<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998
REGISTRATION NO. 333-57429
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NATIONWIDE CREDIT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7322 58-1900192
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
MICHAEL LORD
CHIEF FINANCIAL OFFICER
6190 POWERS FERRY ROAD, 4TH FLOOR,
ATLANTA, GEORGIA 30339
(770) 644-7452
(NAME, ADDRESS, INCLUDING ZIP
CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT
FOR SERVICE)
COPIES TO:
STEPHEN M. BESEN, ESQ. ROD D. MILLER, ESQ.
WEIL, GOTSHAL & MANGES LLP WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE 100 CRESCENT COURT, SUITE 1300
NEW YORK, NEW YORK 10153 DALLAS, TEXAS 75201
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, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(A) REGISTRATION FEE(B)
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<S> <C> <C>
10 1/4% Senior Notes due 2008.................. $100,000,000 $29,500
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</TABLE>
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(a) Estimated solely for the purpose of calculating the registration fee.
(b) Calculated in accordance with Rule 457(f) under the Securities Act of
1933, as amended. Fee previously paid in connection with initial filing.
----------------
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 COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. 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 AND STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION DATED SEPTMEBER 2, 1998
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/4% SENIOR NOTES DUE 2008
FOR
10 1/4% SERIES A SENIOR NOTES DUE 2008
OF
NATIONWIDE CREDIT, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
Nationwide Credit, Inc. ("NCI" or the "Company") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to $100,000,000 of 10
1/4 % Series A Senior Notes due 2008 (the "New Notes") of the Company, which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of the issued and outstanding 10
1/4 % Senior Notes due 2008 (the "Old Notes") of the Company from the
registered holders thereof (the "Holders"). The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain
transfer restrictions relating to the Old Notes. The new Notes will evidence
the same class of debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture governing the Old Notes (the
"Indenture"). As used herein, the term "Notes" means the Old Notes and the New
Notes, treated as a single class.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 P.M., New York City time, on , 1998, unless
extended (as so extended, the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange pursuant to the Exchange Offer. The Exchange Offer is subject to
certain other customary conditions. See "The Exchange Offer."
On January 28, 1998, the Company issued $100,000,000 principal amount of Old
Notes (the "Offering") pursuant to exemptions from, or transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption. In addition, at any time prior to
January 15, 2001, the Company may, at its option, redeem up to 35% of the
aggregate principal amount of the Notes at a redemption price equal to 110.25%
of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of redemption, with the net
proceeds of an initial public offering of common stock of the Company or a
capital contribution to the Company's common equity of the net cash proceeds of
an initial public offering of the Company's direct parent; provided that at
least $50.0 million of the aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption. See
"Description of Notes--Optional Redemption."
Upon the occurrence of a Change of Control (as defined), the holders of the
Notes will have the right to require the Company to repurchase their Notes, in
whole or in part, at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase. See "Description of New Notes--Repurchase at
the Option of Holders--Change of Control."
The New Notes will constitute, and the Old Notes currently constitute,
general unsecured obligations of the Company, rank senior in right of payment
to all subordinated Indebtedness (as defined) of the Company and rank pari
passu in right of payment with all current and future unsecured senior
Indebtedness of the Company, including all borrowings under the Credit
Agreement (as defined). However, all borrowings under the Credit Agreement are
secured by a first priority Lien (as defined) on substantially all of the
assets of the Company and its Domestic Subsidiaries (as defined). The Company
currently has no Domestic Subsidiaries; however, all of the Company's future
Domestic Subsidiaries, if any, will jointly and severally guarantee the Notes
on a senior basis. As of July 31, 1998, approximately $24.9 million was
outstanding under the Credit Agreement. See "Capitalization" and "Description
of New Notes." The Company presently has no indebtedness, and has no firm
arrangements or intention to incur any significant indebtedness, ranking junior
to the Notes, although the Company does have certain capital lease obligations.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from January 28, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the U.S. Securities and
Exchange Commission (the "SEC" or the "Commission") as set forth in no-action
letters issued to third parities, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by Holders thereof (other than any
Holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to engage in a distribution of such
New Notes. However, the SEC has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the SEC would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. Broker-dealers who did not acquire Old Notes as a result of market-
making or other trading activities may not participate in the Exchange Offer.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company had agreed
that, for a period of one year after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. In the event
the Company terminates the Exchange Offer and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the Holders
thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes.
Lehman Brothers Inc. (the "Initial Purchaser") has advised the Company that it
currently intends to make a market in the New Notes. The Initial Purchaser is
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE
EXCHANGE OFFER.
----------
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.
----------
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. This Prospectus, which forms a 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 parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement. Any statements made
in this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement otherwise
filed with the SEC.
As of the date of the effectiveness of the Registration Statement, the
Company will become subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports, proxy statements and other information
with the SEC. The Registration Statement, the exhibits forming a part thereof
and the reports, proxy statements and other information filed by the Company
with the SEC in accordance with the Exchange Act may be inspected, without
charge, at the Public Reference Section of the SEC located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601-
2511. Copies of all or any portion of the material may be obtained from the
Public Reference Section of the SEC upon payment of the prescribed fees. The
SEC also maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
The Company will furnish holders of the New Notes offered hereby with annual
reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited financial information for the first three quarters of
each fiscal year. The Company will also furnish such other reports as it may
determine or as may be required by law. In addition, in the event that the
Company is not required to be subject to the reporting requirements of the
Exchange Act in the future, the Company will be required under the Indenture,
pursuant to which the Old Notes were, and the New Notes will be, issued, to
continue to file with the SEC, and to furnish Holders of the New Notes with,
the information, documents and other reports specified in Sections 13 and
15(d) of the Exchange Act.
------------------
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALTHOUGH THE SAFE HARBOR
PROTECTION AFFORDED BY SECTION 27A OF THE SECURITIES ACT IS NOT APPLICABLE TO
THE FORWARD-LOOKING STATEMENTS MADE IN THIS PROSPECTUS, ALL STATEMENTS (OTHER
THAN STATEMENTS OF HISTORICAL FACT) MADE IN THIS PROSPECTUS, INCLUDING,
WITHOUT LIMITATION, THE STATEMENTS UNDER "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING INDUSTRY PROSPECTS AND THE
COMPANY'S FINANCIAL POSITION, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS
WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
THE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS UNDER "RISK FACTORS."
CERTAIN FACTORS THAT MAY CAUSE SUCH MATERIAL DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO: (1) INCREASED COMPETITION, (2) INCREASED COSTS, (3) INABILITY TO
CONSUMMATE ACQUISITIONS ON ATTRACTIVE TERMS, (4) INCREASES IN THE COMPANY'S
COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL ON
TERMS CONSIDERED REASONABLE BY MANAGEMENT, (5) ADVERSE STATE, FEDERAL OR
FOREIGN LEGISLATION OR ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY
MAY COMPETE AND (6) THE ABILITY TO IMPLEMENT THE OPERATING IMPROVEMENT PLAN
(AS DEFINED). MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY
AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS THAT COULD AFFECT
THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS, SEE
"RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY, OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read with, and is qualified in its entirety
by, the more detailed information and financial statements (and notes thereto)
appearing elsewhere in this Prospectus. As used in this Prospectus, unless the
context requires otherwise, all references to either "NCI" or the "Company"
mean Nationwide Credit, Inc., a Georgia corporation, its predecessors and its
subsidiaries, after giving effect to the transactions described below under "--
The Transactions."
THE COMPANY
OVERVIEW
The Company is among the largest independent providers of accounts receivable
management services in the United States, as measured by the aggregate
principal value of consumer debt placed by credit grantors for collection
(i.e., "placement volume"). The Company offers contingent fee collection, pre-
chargeoff accounts receivable management and on-site collection management
services, primarily to financial institutions, government agencies,
telecommunications companies and healthcare providers. The Company provides
sophisticated, customized past-due account collection and accounts receivable
management services to its clients through a nationwide network of 15 call
centers. Pro forma for the Transactions (as defined), the Company had revenues
of $121.3 million, Adjusted EBITDA (as defined) of $22.4 million and a net loss
of $18.6 million for the year ended December 31, 1997 and actual revenue of
$54.6 million, Adjusted EBITDA of $9.6 million and a net loss of $10.7 million
for the six months ended June 30, 1998. See "Unaudited Condensed Consolidated
Pro Forma Financial Information."
The Company has historically generated substantially all of its revenue from
contingent fees received for collection services provided to a wide variety of
credit grantors. Contingent fee services, which are the traditional services
provided in the accounts receivable management industry, involve collecting
delinquent consumer debt placed with the collection services provider in
exchange for a percentage of realized collections. The Company has a client
base that includes American Express, AT&T, BellSouth, the U.S. Department of
Education (the "DOE"), First Union, General Motors Acceptance Corporation
("GMAC"), the U.S. General Services Administration (the "GSA"), MCI, Mobil,
NationsBank, Novus (issuer of DISCOVER Card) and Texaco.
In order to provide more comprehensive collection solutions for its clients,
the Company has begun providing pre-chargeoff accounts receivable management
services, in which the Company contacts debtors earlier in the collection cycle
in an effort to bring the account current before the credit grantor formally
charges off the past-due balance. For these services, the Company is typically
paid a monthly fee for each account it manages and, in certain circumstances,
additional performance-based fees. The Company has also begun contracting with
credit grantors to provide on-site accounts receivable management, collections
personnel and related services. The Company believes that there is significant
growth potential in these service areas, primarily due to increased outsourcing
of accounts receivable management services by credit grantors.
In the first quarter of 1997, a new senior management team, led by Jerrold
Kaufman as President and Chief Executive Officer, implemented a business
strategy focused on increasing revenues with existing clients and developing
new relationships with other large credit grantors while improving the
Company's cost structure and customer service through an operating improvement
plan (the "Operating Improvement Plan"). The Operating Improvement Plan
includes (i) reducing the number of information systems utilized by the
Company, (ii) reducing overhead expense by reducing corporate staff headcount
through attrition and (iii) significantly reducing the number of unprofitable
and lower margin clients. In connection with the merger of NCI Merger
Corporation, a Georgia corporation ("Merger Sub") and a wholly owned subsidiary
of NCI Acquisition Corporation, a Delaware corporation ("NAC"), with and into
NCI, with NCI as the surviving entity (the "Merger"), on December 31, 1997,
management, along with the Investor Group (as defined) and NAC, approved a
modification to the Operating Improvement Plan to rationalize the Company's
operating facilities which will result in additional headcount reduction and
relocation of personnel.
1
<PAGE>
Through its demonstrated collection performance and improved customer
service, the Company has recently received new contracts with the DOE, MCI,
Chrysler and the GSA. In addition, the Company is experiencing growth in its
revenue from pre-chargeoff services. For example, the Company recently
successfully completed a pilot pre-chargeoff program for a significant client
that is being implemented on a larger scale in 1998 with the Company as a key
service provider.
The Company's principal executive offices are located at 6190 Powers Ferry
Road, 4th Floor, Atlanta, Georgia 30339, and its telephone number is (770) 644-
7452.
INDUSTRY TRENDS
The total amount of revenue generated by all contingent fee collection
companies grew approximately 10% in 1996 to approximately $5.5 billion,
according to M. Kaulkin & Associates, an industry advisory firm. The Company
believes that it will benefit from the following trends:
INCREASE IN CONSUMER DEBT AND DELINQUENCIES. Consumer debt has grown in the
United States from $3.8 trillion in 1991 to $5.4 trillion in 1996, representing
a compound annual growth rate of 7.3%. This increase in consumer debt has been
accompanied by higher levels of delinquencies. From 1991 to 1997, bank card
delinquency rates ranged from a low of 3.3% in 1994 to an estimated 4.9% in
1997. Largely as a result of these trends, placements to contingent fee
companies have grown from approximately $43.7 billion in 1990 to approximately
$122.3 billion in 1996, a compound annual growth rate of 18.7%, according to
the American Collectors Association ("ACA"), an industry trade association.
CORPORATE OUTSOURCING. Increasing numbers of companies are outsourcing non-
core functions that can be more efficiently conducted by specialized firms. By
outsourcing these functions, companies are able to focus on core revenue
generating activities and reducing costs, thereby improving productivity. In
particular, the Company believes many credit grantors are recognizing the
advantages of outsourcing accounts receivable management as a result of factors
including (i) the increasing complexity of such functions, (ii) rapid growth in
consumer debt levels and an increase in delinquencies, (iii) changing
regulations applicable to debt collection practices and (iv) the development of
sophisticated call management centers requiring substantial capital investment,
technical information systems capabilities and human resource commitments. The
Company believes that outsourcing these services provides value to clients
through lower delinquencies, improved customer relations and reduced
chargeoffs.
GOVERNMENT OUTSOURCING. Government agencies on the federal, state and local
levels are also increasing their use of private collection agencies. A 1995
study by the Mercer Group, an independent industry research firm, showed that
from 1985 to 1995 local governments had significantly increased their use of
private collection agencies. Similarly, an estimated 32 of the 52 federal
government agencies currently utilize private collection agencies to assist in
the collection of a portion of the approximately $200 billion of non-tax
related debt owed to the federal government. Private agencies have also
demonstrated a greater effectiveness in debt collection, as evidenced by a 1994
study by the General Accounting Office which found that the average collection
rate of private collection agencies was 45% higher than that of state
government agencies.
INDUSTRY CONSOLIDATION. The accounts receivable management industry is highly
fragmented, consisting of approximately 6,300 collection agencies as of 1997,
according to the ACA. According to M. Kaulkin & Associates, the ten largest
agencies accounted for approximately 17% and 20% of the total 1995 and 1996
contingent revenue, respectively, for the industry. The Company believes that
the industry is entering a period of consolidation driven by a number of
factors, including (i) the economies of scale available to larger operators,
(ii) new technology which facilitates the collection process, (iii) the ability
of large operators to provide services nationally and (iv) increased licensing
and regulatory requirements.
2
<PAGE>
CLIENT CONSOLIDATION. The largest credit-granting industries, including
financial services, telecommunications, healthcare and retail, are experiencing
continued consolidation. As a result, the operations of many credit grantors
are becoming increasingly complex and the Company believes such credit grantors
are shifting account placements to accounts receivable management companies
that have the ability to service a large volume of placements on a national
basis.
BUSINESS STRATEGY
The Company believes it has the following competitive strengths: (i)
reputation as an industry leader, (ii) collection performance, (iii) national
presence, (iv) strong executive and call center management and (v) a
distinguished client base. See "Business--Competitive Strengths." The Company's
senior management team has developed a business strategy emphasizing the
following key components:
FOCUS ON CORE COLLECTION ACTIVITIES. The Company believes it has a
competitive advantage in the marketplace based on its reputation and
performance as a leading collection services provider serving a wide range of
credit grantors. Due to favorable industry trends, the Company believes that
the contingent placement market will continue to experience attractive growth,
and the Company intends to rely on its strong collection performance to attract
a greater share of contingent placements from existing clients and to develop
new contingent placement relationships.
EXPAND PRE-CHARGEOFF SERVICES. The Company intends to further expand its pre-
chargeoff services to provide more comprehensive collection solutions for its
clients. In response to significantly higher delinquencies, credit grantors are
increasingly outsourcing their pre-chargeoff accounts receivable management
functions. Growth in the pre-chargeoff business is expected to complement and
diversify the Company's existing revenue base by creating a more predictable
revenue stream through the establishment of additional longer-term, fixed-fee
contracts.
IMPLEMENT OPERATING IMPROVEMENT PLAN. In the first quarter of 1997, the
Company's new management team began implementing its Operating Improvement Plan
designed to improve productivity, further integrate the Company's various
acquired businesses and reduce costs. This plan includes (i) reducing the
number of information systems utilized by the Company, (ii) reducing overhead
expense by reducing corporate staff headcount through attrition and (iii)
significantly reducing the number of unprofitable and lower margin clients. In
connection with the Merger on December 31, 1997, management, along with the
Investor Group and NAC, approved a modification to the Operating Improvement
Plan to rationalize the Company's operating facilities which will result in
additional headcount reduction and relocation of personnel.
LEVERAGE SIZE AND NATIONAL REACH. The Company believes that its national
presence, infrastructure and operating expertise allow it to provide superior
accounts receivable management for large national credit grantors, including
the federal government. The Company intends to capitalize on its ability to
manage large national placements by taking advantage of opportunities that
arise from consolidation among credit grantors and by extending its non-
traditional services to clients located throughout the United States.
UTILIZE TECHNOLOGY TO INCREASE COLLECTIONS. Since the beginning of 1994, the
Company has made capital expenditures of over $15 million in its
telecommunications equipment, software and computer systems. These investments
enable the Company to operate more efficiently and manage large accounts
receivable programs. The Company is able to customize procedures and reports to
meet the varying needs of its clients. The Company believes that these capital
expenditures and technological capabilities will continue to enhance its
competitive position.
GROW THROUGH ACQUISITIONS. The Company has completed acquisitions of other
collection service providers to expand its client base, acquire new service
capabilities and enter new market segments. For example,
3
<PAGE>
the Company acquired Consolidated Collection Co. ("Consolidated") in February
1997, to expand its telecommunications business. The Company intends to review
acquisition candidates on an ongoing basis and will seek to make opportunistic
acquisitions to further solidify its market position. The Company does not
currently have any agreements with respect to future acquisitions.
Management's strategic focus on increasing revenues with existing clients and
developing new relationships with large credit grantors has begun to show
positive results. The Company has recently consummated several significant
contracts, including contracts with a major telecommunications company,
contracts with two large healthcare providers, additional contracts with
existing clients in the banking sector and a contract with a new client in the
banking sector.
COMPANY HISTORY
On December 31, 1997, NAC, Merger Sub, the Company, First Data Corporation
("First Data") and its wholly owned subsidiary, First Financial Management
Corporation ("FFMC"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Merger Sub merged with and into the Company, with
the Company as the surviving corporation. The merger consideration consisted of
$155.2 million in cash and up to an additional $3.7 million, to be paid
pursuant to the terms of an earn-out agreement in the event the Company
achieves certain performance targets for the year ended December 31, 1998. The
Company has reached an agreement with First Data with respect to various
matters relating to the acquisition of the Company by its current shareholders
in December 1997. The settlement includes a cash payment of $10.9 million to
the Company. The Company intends to use the cash payment to reduce indebtedness
under its credit facility by approximately $6.0 million, pay approximately $2.9
million in various expenses relating to the Company's operations under First
Data management prior to January 1998, including obligations to the Federal
Trade Commission (the "FTC") and the DOE, and to increase cash available for
working capital and other corporate operations by approximately $2.0 million.
The Merger and related fees were initially financed through borrowings of
$125.0 million against a $133.0 million senior credit facility (the
"Acquisition Facilities") provided by Lehman Commercial Paper Inc. and a
contribution of $40.2 million of equity capital. The Acquisition Facilities,
including the fees and expenses related thereto, were refinanced through (i)
$60.0 million of senior secured debt (the "Senior Credit Facilities"), of which
$25.0 million was drawn concurrent with the consummation of the Offering, (ii)
the proceeds of the Offering and (iii) cash on hand.
The Merger, the Acquisition Facilities, the Senior Credit Facilities and the
Offering, together with the application of the proceeds from the Acquisition
Facilities, the Senior Credit Facilities and the Offering, are collectively
referred to as the "Transactions."
THE EQUITY INVESTORS
NAC and Merger Sub were formed by affiliates of Centre Partners Management
LLC ("Centre Partners"), affiliates of Weiss, Peck & Greer, L.L.C. ("WPG") and
Avalon Investment Partners, LLC ("Avalon" and, together with Centre Partners
and WPG, the "Investor Group"). Centre Partners is a private investment firm
that manages the commitments and assets of Centre Capital Investors II, L.P.
and related entities. Centre Capital Investors II, L.P. is a $450 million
private equity fund raised in 1995. Since its inception in 1986, Centre
Partners and its predecessors have invested more than $1.8 billion in nearly 50
separate investments. Weiss, Peck & Greer, L.L.C. is an investment firm that
manages over $16 billion in public equity and fixed income securities for
institutional and individual investors. Since its inception in 1970, Weiss,
Peck & Greer, L.L.C. and its affiliates have managed 12 private equity and
venture capital funds with $1.2 billion in aggregate committed capital and more
than 240 investments. Avalon, formed in 1997, is a private investment firm
specializing in transactions in the financial services and related industries.
4
<PAGE>
THE EXCHANGE OFFER
On January 28, 1998, the Company issued $100.0 million principal amount of
Old Notes. The Old Notes were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Lehman Brothers Inc. (the "Initial
Purchaser"), as a condition to its purchase of the Old Notes, required that the
Company agree to commence the Exchange Offer following the offering of the Old
Notes. The New Notes will evidence the same class of debt as the Old Notes and
will be issued pursuant to, and entitled to the benefits of the Indenture.
SECURITIES OFFERED.......... Up to $100.0 million aggregate principal amount
of the Company's 10 1/4% Series A Senior Notes
due 2008, which have been registered under the
Securities Act (the "New Notes"). The terms of
the New Notes and the Old Notes are identical in
all material respects, except for certain
transfer restrictions relating to the Old Notes.
THE EXCHANGE OFFER.......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy
obligations of the Company contained in the
Registration Rights Agreement, dated January 28,
1998, between the Company and the Initial
Purchaser (the "Registration Rights Agreement").
For procedures for tendering the Old Notes
pursuant to the Exchange Offer, see "The Exchange
Offer."
TENDERS, EXPIRATION DATE;
WITHDRAWAL................. The Exchange Offer will expire at 5:00 P.M., New
York City time, on , 1998, or such later
date and time to which it is extended (as so
extended, the "Expiration Date"). A tender of Old
Notes pursuant to the Exchange Offer my be
withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for
any reason will be returned without expense to
the tendering Holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
FEDERAL INCOME TAX
CONSEQUENCES................ The exchange pursuant to the Exchange Offer
should not result in any income, gain or loss to
the holders or the Company for federal income tax
purposes. See "Certain U.S. Income Tax
Consequences."
USE OF PROCEEDS............. There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.............. State Street Bank and Trust Company is serving as
the Exchange Agent in connection with the
Exchange Offer.
SHELF REGISTRATION
STATEMENT................... Under certain circumstances described in the
Registration Rights Agreements, certain holders
of Notes (including holders who are not permitted
to participate in the Exchange Offer or who may
not freely resell New Notes received in the
Exchange Offer) may require the Company to file,
and use best efforts to cause to become
effective, a shelf registration statement under
the Securities Act, which would cover resales of
Notes by such holders. See "Description of New
Notes--Exchange Offer; Registration Rights."
5
<PAGE>
CONDITIONS TO THE EXCHANGE
OFFER....................... The Exchange Offer is not conditioned on any
minimum principal amount of Old Notes being
tendered for exchange. The Exchange Offer is
subject to certain other customary conditions,
each of which may be waived by the Company. See
"The Exchange Offer--Conditions."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register Old Notes under the Securities Act. See "Description of
New Notes--Exchange Offer, Registration Rights." Based on interpretations by
the staff of the SEC, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders, other than broker-dealers,
have no arrangement with any person to participate in the distribution of such
New Notes. However, the SEC has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the SEC would not make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each Holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register thereunder the New Notes prior to
offering or selling such New Notes. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified
therein, to register or qualify the New Notes for offer or sale under the
securities laws of such jurisdictions as any holder reasonably requests in
writing. Unless a holder so requests, the Company does not intend to register
or qualify the sale of the New Notes in any such jurisdictions. See "Risk
Factors-- Consequences of Failure to Exchange" and "The Exchange Offer--
Consequences of Exchanging Old Notes."
6
<PAGE>
SUMMARY DESCRIPTION OF NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
The New Notes will bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from January 28, 1998. Accordingly, registered holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from January 28, 1998. Old Notes accepted for exchange will
cease to accrue interest from after the date of consummation of the Exchange
Officer. Holders whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
SECURITIES OFFERED.......... $100.0 million in aggregate principal amount of
10 1/4% Series A Senior Notes due 2008 of the
Company.
MATURITY DATE............... January 15, 2008.
INTEREST PAYMENT DATES...... January 15 and July 15, commencing July 15, 1998.
MANDATORY REDEMPTION........ The Company will not be required to make
mandatory redemption or sinking fund payments
with respect to the Notes.
OPTIONAL REDEMPTION......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after January 15, 2003 at the redemption prices
set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of redemption. In addition, at any
time prior to January 15, 2001, the Company may,
at its option, redeem up to 35% of the aggregate
principal amount of the Notes at a redemption
price equal to 110.25% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date
of redemption, with the net cash proceeds of an
initial public offering of common stock of the
Company or a capital contribution to the
Company's common equity of the net cash proceeds
of an initial public offering of the Company's
direct parent; provided that at least $50.0
million in aggregate principal amount of Notes
remains outstanding immediately after the
occurrence of such redemption. See "Description
of New Notes -- Optional Redemption."
CHANGE OF CONTROL........... Upon the occurrence of a Change of Control, each
holder of Notes will have the right to require
the Company to purchase all or any part of such
holder's Notes at an offer price in cash equal to
101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase.
See "Description of New Notes--Repurchase at the
Option of Holders--Change of Control."
RANKING..................... The New Notes will be, and the Old Notes
currently are, general unsecured obligations of
the Company, will rank senior in right of payment
to all subordinated Indebtedness of the Company
and will
7
<PAGE>
rank pari passu in right of payment with all
current and future unsecured senior Indebtedness
of the Company, including all borrowings under
the Credit Agreement. However, all borrowings
under the Credit Agreement are secured by a first
priority Lien on substantially all of the assets
of the Company and its Domestic Subsidiaries. As
of July 31, 1998, approximately $24.9 million was
outstanding under the Credit Agreement. See
"Description of New Notes." The Company presently
has no indebtedness, and has no firm arrangements
or intention to incur any significant
indebtedness, ranking junior to the Notes,
although the Company does have certain capital
lease obligations.
GUARANTEES.................. The Company currently has no Domestic
Subsidiaries; however, all of the Company's
future Domestic Subsidiaries, if any, will
jointly and severally guarantee (the "Subsidiary
Guarantees") the Company's payment obligations
under the Notes on a senior basis. The Subsidiary
Guarantees will rank senior to all existing and
future subordinated Indebtedness of the
Guarantors and pari passu with all other
unsecured senior Indebtedness of the Guarantors,
including the guarantees of Indebtedness under
the Credit Agreement. Any Guarantor's obligations
under the Credit Agreement, however, will be
secured by a first priority Lien on substantially
all of the assets of such Guarantor, and the
Indenture restricts, but does not prohibit, the
Guarantors from incurring additional secured
Indebtedness. Accordingly, such secured
Indebtedness will rank prior to the Subsidiary
Guarantees with respect to such assets. See "Risk
Factors--Effective Subordination" and
"Description of New Notes--Certain Covenants--
Subsidiary Guarantees."
CERTAIN COVENANTS........... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its subsidiaries to (i) incur
additional Indebtedness and issue preferred
stock, (ii) pay dividends or make other
restricted payments, (iii) engage in sale and
leaseback transactions, (iv) create certain
liens, (v) enter into certain transactions with
affiliates, (vi) sell assets of the Company or
its subsidiaries or (vii) enter into certain
mergers and consolidations. In addition, under
certain circumstances, the Company will be
required to offer to purchase the Notes with the
net cash proceeds of certain sales and other
dispositions of assets at a price equal to 100%
of the principal amount of the Notes, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase.
See "Description of New Notes--Certain
Covenants."
EXCHANGE OFFER;
REGISTRATION RIGHTS......... Pursuant to the Registration Rights Agreement,the
Company agreed to file a registration statement
(the "Exchange Offer Registration Statement")
with respect to the Exchange Offer. The
Registration Statement of which this Prospectus
is a part constitutes the Exchange Offer
Registration Statement. If, among other things,
any holder of the Transfer Restricted Securities
(as defined) notifies the Company that such
holder (A) is prohibited by law or Commission
8
<PAGE>
policy from participating in the Exchange Offer,
(B) may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without
delivering a prospectus, and the prospectus
contained in the Exchange Offer Registration
Statement is not appropriate or available for
such resales, or (C) is a broker-dealer and holds
Notes acquired directly from the Company or an
affiliate of the Company, then the Company will
be required to provide a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Notes by the holders
thereof. If the Company fails to satisfy these
registration obligations, it will be required to
pay Liquidated Damages to the holders of the
Notes under certain circumstances. See
"Description of New Notes--Registration Rights;
Liquidated Damages."
SEE "RISK FACTORS" OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
In the Transactions, the Company was acquired by NAC. The Company was
previously a wholly owned subsidiary of FFMC, a wholly owned subsidiary of
First Data. The Company was acquired in June 1990 by FFMC. First Data's October
1995 merger with FFMC, accounted for under the pooling of interests method,
resulted in the combination of First Data's accounts receivable management
company, ACB, with the Company. ACB was primarily the result of two businesses
purchased and combined by First Data in 1993. The following table presents
summary consolidated historical and unaudited consolidated pro forma financial
and other data of the Company, as of the dates and for the periods indicated.
The summary historical financial data should be read in conjunction with the
consolidated financial statements and related notes for these periods and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The summary historical
financial information for each of the years ended December 31, 1995, 1996 and
1997 has been derived from the consolidated financial statements of the
Company, which have been audited by Ernst & Young LLP, independent auditors.
The summary historical financial information for each of the years ended
December 31, 1993 and 1994 and the six months ended June 30, 1997 and 1998 has
been derived from unaudited consolidated financial statements of the Company
and, in the opinion of management, includes all adjustments (consisting of
normal, recurring, and other adjustments, which are primarily purchase
accounting adjustments associated with the two business acquisitions by First
Data in 1993, purchase accounting adjustments associated with the acquisition
of the Company by NAC and adjustments related to the extinguishment of debt in
January 1998), necessary for a fair presentation of financial position and
results of operations and cash flows as of the dates and for the periods
indicated. Consolidated results of operations for interim periods are not
necessarily indicative of results to be expected for the full year. The
unaudited pro forma consolidated income statement data and other operating data
give effect to the Transactions, the acquisition of Consolidated and the
settlement with First Data as if they had occurred at January 1, 1997. The
consolidated pro forma financial information is unaudited and does not purport
to represent what the Company's results of operations would actually have been
if the Transactions had occurred on January 1, 1997 and do not project the
Company's financial position or results of operations for any future periods.
See "Unaudited Condensed Consolidated Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ ---------------------
PRO FORMA PREDECESSOR SUCCESSOR
1993 1994 1995 1996 1997 1997(1)(2) 1997 1998
------- -------- -------- -------- -------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $91,672 $143,376 $154,506 $138,905 $119,013 $121,315 $61,268 $ 54,577
Expenses:
Salaries and benefits.. 49,824 74,353 81,114 73,636 66,376 67,038 34,540 32,751
Telecommunication...... 6,431 10,075 9,539 7,341 6,236 6,333 3,286 2,769
Occupancy.............. 3,473 4,959 5,148 4,602 5,014 5,061 2,396 2,123
Other operating and
administrative........ 17,531 22,963 27,102 26,586 22,516 23,969 10,790 7,332
Depreciation and
amortization.......... 7,467 10,002 11,893 12,021 14,364 24,483 6,865 12,256
Provision for merger
costs, employee
severance and office
closure (3)........... -- -- 13,562 4,323 679 679 679 --
Overhead charges from
First Data............ 917 1,434 1,545 1,389 1,190 -- 613 --
------- -------- -------- -------- -------- -------- ------- --------
Operating income
(loss)................. 6,029 19,590 4,603 9,007 2,638 (6,248) 2,099 (2,654)
Interest expense, net.. 526 680 501 241 122 12,334 63 7,175
------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes and
extraordinary item..... 5,503 18,910 4,102 8,766 2,516 (18,582) 2,036 (9,829)
Provision for income
taxes (4).............. 3,008 8,438 2,611 4,449 2,423 -- 1,274 --
------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item..... 2,495 10,472 1,491 4,317 93 (18,582) 762 (9,829)
Extraordinary loss on
debt extinguishment.... -- -- -- -- -- -- -- 869
------- -------- -------- -------- -------- -------- ------- --------
Net Income (loss)....... $ 2,495 $ 10,472 $ 1,491 $ 4,317 $ 93 $(18,582) $ 762 $(10,698)
======= ======== ======== ======== ======== ======== ======= ========
OTHER DATA:
Ratio of earnings to
fixed charges (5)...... 4.8x 10.2x 3.1x 6.2x 2.4x -- 3.4x --
Adjusted EBITDA (6)..... $13,496 $ 29,592 $ 30,058 $ 25,351 $ 21,169 $ 22,402 $11,196 $ 9,602
Adjusted EBITDA margin
(6).................... 14.7% 20.6% 19.5% 18.3% 17.8% 18.5% 18.3% 17.6%
Net cash provided (used)
by:
Operating activities... N/A N/A 20,973 23,898 14,624 N/A 6,083 9,176
Investing activities... N/A N/A (7,748) (7,824) (29,626) N/A (28,808) (2,049)
Financing activities... N/A N/A (14,488) (18,197) 12,281 N/A 19,627 (250)
Capital expenditures.... N/A $ 5,800 $ 5,016 $ 7,005 5,465 5,465 4,739 2,049
Pro Forma ratio of
Adjusted EBITDA to cash
interest expense (7)... 1.8x
Pro Forma ratio of total
indebtedness to
Adjusted EBITDA........ 5.6x
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
AS OF AS OF
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 1,388 $ 8,265
Total assets............................................ 190,865 169,859
Total indebtedness (8).................................. 113,901 124,875
Stockholder's equity.................................... 63,879 28,277
</TABLE>
- --------
(1) Assumes the acquisition of Consolidated and the consummation of the
Transactions (see "Prospectus Summary--the Transactions") occurred on
January 1, 1997, and gives pro forma effect to the consummation of the
Transactions and the application of the estimated net proceeds therefrom as
if each had occurred on January 1, 1997.
(2) In February 1997, the Company acquired certain assets of Consolidated for
$23.3 million. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the operating results of Consolidated are
included in the Company's consolidated financial statements from the date
of acquisition.
(3) The provision for merger costs, employee severance and office closure
represents charges incurred as a result of integrating the operations of
the Company and ACB, which resulted from First Data's 1995 merger with
FFMC.
(4) On a pro forma basis, the Company's assumed effective tax rate is 42%. The
Company has provided a valuation allowance on the entire pro forma tax
benefit, as it is not "more likely than not" that the benefit will be
realized by the Company.
(5) For purposes of the ratio of earnings to fixed charges, (i) earnings
include earnings before income taxes and fixed charges and (ii) fixed
charges consist of interest on all indebtedness, amortization of deferred
financing costs and that portion of rental expense (one-third) that the
Company believes to be representative of interest expense. On a pro forma
basis, the Company's earnings were insufficient to cover fixed charges by
$18.6 million for the year ended December 31, 1997 and, on an historical
basis, $9.8 million for the six month period ended June 30, 1998.
