defects or replace Services within * days after written
notice, Sprint may do so and charge Supplier for the cost
incurred.
<PAGE>
12
8.4. To the best of its knowledge, after investigation, neither
Supplier nor its personnel has any existing obligation that
would violate or infringe upon the rights of third parties,
including property, contractual, employment, trademark, trade
secrets, copyright, patent, proprietary information and
non-disclosure rights, that might affect Supplier's ability to
fulfill Supplier's obligations under this Agreement.
8.5. Supplier will not disclose or deliver any proprietary
information of Supplier or any third party (such as software
and documentation) to Sprint except pursuant to a written
license agreement.
8.6. Neither Supplier, nor any of Supplier's employees or agents,
has offered or given anything of value to Sprint employees or
agents to secure this Agreement.
8.7. The prices stated for Services are at least as favorable as
those charged to any other of Supplier's customers for the
same or similar services.
8.8. Inspection, test acceptance, payment or use by Sprint of the
Services furnished do not affect Supplier's warranty
obligations.
9. SAFETY
9.1. Supplier will comply with all Occupational Safety & Health Act
(OSHA) regulations and all other applicable federal, state and
local rules and regulations which may apply to performance of
the Services. Supplier must immediately notify Sprint by
telephone (followed by written confirmation within 24 hours)
of any product or material used in providing Services which
fails to comply with any applicable safety rules or standards
of any government agencies (including the Environmental
Protection Agency) or which contains a defect which could
present a substantial risk to the public health or of injury
to the public or the environment.
9.2. If Supplier's work under this Agreement involves performance
on Sprint's or its
<PAGE>
13
customers' premises, Supplier must take necessary precautions
to prevent injury to persons or property during the work and
adhere to security procedures of Sprint or its customers.
9.3. Supplier is prohibited from carrying weapons or ammunition
onto Sprint's premises or using or carrying weapons while
performing work on Sprint's behalf or attending
Sprint-sponsored activities. Supplier further agrees to comply
with any postings or notices located at Sprint's premises
regarding safety, security or weapons.
10. SUBCONTRACTS
10.1. Contractor may not subcontract any portion of the Services,
without Sprint's prior written consent, and will remain fully
liable for the work performed and for the acts or omissions of
the subcontractor.
11. FEDERAL REQUIREMENTS
11.1. Federal Acquisition Requirements. If Sprint or the federal
government determines that this Agreement supports specific
requirements included in a Sprint contract or subcontract with
the federal government, Supplier will be subject to certain
federal procurement regulations contained in Sprint's contract
or subcontract. Supplier will be subject only to federal
procurement regulations that must be included in all
subcontracts as a matter of law.
11.2. Subcontracting Opportunities. Supplier must make an accounting
of dollars that are subcontracted to firms that are Small
Businesses under Small Disadvantaged Businesses, or
Women-Owned Businesses under Small Business Administration
regulations. These dollars will be reported in writing to the
following address:
Small Business Coordinator
Sprint
903 E. 104th Street
Kansas City, MO 64131
<PAGE>
14
12. LIABILITY AND INDEMNIFICATION
12.1. Supplier agrees to release, irrevocably and forever, Sprint,
and will defend, pay all judgments, expenses, and costs
(including attorney fees) and generally indemnify, defend and
hold Sprint harmless from all liability, suit, claim or
proceeding ("claims") resulting from the performance or
non-performance of this Agreement brought against Sprint by
any person for any damage, loss or destruction of any kind,
including, without limitation, loss to any property or for any
personal injury, including, without limitation, death,
defamation and invasion of privacy, to any person, including
without limitation any personnel of Sprint or Supplier, to the
extent the loss, destruction, injury or death results or
allegedly results, from the act, negligence, error, omission
or willful misconduct or breach of this Agreement by Supplier.
12.2. Supplier, to the extent it is responsible, agrees to handle
and defend all claims brought against Sprint or Sprint's
customers, including without limitation, Sprint's lessees,
bailees, transferees and assigns, so far as based on any claim
that the Services performed, or the goods furnished or
manufactured by Supplier in the course of this Agreement or
any resulting use or sale of any work, Service or goods
constitutes an infringement of any patent or copyright of any
country, or misappropriation of any trade secret, or
constitutes a breach of any moral right, right of publicity,
or intellectual property right.
12.3. If, as the result of Supplier's infringement as set out above,
the sale or use of the goods or Services is enjoined, Supplier
must, at Sprint's option and Supplier's expense, either:
12.3.1. procure for Sprint and its customers the right to use
the goods or Services; or
<PAGE>
15
12.3.2. replace the goods or Services with equivalent
non-infringing goods or Services; or
12.3.3. modify the goods or Services so they become
non-infringing; or
12.3.4. remove the goods or Services and refund the purchase
price, including transportation, installation,
removal and other incidental charges.
12.4. Sprint will notify Supplier in writing of any claims, and will
provide information, assistance and authority for Supplier's
handling and defense of the claim.
12.5. Notwithstanding Supplier's obligations to handle and defend
all claims as set forth above, Sprint may, at Sprint's sole
option, take whatever action it deems reasonable and
appropriate in the handling, defense, or settlement of any
claim. However, Sprint will notify Supplier in writing of any
proposed settlement of a claim. Supplier will be bound to
indemnify Sprint for the proposed settlement amount, unless
within * days of notice, Supplier brings an arbitration
action to determine whether or not the proposed settlement
amount is reasonable. Sprint will not be precluded from
settling any claim, but Supplier will only be required to
indemnify Sprint for the amount held to be reasonable and
apportioned to Supplier's fault, by the arbitration
proceeding.
12.6. Except for the indemnity provisions of this Agreement, neither
party will be liable to the other for special, indirect or
consequential loss or damage whether or not such loss or
damage is caused by the fault or negligence of that party, its
employees, agents, or subcontractors.
13. INSURANCE
13.1. Supplier will obtain and maintain during the term of this
Agreement with financially reputable insurers, licensed to do
business in all jurisdictions where work is performed
<PAGE>
16
and that are reasonably acceptable to Sprint, not less than
the following insurance:
13.2. Workers' Compensation as required under any Workers'
Compensation or similar law in the jurisdiction where work is
performed, with an Employer's Liability limit of not less
than * per accident.
13.3. Commercial General Liability, including coverage for
Contractual Liability and Products/Completed Operations
Liability, with a limit of not less than * combined single
limit per occurrence for bodily injury, personal injury and
property damage liability, naming Sprint as an additional
insured.
13.4. Business Auto insurance covering the ownership, maintenance or
use of any owned, non-owned or hired automobile with a limit
of not less than * combined single limit per accident
for bodily injury and property damage liability, naming Sprint
as an additional insured.
13.5. "All Risk" Property insurance covering not less than the full
replacement cost of Supplier's and subcontractor's, if any,
personal property while on a Sprint work location.
13.6. Certificates of Insurance. Supplier must, as a material
condition of this Agreement, prior to commencement of any work
and prior to any renewal of insurance, deliver to Sprint a
certificate of insurance, satisfactory in form and content to
Sprint, evidencing that the above insurance is in force and
will not be canceled or materially altered without first
giving Sprint 30 days prior written notice.
13.7. Nothing contained in this section limits Supplier's liability
to Sprint to the limits of insurance certified or carried.
14. RIGHT OF AUDIT
14.1. Supplier will maintain all records pertaining to Services
performed for a period of at
<PAGE>
17
least 3 years after final payment. Sprint may audit, copy and
inspect the records at reasonable times during the term of
this Agreement and for the 3-year period to verify costs.
14.2. Sprint or its authorized representative will have the right to
audit Supplier's performance under this Agreement.
15. NOTICE
15.1. Communications relating to this Agreement except for delivery
or invoicing instructions set forth in the Contract Order,
must be identified by the Contract number, and the Contract
Order number and communicated by certified mail, return
receipt requested, telex, facsimile or overnight mail to the
following addresses or as may be later designated by written
notice of the other party:
Sprint: *
Sprint
10951 Lakeview Drive
Lenexa Kansas 66219
Mailstop KSLNXA0120
Phone: *
Fax: *
Supplier: John Jordon
Telac
2200 Clarendon Blvd
Suite 1109,
Arlington VA, 22201
Phone: 703-516-6414
Fax: 703-812-9552
16. ARBITRATION
16.1. Arbitration. Any dispute arising out of or relating to this
Agreement, including any issues relating to arbitrability or
the scope of this arbitration clause, will be finally settled
by arbitration in accordance with the rules of the American
Arbitration Association applying the substantive law of Kansas
without regard to any conflict of laws provision. The
arbitration will be governed by the United States Arbitration
Act, 9
<PAGE>
18
U.S.C. ss. 1, et seq., and judgment upon the award rendered by
the arbitrator(s) may be entered by any court with
jurisdiction. The arbitration will be held in the Kansas City,
Missouri metropolitan area. The arbitrator(s) are not
empowered to award damages in excess of compensatory damages
and each party waives any damages in excess of compensatory
damages.
16.2. Notwithstanding the foregoing, Sprint may bring a claim for
injunctive relief as provided in Section 6.6 in any court of
competent jurisdiction without first submitting the claim to
arbitration.
16.3. Continuing Performance. Supplier agrees to continue
performance during the pendency of any dispute, unless
performance is terminated by Sprint under Section 4.
16.4. Limitation of Claims. No claim for payment for Services may be
brought by Supplier after Sprint has made final payment to
Supplier. Claims made by Supplier may only be brought against
the Sprint Affiliate which issued the Contract Order giving
rise to the claim.
17. GENERAL
17.1. Supplier Performance. Time is of the essence in Supplier's
performance. Sprint is not obligated to pay for Services
performed or goods delivered which do not conform to the
Contract Order.
17.2. Material/Mechanic's Lien. Supplier will promptly pay for all
services, materials, equipment, labor used under this
Agreement, and will hold Sprint harmless from all losses,
expenses, and liabilities connected with Supplier's failure to
promptly pay for services, materials equipment or labor and
will keep Sprint premises free of claims or liens. Supplier
will furnish Sprint with a list of all its subcontractors
before work is performed on premises by subcontractors.
Supplier will furnish Sprint with lien waivers from all
subcontractors.
<PAGE>
19
17.3. Ethics Code. Supplier agrees to comply with Sprint's Code of
Ethics, where applicable, a copy of which is attached to this
Agreement and is incorporated in this Agreement.
17.4. Assignment. Sprint may assign this Agreement to any Sprint
Affiliate without the consent of Supplier. Otherwise, the
parties agree that this Agreement is personal in nature and
neither party may assign this Agreement or any of its rights
or delegate its obligations without the prior written consent
of the other party.
17.5. Governing Law. This Agreement is governed by and construed in
accordance with the laws of the State of Kansas without regard
to any conflict of laws provision.
17.6. Laws and Regulations. Supplier will comply with all local,
municipal, state, federal and governmental laws, orders, codes
and regulations in the performance of this Agreement and any
Contract Orders.