(6) Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization, provision for merger costs, employee severance and office
closure, a non-recurring contract settlement expense of approximately $1.6
million, a non-recurring settlement expense with the Federal Trade
Commission ("FTC") and a non-recurring expense related to DOE chargebacks
aggregating to approximately $1.9 million during the year ended December
31, 1997. Adjusted EBITDA reconciles to net income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------- ----------------------------
PRO FORMA PREDECESSOR SUCCESSOR
1993 1994 1995 1996 1997 1997 1997 1998
------- ------- ------- ------- ------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ 2,495 $10,472 $ 1,491 $ 4,317 $ 93 $(18,582) $ 762 $ (10,698)
Add: Depreciation and
amortization 7,467 10,002 11,893 12,021 14,364 24,483 6,865 12,256
Provision for merger
costs, employee
severance and office
closure -- -- 13,562 4,323 679 679 679 --
Non-recurring contract
settlement -- -- -- -- 1,553 1,553 1,553 --
Non-recurring
settlement expense
with the FTC and
expenses associated
with DOE chargebacks -- -- -- -- 1,935 1,935 -- --
Interest expense, net 526 680 501 241 122 12,334 63 7,175
Provision for income
taxes 3,008 8,438 2,611 4,449 2,423 -- 1,274 --
Extraordinary loss on
debt extinguishment -- -- -- -- -- -- -- 869
------- ------- ------- ------- ------- -------- ------------ -------------
Adjusted EBITDA $13,496 $29,592 $30,058 $25,351 $21,169 $ 22,402 $ 11,196 $ 9,602
</TABLE>
The Company believes that Adjusted EBITDA presents a more meaningful
discussion than EBITDA since Adjusted EBITDA excludes non-recurring expenses
for which First Data has indemnified the Company, and for which the Company
will have no on-going cash requirements and which are expected to have no
impact on the on-going operations of the Company. Adjusted EBITDA does not
represent cash flows as defined by generally accepted accounting principles
and does not necessarily indicate that cash flows are sufficient to fund all
of the Company's cash needs. Adjusted EBITDA should not be considered in
isolation or as a substitute for net income (loss), cash flows from
operating activities or other measures of liquidity determined in accordance
with generally accepted accounting principles. The Adjusted EBITDA margin
represents Adjusted EBITDA as a percentage of revenue. Management believes
that these ratios should be reviewed by prospective investors because the
Company uses them as one means of analyzing its ability to service its debt,
the Company's lenders use them for the purpose of analyzing the Company's
performance and the Company understands that they are used by certain
investors as one measure of a company's historical ability to service its
debt. Not all companies calculate EBITDA in the same fashion and therefore
these ratios as presented may not be comparable to other similarly titled
measures of other companies.
(7) Cash interest expense includes an assumed commitment fee of 0.375% on the
unused portion of the Revolving Credit Facility and excludes approximately
$0.5 million of amortization of deferred financing charges for the year
ended December 31, 1997.
(8) Actual total indebtedness as of December 31, 1997 includes a $112.5 million
non-interest bearing note payable to First Data.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors
before purchasing the Notes offered hereby. Certain statements in this
Prospectus that are not factual constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, many of which are beyond the Company's control, that may cause
the actual results of the Company to be materially different from results
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to, the
following:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE OUTSTANDING INDEBTEDNESS
The Company is highly leveraged. As of July 31, 1998, the Company's total
debt was approximately $124.9 million and its total stockholder's equity was
approximately $28.3 million. The Company's fixed charges for the year ended
December 31, 1997, on a pro forma basis after giving effect to the
Transactions, would have exceeded its earnings by approximately $18.6 million.
The Company's operating results will be affected by significant fixed charges
related to its debt. See "Capitalization" and "Unaudited Condensed
Consolidated Pro Forma Financial Information" and "Selected Historical
Financial Information and Other Data."
The Company's ability to make scheduled payments of the principal of, or to
pay the interest on, or to refinance, its debt (including the Notes) is
dependent upon its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Management believes that, based on current levels
of operations and anticipated improvements in operating results, cash flows
from operations and borrowings available under the Senior Credit Facilities
will be adequate to allow for anticipated capital expenditures for the next
several years, to fund working capital requirements and to make required
payments of principal and interest on its debt for the next several years.
However, if the Company is unable to generate sufficient cash flows from
operations in the future, it may be necessary for the Company to refinance all
or a portion of its debt or to obtain additional financing, but there can be
no assurance that the Company will be able to effect such refinancing or
obtain additional financing on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the Company and the holders of Notes, including, but not
limited to, the following: (i) the Company's ability to obtain additional
financing in the future for acquisitions, working capital, capital
expenditures, general corporate or other purposes may be impaired, (ii) a
substantial portion of the Company's cash flow from operations will be
dedicated to debt service and unavailable for other purposes, (iii) certain of
the Company's borrowings may be at variable rates of interest, which could
result in higher interest expense in the event of increases in interest rates
and (iv) the Company is subject to a variety of restrictive covenants,
including, without limitation, significant financial and operating covenants
under the Senior Credit Facilities, the failure to comply with which could
result in events of default that, if not cured or waived, could restrict the
Company's ability to make payments of principal of, and interest on, the
Notes. See "Description of Senior Credit Facilities" and "Description of New
Notes."
EFFECTIVE SUBORDINATION
The New Notes will be, and the Old Notes are, general unsecured obligations
of the Company, rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company and rank pari passu in right of
payment with all current and future unsecured senior Indebtedness of the
Company, including all borrowings under the Credit Agreement. The Company
currently has no Domestic Subsidiaries, however all of the Company's future
Domestic Subsidiaries, if any, will jointly and severally guarantee the Notes
on a senior unsecured basis. However, all borrowings under the Credit
Agreement are secured by a first priority lien on substantially all of the
assets of the Company and its Domestic Subsidiaries. The Subsidiary Guarantees
will
12
<PAGE>
rank senior to all existing and future subordinated Indebtedness of the
Guarantors and pari passu with all other unsecured senior Indebtedness of the
Guarantors, including guarantees of Indebtedness under the Credit Agreement.
Any Guarantor's obligations under the Credit Agreement, however, will be
secured by a lien on substantially all of the assets of such Guarantor, and
the Indenture restricts, but does not prohibit, the Guarantors from incurring
additional secured Indebtedness. The Credit Agreement is secured by
substantially all of the assets of the Company and its Domestic Subsidiaries.
Although the Notes constitute senior Indebtedness of the Company, the holders
of secured Senior Indebtedness would have a prior claim to the assets securing
such Indebtedness. In the event of any insolvency proceeding involving the
Company, the obligations of the Company under the Notes would be effectively
subordinated to any secured Senior Indebtedness of the Company. As of June 30,
1998, the aggregate principal amount of Indebtedness under the Credit
Agreement was approximately $24.9 million. See "Description of Senior Credit
Facilities."
RESTRICTIVE DEBT COVENANTS
The Indenture and the Senior Credit Facilities contain certain covenants
that restrict, among other things, the Company's ability to incur additional
Indebtedness, incur liens, pay dividends or make certain other restricted
payments, make investments, consummate certain asset sales, enter into certain
transactions with affiliates, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to the Company, merge or
consolidate with any other person or sell, assign, transfer, lease, convey, or
otherwise dispose of all or substantially all of the assets of the Company. In
addition, the Senior Credit Facilities contain certain other and more
restrictive covenants including restrictions on prepaying Indebtedness, such
as the Notes, and also require the Company to maintain specified financial
ratios and to satisfy certain financial condition tests. The Company's ability
to meet these financial ratio and financial condition tests can be affected by
events beyond its control and there can be no assurance that the Company will
meet those tests. A breach of any of these covenants could result in a default
under the Senior Credit Facilities or the Indenture. If an event of default
under the Senior Credit Facilities should occur, the lenders thereunder could
elect to declare all amounts outstanding thereunder, together with accrued
interest, to be immediately due and payable. If the Company were unable to pay
those amounts, the lenders thereunder could proceed against the collateral
granted to them to secure that Indebtedness. Substantially all the assets of
the Company and its Domestic Subsidiaries will be pledged as collateral to
secure the Company's obligations under the Senior Credit Facilities. If the
indebtedness under the Senior Credit Facilities were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to
repay in full that Indebtedness and the other Indebtedness of the Company,
including the Notes. See "Description of New Notes--Certain Covenants" and
"Description of Senior Credit Facilities."
CLIENT CONCENTRATION
Revenue from American Express for the three months ended June 30, 1998 and
the years ended December 31, 1995, 1996 and 1997 accounted for approximately
34%, 27%, 30% and 28% of the Company's revenue, respectively. Revenue from the
DOE for six months ended June 30, 1998 and the years ended December 31, 1995,
1996 and 1997 accounted for approximately 11%, 26%, 23% and 17% of the
Company's revenue, respectively. In addition, the Company's ten largest
clients accounted for approximately 66% of the Company's revenue for the
fiscal year 1996, for approximately 63% of the Company's revenue for the year
ended December 31, 1997, and for approximately 67% of the Company's revenue
for the six months ended June 30, 1998. The loss of, significant curtailment
of placements by, or change in placement or compensation practices of one or
more of these clients could have a material adverse effect on the Company. See
"Business--Customers."
COMPETITION
The Company is engaged in a highly fragmented and competitive industry. The
Company competes with many local, regional and national accounts receivable
management companies in the markets which it serves. Some of the Company's
principal competitors may have greater financial and operating flexibility.
See "Business--Competition." In addition, despite what the Company believes to
be a trend among credit grantors to outsource their accounts receivable
functions, many of the Company's clients and prospective clients internally
13
<PAGE>
satisfy varying portions of their accounts receivable management requirements.
Moreover, the Company has recently expanded its services to include pre-
chargeoff accounts receivable and on-site collection management services,
which certain of the Company's competitors have previously undertaken. There
can be no assurance that the Company's clients and potential clients will not
decide to increase their reliance on internal accounts receivable capabilities
or the Company's competitors to provide these services.
CONTRACT RISKS
The Company enters into contracts with most of its clients which define,
among other things, fee arrangements, scope of services and termination
provisions. Clients may usually terminate such contracts on 30 or 60 days
notice. Accordingly, there can be no assurance that existing clients will
continue to use the Company's services at the historical level, if at all.
Under the terms of these contracts, clients are not required to place accounts
receivable with the Company but do so on a discretionary basis. In addition,
substantially all of the Company's contracts are on a contingent fee basis in
which the Company recognizes revenue only as accounts receivable are
recovered. See "Business."
RATIONALIZATION OF OPERATIONS
The Company intends to improve its financial results through the
rationalization of operations pursuant to the Operating Improvement Plan. In
connection with the Operating Improvement Plan, the Company expects to reduce
operating expenses, close certain facilities and enlarge certain other
facilities. Although the Company believes that its strategies are reasonable,
there can be no assurance that it will be able to implement its plans without
delay or that it will not encounter unanticipated problems in connection with
the rationalization of operations or that, when implemented, its efforts will
result in the reduction of operating expenses that is currently anticipated.
GOVERNMENT REGULATION
Certain of the Company's operations are subject to compliance with the
federal Fair Debt Collection Practices Act ("FDCPA") and comparable statutes
in many states. Under the FDCPA, a third-party collection company is
restricted in the methods it uses in contacting consumer debtors and eliciting
payments with respect to placed accounts. Requirements under state collection
agency statutes vary, with most requiring compliance similar to that required
under the FDCPA. In addition, most states and certain municipalities require
collection agencies to be licensed with the appropriate regulatory body before
operating in such jurisdictions. The Company believes that it is in
substantial compliance with the FDCPA and comparable state statutes and that
it maintains licenses in all jurisdictions in which its operations require it
to be licensed. See "--Litigation."
CONTROL OF COMPANY
All of the capital stock of the Company is owned by NAC. As of May 31, 1998,
47.8% and 45.4% of NAC's Common Stock was beneficially owned by affiliates of
Centre Partners and WPG, respectively. The holders of a majority of NAC's
Common Stock can, indirectly, elect all of the directors of the Company and
approve or disapprove certain fundamental corporate transactions, including
mergers and the sale of substantially all of the Company's assets. By reason
of such stock ownership, Centre Partners and WPG, may have interests which
could be in conflict with the holders of the Notes. In addition, pursuant to a
Stockholders Agreement entered into on December 31, 1997, certain of NAC's
stockholders have veto rights over significant corporate transactions. See
"Management" and "Stock Ownership and Certain Transactions."
LITIGATION
Due to the nature of its operations, the Company is regularly a defendant in
various legal proceedings involving claims for damages. The Company is
currently a defendant in two class action lawsuits filed in the U.S. District
Court for the Northern District of Illinois, in which it is alleged that the
Company violated certain
14
<PAGE>
provisions of the FDCPA. The Company expects to settle one of these class
actions for an amount less than $150,000 and is continuing to defend the
remaining putative class action suit. The FDCPA sets the maximum liability for
such class action suits at the lesser of $0.5 million or 1% of the defendants'
net worth. The Company believes that such proceedings constitute ordinary and
routine litigation incidental to its business. The costs associated with
defending such lawsuits (including payments made in connection with settlement
and judgments) have not historically had a material adverse effect on the
Company's financial condition. There can be no assurance that the costs
associated with existing or future claims against the Company will not have a
material adverse effect on the Company's financial condition. In 1992, the
Company reached a settlement with the Federal Trade Commission (the "FTC") in
an action commenced by the FTC in which it alleged the Company had violated
the FDCPA. The matter was resolved with a Consent Decree, in which the
Company, without admitting any liability, agreed to take additional steps to
ensure compliance with the FDCPA and paid a penalty of $100,000. The FTC
recently completed an investigation regarding the Company's compliance with
the Consent Decree from January 1, 1994 to date. Without admitting liability
for any of the alleged violations of the FDCPA, the Company has proposed to
settle the matter by paying a civil penalty and implementing certain
procedures in connection with the operation of the business, consisting
primarily of disclosure to debtors of their rights and enhanced training and
compliance reporting requirements. In connection with the Merger, First Data
agreed to indemnify the Company for any monetary penalty and expenses incurred
in connection with the FTC investigation. The settlement proposal is subject
to approval by the FTC, the U.S. Department of Justice and the court in which
the matter was initiated. The Company believes that compliance by the Company
with the provisions of the Consent Decree, as well as with the additional
provisions related to the proposed settlement of the FTC investigation, will
not materially affect the Company's financial condition or ongoing operations.
See "Business--Litigation."
CHANGE OF CONTROL
Upon the occurrence of any Change of Control, the Company will be required
to make an offer to purchase all of the Notes issued and then outstanding
under the Indenture at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase. However, there can be no assurance that sufficient funds
will be available to the Company to purchase any of the Notes tendered
pursuant to such a Change of Control offer. Moreover, restrictions in the
Senior Credit Facilities prohibit the Company from making such required
repurchases. Therefore, any such repurchases would constitute an event of
default under the Senior Credit Facilities. See "Description of Senior Credit
Facilities."
FRAUDULENT CONVEYANCE
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company or any Guarantor, as the case may be, at the time it issues the Notes
or the guarantees, as the case may be, (a) incurs such Indebtedness with the
intent to hinder, delay or defraud creditors, or (b)(i) receives less than
reasonably equivalent value or fair consideration for incurring such
Indebtedness and (ii)(A) is insolvent at the time of the incurrence, (B) is
rendered insolvent by reason of such incurrence (after the application of the
proceeds of the Offering), (C) is engaged or is about to engage in a business
or transaction for which the assets that will remain with the Company or such
Guarantor, as the case may be, constitute unreasonably small capital to carry
on its business, or (D) intends to incur, or believes that it will incur,
debts beyond its ability to pay such debts as they mature, then, in each such
case, a court of competent jurisdiction could avoid, in whole or in part, the
Notes. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Company
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it, the
Company believes that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, (a) the Notes are being issued
without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith, (b) the Company has received reasonably equivalent
value or fair consideration for incurring such Indebtedness and (c) the
Company, after the issuance of the Notes and the application of the net
proceeds of the Notes, will be solvent,
15
<PAGE>
will have sufficient capital for carrying on its businesses and will be able
to pay its debts as they mature. There can be no assurance, however, that a
court passing on such questions would agree with the Company's view. See "--
Substantial Leverage; Ability to Service Outstanding Indebtedness,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of New Notes" and "Description of Senior Credit
Facilities."
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes constitute a new class of securities with no established trading market.
The Old Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the remaining untendered Old Notes could be adversely affected. There is no
existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of Holders of the New Notes to sell their New Notes or the price at which such
Holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchaser has advised the Company that it
currently intends to make a market in the New Notes. The Initial Purchaser is
not obligated to do so, however, and any market-making with respect to the New
Notes may be discontinued at any time without notice. Therefore, there can be
no assurance as to the liquidity of any trading market for the New Notes or
that an active public market for the New Notes will develop. The Company does
not intend to apply for listing or quotation of the New Notes on any
securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will
not be subject to similar disruptions. Any such disruptions may have an
adverse effect on Holders of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes pursuant to the
Exchange Offer will continue to be subject to the provisions in the Indenture
regarding transfer and exchange of the Old Notes and the restrictions on
transfer of such Old Notes as set forth in the legend thereon as a consequence
of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register Old Notes under the Securities Act. See "Description of the Notes--
Exchange Offer, Registration Rights." Based on interpretations by the staff of
the SEC, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course or such holders' business and such holders, other than
broker-dealers, have no arrangement or understanding with any person to
participate in the distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of such
New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of the Company or is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) may not rely on the applicable
interpretations of the
16
<PAGE>
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of
such New Notes. Each broker-dealer that receives New Notes for its own account
in exchange for Old Notes pursuant to the Exchange Offer must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities and that it will deliver a
prospectus in connection with any resale transaction. The letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdictions
or an exemption from registration or qualification is available and is
complied with. The Company has agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations specified therein, to register or
qualify the New Notes for offer or sale under the securities laws of such
jurisdiction as any holder reasonably requests in writing. Unless a holder so
requests, the Company does not currently intend to register or qualify the
sale of the New Notes in any such jurisdictions. See "The Exchange Offer."
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of June 30, 1998 on a pro forma basis adjusted to give effect
to the First Data settlement. This table should be read in conjunction with
the consolidated financial statements of the Company and notes thereto, and
the pro forma financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA AS OF
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash..................................................... $ 10,260
=========
Total debt (including current maturities):
Senior Credit Facilities:
Term Loan............................................. $ 18,891
Revolving Credit Facility (1)......................... --
Notes.................................................. 100,000
---------
Total debt............................................... 118,891
Total stockholder's equity............................... 28,277
---------
Total capitalization..................................... $ 147,168
=========
</TABLE>
18
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
In the Transactions, the Company was acquired by NAC. The Company was
previously a wholly owned subsidiary of FFMC, a wholly owned subsidiary of
First Data. The Company was acquired in June 1990 by FFMC. First Data's
October 1995 merger with FFMC, accounted for under the pooling of interests
method, resulted in the combination of First Data's accounts receivable
management company, ACB, with the Company. ACB was primarily the result of two
businesses purchased and combined by First Data in 1993. The following table
presents selected historical consolidated financial information of the
Company, as of the dates and for the periods indicated. The selected
consolidated historical financial information should be read in conjunction
with the consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The historical consolidated financial
information for each of the years ended December 31, 1995, 1996 and 1997, has
been derived from the consolidated financial statements of the Company which
have been audited by Ernst & Young LLP, independent auditors. The historical
consolidated financial information for each of the years ended December 31,
1993 and 1994 and the six months ended June 30, 1997 and 1998 has been derived
from unaudited consolidated financial statements of the Company and, in the
opinion of management, includes all adjustments (consisting of normal,
recurring, and other adjustments, which are primarily purchase accounting
adjustments associated with the two business acquisitions by First Data in
1993, purchase accounting adjustments associated with the acquisition of the
Company by NAC and adjustments related to the extinguishment of debt in
January 1998.) necessary for a fair presentation of financial position and
results of operations and cash flows as of the dates and for the periods
indicated. Consolidated results of operations for interim periods are not
necessarily indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ---------------------
PREDECESSOR SUCCESSOR
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $91,672 $143,376 $154,506 $138,905 $119,013 $61,268 $ 54,577
Expenses
Salaries and benefits.. 49,824 74,353 81,114 73,636 66,376 34,540 32,751
Telecommunication...... 6,431 10,075 9,539 7,341 6,236 3,286 2,769
Occupancy.............. 3,473 4,959 5,148 4,602 5,014 2,396 2,123
Other operating and ad-
ministrative.......... 17,531 22,963 27,102 26,586 22,516 10,790 7,332
Depreciation and amor-
tization.............. 7,467 10,002 11,893 12,021 14,364 6,865 12,256
Provision for merger
costs, employee sever-
ance and office clo-
sure (2).............. -- -- 13,562 4,323 679 679 --
Overhead charges from
First Data ........... 917 1,434 1,545 1,389 1,190 613 --
------- -------- -------- -------- -------- ------- --------
Operating income
(loss)................ 6,029 19,590 4,603 9,007 2,638 2,099 (2,654)
Interest expense, net.. 526 680 501 241 122 63 7,175
------- -------- -------- -------- -------- ------- --------
Income (loss) before
income taxes and ex-
traordinary item...... 5,503 18,910 4,102 8,766 2,516 2,036 (9,829)
Provision for income
taxes................. 3,008 8,438 2,611 4,449 2,423 1,274 --
------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item.... 2,495 10,472 1,491 4,317 93 762 (9,829)
Extraordinary loss on
debt extinguishment... -- -- -- -- -- -- 869
------- -------- -------- -------- -------- ------- --------
Net income (loss)...... $ 2,495 $ 10,472 $ 1,491 $ 4,317 $ 93 $ 762 $(10,698)
======= ======== ======== ======== ======== ======= ========
OTHER DATA:
Ratio of earnings to
fixed charges (3)..... 4.8x 10.2x 3.1x 6.2x 2.4x 3.4x --
Adjusted EBITDA (4).... $13,496 $ 29,592 $ 30,058 $ 25,351 $ 21,169 $11,196 $ 9,602
Adjusted EBITDA margin
(4)................... 14.7% 20.6% 19.5% 18.3% 17.8% 18.3% 17.6%
NET CASH PROVIDED (USED)
BY:
Operating activities... N/A N/A 20,973 23,898 14,624 6,083 9,176
Investing activities... N/A N/A (7,748) (7,824) (29,626) (28,808) (2,049)
Financing activities... N/A N/A (14,488) (18,197) 12,281 19,627 (250)
Capital expenditures... N/A $ 5,800 $ 5,016 $ 7,005 $ 5,465 4,739 2,049
BALANCE SHEET DATA:
Cash....................................................... $ 1,388 $ 8,265
Total assets............................................... 190,865 169,859
Total indebtedness (5)..................................... 113,901 124,875
Stockholder's equity....................................... 63,879 28,277
</TABLE>
19
<PAGE>
(1) In February 1997, the Company acquired certain assets of Consolidated for
$23.3 million. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the operating results of Consolidated are
included in the Company's consolidated financial statements from the date
of acquisition.
(2) The provision for merger costs, employee severance and office closure
represents charges incurred as a result of integrating the operations of
the Company and ACB, which resulted from First Data's 1995 merger with
FFMC.
(3) For purposes of the ratio of earnings to fixed charges, (i) earnings
include earnings before income taxes and fixed charges and (ii) fixed
charges consist of interest on all indebtedness, amortization of deferred
financing costs and that portion of rental expense (one-third) that the
Company believes to be representative of interest expense. The Company's
earnings were insufficient to cover fixed charges by $9.8 million for the
six months ended June 30, 1998.
(4) Adjusted EBITDA is earnings before interest, taxes, depreciation,
amortization and provision for merger costs, employee severance and office
closure, a non-recurring contract settlement expense of approximately $1.6
million, a non-recurring settlement expense with the FTC and a non-
recurring expense related to DOE chargebacks aggregating to approximately
$1.9 million during the year ended December 31, 1997. Adjusted EBITDA
reconciles to net income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ----------------------------
PREDECESSOR SUCCESSOR
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ 2,495 $10,472 $ 1,491 $ 4,317 $ 93 $ 762 $ (10,698)
Add: Depreciation and
amortization 7,467 10,002 11,893 12,021 14,364 6,865 12,256
Provision for merger
costs, employee
severance and office
closure -- -- 13,562 4,323 679 679 --
Non-recurring contract
settlement -- -- -- -- 1,553 1,553 --
Non-recurring
settlement expense
with the FTC and
expenses associated
with DOE chargebacks -- -- -- -- 1,935 -- --
Interest expense, net 526 680 501 241 122 63 7,175
Provision for income
taxes 3,008 8,438 2,611 4,449 2,423 1,274 --
Extraordinary loss on
debt extinguishment -- -- -- -- -- -- 869
------- ------- ------- ------- ------- ------------ -------------
Adjusted EBITDA $13,496 $29,592 $30,058 $25,351 $21,169 $ 11,196 $ 9,602
</TABLE>
The Company believes that Adjusted EBITDA presents a more meaningful
discussion than EBITDA since Adjusted EBITDA excludes non-recurring
expenses for which First Data has indemnified the Company, and for which
the Company will have no on-going cash requirements and which are expected
to have no impact on the on-going operations of the Company. Adjusted
EBITDA does not represent cash flows as defined by generally accepted
accounting principles and does not necessarily indicate that cash flows are
sufficient to fund all of the Company's cash needs. Adjusted EBITDA should
not be considered in isolation or as a substitute for net income (loss),
cash flows from operating activities or other measures of liquidity
determined in accordance with generally accepted accounting principles. The
Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of
revenue. Management believes that these ratios should be reviewed by
prospective investors because the Company uses them as one means of
analyzing its ability to service its debt, the Company's lenders use them
for the purpose of analyzing the Company's performance and the Company
understands that they are used by certain investors as one measure of a
company's historical ability to service its debt. Not all companies
calculate EBITDA in the same fashion and therefore these ratios as
presented may not be comparable to other similarly titled measures of other
companies.
(5) Total indebtedness as of December 31, 1997 includes a $112.5 million non-
interest bearing payable to First Data.
20
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma statement of
operations for the year ended December 31, 1997 gives effect to the
Transactions and the acquisition of Consolidated Collection Co. (acquired
February 28, 1997) as though they had occurred on January 1, 1997. The Merger,
the Acquisition Facilities, the Senior Credit Facilities and the Offering,
together with the application of the proceeds from the Acquisition Facilities,
the Senior Credit Facilities and the Offering, are collectively referred to as
the "Transactions." The unaudited condensed consolidated pro forma balance
sheet of the Company at June 30, 1998 was prepared as if the settlement with
First Data had occurred on such date.
The unaudited condensed consolidated pro forma balance sheet is based on the
historical consolidated financial statements for the Company, and the
assumptions and adjustments described in the accompanying notes. The unaudited
condensed consolidated pro forma statement of operations does not purport to
represent what the Company's results of operations would have been if the
events described above had occurred as of the date indicated or what results
will be for any future periods. The unaudited condensed consolidated pro forma
financial information is based upon the assumptions that the Company believes
are reasonable and should be read in conjunction with the consolidated
financial statements and accompanying notes thereto and "Use of Proceeds"
included elsewhere in this Prospectus.
The acquisition of the Company by NAC has been accounted for on a pro forma
basis by the purchase method of accounting, and accordingly the purchase price
of $157.2 million (including estimated fees and expenses of approximately $2.0
million) has been preliminarily allocated to the assets acquired and
liabilities assumed based upon the estimated fair values as of December 31,
1997. The final allocation of such purchase price, and the resulting
amortization expense in the accompanying unaudited condensed consolidated pro
forma statements of operations, may differ from the preliminary estimates
pending the completion of appraisal studies and management's evaluation of the
assets and liabilities of the Company. Management does not believe that either
adjustments to the preliminary allocation of the purchase price or the
resolution of any known contingencies will have a material impact on the
unaudited condensed consolidated pro forma financial information presented.
The excess of such purchase price over the estimated fair values of
identifiable tangible and intangible net assets has been recorded as goodwill,
which is amortized over 30 years on a straight-line basis.
21
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FORMA
AS
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,265 $ 1,995(a) $ 10,260
Cash held for clients 779 -- 779
Accounts receivable, net 12,387 -- 12,387
Prepaid expenses and other current assets 1,031 -- 1,031
-------- ------- --------
Total current assets 22,462 1,995 24,457
Property and equipment, net 11,393 -- 11,393
Goodwill and other intangible assets, net 131,422 (7,979)(b) 123,443
Deferred financing costs 4,384 -- 4,384
Other assets 198 -- 198
-------- ------- --------
Total assets $169,859 $(5,984) $163,875
======== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Collections due to clients 779 -- 779
Accrued compensation 3,490 -- 3,490
Accounts payable 1,784 -- 1,784
Accrued severance and office closure costs 929 -- 929
Other accrued liabilities 7,325 -- 7,325
Current maturities of long-term debt 250 -- 250
-------- ------- --------
Total current liabilities 14,557 -- 14,557
Accrued severance and office closure costs 2,400 -- 2,400
Long-term debt:
Term loan facility 24,625 (5,984)(c) 18,641
10.25% Senior notes due 2008 100,000 -- 100,00
Stockholder's equity 28,277 -- 28,277
-------- ------- --------
Total liabilities and stockholder's equity $169,859 $(5,984) $163,875
======== ======= ========
</TABLE>
22
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
BALANCE SHEET
(a)Reflects the net increase in cash due to the settlement with First Data.
(b)Reflects the decrease in goodwill due to the settlement with First Data.
(c)Reflects the pay-down of the Term Loan Facility with excess cash received as
part of the settlement with First Data.
23
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS AND
OTHER DATA FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
FOR THE
CONSOLIDATED CONSOLIDATED PRO FORMA
CONSOLIDATED COLLECTION CO. COLLECTION CO. TRANSACTION PURCHASE PRICE AS
HISTORICAL COLLECTION CO.(A) ADJUSTMENTS ACQUISITION ADJUSTMENT ADJUSTMENTS ADJUSTED
---------- ----------------- -------------- -------------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $119,013 $2,302 $ -- $121,315 $ -- $ -- $121,315
Expenses:
Salaries and benefits.. 66,376 767 (105)(b) 67,038 -- -- 67,038
Telecommunication...... 6,236 97 -- 6,333 -- -- 6,333
Occupancy.............. 5,014 47 -- 5,061 -- -- 5,061
Other operating and
administrative........ 22,516 633 -- 23,149 820 (d) -- 23,969
Depreciation and
amortization.......... 14,364 4 306 (c) 14,674 10,075 (e) (266)(j) 24,483
Provision for merger
costs, employee
severance and office
closure............... 679 -- -- 679 -- -- 679
Overhead charges from
First Data............ 1,190 -- -- 1,190 (1,190)(f) -- --
-------- ------ ----- -------- -------- ----- --------
Total expenses.......... 116,375 1,548 201 118,124 9,705 (266) 127,563
-------- ------ ----- -------- -------- ----- --------
Operating income
(loss)................. 2,638 754 (201) 3,191 (9,705) 266 (6,248)
Interest expense
(income)............... 122 (31) -- 91 12,707 (g) (464)(k) 12,334
-------- ------ ----- -------- -------- ----- --------
Income (loss) before
income taxes........... 2,516 785 (201) 3,100 (22,412) 730 (18,582)
Provision (benefit) for
income taxes........... 2,423 -- 245 2,668 (2,668)(h) -- --
-------- ------ ----- -------- -------- ----- --------
Net income (loss)....... $ 93 $ 785 $(446) $ 432 $(19,744) $ 730 $(18,582)
======== ====== ===== ======== ======== ===== ========
OTHER DATA
Pro forma ratio of
earnings to fixed
charges (i)............ --
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
AND OTHER DATA FOR THE YEAR ENDED DECEMBER 31, 1997
(a) Represents the unaudited historical results of operations of Consolidated
for the period from January 1, 1997 to February 28, 1997 (date of
acquisition).
(b) Represents the elimination of salaries and benefits paid to certain former
executives of Consolidated. Pursuant to the Consolidated purchase
agreement, these executives' employment agreements were cancelled at the
time of acquisition. The Company believes that the inclusion in the
unaudited condensed consolidated pro forma statement of operations of the
salaries paid under these agreements before termination would be
inappropriate since they represent expenses incurred which the Company
would not have incurred during the period had the Company acquired
Consolidated at the beginning of the period.
(c) Represents an increase in amortization and depreciation resulting from the
acquisition of Consolidated.
(d) Represents an increase in other operating and administrative expenses
based on the estimated current value of services required to replace those
activities included in "Overhead charges from First Data."
(e) Represents an increase in amortization resulting from the acquisition of
the company by NAC, as follows: (in thousands)
Amortization of covenant not to compete.......................... $ 1,425
Amortization of the value attributable to future revenue from ex-
isting placements at the date of acquisition, less the direct
costs of collection............................................. 14,500
Amortization of goodwill attributable to the acquisition......... 4,100
Elimination of existing goodwill and other intangible amortiza-
tion............................................................ (9,644)
Elimination of pro forma goodwill and other intangible
amortization relating to Consolidated........................... (306)
-------
$10,075
=======
(f) Represents the elimination of the overhead cost allocation from First
Data.
(g) To reflect interest expense (and amortization of deferred financing fees)
on a pro forma basis as if the Transactions had been completed on January
1, 1997. Details of the adjustment are summarized below:
(in thousands)
Interest expense on the New Notes................................ $10,250
Interest expense on the term loan facility (1)................... 1,938
Amortization of deferred financing fees related to the New Notes
and the Credit Agreement........................................ 479
Commitment fee for revolving credit facility under the Credit
Agreement(2).................................................... 131
Elimination of historical interest expense....................... (91)
-------
$12,707
(1) The term loan facility bears interest at a rate determined at the
Company's option, based on the Eurodollar base rate (as defined in
the credit agreement) plus 2.125% or the Base Rate, as defined, plus
1.125%. The interest expense has been calculated based on a
Eurodollar rate of 5.625%.
(2) The assumed commitment fee on the unused portion of the revolving
credit facility is 0.375% per annum.
(h) The Company's assumed effective tax rate is 42%. The Company has provided
a valuation allowance on the entire tax benefit, as it is not "more likely
than not" that the benefit will be realized by the Company.
(i) For purposes of the pro forma ratio of earnings to fixed charges, (i)
earnings include earnings before income taxes and fixed charges and (ii)
fixed charges consist of interest on all debt, amortization of deferred
financing costs and that portion of rental expense (one-third) that the
Company believes to be representative of interest. On a pro forma basis,
the Company's earnings were insufficient to cover fixed charges by $18.6
million.
(j) Represents the decrease in amortization and depreciation resulting from
the settlement with First Data.
(k) Represents the decrease in interest expense due to the pay-down on the
Term Loan Facility (as defined) resulting from the settlement with First
Data.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with "Selected Consolidated Financial Data" and the consolidated financial
statements of the Company, including the notes thereto, included elsewhere in
this Prospectus.
OVERVIEW
The Company was acquired from First Data by NAC on December 31, 1997, in
connection with the Transactions. The Company was previously a wholly owned
subsidiary of FFMC, which is a wholly owned subsidiary of First Data. The
Company was acquired in June 1990 by FFMC. First Data's October 1995 merger
with FFMC, accounted for under the pooling of interests method, resulted in
the combination of First Data's accounts receivable management company, ACB,
with the Company. ACB was primarily the result of two business combinations
consummated by First Data in 1993 accounted for under the purchase method of
accounting. The Company has historically relied on First Data for certain
general and administrative functions and cash management needs.