17.7. Permits and Licenses. Supplier will obtain and keep current at
Supplier's expense all governmental permits, certificates and
licenses (including professional licenses, if applicable)
necessary for Supplier to perform the Services.
17.8. Waiver. The waiver of a breach of any term or condition of
this Agreement will not constitute the waiver of any other
breach of the same or any other term.
17.9. Severability. If any provision of this Agreement is held to be
unenforceable, the remaining provisions will remain in effect,
to be construed as if the unenforceable provisions were
originally deleted.
17.10. Survival. Numbered provisions 6, 7, 8, 10, 12, 13, 14, 16.1,
17.5, and 17.11 will survive the termination or expiration of
this Agreement, in addition to any other provisions that by
their content are intended to survive the performance,
termination or cancellation of this Agreement.
<PAGE>
20
17.11. Publicity. Supplier will not, without Sprint's prior written
consent:
17.11.1. make any news release, public announcement, denial or
confirmation of this Agreement or its subject matter;
or
17.11.2. in any manner advertise or publish the fact of this
Agreement.
17.12. Remedies. All rights and remedies of the parties, in law or
equity, are cumulative and may be exercised concurrently or
separately. The exercise of one remedy will not be an election
of that remedy to the exclusion of other remedies.
<PAGE>
21
18. ENTIRE AGREEMENT
18.1. This Agreement, together with the Contract Orders, constitutes
the entire Agreement between Sprint and Supplier with respect
to the subject matter contained and supersedes all inquiries,
proposals, agreements, negotiations and commitments, whether
written or oral prior to the Effective Date. This Agreement
may not be amended or modified except by written document
signed by both parties. In the event of an inconsistency
between the terms of this Agreement and those of a Contract
Order, the provisions of the Contract Order control.
SIGNED:
SPRINT/UNITED MANAGEMENT COMPANY TELEPHONE ACCESS, INC.
dba TELAC
- -------------------------------- -----------------------------------
(signature) (signature)
- -------------------------------- -----------------------------------
(print name) (print name)
- -------------------------------- -----------------------------------
(title) (title)
- -------------------------------- -----------------------------------
(date) (date)
- ------------------------------------------------
* Confidential portion of Exhibit 10(s) that has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
TELEPHONE ACCESS, INC.
CONTRACT ORDER NO. CK7113401
This Contract Order is issued pursuant to the Master Services Agreement (the
Agreement) number CM7113400 between Sprint/United Management Company, a Kansas
corporation ("Sprint"), with offices located at 2330 Shawnee Mission Parkway,
Westwood Kansas and Telephone Access, Inc. dba TELAC, a Delaware corporation
("TELAC"), with offices at located at 2200 Clarendon Blvd., Suite 1109,
Arlington, VA, 22201.
Pursuant to this Contract Order and the terms of the Agreement, TELAC agrees to
supply and perform certain services related to the project as set out more fully
below, in consideration of the payment by Sprint at the rates set out.
This contract order is for a specific project within the market(s) defined by
Sprint as the Asian-American Markets. The services TELAC will provide for this
market concentration will include Third Party Verification.
1. Project
1.1. Telephone Service Representatives (TSRs) employed by TELAC
shall receive or make calls on 800 numbers set up by Sprint
and attempt to sell Sprint's telecommunications services to
potential customers and to gather from potential customers
certain information reasonably requested by Sprint. TELAC
shall use Sprint's telecommunications network for all callers
on the 800 Numbers.
1.2. Outbound telemarketing is limited to 9:00 am to 9:00 pm local
time of destination of call, Monday through Sunday. No calls
made on legal holidays or on agreed upon traditional ethnic
holidays.
1.3. Sprint will provide leads, in sufficient quantity, on 6250
BPI, 9 track magnetic tape or other mutually acceptable
mediums.
1.4. TELAC shall provide a dedicated project manager at no cost to
oversee and manage the TSRs and to act as the primary contact
with Sprint.
1.5. TELAC shall make available to Sprint a dedicated work space
(with reasonable privacy and access to a telephone, analog
line
<PAGE>
2
and electrical outlets) on TELAC's premises for use by
Sprint's project manager during reasonable visits to TELAC's
premises. TELAC may utilize such work space for other purposes
when Sprint's project manager is not visiting TELAC's
premises.
1.6. TELAC shall provide, at no cost, at least one Quality
Development Representative "QDR" per 25 TSRs (defined as the
TELAC employee(s) who are responsible for quality development
of the services provided hereunder).
1.7. Supplier's QDRs will monitor each (TSR) at least once per
shift.
1.8. To the extent permitted by law and at Sprint's expense, Sprint
may remote monitor the TSRs.
1.9. Sprint will make E-mail available between Sprint and TELAC, at
no charge.
1.10. TELAC shall transmit orders to Sprint daily through mutually
agreed upon data transmission method.
1.11. TELAC shall provide terminals, telephones and any other
equipment necessary to bring connectivity to each desktop.
1.11.1. TELAC shall provision and support all TSR workstation
hardware for connection to Sprint owned AS400
controllers.
1.11.2. TELAC shall bear all costs associated with the
purchase and operation of the TSR workstations. Such
workstations shall be connected in a local area
network ("LAN") with sufficient security to prevent
unauthorized access to Sprint information, and have
at least the following characteristics:
*
<PAGE>
3
1.11.3. TELAC phone equipment shall posses the ability to
display unique DNIS of incoming call to the
individual TSR workstation for specific script
adherence.
1.11.4. TELAC shall be responsible for the cost of all
facility telephone hardware and software. Sprint
shall provide Tl's and CSU's/DSU's. The CSU/DSU will
be the Sprint Demarc.
1.11.5. TELAC shall be responsible for all voice connections
and equipment past the CSU/DSU.
1.11.6. *
1.11.7. TELAC shall provide compatibility with Sprint's
network routing product for acceptance of inbound
overflow calls.
1.12. Supplier shall provide the following written reports to
Sprint:
1.12.1. Daily Sales Report (format provided by Sprint).
1.12.2. Weekly and monthly sales forecasts, planned sales
activities reports.
1.12.3. Customer complaints and disposition, as required.
1.12.4. A monthly reconciliation of work done on the lead
lists is to be sent to Sprint no later than the fifth
workday after the end of the preceding month. This
reconciliation needs to be program specific.
1.13. Supplier will transmit all sales within * hours, and will
transmit sales on-line or batch daily. Supplier will transmit
a minimum of * of all outbound orders using the on-line
verification transfer process.
1.14. If a customer requests information Supplier will provide that
customer's name, address, phone number, and type of
information the customer wants within 24 hours of the request
to Sprint for fulfillment.
<PAGE>
4
1.15. Sprint will verify all sales transmitted within * hours.
After * hours, if Sprint cannot contact the customer the
sale will go to the ballot letter verification process, if
applicable. Sprint will make no less than * contact
attempts in the * hour window. If any unusual
circumstances exist with the account that will affect Sprint's
ability to verify the account within the * hour window,
that information must be noted in the note field on the sale
transmission by Supplier. Supplier shall comply with Sprint's
direction on the order in which leads or prospects supplied by
Sprint should be contacted. Supplier will have the ability to
target leads by time zone.
1.16. Supplier may make no more than * attempts to contact
prospective leads supplied by Sprint. Additionally, Supplier
may only contact customers once, unless specifically requested
by the customer, or in the event a second contact is required
to ensure the quality of the sale.
2. Term
2.1. The initial Term of this Contract Order shall commence on
January 1, 1997 and end on June 30, 1999. Unless one of the
Parties gives notice to the other of its intent to either
renegotiate or terminate this Contract Order at least ninety
(90) days prior to the end of the initial Term or any
successive Term, this Contract Order shall be automatically
renewed for a Term of twelve months.
2.2. Upon the expiration of the Term or earlier termination of this
Contract Order:
2.2.1. both parties shall cooperate in the orderly
winding-up of their relationship under this Contract
Order;
2.2.2. for a period not to exceed * days and subject
to the parties' mutual agreement as to the amounts of
the applicable charges, TELAC shall assist Sprint by
providing any Services set forth in this Contract
Order as requested by Sprint subject to payment (or
prepayment if requested by TELAC) by Sprint of the
charges applicable hereunder at the mutually agreed
upon amounts; and
<PAGE>
5
2.2.3. both parties will coordinate the return or
destruction of Proprietary Information as provided in
Section 7 of the Master Agreement.
3. Services and Rates
3.1. TELAC shall provide Sprint with the following Services and Sprint shall
pay TELAC for such Services at the particular rates also identified.
3.1.1. TSR Services. "TSRs" are TELAC personnel that are designated
by TELAC to receive and respond to inbound telephone inquiries
from, and to initiate and conduct outbound telephone inquires
to, customers regarding Sprint programs and/or other products
or services and to perform other services mutually agreed
upon, including without limitation, data entry. this Contract
Order, TSRs shall include working supervisor TSRs. TELAC shall
provide the following "TSR Services":
3.1.1.1. TELAC's TSRs shall, pursuant to the terms of this
Contract Order, comply with all scripts (which may
include credit card verification procedures.)
3.1.1.2. * "Station Time" shall be the time that a
trained TSR is signed into the Rockwell Dialer/ACD
system and is ready and available to perform TSR
Services and to perform call wrap-up procedures.
*
If for any reason the TELAC automated
operating system that tracks Station Time is not
functioning or otherwise does not track Station Time,
then Station Time will be calculated manually by
TELAC, subject to Sprint's audit rights hereunder.
3.1.2. Training. As used herein, "Trainee" shall mean TELAC TSRs and
QDRs needing Sprint Product training, and "Training" shall
mean training of Trainees with respect to the Services to be
provided by TELAC to Sprint hereunder, including without
limitation new programs and product training and new hire
training. Sprint shall reasonably determine the amount of
training required for any particular program or product. Any
training required above the designated amount shall not be
charged to Sprint. Sprint
<PAGE>
6
shall not be responsible to pay for training of new TSRs that,
as a result of turnover (not attributable to Sprint), who are
hired specifically to replace previously trained TSRs. TELAC
will inform Sprint in advance on necessary Training.
3.1.2.1. *
3.1.3. Travel. TELAC will be reimbursed for travel, living, and
other expenses, outside the normal course of business if
authorized by Sprint in the Contract Order at reasonable and
actual costs. Travel and living expenses will not be
reimbursed unless they are in conformance with Sprint's travel
reimbursement policies and approved by Sprint in writing, as
set out in the Agreement.
3.2. Incentives.
TELAC shall, at its sole expense, pay TSRs and other TELAC personnel
performing services under this Contract Order monetary and/or
non-monetary incentives similar to those incentives offered directly by
TELAC (which are not reimbursed by any one person) to TELAC personnel
performing similar services for other similar TELAC clients. Such
incentive programs shall be designed to, among other things, reward
call handling efficiencies, quality and accuracy.