On February 28, 1997, the Company acquired certain assets of Consolidated, a
telecommunications accounts receivable management company based in Denver,
Colorado. The acquisition was accounted for under the purchase method of
accounting. The historical results of operations of the Company include the
revenue and expenses of Consolidated from the date of acquisition. Total
consideration for the purchase was $23.3 million. See "Unaudited Condensed
Consolidated Pro Forma Financial Information."
GENERAL
The Company is the among the largest independent providers of accounts
receivable management services in the United States, as measured by the
aggregate principal value of consumer debt placed by credit grantors for
collection. The Company offers contingent fee collection, pre-chargeoff
accounts receivable management and on-site collection management services,
primarily to financial institutions, government agencies, telecommunications
companies and healthcare providers. The Company provides sophisticated,
customized past-due account collection and accounts receivable management
services to its clients through a nationwide network of 15 call centers.
The Company has historically generated substantially all of its revenue from
the recovery of delinquent accounts receivable on a contingency fee basis. In
addition, the Company has begun providing pre-chargeoff accounts receivable
management services, in which the Company contacts debtors earlier in the
collection cycle in an effort to bring the account current before the credit
grantor formally charges off the past-due balance. Revenue is earned and
recognized upon collection of the accounts receivable for contingent fee
services and as work is performed for fixed fee services. The Company enters
into contracts with most of its clients which define, among other things, fee
arrangements, scope of services and termination provisions. Generally, the
contracts may be terminated by either party on 30 to 90 days' notice.
The Company's costs consist principally of payroll and related personnel
costs, telecommunication, occupancy and other operating and administrative
costs, and depreciation and amortization. Payroll and related personnel costs
consist of wages and salaries, commissions, bonuses and benefits. Other
operating and administrative costs include postage and mailing costs,
equipment maintenance, marketing, data processing and professional fees.
26
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ----------------------------------
1997 1998
1995 % 1996 % 1997 % PREDECESSOR % SUCCESSOR %
-------- ----- -------- ----- -------- ----- ----------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $154,506 100.0 $138,905 100.0 $119,013 100.0 $61,268 100.0 $ 54,577 100.0
Expenses:
Salaries and benefits.. 81,114 52.5 73,636 53.0 66,376 55.8 34,540 56.4 32,751 60.0
Telecommunication...... 9,539 6.2 7,341 5.3 6,236 5.2 3,286 5.4 2,769 5.1
Occupancy.............. 5,148 3.3 4,602 3.3 5,014 4.2 2,396 3.9 2,123 3.9
Other operating and ad-
ministrative.......... 27,102 17.5 26,586 19.1 22,516 18.9 10,790 17.6 7,332 13.4
Depreciation and amor-
tization.............. 11,893 7.7 12,021 8.7 14,364 12.1 6,865 11.2 12,256 22.5
Provision for merger
costs, employee
severance and office
closure............... 13,562 8.8 4,323 3.1 679 0.6 679 1.1 -- --
Overhead charges from
First Data............ 1,545 1.0 1,389 1.0 1,190 1.0 613 1.0 -- --
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Total expenses.......... 149,903 97.0 129,898 93.5 116,375 97.8 59,169 96.6 57,231 104.9
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Operating income
(loss)................. 4,603 3.0 9,007 6.5 2,638 2.2 2,099 3.4 (2,654) (4.9)
Interest expense, net... 501 0.3 241 0.2 122 0.1 63 0.1 7,175 13.1
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Income (loss) before in-
come taxes and
extraordinary loss..... 4,102 2.7 8,766 6.3 2,516 2.1 2,036 3.3 (9,829) (18.0)
Provision for income
taxes.................. 2,611 1.7 4,449 3.2 2,423 2.0 1,274 2.1 -- --
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Income (loss) before ex-
traordinary items...... 1,491 1.0 4,317 3.1 93 0.1 762 1.2 (9,829) (18.0)
Extraordinary loss on
debt
extinguishment......... -- -- -- -- -- -- -- -- 869 1.6
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Net income (loss)....... $ 1,491 1.0 $ 4,317 3.1 $ 93 0.1 $ 762 1.2 $(10,698) (19.6)
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
Six Months ended June 30, 1998 Compared to Six Months ended June 30, 1997.
Revenue. Total revenue was $54.6 million for the six months ended June 30,
1998, as compared to $61.3 million for the six months ended June 30, 1997, a
decrease of $6.7 million or 10.9%. The decline in revenue was primarily the
result of (i) a decrease in revenue earned of $5.8 million from the
cancellation of the old DOE contract and delayed placements under the new GSA
and DOE contracts, (ii) a decrease in revenue from banking and retail
businesses of $1.3 million primarily from lower placements on gas credit
cards, (iii) a decrease in revenue from healthcare account placements of
approximately $0.8 million primarily caused by a strategic shift away from
less profitable lines of business and (iv) an increased expense to allow for
revenue that will not be collected of approximately $0.3 million. These
decreases were partially offset by the impact of the February 28, 1997
acquisition of Consolidated, improved revenue of $0.9 million from American
Express and from on site services of $0.6 million.
Expenses. Salaries and benefits expense was $32.8 million for the six months
ended June 30, 1998, as compared to $34.5 million for the six months ended
June 30, 1997 a decrease of $1.7 million or 4.9%. While placements were
delayed from the DOE and GSA, it was not prudent to eliminate trained
personnel who would be required for DOE contracts that were later received,
hence payroll was not reduced proportionately in relation to the decrease in
revenue.
Telecommunications expense was $2.8 million for the six months ended June
30, 1998, as compared to $3.3 million for the six months ended June 30, 1997 a
decrease of $0.5 million or 15.2%. The decrease was primarily the result of
lower rates as well as lower levels of activity.
Occupancy expense was $2.1 million for the six months ended June 30, 1998,
as compared to $2.4 million for the six months ended June 30, a decrease of
$0.3 million or 12.5%, a consequence of scaling back one facility in the
second quarter. Other operating and administrative expense was $7.3 million
for the six months ended June 30, 1998, as compared to $10.8 million for the
six months ended June 30, 1997 a decrease of $3.5 million
27
<PAGE>
or 32.4%. In 1997 the Company incurred a one time contract settlement expense
of $1.6 million and a charge of $0.9 million to correct for out of balance
conditions explained in the section on the results for 1997. The rest of the
savings were generated by general expense controls.
There were no provisions for severance or office closures in the six months
ended June 30, 1998, nor were there any overhead charges from First Data.
These two items amounted to $1.3 million in the six months ended June 30,
1997.
Depreciation and amortization expense was $12.3 million for the six months
ended June 30, 1998, as compared to $6.9 million for the six months ended June
30, 1997, an increase of $5.4 million or 78.3%. This increase reflects the
amortization associated with the intangibles arising from the Transactions.
Operating Income (Loss). Operating income was a loss of $2.7 million for the
six months ended June 30, 1998, as compared to a profit of $2.1 million for
the six months ended June 30, 1997, a reduction in income of $4.8 million. The
decrease in revenue of $6.7 million was more than offset by the savings on
operating expenses of $7.3 million, however, the increase in depreciation and
amortization expense of $5.4 million caused the $4.8 million change in
operating income.
Interest Expense. As a consequence of the form of the financing of the
Transactions, interest expense was $7.2 million for the six months ended June
30, 1998 an increase of $7.1 million from the six months ended June 30, 1997.
Extraordinary Loss. The extraordinary loss on debt extinguishment of $0.9
million represents the write off of deferred debt issuance costs related to
the interim financing for the Merger.
Net Income (Loss). The Company incurred a net loss for the six months ended
June 30, 1998 of $10.7 million, as compared to a profit of $0.8 million in the
same period of 1997.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996.
Revenue. Total revenue was $119.0 million for the year ended December 31,
1997, as compared to $138.9 million for the year ended December 31, 1996, a
decrease of $19.9 million, or 14.3%. The decline in revenue was primarily the
result of (i) a decrease in the Company's revenue from federal, state and
local governmental agencies, caused primarily by (a) the DOE's decision in
June 1996 to reduce the contingency fee rates paid to all vendors, inducing
the Company, and (b) the DOE's decision in April 1997 to temporarily
discontinue placements while conducting a bidding process for new contracts,
both of which in turn caused revenue from the DOE to decrease from $31.6
million in the year ended December 31, 1996 to $20.7 million in the year ended
December 31, 1997, (ii) a decrease in the Company's revenue from American
Express from $41.8 million in the year ended December 31, 1996 to $33.7
million in the year ended December 31, 1997, caused primarily by a decline in
the contingency fee rates paid by American Express to all vendors, including
the Company, and a change in the composition of accounts receivable placed by
American Express with the Company and (iii) a strategic reduction in
healthcare account placements by the Company to eliminate a significant number
of unprofitable clients. The Company believes that these factors may continue
to affect revenues going forward. These decreases were partially offset by
revenue increases of approximately $10.2 million associated with the
acquisition of Consolidated in February 1997.
Expenses. Salaries and benefits expense was $66.4 million for the year ended
December 31, 1997 as compared to $73.6 million for the year ended December 31,
1996, a decrease of $7.2 million or 9.9%. Salaries and benefits expense, which
largely comprises variable costs, decreased due to the lower volume of account
placements and lower contingency fee rates during 1997 as compared to 1996.
Salaries and benefits expense, as a percent of revenue, increased primarily
due to the revenue decline associated with the Company's contract with the
DOE.
28
<PAGE>
Telecommunications expense was $6.2 million for the year ended December 31,
1997 as compared to $7.3 million for the year ended December 31, 1996, a
decrease of $1.1 million or 15.1%. The decrease resulted from a lower volume
of account placements during 1997 as compared to 1996.
Occupancy expense was $5.0 million for the year ended December 31, 1997, as
compared to $4.6 million for the year ended December 1996, an increase of $0.4
million or 9.0%. The increase resulted primarily from the acquisition of
Consolidated in February 1997.
Other operating and administrative expense was $22.5 million for the year
ended December 31, 1997, as compared to $26.6 million for the year ended
December 31, 1996, a decrease of $4.1 million or 15.3%. The decrease resulted
primarily from operational costs incurred in 1996 associated with the
integration and consolidation of ACB and the Company and operational
improvements gained during 1997 as a result of certain efficiencies gained
from the merger of the Company and ACB, and cost savings resulting from the
Operating Improvement Plan. In addition, a significant portion of the decrease
relates to an expense provision to correct for certain out of balance
conditions that occurred during the 1996 integration of the ACB and Company
operations resulting from the October 1995 merger of First Data and FFMC. This
expense provision amounted to $3.0 million in 1996 and $0.9 million for the
first six months of 1997. These decreases were partially offset by (i) a non-
recurring contract settlement expense of approximately $1.6 million and (ii) a
non-recurring litigation settlement expense with the FTC and a non-recurring
expense related to DOE charge backs aggregating to approximately $1.9 million.
Other operating and administrative expenses included a $2.1 million charge for
the year ended December 31, 1997 for doubtful accounts, compared to a charge
of $2.4 million for the year ended December 31, 1996. During the course of
preparing the December 31, 1997 financial statements, management, as a
consequence of performing analyses and studies, concluded that, on average,
1.87% of its 1997 billings were not collectible. This situation is created by
a number of factors including, but not limited to, billing disputes which
arise when certain customers believe that the Company is not entitled to the
commission it has billed. The charge of $2.1 million was recorded in the year
ended December 31, 1997 to reflect the billings that the Company had
determined were not collectible. The Company believes that these disputes have
been recurring in nature and has instituted policies and procedures that it
believes will be adequate to resolve this issue.
Depreciation and amortization expense was $14.4 million for the year ended
December 31, 1997, as compared to $12.0 million for the year ended December,
1996, an increase of $2.4 million or 19.5%. The increase resulted primarily
from the amortization expense of the goodwill and other intangibles associated
with the Consolidated acquisition in February 1997.
The provision for merger costs, employee severance and office closure was
$0.7 million for the year ended December 31, 1997 as compared to $4.3 million
for the year ended December 31, 1996, a decrease of $3.6 million or 84.3%. The
charges resulted from the integration of the operations of the Company and ACB
and relate to employee severance and branch office closure costs.
Overhead charges from First Data were $1.2 million for the year ended
December 31, 1997, as compared to $1.4 million for the year ended December 31,
1996, a decrease of $0.2 million or 14.3%. First Data allocated general
corporate overhead based on 1.0% of the Company's revenue, therefore, the
decrease in overhead charges results from the decrease in revenue in 1997 as
compared to 1996. These overhead charges are not necessarily indicative of
actual or future costs. Management further believes that the incremental
general and administrative costs that will result from the Company being a
stand-alone entity will not exceed the 1% of revenue charge from First Data.
Operating Income. Operating income was $2.6 million for the year ended
December 31, 1997, as compared to $9.0 million for the year ended December 31,
1996. The $6.4 million or 71.4% decrease is caused by a number of factors each
of which are mentioned above. To summarize, revenues declined by $19.9 million
or 14.3% even after including the $10.2 million increase associated with the
February 1997 acquisition of Consolidated. Salaries and benefits, which
represents the Company's most significant expense, declined by $7.2 million or
9.8%. As a percentage of revenue, salaries and benefits increased from 53.0%
in 1996 to 55.8% in
29
<PAGE>
1997. The resulting net impact which the decreases in revenues and salaries
and benefits had on operating income was a decrease of $12.7 million. In
addition, the acquisition of Consolidated generated a $2.4 increase in
depreciation and amortization expense. Partially offsetting this aggregate
$15.1 million decrease in operating income were reductions of $4.1 million in
other operating and administrative expenses, $3.6 million in severance and
office closure costs and $1.0 million in telecommunications and occupancy
costs and overhead charges from First Data.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Revenue. Total revenue was $138.9 million for the year ended December 31,
1996 as compared to $154.5 million for the year ended December 31, 1995, a
decrease of $15.6 million, or 10.1%. The decline in revenue resulted primarily
from the aforementioned decision by the DOE in June 1996 to reduce the
contingency fees paid to all vendors, including the Company, which in turn
caused the revenue from the DOE to decrease from $40.3 million for the year
ended December 31, 1995 to $31.6 million for the year ended December 31, 1996.
The remaining revenue decline resulted from a decrease in the volume of
account placements from clients within both the healthcare and financial
services industries.
Expenses. Salaries and benefits expense was $73.6 million for the year ended
December 31, 1996, as compared to $81.1 million for the year ended December
31, 1995, a decrease of $7.5 million or 9.2%. The decrease resulted primarily
from the reduction of employee headcount and related benefit costs as part of
the restructuring following the merger of First Data and FFMC and lower
commission payments resulting from decreased revenue.
Telecommunication expense was $7.3 million for the year ended December 31,
1996, as compared to $9.5 million for the year ended December 31, 1995, a
decrease of $2.2 million or 23.0%. The decrease resulted primarily from cost
reductions and improved operating efficiencies derived from the consolidation
of telecommunication systems associated with the 1995 merger of First Data and
FFMC. These efficiencies also contributed to the reduction in
telecommunication expense as a percentage of revenue from 1995 to 1996.
Occupancy expense was $4.6 million for the year ended December 31, 1996, as
compared to $5.1 million for the year ended December 31, 1995, a decrease of
$0.5 million or 10.6%. The decrease was attributable to lease cancellations
and office closings as part of the corporate restructuring during 1995.
Other operating and administrative expenses were $26.6 million for the year
ended December 31, 1996, as compared to $27.1 million for the year ended
December 31, 1995, a decrease of $0.5 million or 1.9%. The decrease resulted
primarily from certain operating efficiencies realized in 1996 with the
consolidation of operations of the Company and ACB in 1995. Offsetting this
efficiency related decrease was a $3.0 million provision in 1996 to correct
for certain system related out of balance conditions that occurred during the
1996 integration of the ACB and Company operations resulting from the October
1995 Merger of First Data and FFMC.
Depreciation and amortization expense was $12.0 million for the year ended
December 31, 1996 as compared to $11.9 million for the year ended December 31,
1995, an increase of $0.1 million or 1.1%. Amortization expense resulted
primarily from the amortization of the goodwill and other intangible assets
recognized in connection with the June 1990 acquisition of the Company by FFMC
and the acquisitions consummated by First Data in 1993 accounted for under the
purchase method of accounting.
The provision for merger costs was $4.3 million for the year ended December
31, 1996, as compared to $13.6 million for the year ended December 31, 1995, a
decrease of $9.3 million or 68.1%. The Company's 1995 provision included a
$5.9 million impairment charge related primarily to the write-off of the ACB
trade name and a $3.0 million charge related to an estimated payment to the
former owners of a business acquired by First Data in 1993.
30
<PAGE>
Overhead charges from First Data were $1.4 million for the year ended
December 31, 1996, as compared to $1.5 million for the year ended December 31,
1995, a decrease of $0.1 million or 10.1%. First Data allocates general
corporate overhead based on 1.0% of the Company's revenues, therefore, the
decrease in overhead charges results from the decrease in revenue from 1995 to
1996. These overhead charges are not necessarily indicative of actual or
future costs. Management further believes that the incremental general and
administrative costs that would result from the Company being a stand-alone
entity would not exceed the 1% of revenue charge from First Data.
Operating Income. Operating income was $9.0 million for the year ended
December 31, 1996, as compared to $4.6 million for the year ended December 31,
1995, an increase of $4.4 million, due primarily to a decrease in the
provision for merger costs, employee severance and office closures, partially
offset by a decrease in revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the period of ownership by FFMC and subsequently First Data, the
Company's principal sources of cash were from operations and intercompany
borrowings from FFMC and First Data. Cash has been used for purchases of
property and equipment, investments in technology, acquisitions of accounts
receivable management companies, and repayment of intercompany debt. Cash
provided by operating activities was $14.6 million, $23.9 million and $21.0
million for the years ended December 31, 1997, 1996 and 1995, respectively.
The decrease in cash provided by operating activities for the year ended
December 31, 1997, versus the year ended December 31, 1996, was primarily due
to (i) a decrease in net income of $4.2 million and (ii) a decrease in working
capital items of $2.8 million in the year ended December 31, 1996 versus an
increase of $1.9 million in the year ended December 31, 1997.
Cash provided by operating activities was $9.2 million for the six months
ended June 30, 1998 as compared to $6.1 million for the six months ended June
30, 1997. Net income before extraordinary items and after adding back
depreciation, amortization, taxes and interest (EBITDA) generated $9.6 million
as compared to $9.0 million in the 1997 period. Apart from the improvement in
operating cash flows caused by the increase in EBITDA, net working capital
items, excluding accrued interest of $4.3 million, decreased by $1.1 million
in the six months ended June 30, 1998, as compared to their increasing by $3.6
million in the six months ended June 30, 1998.
Cash used in investing activities for the six months ended June 30, 1998 was
$2.0 million, consisting entirely of purchases of equipment and software, as
compared to $28.8 million in the six months ended June 30, 1997. Investing
activities in 1997 included $24.1 million for the acquisition of Consolidated.
Cash used in investing activities was $29.6 million, $7.8 million and $7.7
million for the years ended December 31, 1997, 1996 and 1995, respectively.
The increase was primarily due to the acquisition of Consolidated in February
1997 for $23.3 million. Cash provided by First Data was used to fund this
acquisition. Other than cash used for the Consolidated acquisition in February
1997, the Company's principal use of cash in investing activities has been for
capital expenditures primarily for new computer and telecommunication
equipment. As a result of the acquisition of the Company by NAC and the
implementation of the modified Operating Improvement Plan, the Company has
accrued estimated costs of approximately $4.0 million associated with closing
certain offices and call centers ($1.8 million), severance payments to
employees ($0.9 million) and relocation costs ($0.7 million) and other costs
primarily associated with the write-down of leasehold improvements ($0.6
million). Of the $4.0 million, $1.6 million is expected to be paid in 1998,
$1.5 million is expected to be paid in 1999 and $0.9 million is expected to be
paid in 2000. Specifically, the Company is closing and/or reducing branches
which are not operating at full capacity, or whose operations can be
consolidated with other branches. Any costs to be paid in 1999 and 2000 are
primarily associated with lease commitments on facilities to be closed during
1998 and 1999. Cash used in investing activities for the six months ended June
30, 1998 amounted to $2.0 million, consisting entirely of equipment purchases,
as compared to $4.7 million of equipment purchases in the six months ended
June 30, 1997. Investing activities for the 1997 period also include $24.2
million related primarily to the February 1997 acquisition of Consolidated.
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In connection with the Transactions, the Company implemented a financing
plan which includes the $133.0 million Acquisition Facilities, comprised of an
$8.0 million revolving credit facility and a $125.0 million term loan facility
and the net proceeds of $39.0 million from the sale of Common Stock by NAC,
which in turn had been contributed to the Company. The Acquisition Facilities
were refinanced through: (i) $60.0 million of senior secured facilities (the
"Senior Credit Facilities"), comprised of a $35.0 million six-year revolving
credit facility (the "Revolving Credit Facility"), and a $25.0 million seven-
year term loan facility (the "Term Loan Facility"), and (ii) the issuance of
the Notes.
Amounts outstanding under the Term Loan Facility and the Revolving Credit
Facility bear interest at the Company's option of either (A) the Base Rate
plus the Applicable Margin or (B) the Eurodollar Rate plus the Applicable
Margin. The Applicable Margin on loans under the Revolving Credit Facility
ranges from 0.375% to 2.50% and the Applicable Margin on the Term Loan
Facility ranges from 0.75% to 2.75%; provided, that the Applicable Margin on
loans under the Revolving Credit Facility was initially 1.875% for a
Eurodollar Loan and 0.875% for a Base Rate Loan and the Applicable Margin on
loans under the Term Loan Facility was initially 2.125% for loans utilizing
the Eurodollar Rate and 1.125% for loans utilizing the Base Rate. The Term
Loan Facility is repayable in quarterly installments in an aggregate annual
principal amount of $0.25 million for each of the first six years and the
remaining $23.5 million in the last year of the facility. The Company has
approximately $35.0 million of unborrowed availability under the Revolving
Credit Facility at June 30, 1998.
Substantially all the agreements relating to the Company's outstanding
indebtedness contain covenants that impact the Company's liquidity and capital
resources, including financial covenants and restrictions on the incurrence of
indebtedness and liens and asset sales. The Company has also negotiated an
amendment to the Senior Credit Facility that revises the cumulative EBITDA and
related ratio covenants to reflect the Company's revised EBITDA expectations.
The Company was in compliance with the revised covenants as of June 30, 1998.
The ability of the Company to meet its debt service obligations and to
comply with the restrictive and financial covenants contained in the Senior
Credit Facility and under the Notes in the future will be dependent on the
future operating and financial performance of the Company, which will be
subject in part to a number of factors beyond the control of the Company, such
as prevailing economic conditions, interest rates and demand for credit
collection services. See "Risk Factors--Substantial Leverage."
The Company has reached an agreement with First Data with respect to various
matters relating to the acquisition of the Company by its current shareholders
in December 1997. The settlement includes a cash payment of $10.9 million to
the Company. The Company intends to use the cash payment to reduce
indebtedness under its Term Loan Facility by approximately $6.0 million, pay
approximately $2.9 million in various expenses relating to the Company's
operations under First Data management prior to January 1998, including
obligations to the FTC and the DOE, and to increase cash available for working
capital and other corporate operations by approximately $2.1 million.
Management believes that, based on current levels of operations and
anticipated improvements in operating results, cash flows from operations and
borrowings available under the Senior Credit Facilities will be adequate to
allow for anticipated capital expenditures for the next several years, to fund
working capital requirements and to make required payments of principal and
interest on its debt for the next several years. However, if the Company is
unable to generate sufficient cash flows from operations in the future, it may
be necessary for the Company to refinance all or a portion of its debt or to
obtain additional financing, but there can be no assurance that the Company
will be able to effect such refinancing or obtain additional financing on
commercially reasonable terms or at all. See "Risk Factors."
INCOME TAXES
The Company's effective tax rates for the years ended December 31, 1997,
1996 and 1995 were 96.3%, 50.8% and 63.7%, respectively. The effective rate
differed from the federal statutory rate of 35% due to state taxes and non-
deductible goodwill and a decrease in income before income taxes, without any
corresponding decrease in non-deductible goodwill. The 1996 effective tax rate
differs from the 1995 tax rate due to the increase in taxable income in 1996
without any corresponding increases in state taxes and non-deductible
goodwill. The
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Company has not recorded any tax benefit on its loss before income taxes for
the six months ended June 30, 1998 as it is not "more likely than not" that
the Company will be able to realize such benefits.
The Company's results of operations have been included in the consolidated
federal income tax returns of First Data. The Company's historical income tax
expense is presented as if the Company had not been eligible to be included in
the consolidated tax returns of First Data. Under the terms of the Merger
Agreement, all of the goodwill and other intangible assets recorded in
connection with the acquisition are expected to be deductible for federal
income tax purposes over fifteen years.
YEAR 2000
Until recently computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus the programs were unable to properly distinguish between the year 1900
and the year 2000. This is frequently referred to as the "Year 2000 Problem."
In 1997, the Company initiated a company-wide Year 2000 project to address
this problem. Utilizing both internal and external resources, the Company is
in the process of defining, assessing and converting, or replacing, various
programs and hardware to make them Year 2000 compatible. The Year 2000 Problem
goes beyond the Company's internal computer systems and requires coordination
with clients, vendors, government entities and other third parties to assure
that their systems and related interface are compliant.
The total Year 2000 remediation cost is estimated at approximately $1.5
million, which includes $0.4 million for the purchase of new software that
will be capitalized and $1.1 million that will be expensed as incurred. To
date, the Company has incurred and expensed approximately $0.2 million,
primarily for assessment of the Year 2000 issue, the development of a
modification plan and programming costs.
The project is estimated to be completed by the end of 1998. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 problem will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are
not made, or are not completed in a timely fashion, the Year 2000 problem
could have a material impact on the operations and financial results of the
Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's business tends to be slower in the third and
fourth quarter of the year due to the summer and the holiday seasons. However,
the Company could experience quarterly variations in revenue and operating
income as a result of many factors, including the timing of clients' referrals
of accounts, the timing of the hiring of personnel, the timing of operating
expenses incurred to support new business, and changes with certain contracts
as the Company could incur costs in periods prior to recognizing revenue under
those contracts.
IMPACT OF INFLATION
There was no significant impact on the Company's operations as a result of
inflation during the six months ended June 30, 1998 or the years ended
December 31, 1997, 1996 or 1995.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No.
129, "Disclosure of Information about Capital Structure," which is applicable
to all companies. Statement No. 129 consolidates the
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existing guidance in authoritative literature relating to a company's capital
structure. The Statement is effective for financial statements for periods
ending after December 15, 1997. The Company does not believe the adoption of
this standard will have any impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information." Both Statements become effective for fiscal periods
beginning after December 15, 1997, with early adoption permitted. The Company
is evaluating the additional disclosure requirements these Statements are
expected to have on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131, establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact SFAS
No. 131's additional disclosure requirements are expected to have on its
consolidated financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The SOP is
effective for the Company beginning on January 1, 1999; however, earlier
adoption is permitted. The SOP will require the capitalization of certain
costs incurred after the date of adoption in connection with developing or
obtaining software for internal use. The Company currently expenses internal
development costs for internal use software as incurred. The Company is
evaluating the impact of the SOP on the Company's future earnings and
financial position, but does not expect it to be material.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities". The SOP is effective beginning on January 1, 1999, and requires
that start-up costs capitalized prior to January 1, 1999 be written-off and
any future start-up costs be expensed as incurred. The Company is evaluating
the impact of the SOP on the Company's future earnings and financial position.
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133 "Accounting for Derivative and Hedging
Activities" (SFAS 133). SFAS 133 requires companies to record derivatives on
the balance sheet as assets or liabilities at fair value. It is effective for
financial statements for fiscal years beginning after June 15, 1999. The
Company is evaluating the impact of SFAS 133 on the Company's future earnings
and financial position, but does not expect it to be material.
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BUSINESS
INDUSTRY OVERVIEW
The accounts receivable management industry has experienced rapid growth
since 1990. According to the ACA, account placements to servicers increased
from $43.7 billion in 1990 to $122.3 billion in 1996, a compounded annual
growth rate of 19%. According to M. Kaulkin & Associates, an industry advisory
firm, the total amount of revenue generated by all contingent fee companies
was approximately $5.5 billion in 1996 versus approximately $5.0 billion in
1995.
Two significant trends in the consumer credit industry are primarily
responsible for this industry growth. First, consumer debt and delinquencies
(leading indicators of current and future business for accounts receivable
management companies) have increased in recent years. Second, in an effort to
focus on core activities and to take advantage of certain economies of scale,
better performance and a lower cost structure offered by accounts receivable
management companies, many credit grantors, including government agencies,
have chosen to outsource some or all aspects of the accounts receivable
management process. In addition, this outsourcing trend has been accelerated
by the rapid consolidation of certain credit granting industries, including
financial services, telecommunications and healthcare, as companies have
focused on core business activities. Such consolidation is creating larger
national clients seeking to place accounts with accounts receivable management
companies that offer national, rather than local or regional, services.
The Company believes the collections industry has attractive growth
potential. Industry volume is driven by the level of consumer debt and
consumer delinquency rates, outsourcing trends and industry consolidation. The
Company believes that the current outlook for these industry drivers suggests
that the collections industry will continue to demonstrate strong growth in
the coming years.
COLLECTION PROCESS. Contingent fee services are the traditional services
provided in the accounts receivable management industry. Creditors typically
place non-performing accounts with outside agencies, usually when the
receivable is 180 to 270 days past due. The contingent fee is generally based
on the estimated collectability of the receivable in terms of the costs that
the contingent fee servicer must incur to effect repayment. The earlier the
placement (i.e., the less elapsed time between the past-due date of the
receivable and the date on which the debt is placed with the contingent fee
servicer), the higher the probability of making a recovery.
There are three main types of placements in the contingent fee business,
each representing a different stage in the cycle of accounts receivable
collection that are placed with outside agencies. Primary placements are
accounts, typically 180 to 270 days past due, that are placed with outside
agencies for the first time and usually result in a lower average contingency
fee rate. Secondary and tertiary placements are accounts receivable, typically
over 360 days past due, that have previously been placed with an outside
agency as a primary placement and are then reassigned to another agency for
further processing, including asset searches, obtaining judgments, and other
legal remedies, in an effort to obtain repayment. In addition, credit grantors
are increasingly placing accounts with accounts receivable management
companies earlier in the collection cycle, often prior to the 180 days past
due typical in primary placements, either on a contingent fee or fixed fee
basis.
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The following chart illustrates the collection process utilized by the
Company for bank credit card debt:
LOGO
The most widely used fee arrangement utilized by credit grantors in
recovering charged off accounts receivable is contingency fee. Recently,
certain credit grantors have sought to reduce their portfolios of charged off
accounts receivable by selling such portfolios. These portfolios are comprised
of accounts often two to three years past due that previously have been placed
with an outside agency, but remain uncollected. The largest percentage of
purchased portfolios originate from credit card receivables. These portfolios
are typically purchased at a discount to the aggregate principal value of the
accounts, with an inverse correlation between the purchase price and the age of
the delinquent accounts. Traditional collection techniques are subsequently
employed to obtain payment of charged off accounts. As a result of the
Company's strategy of focusing on servicing clients earlier in the collection
cycle, the Company has no current intention to engage in material acquisitions
of debt portfolios.
The accounts receivable management industry has become increasingly efficient
with the implementation of new technology. Today, leading companies in this
industry use proprietary databases, automated power dialers, automatic call
distributors and computerized skiptracing capabilities to increase the number
of contacts with debtors. These technological advances contribute to industry
consolidation and facilitate the provision of related accounts receivable
management outsourcing services. The Company believes that firms with the most
efficient operating systems typically generate higher recovery rates at lower
cost.
INCREASE IN CONSUMER DEBT AND DELINQUENCIES. Consumer debt has grown in the
United States from $3.8 trillion in 1991 to $5.4 trillion in 1996, representing
a compound annual growth rate of 7.3%. This increase in consumer debt has been
accompanied by higher levels of delinquencies. From 1991 to 1997, bank card
delinquency rates ranged from a low of 3.3% in 1994 to a high of an estimated
4.9% for year end 1997. Largely as a result of these trends, placements to
contingent fee companies have grown from approximately $43.7 billion in 1990 to
approximately $122.3 billion in 1996, a compound annual growth rate of 18.7%,
according to the ACA, an industry trade association.
CORPORATE OUTSOURCING. Increasing numbers of companies are outsourcing non-
core functions that can be more efficiently conducted by specialized firms. By
outsourcing these functions, companies are able to focus on core revenue
generating activities and reducing costs, thereby improving productivity. In
particular, the Company
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believes many credit grantors are recognizing the advantages of outsourcing
accounts receivable management as a result of factors including (i) the
increasing complexity of such functions, (ii) rapid growth in consumer debt
levels and the increase in delinquencies, (iii) changing regulations
applicable to debt collection practices and (iv) the development of
sophisticated call management centers requiring substantial capital
investment, technical information systems capabilities and human resource
commitments. The Company believes that outsourcing these services provides
value to clients through lower delinquencies, improved customer relations and
reduced chargeoffs.
GOVERNMENT OUTSOURCING. Government agencies on the federal, state and local
levels are also increasing their use of private collection agencies. A 1995
study by the Mercer Group, an independent industry research firm, showed that
from 1985 to 1995 local governments had significantly increased their use of
private collection agencies. Similarly, an estimated 32 of the 52 federal
government agencies currently utilize private collection agencies to assist in
the collection of a portion of the approximately $200 billion of non-tax
related debt owed to the federal government. Private agencies have also
demonstrated a greater effectiveness in debt collection, as evidenced by a
1994 study by the General Accounting Office which found that the average
collection rate of private collection agencies was 45% higher than that of
state government agencies.
INDUSTRY CONSOLIDATION. The accounts receivable management industry is
highly fragmented, consisting of approximately 6,300 collection agencies as of
1996, according to ACA. According to M. Kaulkin & Associates, the ten largest
agencies accounted for approximately 17% and 20% of the total 1995 and 1996
contingent revenue, respectively, for the industry. The Company believes that
the industry is entering a period of consolidation driven by a number of
factors, including (i) the economies of scale available to larger operators,
(ii) new technology which facilitates the collection process, (iii) the
ability of large operators to provide services nationally and (iv) increased
licensing and regulatory burdens.
CLIENT CONSOLIDATION. The largest credit-granting industries, including fi-
nancial services, telecommunications, healthcare and retail, are experiencing
continued consolidation. As a result, the operations of many credit grantors
are becoming increasingly complex and the Company believes such credit grant-
ors are shifting account placements to accounts receivable management compa-
nies that have the ability to service a large volume of placements on a na-
tional basis.
COMPANY HISTORY
In the Merger, the Company was acquired from First Data by NAC on December
31, 1997. The Company was previously a wholly owned subsidiary of FFMC, which
is a wholly owned subsidiary of First Data. The Company was acquired in June
1990 by FFMC. First Data's October 1995 merger with FFMC, accounted for under
the pooling of interests method, resulted in the combination of First Data's
accounts receivable management company, ACB, with the Company. ACB was
primarily the result of two acquisitions consummated by First Data in 1993,
accounted for under the purchase method of accounting.