3.3. Bonus.
Sprint may, at Sprint's sole expense and discretion, offer and pay
monetary and/or non-monetary bonuses to TELAC for its performance of
Services under this Contract Order. While the parties recognize and
agree that Sprint may in its sole discretion modify and/or terminate
any such bonus programs, such modifications and/or terminations may not
be applied by Sprint retroactively to performance incentives previously
agreed to by the parties. Sprint agrees to make all bonus payments to
TELAC and shall not make direct payments of cash or other incentives
directly to TELAC personnel.
4. Invoicing
4.1. Invoices submitted by TELAC will describe the Services
rendered during the invoice period, will identify any other
authorized expenses incurred in the performance of Services
hereunder, and will make reference to the Master Agreement and
this Contract Order number. All invoices will be sent to the
following address or to such other address as designated by
Sprint in writing:
<PAGE>
7
ORIGINAL: Sprint
10951 Lakeview
Lenexa, KS 66219
Attention: Finance
Phone: *
Fax: *
5. Staffing Levels
5.1. Sprint will provide to TELAC, at least fifteen (15) days in
advance, the projected hours, designated by language and
environment, as well as the Sales Per Hour, that Sprint wants
TELAC to provide during the coming calendar month.
6. Performance Standards
6.1. In performing the Services, TELAC agrees to meet the following
Performance Standards. Performance Standards may be modified
by mutual agreement of the parties. All Performance Standards,
as applicable, shall be measured on a weekly basis, as
described below. All Performance Standards shall be measured
at the Project level and not at the individual TSR level.
6.2. Performance Standard for Sales Per Hour (SPH) is to be defined
as number of "A"-Status sales per TSR station hour billed.
6.3. An "A" status sale shall represent an order that has achieved
a rating as an "active" (A-Status) account in Sprint's AMOS
system.
6.4. An "unconfirmed" sale shall represent an order that has been
canceled because of Sprint's verification processes, and must
not be subject to revocation by either the customer or the
local exchange company based on a claim that the order was
unauthorized. At minimum, verification will confirm the
following order information with the customer which placed the
order:
6.4.1. Order confirmed;
6.4.2. Confirmation that the customer was sold an
appropriate Sprint service;
6.4.3. Name, address and phone number confirmed;
<PAGE>
8
6.4.4. Customer's understanding and willingness to pay local
exchange company PIC change charge confirmed.
6.5. The following minimum performance standards shall apply:
6.5.1. Outbound:
6.5.1.1. An "A"-Status SPH per TSR station hour as
defined by Sprint * days prior to each
new month. SPH may vary by program.
6.5.1.2. Unconfirmed sales must not exceed * of
total monthly sales.
6.5.2. Inbound:
6.5.2.1. Handle an average number of calls per TSR
station hour, as defined by Sprint in
writing * days prior to each new month.
Average handled per hour may vary by
program.
6.5.2.2. An "A"-Status close ratio as defined by
Sprint in writing * days prior to each
new month. Close ratios may vary by program.
6.5.2.3. Abandonment rate not to exceed * in any
month
6.5.2.4. Unconfirmed sales must not exceed * of
total monthly sales
6.6. TELAC and Sprint will review TELAC's performance under this
Contract Order in comparison to the Performance Standards at
least monthly and determine the priorities and plans for the
execution of future work. The reviews will be prepared in any
reasonable format to meet the needs of Sprint. TELAC and
Sprint will mutually agree on any changes to the Performance
Standards at this time.
<PAGE>
9
<PAGE>
10
7. Incorporation of Terms of Master Agreement
7.1 This Contract Order is entered into by the parties pursuant to
the Master Services Agreement, Contract Number CM7113400. All
of the terms, provisions and conditions of the Master Services
Agreement are hereby incorporated herein and made a part
hereof as if such terms, provisions and conditions were fully
set forth in this Contract Order. By their execution and
delivery of this Contract Order, the parties hereby reaffirm
all of the terms, provisions and conditions of the Master
Services Agreement.
SIGNED
SPRINT/UNITED MANAGEMENT COMPANY TELEPHONE ACCESS, INC.
- -------------------------------- -----------------------------
(Signature) (Signature)
- -------------------------------- ------------------------------
(Print Name) (Print Name)
- -------------------------------- ------------------------------
(Title) (Title)
- --------------------------------- ------------------------------
(Date) (Date)
- -------------------------------------------
* Confidential portion of Exhibit 10(s) that has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
11
TELEPHONE ACCESS, INC.
CONTRACT ORDER NO. CK7113402
This Contract Order is issued pursuant to the Master Services Agreement (the
Agreement) number CM7113400 between Sprint/United Management Company, a Kansas
corporation ("Sprint"), with offices located at 2330 Shawnee Mission Parkway,
Westwood Kansas and Telephone Access, Inc. dba TELAC, a Delaware corporation
("TELAC"), with offices at located at 2200 Clarendon Blvd., Suite 1109,
Arlington, VA, 22201.
Pursuant to this Contract Order and the terms of the Agreement, TELAC agrees to
supply and perform certain services related to the project as set out more fully
below, in consideration of the payment by Sprint at the rates set out.
This contract order is for a specific project within the market(s) defined by
Sprint as the College and Domestic Markets. The services TELAC will provide for
this market concentration will include Outbound and Inbound Sales.
1. Project
1.1. Telephone Service Representatives (TSRs) employed by TELAC
shall receive or make calls on 800 numbers set up by Sprint
and attempt to sell Sprint's telecommunications services to
potential customers and to gather from potential customers
certain information reasonably requested by Sprint. TELAC
shall use Sprint's telecommunications network for all callers
on the 800 Numbers.
1.2. Outbound telemarketing is limited to 9:00 am to 9:00 pm local
time of destination of call, Monday through Sunday. No calls
made on legal holidays or on agreed upon traditional ethnic
holidays.
1.3. Sprint will provide leads, in sufficient quantity, on * track
magnetic tape or other mutually acceptable mediums.
1.4. TELAC shall provide a dedicated project manager at no cost to
oversee and manage the TSRs and to act as the primary contact
with Sprint.
1.5. TELAC shall make available to Sprint a dedicated work space
(with reasonable privacy and access to a telephone, analog
line and electrical outlets) on TELAC's premises for use by
Sprint's
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12
project manager during reasonable visits to TELAC's premises.
TELAC may utilize such work space for other purposes when
Sprint's project manager is not visiting TELAC's premises.
1.6. TELAC shall provide, at no cost, at least one Quality
Development Representative "QDR" per * (defined as the TELAC
employee(s) who are responsible for quality development of the
services provided hereunder).
1.7. Supplier's QDRs will monitor each (TSR) at least once per
shift.
1.8. To the extent permitted by law and at Sprint's expense, Sprint
may remote monitor the TSRs.
1.9. Sprint will make E-mail available between Sprint and TELAC, at
no charge.
1.10. TELAC shall transmit orders to Sprint daily through mutually
agreed upon data transmission method.
1.11. TELAC shall provide terminals, telephones and any other
equipment necessary to bring connectivity to each desktop.
1.11.1. TELAC shall provision and support all TSR workstation
hardware for connection to Sprint owned *
controllers.
1.11.2. TELAC shall bear all costs associated with the
purchase and operation of the TSR workstations. Such
workstations shall be connected in a local area
network ("LAN") with sufficient security to prevent
unauthorized access to Sprint information, and have
at least the following characteristics:
*
1.11.3. TELAC phone equipment shall posses the ability to
display unique DNIS of incoming call to the
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13
individual TSR workstation for specific script
adherence.
1.11.4. TELAC shall be responsible for the cost of all
facility telephone hardware and software. Sprint
shall provide * .
1.11.5. TELAC shall bc responsible for all voice connections
and equipment past the CSU/DSU.
1.11.6. TELAC shall provide controllers, * to connect to
Sprint's * .
1.11.7. TELAC shall provide compatibility with Sprint's
network routing product for acceptance of inbound
overflow calls.
1.12. Supplier shall provide the following written reports to
Sprint:
1.12.1. Daily Sales Report (format provided by Sprint).
1.12.2. Weekly and monthly sales forecasts, planned sales
activities reports.
1.12.3. Customer complaints and disposition, as required.
1.12.4. A monthly reconciliation of work done on the lead
lists is to be sent to Sprint no later than the fifth
workday after the end of the preceding month. This
reconciliation needs to be program specific.
1.13. Supplier will transmit all sales within * hours, and will
transmit sales on-line or batch daily. Supplier will transmit
a minimum of * of all outbound orders using the on-line
verification transfer process.
1.14. If a customer requests information Supplier will provide that
customer's name, address, phone number, and type of
information the customer wants within * hours of the
request to Sprint for fulfillment.
1.15. Sprint will verify all sales transmitted within * hours.
After * hours, if Sprint cannot contact the customer the
sale will go to
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14
the ballot letter verification process, if applicable. Sprint
will make no less than * contact attempts in the * hour
window. If any unusual circumstances exist with the account
that will affect Sprint's ability to verify the account within
the * hour window, that information must be noted in the
note field on the sale transmission by Supplier. Supplier
shall comply with Sprint's direction on the order in which
leads or prospects supplied by Sprint should be contacted.
Supplier will have the ability to target leads by time zone.
1.16. Supplier may make no more than 10 attempts to contact
prospective leads supplied by Sprint. Additionally, Supplier
may only contact customers once, unless specifically requested
by the customer, or in the event a second contact is required
to ensure the quality of the sale.
2. Term
2.1. The initial Term of this Contract Order shall commence on
January 1, 1997 and end on June 30, 1999. Unless one of the
Parties gives notice to the other of its intent to either
renegotiate or terminate this Contract Order at least * days
prior to the end of the initial Term or any successive Term,
this Contract Order shall be automatically renewed for a Term
of twelve months.
2.2. Upon the expiration of the Term or earlier termination of this
Contract Order:
2.2.1. both parties shall cooperate in the orderly
winding-up of their relationship under this Contract
Order;
2.2.2. for a period not to exceed * days and subject
to the parties' mutual agreement as to the amounts of
the applicable charges, TELAC shall assist Sprint by
providing any Services set forth in this Contract
Order as requested by Sprint subject to payment (or
prepayment if requested by TELAC) by Sprint of the
charges applicable hereunder at the mutually agreed
upon amounts; and
2.2.3. both parties will coordinate the return or
destruction of Proprietary Information as provided in
Section 7 of the Master Agreement.
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15
3. Services and Rates
3.1. TELAC shall provide Sprint with the following Services and Sprint shall
pay TELAC for such Services at the particular rates also identified.
3.1.1. TSR Services.
"TSRs" are TELAC personnel that are designated by TELAC to
receive and respond to inbound telephone inquiries from, and
to initiate and conduct outbound telephone inquires to,
customers regarding Sprint programs and/or other products or
services and to perform other services mutually agreed upon,
including without limitation, data entry. this Contract Order,
TSRs shall include working supervisor TSRs. TELAC shall
provide the following "TSR Services":
3.1.1.1. TELAC's TSRs shall, pursuant to the terms of this
Contract Order, comply with all scripts (which may
include credit card verification procedures.)
3.1.1.2. * "Station Time" shall be the time that a trained TSR
is signed into the Rockwell Dialer/ACD system and is
ready and available to perform TSR Services and to
perform call wrap-up procedures.