THE COMPANY
Overview
The Company is among the largest independent providers of accounts
receivable management services in the United States, as measured by the
aggregate principal value of placement volume. The Company offers contingent
fee collection, pre-chargeoff accounts receivable management and on-site
collection management services, primarily to financial institutions,
government agencies, telecommunications companies and healthcare providers.
The Company provides sophisticated, customized past-due account collection and
accounts receivable management services to its clients through a nationwide
network of 15 call centers.
The Company has historically generated substantially all of its revenue from
contingent fees received for collection services provided to a wide variety of
credit grantors. Contingent fee services, which are the traditional
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services provided in the accounts receivable management industry, involve
collecting delinquent consumer debt placed with the collection services
provider in exchange for a percentage of realized collections. The Company has
a client base that includes American Express, AT&T, BellSouth, the DOE, First
Union, GMAC, the GSA, MCI, Mobil, NationsBank, Novus (issuer of DISCOVER Card)
and Texaco.
In order to provide more comprehensive collection solution for its clients,
the Company has also begun providing pre-chargeoff accounts receivable
management services, in which the Company contacts debtors earlier in the
collection cycle in an attempt to bring the account current before the credit
grantor formally charges off the past-due balance. For these services, the
Company is typically paid a monthly fee for each account it manages and, in
certain circumstances, additional performance-based fees. The Company has also
begun contracting with credit grantors to provide on-site accounts receivable
management, collections personnel and related services. The Company believes
that there is significant growth potential in these service areas, primarily
due to increased outsourcing of accounts receivable management services by
credit grantors.
In the first quarter of 1997, a new senior management team, led by Jerrold
Kaufman as President and Chief Executive Officer, implemented a business
strategy focused on increasing revenues with existing clients and developing
new relationships with other large credit grantors while implementing the
Operating Improvement Plan. The Operating Improvement Plan includes (i)
reducing the number of information systems utilized by the Company, (ii)
reducing overhead expense by reducing corporate staff headcount through
attrition and (iii) significantly reducing the number of unprofitable and
lower margin clients. In connection with the Merger on December 31, 1997,
management, along with the Investor Group and NAC, approved a modification to
the Operating Improvement Plan to rationalize the Company's operating
facilities which will result in additional headcount reduction and relocation
of personnel.
Through its demonstrated collection performance and improved customer
service, the Company has recently received new contracts with the DOE, MCI,
Chrysler and the GSA. In addition, the Company is experiencing growth in its
revenue from pre-chargeoff services. For example, the Company recently
successfully completed a pilot pre-chargeoff program for a significant client
that is being implemented on a larger scale in 1998 with the Company as a key
service provider.
COMPETITIVE STRENGTHS
The Company believes that it has the following competitive strengths:
REPUTATION AS AN INDUSTRY LEADER. The Company has been in the accounts
receivable management business since 1947. The Company has grown to become
among the largest independent providers of accounts receivable management
services in the United States, as measured by placement volume and has long
standing relationships with many of its clients.
COLLECTION PERFORMANCE. Most clients utilize multiple accounts receivable
management providers and choose these providers based upon overall collection
results. The Company has developed a disciplined approach to collections that
effectively utilizes technology and personnel training programs in a way that
management believes is unique in the industry. As a result of its historical
collections performance, the Company is often one of the largest providers of
accounts receivable management services to its major clients.
NATIONAL PRESENCE. The Company operates in all 50 states through 15 call
centers and three corporate offices. The Company believes its ability to
collect nationally provides a competitive advantage when servicing large,
national credit grantors and positions it well to benefit from the industry's
ongoing consolidation.
STRONG MANAGEMENT. Beginning with the appointment of Jerrold Kaufman as
president and chief executive officer in September of 1996, the Company has
assembled an executive management team with
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extensive experience in the collections industry, call center management and
labor intensive operations. In addition, the Company has a very experienced
team of line managers at the call center level. These managers have worked an
average of over nine years with the Company.
DISTINGUISHED CLIENT BASE. The Company services a large and diverse client
base, and its more than 400 clients include American Express, AT&T, BellSouth,
the DOE, First Union, the GSA, GMAC, MCI, Mobil, NationsBank, Novus (issuer of
DISCOVER Card) and Texaco. Moreover, the Company (or its predecessors) has
been in the collection business since 1947 and has had relationships with some
of its clients for more than 25 years, including Texaco (47 years), Mobil (35
years) and American Express (27 years).
BUSINESS STRATEGY
The Company's experience, performance and market share contribute to its
success and position as an industry leader. In order to generate increased
revenue and reduce costs, the Company's senior management team has developed a
business strategy emphasizing the following key components:
FOCUS ON CORE COLLECTION ACTIVITIES. The Company believes it has a
competitive advantage in the marketplace based on its reputation and
performance as a leading collection services provider serving a wide range of
credit grantors. Due to favorable industry trends, the Company believes that
the contingent placement market will continue to experience attractive growth,
and the Company intends to rely on its strong collection performance to
attract a greater share of contingent placements from existing clients and to
develop new contingent placement relationships.
EXPAND PRE-CHARGEOFF SERVICES. The Company intends to further expand its
pre-chargeoff services to provide more comprehensive collection solutions for
its clients. In response to significantly higher delinquencies, credit
grantors are increasingly outsourcing their pre-chargeoff accounts receivable
management functions. Growth in the pre-chargeoff business is expected to
complement and diversify the Company's existing revenue base by creating a
more predictable revenue stream through the establishment of additional
longer-term fixed-fee contracts.
IMPLEMENT OPERATING IMPROVEMENT PLAN. In the first quarter of 1997, the
Company's new management team began implementing its Operating Improvement
Plan designed to improve productivity, further integrate the Company's various
acquired businesses and reduce costs. This plan includes (i) reducing the
number of information systems utilized by the Company, (ii) reducing overhead
expense by reducing corporate staff headcount through attrition and (iii)
significantly reducing the number of unprofitable and lower margin clients. In
connection with the Merger on December 31, 1997, management, along with the
Investor Group and NAC, approved a modification to the Operating Improvement
Plan to rationalize the Company's operating facilities which will result in
additional headcount reduction and relocation of personnel.
LEVERAGE SIZE AND NATIONAL REACH. The Company believes that its national
presence, infrastructure and operating expertise allow it to provide superior
accounts receivable management for large national credit grantors, including
the federal government. The Company intends to capitalize on its ability to
manage large national placements by taking advantage of opportunities that
arise from consolidation among credit grantors and by extending its non-
traditional services to clients located throughout the United States.
UTILIZE TECHNOLOGY TO INCREASE COLLECTIONS. Since the beginning of 1994, the
Company has made capital expenditures of over $15 million in its
telecommunications equipment, software and computer systems. These investments
enable the Company to operate more efficiently and manage large accounts
receivable programs. The Company is able to customize procedures and reports
to meet the varying needs of its clients. The Company believes that these
capital expenditures and technological capabilities will continue to enhance
its competitive position.
GROW THROUGH ACQUISITIONS. The Company has completed acquisitions of other
collection service providers to expand its client base, acquire new service
capabilities, and enter new market segments. For
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example, the Company acquired Consolidated in February 1997, to expand its
telecommunications business. The Company intends to review acquisition
candidates on an ongoing basis and will seek to make opportunistic
acquisitions to further solidify its market position. The Company does not
currently have any agreements with respect to future acquisitions.
SERVICES
In order to achieve its objective of becoming the accounts receivables
manager of choice for its clients, the Company has developed specialized and
cost-effective services. The Company's wide range of programs and products
allows its clients to customize services received in ways that meet their
outsourcing objectives. These services range from traditional, post-chargeoff
contingency collection services to complete on-site management of all stages
of a client's accounts receivable process.
Following is a description of the services offered by the Company:
CONTINGENT FEE SERVICES. The Company is among the largest independent
providers of contingent fee services in the United States and offers a full
range of contingent fee collection services to consumer and commercial credit
grantors. The Company utilizes sophisticated management information systems to
leverage its experience with locating, contacting and effecting payment from
delinquent account holders. The Company specializes in servicing consumer
creditors but maintains a growing presence in the commercial collections
business. With 15 call centers in 14 states and approximately 2,050 employees,
the Company has the ability to service a large volume of accounts with
national coverage. The Company generated approximately 95%, 93% and 89% of its
revenue through contingent fee services for the year ended December 31, 1996,
the year ended December 31, 1997, and the six months ended June 30, 1998,
respectively.
PRE-CHARGEOFF RECEIVABLE MANAGEMENT SERVICES. In addition to traditional
contingent fee services, the Company has developed pre-chargeoff programs. In
these programs, the Company receives accounts from credit grantors before
chargeoff and earns a fixed fee per account rather than a percentage of
realized collections. With its operational expertise in managing receivables,
the Company offers credit grantors a variety of pre-chargeoff outsourcing
options including (i) staff augmentation, (ii) inbound and outbound calling
programs, (iii) skiptracing and (iv) total outsource. Account follow-up is an
extension of the client's existing procedures utilizing experienced customer
service collection personnel to fully collect balances of delinquent accounts.
The Company believes that outsourcing these services allows credit grantors to
reduce collections costs while also achieving lower delinquencies, improved
customer retention and reduced chargeoffs.
ON-SITE MANAGEMENT SERVICES. The Company has expanded its services to
include on-site accounts receivable management for credit grantors whereby the
Company manages the client's internal collection efforts by providing
management, collection personnel and related services at the customer's
location. This program allows clients to outsource their accounts receivable
collection activities, while maintaining supervisor oversight. The Company's
management directs the efforts of the entire collection staff and, through its
expertise, provides efficient use of the customer's technology and creative
collection techniques. The Company expects to offer these services across all
of its markets in the future.
OPERATIONS
The Company provides collection services to credit grantors on a national
basis. Clients typically place accounts with the Company daily or weekly by
electronic data transfer. Account collection procedures are either specified
contractually by the credit grantor or designed by the Company to meet
performance and productivity goals. These procedures are designed to increase
recoveries based on the account's age and balance, the debtor's payment and
credit history and the effort required to locate the debtor.
The Company has developed sophisticated collection procedures for account
treatment. Automated processes allow collection representatives to access
personal and credit information necessary to make early contact with debtors.
After account preparation, the Company employs complex telephone and
correspondence strategies designed to initiate contact, perhaps the most
difficult task in the process. The Company seeks to
40
<PAGE>
maximize collections and minimize expense through the use of automated dialing
programs as well as manual calling efforts. The Company has also designed
proprietary account flow processes whereby accounts are automatically
transferred to specialized branch locations at prescribed time periods. These
branch locations utilize targeted collection efforts to increase the chance of
recovery.
Upon contact with a debtor and in accordance with account collection
procedures agreed upon with the client, collection representatives attempt to
negotiate a settlement, which may include immediate payment in full, mutually
agreed upon payment terms or, in some cases, a reduction in principal. In some
instances, legal action is required to effect collection from delinquent
debtors. Once the Company receives permission from the creditor to pursue
legal action, the Company forwards the account to its independent network of
attorneys.
CUSTOMERS
The Company services a large and recognized client base which includes
American Express, AT&T, BellSouth, the DOE, First Union, the GSA, GMAC, MCI,
Mobil, NationsBank, Novus (issuer of DISCOVER card) and Texaco. Many of these
clients have used the Company or its predecessors for more than 25 years
including Texaco (47 years), Mobil (35 years), and American Express (27
years).
The Company categorizes its clients by industry. The Company's revenue from
the following industries for the six months ended June 30, 1998, are:
<TABLE>
<S> <C>
Financial Services.................... 48.5%
Telecommunication..................... 14.5%
Retail................................ 14.0%
Institutional (1)..................... 13.7%
Healthcare............................ 8.5%
Other................................. 0.8%
------
Total............................... 100.0%
======
</TABLE>
- --------
(1) Institutional revenue consists primarily of revenue from local, state and
federal government entities.
SALES AND MARKETING
The Company's sales and marketing activities are coordinated by the
Company's President and managed by the senior vice president of sales,
supported by a sales force of five professionals. The President is directly
responsible for the Company's largest account, American Express. The Company's
marketing strategy is to (i) attract a greater share of placements by
strengthening relationships with targeted clients, (ii) expand the services it
provides to its existing clients by offering end-to-end receivable management
services and (iii) target new clients in high-growth markets.
In its sales efforts, the Company emphasizes its industry experience,
reputation, collection performance and national presence, which the Company
believes are the four key factors considered by large credit grantors when
selecting an accounts receivable service provider. The Company will
increasingly focus on cross-selling its full range of outsourcing services to
its existing clients and will use its product breadth as a selling point in
developing new business.
TECHNOLOGY
The Company utilizes a variety of management information and
telecommunication systems to enhance productivity in all areas of its
business. The Company has two primary software systems dedicated to its core
business. One system is a proprietary program developed and used primarily for
one of its largest clients. The
41
<PAGE>
other system was developed by a third party and the Company believes it to be
the most advanced commercially available collection software. Both systems
have been tailored to meet the specific needs of the Company's customers and,
in many cases, to integrate smoothly into their accounts receivable management
processes. These systems also interface with certain commercially available
data bases, which provide information used for debtor evaluation and contacts.
Both systems utilize a mainframe configuration and are designed to provide
maximum flexibility to the call centers while providing the centralized
controls necessary for effective management and for client interfaces. These
systems allow each collections facility to function independently.
In addition, the Company utilizes sophisticated telecommunications
equipment, including automated call distribution systems and power dialers,
which significantly increase account representative productivity over
conventional manual dialing. Since the beginning of 1994, the Company has made
capital expenditures of over $15 million in its telecommunications equipment,
software and computer systems. The Company is in the process of upgrading its
systems and hardware to allow for anticipated growth.
A key component of the Company's Operating Improvement Plan has been the
reduction of its collection operating system platforms from nine to three.
This reduction has resulted in significant cost savings due to reduced
personnel and other costs associated with programming, data processing and
other administrative functions.
FACILITIES
As of June 30, 1998, the Company operated 15 branches and three corporate
offices in 14 states across the United States, all of which are leased. The
Company's facilities are strategically located to provide more cost-effective
services to its clients.
COMPETITION
The accounts receivable management industry is highly competitive. The
Company competes with approximately 6,300 providers, including national
corporations such as Equifax Inc., National Revenue Corp., NCO Group, Inc.,
Outsourcing Solutions Inc., The Union Corporation and many regional and local
firms. Most larger clients retain multiple accounts receivable management and
recovery providers and periodically evaluate collections performance. As a
result of its historical collections performance, the Company is often one of
the largest providers of accounts receivable management services to its major
clients.
EMPLOYEES AND TRAINING
As of June 30, 1998, the Company had a total of approximately 2,050
employees, of which approximately 1,550 were collectors. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees are good.
The Company's success in recruiting, hiring and training a large number of
employees is important to its ability to provide high quality accounts
receivable management and collections services to its clients. The Company
believes that the experience and depth of its call center management personnel
afford it a significant competitive advantage compared to other collection
agencies. These personnel have worked with the Company for an average of over
nine years. The Company recognizes the significant role these line managers
play in the Company's success and, to assist in their retention, the Company
compensates them at levels it believes to be
42
<PAGE>
above the industry standard. The Company does not limit hiring to those with
previous collection experience. Generally, the Company hires a mix of people
with previous experience in collections or accounts receivable management, as
well as people whom the Company believes possess the necessary skills to be
successful collectors.
All new employees are required to successfully complete the Company's
extensive training program. The Company designed its training program to
foster competency and proficiency in the employee's collection activities,
including negotiating skills and account procedures. The instructors for the
training program are all certified by the ACA. All collector training provides
full and in-depth coverage of compliance with the FDCPA and other laws
governing the industry. To the extent required, all collectors are licensed
and registered for states where their debtors reside. Only after licensing,
registration, and training are collectors assigned an account for collection.
LEGAL
The Company is a defendant in various legal proceedings involving claims for
damages, which constitute ordinary routine litigation incidental to its
business. The Company is currently a defendant in two class action lawsuits
filed in the U.S. District Court for the Northern District of Illinois, in
which it is alleged that the Company violated certain provisions of the FDCPA.
The Company expects to settle one of these class actions for an amount less
than $150,000 and is continuing to defend the remaining putative class action
suit. The FDCPA sets the maximum liability for such class action suits at the
lesser of $500,000 or 1% of the defendants' net worth. The Company believes
that it is in substantial compliance with the FDCPA and comparable state
statutes, although the Company reached a settlement in 1992 in an action
commenced by the FTC staff in which it alleged the Company had violated the
FDCPA. The matter was resolved with the Consent Decree, in which the Company
did not admit any liability. Pursuant to the Consent Decree, the Company
agreed to take additional steps to ensure compliance with the FDCPA and paid a
penalty of $100,000. The FTC staff recently completed an investigation
regarding the Company's compliance with the Consent Decree from January 1,
1994 to date. Without admitting liability for any of the alleged violations of
the FDCPA, the Company has proposed to settle the matter by paying a civil
penalty and by implementing certain procedures in connection with the
operation of the business, consisting primarily of disclosure to debtors of
their rights and enhanced training and compliance reporting requirements. In
connection with the Merger, First Data agreed to indemnify the Company for any
monetary penalty and expenses incurred in connection with the FTC
investigation. The proposed settlement is subject to final approval by FTC,
the U.S. Department of Justice and the court in which the matter was
initiated. The Company believes that compliance by the Company with the
provisions of the Consent Decree, as well as with the additional provisions
related to the proposed settlement of the FTC investigation, will not
materially affect the Company's financial condition or ongoing operations. See
"Risk Factors--Litigation."
GOVERNMENTAL REGULATION
Certain of the Company's operations are subject to compliance with the FDCPA
and comparable statutes in many states. Under the FDCPA, a third-party
collection agency is restricted in the methods it uses to collect consumer
debt. For example, a third-party collection agency is limited in communicating
with persons other than the consumer about the consumer's debt, may not
telephone at inconvenient hours and must provide verification of the debt at
the consumer's request. Requirements under state collection agency statutes
vary, with most requiring compliance similar to that required under the FDCPA.
In addition, most states and certain municipalities require collection
agencies to be licensed with the appropriate authorities before collecting
debts from debtors within those jurisdictions. The Company maintains licenses
in all jurisdictions in which its operations require it to be licensed. It is
the Company's policy to comply with the provisions of the FDCPA, comparable
state statutes and applicable licensing requirements. The Company has
established certain policies and procedures to reduce the likelihood of
violations of the FDCPA and related state statutes. All account
representatives receive extensive training on these policies and must pass a
test on the FDCPA. Each account representative's desk has a list of suggested
and prohibited language by the telephone. The agents work in an open
environment, which allows managers to monitor interaction with debtors, and
the system automatically alerts managers of potential problems if calls extend
beyond a certain duration.
43
<PAGE>
Strict compliance with all of the relevant laws and regulations governing
the accounts receivable management industry is a top priority of the Company.
The Company is establishing new processes for complaint prevention and
resolution that are expected to be the standard for the debt collection
industry. The process will be administered in the field and monitored by the
general counsel's office and a special committee of the Board of Directors.
Any complaint against the Company or one of its employees is recorded and a
thorough investigation is initiated and appropriate corrective measures are
taken. The Company is extremely earnest in its efforts to avoid complaints.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the respective
directors of the Company's board of directors (the "Board of Directors") and
the executive officers of the Company. All directors hold office until the
next annual meeting of stockholders of the Company and until their successors
are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
David B. Golub........... 36 Director, Chairman of the Board
Jerrold Kaufman.......... 58 Chief Executive Officer, President and Director
Nora E. Kerppola......... 33 Director
Loren F. Kranz........... 46 Chief Operating Officer, Executive Vice President,
Secretary and Director
Wesley W. Lang, Jr. ..... 40 Director, Vice Chairman of the Board
Lester Pollack........... 65 Director
Jeffrey A. Weiss......... 54 Director
Craig S. Whiting......... 41 Director
Paul J. Zepf............. 33 Director
Michael Lord............. 51 Chief Financial Officer and Treasurer
Daniel Sullivan.......... 48 Senior Vice President--Sales
Gregory Schubert......... 32 Senior Vice President--Operations
</TABLE>
DAVID B. GOLUB is a Managing Director of Centre Partners. He has worked at
Centre Partners and a predecessor fund, Corporate Advisors, L.P. ("Corporate
Advisors"), since 1988. Mr. Golub also serves as a director of The Burton
Corporation and Manorhouse Retirement Centers, Inc.
JERROLD KAUFMAN joined the Company in October 1994 as the Senior Vice
President of Sales and Marketing. In June 1996, Mr. Kaufman was named
Executive Vice President, Sales and Marketing and in September was named
President of the Company. Prior to joining the Company, Mr. Kaufman held
several executive positions in the accounts receivable collections industry.
From 1986 to 1992, Mr. Kaufman worked for American Creditors Bureau, where he
was Vice President of sales and marketing and served as a director. In 1992,
Mr. Kaufman started ABACUS Financial Management Services and served as its
Chairman and Chief Executive Officer until 1994.
NORA E. KERPPOLA is a Principal of Weiss, Peck & Greer, L.L.C., Inc. which
she joined in 1994 from Investor International (U.S.). Ms. Kerppola also
serves as a director of Dollar Financial Group, Inc. and Powell Plant Farms,
Inc.
LOREN F. KRANZ joined the Company in January 1997. Mr. Kranz has substantial
general management experience in highly labor intensive, customer-focused
business activities. He held numerous positions during his 23-year tenure with
General Electric Company ("General Electric"). In his most recent assignment
with General Electric, Mr. Kranz served as CEO of Advanced Services, Inc., a
wholly owned subsidiary of GE Appliances.
WESLEY W. LANG, JR. is a Managing Director and member of the Executive
Committee of Weiss, Peck & Greer, L.L.C, which he joined in 1985 from
Manufacturers Hanover Trust Company. Mr. Lang also serves as a director of
Chyron Corporation, Michael Alan Designs, Dollar Financial Group, Inc.,
Meridian Aggregates Company, Powell Plant Farms, Inc. and Tire Kingdom, Inc.
LESTER POLLACK is a Managing Director of Centre Partners, which he founded
in 1986. He has also been a Managing Director of Lazard Freres & Co. LLC since
1995 (prior thereto, a general partner). Mr. Pollack also serves as a director
of Parlex Corporation, Tidewater, Inc., LaSalle Re Holdings Limited, Firearms
Training Systems, Inc. and SunAmerica, Inc.
45
<PAGE>
JEFFREY A. WEISS has served as the Chairman, President, and Chief Executive
Officer of Dollar Financial Group, Inc. since 1990. Until 1992, Mr. Weiss was
also a Managing Director at Bear Stearns & Co. Inc. with primary
responsibility for the firm's investments in small to mid-sized companies, in
addition to serving as Chairman and Chief Executive Officer for several of
these companies. Mr. Weiss is the author of several popular financial guides.
CRAIG S. WHITING is a Managing Director of Weiss, Peck & Greer, L.L.C.,
which he joined in 1992. Previously he was a vice president at Credit Suisse
First Boston Corporation. Mr. Whiting also serves as a director of Color
Associates, Inc., Michael Alan Designs and Tire Kingdom, Inc.
PAUL J. ZEPF is a Managing Director of Centre Partners. He has worked at
Centre Partners and a predecessor fund, Corporate Advisors, since 1989. Mr.
Zepf also serves as a director of LaSalle Re Holdings Limited, Firearms
Training Systems, Inc. and The Learning Company.
MICHAEL LORD joined the Company in May 1998 after being retained as a
consultant in January 1998. Prior to joining the Company, Mr. Lord was a
managing director of The RDR Group, Inc., specializing in financial and
operational consulting since 1991.
DANIEL SULLIVAN joined the Company in May 1998. Prior to joining the
Company, Mr. Sullivan was a Vice President and General Manager for GE Capital,
Retailer Financial Services, Southern Business Group ("GE Capital") since
September 1995. From December 1991 to September 1995, Mr. Sullivan was an
Executive Director of Marketing for GE Capital.
GREGORY SCHUBERT joined the Company in March 1992. Previously, Mr. Schubert
held various management positions with Financial Collection Agencies, Inc. In
early 1996, Mr. Schubert was promoted to the position of Vice President-AMEX
and given the responsibility for managing the Company's largest client. Mr.
Schubert was promoted in October 1996 into his current position as Senior Vice
President--Operations. In this role, Mr. Schubert oversees all field
operations and recovery efforts in both the pre-chargeoff and post-chargeoff
categories. Mr. Schubert has over 13 years experience in the collection
industry.
COMPENSATION OF DIRECTORS
Officers who are also directors are not provided with any additional
compensation for their services on the Board of Directors other than the
reimbursement of expenses associated with attending meetings of the Board of
Directors or any committee thereof. Mr. Weiss will receive compensation of
$30,000 per year and all other directors will receive $15,000 per year for
their services, as well as reimbursement of expenses associated with attending
meetings of the Board of Directors or any committee thereof.
EXECUTIVE COMPENSATION
The executive officers of the Company did not receive any compensation from
the Company during the prior fiscal year. The Company has entered into
employment agreements with Messrs. Kaufman, Kranz, Lord and Schubert. The
compensation to be paid to the executive officers of the Company will be
determined by the terms of those agreements and the Board of Directors of the
Company.
EMPLOYMENT AGREEMENTS
JERROLD KAUFMAN EMPLOYMENT AGREEMENT. Mr. Kaufman entered into an employment
agreement with the Company as of December 31, 1997. Pursuant to his employment
agreement, Mr. Kaufman will serve as the Chief Executive Officer of the
Company through December 31, 2000, unless terminated earlier as provided
therein.
46
<PAGE>
The compensation provided to Mr. Kaufman under his employment agreement
includes an annual base salary of $260,000, with the potential to receive an
annual bonus based upon qualitative criteria and the attainment of
quantitative financial goals established annually by the Board of Directors.
For the year ending December 31, 1998, Mr. Kaufman will have the potential to
receive a bonus of up to $45,000, plus an additional bonus of up to $105,000
based on the Company's EBITDA (as defined therein) for the year. Mr. Kaufman
is also eligible to participate in all employee benefit programs of the
Company. In addition, Mr. Kaufman is entitled to reimbursement for reasonable
and necessary expenses made in furtherance of his employment.
Mr. Kaufman's employment agreement also provides that if Mr. Kaufman is
terminated without cause, he will be entitled to receive a severance benefit,
payable over a period of 12 months, in an amount equal to 12 months of his
then-existing base salary less the amount of compensation he receives from
another source during the last six months of the year during which his
severance benefit is payable under the terms of his employment agreement.
The employment agreement also provides that, without prior written consent
of the Board of Directors, Mr. Kaufman will not directly or indirectly (i)
engage, participate or invest in, be employed by or provide services to any
person or company in competition with the Company, (ii) solicit business of
the Company for another person or company, (iii) solicit employees of the
Company to terminate their employment with the Company, (iv) solicit companies
having business with the Company to curtail or cancel such business or (v)
authorize or assist any other person or company in taking such actions.
LOREN KRANZ EMPLOYMENT AGREEMENT. Mr. Kranz entered into an employment
agreement with the Company as of December 31, 1997. Pursuant to his employment
agreement, Mr. Kranz will serve as the Chief Operating Officer of the Company
through December 31, 2000, unless terminated earlier as provided therein.
The compensation provided to Mr. Kranz under his employment agreement
includes an annual base salary of $220,000, with the potential to receive an
annual bonus based upon qualitative criteria and the attainment of
quantitative financial goals established annually by the Board of Directors.
For the year ending December 31, 1998, Mr. Kranz will have the potential to
receive a bonus of up to $45,000, plus an additional bonus of up to $105,000
based on the Company's EBITDA (as defined therein) for the year. Mr. Kranz is
also eligible to participate in all employee benefit programs of the Company.
In addition, Mr. Kranz is entitled to reimbursement for reasonable and
necessary expenses made in furtherance of his employment.
Mr. Kranz's employment agreement also provides that if Mr. Kranz is
terminated without cause, he will be entitled to receive a severance benefit,
payable over a period of 12 months, in an amount equal to 12 months of his
then-existing base salary less the amount of compensation he receives from
another source during the last six months of the year during which his
severance benefit is payable under the terms of his employment agreement.
The employment agreement also provides that, without prior written consent
of the Board of Directors, Mr. Kranz will not directly or indirectly (i)
engage, participate or invest in, be employed by or provide services to any
person or company in competition with the Company, (ii) solicit business of
the Company for another person or company, (iii) solicit employees of the
Company to terminate their employment with the Company, (iv) solicit companies
having business with the Company to curtail or cancel such business or (v)
authorize or assist any other person or company in taking such actions.
MICHAEL LORD EMPLOYMENT AGREEMENT. Mr. Lord entered into an employment
agreement with the Company as of May 18, 1998. Pursuant to his employment
agreement, Mr. Lord will serve as the Chief Financial Officer of the Company
through May 18, 2001, unless terminated earlier as provided therein.
The compensation provided to Mr. Lord under his employment agreement
includes an annual base salary of $200,000, a bonus of $75,000 in 1998 and
$25,000 in 1999, with the potential to receive additional bonuses based upon
qualitative criteria and the attainment of quantitative financial goals
established annually by the Board of Directors. For the year ending December
31, 1998, Mr. Lord will have the potential to receive an additional bonus of
up to $21,000, plus an additional bonus of up to $49,000 based on the
Company's EBITDA
47
<PAGE>
(as defined therein) for the year. Mr. Lord is also eligible to participate in
all employee benefit programs of the Company. In addition, Mr. Lord is
entitled to reimbursement for reasonable and necessary expenses made in
furtherance of his employment.
Mr. Lord's employment agreement also provides that if Mr. Lord is terminated
without cause, he will be entitled to receive a severance benefit, payable
over a period of 12 months, in an amount equal to 12 months of his then-
existing base salary less the amount of compensation he receives from another
source during such 12 month period.
The employment agreement also provides that, without prior written consent
of the Board of Directors, Mr. Lord will not directly or indirectly (i)
engage, participate or invest in, be employed by or provide services to any
person or company in competition with the Company, (ii) solicit business of
the Company for another person or company, (iii) solicit employees of the
Company to terminate their employment with the Company, (iv) solicit companies
having business with the Company to curtail or cancel such business or (v)
authorize or assist any other person or company in taking such actions.
GREGORY SCHUBERT EMPLOYMENT AGREEMENT. Mr. Schubert entered into an
employment agreement with the Company as of December 31, 1997. Pursuant to his
employment agreement, Mr. Schubert will serve as the Senior Vice President--
Operations of the Company through December 31, 2000, unless terminated earlier
as provided therein.
The compensation provided to Mr. Schubert under his employment agreement
includes an annual base salary of $137,000, with the potential to receive an
annual bonus based upon qualitative criteria and the attainment of
quantitative financial goals established annually by the Board of Directors.
For the year ending December 31, 1998, Mr. Schubert will have the potential to
receive a bonus of up to $27,000, plus an additional bonus of up to $63,000
based on the Company's EBITDA (as defined therein) for the year. Mr. Schubert
is also eligible to participate in all employee benefit programs of the
Company. In addition, Mr. Schubert is entitled to reimbursement for reasonable
and necessary expenses made in furtherance of his employment.
Mr. Schubert's employment agreement also provides that if Mr. Schubert is
terminated without cause, he will be entitled to receive a severance benefit,
payable over a period of 12 months, in an amount equal to 12 months of his
then-existing base salary less the amount of compensation he receives from
another source during the last six months of the period during which his
severance benefit is payable under the terms of his employment agreement.
The employment agreement also provides that, without prior written consent
of the Board of Directors, Mr. Schubert will not directly or indirectly (i)
engage, participate or invest in, be employed by or provide services to any
person or company in competition with the Company, (ii) solicit business of
the Company for another person or company, (iii) solicit employees of the
Company to terminate their employment with the Company, (iv) solicit companies
having business with the Company to curtail or cancel such business or (v)
authorize or assist any other person or company in taking such actions.
MANAGEMENT PERFORMANCE OPTION PLAN
On December 31, 1997, NAC adopted its 1997 Management Performance Option
Plan (the "Option Plan"). A total of 57,665 shares of NAC Common Stock may be
granted under the Option Plan, of which 40,846 are divided equally between
Class A Options and Class B Options and 9,610 are allocated as Class C
Options, and 7,209 of which may be allocated as Class A Options, Class B
Options or Class C Options, as determined by the Board.
In connection with the consummation of the Merger, options were granted to
certain members of management at an exercise price of $100.00 per share, as
follows: Jerrold Kaufman received Class A Options to
48
<PAGE>
purchase 8,409 shares of NAC Common Stock, Class B Options to purchase 8,409
shares of NAC Common Stock and Class C Options to purchase 4,805 shares of NAC
Common Stock; Loren Kranz received Class A Options to purchase 7,208 shares of
NAC Common Stock, Class B Options to purchase 7,208 shares of NAC Common Stock
and Class C Options to purchase 4,805 shares of NAC Common Stock; and Greg
Schubert received Class A Options to purchase 1,802 shares of NAC Common Stock
and Class B Options to purchase 1,802 shares of NAC Common Stock. In
connection with his employment, Michael Lord received Class A Options to
purchase 2,403 shares of NAC Common Stock and Class B Options to purchase
2,403 shares of NAC Common Stock.
Class A Options vest 100% if the grantee is employed full time by the
Company on the third anniversary of such employee's employment, and at lesser
percentages if such grantee's employment is terminated without cause (as
defined in the Option Plan) prior to such time. Class B Options vest 100% if
either (i) the grantee is employed full time by the Company on the third
anniversary of such employee's employment and the Company performs such that
the Equity Investors realize varying rates of return on their investments or
(ii) the grantee is employed by the Company on the sixth anniversary of such
employee's employment. Class C Options vest 100% if either (i) the grantee is
employed full time by the Company on the third anniversary of such employee's
employment and the Company performs such that the Equity Investors realize an
internal rate of return on their investments of 40% (or such return is
realized within 180 days of such grantee's termination) or (ii) the grantee is
employed by the Company on the sixth anniversary of such employee's
employment. The vesting provisions of Class A Options and Class B Options
granted in the future may be altered by the Board of Directors of NAC. If a
grantee is terminated for cause, then 0% of options granted will vest. In
certain transfer events (as defined in the Option Plan), including certain
sales of substantially all of the assets of NAC or certain changes in the
beneficial ownership of a majority of the voting power of NAC, all options
granted will vest at such time.
Options granted under the Option Plan are non-transferable without the
consent of the Board of Directors of NAC, except by will or the laws of
descent and distribution or pursuant to a pledge of such options to NAC.
Options granted under the Option Plan expire until their exercise or in
accordance with their terms.
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<PAGE>
STOCK OWNERSHIP AND CERTAIN TRANSACTIONS
STOCK OWNERSHIP
All issued and outstanding shares of common stock of the Company are held by
NAC. The following table sets forth certain information regarding the
beneficial ownership of the voting securities of NAC, by each person who
beneficially owns more than 5% of any class of NAC's equity securities and by
the directors and certain executive officers of NAC, individually, and by the
directors and executive officers of NAC as a group.