*
If for any reason the TELAC automated
operating system that tracks Station Time is not
functioning or otherwise does not track Station Time,
then Station Time will be calculated manually by
TELAC, subject to Sprint's audit rights hereunder.
3.1.2. Training.
As used herein, "Trainee" shall mean TELAC TSRs and QDRs
needing Sprint Product training, and "Training" shall mean
training of Trainees with respect to the Services to be
provided by TELAC to Sprint hereunder, including without
limitation new programs and product training and new hire
training. Sprint shall reasonably determine the amount of
training required for any particular program or product. Any
training required above the designated amount shall not be
charged to Sprint. Sprint shall not be responsible to pay for
training of new TSRs that, as a result of turnover (not
attributable to Sprint), who are hired specifically to replace
previously trained TSRs. TELAC will inform Sprint in advance
on necessary Training.
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16
3.1.2.1. *
3.1.3. Travel. TELAC will be reimbursed for travel, living, and other
expenses, outside the normal course of business if authorized
by Sprint in the Contract Order at reasonable and actual
costs. Travel and living expenses will not be reimbursed
unless they are in conformance with Sprint's travel
reimbursement policies and approved by Sprint in writing, as
set out in the Agreement.
3.2. Incentives.
TELAC shall, at its sole expense, pay TSRs and other TELAC personnel
performing services under this Contract Order monetary and/or
non-monetary incentives similar to those incentives offered directly by
TELAC (which are not reimbursed by any one person) to TELAC personnel
performing similar services for other similar TELAC clients. Such
incentive programs shall be designed to, among other things, reward
call handling efficiencies, quality and accuracy.
3.3. Bonus.
Sprint may, at Sprint's sole expense and discretion, offer and pay
monetary and/or non-monetary bonuses to TELAC for its performance of
Services under this Contract Order. While the parties recognize and
agree that Sprint may in its sole discretion modify and/or terminate
any such bonus programs, such modifications and/or terminations may not
be applied by Sprint retroactively to performance incentives previously
agreed to by the parties. Sprint agrees to make all bonus payments to
TELAC and shall not make direct payments of cash or other incentives
directly to TELAC personnel.
4. Invoicing
4.1. Invoices submitted by TELAC will describe the Services
rendered during the invoice period, will identify any other
authorized expenses incurred in the performance of Services
hereunder, and will make reference to the Master Agreement and
this Contract Order number. All invoices will be sent to the
following address or to such other address as designated by
Sprint in writing:
ORIGINAL: Sprint
10951 Lakeview
Lenexa, KS 66219
Attention: Finance
Phone: *
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17
Fax: *
5. Staffing Levels
5.1. Sprint will provide to TELAC, at least * days in advance, the
projected hours, designated by language and environment, as
well as the Sales Per Hour, that Sprint wants TELAC to provide
during the coming calendar month.
6. Performance Standards
6.1. In performing the Services, TELAC agrees to meet the following
Performance Standards. Performance Standards may be modified
by mutual agreement of the parties. All Performance Standards,
as applicable, shall be measured on a weekly basis, as
described below. All Performance Standards shall be measured
at the Project level and not at the individual TSR level.
6.2. Performance Standard for Sales Per Hour (SPH) is to be defined
as number of "A"-Status sales per TSR station hour billed.
6.3. An "A" status sale shall represent an order that has achieved
a rating as an "active" (A-Status) account in Sprint's AMOS
system.
6.4. An "unconfirmed" sale shall represent an order that has been
canceled because of Sprint's verification processes, and must
not be subject to revocation by either the customer or the
local exchange company based on a claim that the order was
unauthorized. At minimum, verification will confirm the
following order information with the customer which placed the
order:
6.4.1. Order confirmed;
6.4.2. Confirmation that the customer was sold an
appropriate Sprint service;
6.4.3. Name, address and phone number confirmed;
6.4.4. Customer's understanding and willingness to pay local
exchange company PIC change charge confirmed.
6.5. The following minimum performance standards shall apply:
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18
6.5.1. Outbound:
6.5.1.1. An "A"-Status SPH per TSR station hour as
defined by Sprint * days prior to each
new month. SPH may vary by program.
6.5.1.2. Unconfirmed sales must not exceed 5% of
total monthly sales.
6.5.2. Inbound:
6.5.2.1. Handle an average number of calls per TSR
station hour, as defined by Sprint in
writing * days prior to each new
month. Average handled per hour may vary by
program.
6.5.2.2. An "A"-Status close ratio as defined by
Sprint in writing * days prior to
each new month. Close ratios may vary by
program.
6.5.2.3. Abandonment rate not to exceed * in any
month
6.5.2.4. Unconfirmed sales must not exceed * of
total monthly sales
6.6. TELAC and Sprint will review TELAC's performance
under this Contract Order in comparison to the
Performance Standards at least monthly and determine
the priorities and plans for the execution of future
work. The reviews will be prepared in any reasonable
format to meet the needs of Sprint. TELAC and Sprint
will mutually agree on any changes to the Performance
Standards at this time.
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19
7. Incorporation of Terms of Master Agreement
7.1. This Contract Order is entered into by the parties pursuant to
the Master Services Agreement, Contract Number CM7113400. All
of the terms, provisions and conditions of the Master Services
Agreement are hereby incorporated herein and made a part
hereof as if such terms, provisions and conditions were fully
set forth in this Contract Order. By their execution and
delivery of this Contract Order, the parties hereby reaffirm
all of the terms, provisions and conditions of the Master
Services Agreement.
SIGNED
SPRINT/UNITED MANAGEMENT COMPANY TELEPHONE ACCESS, INC.
- -------------------------------- -----------------------------
(Signature) (Signature)
- -------------------------------- ------------------------------
(Print Name) (Print Name)
- -------------------------------- ------------------------------
(Title) (Title)
- --------------------------------- ------------------------------
(Date) (Date)
- -------------------------------------------
* Confidential portion of Exhibit 10(s) that has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
20
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21
TELEPHONE ACCESS, INC.
CONTRACT ORDER NO. CK7113403
This Contract Order is issued pursuant to the Master Services Agreement (the
Agreement) number CM7113400 between Sprint/United Management Company, a Kansas
corporation ("Sprint"), with offices located at 2330 Shawnee Mission Parkway,
Westwood Kansas and Telephone Access, Inc. dba TELAC, a Delaware corporation
("TELAC"), with offices at located at 2200 Clarendon Blvd., Suite 1109,
Arlington, VA, 22201.
Pursuant to this Contract Order and the terms of the Agreement, TELAC agrees to
supply and perform certain services related to the project as set out more fully
below, in consideration of the payment by Sprint at the rates set out.
This contract order is for a specific project within the market(s) defined by
Sprint as GI Market. The services TELAC will provide for this market
concentration will include Sales.
1. Project
1.1. Telephone Service Representatives (TSRs) employed by TELAC
shall receive or make calls on 800 numbers set up by Sprint
and attempt to sell Sprint's telecommunications services to
potential customers and to gather from potential customers
certain information reasonably requested by Sprint. TELAC
shall use Sprint's telecommunications network for all callers
on the 800 Numbers.
1.2. Outbound telemarketing is limited to 9:00 am to 9:00 pm local
time of destination of call, Monday through Sunday. No calls
made on legal holidays or on agreed upon traditional ethnic
holidays.
1.3. Sprint will provide leads, in sufficient quantity, on 6250
BPI, 9 track magnetic tape or other mutually acceptable
mediums.
1.4. TELAC shall provide a dedicated project manager at no cost to
oversee and manage the TSRs and to act as the primary contact
with Sprint.
1.5. TELAC shall make available to Sprint a dedicated work space
(with reasonable privacy and access to a telephone, analog
line and electrical outlets) on TELAC's premises for use by
Sprint's
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22
project manager during reasonable visits to TELAC's premises.
TELAC may utilize such work space for other purposes when
Sprint's project manager is not visiting TELAC's premises.
1.6. TELAC shall provide, at no cost, at least one Quality
Development Representative "QDR" per * TSRs (defined
as the TELAC employee(s) who are responsible for quality
development of the services provided hereunder).
1.7. Supplier's QDRs will monitor each (TSR) at least once per
shift.
1.8. To the extent permitted by law and at Sprint's expense, Sprint
may remote monitor the TSRs.
1.9. Sprint will make E-mail available between Sprint and TELAC, at
no charge.
1.10. TELAC shall transmit orders to Sprint daily through mutually
agreed upon data transmission method.
1.11. TELAC shall provide terminals, telephones and any other
equipment necessary to bring connectivity to each desktop.
1.11.1. TELAC shall provision and support all TSR workstation
hardware for connection to Sprint owned *
controllers.
1.11.2. TELAC shall bear all costs associated with the
purchase and operation of the TSR workstations. Such
workstations shall be connected in a local area
network ("LAN") with sufficient security to prevent
unauthorized access to Sprint information, and have
at least the following characteristics:
*
1.11.3. TELAC phone equipment shall posses the ability to
display unique DNIS of incoming call to the
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23
individual TSR workstation for specific script
adherence.
1.11.4. TELAC shall be responsible for the cost of all
facility telephone hardware and software. Sprint
shall provide Tl's and CSU's/DSU's. The CSU/DSU will
be the Sprint Demarc.
1.11.5. TELAC shall be responsible for all voice connections
and equipment past the CSU/DSU.
1.11.6. TELAC shall provide controllers, * to connect to
Sprint's * computer.
1.11.7. TELAC shall provide compatibility with Sprint's
network routing product for acceptance of inbound
overflow calls.
1.12. Supplier shall provide the following written reports to
Sprint:
1.12.1. Daily Sales Report (format provided by Sprint).
1.12.2. Weekly and monthly sales forecasts, planned sales
activities reports.
1.12.3. Customer complaints and disposition, as required.
1.12.4. A monthly reconciliation of work done on the lead
lists is to be sent to Sprint no later than the fifth
workday after the end of the preceding month. This
reconciliation needs to be program specific.
1.13. Supplier will transmit all sales within * hours, and will
transmit sales on-line or batch daily. Supplier will transmit
a minimum of * of all outbound orders using the on-line
verification transfer process.
1.14. If a customer requests information Supplier will provide that
customer's name, address, phone number, and type of
information the customer wants within * hours of the request
to Sprint for fulfillment.
1.15. Sprint will verify all sales transmitted within * hours.
After * hours, if Sprint cannot contact the customer the sale
will go to
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24
the ballot letter verification process, if applicable. Sprint
will make no less than * contact attempts in the * hour
window. If any unusual circumstances exist with the account
that will affect Sprint's ability to verify the account within
the * hour window, that information must be noted in the
note field on the sale transmission by Supplier. Supplier
shall comply with Sprint's direction on the order in which
leads or prospects supplied by Sprint should be contacted.
Supplier will have the ability to target leads by time zone.
1.16. Supplier may make no more than * attempts to contact
prospective leads supplied by Sprint. Additionally, Supplier
may only contact customers once, unless specifically requested
by the customer, or in the event a second contact is required
to ensure the quality of the sale.
2. Term
2.1. The initial Term of this Contract Order shall commence on
January 1, 1997 and end on June 30, 1999. Unless one of the
Parties gives notice to the other of its intent to either
renegotiate or terminate this Contract Order at least *
days prior to the end of the initial Term or any successive
Term, this Contract Order shall be automatically renewed for a
Term of twelve months.
2.2. Upon the expiration of the Term or earlier termination of this
Contract Order:
2.2.1. both parties shall cooperate in the orderly
winding-up of their relationship under this Contract
Order;
2.2.2. for a period not to exceed * days and subject to
the parties' mutual agreement as to the amounts of
the applicable charges, TELAC shall assist Sprint by
providing any Services set forth in this Contract
Order as requested by Sprint subject to payment (or
prepayment if requested by TELAC) by Sprint of the
charges applicable hereunder at the mutually agreed
upon amounts; and
2.2.3. both parties will coordinate the return or
destruction of Proprietary Information as provided in
Section 7 of the Master Agreement.
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25
3. Services and Rates
3.1. TELAC shall provide Sprint with the following Services and Sprint shall
pay TELAC for such Services at the particular rates also identified.
3.1.1. TSR Services. "TSRs" are TELAC personnel that are designated
by TELAC to receive and respond to inbound telephone inquiries
from, and to initiate and conduct outbound telephone inquires
to, customers regarding Sprint programs and/or other products
or services and to perform other services mutually agreed
upon, including without limitation, data entry. this Contract
Order, TSRs shall include working supervisor TSRs. TELAC shall
provide the following "TSR Services":
3.1.1.1. TELAC's TSRs shall, pursuant to the terms of this
Contract Order, comply with all scripts (which may
include credit card verification procedures.)
3.1.1.2. * "Station Time" shall be the time that a trained TSR
is signed into the Rockwell Dialer/ACD system and is
ready and available to perform TSR Services and to
perform call wrap-up procedures.
*
If for any reason the TELAC automated
operating system that tracks Station Time is not
functioning or otherwise does not track Station Time,
then Station Time will be calculated manually by
TELAC, subject to Sprint's audit rights hereunder.
3.1.2. Training.
As used herein, "Trainee" shall mean TELAC TSRs and QDRs
needing Sprint Product training, and "Training" shall mean
training of Trainees with respect to the Services to be
provided by TELAC to Sprint hereunder, including without
limitation new programs and product training and new hire
training. Sprint shall reasonably determine the amount of
training required for any particular program or product. Any
training required above the designated amount shall not be
charged to Sprint. Sprint shall not be responsible to pay for
training of new TSRs that, as a result of turnover (not
attributable to Sprint), who are hired specifically to replace
previously trained TSRs. TELAC will inform Sprint in advance
on necessary Training.
<PAGE>
26
3.1.2.1. *
3.1.3. Travel. TELAC will be reimbursed for travel, living, and other
expenses, outside the normal course of business if authorized
by Sprint in the Contract Order at reasonable and actual
costs. Travel and living expenses will not be reimbursed
unless they are in conformance with Sprint's travel
reimbursement policies and approved by Sprint in writing, as
set out in the Agreement.
3.2. Incentives.
TELAC shall, at its sole expense, pay TSRs and other TELAC personnel
performing services under this Contract Order monetary and/or
non-monetary incentives similar to those incentives offered directly by
TELAC (which are not reimbursed by any one person) to TELAC personnel
performing similar services for other similar TELAC clients. Such
incentive programs shall be designed to, among other things, reward
call handling efficiencies, quality and accuracy.
3.3. Bonus.
Sprint may, at Sprint's sole expense and discretion, offer and pay
monetary and/or non-monetary bonuses to TELAC for its performance of
Services under this Contract Order. While the parties recognize and
agree that Sprint may in its sole discretion modify and/or terminate
any such bonus programs, such modifications and/or terminations may not
be applied by Sprint retroactively to performance incentives previously
agreed to by the parties. Sprint agrees to make all bonus payments to
TELAC and shall not make direct payments of cash or other incentives
directly to TELAC personnel.
4. Invoicing
4.1. Invoices submitted by TELAC will describe the Services
rendered during the invoice period, will identify any other
authorized expenses incurred in the performance of Services
hereunder, and will make reference to the Master Agreement and
this Contract Order number. All invoices will be sent to the
following address or to such other address as designated by
Sprint in writing:
ORIGINAL: Sprint
10951 Lakeview
Lenexa, KS 66219
Attention: Finance
Phone: *
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27
Fax: *
5. Staffing Levels
5.1. Sprint will provide to TELAC, at least * days in advance,
the projected hours, designated by language and environment,
as well as the Sales Per Hour, that Sprint wants TELAC to
provide during the coming calendar month.
6. Performance Standards
6.1. In performing the Services, TELAC agrees to meet the following
Performance Standards. Performance Standards may be modified
by mutual agreement of the parties. All Performance Standards,
as applicable, shall be measured on a weekly basis, as
described below. All Performance Standards shall be measured
at the Project level and not at the individual TSR level.
6.2. Performance Standard for Sales Per Hour (SPH) is to be defined
as number of "A"-Status sales per TSR station hour billed.
6.3. An "A" status sale shall represent an order that has achieved
a rating as an "active" (A-Status) account in Sprint's AMOS
system.
6.4. An "unconfirmed" sale shall represent an order that has been
canceled because of Sprint's verification processes, and must
not be subject to revocation by either the customer or the
local exchange company based on a claim that the order was
unauthorized. At minimum, verification will confirm the
following order information with the customer which placed the
order:
6.4.1. Order confirmed;
6.4.2. Confirmation that the customer was sold an
appropriate Sprint service;
6.4.3. Name, address and phone number confirmed;
6.4.4. Customer's understanding and willingness to pay local
exchange company PIC change charge confirmed.
6.5. The following minimum performance standards shall apply:
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28
6.5.1. Outbound:
6.5.1.1. An "A"-Status SPH per TSR station hour as
defined by Sprint * days prior to each new
month. SPH may vary by program.
6.5.1.2. Unconfirmed sales must not exceed * of
total monthly sales.
6.5.2. Inbound:
6.5.2.1. Handle an average number of calls per TSR
station hour, as defined by Sprint in
writing * days prior to each new month.
Average handled per hour may vary by
program.
6.5.2.2. An "A"-Status close ratio as defined by
Sprint in writing * days prior to each new
month. Close ratios may vary by program.
6.5.2.3. Abandonment rate not to exceed * in any
month
6.5.2.4. Unconfirmed sales must not exceed * of
total monthly sales
6.6. TELAC and Sprint will review TELAC's performance under this
Contract Order in comparison to the Performance Standards at
least monthly and determine the priorities and plans for the
execution of future work. The reviews will be prepared in any
reasonable format to meet the needs of Sprint. TELAC and
Sprint will mutually agree on any changes to the Performance
Standards at this time.
<PAGE>
29
7. Incorporation of Terms of Master Agreement
7.1. This Contract Order is entered into by the parties pursuant to
the Master Services Agreement, Contract Number CM7113400. All
of the terms, provisions and conditions of the Master Services
Agreement are hereby incorporated herein and made a part
hereof as if such terms, provisions and conditions were fully
set forth in this Contract Order. By their execution and
delivery of this Contract Order, the parties hereby reaffirm
all of the terms, provisions and conditions of the Master
Services Agreement.
SIGNED
SPRINT/UNITED MANAGEMENT COMPANY TELEPHONE ACCESS, INC.
- -------------------------------- -----------------------------
(Signature) (Signature)
- -------------------------------- ------------------------------
(Print Name) (Print Name)
- -------------------------------- ------------------------------
(Title) (Title)
- --------------------------------- ------------------------------
(Date) (Date)
- --------------------------------------------
* Confidential portion of Exhibit 10(s) that has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
30
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31
TELEPHONE ACCESS, INC.
CONTRACT ORDER NO. CK7113404
This Contract Order is issued pursuant to the Master Services Agreement (the
Agreement) number CM7113400 between Sprint/United Management Company, a Kansas
corporation ("Sprint"), with offices located at 2330 Shawnee Mission Parkway,
Westwood Kansas and Telephone Access, Inc. dba TELAC, a Delaware corporation
("TELAC"), with offices at located at 2200 Clarendon Blvd., Suite 1109,
Arlington, VA, 22201.
Pursuant to this Contract Order and the terms of the Agreement, TELAC agrees to
supply and perform certain services related to the project as set out more fully
below, in consideration of the payment by Sprint at the rates set out.
This contract order is for a specific project within the market(s) defined by
Sprint as the Latino Market. The services TELAC will provide for this market
concentration will include Outbound and Inbound Sales, Loyalty, and Winback.
1. Project
1.1. Telephone Service Representatives (TSRs) employed by TELAC
shall receive or make calls on * numbers set up by Sprint
and attempt to sell Sprint's telecommunications services to
potential customers and to gather from potential customers
certain information reasonably requested by Sprint. TELAC
shall use Sprint's telecommunications network for all callers
on the 800 Numbers.
1.2. Outbound telemarketing is limited to 9:00 am to 9:00 pm local
time of destination of call, Monday through Sunday. No calls
made on legal holidays or on agreed upon traditional ethnic
holidays.
1.3. Sprint will provide leads, in sufficient quantity, on * track
magnetic tape or other mutually acceptable mediums.
1.4. TELAC shall provide a dedicated project manager at no cost to
oversee and manage the TSRs and to act as the primary contact
with Sprint.
1.5. TELAC shall make available to Sprint a dedicated work space
(with reasonable privacy and access to a telephone, analog
line and electrical outlets) on TELAC's premises for use by
Sprint's
<PAGE>
32
project manager during reasonable visits to TELAC's premises.
TELAC may utilize such work space for other purposes when
Sprint's project manager is not visiting TELAC's premises.
1.6. TELAC shall provide, at no cost, at least one Quality
Development Representative "QDR" per * (defined as the TELAC
employee(s) who are responsible for quality development of the
services provided hereunder).
1.7. Supplier's QDRs will monitor each (TSR) at least once per
shift.
1.8. To the extent permitted by law and at Sprint's expense, Sprint
may remote monitor the TSRs.
1.9. Sprint will make E-mail available between Sprint and TELAC, at
no charge.
1.10. TELAC shall transmit orders to Sprint daily through mutually
agreed upon data transmission method.
1.11. TELAC shall provide terminals, telephones and any other
equipment necessary to bring connectivity to each desktop.
1.11.1. TELAC shall provision and support all TSR workstation
hardware for connection to Sprint owned *
controllers.
1.11.2. TELAC shall bear all costs associated with the
purchase and operation of the TSR workstations. Such
workstations shall be connected in a local area
network ("LAN") with sufficient security to prevent
unauthorized access to Sprint information, and have
at least the following characteristics:
*
1.11.3. TELAC phone equipment shall posses the ability to
display unique DNIS of incoming call to the
<PAGE>
33
individual TSR workstation for specific script
adherence.