<TABLE>
<CAPTION>
NUMBER
OF PERCENT OF
5% STOCKHOLDERS: SHARES OUTSTANDING
- ---------------- ------- -----------
<S> <C> <C>
Centre Partners Group (1)................................. 200,000 47.8%
30 Rockefeller Plaza
Suite 5050
New York, New York 10020
Weiss, Peck & Greer Parties (2)........................... 190,000 45.4
One New York Plaza
New York, New York 10004
OFFICERS AND DIRECTORS:
David B. Golub (1)........................................ 200,000 47.8%
Jerrold Kaufman (3)....................................... 1,000 *
Nora E. Kerppola (2)...................................... 190,000 45.4
Loren F. Kranz (4)........................................ 1,000 *
Wesley W. Lang, Jr. (2)................................... 190,000 45.4
Lester Pollack (1)........................................ 200,000 47.8
Jeffrey A. Weiss (5)...................................... 15,416 3.7
Craig S. Whiting (2)...................................... 190,000 45.4
Paul J. Zepf (1).......................................... 200,000 47.8
Michael Lord (6).......................................... -- *
Gregory Schubert (7)...................................... 500 *
All directors and officers as a group (8) (12 persons).... 408,066 100.0%
</TABLE>
- --------
* Represents less than 1%.
(1) Includes (i) 61,213 shares owned of record by Centre Capital Investors II,
L.P. ("Investors II"), (ii) 19,919 shares owned of record by Centre
Capital Tax-Exempt Investors II, L.P. ("Tax-Exempt II"), (iii) 12,280
shares owned of record by Centre Capital Offshore Investors II, L.P.
("Offshore II"), (iv) 939 shares owned of record by Centre Parallel
Management Partners, L.P. ("Parallel"), (v) 12,691 shares owned of record
by Centre Partners Coinvestment, L.P. ("Coinvestment") and (vi) 92,958
shares owned of record by the State Board of Administration of Florida
(the "Florida Board"). Investors II, Tax-Exempt II and Offshore II are
limited partnerships, of which the general partner of each is Centre
Partners II, L.P. ("Partners II"), and of which Centre Partners Management
LLC ("Centre Management") is an attorney-in-fact. Parallel and
Coinvestment are also limited partnerships. In its capacity as manager of
certain investments for the Florida Board pursuant to a management
agreement, Centre Management is an attorney-in-fact of Florida Board.
Centre Partners II LLC is the ultimate general partner of each of
Investors II, Tax-Exempt II, Offshore II, Parallel and Coinvestment. David
B. Golub, Lester Pollack and Paul J. Zepf are each Managing Directors of
Centre Management and Centre Partners II LLC and as such may be deemed to
beneficially own and share the power to vote or dispose of NAC Common
Stock held by Investors II, Tax-Exempt II, Offshore II, Parallel,
Coinvestment and the Florida Board. Each of Messrs. Golub, Pollack and
Zepf disclaims the beneficial ownership of such NAC Common Stock.
(2) Includes (i) 164,464 shares owned of record by WPG Corporate Development
Associates V, L.P. ("Development V") and (ii) 25,536 shares owned of
record by WPG Corporate Development Associates V (Overseas), L.P.
("Overseas V"). The general partner of Development V is WPG Private Equity
Partners II, LLC ("Equity Partners II") and the general partners of
Overseas V are WPG Private Equity Partners II
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(Overseas), LLC ("Equity Partners Overseas") and WPG CDA V (Overseas), Ltd.
("WPG CDA V"). Wesley W. Lang, Jr. is the Managing Principal of Equity
Partners II and a director of Equity Partners Overseas and as such he may
be deemed to beneficially own and share the power to vote or dispose of the
NAC Common Stock held by Development V and Overseas V. Mr. Lang disclaims
the beneficial ownership of such NAC Common Stock.
(3) Does not include 21,623 shares of NAC Common Stock issuable to Mr. Kaufman
upon exercise of options that are not exercisable within 60 days. See
"Management--Management Performance Option Plan."
(4) Does not include 19,221 shares of NAC Common Stock issuable to Mr. Kranz
upon exercise of Options that are not exercisable within 60 days. See
"Management--Management Performance Option Plan."
(5) Includes (i) 1,000 shares owned of record by Avalon Investment Partners,
LLC ("Avalon"), of which Mr. Weiss is a member and (ii) 14,416 shares of
NAC Common Stock issuable to Avalon upon exercise of Class I Options,
which are presently exercisable. Does not include 4,805 shares of NAC
Common Stock issuable to Avalon upon exercise of Class II Options that are
not exercisable within 60 days. See "--Certain Transactions--Avalon Option
Agreement."
(6) Does not include 4,806 shares of NAC Common Stock issuable to Mr. Lord
upon exercise of options that are not exercisable within 60 days. See
"Management--Management Performance Option Plan."
(7) Does not include 3,604 shares of NAC Common Stock issuable to Mr. Schubert
upon exercise of options that are not exercisable within 60 days. See
"Management--Management Performance Option Plan."
(8) Does not include 55,260 shares of NAC Common Stock issuable upon exercise
of options that are not exercisable within 60 days.
CERTAIN TRANSACTIONS
Stockholders' Agreement. Effective concurrent with the consummation of the
Merger, each investor in common stock of NAC entered into a stockholders'
agreement (the "Stockholders' Agreement"). The Stockholders' Agreement, among
other things, provides for: (i) the reimbursement of Centre Partners and WPG
for all reasonable expenses incurred by them in connection with the
Transactions; (ii) limits on the ability of stockholders to, directly or
indirectly, acquire beneficial ownerships of certain competitors of the
Company; (iii) limits on the ability of stockholders to amend NAC's bylaws
without certain approval of the Board of Directors; (iv) requirements that NAC
solicit offers from third parties to engage in acquisitions of NAC's stock or
assets following the fourth anniversary of the consummation date of the Merger
(see "Risk Factors--Change of Control"); (v) limits on the ability of
stockholders to transfer any shares of NAC's common stock without the approval
of its Board of Directors, including the granting to NAC, in the first
instance, and Centre Partners and WPG, in the second instance, of options to
purchase shares in the event a stockholder seeks to transfer such common stock
to certain proposed transferees; (vi) repurchase rights of NAC for shares of
NAC common stock held by members of management in the event of their
termination or shares held by insolvent stockholders; (vii) requirements
regarding the delivery of operating budgets, financial statements and other
information to the stockholders and inspection rights with respect to Centre
Partners and WPG; and (viii) certain non-disclosure obligations with respect
to confidential information. The Stockholders' Agreement also required these
Board-approved provisions to be set forth in the Company's charter and bylaws.
All parties to the Stockholders' Agreement also agree to take all action
within their respective power to cause the Board of Directors of NAC to at all
times be comprised of three designees of each of Centre Partners, WPG and the
majority of directors then in office; provided, however, that the initial
three designees of the Board were designated by a majority of the Class A
Directors and Class B Directors. The right of each of Centre Partners and WPG
to designate three directors shall be reduced to two designees in the event
that their respective ownership (as calculated therein) falls below 20%,
further reduced to one designee if such ownership falls below 10%, and
terminated if such ownership is less than 2% of the outstanding NAC common
stock. The Stockholders' Agreement also requires the presence of at least one
Class A Director and one Class B Director in order for there to be a quorum
present at a meeting of the Board of Directors. The Stockholders' Agreement
also provides for the selection of a Chairman of the Board and a Vice-Chairman
of the Board from the designees of each of Centre Partners and WPG for
rotating 12-month terms. The Stockholders' Agreement requires the approval of
a majority of the Board, which majority must include at least one Class A
Director and one Class B Director, to take certain actions, including without
limitation, approval of the annual operating budgets of NAC and its
subsidiaries,
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including the Company, making or committing to make capital expenditures or
asset acquisitions which individually exceed $0.5 million or in the aggregate
exceed $1.0 million, incur indebtedness in excess of $1.0 million, create
liens or security interests on any asset of NAC or its subsidiaries other than
in the ordinary course of business and settle claims or litigation for amounts
in excess of $0.5 million. In connection with the Stockholders' Agreement, the
stockholders also executed a registration rights agreement, which provides for
demand and incidental (or "piggyback") registration rights.
Avalon Fee Agreement. In connection with services rendered in connection
with the Transaction, the Company agreed to (i) pay Avalon an investment
banking fee of $750,000 less its investment of $100,000, (ii) grant options to
Avalon pursuant to a separate option agreement and (iii) pay the
representative of Avalon who serves as a director pursuant to the
Stockholders' Agreement an annual retainer for such period as such person
serves as a director.
Avalon Option Agreement. In connection with the Merger, on December 31, 1997
NAC and Avalon entered into the Avalon Option Agreement (the "Avalon Option
Agreement"). Pursuant to the Avalon Option Agreement, NAC granted to Avalon
Class I Options to acquire 14,416 shares of NAC common stock and Class II
Options to acquire 4,805 shares of NAC common stock, each for a purchase price
of $100.00 per share.
Class I Options vest fully and become exercisable upon the closing date of
the Merger. The Class I Options will expire on December 31, 2005. Class II
Options vest fully upon the closing date of the Merger and become exercisable
once certain stockholders have achieved a certain internal rate of return on
their investment. The Class II Options will expire on December 31, 2008.
Jerrold Kaufman Loans. Mr. Kaufman received two loans (the "Loans") on
December 31, 1997 (the "Loan Date") from the Company in the amount of $95,000
(the "2002 Loan") and in the amount of $5,000 (the "1998 Loan"). The 1998 Loan
has been paid in full. Interest on the 2002 Loan accrues on the unpaid
principal balance at the prime or corporate rate of interest per annum
published on the Loan Date by Citibank, N.A., and resets annually thereafter
to the prime or corporate rate at each anniversary of the Loan Date. The 2002
Loan is secured by a pledge by Mr. Kaufman of certain collateral (the "Pledged
Collateral") and the grant of a security interest in the Pledged Collateral.
The 2002 Loan will become due and payable upon the earliest to occur of (i)
any sale or transfer of the Pledged Collateral; (ii) within sixty (60) days
after the termination of employment of Mr. Kaufman due to his resignation or
for cause; and (iii) the dissolution or liquidation of Mr. Kaufman. In
addition, the Loans are subject to various voluntary and required prepayment
provisions.
Loren Kranz Loans. Mr. Kranz received two loans (the "Loans") on December
31, 1997 (the "Loan Date") from the Company in the amount of $45,000 (the
"2002 Loan") and in the amount of $55,000 (the "1998 Loan"). The 1998 Loan has
been paid in full. Interest on the 2002 Loan accrues on the unpaid principal
balance at the prime or corporate rate of interest per annum published on the
Loan Date by Citibank, N.A., and resets annually thereafter to the prime or
corporate rate at each anniversary of the Loan Date. The 2002 Loan is secured
by a pledge by Mr. Kranz of certain collateral (the "Pledged Collateral") and
the grant of a security interest in the Pledged Collateral.
The 2002 Loan will become due and payable upon the earliest to occur of (i)
any sale or transfer of the Pledged Collateral; (ii) within sixty (60) days
after the termination of employment of Mr. Kranz due to his resignation or for
cause; and (iii) the dissolution or liquidation of Mr. Kranz. In addition, the
Loans are subject to various voluntary and required prepayment provisions.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were issued under an Indenture, dated as of January 28, 1998,
which requires that the Company file a registration statement under the
Securities Act with respect to the New Notes and, upon the effectiveness of
such registration statement, offer to the holders of the Old Notes the
opportunity to exchange their Old Notes for a like principal amount of New
Notes, which will be issued without a restrictive legend and, except as set
forth below, may be reoffered and resold by the holder without registration
under the Securities Act. Upon the completion of the Exchange Offer, the
Company's obligations with respect to the registration of the Old Notes and
the New Notes will terminate, except as provided below. A copy of the
Indenture and the Registration Rights Agreement delivered in connection
therewith have been filed as exhibits to the Registration Statement of which
this Prospectus is a part. As a result of the filing and the effectiveness of
the Registration Statement, certain prospective increases in the interest rate
on the Old Notes provided for in the Registration Rights Agreement will not
occur. Following the completion of the Exchange Offer, holders of Old Notes
not tendered will not have any further registration rights, except as provided
below, and the Old Notes will continue to be subject to certain restrictions
on transfer. Accordingly, the liquidity of the market for the Old Notes could
be adversely affected upon completion of the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third-parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
holder represents to the Company that (i) such New Notes are acquired in the
ordinary course of business of such holder; (ii) such holder is not engaging
in and does not intend to engage in a distribution of such New Notes and (iii)
such holder has no arrangement or understanding with any person to participate
in the distribution of such New Notes. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes
cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes. See "Plan of Distribution."
Broker-dealers who did not acquire Old Notes as a result of market-making or
other trading activities may not participate in the Exchange Offer.
In the event that any holder of Old Notes would not receive freely tradeable
New Notes in the Exchange Offer or is not eligible to participate in the
Exchange Offer, such holder can elect, by so indicating on the Letter of
Transmittal and providing certain additional necessary information, to have
such holder's Old Notes registered in a "shelf" registration statement on an
appropriate form pursuant to Rule 415 under the Securities Act.
In the event that the Company is obligated to file a "shelf" registration
statement, it will be required to keep such "shelf" registration statement
effective for a period of three years or such shorter period that will
terminate when all of the Old Notes covered by such registration statement
have been sold pursuant thereto. Other than set forth in this paragraph, no
holder will have the right to require the Company to register such holder's
Notes under the Securities Act. See "--Procedures for Tendering Notes."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 P.M.,
New York time, on April , 1998, provided, however,
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that if the Company, in its sole discretion, has extended the period of time
during which the Exchange Offer is open, the term "Expiration Date" means the
latest time and date to which the Exchange Offer is extended.
As of the date of this prospectus, $100,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about March , 1998 to all Holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain customary
conditions as set forth under "--Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned
without expense to the tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance
or termination to the Holders of the Old Notes as promptly as practicable,
such notice in the case of any extension to be issued by means of a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
In the event the Company makes any material changes to the Exchange Offer, the
Company will distribute a supplement to this Prospectus disclosing such
changes in accordance with the requirements of the Exchange Act and the rules
thereunder.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to State
Street Bank and Trust Company (the "Exchange Agent") at one of the addresses
set forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS
OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
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Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal Rights"), as the case may be, must be guaranteed (see
"--Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
a satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the
registered holder or holders appear on the Old Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Note which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. None of the Company, the Exchange Agent or any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, and that neither the Holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. If any Holder or any such
other person is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company or is engaged in or intends to engage in, or has an
arrangement or understanding with any person to participate in, a distribution
of such New Notes to be acquired pursuant to the Exchange Offer, such Holder
or any such other person (i) may not rely on the applicable interpretation of
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
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transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "--Conditions to the Exchange Offer" below.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted properly tendered Old Notes for exchange when, as and if the Company
has given oral or written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive as set forth below under "Description of the Notes--Book-Entry,
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the
most recent date to which interest has been paid on the Old Notes or, if no
interest has been paid, from January 28, 1998. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders whose Old Notes are accepted for exchange will not
receive any payment in respect of accrued interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering Holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the
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Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) on or prior to
5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth the name
and address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "--Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates the withdrawing Holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution in which
case such guarantee will not be required. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at the Book-
Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination will be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the Holder thereof without cost to such Holder
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures
for Tendering Old Notes" above at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such New Notes for exchange, any of the
following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any applicable
interpretation of the staff of the SEC.
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The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time
in its sole discretion. The failure by the Company at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order is threatened by the SEC or in effect with
respect to the Registration Statement of which this Prospectus is a part or
the qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at the address set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests or Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows.
State Street Bank and Trust Company, Exchange Agent
By Mail/Overnight Delivery
Attn: Kellie Mullen
Corporate Trust Department
4th Floor
Two International Place
Boston, MA 02110
By Facsimile:
(617) 664-5920
Confirm by Telephone:
(617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
The Exchange Agent also acts as trustee under the Indenture.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
appoximately $200,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
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CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws. The Company does not currently anticipate
that it will register Old Notes under the Securities Act. See "Description of
the Notes--Exchange Offer, Registration Rights." Based on interpretations by
the staff of the SEC, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course or such
holders' business and such holders, broker-dealers, have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the SEC
would make a similar determination with respect to the Exchange Offer as in
such other circumstances. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any Holder is an affiliate of
the Company or is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) may not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes pursuant to the Exchange
Offer must acknowledge that such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities and that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of one year after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. The Company has agreed, pursuant to the Registration
Rights Agreement, subject to certain limitations specified therein, to
registered or qualify the New Notes for offer or sale under the securities
laws of such jurisdictions as any holder reasonably requests in writing.
Unless a holder so requests, the Company does not currently intend to register
or qualify the sale of the New Notes in any such jurisdictions. See "The
Exchange Offer."
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DESCRIPTION OF SENIOR CREDIT FACILITIES
The Credit Agreement (as defined) provides for (i) a seven-year term loan
facility, in the amount of $25.0 million (the "Term Loan"), and (ii) a six-
year revolving credit facility (the "Revolving Credit Facility") of $35.0
million. In connection with the Offering, all amounts outstanding under the
Acquisition Facilities were repaid utilizing the proceeds of the Offering, the
Term Loan and a portion of the Revolving Credit Facility. The Term Loan is be
repayable in quarterly installments in an aggregate principal amount of $0.25
million for each of the first six years and the remaining $23.5 million in the
last year of the facility.
Loans under the Senior Credit Facilities bear interest at an annual rate, at
the Company's option, equal to either (i) the Base Rate plus Applicable Margin
(as defined) or (ii) the Eurodollar Rate plus the Applicable Margin. "Base
Rate" means the highest of (i) the rate of interest publically announced by
Citibank, N.A. as its base or prime rate in effect at its principal office in
New York City (the "Prime Rate"), (ii) the secondary market rate for three-
month certificates of deposit (adjusted for statutory reserve requirements)
plus 1% and (iii) the federal funds effective rate from time to time plus
0.5%. "Eurodollar Rate" means the rate (adjusted for statutory requirements
for eurocurrency liabilities) at which eurodollar deposits for one, two, three
or six months (at the Company's option) are offered in the interbank
eurodollar market. "Applicable Margin" means a percentage based on the
performance of the Company, ranging from 0.375% to 2.00% for the Revolving
Credit Facility and 0.75% to 2.25% for the Term Loan; provided, that the
Applicable Margin on loans under the Revolving Credit Facility will initially
be 1.875% for a Eurodollar Loan and 0.875% for a Base Rate Loan and the Term
Loan will be initially be 2.125% for loans utilizing the Eurodollar Rate and
1.125% for loans utilizing the Base Rate. The Company is also required to pay
a quarterly commitment fee with respect to the Revolving Credit Facility,
ranging from 0.25% to 0.375%, calculated based on the average daily unused
portion of the Revolving Credit Facility. The rate will be determined based on
the Company's performance. The initial rate is 0.375%.
The Credit Agreement provides for first priority security interests in all
of the tangible and intangible assets (including, among other things, all of
the capital stock of the Company and each of its direct and indirect domestic
subsidiaries (excluding the Company's currently existing subsidiaries) and 65%
of the capital stock of first-tier foreign subsidiaries) of the Company and
its direct and indirect domestic subsidiaries (excluding the Company's
currently existing subsidiaries), except such assets as the Syndication Agent
determines in its sole discretion that costs of obtaining such a security
interest are excessive in relation to the value of the security to be
afforded. The Credit Agreement is guaranteed by the Company's future direct
and indirect domestic subsidiaries. Additionally, the Company is be required
to apply 100% of the net proceeds of any incurrence of certain indebtedness
after the date of the consummation of the Offering, 100% of the net proceeds
of any sale or other disposition by NAC, the Company or any of their
subsidiaries of any assets (except for the sale of inventory in the ordinary
course of business and certain other dispositions) and 75% of excess cash flow
(as defined in the Credit Agreement), provided that such percentage of excess
cash flow will be reduced if certain leverage ratios (as set forth in the
Credit Agreement) are attained.
The Credit Agreement contains certain financial and operating maintenance
covenants including (i) a minimum consolidated EBITDA amount, (ii) a
consolidated total debt ratio and (iii) a maximum consolidated interest
coverage ratio.
The operating covenants of the Credit Agreement include, among other things,
limitations on the ability of the Company to: (i) incur additional debt, other
than certain permitted debt, (ii) permit additional liens or encumbrances,
other than permitted liens, (iii) fundamentally change through certain mergers
or asset sales, (iv) pay certain dividends on capital stock, (v) make certain
capital expenditures, (vi) make certain investments, loans and advances, (vii)
make optional payments and modifications of subordinated and other debt
instruments, (viii) enter into certain transactions with affiliates (ix) alter
its fiscal year, (x) change its lines of business or (xi) enter into negative
pledge agreements.
If for any reason the Company is unable to comply with the terms of the
Credit Agreement, including the covenants included therein, such noncompliance
would result in an event of default under the Credit Agreement and could
result in acceleration of the payment of the debt outstanding under the Senior
Credit Facilities.
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DESCRIPTION OF NEW NOTES
GENERAL
The Old Notes were issued under an Indenture, dated as of January 28, 1998
(the "Indenture"), between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee"). The New Notes also will be issued under
the Indenture and the terms of the New Notes are identical in all material
respects to those of the Old Notes, except for certain transfer restrictions
relating to the Old Notes. The Old Notes and New Notes will be treated as a
single class of securities under the Indenture. Pursuant to the terms and
subject to the conditions of the Exchange Offer, the Company will accept the
Old Notes in exchange for the New Notes. See "The Exchange Offer."
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes are filed as exhibits
to the Registration Statement of which this Prospectus is a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture
and the Notes, including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act of 1939, as amended. The
term "Notes" means the Old Notes and the New Notes, treated as single class.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." For purposes of this summary, the term
"Company" refers only to Nationwide Credit, Inc. and not to any of its
Subsidiaries.
The New Notes will be, and the Old Notes are, general unsecured obligations
of the Company and rank pari passu in right of payment with all current and
future unsecured senior Indebtedness of the Company, including borrowings
under the Credit Agreement. However, all borrowings under the Credit Agreement
are secured by a first priority Lien on substantially all of the assets of the
Company and its Domestic Subsidiaries. As of July 31, 1998, approximately
$24.9 million was outstanding under the Credit Agreement. The Indenture
permits additional borrowings under the Credit Agreement in the future. See
"Risk Factors--Effective Subordination." The Company presently has no
indebtedness, and has no firm arrangements or intention to incur any
significant indebtedness, ranking junior to the Notes, although the Company
does have certain capital lease obligations.
None of the Company's Subsidiaries are Domestic Subsidiaries. All of the
Company's future Domestic Subsidiaries, if any, will become Subsidiary
Guarantors hereunder. The Company's only Subsidiaries are NCI Recoveries
Limited, organized under the laws of the United Kingdom ("NCI Recoveries") and
Master Collectors of Dallas, Inc., a Texas corporation ("MCD"). The revenue
generated by these Subsidiaries are immaterial to the Company. On the date of
the Indenture, the Company's Board of Directors designated MCD as an
Unrestricted Subsidiary. All of the Company's future Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million, of
which $100.0 million was issued in the Offering, and will mature on January
15, 2008. Interest on the Notes accrues at the rate of 10.25% per annum and is
payable semi-annually in arrears on January 15 and July 15, commencing on July
15, 1998, to Holders of record on the immediately preceding January 1 and July
1. Additional Notes may be issued from time to time, subject to the provisions
of the Indenture described below under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock." Interest on the
Notes accrues from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained
for such purpose within the City and State of New York or, at the option of
the Company, payment of interest and Liquidated Damages, if any, may be made
by check mailed to the Holders of the Notes
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at their respective addresses set forth in the register of Holders of Notes;
provided that all payments of principal, premium, interest and Liquidated
Damages with respect to Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
Except as provided below, the Notes will not be redeemable at the Company's
option prior to January 15, 2003. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
January 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003.......................................................... 105.125%
2004.......................................................... 103.417%
2005.......................................................... 101.708%
2006 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 2001, the Company may
redeem up to 35% of the aggregate principal amount of Notes originally issued
under the Indenture at a redemption price of 110.25% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the redemption date, with the net cash proceeds of an initial public
offering of common stock of the Company or a capital contribution to the
Company's common equity of the net cash proceeds of an initial public offering
of the Company's direct parent; provided that at least $50.0 million in
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and provided, further, that notice of such redemption shall be
given within 45 days of the date of the closing of such initial public
offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101%
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of the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Agreement contains prohibitions of certain events that would
constitute a Change of Control. In addition, the exercise by the Holders of
Notes of their right to require the Company to repurchase the Notes could
cause a default under the Credit Agreement, even if the Change of Control
itself does not, due to the financial effect of such repurchases on the
Company. Finally, the Company's ability to pay cash to the Holders of Notes
upon a repurchase may be limited by the Company's then existing financial
resources. See "Risk Factors--Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by
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the Company or such Restricted Subsidiary is in the form of cash or long-term
assets that are used or useful in the same or similar line of business as the
Company and its Restricted Subsidiaries were engaged in on the date of such
Asset Sale; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company
or such Restricted Subsidiary into cash within 30 days of receipt (to the
extent of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option, (a) (i) to repay term
Indebtedness under the Credit Facilities or (ii) if no term Indebtedness
exists under the Credit Facilities, to reduce the revolving credit commitments
under the Credit Facilities or (b) to the acquisition of a majority of the
assets of, or a majority of the Voting Stock of, another business that is the
same or similar line of business as the Company and its Restricted
Subsidiaries were engaged in on the date of such Asset Sale, the making of a
capital expenditure or the acquisition of other long-term assets that are used
or useful in the same or similar line of business as the Company and its
Restricted Subsidiaries were engaged in on the date of such Asset Sale.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all Holders of Notes and all
holders of other Indebtedness containing provisions similar to those set forth
in the Indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and such other Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture and such other Indebtedness. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes
tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent
of the Company (other than any such Equity Interests owned by the Company or
any Wholly Owned Restricted Subsidiary of the Company); (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
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(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) 50% of any
dividends received by the Company or a Wholly Owned Restricted Subsidiary
thereof from an Unrestricted Subsidiary of the Company representing Net
Income of such Unrestricted Subsidiary earned since the date of the
Indenture; provided that such dividends were not already included in
calculating Consolidated Net Income of the Company for such period.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests on a
pro rata basis; (v) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement in effect as of the date of
the Indenture; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$500,000 in any twenty-four-month period, provided that the amount available
in any given twelve-month period shall be increased by the excess, if any, of
(A) $500,000 over (B) the amount used pursuant to this clause (v) in the
immediately preceding twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction, (vi)
(A) as long as NAC has no Material Assets other than the stock of the Company,
the payment to NAC in respect of taxes of NAC, the Company and its
Subsidiaries which are payable by or owed by NAC, and (B) if on or after
January 1, 1998, NAC owns or acquires any Material Asset other than the stock
of the Company, the payment to NAC in respect of federal (and state) income
taxes for the tax periods for which a federal consolidated return (and state
combined return) is filed by NAC for a
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consolidated (or combined) group of which NAC is the parent and the Company
and its Subsidiaries are members in an amount equal to the amount of such
federal (and state) income taxes allocable to the Company and its Subsidiaries
in accordance with the principles of Treasury Regulations Section 1.1552-1 (a)
(2) (ii), as modified by the principles of Treasury Regulations Section
1.1502-33 (d) (2), in either case, to the extent that such payments are
actually used by NAC to pay such taxes; provided, however, that for purposes
of this subsection (vi) only, the term "Material Asset" means any asset with a
gross value in excess of $200,000, and (vii) payments or dividends to NAC to
allow NAC to pay reasonable legal, accounting, investment banking, financial
advisory, management, outside director or other professional and
administrative fees and expenses incurred by it in an aggregate amount
pursuant to this clause (vii) not to exceed $750,000 per year.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $5.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 2.0 to 1, determined on
a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The Indenture also provides that the Company will not incur any Indebtedness
that is contractually subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness is also contractually
subordinated in right of payment to the Notes on substantially identical
terms; provided, however, that no Indebtedness of the Company shall be deemed
to be contractually subordinated in right of payment to any other Indebtedness
of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of term Indebtedness under Credit
Facilities; provided that the aggregate principal amount of all term
Indebtedness outstanding under all Credit Facilities after giving effect
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to such incurrence does not exceed an amount equal to $25.0 million less
the aggregate amount of all repayments, optional or mandatory, of the
principal of any term Indebtedness under a Credit Facility that have been
made since the date of the Indenture;
(ii) the incurrence by the Company of revolving credit Indebtedness and
letters of credit (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) under Credit Facilities; provided that the
aggregate principal amount of all revolving credit Indebtedness outstanding
under all Credit Facilities after giving effect to such incurrence does not
exceed an amount equal to $35.0 million less the aggregate amount of all
Net Proceeds of Asset Sales applied to reduce the revolving credit
commitments under a Credit Facility pursuant to the covenant described
above under the caption "--Asset Sales;"
(iii) the incurrence by the Company of Indebtedness represented by the
Notes issued pursuant to the Offering;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred (x)
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of this covenant or (y) pursuant to clause (iii) of this
covenant;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary thereof and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vi);
(vii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
this Indenture to be outstanding;
(viii) the Guarantee by the Company or any of the Subsidiary Guarantors
of Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Earn-out Obligations in an aggregate amount not to exceed $5.0 million
at any time outstanding;
(x) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x); and
(xi) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $10.0 million.
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For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xi) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest and accretion or
amortization of original issue discount will not be deemed to be an incurrence
of Indebtedness for purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of the Company as
accrued.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive
income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) the Credit
Agreement as in effect as of the date of the Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained
in the Credit Agreement as in effect on the date of the Indenture, (b) the
Indenture and the Notes, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of
its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (e) customary non-assignment
provisions in leases, licenses or other agreements entered into in the
ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (iii) above on the
property so acquired, (g) any agreement for the sale of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained
in the agreements governing the Indebtedness being refinanced, (i) secured
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limits the right
of the debtor to dispose of the assets securing such Indebtedness, (j)
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered into
in the ordinary course of business and (k) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or
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entity unless (i) the Company is the surviving corporation or the entity or
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the entity or Person formed by or surviving
any such consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Registration Rights Agreement, the Notes and the Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, the Company or the entity
or Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement or other compensation plan or arrangement entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Restricted Subsidiary, (ii) transactions between or among the Company and/or
its Restricted Subsidiaries, (iii) payment of reasonable directors fees or
customary indemnification or similar arrangements, (iv) Restricted Payments
that are permitted by the provisions of the Indenture described above under
the caption "--Restricted Payments," and (v) payments and transactions in
connection with the Transactions, including the payment of any fees and
expenses with respect thereto, in each case to the extent disclosed in the
Prospectus under the caption "Use of Proceeds."
SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Domestic
Subsidiaries shall acquire or create another Domestic Subsidiary after the
date of the Indenture, then such newly acquired or created Domestic Subsidiary
shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in
accordance with the terms of the Indenture, except for all Subsidiaries that
have properly been designated as Unrestricted Subsidiaries in accordance with
the Indenture for so long as they continue to constitute Unrestricted
Subsidiaries.
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PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries (showing in reasonable detail, the revenues and
EBITDA of the Company and its Restricted Subsidiaries separate from the
revenues and EBITDA of the Unrestricted Subsidiaries of the Company in the
event that either the revenue or the EBITDA of the Unrestricted Subsidiaries
for the accounting period covered thereby was greater than or equal to 10% of
the revenue or EBITDA of the Company and its consolidated Subsidiaries) and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified
in the Commission's rules and regulations. In addition, following the
consummation of the exchange offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified
in the Commission's rules and regulations (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company has
agreed that, for so long as any Notes remain outstanding, it will furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when
due of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Restricted Subsidiaries to comply with the provisions
described under the captions "--Change of Control," "-- Asset Sales," "--
Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" (iv) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice to comply with any of its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) except as permitted by the
Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Subsidiary Guarantor, or any Person acing on behalf of
any Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Subsidiaries.
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If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
January 15, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to January 15, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
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Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Company must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by the Company with the intent of preferring the
Holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and (viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or
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exchange offer for, Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes, (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on January 28, 1998. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
New Notes. If any Holder of Transfer Restricted Securities notifies the
Company prior to the 20th day following consummation
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of the Exchange Offer that (A) it is prohibited by law or Commission policy
from participating in the Exchange Offer or (B) that it may not resell the New
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the Holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until (i) the date
on which such Note has been exchanged by a person other than a broker-dealer
for a New Note in the Exchange Offer, (ii) following the exchange by a broker-
dealer in the Exchange Offer of a Note for a New Note, the date on which such
New Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company is to file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company is to use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 135 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company is to commence the Exchange Offer and use its best efforts to
issue on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Commission, New
Notes in exchange for all Notes tendered prior thereto in the Exchange Offer
and (iv) if obligated to file the Shelf Registration Statement, the Company is
to use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (a) the Company fails to
file any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Company fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company will pay Liquidated Damages to each
Holder of Notes, with respect to the first 90-day period immediately following
the occurrence of the first Registration Default in an amount equal to $.05
per week per $1,000 principal amount of Notes held by such Holder. The amount
of the Liquidated Damages will increase by an additional $.05 per week per
$1,000 principal amount of Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages for all Registration Defaults of $.50 per week per $1,000
principal amount of Notes. All accrued Liquidated Damages will be paid by the
Company on each Damages Payment Date by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated Securities by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
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GOVERNING LAW
The Indenture and the Notes are governed by, and will be construed in
accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or accounts receivable in the
ordinary course of business consistent with past practices (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "--Change of Control" and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any
of its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in
a single transaction or a series of related transactions (a) that have a fair
market value in excess of $2.0 million or (b) for net proceeds in excess of
$2.0 million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary, and (iii) a Restricted Payment
that is permitted by the covenant described above under the caption "--
Restricted Payments."
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition; (ii)
certificates of deposit,
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time deposits, eurodollar time deposits or overnight bank deposits having
maturities of six months or less from the date of acquisition issued by any
Lender or by any commercial bank organized under the laws of the United States
or any state thereof having combined capital and surplus of not less than
$500.0 million; (iii) commercial paper of an issuer rated at least A-2 by
Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within
six months from the date of acquisition; (iv) repurchase obligations of any
Lender or of any commercial bank satisfying the requirements of clause (ii) of
this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
government; (v) securities with maturities of one year or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's; (vi) securities with maturities of
six months or less from the date of acquisition backed by standby letters of
credit issued by any Lender or any commercial bank satisfying the requirements
of clause (ii) of this definition; or (vii) shares of money market mutual or
similar funds which invest exclusively in assets satisfying the requirements
of clauses (i) through (vi) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a
Principal (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties or any underwriters in connection with an
underwritten public offering becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of
the Company (measured by voting power rather than number of shares), (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors or (v) the Company consolidates with, or
merges with or into, any Person, or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person (immediately after giving effect to such
issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-
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cash expenses (including any charge relating to the write-off of deferred
financing fees as a result of the repayment of the Acquisition Facilities and
excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent that a corresponding amount would be permitted at the
date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries and (v) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or was nominated or designated for election to the
Board by a Principal or its Related Party.