1.11.4. TELAC shall be responsible for the cost of all
facility telephone hardware and software. Sprint
shall provide Tl's and CSU's/DSU's. The CSU/DSU will
be the Sprint Demarc.
1.11.5. TELAC shall be responsible for all voice connections
and equipment past the CSU/DSU.
1.11.6. TELAC shall provide controllers, * cards and *
software to connect to Sprint's AS400 computer.
1.11.7. TELAC shall provide compatibility with Sprint's
network routing product for acceptance of inbound
overflow calls.
1.12. Supplier shall provide the following written reports to
Sprint:
1.12.1. Daily Sales Report (format provided by Sprint).
1.12.2. Weekly and monthly sales forecasts, planned sales
activities reports.
1.12.3. Customer complaints and disposition, as required.
1.12.4. A monthly reconciliation of work done on the lead
lists is to be sent to Sprint no later than the fifth
workday after the end of the preceding month. This
reconciliation needs to be program specific.
1.13. Supplier will transmit all sales within * hours, and will
transmit sales on-line or batch daily. Supplier will transmit
a minimum of * of all outbound orders using the on-line
verification transfer process.
1.14. If a customer requests information Supplier will provide that
customer's name, address, phone number, and type of
information the customer wants within * hours of the request
to Sprint for fulfillment.
1.15. Sprint will verify all sales transmitted within * hours.
After * hours, if Sprint cannot contact the customer the sale
will go to
<PAGE>
34
the ballot letter verification process, if applicable. Sprint
will make no less than * contact attempts in the * hour
window. If any unusual circumstances exist with the account
that will affect Sprint's ability to verify the account within
the 48 hour window, that information must be noted in the note
field on the sale transmission by Supplier. Supplier shall
comply with Sprint's direction on the order in which leads or
prospects supplied by Sprint should be contacted. Supplier
will have the ability to target leads by time zone.
1.16. Supplier may make no more than * attempts to contact
prospective leads supplied by Sprint. Additionally, Supplier
may only contact customers once, unless specifically requested
by the customer, or in the event a second contact is required
to ensure the quality of the sale.
2. Term
2.1. The initial Term of this Contract Order shall commence on
January 1, 1997 and end on June 30, 1999. Unless one of the
Parties gives notice to the other of its intent to either
renegotiate or terminate this Contract Order at least * days
prior to the end of the initial Term or any successive Term,
this Contract Order shall be automatically renewed for a Term
of twelve months.
2.2. Upon the expiration of the Term or earlier termination of this
Contract Order:
2.2.1. both parties shall cooperate in the orderly
winding-up of their relationship under this Contract
Order;
2.2.2. for a period not to exceed * days and subject to the
parties' mutual agreement as to the amounts of the
applicable charges, TELAC shall assist Sprint by
providing any Services set forth in this Contract
Order as requested by Sprint subject to payment (or
prepayment if requested by TELAC) by Sprint of the
charges applicable hereunder at the mutually agreed
upon amounts; and
2.2.3. both parties will coordinate the return or
destruction of Proprietary Information as provided in
Section 7 of the Master Agreement.
<PAGE>
35
3. Services and Rates
3.1. TELAC shall provide Sprint with the following Services and Sprint shall
pay TELAC for such Services at the particular rates also identified.
3.1.1. TSR Services.
"TSRs" are TELAC personnel that are designated by TELAC to
receive and respond to inbound telephone inquiries from, and
to initiate and conduct outbound telephone inquires to,
customers regarding Sprint programs and/or other products or
services and to perform other services mutually agreed upon,
including without limitation, data entry. this Contract Order,
TSRs shall include working supervisor TSRs. TELAC shall
provide the following "TSR Services":
3.1.1.1. TELAC's TSRs shall, pursuant to the terms of this
Contract Order, comply with all scripts (which may
include credit card verification procedures.)
3.1.1.2. * "Station Time" shall be the time that a
trained TSR is signed into the Rockwell Dialer/ACD
system and is ready and available to perform TSR
Services and to perform call wrap-up procedures.
*
If for any reason the TELAC automated
operating system that tracks Station Time is not
functioning or otherwise does not track Station Time,
then Station Time will be calculated manually by
TELAC, subject to Sprint's audit rights hereunder.
3.1.2. Training. As used herein, "Trainee" shall mean TELAC TSRs and
QDRs needing Sprint Product training, and "Training" shall
mean training of Trainees with respect to the Services to be
provided by TELAC to Sprint hereunder, including without
limitation new programs and product training and new hire
training. Sprint shall reasonably determine the amount of
training required for any particular program or product. Any
training required above the designated amount shall not be
charged to Sprint. Sprint shall not be responsible to pay for
training of new TSRs that, as a result of turnover (not
attributable to Sprint), who are hired specifically to replace
previously trained TSRs. TELAC will inform Sprint in advance
on necessary Training.
<PAGE>
36
3.1.2.1. *
3.1.3. Travel. TELAC will be reimbursed for travel, living, and other
expenses, outside the normal course of business if authorized
by Sprint in the Contract Order at reasonable and actual
costs. Travel and living expenses will not be reimbursed
unless they are in conformance with Sprint's travel
reimbursement policies and approved by Sprint in writing, as
set out in the Agreement.
3.2. Incentives.
TELAC shall, at its sole expense, pay TSRs and other TELAC personnel
performing services under this Contract Order monetary and/or
non-monetary incentives similar to those incentives offered directly by
TELAC (which are not reimbursed by any one person) to TELAC personnel
performing similar services for other similar TELAC clients. Such
incentive programs shall be designed to, among other things, reward
call handling efficiencies, quality and accuracy.
3.3. Bonus.
Sprint may, at Sprint's sole expense and discretion, offer and pay
monetary and/or non-monetary bonuses to TELAC for its performance of
Services under this Contract Order. While the parties recognize and
agree that Sprint may in its sole discretion modify and/or terminate
any such bonus programs, such modifications and/or terminations may not
be applied by Sprint retroactively to performance incentives previously
agreed to by the parties. Sprint agrees to make all bonus payments to
TELAC and shall not make direct payments of cash or other incentives
directly to TELAC personnel.
4. Invoicing
4.1. Invoices submitted by TELAC will describe the Services
rendered during the invoice period, will identify any other
authorized expenses incurred in the performance of Services
hereunder, and will make reference to the Master Agreement and
this Contract Order number. All invoices will be sent to the
following address or to such other address as designated by
Sprint in writing:
ORIGINAL: Sprint
10951 Lakeview
Lenexa, KS 66219
Attention: Finance
Phone: *
<PAGE>
37
Fax: *
5. Staffing Levels
5.1. Sprint will provide to TELAC, at least * days in advance,
the projected hours, designated by language and environment,
as well as the Sales Per Hour, that Sprint wants TELAC to
provide during the coming calendar month.
6. Performance Standards
6.1. In performing the Services, TELAC agrees to meet the following
Performance Standards. Performance Standards may be modified
by mutual agreement of the parties. All Performance Standards,
as applicable, shall be measured on a weekly basis, as
described below. All Performance Standards shall be measured
at the Project level and not at the individual TSR level.
6.2. Performance Standard for Sales Per Hour (SPH) is to be defined
as number of "A"-Status sales per TSR station hour billed.
6.3. An "A" status sale shall represent an order that has achieved
a rating as an "active" (A-Status) account in Sprint's AMOS
system.
6.4. An "unconfirmed" sale shall represent an order that has been
canceled because of Sprint's verification processes, and must
not be subject to revocation by either the customer or the
local exchange company based on a claim that the order was
unauthorized. At minimum, verification will confirm the
following order information with the customer which placed the
order:
6.4.1. Order confirmed;
6.4.2. Confirmation that the customer was sold an
appropriate Sprint service;
6.4.3. Name, address and phone number confirmed;
6.4.4. Customer's understanding and willingness to pay local
exchange company PIC change charge confirmed.
6.5. The following minimum performance standards shall apply:
<PAGE>
38
. 6.5.1. Outbound:
6.5.1.1. An "A"-Status SPH per TSR station hour as
defined by Sprint * days prior to each new
month. SPH may vary by program.
6.5.1.2. Unconfirmed sales must not exceed * of
total monthly sales.
6.5.2. Inbound:
6.5.2.1. Handle an average number of calls per TSR
station hour, as defined by Sprint in
writing * days prior to each new month.
Average handled per hour may vary by
program.
6.5.2.2. An "A"-Status close ratio as defined by
Sprint in writing * days prior to each
new month. Close ratios may vary by program.
6.5.2.3. Abandonment rate not to exceed * in any
month
6.5.2.4. Unconfirmed sales must not exceed * of
total monthly sales
6.6. TELAC and Sprint will review TELAC's performance under this
Contract Order in comparison to the Performance Standards at
least monthly and determine the priorities and plans for the
execution of future work. The reviews will be prepared in any
reasonable format to meet the needs of Sprint. TELAC and
Sprint will mutually agree on any changes to the Performance
Standards at this time.
<PAGE>
39
7. Incorporation of Terms of Master Agreement
7.1. This Contract Order is entered into by the parties pursuant to
the Master Services Agreement, Contract Number CM7113400. All
of the terms, provisions and conditions of the Master Services
Agreement are hereby incorporated herein and made a part
hereof as if such terms, provisions and conditions were fully
set forth in this Contract Order. By their execution and
delivery of this Contract Order, the parties hereby reaffirm
all of the terms, provisions and conditions of the Master
Services Agreement.
SIGNED
SPRINT/UNITED MANAGEMENT COMPANY TELEPHONE ACCESS, INC.
- -------------------------------- ------------------------------
(Signature) (Signature)
- -------------------------------- ------------------------------
(Print Name) (Print Name)
- -------------------------------- ------------------------------
(Title) (Title)
- --------------------------------- ------------------------------
(Date) (Date)
- ---------------------------------------------
* Confidential portion of Exhibit 10(s) that has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
NationsBank
December 22, 1997
PERSONAL AND CONFIDENTIAL
- -------------------------
CulturalAccessWorldwide
2200 Clarendon Boulevard, 11th Floor
Arlington, Virginia 22201
RE: $30,000,000 REVOLVING CREDIT FACILITY
Ladies and Gentlemen:
You have requested that NationsBank, N.A. ("NationsBank") make available a
revolving credit facility of $30,000,000 (the "Facility") to
CulturalAccessWorldwide (the "Borrower") pursuant to a credit agreement to be
entered into.
In connection with the foregoing, NationsBank is pleased to advise you of its
commitment to provide the Facility, upon the terms and conditions described in
the term sheet attached hereto (the "Term Sheet"). All capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the Term
Sheet.
The commitment of NationsBank hereunder is subject, however, to each of the
following terms and conditions being satisfied in a manner acceptable to
NationsBank in its sole discretion:
(a) satisfaction of each of the terms and conditions set
forth herein;
(b) satisfaction of each of the terms and conditions set
forth in the Term Sheet;
(c) the negotiation, execution and delivery of definitive
documentation with respect to the Facility consistent with the
Term Sheet and otherwise satisfactory to NationsBank; and
(d) a material disruption of, or a material adverse change in,
financial, banking or capital market conditions, in each case
as determined by NationsBank in its sole discretion based upon
reasonable judgment.
The commitment of NationsBank hereunder is based upon the financial
information and other information regarding the Borrower and its
Subsidiaries previously provided to NationsBank. The commitments
hereunder are subject to the
<PAGE>
2
condition, among others, that there shall not have occurred after the
date of such financial information any material adverse change in the
business, assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the Borrower and its
subsidiaries and affiliates and continuing satisfaction of NationsBank,
upon completion of due diligence, with the condition, assets,
properties, business, operations and prospects of the Borrower and its
subsidiaries and affiliates. If the continuing review by NationsBank of
the Borrower discloses information relating to conditions or events not
previously disclosed to NationsBank or relating to new information or
additional developments concerning conditions or events previously
disclosed to NationsBank which NationsBank in its sole discretion
believes may have a material adverse effect on the condition (financial
or otherwise), assets, properties, business, operations or prospects of
the Borrower, NationsBank may, in its sole discretion, suggest
alternative financing amounts or structures that ensure adequate
protection for the Lenders or decline to participate in the proposed
financing.
You hereby represent and covenant that (i) all information, other than
the Projections (as defined below), which has been or is hereafter made
available to NationsBank by you or any of your representatives in
connection with the transactions contemplated hereby ("Information") is
and will be complete and correct in all material respects and does not
and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained
therein not materially misleading and (ii) all financial projections
concerning the Borrower that have been or are hereafter made available
to NationsBank by you (the "Projections") have been or will be prepared
in good faith based upon reasonable assumptions. You agree to
supplement the Information and the Projections from time to time until
the closing date so that the representation and warranty in the first
sentence of this paragraph is correct on the closing date.
The Borrower agrees to indemnify and hold harmless NationsBank and each
director, officer, employee, attorney and affiliate of NationsBank, and
each director, officer, employee or attorney of such affiliate of
NationsBank and each other Lender (each such person or entity referred
to hereafter in this paragraph as an "Indemnified Person") from any
losses, claims, costs, damages, expenses or liabilities (or actions,
suits or proceedings, including any inquiry or investigation, with
respect thereto) to which any Indemnified Person may become subject,
insofar as such losses, claims, costs, damages, expenses or liabilities
(or
<PAGE>
3
actions, suits, or proceedings, including any inquiry or investigation,
with respect thereto) arise out of, in any way relate to, or result
from, this letter, the Facility or the other transactions contemplated
hereby and thereby and to reimburse upon demand each Indemnified Person
for any and all legal and other expenses incurred in connection with
investigating, preparing to defend or defending any such loss, claim,
cost, damage, expense or liability (or actions, suits or proceedings,
including any inquiry or investigation, with respect thereto); provided
that the Borrower shall not have any obligation under this indemnity
provision for liabilities resulting from gross negligence or willful
misconduct of any Indemnified Person. The foregoing provisions of this
paragraph shall be in addition to any right that an Indemnified Person
shall have at common law or otherwise. No Indemnified Person shall be
responsible or liable for consequential damages which may be alleged as
a result of this letter.
The provisions of the immediately preceding two paragraphs shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this letter agreement or the commitment of NationsBank
hereunder.
This letter may not be assigned by Borrower without the prior written
consent of NationsBank.
If you are in agreement with the foregoing, please execute and return
the enclosed copy of this letter and the $37,500 portion of the loan
origination fee no later than 5:00 p.m. Eastern Standard Time on
january 20, 1998. This letter will become effective upon your delivery
to us of executed counterparts of this letter and the $37,500 portion
of the upfront fee, without limiting the more specific terms hereof,
and of the Term Sheet. This commitment shall terminate if not so
accepted by you prior to that time. Following acceptance by you, the
commitment will terminate on February 27, 1998, unless the Facility is
closed by such time or unless NationsBank shall consent in writing to
an extension, which consent shall not be unreasonably withheld.
Except as required by applicable law, this letter and the contents
hereof (including the Term Sheet) shall not be disclosed by you to any
third party without the prior consent of NationsBank. You may permit
your attorneys, shareholders and accountants to examine this letter and
the Term Sheet. Without limiting the foregoing, in the event that you
disclose the contents of this letter (including the Term Sheet) in
contravention of the preceding sentence, you
<PAGE>
4
shall be deemed to have accepted the terms of this letter (including
the Term Sheet).
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet, embodies the
entire agreement and understanding between NationsBank and the Borrower with
respect to the specific matters set forth herein and supersedes all prior
agreements and understandings relating to the subject matter hereof. No party
has been authorized by NationsBank to make any oral written statements
inconsistent with this letter. THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
Very truly yours,
NATIONSBANK, N.A.
/s/ Maria Manos
- ----------------------
By: Maria Manos
Title: Vice President
ACCEPTED AND AGREED TO:
CulturalAccessWorldwide
By: /s/ Michael Dinkins
---------------------
Title: Senior Vice President - Finance and Administration and
Chief Financial Officer
CulturalAccessWorldwide
By: /s/ Jack Hamerski
-------------------
Title: Vice President, Financial Planning and Analysis
CulturalAccessWorldwide
By: _________________________
Title:
<PAGE>
5
TERM SHEET
----------
THE FOLLOWING INFORMATION REPRESENTS SUMMARY INDICATIVE TERMS AND CONDITIONS FOR
A NEW CREDIT FACILITY FOR CULTURALACCESSWORLDWIDE, INC. (THE "BORROWER"). THIS
INFORMATION IS CONFIDENTIAL AND MAY NOT BE RELEASED BY YOU OR YOUR
REPRESENTATIVES OR AGENTS IN WRITTEN OR VERBAL FORM WITHOUT THE PRIOR WRITTEN
CONSENT OF THE AGENT UNTIL THE COMMITMENT HAS BEEN ACCEPTED IN WRITING BY THE
BORROWER.
CULTURALACCESSWORLDWIDE, INC.
SUMMARY OF TERMS & CONDITIONS
BORROWER: CulturalAccessWorldwide, Inc. (referred herein as
the "Borrower").
GUARANTORS: All existing and hereafter acquired subsidiaries
of the Borrower shall be joint and several
guarantors. All guarantees will be guarantees of
payment and not of collection (collectively
referred to herein as the "Guarantor").
AGENT AND
ARRANGER: NationsBank, N.A. (the "Bank" or "Agent").
TYPE OF LOAN: $30,000,000 Revolving Loan (the "Revolving Credit
Facility").
LENDERS: A syndicate of financial institutions (including
NationsBank) arranged by the Agent, which
institutions will be reasonably acceptable to the
Borrower (collectively, the "Lenders").
PURPOSE
OF LOAN: The Revolving Credit Facility proceeds are to be
used to:
a) support working capital needs of the Borrower
and Guarantors, not to exceed Ten Million Dollars
($10,000,000); and
b) finance the acquisition of companies in the same
line of business.
In the event the Revolving Credit Facility is used for acquisition financing,
the following conditions would be required:
1. The Borrower must be the surviving entity.
<PAGE>
6
2. For any cash or stock acquisition involving total
consideration plus assumed liabilities, including the value
of any non-compete agreements or seller notes, in excess of
Ten Million Dollars ($ 10,000,000) or for acquisitions
involving total aggregate consideration in excess of
Twenty-Five Million Dollars ($25,000,000), during the term
of the Revolving Credit Facility, seek and obtain prior
approval for such acquisition(s) from the Agent.
3. Prior to entering into any acquisition, the Borrower will
provide to the Agent a pro-forma Compliance Certificate
indicating that no default under the loan agreement
currently exists or will occur as a result of the
acquisition. This is to be accompanied by pro-forma
financial statements which demonstrate the compliance. The
pro-forma may take into consideration the Adjusted EBITDA of
the targeted acquisition, for the trailing twelve-month
period when accounted for under the purchase method.
4. Prior to any agreement by the Borrower to enter into an acquisition of
a business domiciled outside the United States of America, seek prior
approval for such acquisition from the Agent.
5. Agree to add as guarantors all subsidiaries hereinafter acquired or
formed by the Borrower, and within 30 days of acquisition to cause the
Agent to have a perfected first lien on all assets and stock of such
subsidiaries as collateral for the Revolving Credit Facility.
6. Copies of all legal and financial documentation which, in the Agent's
reasonable judgment is required to evaluate the proposed acquisition,
shall be submitted to the Agent prior to the occurrence of such an
acquisition.
The Borrower shall agree not to undertake any acquisition which does not
compliment the Borrower's line of business in its current form or which is
considered "hostile" in nature.
MATURITY: February 27, 2001, at which time the
outstanding principal balance of the
Revolving Credit Facility, along with any
accrued but unpaid interest and fees shall
be due and payable in full.
TERMS OF
PAYMENT: Interest is computed on an actual over 360
day basis and payable in arrears at the end
of each interest period, but no less
frequently than quarterly.
<PAGE>
7
INTEREST RATE/
COMMITMENT FEE: Until receipt of the Borrower's first fiscal quarter
financial statement and compliance certificate subsequent to
closing, the Borrower will have the option of:
LIBOR + 2.00% or Base Rate plus .25%.
After this period, pricing will be adjusted
quarterly based upon the achievement of
Total Funded Debt to EBITDA (see covenants
for definition). Performance based pricing
plus the applicable spread is based on the
table listed below:
COMMITMENT FEE: The commitment fee shall be
payable on the unused amount of the
Revolving Credit Facility, payable quarterly
in arrears. The commitment fee shall be
calculated based upon the achievement of
Total Funded Debt to EBITDA. Performance
based pricing for interest and the
commitment fee is based on the table listed
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
=============================================================================================================================
Spread over Spread over
TOTAL FUNDED DEBT TO EBITDA Base Rate LIBOR Commitment Fee
- -----------------------------------------------------------------------------------------------------------------------------
3.0:1>Pricing Ratio <= 3.5:1 37.5 200 bps 25
- -----------------------------------------------------------------------------------------------------------------------------
2.5:1>Pricing Ratio <= 3.0:1 37.5 175 bps 25
- -----------------------------------------------------------------------------------------------------------------------------
1.5:1>Pricing Ratio <= 2.5:1 25 150 bps 20
- -----------------------------------------------------------------------------------------------------------------------------
Pricing Ratio <= 1.5:1 0 125 bps 20
=============================================================================================================================
</TABLE>
In all cases, EBITDA is measured by annualizing the trailing six (6) months.
Adjustments to spreads shall occur quarterly on a prospective basis. The LIBOR
option is available for interest periods of one (1), two (2), three (3) or four
(4) months with advances in increments of no less than Five Hundred Thousand
Dollars ($500,000.00).
The "Base Rate" is defined as the higher of (a) the Federal Funds Effective Rate
plus 0.50% and (b) the NationsBank Prime Lending Rate.