"Credit Agreement" means that certain Credit Agreement, to be dated as of
January 28, 1998, by and among the Company, Lehman Brothers Inc., as arranger,
Lehman Commercial Paper Inc., as syndication agent, and the lenders named
therein, providing for $25.0 million of term borrowings and up to $35.0
million of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and
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agreements executed in connection therewith, and in each case as amended,
supplemented, extended, restated, modified, renewed, refunded, replaced or
refinanced from time to time, including any appendices, exhibits or schedules
to any of the foregoing.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters of credit.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means (i) any Restricted Subsidiary of the Company
that is incorporated or domiciled in any state of the United States of America
or the District of Columbia or (ii) any Restricted Subsidiary of the Company
that has Guaranteed any Indebtedness of the Company or any Subsidiary
Guarantor.
"Earn-out Obligations" means contingent payment obligations of the Company
or any of its Restricted Subsidiaries incurred in connection with the
acquisition of assets or businesses, which obligations are payable based on
the performance of the assets or businesses so acquired; provided that the
amount of such obligations shall not exceed 25% of the total consideration
paid for such assets or businesses; and provided, further, that the amount of
such obligations outstanding at any time shall be measured by the maximum
amount potentially payable thereunder without regard to performance criteria,
the passage of time or other conditions.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding the non-cash interest expense incurred by the
Company in connection with the Acquisition Facilities in January of 1998) and
(ii) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the
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Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock (including any application of
proceeds therefrom), as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for purposes of making
the computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated to include the Consolidated Cash Flow of
the acquired entities (adjusted to exclude (x) the cost of any compensation,
remuneration or other benefit paid or provided to any employee, consultant,
Affiliate or equity owner of the acquired entities to the extent such costs
are eliminated and not replaced and (y) the amount of any reduction in
general, administrative or overhead costs of the acquired entities, in each
case, as determined in good faith by an officer of the Company) without giving
effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the
79
<PAGE>
extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person to the extent of such Lien
(whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person, except for Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument, drawn against insufficient funds, provided that such Indebtedness
is extinguished within five business days of the incurrence of such
Indebtedness. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness under the Credit
Facilities) secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both)
80
<PAGE>
any holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders of such Indebtedness have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Subsidiaries whether or not a
claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages), guarantees and other liabilities or amounts
payable under the documentation governing any Indebtedness or in respect
thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any Investment made as a result of
the receipt of non-cash consideration from (i) an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales" or (ii) a
disposition of assets that does not constitute an asset sale; (e) any
acquisition of assets, Equity Interests or other securities solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company; (f) any acquisition by the Company or any of its Restricted
Subsidiaries of Purchased Portfolios; and (g) other Investments in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause
(e) that are at the time outstanding, not to exceed $7.5 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facilities that was permitted by the terms of the Indenture; (ii) Liens in
favor of the Company; (iii) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (v) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of the second paragraph of
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness; (vi) Liens
existing on the date of the Indenture; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries; (ix) Liens incurred in the ordinary course
of business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary and (x) Liens securing
Permitted Refinancing Indebtedness provided that the Company was permitted to
incur Liens with respect to the Indebtedness so refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such
81
<PAGE>
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest, premium and prepayment
penalties, if any, on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Centre Partners Management, LLC and WPG Corporate
Development Associates V, L.P.
"Purchased Portfolios" means account receivables portfolios purchased by the
Company or any of its Restricted Subsidiaries.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 50% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 50% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantee" shall mean the joint and several Guarantee by the
Domestic Subsidiaries of the Company's obligations under the Notes, in
substantially the form of such Subsidiary Guarantee attached as an exhibit to
the Indenture.
"Subsidiary Guarantors" means each Domestic Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
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<PAGE>
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
83
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements, and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action. Any such changes may
be applied retroactively in a manner that could adversely affect a holder of
the New Notes. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a significant modification of the terms of the Old Notes
and, therefore, such exchange should not constitute an exchange for federal
income tax purposes. Accordingly, such exchange should have no federal income
tax consequences to holders of Old Notes.
84
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year
after the Expiration Date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
Supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed, pursuant to
the Registration Rights Agreement, to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for all the holders of
the Notes as a single class) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements of Nationwide Credit, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period then
ended, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONWIDE CREDIT, INC.
Unaudited consolidated balance sheet of Nationwide Credit, Inc. as of June 30, 1998
and the related consolidated statements of operations and cash flows for the six
months ended June 30, 1998 and 1997 with accompanying notes......................... F-2
Consolidated balance sheets of Nationwide Credit, Inc. as of December 31, 1997 and
1996 and the related consolidated statements of income, stockholder's equity and
cash flows for the years ended December 31, 1997, 1996 and 1995 with accompanying
notes and Report of Independent Auditors thereon.................................... F-8
Schedule of valuation and qualifying accounts for the years ended December 31, 1997,
1996 and 1995................................................................. II-1
</TABLE>
F-1
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
UNAUDITED
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 8,265
Cash held for clients.............................................. 779
Accounts receivable, net of allowance of $2,371.................... 12,387
Prepaid expenses and other current assets.......................... 1,031
--------
Total current assets................................................ 22,462
Property and equipment.............................................. 13,638
Accumulated depreciation............................................ (2,245)
--------
11,393
Goodwill, less accumulated amortization of $2,015................... 118,864
Other intangible assets, less accumulated amortization of $7,996.... 12,558
Deferred financing costs, less accumulated amortization of $1,309... 4,384
Other assets........................................................ 198
--------
Total assets........................................................ $169,859
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Collections due to clients......................................... $ 779
Accrued compensation............................................... 3,490
Accounts payable................................................... 1,784
Accrued severance and office closure costs......................... 929
Other accrued liabilities.......................................... 7,325
Current maturities of long-term debt............................... 250
--------
Total current liabilities........................................... 14,557
Accrued severance and office closure costs.......................... 2,400
Long-term debt
Term loan facility................................................. 24,625
10.25% Senior notes due 2008....................................... 100,000
Stockholder's equity:
Common Stock, no par value
Authorized shares--10,000
Issued and outstanding shares--10
Additional paid-in capital......................................... 39,115
Notes receivable--stockholders..................................... (140)
Retained earnings (deficit)........................................ (10,698)
--------
Total stockholder's equity.......................................... 28,277
--------
Total liabilities and stockholder's equity.......................... $169,859
========
</TABLE>
See accompanying notes.
F-2
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue................................................ $61,268 $ 54,577
Expenses:
Salaries and benefits............................... 34,540 32,751
Telecommunication................................... 3,286 2,769
Occupancy........................................... 2,396 2,123
Other operating and administrative.................. 10,790 7,332
Depreciation and amortization....................... 6,865 12,256
Provision for employee severance and office closure.. 679 --
Overhead charges from First Data Corporation........ 613 --
------- --------
Total expenses......................................... 59,169 57,231
------- --------
Operating income (loss) ............................... 2,099 (2,654)
Interest expense....................................... 63 7,175
------- --------
Income (loss) before income taxes and extraordinary
items................................................. 2,036 (9,829)
Income tax provision................................... 1,274 --
------- --------
Income (loss) before extraordinary items............... 762 (9,829)
Extraordinary loss on debt extinguishment.............. -- 869
------- --------
Net income (loss)...................................... $ 762 $(10,698)
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................... $ 762 $ (10,698)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation....................................... 2,196 2,245
Amortization....................................... 4,667 10,011
Amortization of deferred financing costs........... -- 1,309
Extraordinary loss on debt extinguishment.......... -- 869
Deferred tax provision............................. 2,021 --
Changes in operating assets and liabilities:
Accounts receivable............................... (3,215) 484
Prepaid expenses and other assets................. (129) (31)
Accrued compensation.............................. (1,905) (6)
Intercompany trade payables....................... 758 --
Accounts payable, other accrued liabilities and
other liabilities................................ 928 4,993
-------- ---------
Net cash provided by operating activities............. 6,083 9,176
INVESTING ACTIVITIES
Acquisitions.......................................... (24,069) --
Purchases of equipment................................ (4,739) (2,049)
-------- ---------
Net cash used in investing activities................. (28,808) (2,049)
FINANCING ACTIVITIES
Proceeds from Acquisition Facilities.................. -- 125,000
Capital contribution from Parent...................... -- 38,975
Funding of acquisition purchase price................. -- (157,270)
Proceeds from long-term debt.......................... -- 25,000
Proceeds from 10.25% Notes due 2008................... -- 100,000
Repayment of Acquisition Facilities................... -- (125,000)
Repayment of long-term debt........................... (1,500) (125)
Debt issuance costs................................... -- (6,562)
(To) from First Data Corporation...................... 21,127 --
Other................................................. -- (268)
-------- ---------
Net cash provided by (used in) financing activities... 19,627 (250)
-------- ---------
Increase (decrease) in cash and cash equivalents...... (3,098) 6,877
Cash and cash equivalents at beginning of period...... 4,109 1,388
-------- ---------
Cash and cash equivalents at end of period............ $ 1,011 $ 8,265
======== =========
Supplemental disclosures of cash flow information
Interest paid......................................... 1,711
=========
</TABLE>
F-4
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 31, 1997, NCI Acquisition Corporation (the "Buyer"), NCI Merger
Corporation ("Merger Sub"), Nationwide Credit Inc. (the "Company"), First Data
Corporation (the "Seller") and its wholly owned subsidiary, First Financial
Management Corporation ("FFMC"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which Merger Sub merged with and into the
Company, with the Company as the surviving corporation and a wholly owned
subsidiary of the Buyer. The transaction was accounted for under the purchase
method of accounting with the consideration and related fees of the
acquisition allocated to the assets acquired and liabilities assumed based on
their estimated fair values at the date of the acquisition. The merger
consideration consisted of $155.2 million in cash (before transaction costs of
$2.1 million) and up to an additional $3.7 million, to be paid pursuant to the
terms of an earn-out agreement in the event the Company achieves certain
performance targets for the year ended December 31, 1998. The excess of cost
over the fair value of net assets acquired of $120.9 million is being
amortized on a straight-line basis over 30 years. Other identifiable
intangible assets are primarily comprised of the fair value of existing
account placements acquired of $14.5 million and non-competition agreements of
$5.7 million, which are being amortized over 1 and 4 years, respectively. The
Company periodically reviews goodwill and other intangibles to assess
recoverability. Impairment charges will be recognized in operations if the
expected future operating cash flow (undiscounted and without interest
charges) derived from such intangible assets is less than their carrying
value. As a result of the acquisition of the Company and in connection with
the implementation of the modified Operating Improvement Plan, the Company has
accrued estimated costs of approximately $4.0 million associated with closing
certain offices and branches ($1.8 million), severance payments to employees
($0.9 million), relocation costs ($0.7 million) and other costs primarily
associated with the write-down of leasehold improvements associated with the
closed facilities ($0.6 million). Specifically, the Company is closing and/or
reducing branches which are not operating at full capacity, or whose
operations can be consolidated with other branches. Any costs to be paid in
1999 and 2000 are primarily associated with lease commitments on facilities to
be closed during 1998 and 1999. The Company has reached an agreement with
First Data with respect to various matters relating to the acquisition of the
Company by its current shareholders in December 1997. The settlement includes
a cash payment of $10.9 million to the Company. The Company intends to use the
cash payment to reduce indebtedness under its term loan facility by
approximately $6.0 million, pay approximately $2.9 million in various expenses
relating to the Company's operations under First Data management prior to
January 1998, including obligations to the FTC and the DOE, and to increase
cash available for working capital and other corporate operations by
approximately $2.1 million.
The acquisition and related fees were intitially financed through borrowings
of $125.0 million against a $133.0 million senior credit facility (the
"Acquisition Facilities") provided by Lehman Commercial Paper Inc. and a
contribution of $40.4 million of equity capital (before related fees of $1.3
million).
F-5
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997, AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of the Company,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, certain information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements have been excluded. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. All
significant intercompany accounts and transactions have been eliminated in the
consolidation. Operating results for the six month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. The accompanying unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended December
31, 1997.
Certain reclassifications have been made in the June 30, 1997 unaudited
consolidated financial statements to conform to the June 30, 1998
presentation.
3.LONG TERM DEBT
In January 1998, the Company implemented a financing plan which included the
issuance of $100 million 10 1/4% Senior Notes due 2008 ("Old Notes") in a
private placement (the "Offering"). The Company is in the process of
exchanging the Old Notes for $100 million 10.25% Series A senior notes due
2008 ("New Notes") which are being registered under the Securities Act of
1933, as amended.
As part of the financing plan, the Company also entered into a credit
agreement (the "Credit Agreement") which provides for (1) a seven-year term
loan facility in the amount of $25 million (the "Term Loan"), and (ii) a six-
year revolving credit facility (the "Revolving Credit Facility") of $35
million. In connection with the Offering, all amounts outstanding under the
Acquisition Facilities were repaid utilizing proceeds of the Offering and the
Term Loan. The interest rate of the Term Loan and the Revolving Credit
Facility is determined, at the Company's option, based upon the Eurodollar
Base Rate (as defined in the Credit Agreement) ("Eurodollar") plus 2.125% or
the Base Rate, as defined, plus 1.125%. Interest payments are made quarterly
for Base Rate loans. Interest payments on Eurodollar loans are made on the
earlier of their maturity date or 90 days depending on their term. In
addition, the Company is required to pay a commitment fee of .375% on the
unused portion of the Revolving Credit Facility. The Term Loan is repaid in
quarterly installments, which began March 31, 1998, in an aggregate annual
principal amount of $0.25 million for each of the first six years and the
remaining $23.5 million in the last year of the facility. Additionally, the
Company is required to make annual prepayments, beginning with the year ending
December 31, 1998, from Excess Cash Flow, as defined in the Credit Agreement.
Prepayments are also required in the event of an equity or debt issuance, or
upon certain dispositions of assets. Substantially all of the assets of the
Company are pledged as collateral for borrowings under the Credit Agreement.
The Credit Agreement requires the Company to, among other things, maintain
certain financial ratios and limits the Company's indebtedness, acquisitions
and capital expenditures. In August 1997, the Company negotiated revised
covenants under the Credit Agreement. The Company was in compliance with these
revised covenants as of June 30, 1998.
The Credit Agreement provides for a first priority lien on substantially all
properties and assets (including, among other things, all of the capital stock
of the Company and each of its direct and indirect domestic subsidiaries, and
65% of the capital stock of first-tier foreign subsidiaries) of the Company
and its direct and indirect domestic subsidiaries (excluding the Company's
currently existing subsidiaries).
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholder of Nationwide Credit, Inc.
We have audited the accompanying consolidated balance sheets of Nationwide
Credit, Inc. as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also include the
financial statement schedule listed in the accompanying Index to Financial
Statements. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Nationwide Credit, Inc. at December 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young llp
Atlanta, Georgia
March 31, 1998; except for Note 13, as to which the date is May 18, 1998
F-7
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 4,109 $ 1,388
Cash held for clients................................ 386 594
Accounts receivable, net of allowance of $3,203 and
$4,449, respectively................................ 12,137 12,871
Deferred tax assets.................................. 3,230 3,080
Prepaid expenses and other current assets............ 696 1,000
Intercompany trade receivables....................... 23 68
-------- --------
Total current assets.................................. 20,581 19,001
Property and equipment:
Computer equipment................................... 16,818 20,638
Furniture and equipment.............................. 3,369 3,726
Leasehold improvements............................... 1,958 3,243
-------- --------
22,145 27,607
Accumulated depreciation............................. (11,968) (16,017)
-------- --------
10,177 11,590
Goodwill and other intangible assets less accumulated
amortization of $30,617 and $40,261, respectively.... 145,500 159,999
Other assets.......................................... 958 275
-------- --------
Total assets.......................................... $177,216 $190,865
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Collections due to clients........................... $ 386 $ 594
Accrued compensation................................. 4,474 3,495
Accounts payable..................................... 2,427 1,652
Accrued severance and office closure costs........... 847 202
Other accrued liabilities............................ 1,267 3,410
Note payable--current................................ 1,500 1,451
Intercompany trade payables.......................... 1,333 2,344
-------- --------
Total current liabilities............................. 12,234 13,148
Payable to First Data Corporation..................... 98,669 112,450
Deferred tax liability................................ 1,297 1,388
Note payable--long term............................... 1,329 --
Commitments and contingencies
Stockholder's equity:
Common Stock, no par value
Authorized shares--10,000, issued and outstanding
shares--1,000...................................... -- --
Additional paid-in capital........................... 41,506 41,506
Retained earnings.................................... 22,682 22,775
Pension liability adjustment......................... (501) (402)
-------- --------
Total stockholder's equity............................ 63,687 63,879
-------- --------
Total liabilities and stockholder's equity............ $177,216 $190,865
======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue........................................... $154,506 $138,905 $119,013
Expenses:
Salaries and benefits.......................... 81,114 73,636 66,376
Telecommunication.............................. 9,539 7,341 6,236
Occupancy...................................... 5,148 4,602 5,014
Other operating and administrative............. 27,102 26,586 22,516
Depreciation and amortization.................. 11,893 12,021 14,364
Provision for merger costs, employee severance
and office closure........................... 13,562 4,323 679
Overhead charges from First Data Corporation... 1,545 1,389 1,190
-------- -------- --------
Total expenses.................................... 149,903 129,898 116,375
Operating income ................................. 4,603 9,007 2,638
Interest expense.................................. (501) (241) (122)
-------- -------- --------
Income before income taxes........................ 4,102 8,766 2,516
Provision for income taxes........................ 2,611 4,449 2,423
-------- -------- --------
Net income........................................ $ 1,491 $ 4,317 $ 93
======== ======== ========
</TABLE>
See accompanying notes.
F-9
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN RETAINED PENSION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 1,000 $-- $36,799 $16,874 $(283) $53,390
Pension adjustment.... -- -- -- -- (284) (284)
Capital contribution.. -- -- 4,707 -- -- 4,707
Net income............ -- -- -- 1,491 -- 1,491
----- ---- ------- ------- ----- -------
Balance at December 31,
1995................... 1,000 -- 41,506 18,365 (567) 59,304
Pension adjustment.... -- -- -- -- 66 66
Net income............ -- -- -- 4,317 -- 4,317
----- ---- ------- ------- ----- -------
Balance at December 31,
1996................... 1,000 -- 41,506 22,682 (501) 63,687
Pension adjustment.... -- -- -- -- 99 99
Net income............ -- -- -- 93 -- 93
----- ---- ------- ------- ----- -------
Balance at December 31,
1997................... 1,000 $-- $41,506 $22,775 $(402) $63,879
===== ==== ======= ======= ===== =======
</TABLE>
See accompanying notes.
F-10
<PAGE>
NATIONWIDE CREDIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ..................................... $ 1,491 $ 4,317 $ 93
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 3,645 3,689 4,720
Amortization................................. 8,248 8,332 9,644
Asset impairment............................. 5,912 -- --
Other non-cash charges....................... 309 2,784 1,842
Deferred tax (benefit) provision............. (2,096) 2,023 218
Changes in operating assets and liabilities
(net of effect of acquisitions):
Accounts receivable...................... (1,660) 9,778 (2,862)
Prepaid expenses and other assets........ (1,506) 113 48
Accrued compensation..................... (1,247) (18) (857)
Accounts payable, other accrued liabilities
and other liabilities...................... 7,785 (8,338) 812
Intercompany trade accounts.............. 92 1,218 966
-------- -------- --------
Net cash provided by operating activities....... 20,973 23,898 14,624
-------- -------- --------
INVESTING ACTIVITIES
Purchases of property and equipment............. (5,016) (7,005) (5,465)
Acquisitions.................................... (2,732) (819) (24,161)
-------- -------- --------
Net cash used in investing activities........... (7,748) (7,824) (29,626)
-------- -------- --------
FINANCING ACTIVITIES
(To) from First Data Corporation................ (13,421) (16,697) 13,781
Repayment of note payable....................... (1,067) (1,500) (1,500)
-------- -------- --------
Net cash (used in) provided by financing activi-
ties........................................... (14,488) (18,197) 12,281
Decrease in cash and cash equivalents........... (1,263) (2,123) (2,721)
Cash and cash equivalents at beginning of year.. 7,495 6,232 4,109
-------- -------- --------
Cash and cash equivalents at end of year........ $ 6,232 $ 4,109 $ 1,388
======== ======== ========
NON-CASH FINANCING ACTIVITY:
Repayment of note payable in 1995 with First Data common
stock of $2,904
</TABLE>
See accompanying notes.
F-11
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
1. ORGANIZATION, BASIS OF ACCOUNTING AND DESCRIPTION OF BUSINESS
Prior to its December 31, 1997 change in ownership as discussed in Note 14,
Nationwide Credit, Inc. ("NCI" or the "Company") was a wholly owned subsidiary
of First Financial Management Corporation ("FFMC"), which is a wholly owned
subsidiary of First Data Corporation ("First Data").
The Company was acquired in June 1990 by FFMC. First Data's October 1995
merger with FFMC (the "Merger"), accounted for under the pooling of interests
method, resulted in the combination of First Data's accounts receivable
management company, ACB Business Services, Inc. ("ACB"), with NCI. ACB was
primarily the result of two purchase business combinations consummated by
First Data in 1993. The accompanying financial statements reflect First Data's
and FFMC's basis in ACB and NCI, respectively.
The consolidated accounts of the Company include certain majority-owned
subsidiaries, the financial position and results of operations of which are
not material. Intercompany accounts and transactions have been eliminated in
consolidation.
The Company is a provider of accounts receivable management services and its
principal service is consumer debt collection on a contingency fee basis. The
Company derives a significant portion of its revenue from American Express
Company ("American Express") and the U.S. Department of Education ("DOE") and
serves other clients in a variety of industries including healthcare, travel
and entertainment card, retail, banking, oil and gas and telecommunications as
well as other government agencies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash held for clients,
representing collections not yet remitted to clients, is not considered a cash
equivalent.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is
calculated over the estimated useful lives of the related assets (three to
eight years) using the straight-line method for financial reporting purposes.
Leasehold improvements are amortized over the term of the related lease.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net
tangible and identifiable intangible assets acquired and is being amortized
using the straight-line method over 25 to 40 years. At December 31, 1996 and
1997, the Company had goodwill of $134.3 million and $147.2 million,
respectively. Other intangible assets consist primarily of software and non-
compete agreements related to these acquisitions and acquired contract costs.
These costs are amortized on a straight-line basis over the length of the
agreement or benefit period, ranging from 5 to 25 years. Goodwill and other
intangible assets are reviewed for impairment whenever events indicate that
their carrying amount may not be recoverable. In such reviews, estimated
undiscounted future cash flows associated with these assets are compared with
their carrying value to determine if a write-down to fair value (normally
measured by discounting estimated future cash flows) is required.
F-12
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
Revenue Recognition
The Company generates substantially all of its revenue from contingency fees
which are a percentage of debtor collections. Revenue is recognized upon
collection of funds on behalf of clients. Revenues that are not contingency
fee based are recognized as the services are performed.
Income Taxes
The Company accounts for income taxes under the liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, whereby deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting and tax purposes.
The taxable income of the Company is included in the consolidated U.S.
federal income tax return of First Data. The Company's provision for income
taxes has been determined as if the Company were a separate tax-paying entity.
Effective January 1, 1996, current income taxes payable are included in the
Payable to First Data account.
Employee Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123")
established accounting and reporting standards for stock based employee
compensation plans. As permitted by the standard, First Data and the Company
elected to continue to account for employee stock options under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25") and related interpretations. Accordingly, adoption of the standard
has not affected the Company's results of operations or financial position.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACQUISITIONS
On February 28, 1997, the Company acquired certain assets of Consolidated
Collection Co. ("CCC"), an accounts receivable management company based in
Denver, Colorado for approximately $12.2 million excluding acquisition related
costs of $1.4 million (of which $0.4 million remained unpaid at December 31,
1997). The acquisition was accounted for as a purchase which, prior to the
settlement outlined below, resulted in the recording of $8.6 million in
goodwill, which is being amortized over 25 years, and $5.4 million of other
intangibles related to a non-compete agreement. In September 1997, First Data
negotiated a final, additional payment of $11.0 million as consideration for
the elimination of the contingent consideration clause in the asset purchase
agreement. This First Data payment was recorded by the Company as goodwill
with a corresponding increase in the Payable to First Data account. First Data
further agreed to an additional contingent payment of up to $2 million if
First Data, or a then affiliate of First Data, enters into a definitive
agreement to provide debt collection services to a certain telecommunications
company prior to March 4, 1999.
F-13
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
The following table summarizes unaudited pro forma results of operations of
NCI as if the acquisition of CCC had occurred and all cash consideration was
paid on January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenue................................................. $ 149,650 $ 121,315
Net Income.............................................. 4,696 432
</TABLE>
This pro forma information is not necessarily indicative of what the
combined results of operations would have been if the Company had consummated
the acquisition of CCC on January 1, 1996.
4. PROVISION FOR MERGER COSTS, EMPLOYEE SEVERANCE AND OFFICE CLOSURE
Primarily as a result of integrating the operations of NCI and ACB, the
Company has incurred charges relating to employee severance and branch office
closure costs as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996 1997
------- ------ ----
<S> <C> <C> <C>
Asset impairment........................................... $ 5,912 $ -- $--
Employee severance......................................... 3,492 2,271 679
Merger costs............................................... 3,000 (750) --
Office closure............................................. 1,158 2,802 --
------- ------ ----
$13,562 $4,323 $679
======= ====== ====
</TABLE>
The asset impairment charge in 1995 is principally comprised of $4.5 million
attributable to the ACB trade name which was not to be utilized by the
combined Company. The $3.0 million provision for merger costs in 1995 related
to an estimated payment to the former owners of one of the two businesses
acquired by First Data in 1993. Were it not for the Merger, this payment would
not have been necessary as the acquired business was not performing at the
level necessary for it to be made. Accordingly, First Data included it as a
component of the merger, integration and impairment charge in its 1995
financial statements and this accounting has been pushed down to the Company's
financial statements. The $750 credit in 1996 represents the benefit First
Data realized from settling this issue at an amount less than the $3.0 million
estimate. Employee severance has involved giving notice of termination to 475,
200 and 78 employees during 1995, 1996 and 1997, respectively.
5. RELATED PARTY TRANSACTIONS
The Company has various transactions with First Data and its affiliates.
These transactions can be generally classified into the following categories:
. trade activities--this involves the Company deriving revenue for
collection activities on behalf of First Data affiliates and incurring
expenses from First Data affiliates for such services as obtaining
address information and document imaging. The following summarizes the
Company's trade transactions with First Data and affiliates:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
--------------- --------
<S> <C> <C> <C>
Trade revenue...................................... $ 291 $ 400 $ 347
Trade expenses..................................... 56 2,646 1,771
</TABLE>
F-14
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
. allocation of general and administrative costs--this is a general
allocation of First Data corporate overhead based on 1% of the Company's
revenue. Functions provided by First Data corporate include
administration of employee benefit programs, internal audit, financial
systems licensing and processing, taxes and other support services.
. direct charges--certain programs and activities are administered by First
Data on a consolidated basis. Examples are employee benefit plans, group
and other insurance programs and certain vendor agreements that are
negotiated by First Data on an enterprise wide basis. The costs of these
programs and activities are specifically identifiable to each
participating business unit and, for this reason, the costs are not
included in the table above.
Management believes that the overall amount of charges to and from First
Data are reasonable and that, except as described below, the accompanying
financial statements reflect all of the Company's costs of doing business.
Management further believes that the incremental general and administrative
costs that would result from the Company being a stand-alone entity would not
exceed the 1% of revenue charge from First Data.
First Data does not have any specific indebtedness related to the Company
and the accompanying financial statements do not reflect any allocations of
First Data interest expense. There are no formal financing arrangements with
First Data. However, cash not necessary for the Company's near term operating
requirements has been remitted to First Data which in turn has funded the
Company's operating, investing and financing activities as required.
Accordingly, the net change in the payable to First Data balance has been
reflected as a financing activity in the accompanying statement of cash flows.
The average balances in the payable to First Data balance were $119.1 million,
$105.8 million and $104.4 million for the years ended December 31, 1995, 1996
and 1997, respectively.
6. NOTE PAYABLE
Note payable represents the remaining balance of a non-interest bearing note
related to a 1993 business acquisition. The original note was for $7.5 million
and provided for five annual payments in May of each year of $1.5 million. A
portion of this note was contingent upon 1994 performance and the May 1995
payment on the note was reduced by $1,250. The note is carried in the
accompanying financial statements at its present value based upon an 8%
interest rate. The final $1.5 million installment is payable in May 1998.
7. SIGNIFICANT CLIENTS AND CONCENTRATIONS OF CREDIT RISK
The Company derives a significant portion of its revenue from American
Express and the DOE. The amounts of consolidated net revenue and accounts
receivable attributable to these clients are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUE:
American Express...................................... $42,061 $41,770 $33,665
DOE................................................... 40,339 31,551 20,711
DECEMBER 31,
ACCOUNTS RECEIVABLE: 1996 1997
------- -------
American Express...................................... $ 1,327 $ 1,235
DOE................................................... 3,431 4,606
</TABLE>
F-15
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
Additionally, in the aggregate, the Company had accounts receivable from
other departments and agencies of the U.S. Government amounting to $1.4
million and $0.7 million at December 31, 1996 and 1997, respectively. No other
single client accounted for more than 10% of the consolidated totals for the
periods indicated.
8. FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable, accounts payable and notes payable, exclusive of non-interest
bearing amounts payable to First Data, approximate their estimated fair
values.
9. OPERATING LEASES
The Company leases certain office equipment and office space under
noncancellable lease agreements. Future minimum lease payments, on a calendar
year basis, under noncancellable operating leases, with initial lease terms of
at least one year at the time of inception, are as follows at December 31,
1997:
<TABLE>
<S> <C>
1998................................. $ 4,076
1999................................. 3,486
2000................................. 2,923
2001................................. 1,849
2002................................. 620
-------
Total minimum lease payments....... $12,954
=======
</TABLE>
Total rent expense for all operating leases was approximately $4,495,
$4,311, and $4,725 for the years ended December 31, 1995, 1996 and 1997,
respectively.
10. STOCK OPTION PLAN
The Company participates in a First Data plan that provides for the granting
of First Data stock options to key employees and other key individuals who
perform services for the Company. A total of 53.7 million shares of First Data
common stock have been reserved for issuance under First Data plans, of which
7.6 million shares remain available for future grant as of December 31, 1997.
The options have been issued at a price equivalent to First Data common
stock's fair market value at the date of grant, generally have ten year terms
and generally become exercisable in three or four equal annual increments
beginning 12 months after the date of grant.
In October 1996, First Data instituted an employee stock purchase plan for
which a total of six million shares have been reserved for issuance, of which
4.8 million shares remain available for future grant as of December 31, 1997.
Monies accumulated through payroll deductions elected by eligible employees
are used to effect quarterly purchases of First Data common stock at a 15%
discount from the lower of the market price at the beginning or end of the
quarter.
The Company has elected to follow APB 25 for First Data stock options
because, as discussed below, the alternative fair value accounting under SFAS
No. 123 requires use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, because the exercise
price of the stock options equals the market price of the underlying First
Data stock on the date of grant, no compensation expense is recognized.
F-16
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, assuming the Company has accounted for its First
Data employee stock options granted subsequent to December 31, 1994 under the
fair value method of SFAS No. 123. The fair value for options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for the years ended December 31, 1995,
1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate--options............. 5.29% 6.28% 6.23%
Risk-free interest rate--employee stock
purchase rights............................. -- 5.04% 6.23%
Dividend yield............................... 0.22% 0.22% 0.22%
Volatility of First Data common stock........ 17.6% 16.9% 18.9%
Expected option life......................... 5 years 5 years 5 years
Expected employee stock purchase right life.. -- 0.25 years 0.25 years
Weighted-average fair value of options
granted..................................... $ 8 $11 $11
Weighted-average fair value of employee stock
purchase rights............................. $-- $ 7 $ 7
</TABLE>
The Company's pro forma net income (loss) after amortizing the fair value of
the options and the stock purchase rights over their vesting period is $1,382,
$4,071 and ($410) for the years ended December 31, 1995, 1996 and 1997,
respectively (because SFAS 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999).
Because the Company's First Data employee stock options have characteristics
significantly different from those of traded options for which the Black-
Scholes model was developed, and because changes in the subjective input
assumptions can materially affect the fair value estimate, the existing
models, in management's opinion, do not necessarily provide a reliable single
measure of the fair value of its First Data employee stock options.
A summary of First Data stock option activity for the Company's employees is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
------------------ ------------------ -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 653,674 $17 583,200 $23 359,332 $28
Granted................. 302,222 29 163,742 38 76,000 40
Exercised............... (216,154) 13 (149,638) 21 (77,357) 17
Canceled................ (156,542) 22 (237,972) 28 (71,897) 32
-------- -------- -------
Outstanding at end of
period................. 583,200 $23 359,332 $28 286,078 $34
======== ======== =======
Exercisable............. 114,768 $15 87,325 $17 79,297 $28
======== ======== =======
</TABLE>
F-17
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
The following summarizes information about stock options outstanding.
<TABLE>
<S> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------- ---------------------
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$11-$26 76,936 6.6 years $23 48,427 $22
$31-$44 209,142 8.7 years 38 30,870 36
------- ------
286,078 8.2 years 34 79,297 28
======= ======
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Federal.................................................. $ 2,214 $3,692 $2,091
State and local.......................................... 397 757 332
------- ------ ------
Total.................................................. $ 2,611 $4,449 $2,423
======= ====== ======
Deferred income taxes result from the recognition of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years.
The provision for income taxes is comprised of the following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Current.................................................. $ 4,707 $2,426 $2,205
Deferred................................................. (2,096) 2,023 218
------- ------ ------
Total.................................................. $ 2,611 $4,449 $2,423
======= ====== ======
</TABLE>
The Company's net deferred tax assets (liabilities) consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued costs............................................... $ 1,699 $ 1,124
Minimum pension liability................................... 270 247
Accounts receivable allowance............................... 1,261 1,709
------- -------
Total deferred tax assets..................................... 3,230 3,080
Valuation allowance........................................... -- --
------- -------
Net deferred tax assets....................................... 3,230 3,080
Deferred tax liabilities:
Depreciation and amortization............................... (1,297) (1,388)
------- -------
Total deferred tax liabilities................................ (1,297) (1,388)
------- -------
Net deferred tax assets..................................... $ 1,933 $ 1,692
======= =======
</TABLE>
F-18
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Tax at U.S. statutory rate................................ $1,436 $3,068 $ 881
Increases in taxes from:
State and local taxes................................... 258 492 216
Non-deductible goodwill................................. 801 782 782
Other non-deductible.................................... -- -- 350
Other................................................... 116 107 194
------ ------ ------
Total................................................. $2,611 $4,449 $2,423
====== ====== ======
</TABLE>
12. RETIREMENT PLANS
Defined Benefit Plan
ACB has a defined benefit pension plan covering employees hired prior to May
1, 1993 when the Plan was frozen such that no new participants would be added
and existing participants would cease accruing additional benefits. Benefits
under the plan are based on years of service and annual compensation. Funding
of retirement costs complies with the minimum funding requirements specified
by the Employee Retirement Income Security Act of 1974, as amended. Plan
assets consist principally of mutual fund investments and fixed income
securities.
Net pension cost for the years ended December 31, 1995, 1996 and 1997
consisted of:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- -----
<S> <C> <C> <C>
Service cost--benefit earned during period.................. $-- $ -- $ --
Interest cost on projected benefit obligation............... 196 196 216
Actual return on plan assets................................ (70) (148) (542)
Net amortization and deferral............................... (74) 35 348
---- ----- -----
Net periodic pension cost................................... $ 52 $ 83 $ 22
==== ===== =====
</TABLE>
The following table sets forth the funded status and amounts recognized in
the balance sheet for the Company's plan at December 31, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested, Accumulated and Projected benefit obligation....... $ (2,689) $ (3,076)
Plan assets at fair value.................................... 2,406 2,904
-------- --------
Plan assets less than projected benefit obligations.......... (283) (172)
Unrecognized net loss........................................ 772 649
Minimum liability adjustment................................. (772) (649)
-------- --------
Pension liability included in the balance sheet.............. $ (283) $ (172)
======== ========
</TABLE>
F-19
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
In computing the foregoing, a discount rate of 8.0% in 1996 and 7.5% in 1997
was used. The expected long-term rate of return on assets of 9.5% was used for
1996 and 1997.
Defined Contribution Plan
First Data has an incentive savings plan which allows eligible employees of
First Data and its subsidiaries to contribute a percentage of their
compensation and provides for certain matching, service-related and other
contributions. The Company's matching and service-related contributions
associated with the plan were approximately $705, $453 and $584 for the years
ended December 31, 1995, 1996 and 1997, respectively.
13. CONTINGENCIES
In 1992, an action was commenced by the Federal Trade Commission ("FTC")
staff in which it alleged the Company had violated the Fair Debt Collection
Practices Act ("FDCPA"). The matter was resolved with a consent decree, in
which the Company did not admit any liability. Pursuant to the consent decree,
the Company agreed to take additional steps to ensure compliance with the
FDCPA and paid a penalty of $0.1 million. The FTC staff recently completed an
investigation regarding the Company's compliance with the consent decree. In
connection with the change in ownership discussed in Note 14, First Data has
agreed to indemnify the Company for any monetary penalty resulting from the
FTC staff investigation. On December 26, 1997, the Company received
correspondence indicating that the FTC will seek a monetary fine, as well as
certain injunctive relief in connection with the operations of the business.
Without admitting liability for any of the alleged violations of the FDCPA,
the Company has agreed to settle the matter with the payment of a civil
monetary penalty and has also agreed to certain injunctive relief in
connection with the operations of the business, consisting primarily of
disclosure to debtors of their rights and enhanced training and compliance
reporting requirements. The tentative settlement agreement reached between the
Company and the FTC staff on May 18, 1998 is subject to final approval by the
FTC, the United States Department of Justice and the court in which the action
was filed. The Company believes that its compliance with the provisions of
this tentative settlement relating to any injunctive relief sought by the FTC
staff will not materially affect the Company's financial condition or ongoing
operations.
In January 1998, management became aware, through chargebacks, that the DOE
intends to revise the amounts it previously paid to the Company during the
years ended December 31, 1994 through 1997.
Management's evaluation of the FTC and DOE issues has resulted in the
determination that losses are probable and estimable, accordingly, an
aggregate loss provision of approximately $1.9 million was recorded in the
fourth quarter of 1997.
The Company is involved in certain litigation arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
14. CHANGE IN OWNERSHIP
On December 31, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") along with NCI Acquisition Corporation
("NAC"), NCI Merger Corporation ("Merger Sub"), First Data and FFMC. Upon the
consummation of the merger, the Company became a wholly owned subsidiary of
F-20
<PAGE>
NATIONWIDE CREDIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED)
NAC. Consideration for the merger consisted of $155.2 million in cash and up
to an additional $3.7 million, to be paid pursuant to the terms of an earn-out
agreement in the event the Company achieves certain performance targets for
the year ended December 31, 1998. The accompanying financial statements
reflect the Company's historical financial position and results of operations
prior to consummation of any of the transactions contemplated under the Merger
Agreement. The purchase price in the Merger Agreement will be adjusted to
reflect the change in the Company's net worth, as defined in the Merger
Agreement, between November 30, 1997 and December 31, 1997.
In January 1998 the Company implemented a financing plan which included the
issuance of $100.0 million of 10 1/4% senior notes due 2008 ("Old Notes") in a
private placement (the "Offering"). The Company is in the process of
exchanging the senior notes for $100.0 million 10 1/4% Series A senior notes
due 2008 ("New Notes") which are being registered under the Securities Act of
1933, as amended.
As part of the financing plan, the Company also entered into a credit
agreement (the "Credit Agreement") which provides for (i) a seven-year term
loan facility, in the amount of $25.0 million (the "Term Loan"), and (ii) a
six-year revolving credit facility (the "Revolving Credit Facility") of $35.0
million. In connection with the Offering, all amounts outstanding under the
Acquisition Facilities were repaid utilizing proceeds of the Offering, the
Term Loan and a portion of the Revolving Credit Facility. The Term Loan is to
be repayable in quarterly installments in an aggregate principle amount of
$0.25 million for each of the first six years and the remaining $23.5 million
in the last year of the facility. The Credit Agreement provides for a first
priority lien on substantially all properties and assets (including, among
other things, all of the capital stock of the Company and each of its direct
and indirect domestic subsidiaries, and 65% of the capital stock of first-tier
foreign subsidiaries) of the Company and its direct and indirect domestic
subsidiaries (excluding the Company's currently existing subsidiaries).
The New Notes will be, and the Old Notes are, general unsecured obligations
of the Company and rank pari passu in right of payment with all current and
future unsecured senior indebtedness of the Company, including borrowings
under the Credit Agreement.
None of the Company's subsidiaries are subsidiary guarantors. All of the
Company's future domestic subsidiaries, if any, will become subsidiary
guarantors hereunder. The Company's only subsidiaries, are NCI Recoveries
Limited, organized under the laws of the United Kingdom ("NCI Recoveries") and
Master Collectors of Dallas, Inc., a Texas corporation ("MCD"). The assets of
and revenue and earnings generated by these subsidiaries are immaterial to the
Company. Separate financial statements of each subsidiary have not been
presented because management has determined that they would not be material to
investors.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITA-
TION OF AN OFFER TO BUY, ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PER-
SON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFER-
ENCE HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information..................................................... i
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Capitalization............................................................ 18
Selected Historical Financial Information and Other Data.................. 19
Unaudited Condensed Consolidated Pro Forma Financial Information.......... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 43
Stock Ownership and Certain Transactions.................................. 48
The Exchange Offer........................................................ 51
Description of Senior Credit Facilities................................... 58
Description of New Notes.................................................. 59
Certain Federal Income Tax Considerations ................................ 82
Plan of Distribution...................................................... 83
Legal Matters............................................................. 83
Experts................................................................... 83
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
10 1/4 SENIOR NOTES DUE 2008
FOR
10 1/4 SERIES A SENIOR NOTES DUE 2008
OF
NATIONWIDE CREDIT, INC.
-----------------
PROSPECTUS
-----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Georgia Code") provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the liability of directors for
monetary damages to the corporation or its shareholders for any action taken,
or failure to take any action, as directors; provided, however, that this
Section does not permit a corporation to eliminate or limit the liability of a
director (i) for appropriating, in violation of his or her duties, any
business opportunity of the corporation, (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law, (iii) for any
transaction from which the director obtained an improper personal benefit, or
(iv) for voting for or assenting to an unlawful distribution (whether as a
dividend, stock repurchase or redemption or otherwise) as provided in Section
14-2-832 of the Georgia Code. Section 14-2-202(b)(4) does not eliminate or
limit the rights of a corporation or any shareholder to seek an injunction or
other non-monetary relief in the event of a breach of a director's fiduciary
duty. In addition, this Section applies only to claims against a director
arising out of his role as a director and does not relieve a director from
liability arising from his role as an officer or in any other capacity. The
Company's Articles of Incorporation include a provision exonerating the
Company's directors from monetary liability to the extent described above and
provide further that the liability of directors of the Company shall be
limited to the fullest extent permitted by Georgia law, as the same may from
time to time be amended.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern the
indemnification of directors, officers, employees and agents. Subsection (a)
of Section 14-2-851 of the Georgia Code provides that a corporation may
indemnify or obligate itself to indemnify an individual made a party to a
proceeding because he or she is or was a director against liability incurred
in the proceeding if (1) such individual conducted himself or herself in good
faith; and (2) such individual reasonably believed (A) in the case of conduct
in his or her official capacity, that such conduct was in the best interests
of the corporation; (B) in all other cases, that such conduct was at least not
opposed to the best interests of the corporation; and (C) in the case of any
criminal proceeding, that the individual had no reasonable cause to believe
such conduct was unlawful. Subsection (d) of Section 14-2-851 of the Georgia
Code provides that a corporation may not indemnify a director (1) in
connection with a proceeding by or in the right of the corporation, except for
reasonable expenses incurred in connection with the proceeding if it is
determined that the director has met the relevant standard of conduct, or (2)
in connection with any proceeding with respect to conduct for which he or she
was adjudged liable on the basis that personal benefit was improperly received
by him or her, whether or not involving action in his or her official
capacity. Notwithstanding the foregoing, pursuant to Section 14-2-854 of the
Georgia Code, a court may order a corporation to indemnify a director if such
court determines, in view of all the relevant circumstances, that it is fair
and reasonable to indemnify the director even if the director has not met the
relevant standard of conduct set forth in subsections (a) and (b) of Section
14-2-851 of the Georgia Code or was adjudged liable in a proceeding referred
to in subsection (d) of Section 14-2-851 of the Georgia Code, but if the
director was adjudged so liable, the indemnification shall be limited to
reasonable expenses incurred in connection with the proceeding.
Section 14-2-852 of the Georgia Code provides that a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he or she was a party because he or she
was a director of the corporation against reasonable expenses incurred by the
director in connection with the proceeding.
Section 14-2-857 of the Georgia Code provides that a corporation may
indemnify an officer of the corporation who is a party to a proceeding because
he or she is an officer of the corporation to the same extent as a director.
If the officer is not a director (or if the officer is a director but the sole
basis on which he or she is made a party to the proceeding is an act or
omission solely as an officer), the corporation may indemnify such officer to
such further extent as may be provided by the articles of incorporation, the
bylaws, a resolution of the board of directors, or contract except for
liability arising out of conduct that constitutes (1) appropriation, in
II-1
<PAGE>
violation of his or her duties, of any business opportunity of the
corporation, (2) acts or omissions which involve intentional misconduct or a
knowing violation of law, (3) the types of liability set forth in Section 14-
2-832 of the Georgia Code, or (4) receipt of an improper personal benefit. An
officer of a corporation who is not a director is entitled to mandatory
indemnification under Section 14-2-852 of the Georgia Code and may apply to a
court under Section 14-2-854 of the Georgia Code for indemnification, in each
case to the same extent to which a director may be entitled to indemnification
under those provisions. Finally, a corporation may also indemnify an employee
or agent who is not a director to the extent, consistent with public policy,
that may be provided by its articles of incorporation, bylaws, general or
specific action by its board of directors, or contract.
Article Six of the Company's Bylaws provides that the Company shall
indemnify each director and officer of the Company to the full extent
permitted under Sections 14-2-851 and 14-2-852 (with respect to directors) and
Section 14-2-857 (with respect to non-director officers). In addition, the
Bylaws permit indemnification to the full extent permitted by Section 14-2-857
of an employee or agent of the Company, or a person serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
The determination of whether the required standard of conduct for
indemnification has been met will be made, in accordance with the provisions
of Section 14-2-855 of the Georgia Code, as follows: (i) by the majority vote
of all the disinterested directors of the board of directors (a majority of
whom shall constitute a quorum for such purpose), or by a majority of the
members of a committee of disinterested directors; (ii) by special legal
counsel; or (iii) by the shareholders, but in such event, shares owned by or
voted under the control of directors who are not disinterested may not be
voted.
Pursuant to Sections 14-2-853 and 14-2-857 of the Georgia Code and Article
Six of the Company's Bylaws, expenses incurred by a director, officer,
employee or agent of the Company in defending a proceeding may be paid by the
Company in advance of the final disposition of such proceeding, as authorized
in the specific case, if such person delivers to the Company (1) a written
affirmation of his or her good faith belief that he or she has met the
relevant standard of conduct set forth in the Georgia Code or, as to
directors, that the proceeding involves conduct for which liability has been
eliminated by a provision of the Company's Articles of Incorporation as
authorized by Section l4-2-202(b)(4) of the Georgia Code; and (2) a written
undertaking by such person to repay any funds advanced if it is ultimately
determined that the person is not entitled to indemnification by the Company.
Indemnification and advancement of expenses pursuant to Article Six of the
Company's Bylaws are not exclusive of any rights to which a director, officer,
employee or agent may be entitled under any law (common or statutory),
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in such person's official capacity and as to action in any other
capacity while holding office or while employed by or acting as agent for the
Company. In addition, the Company is specifically authorized to enter into
agreements which provide indemnification rights and procedures permitted by
the Georgia Code. All rights to indemnification under Article Six of the
Company's Bylaws shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Company's Bylaws provide that the Company shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company or who is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the Company would have the power to indemnify such person against such
liability. Officers and directors of the Company are presently covered by
insurance maintained by the Company which (with certain exceptions and within
certain limitations) indemnifies them against any losses or liabilities
arising from any alleged "wrongful act" including any alleged breach of duty,
neglect, error, misstatement, misleading statement, omissions or other act.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
2 --Agreement and Plan of Merger, dated as of December 31, 1997, among NCI
Acquisition Corporation, NCI Merger Corporation, the Registrant, First
Financial Management Corporation and First Data Corporation.*
3.1 --Certificate of Incorporation of the Registrant.*
3.2 --Bylaws of the Registrant.*
4.1 --Series A and Series B 10 1/4% Senior Notes due 2008 Indenture, dated
as of January 28, 1998, between the Registrant and State Street Bank
and Trust Company, as Trustee.*
4.2 --Form of Note (included in Exhibit 4.1, Exhibit A-1).*
4.3 --A/B Exchange Registration Rights Agreement, dated as of January 28,
1998, by and among the Registrant and Lehman Brothers Inc.*
5 --Opinion of Weil, Gotshal & Manges LLP.++
8 --Opinion of Weil, Gotshal & Manges LLP regarding certain tax matters.++
10.1 --Credit Agreement, dated as of January 28, 1998, among NCI Acquisition
Corporation, the Registrant, the Several Lenders from time to time
parties thereto, Lehman Brothers Inc., Lehman Commercial Paper Inc.,
Fleet Capital Corporation and BHF-Bank Aktiengesellschaft.+
10.2 --Purchase Agreement, dated as of January 23, 1998, by and between the
Registrant and Lehman Brothers Inc.*
10.3 --NCI Acquisition Corporation 1997 Management Performance Option Plan.*
10.4 --Stock Option Agreement, dated as of December 31, 1997, between NCI
Acquisition Corporation and Jerry Kaufman.*
10.5 --Stock Option Agreement, dated as of December 31, 1997, between NCI
Acquisition Corporation and Loren Kranz.*
10.6 --Stock Option Agreement, dated as of May 18, 1998, between NCI
Acquisition Corporation and Michael Lord.*
10.7 --Stock Option Agreement, dated as of December 31, 1997, between NCI
Acquisition Corporation and Greg Schubert.*
10.8 --Stock Option Agreement, dated as of December 31, 1997, between NCI
Acquisition Corporation and Avalon Investment Partners, LLC.*
10.9 --Employment Agreement, dated as of December 31, 1997, by and between
the Registrant and Jerry Kaufman.*
10.10 --Employment Agreement, dated as of December 31, 1997, by and between
the Registrant and Loren Kranz.*
10.11 --Employment Agreement, dated as of May 18, 1998, by and between the
Registrant and Michael Lord.*
10.12 --Employment Agreement, dated as of December 31, 1997, by and between
the Registrant and Gregory Schubert.*
10.13 --Stockholders' Agreement, dated as of December 31, 1997, by and among
NCI Acquisition Corporation, the State Board of Administration of
Florida, Centre Capital Investors II, L.P., Centre Capital Tax Exempt
Investors II, L.P., Centre Capital Offshore Investors II, L.P., Centre
Parallel Management Partners, L.P., Centre Partners Coinvestment,
L.P., WPG Corporate Development Associates V, L.P., WPG Corporate
Development Associates V (Overseas), L.P., Weber Family Trust, Lion
Investments Limited, Westpool Investment Trust plc, Avalon Investment
Partners LLC, Jerrold Kaufman, Loren Kranz, Gregory Schubert and Kevin
Henry.*
10.14 --Form of Guarantee and Collateral Agreement relation to Credit
Agreement, dated as of January 28, 1998.
10.15 --Amendment, dated as of August 7, 1998, to Credit Agreement, dated as
of January 28, 1998.
12 --Statement of Computation of Earnings to Fixed Charges.+
21 --Subsidiaries of the Registrant.*
II-3
<PAGE>
<TABLE>
<C> <S>
23.1 --Consnet of Weil, Gotshal & Manges LLP (included in Exhibit 5).++
23.2 --Consent of Ernst & Young LLP, independent auditors.+
23.3 --Consent of Weil, Gotshal & Manges LLP regard tax opinion (included in
Exhibit 8).++
24 --Power of Attorney (see signature page).*
25 --Statement of Eligibility and Qualification of State Street Bank and
Trust Company, as Trustee under the Indenture filed as Exhibit 4.1.*
27 --Financial Data Schedule.+
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------
+Filed herewith.
++To be filed by amendment.
*Previously filed.
(b)Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements
as notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii)to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2)That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4)To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(5)To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
(h)See Item 20.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF ATLANTA, STATE OF GEORGIA, ON SEPTEMBER 1, 1998.
NATIONWIDE CREDIT, INC.
/s/MICHAEL LORD
By: ________________________________
Michael Lord
Chief Financial Officer
EACH PERSON WHOSE SIGNATURE TO THIS REGISTRATION STATEMENT APPEARS BELOW
HEREBY APPOINTS JERROLD KAUFMAN AND MICHAEL LORD, AND EACH OF THEM
INDIVIDUALLY, ANY ONE OF WHOM MAY ACT WITHOUT THE JOINDER OF THE OTHER, AS HIS
AGENT AND ATTORNEY-IN-FACT TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN THE
CAPACITY STATED BELOW AND TO FILE ALL PRE- AND POST-EFFECTIVE AMENDMENTS TO
THIS REGISTRATION STATEMENT, WHICH MAY MAKE SUCH CHANGES AND ADDITIONS TO THIS
REGISTRATION STATEMENT AS SUCH AGENT AND ATTORNEY-IN-FACT MAY DEEM NECESSARY
OR APPROPRIATE.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chief Executive Officer
* (Principal Executive September 1, 1998
- --------------------------------- Officer) and Director
Jerrold Kaufman
/s/MICHAEL LORD Chief Financial Officer
- --------------------------------- (Principal Accounting September 1, 1998
Michael Lord and Financial Officer)
Chief Operating Officer,
* Executive Vice September 1, 1998
- --------------------------------- President, Secretary and
Loren F. Kranz Director
Chairman of the Board of
* Directors and Director September 1, 1998
- ---------------------------------
David B. Golub
Vice Chairman of the
* Board of Directors and September 1, 1998
- --------------------------------- Director
Wesley W. Lang, Jr.
Director
* September 1, 1998
- ---------------------------------
Nora E. Kerppola
II-5
<PAGE>
Director
* September 1, 1998
- ---------------------------------
Lester Pollack
Director
* September 1, 1998
- ---------------------------------
Jeffrey A. Weiss
Director
* September 1, 1998
- ---------------------------------
Craig S. Whiting
Director
* September 1, 1998
- ---------------------------------
Paul J. Zepf
*By: /s/ MICHAEL LORD
- ---------------------------------
Michael Lord
Attorney-in-Fact
II-6
<PAGE>
SCHEDULE II
NATIONWIDE CREDIT, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DESCRIPTION ADDITIONS
----------- -----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
deducted from Receivables.. $ 471 $ 450 -- -- $ 921
Year ended December 31, 1996
deducted from Receivables.. 921 2,440 -- (158) 3,203
Year ended December 31, 1997
deducted from Receivables.. 3,203 2,128 -- (882) 4,449
</TABLE>
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
================================================================================
$60,000,000
CREDIT AGREEMENT
among
NCI ACQUISITION CORPORATION,
NATIONWIDE CREDIT, INC.,
as Borrower
The Several Lenders
from Time to Time Parties Hereto,
LEHMAN BROTHERS INC.,
as Arranger
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent
FLEET CAPITAL CORPORATION,
as Administrative Agent
and
BHF - BANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH,
as Documentation Agent
Dated as of January 28, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS..................................................... 2
1.1 Defined Terms..................................................... 2
1.2 Other Definitional Provisions..................................... 24
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 24
2.1 Tranche B Term Loan Commitments................................... 24
2.2 Procedure for Tranche B Term Loan Borrowing....................... 24
2.3 Repayment of Tranche B Term Loans................................. 25
2.4 Revolving Credit Commitments...................................... 25
2.5 Procedure for Revolving Credit Borrowing.......................... 26
2.6 Repayment of Loans; Evidence of Debt.............................. 26
2.7 Commitment Fees, etc.............................................. 27
2.8 Termination or Reduction of Revolving Credit Commitments.......... 27
2.9 Optional Prepayments.............................................. 28
2.10 Mandatory Prepayments and Commitment Reductions................... 28
2.11 Conversion and Continuation Options............................... 29
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches......... 30
2.13 Interest Rates and Payment Dates.................................. 30
2.14 Computation of Interest and Fees.................................. 30
2.15 Inability to Determine Interest Rate.............................. 31
2.16 Pro Rata Treatment and Payments................................... 31
2.17 Requirements of Law............................................... 33
2.18 Taxes............................................................. 34
2.19 Indemnity......................................................... 35
2.20 Illegality........................................................ 36
2.21 Change of Lending Office.......................................... 36
2.22 Replacement of Lenders under Certain Circumstances................ 36
SECTION 3. LETTERS OF CREDIT............................................... 37
3.1 L/C Commitment.................................................... 37
3.2 Procedure for Issuance of Letter of Credit........................ 37
3.3 Commissions, Fees and Other Charges............................... 38
3.4 L/C Participations................................................ 38
3.5 Reimbursement Obligation of the Borrower.......................... 39
3.6 Obligations Absolute.............................................. 39
3.7 Letter of Credit Payments......................................... 40
3.8 Applications...................................................... 40
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 40
4.1 Financial Condition............................................... 40
4.2 No Change......................................................... 41
4.3 Corporate Existence; Compliance with Law.......................... 41
4.4 Corporate Power; Authorization; Enforceable Obligations........... 41
4.5 No Legal Bar...................................................... 42
-i-
<PAGE>
Page
----
4.6 No Material Litigation............................................ 42
4.7 No Default........................................................ 42
4.8 Ownership of Property; Liens...................................... 42
4.9 Intellectual Property............................................. 42
4.10 Taxes............................................................. 43
4.11 Federal Regulations............................................... 43
4.12 Labor Matters..................................................... 43
4.13 ERISA............................................................. 43
4.14 Investment Company Act; Other Regulations......................... 44
4.15 Subsidiaries...................................................... 44
4.16 Use of Proceeds................................................... 44
4.17 Environmental Matters............................................. 44
4.18 Accuracy of Information, etc...................................... 45
4.19 Security Documents................................................ 46
4.20 Solvency.......................................................... 46
SECTION 5. CONDITIONS PRECEDENT............................................ 46
5.1 Conditions to Initial Extension of Credit......................... 46
5.2 Conditions to Each Extension of Credit............................ 48
SECTION 6. AFFIRMATIVE COVENANTS........................................... 49
6.1 Financial Statements.............................................. 49
6.2 Certificates; Other Information................................... 50
6.3 Payment of Obligations............................................ 51
6.4 Conduct of Business and Maintenance of Existence, etc............. 51
6.5 Maintenance of Property; Insurance................................ 51
6.6 Inspection of Property; Books and Records; Discussions............ 52
6.7 Notices........................................................... 52
6.8 Environmental Laws................................................ 52
6.9 Additional Collateral, etc........................................ 53
SECTION 7. NEGATIVE COVENANTS.............................................. 55
7.1 Financial Covenants............................................... 55
7.2 Limitation on Indebtedness........................................ 57
7.3 Limitation on Liens............................................... 57
7.4 Limitation on Fundamental Changes................................. 58
7.5 Limitation on Sale of Assets...................................... 59
7.6 Limitation on Dividends........................................... 59
7.7 Limitation on Capital Expenditures................................ 60
7.8 Limitation on Investments, Loans and Advances..................... 60
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc.; Limitation on Modification of Certificate
of Incorporation.................................................. 61
7.10 Limitation on Transactions with Affiliates........................ 61
7.11 Limitation on Sales and Leasebacks................................ 62
7.12 Limitation on Changes in Fiscal Periods........................... 62
7.13 Limitation on Negative Pledge Clauses............................. 62
7.14 Limitation on Restrictions on Subsidiary Distributions............ 62
7.15 Limitation on Lines of Business................................... 62
7.16 Limitation on Amendments to Acquisition Documentation............. 62
-ii-
<PAGE>
Page
----
7.17 Limitation on Activities of Holdings............................. 63
SECTION 8. EVENTS OF DEFAULT............................................... 63
SECTION 9. THE AGENTS...................................................... 66
9.1 Appointment...................................................... 66
9.2 Delegation of Duties............................................. 67
9.3 Exculpatory Provisions........................................... 67
9.4 Reliance by Agents............................................... 67
9.5 Notice of Default................................................ 68
9.6 Non-Reliance on Agents and Other Lenders......................... 68
9.7 Indemnification.................................................. 68
9.8 Agent in Its Individual Capacity................................. 69
9.9 Successor Agents................................................. 69
9.10 Authorization to Release Liens................................... 69
9.11 The Arranger..................................................... 70
9.12 The Documentation Agent.......................................... 70
SECTION 10. MISCELLANEOUS.................................................. 70
10.1 Amendments and Waivers........................................... 70
10.2 Notices.......................................................... 71
10.3 No Waiver; Cumulative Remedies................................... 72
10.4 Survival of Representations and Warranties....................... 72
10.5 Payment of Expenses.............................................. 72
10.6 Successors and Assigns; Participations and Assignments........... 73
10.7 Adjustments; Set-off............................................. 76
10.8 Counterparts..................................................... 76
10.9 Severability..................................................... 77
10.10 Integration...................................................... 77
10.11 GOVERNING LAW.................................................... 77
10.12 Submission To Jurisdiction; Waivers.............................. 77
10.13 Acknowledgements................................................. 78
10.14 WAIVERS OF JURY TRIAL............................................ 78
10.15 Confidentiality.................................................. 78
-iii-
<PAGE>
ANNEX:
A Pricing Grid
SCHEDULES:
1.1A Commitments
4.1 Accounting Adjustments
4.2 Material Events
4.4 Consents, Authorizations, Filings and Notices
4.6 Litigation
4.10 Taxes
4.15 Subsidiaries
4.19 UCC Filing Jurisdictions
7.2(e) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Assignment and Acceptance
E-1 Form of Legal Opinion of Weil, Gotshal & Manges LLP
E-2 Form of Legal Opinion of Troutman Sanders LLP
F-1 Form of Tranche B Term Note
F-2 Form of Revolving Credit Note
G Form of Exemption Certificate
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of January 28, 1998, among NCI ACQUISITION
CORPORATION, a Delaware corporation ("Holdings"), NATIONWIDE CREDIT, INC., a
Georgia corporation (the "Borrower"), the several banks and other financial
institutions or entities from time to time parties to this Agreement (the
"Lenders "), LEHMAN BROTHERS INC., as advisor and arranger (in such capacity,
the "Arranger"), LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such
capacity, the "Syndication Agent"), FLEET CAPITAL CORPORATION, as administrative
agent (in such capacity, the "Administrative Agent"), and BHF - BANK
AKTIENGESELLSCHAFT, GRAND CAYMAN BRANCH, as Documentation Agent (in such
capacity, the "Documentation Agent").
W I T N E S S E T H:
-------------------
WHEREAS, (i) WPG Corporate Development Associates V, L.P., WPG Corporate
Development Associates V (Overseas), L.P., Centre Capital Investors II, L.P.
(together with certain of its affiliates), Centre Capital Tax-Exempt Investors
II, L.P., Centre Capital Offshore Investors II, L.P., State Board of
Administration of Florida, Centre Parallel Management Partners, L.P., Centre
Partners Coinvestment, L.P., Avalon Investment Partners, LLC, Weber Family Trust
dated 1/6/89, Lion Investments Limited and Westpool Investment Trust plc
(collectively, the "Equity Investors"), together with management of the Borrower
have formed Holdings and (ii) pursuant to the Agreement and Plan of Merger,
dated December 31, 1997, among Holdings, NCI Merger Corporation ("Acquisition
Co"), the Borrower, First Financial Management Corporation and First Data
Corporation (as amended, supplemented or otherwise modified from time to time,
the "Acquisition Agreement"), Acquisition Co has merged with the Borrower, with
the Borrower being the surviving corporation of such merger (the "Acquisition");
WHEREAS, in connection with the Acquisition, Acquisition Co obtained senior
secured credit facilities in an aggregate amount of $133,000,000 (the
"Acquisition Facility") to finance the Acquisition, to refinance existing
indebtedness of the Borrower and its subsidiaries, to pay related transaction
expenses and for working capital purposes;
WHEREAS, to refinance the Acquisition Facility, to finance the working
capital and general corporate needs of the Borrower and its subsidiaries and to
finance Permitted Acquisitions, the Borrower will require financing in the form
of (i) senior secured credit facilities in an aggregate principal amount of
$60,000,000 comprised of term loan facilities in an aggregate principal amount
of $25,000,000 and a revolving credit facility in an aggregate principal amount
of $35,000,000 and (ii) $100,000,000 in gross proceeds of unsecured senior notes
to be issued by Holdings; and
WHEREAS, the Lenders are willing to make such senior secured credit
facilities available upon and subject to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
<PAGE>
2
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"Acquisition": as defined in the recitals hereto.
-----------
"Acquisition Agreement": as defined in the recitals hereto.
---------------------
"Acquisition Co": as defined in the recitals hereto.
--------------
"Acquisition Documentation": collectively, the Acquisition Agreement
-------------------------
and all schedules, exhibits, annexes and amendments thereto and all side
letters and agreements affecting the terms thereof or entered into in
connection therewith, in each case, as amended, supplemented or otherwise
modified from time to time.
"Acquisition Facility": as defined in the recitals hereto.
--------------------
"Acquisition Credit Agreement": the Credit Agreement, dated as of
----------------------------
December 31, 1997, among Holdings, Acquisitions Co, as borrower, Lehman
Brothers Inc., as arranger, and Lehman Commercial Paper Inc., as lender, as
syndication agent and as administrative agent.
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": as defined in the preamble hereto.
--------------------
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
(or persons performing similar functions) of such Person or (b) direct or
cause the direction of the management and policies of such Person, whether
by contract or otherwise.
"Agents": the collective reference to the Syndication Agent and the
------
Administrative Agent.
"Aggregate Exposure": with respect to any Lender, an amount equal to
------------------
(a) until the Closing Date, the aggregate amount of such Lender's Commitments
and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of such
Lender's Tranche B Term Loans and (ii) the amount of such Lender's Revolving
Credit Commitment or, if the Revolving Credit Commitments have been terminated,
the amount of such Lender's Revolving Extensions of Credit.
"Aggregate Exposure Percentage": with respect to any Lender, the
-----------------------------
ratio (expressed as a percentage) of such Lender's Aggregate Exposure to the
Aggregate Exposure of all Lenders.
<PAGE>
3
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum set
-----------------
forth under the relevant column heading below:
Base Rate Eurodollar
Loans Loans
--------- ----------
Revolving Credit Loans 0.875% 1.875%
Tranche B Term Loans 1.125% 2.125%
provided that, on and after the first Adjustment Date occurring after the
completion of one full fiscal quarter of the Borrower after the Closing Date,
the Applicable Margin with respect to Revolving Credit Loans and Tranche B Term
Loans will be determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Arranger": as defined in the preamble hereto.
--------
"Asset Sale": any Disposition of Property or series of related
----------
Dispositions of Property (other than any such Disposition permitted by clause
(a), (b), (c) or (d) of Section 7.5), excluding any Disposition which yields
gross proceeds to Holdings, the Borrower or any of its Subsidiaries (valued at
the initial principal amount thereof in the case of non-cash proceeds consisting
of notes or other debt securities and valued at fair market value in the case of
other non-cash proceeds) of less than $100,000 (provided that the aggregate
gross proceeds of Dispositions that may be so excluded shall not exceed
$500,000).
"Assignee": as defined in Section 10.6(c).
--------
"Assignment and Acceptance": as defined in Section 10.6(c).
--------------------------
"Assignor": as defined in Section 10.6(c).
--------
"Available Revolving Credit Commitment": as to any Revolving Credit
-------------------------------------
Lender at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment over (b) such Lender's Revolving Extensions of
Credit.
"Base Rate": for any day, a rate per annum (rounded upwards, if
---------
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Reference Bank as its prime or base rate in
effect at its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by the Reference Bank in
connection with extensions of credit to debtors); "Base CD Rate" shall mean the
sum of
<PAGE>
4
(a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction,
the numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
CD Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Reference Bank from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the Base Rate due
to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate shall be effective as of the opening of business on the
effective day of such change in the Prime Rate, the Three-Month Secondary CD
Rate or the Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is
---------------
based upon the Base Rate.
"Benefitted Lender": as defined in Section 10.7(a).
-----------------
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified by the Borrower as a
--------------
date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"Business": as defined in Section 4.17(b).
--------
"Business Day": (i) for all purposes other than as covered by clause
------------
(ii) below, a day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the interbank eurodollar market.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) which should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person to
<PAGE>
5
pay rent or other amounts under any lease of (or other arrangement conveying the
right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet of such Person under GAAP, and, for the purposes of this
Agreement, the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"C/D Assessment Rate": for any day as applied to any Base Rate Loan,
-------------------
the annual assessment rate in effect on such day which is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the "FDIC") classified as well-capitalized and within supervisory subgroup "B"
(or a comparable successor assessment risk classification) within the meaning of
12 C.F.R. (S) 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day as applied to any Base Rate
----------------------
Loan, that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board, for determining the maximum reserve requirement for
a Depositary Institution (as
<PAGE>
6
defined in Regulation D of the Board as in effect from time to time) in respect
of new non-personal time deposits in Dollars having a maturity of 30 days or
more.
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which shall not occur later than
February 19, 1998.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment": as to any Lender, the sum of the Tranche B Term Loan
----------
Commitment and the Revolving Credit Commitment of such Lender.