Subsequent to an event of default which continues beyond any applicable cure
period, outstanding loans shall bear interest of two percent (2.0%) over the
highest interest rate spread under the previous table.
OTHER FEES: LOAN ORIGINATION: A non-refundable fee equal
to half of one percent (.50%) of the total
<PAGE>
8
Revolving Credit Facility, of which Twenty
Five percent (25%) is payable upon
acceptance of the Bank's commitment letter
with the remaining balance due at loan
closing.
SECURITY: First Perfected Security Interest in and an
assignment of (a) all assets; (b) all cash
flow streams; (c) all ownership rights; (d)
and all other assets and contractual rights,
of the Borrower and Guarantors, now owned or
hereafter acquired, provided in the case of
a foreign subsidiary there shall be a
pledge of sixty-five percent (65%) of the
foreign subsidiaries stock.
EXPENSES: The Borrower will pay all reasonable costs
and expenses associated with the
preparation, due diligence, administration,
participation, and enforcement of all
documents executed in connection with the
Revolving Credit Facility, including
without limitation, all legal and
professional fees of the Agent regardless
of whether or not the Revolving Credit
Facility closes, provided, however, that
the Borrower shall only pay the
out-of-pocket costs incurred by the Agent.
PARTICIPATIONS &
ASSIGNMENTS: The Agent shall have the right to assign or
participate the Revolving Credit Facility in
whole or part to other Financial
Institutions. Assignments will be in
minimum amounts of Five Million Dollars
($5,000,000.00) and assignees will be
subject to the consent of the Borrower
and the Agent, such consent not to be
unreasonably withheld. Participations will
be permitted in minimum amounts of One
Million Dollars ($1,000,000.00), with
voting rights limited to significant matters
such as changes in amount, rate, security
and maturity date, and will not require the
consent of the Borrower.
INSURANCE: Borrower shall maintain insurance in all
respects satisfactory to the Agent.
CONDITIONS
PRECEDENT
TO CLOSING: Usual and customary in a financing of this
nature, including, but not limited to:
<PAGE>
9
(1) Certificates of Good Standing on all
corporate entities;
(2) Satisfactory legal opinions;
(3) Appropriate corporate resolutions;
(4) All representations and warranties
shall be true and correct;
(5) No Default or Event of Default shall
have occurred and be continuing;
(6) No material adverse change in the
condition of the Borrower.
(7) Consummation of the Qualified
Initial Public Offering yielding a
minimum of $48,000,000 in gross cash
proceeds to the Borrower and
$5,000,000 in liquid assets after
the payment of all outstanding debt,
fees, and expenses.
(8) A business credit diagnostic
examination of the books, records
and systems of the Borrower and its
subsidiaries to be completed within
90 days of closing to be performed
by the Agent's Business Credit
division at the expense of the
Agent.
FINANCIAL
COVENANTS: (1) Minimum Fixed Charge Coverage Ratio of
not less than 1.25x, measured quarterly. The
Fixed Charge Coverage Ratio is defined as
earnings before interest, taxes,
depreciation, amortization and rent
("EBITDAR") less unfinanced capital
expenditures ("CAPEX") and less dividends
divided by current maturities of long term
debt and capital leases, any payments due
under existing earn-out agreements, interest
expense, taxes, distributions and rent. All
figures shall be calculated on a trailing
six (6) month annualized basis and shall be
in compliance with Generally Accepted
Accounting Principles ("GAAP").
(2) Maximum Funded Debt to Adjusted EBITDA
of 3.5 to 1.0, measured quarterly. This
covenant is defined as the sum of senior
<PAGE>
10
debt, letters of credit, stockholder debt,
subordinated debt, seller notes, the cash
portion of accrued liabilities under
existing earn out agreements and the value
of all capitalized leases ("Funded Debt")
divided by earnings before interest, taxes,
depreciation and amortization ("EBITDA"), on
a trailing six (6) month annualized basis,
taking into consideration the EBITDA of the
acquired entities for the trailing twelve
month period. This EBITDA figure may be
adjusted for projected reductions in owners
and/or senior management compensation,
whether direct or indirect, which are
substantiated by employment contracts
("Adjusted EBITDA"). The adjustment for
savings in owner's compensation will be
capped at the lesser of $500,000 or the
actual substantiated amount of the
reduction. If the targeted company has been
generating a negative EBITDA, the adjusted
amount shall be deducted for the purpose of
calculating compliance with loan covenants.
(3) Maximum Funded Senior Debt to Adjusted
EBITDA of 3.0 to 1.0, measured quarterly.
This covenant is defined as the sum of
senior debt, letters of credit, and the
value of all capitalized leases ("Funded
Senior Debt") divided by earnings before
interest, taxes, depreciation and
amortization ("EBITDA"), on a trailing six
(6) month annualized basis, taking into
consideration the Adjusted EBITDA of the
acquired entities for the trailing twelve
month period.
(4) Minimum Net Worth at a level to be
established by the Agent after the
Borrower's initial public offering and
thereafter measured quarterly. The
Borrower's consolidated Minimum Net Worth
will increase based on 75% of the Borrower's
consolidated Net Income and 100% of the
proceeds of any issuance of equity.
(5) Minimum Interest Coverage Ratio of not
less than 3.0x, measured quarterly. The
Interest Coverage Ratio is defined as
earnings before interest, taxes,
depreciation, and amortization ("EBITDA")
divided by interest expense. EBITDA in the
<PAGE>
11
case of the Interest Coverage Ratio shall be
calculated on a trailing twelve (12) month
basis and shall be in compliance with
Generally Accepted Accounting Principles
("GAAP").
OTHER
COVENANTS: Customary for financings of this nature,
including but not limited to:
(1) Maintenance of property and
insurance;
(2) Payment of Taxes and compliance with
laws;
(3) Limitation on change in management,
ownership, control or conduct of
business without prior written
approval of the Agent. A change in
management would include any two of
the following five key executives:
John Fitzgerald, Michael Dinkins,
John Jordan, Douglas Rebak, Lee
Edelstein or a majority of the Board
of Directors. A change in ownership
would include any person that
becomes the "beneficial owner",
directly or indirectly, of more than
30% of the total voting power of the
voting stock of the Borrower. Any
change in management approved in
writing by the Agent shall
constitute a change to the Credit
Agreement.
(4) Borrower shall be precluded from
mergers (except as expressly
outlined in this term sheet),
consolidations, acquisitions and
sale of assets outside the normal
course of business.
(5) Limitation on other indebtedness and
liens in excess of $10,000,000
including, but not limited to
accrued liabilities associated with
earn out agreements, seller take
back notes; and subordinated debt;
(6) Limitation on investments in excess
of $5,000,000.
<PAGE>
12
FINANCIAL
STATEMENTS: Borrower will provide to the Agent:
(1) Audited Financial Statements for the
Borrower and each subsidiary on a
consolidated and consolidating basis within
120 days after each fiscal year end. Such
statements shall be satisfactory to the
Agent in form and substance, performed and
certified by an independent auditor and
accompanied by a covenant compliance
certificate executed by an authorized
officer of the Borrower.
(2) Unaudited Financial Statements, in form
and substance satisfactory to the Agent, of
the Borrower and each subsidiary due within
45 days after each QUARTER end, along with a
quarterly covenant compliance certificate
executed by an authorized officer of the
Borrower for each quarter end.
(3) Annual budgets for the Borrower and each
Guarantor due forty-five (45) days after the
beginning of each fiscal year.
(4) Monthly accounts receivable and accounts
payable agings within 45 days of month end.
(5) Other reasonable and customary
information required by the Agent.
REPRESENTATIONS AND
WARRANTIES: Customary, including, but not limited to, no
material adverse change in the financial
condition of the Borrower, confirmation of
corporation status, and that authority;
execution, delivery and performance of loan
documents do not violate law or existing
agreements; no litigation except as
disclosed to Agent; ownership of property;
payment of taxes; no material adverse change
in financial condition or operations;
principal place of business; compliance
with environmental laws, ERISA and
continuation of representations and
warranties.
<PAGE>
13
EVENTS OF DEFAULT: Usual and customary for financings of this
nature, including, but not limited to:
(1) Failure of the Borrower to comply
with any covenants contained in the
Credit Agreement;
(2) Failure to pay any principal,
interest, or any other amount
payable under the Revolving Credit
Facility when due;
(3) Any representations or warranty
shall be untrue in any material
aspect when made;
CHANGE OF
CIRCUMSTANCES: Customary provisions protecting the Agent in
the event of unavailability of funding,
illegality, capital adequacy requirements,
increased costs, withholding taxes and
funding losses.
DUE DILIGENCE: The Revolving Credit Facility
will be subject to the completion of
satisfactory due diligence on the part of
the Agent.
INDEMNIFICATION: The Agent will be indemnified against all
losses, liabilities, claims, damages or
expenses relating to its loan, the
Borrower's use of the loan proceeds, or the
commitment, including, but not limited to,
reasonable attorney's fees and settlement
costs.
CLOSING: On or before February 27, 1998.
GOVERNING LAW: State of New York.
BANK'S COUNSEL: Smith, Helms, Mulliss & Moore, L.L.P.
OTHER: The above indicative terms are intended as
an outline only for the purpose of
facilitating further discussions. The
indications do not purport to summarize all
the conditions, covenants, representations,
warranties, and other provisions which would
be contained in the definitive legal
documentation for credit facilities of the
nature described herein.
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the 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. November 30, 1997
TeleManagement Services, Inc. September 22, 1997
Hispanic Market Connections, Inc November 21, 1997
CulturalAccessWorldwide, 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
January 24, 1998
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the 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
January 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,817,718
<SECURITIES> 0
<RECEIVABLES> 5,725,510
<ALLOWANCES> 182,604
<INVENTORY> 0
<CURRENT-ASSETS> 8,123,112
<PP&E> 2,057,462
<DEPRECIATION> 410,067
<TOTAL-ASSETS> 28,644,009
<CURRENT-LIABILITIES> 11,338,577
<BONDS> 0
3,816,000
0
<COMMON> 82,640
<OTHER-SE> (4,164,223)
<TOTAL-LIABILITY-AND-EQUITY> 28,644,009
<SALES> 24,038,772
<TOTAL-REVENUES> 24,038,772
<CGS> 14,435,838
<TOTAL-COSTS> 14,435,838
<OTHER-EXPENSES> 302,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,558,756
<INCOME-PRETAX> 1,945,273
<INCOME-TAX> 1,940,916
<INCOME-CONTINUING> 1,004,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,004,357
<EPS-PRIMARY> .21
<EPS-DILUTED> .26
</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> 16,962,593
<PP&E> 1,127,239
<DEPRECIATION> 157,001
<TOTAL-ASSETS> 29,453,659
<CURRENT-LIABILITIES> 16,756,944
<BONDS> 0
1,800,000
0
<COMMON> 44,300
<OTHER-SE> (5,348,635)
<TOTAL-LIABILITY-AND-EQUITY> 29,453,659
<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> (408,480)
<INCOME-TAX> 87,533
<INCOME-CONTINUING> (320,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (320,947)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