"Commitment Fee Rate": .375% per annum; provided, that on and after
-------------------
the first Adjustment Date occurring after the completion of one full fiscal
quarter of the Borrower after the Closing Date, the Commitment Fee Rate will be
determined pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer, substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated December 1997 and furnished to the Lenders.
"Consolidated Current Assets": at any date, all amounts (other than
---------------------------
cash and Cash Equivalents) which would, in conformity with GAAP, be set forth
opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Borrower and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts which
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date, but excluding (a) the current
portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without
duplication of clause (a) above, all Indebtedness consisting of Revolving Credit
Loans to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and to the extent reflected as a charge in
the statement of such Consolidated Net Income for such period, the sum of (a)
income tax expense, (b) interest expense, amortization or writeoff of debt
discount and debt issuance costs and commissions, discounts and other fees and
charges associated with Indebtedness (including the Loans), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any
<PAGE>
7
extraordinary, unusual or non-recurring expenses or losses (including, whether
or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, losses on sales of assets outside of
the ordinary course of business) and (f) any other non-cash charges, and minus,
to the extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary, unusual or non-
recurring income or gains (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such period,
gains on the sales of assets outside of the ordinary course of business) and (c)
any other non-cash income, all as determined on a consolidated basis.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense": for any period, total cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries payable in respect of such period with respect to
all outstanding Indebtedness of the Borrower and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under Interest Rate Protection Agreements to the extent such net costs are
allocable to such period in accordance with GAAP).
"Consolidated Lease Expense": for any period, the aggregate amount of
--------------------------
fixed and contingent rentals payable by the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, for such period with
respect to leases of real and personal property; provided, that payments with
respect to Capital Lease Obligations shall not constitute Consolidated Lease
Expense.
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person
(other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Debt Ratio": as at the last day of any period of
-----------------------------
four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on
such day to (b) Consolidated EBITDA for such period; provided that for purposes
of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any
period, the
<PAGE>
8
Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries
during such period shall be included on a pro forma basis for such period
(assuming the consummation of each such acquisition and the incurrence or
assumption of any Indebtedness in connection therewith occurred on the first day
of such period) if the consolidated balance sheet of such acquired Person and
its consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements of income and
stockholders' equity and of cash flows for the period in respect of which
Consolidated EBITDA is to be calculated (i) have been previously provided to the
Administrative Agent and the Lenders and (ii) either (A) have been reported on
without a qualification arising out of the scope of the audit by independent
certified public accountants of nationally recognized standing or (B) have been
found acceptable by the Administrative Agent; provided, further, that for the
purposes of determining such ratio described above for the fiscal quarters of
the Borrower ending March 31, 1998, June 30, 1998 and September 30, 1998,
Consolidated EBITDA for the relevant period shall be deemed to equal
Consolidated EBITDA for such fiscal quarter (and, in the case of the latter two
such determinations, each previous fiscal quarter in 1998) multiplied by 4, 2
and 4/3, respectively.
"Consolidated Working Capital": at any date, the excess of
----------------------------
Consolidated Current Assets on such date over Consolidated Current Liabilities
on such date.
"Continuing Directors": the directors of Holdings on the Closing
--------------------
Date, and each other director, if, in each case, such other director's
nomination for election to the board of directors of Holdings is recommended by
at least 66-2/3% of the then Continuing Directors or such other director
receives the vote of the Permitted Investors in his or her election by the
shareholders of Holdings.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Control Investment Affiliate": as to any Person, any other Person
----------------------------
which (a) directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or more
companies. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any Property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition thereof;
and the terms "Dispose" and "Disposed of" shall have correlative meanings.
"Documentation Agent": as defined in the preamble hereto.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
<PAGE>
9
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
-------------------
the laws of any jurisdiction within the United States.
"ECF Percentage": 75%; provided that with respect to each fiscal year
--------------
of the Borrower ending on or after December 31, 1998, the ECF Percentage shall
be reduced to 50%, 25% or 0% if the Consolidated Total Debt Ratio for the period
of four consecutive fiscal quarters ending on the last day of such fiscal year
is equal to or below 4.25 to 1.0, 3.5 to 1.0 or 2.5 to 1.0, respectively.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"Equity Investors": as defined in the recitals hereto.
----------------
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such service), the "Eurodollar Base Rate" for purposes of this definition shall
be determined by reference to such other comparable publicly available service
for displaying eurodollar rates as may be selected by the Administrative Agent
or, in the absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York
City time, two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
<PAGE>
10
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
the then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess,
----------------
if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
(including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, (iv) an amount equal to the aggregate net non-cash loss on the
Disposition of Property by the Borrower and its Subsidiaries during such fiscal
year (other than sales of inventory in the ordinary course of business), to the
extent deducted in arriving at such Consolidated Net Income and (v) the net
increase during such fiscal year (if any) in deferred tax accounts of the
Borrower over (b) the sum, without duplication, of (i) an amount equal to the
amount of all non-cash credits included in arriving at such Consolidated Net
Income, (ii) the aggregate amount actually paid by the Borrower and its
Subsidiaries in cash during such fiscal year on account of Capital Expenditures
(excluding the principal amount of Indebtedness incurred in connection with such
expenditures and any such expenditures financed with the proceeds of any
Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of
Revolving Credit Loans during such fiscal year to the extent accompanying
permanent optional reductions of the Revolving Credit Commitments and all
optional prepayments of the Tranche B Term Loans during such fiscal year, (iv)
the aggregate amount of all regularly scheduled principal payments of Funded
Debt (including, without limitation, the Tranche B Term Loans) of the Borrower
and its Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) increases in Consolidated Working
Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash
gain on the Disposition of Property by the Borrower and its Subsidiaries during
such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net Income,
and (vii) the net decrease during such fiscal year (if any) in deferred tax
accounts of the Borrower.
"Excess Cash Flow Application Date": as defined in Section 2.10(c).
---------------------------------
"Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect of
-----------------------------
which either (i) the pledge of 65% or more of the Capital Stock of such
Subsidiary as Collateral or (ii) the guaranteeing by such Subsidiary of the
Obligations, would, in the good faith judgment of the Borrower, result (or is
reasonably expected to result) in adverse tax
<PAGE>
11
consequences to the Borrower.
"Facility": each of (a) the Tranche B Term Loan Commitments and the
--------
Tranche B Term Loans made thereunder (the "Tranche B Term Loan Facility") and
(b) the Revolving Credit Commitments and the extensions of credit made
thereunder (the "Revolving Credit Facility").
"Federal Funds Effective Rate"; for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Bank from
three federal funds brokers of recognized standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
------------------
Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person that
-----------
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date, including, without
limitation, all current maturities and current sinking fund payments in respect
of such Indebtedness whether or not required to be paid within one year from the
date of its creation and, in the case of the Borrower, Indebtedness in respect
of the Loans.
"Funding Office": the office of the Administrative Agent from time to
--------------
time specified by the Administrative Agent as its funding office by written
notice to the parties hereto.
"GAAP": generally accepted accounting principles in the United States
----
of America as in effect from time to time, except that for purposes of Section
7.1, GAAP shall be determined on the basis of such principles in effect on the
date hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered pursuant to Section 4.1(b). In the event
that any "Accounting Change" (as defined below) shall occur and such change
results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the Administrative
Agent agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the Borrower's financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not
been made. Until such time as such an amendment shall have been executed and
delivered by the Borrower, the Administrative Agent and the Required Lenders,
all financial covenants, standards and terms in this Agreement shall continue to
be calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.
<PAGE>
12
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, any securities exchange, self-
regulatory organization or the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
--------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any Property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Guarantors": the collective reference to Holdings and the Subsidiary
----------
Guarantors.
"Holdings": as defined in the preamble hereto.
--------
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of Property or services (other than
current trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention
<PAGE>
13
agreement with respect to Property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such Property), (e) all Capital
Lease Obligations of such Person, (f) all obligations of such Person, contingent
or otherwise, as an account party under acceptance, letter of credit or similar
facilities, (g) all obligations of such Person, contingent or otherwise, to
purchase, redeem, retire or otherwise acquire for value any Capital Stock (other
than common stock) of such Person, (h) all Guarantee Obligations of such Person
in respect of obligations of the kind referred to in clauses (a) through (g)
above; (i) all obligations of the kind referred to in clauses (a) through (h)
above secured by (or for which the holder of such obligation has an existing
right, contingent or otherwise, to be secured by) any Lien on Property
(including, without limitation, accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation, (j) for the purposes of Section 8(e) only, all obligations
of such Person in respect of Interest Rate Protection Agreements and (k) the
liquidation value of any preferred Capital Stock of such Person or its
Subsidiaries held by any Person other than such Person and its Wholly Owned
Subsidiaries.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day
---------------------
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any Eurodollar
Loan having an Interest Period of three months or less, the last day of such
Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day which is three months, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such Interest
Period and (d) as to any Loan (other than any Revolving Credit Loan that is a
Base Rate Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; provided that, all of the
foregoing provisions relating to Interest Periods are subject to the following:
<PAGE>
14
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Revolving Credit Termination Date or beyond the date final
payment is due on the Tranche B Term Loans shall end on the Revolving
Credit Termination Date or such due date, as applicable;
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month; and
(iv) the Borrower shall select Interest Periods so as not
to require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
----------------------------------
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which the Borrower or
any of its Subsidiaries is a party or a beneficiary on the date hereof or
becomes a party or a beneficiary after the date hereof.
"Issuing Lender": Fleet Capital Corporation, in its capacity as
--------------
issuer of any Letter of Credit.
"Joint Ventures": collectively, Yanci Services Company, a Georgia
--------------
general partnership, and Health Care Financial Services Associates, a Georgia
joint venture.
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Credit Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
----------------
Credit Lenders other than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
<PAGE>
15
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loan Documents": this Agreement, the Security Documents, the
--------------
Applications and the Notes.
"Loan Parties": Holdings, the Borrower and each Subsidiary of the
------------
Borrower which is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the Tranche
B Term Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or, in the case of the Revolving Credit
Facility, prior to any termination of the Revolving Credit Commitments, the
holders of more than 50% of the Total Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
------------------------------------------
Lenders in respect of the Revolving Credit Facility.
"Master Collectors": Master Collectors of Dallas, Inc., a Texas
-----------------
corporation.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
Acquisition, (b) the business, assets, property or condition (financial or
otherwise) of the Borrower and its Subsidiaries taken as a whole or (c) the
validity or enforceability of this Agreement or any of the other Loan Documents
or the rights or remedies of the Agents or the Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrower
-----------------------------
and/or its Subsidiaries in excess of $250,000 for remedial costs, compliance
costs, compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or
<PAGE>
16
installment receivable or purchase price adjustment receivable or otherwise, but
only as and when received) of such Asset Sale or Recovery Event, net of
attorneys' fees, accountants' fees, investment banking fees, amounts required to
be applied to the repayment of Indebtedness secured by a Lien expressly
permitted hereunder on any asset which is the subject of such Asset Sale or
Recovery Event (other than any Lien pursuant to a Security Document) and other
customary fees and expenses actually incurred in connection therewith and net of
taxes paid or reasonably estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of debt securities
or instruments or the incurrence of loans, the cash proceeds received from such
issuance or incurrence, net of attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
------------------
"Non-U.S. Lender": as defined in Section 2.18(d).
---------------
"Notes": the collective reference to any promissory note evidencing
-----
Loans.
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Administrative Agent or to
any Lender (or, in the case of Interest Rate Protection Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document,
the Letters of Credit, any Interest Rate Protection Agreement entered into with
any Lender or any affiliate of any Lender or any other document made, delivered
or given in connection herewith or therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees, charges and disbursements of counsel
to the Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"Participant": as defined in Section 10.6(b).
-----------
"Payment Office": the office of the Administrative Agent from time to
--------------
time specified by the Administrative Agent as its payment office to the other
parties hereto.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
<PAGE>
17
"Permitted Acquisition": any acquisition of all or substantially all
---------------------
the assets of, or shares or other equity interests in, a Person or division or
line of business of a Person (or any subsequent investment made in a previously
acquired Permitted Acquisition) if immediately after giving effect thereto: (a)
no Default or Event of Default shall have occurred and be continuing or would
result therefrom, (b) all transactions related thereto shall be consummated in
accordance with applicable laws in all material respects, (c) any acquired or
newly formed corporation, partnership, association or other business entity
shall be owned by the Borrower or a domestic Wholly Owned Subsidiary and all
actions required to be taken, if any, with respect to such acquired or newly
formed Subsidiary under Section 6.9 shall have been taken, (d) unless the
Consolidated Total Debt Ratio on a pro forma basis after giving effect to such
acquisition or formation recomputed as of the last day of the most recently
ended fiscal quarter of the Borrower and the Subsidiaries as if such acquisition
and related financings or other transactions had occurred on the first day of
each relevant period for testing such compliance shall be less than 3.50 to
1.00, any acquired or newly formed corporation, partnership, association or
other business entity shall have had a positive cash flow for its most recently
ended fiscal year, provided that if the Consolidated Total Debt Ratio on a pro
forma basis after giving effect to such acquisition or formation recomputed as
of the last day of the most recently ended fiscal quarter of the Borrower and
the Subsidiaries as if such acquisition and related financings or other
transactions had occurred on the first day of each relevant period for testing
such compliance shall be greater than or equal to 3.50 to 1.00, the requirement
stated in this clause (d) shall not apply in respect of investments the
aggregate consideration of which shall not exceed $5,000,000 and (e)(i) the
Consolidated Total Debt Ratio on a pro forma basis after giving effect to such
acquisition or formation, including an adjustment for any cost savings permitted
by Regulation S-X of the Securities Act of 1933, as amended, recomputed as at
the last day of the most recently ended fiscal quarter of the Borrower and the
Subsidiaries as if such acquisition and related financings or other transactions
had occurred on the first day of each relevant period for testing such
compliance shall be less than 4.75 to 1.00, and, if the amount of such
investment or series of related investments exceeds $3,000,000, then the
Borrower shall have delivered to the Administrative Agent an officers'
certificate to such effect, together with all relevant financial information for
such Subsidiary or assets, and (ii) any acquired or newly formed Subsidiary
shall not be liable for any Indebtedness (except for Indebtedness permitted by
Section 7.2).
"Permitted Investors": the collective reference to the Equity
-------------------
Investors and their Control Investment Affiliates.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by Title IV of ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
<PAGE>
18
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
-----------------------
"Projections": as defined in Section 6.2(c).
-----------
"Properties": as defined in Section 4.17(a).
----------
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Capital Stock; it being understood, for the
avoidance of doubt, that to the extent any Loan Party has no right or interest
in a trust account established in the ordinary course of its debt collateral
business such trust account shall not be deemed to be "Property".
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of Holdings, the Borrower or any of its Subsidiaries.
"Reference Bank": Citibank, N.A.
--------------
"Register": as defined in Section 10.6(d).
--------
"Regulation G": Regulation G of the Board as in effect from time to
------------
time.
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by Holdings, the Borrower or any
of its Subsidiaries in connection therewith which are not applied to prepay the
Tranche B Term Loans or reduce the Revolving Credit Commitments pursuant to
Section 2.10(b) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of which
------------------
the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring one year after such Reinvestment
Event and (b) the date
<PAGE>
19
on which the Borrower shall have determined not to, or shall have otherwise
ceased to, acquire assets useful in the Borrower's business with all or any
portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under regulations promulgated under Title IV of ERISA.
"Required Lenders": the holders of more than 50% of (a) until the
----------------
Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate
unpaid principal amount of the Tranche B Term Loans and (ii) the Total Revolving
Credit Commitments or, if the Revolving Credit Commitments have been terminated,
the Total Revolving Extensions of Credit.
"Required Prepayment Lenders": the Majority Facility Lenders in
---------------------------
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Responsible Officer": the chief executive officer, president or
-------------------
chief financial officer, vice-president finance or controller of the Borrower,
but in any event, with respect to financial matters, the chief financial
officer, vice-president finance or controller of the Borrower.
"Restricted Payment": as defined in Section 7.6.
------------------
"Revolving Credit Commitment": as to any Lender, the obligation of
---------------------------
such Lender, if any, to make Revolving Credit Loans and participate in Letters
of Credit, in an aggregate principal and/or face amount not to exceed the amount
set forth under the heading "Revolving Credit Commitment" opposite such Lender's
name on Schedule 1.1A or in the Assignment and Acceptance pursuant to which such
Revolving Credit Lender became a party hereto, as the same may be changed from
time to time pursuant to the terms hereof. The original amount of the Total
Revolving Credit Commitments is $35,000,000.
"Revolving Credit Commitment Period": the period from and including
----------------------------------
the Closing Date to the Revolving Credit Termination Date.
"Revolving Credit Lender": each Lender which has a Revolving Credit
-----------------------
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
----------------------
<PAGE>
20
"Revolving Credit Percentage": as to any Revolving Credit Lender at
---------------------------
any time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the Total Revolving Credit Commitments (or, at any time after the
Revolving Credit Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Revolving Credit Loans
then outstanding constitutes of the aggregate principal amount of the Revolving
Credit Loans then outstanding).
"Revolving Credit Termination Date": the sixth anniversary of the
---------------------------------
Closing Date.
"Revolving Extensions of Credit": as to any Revolving Credit Lender
------------------------------
at any time, an amount equal to the sum of (a) the aggregate principal amount of
all Revolving Credit Loans made by such Lender then outstanding and (b) such
Lender's Revolving Credit Percentage of the L/C Obligations then outstanding.
"SEC": the Securities and Exchange Commission (or successors thereto
---
or an analogous Governmental Authority).
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any Property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.
"Senior Note Indenture": the Indenture entered into by the Borrower
---------------------
and certain of its Subsidiaries in connection with the issuance of the Senior
Notes, together with all instruments and other agreements entered into by the
Borrower or such Subsidiaries in connection therewith, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
Section 7.9.
"Senior Notes": the notes of the Borrower issued on the Closing Date
------------
pursuant to the Senior Note Indenture.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach
<PAGE>
21
gives rise to a right to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured or unmatured,
disputed, undisputed, secured or unsecured.
"Specified Change of Control": a "Change of Control" as defined in
---------------------------
the Senior Note Indenture.
"Specified Entities": collectively, any Wholly Owned Foreign
------------------
Subsidiary, the Joint Ventures and Master Collectors.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall (i)
refer to a Subsidiary or Subsidiaries of the Borrower and (ii) exclude the Joint
Ventures.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than
--------------------
any Excluded Foreign Subsidiary and Master Collectors.
"Syndication Agent": as defined in the preamble hereto.
-----------------
"Total Revolving Credit Commitments": at any time, the aggregate
----------------------------------
amount of the Revolving Credit Commitments at such time.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Revolving Credit Lenders at
such time.
"Tranche B Term Loan": as defined in Section 2.1.
-------------------
"Tranche B Term Loan Commitment": as to any Lender, the obligation of
------------------------------
such Lender, if any, to make a Tranche B Term Loan to the Borrower hereunder in
a principal amount not to exceed the amount set forth under the heading "Tranche
B Term Loan Commitment" opposite such Lender's name on Schedule 1.1A or in the
Assignment and Acceptance pursuant to which such Lender became a party hereto.
The original aggregate amount of the Tranche B Term Loan Commitments is
$25,000,000.
"Tranche B Term Loan Lender": each Lender which has a Tranche B Term
--------------------------
Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any time, the
------------------------------
percentage which such Lender's Tranche B Term Loan Commitment then constitutes
of the aggregate Tranche B Term Loan Commitments (or, at any time after the
Closing Date, the percentage which the aggregate principal amount of such
Lender's Tranche B Term Loans then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding).
<PAGE>
22
"Transferee": as defined in Section 10.15.
----------
"Type": as to any Loan, its nature as a Base Rate Loan or a
----
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
-------------
"Wholly Owned Foreign Subsidiary": any Foreign Subsidiary that is a
-------------------------------
Wholly Owned Subsidiary.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to Holdings, the Borrower and its Subsidiaries not
defined in Section 1.1 and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Tranche B Term Loan Commitments. Subject to the terms and
-------------------------------
conditions hereof, each Tranche B Term Loan Lender severally agrees to make a
term loan (a "Tranche B Term Loan") to the Borrower on the Closing Date in an
amount not to exceed the amount of the Tranche B Term Loan Commitment of such
Lender. The Tranche B Term Loans may from time to time be Eurodollar Loans or
Base Rate Loans, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.2 and 2.11.
2.2 Procedure for Tranche B Term Loan Borrowing. The Borrower shall
-------------------------------------------
give the
<PAGE>
23
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, (a) one Business
Day prior to the anticipated Closing Date in the case of Eurodollar Loans and
(b) on the Closing Date in the case of Base Rate Loans) requesting that the
Tranche B Term Loan Lenders make the Tranche B Term Loans on the Closing Date,
specifying the amount to be borrowed and the Type of Tranche B Term Loans to be
borrowed and, in the case of Eurodollar Loans, the length of the initial
Interest Period therefor. Upon receipt of such notice the Administrative Agent
shall promptly notify each Tranche B Term Loan Lender thereof. Not later than
12:00 Noon, New York City time, on the Closing Date each Tranche B Term Loan
Lender shall make available to the Administrative Agent at the Funding Office an
amount in immediately available funds equal to the Tranche B Term Loan or
Tranche B Term Loans to be made by such Lender. The Administrative Agent shall
make available to the Borrower with the aggregate of the amounts made available
to the Administrative Agent by the Tranche B Term Loan Lenders in immediately
available funds.
2.3 Repayment of Tranche B Term Loans. The Tranche B Term Loan of
---------------------------------
each Tranche B Lender shall mature in 28 consecutive quarterly installments,
commencing on March 31, 1998, each of which shall be in an amount equal to such
Lender's Tranche B Term Loan Percentage multiplied by the amount set forth below
opposite such installment:
Installment Principal Amount
----------- ----------------
March 31, 1998 $ 62,500
June 30, 1998 62,500
September 30, 1998 62,500
December 31, 1998 62,500
March 31, 1999 62,500
June 30, 1999 62,500
September 30, 1999 62,500
December 31, 1999 62,500
March 31, 2000 62,500
June 30, 2000 62,500
September 30, 2000 62,500
December 31, 2000 62,500
March 31, 2001 62,500
June 30, 2001 62,500
September 30, 2001 62,500
December 31, 2001 62,500
March 31, 2002 62,500
June 30, 2002 62,500
September 30, 2002 62,500
December 31, 2002 62,500
March 31, 2003 62,500
June 30, 2003 62,500
September 30, 2003 62,500
December 31, 2003 62,500
March 31, 2004 5,875,000
June 30, 2004 5,875,000
September 30, 2004 5,875,000
December 31, 2004 5,875,000
<PAGE>
24
2.4 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding, does not exceed the
amount of such Lender's Revolving Credit Commitment. During the Revolving
Credit Commitment Period the Borrower may use the Revolving Credit Commitments
by borrowing, prepaying the Revolving Credit Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. The
Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate
Loans, as determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.5 and 2.11, provided that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Revolving Credit Termination Date.
(b) The Borrower shall repay all outstanding Revolving Credit Loans
on the Revolving Credit Termination Date.
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent (a) prior to 12:00 Noon, New York City time, three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) prior to 10:00 A.M., New York City time, on the requested Borrowing Date, in
the case of Base Rate Loans), specifying (i) the amount and Type of Revolving
Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the
case of Eurodollar Loans, the length of the initial Interest Period therefor.
Each borrowing under the Revolving Credit Commitments shall be in an amount
equal to (x) in the case of Base Rate Loans, $500,000 or a whole multiple of
$100,000 in excess thereof (or, if the then aggregate Available Revolving Credit
Commitments are less than $500,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Revolving Credit Lender thereof. Each
Revolving Credit Lender will make the amount of its pro rata share of each
borrowing available to the Administrative Agent for the account of the Borrower
at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing
Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent in like funds as received by the
Administrative Agent.
2.6 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
------------------------------------
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Credit Lender or Tranche B Term Loan Lender, as the
case may be, (i) the then unpaid principal amount of each Revolving Credit Loan
of such Revolving Credit Lender on the Revolving Credit Termination Date (or on
such earlier date on which the Loans become due and payable pursuant to Section
8) and (ii) the principal amount of each Tranche B Term Loan of such Tranche B
Term Loan Lender in installments according to the amortization schedule set
forth in Section 2.3 (or on such earlier date on which the Loans become due and
payable pursuant to Section 8). The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in Section 2.13.
<PAGE>
25
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall
maintain the Register pursuant to Section 10.6(d), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Loan made
hereunder and any Note evidencing such Loan, the Type thereof and each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) both the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(c) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing any Tranche B Term Loans or Revolving
Credit Loans, as the case may be, of such Lender, substantially in the forms of
Exhibit F-1 or F-2, respectively, with appropriate insertions as to date and
principal amount.
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Syndication Agent the fees in
the amounts and on the dates previously agreed to in writing by the Borrower and
the Syndication Agent.
(c) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates from time to time agreed to in writing by the
Borrower and the Administrative Agent.
2.8 Termination or Reduction of Revolving Credit Commitments. The
--------------------------------------------------------
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments; provided
that no such termination or reduction of Revolving Credit Commitments shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the Total Revolving
Extensions of
<PAGE>
26
Credit would exceed the Total Revolving Credit Commitments. Any such reduction
shall be in an amount equal to $500,000, or a whole multiple of $100,000 in
excess thereof, and shall reduce permanently the Revolving Credit Commitments
then in effect.
2.9 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of Base Rate Loans, which notice shall specify the
date and amount of prepayment and whether the prepayment is of Eurodollar Loans
or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.19. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with (except in the
case of Revolving Credit Loans which are Base Rate Loans) accrued interest to
such date on the amount prepaid. Partial prepayments of Tranche B Term Loans
and Revolving Credit Loans shall be in an aggregate principal amount of $500,000
or a whole multiple of $100,000 in excess thereof.
2.10 Mandatory Prepayments and Commitment Reductions. (a) Unless
-----------------------------------------------
the Required Prepayment Lenders shall otherwise agree, if any Indebtedness shall
be incurred by Holdings, the Borrower or any of its Subsidiaries (excluding any
Indebtedness permitted by Section 7.2 of this Agreement), an amount equal to
100% of the Net Cash Proceeds thereof shall be applied on the date of such
issuance or incurrence toward the prepayment of the Tranche B Term Loans and the
reduction of the Revolving Credit Commitments as set forth in Section 2.10(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date Holdings, the Borrower or any of its Subsidiaries shall receive Net
Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Tranche B Term Loans and the
reduction of the Revolving Credit Commitments as set forth in Section 2.10(d);
provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash
Proceeds of Asset Sales and Recovery Events that may be excluded from the
foregoing requirement pursuant to a Reinvestment Notice shall not exceed
$3,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Tranche B Term Loans and the reduction of the Revolving Credit
Commitments as set forth in Section 2.10(d).
(c) Unless the Required Prepayment Lenders shall otherwise agree, if,
for any fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1998, there shall be Excess Cash Flow, the Borrower shall, on the
relevant Excess Cash Flow Application Date, apply the ECF Percentage of such
Excess Cash Flow toward the prepayment of the Tranche B Term Loans and the
reduction of the Revolving Credit Commitments as set forth in Section 2.10(d).
Each such prepayment and commitment reduction shall be made on a date (an
"Excess Cash Flow Application Date") no later than five days after the earlier
of (i) the date on which the financial statements of the Borrower referred to in
Section 6.1(a), for the fiscal year with respect to which such prepayment is
made, are required to be delivered to the Lenders and (ii) the date
<PAGE>
27
such financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.10 shall be applied, first, to
the prepayment of the Tranche B Term Loans and, second, except in the case of
Section 2.10(c), to reduce permanently the Revolving Credit Commitments. Any
such reduction of the Revolving Credit Commitments shall be accompanied by
prepayment of the Revolving Credit Loans to the extent, if any, that the Total
Revolving Extensions of Credit exceed the amount of the Total Revolving Credit
Commitments as so reduced, provided that if the aggregate principal amount of
Revolving Credit Loans then outstanding is less than the amount of such excess
(because L/C Obligations constitute a portion thereof), the Borrower shall, to
the extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established with
the Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment
pursuant to Section 2.10 shall be made first to Base Rate Loans and second to
Eurodollar Loans. Each prepayment of the Loans under Section 2.10 (except in
the case of Revolving Credit Loans that are Base Rate Loans) shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
2.11 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election (which notice shall specify the length of the initial
Interest Period therefor), provided that no Base Rate Loan under a particular
Facility may be converted into a Eurodollar Loan (i) when any Event of Default
has occurred and is continuing and the Administrative Agent or the Majority
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such conversions or (ii) after the date that is
one month prior to the final scheduled termination or maturity date of such
Facility. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1 of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the final scheduled termination
or maturity date of such Facility, and provided, further, that if the Borrower
shall fail to give any required notice as described above in this paragraph or
if such continuation is not permitted pursuant to the preceding proviso such
Loans shall be automatically converted to Base Rate Loans on the last day of
such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches.
---------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of
<PAGE>
28
Interest Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no
more than six Eurodollar Tranches shall
be outstanding at any one time.
2.13 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.13
plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to
Base Rate Loans under the Revolving Credit Facility plus 2%, and (ii) if all or
a portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate applicable to
Base Rate Loans under the relevant Facility plus 2% (or, in the case of any such
other amounts that do not relate to a particular Facility, the Base Rate plus
4%), in each case, with respect to clauses (i) and (ii) above, from the date of
such non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
2.13 shall be payable from time to time on demand.
2.14 Computation of Interest and Fees. (a) Interest, fees and
--------------------------------
commissions payable pursuant hereto shall be calculated on the basis of a 360-
day year for the actual days elapsed, except that, with respect to Base Rate
Loans the rate of interest on which is calculated on the basis of the Prime
Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the relevant Lenders
of each determination of a Eurodollar Rate. Any change in the interest rate on
a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
<PAGE>
29
2.15 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be converted, on the last day of the then current
Interest Period, to Base Rate Loans. Until such notice has been withdrawn by
the Administrative Agent, no further Eurodollar Loans under the relevant
Facility shall be made or continued as such, nor shall the Borrower have the
right to convert Loans under the relevant Facility to Eurodollar Loans.
2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made according to the respective Tranche B Term Loan Percentages or Revolving
Credit Percentages, as the case may be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Tranche B Term Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Tranche B Term Loans then held by the Tranche B Term Loan Lenders. The amount
of each principal prepayment of the Tranche B Term Loans shall be applied to
reduce the then remaining installments of the Tranche B Term Loans pro rata
based upon the then remaining principal amount thereof. Amounts prepaid on
account of the Tranche B Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Payment Office, in
<PAGE>
30
Dollars and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the Eurodollar Loans)
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day. If any payment on a Eurodollar
Loan becomes due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day unless the result
of such extension would be to extend such payment into another calendar month,
in which event such payment shall be made on the immediately preceding Business
Day. In the case of any extension of any payment of principal pursuant to the
preceding two sentences, interest thereon shall be payable at the then
applicable rate during such extension.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 2.16(e) shall
be conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to Base Rate Loans under the relevant Facility, on demand,
from the Borrower.
(f) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.17 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.18 and changes in the rate of tax on, or the
<PAGE>
31
establishment of a tax based on, the net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes
entitled to claim any additional amounts pursuant to this Section 2.17, it shall
promptly notify the Borrower (with a copy to the Administrative Agent) of the
event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between such Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other
<PAGE>
32
Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes
are required to be withheld from any amounts payable to any Agent or any Lender
hereunder, the amounts so payable to such Agent or such Lender shall be
increased to the extent necessary to yield to such Agent or such Lender (after
payment of all Non-Excluded Taxes and Other Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section, (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to Section 2.18(a) or (iii) that are imposed solely as a result of
action taken by the Lender.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the relevant Agent or Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Agents the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by any
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.18 shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
(d) Each Lender (or Transferee) that is not a U.S. Person as defined
in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the
Borrower and the Administrative Agent (or, in the case of a Participant, to the
Lender from which the related participation shall have been purchased) two
copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in
the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest" a statement substantially in the form of Exhibit H and a
Form W-8, or any subsequent versions thereof or successors thereto properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from, or a reduced rate of, U.S. federal withholding tax on all payments by the
Borrower under this Agreement and the other Loan Documents. Such forms shall be
delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of any Participant, on or before the date such
Participant purchases the related participation). In addition, each Non-U.S.
Lender shall deliver such forms promptly upon the obsolescence or invalidity of
any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender
shall promptly notify the Borrower at any time it determines that it is no
longer in a position to provide any previously delivered certificate to the
Borrower (or any other form of certification adopted by the U.S. taxing
authorities for such purpose). Notwithstanding any other provision of this
Section 2.18(d), a Non-U.S. Lender shall not be required to deliver any form
pursuant to this Section 2.18(d) that such Non-U.S. Lender is not legally able
to deliver.
<PAGE>
33
(e) A Lender that is entitled to an exemption from or reduction of
any other tax with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law or reasonably requested by the Borrower, such
properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate,
provided that such Lender is legally entitled to complete, execute and deliver
such documentation and in such Lender's reasonable judgment such completion,
execution or submission would not materially prejudice the legal position of
such Lender.
(f) If the Administrative Agent or any Lender (or Transferee)
receives a refund in respect of Non-Excluded Taxes paid by the Borrower, which
in the good faith judgment of such Lender is allocable to such payment, it shall
promptly pay such refund, together with any other amounts paid by the Borrower
in connection with such refunded Non-Excluded Taxes, to the Borrower, net of all
out-of-pocket expenses of such Lender incurred in obtaining such refund,
provided, however, that the Borrower agrees to promptly return such refund to
the Administrative Agent or the applicable Lender (or Transferee), as the case
may be, if it receives notice from the Administrative Agent or applicable Lender
(or Transferee) that such Administrative Agent or Lender (or Transferee) is
required to repay such refund.
2.19 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. A certificate as to any amounts payable pursuant to this Section 2.19
submitted to the Borrower by any Lender shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.20 Illegality. Notwithstanding any other provision herein, if the
----------
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If
<PAGE>
34
any such conversion of a Eurodollar Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, the Borrower shall
pay to such Lender such amounts, if any, as may be required pursuant to Section
2.19.
2.21 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.17, 2.18, or
2.20 with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section 2.21 shall
affect or postpone any of the obligations of any Borrower or the rights of any
Lender pursuant to Section 2.17, 2.18 or 2.20.
2.22 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to Section 2.17 or 2.18 or (b) defaults
in its obligation to make Loans hereunder, with a replacement financial
institution; provided that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) prior to any such replacement,
such Lender shall have taken no action under Section 2.21 so as to eliminate the
continued need for payment of amounts owing pursuant to Section 2.17 or 2.18,
(iv) the replacement financial institution shall purchase, at par, all Loans and
other amounts owing to such replaced Lender on or prior to the date of
replacement, (v) the Borrower shall be liable to such replaced Lender under
Section 2.19 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 10.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.17 or 2.18, as the case may be,
and (ix) any such replacement shall not be deemed to be a waiver of any rights
which the Borrower, the Administrative Agent or any other Lender shall have
against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters
of Credit") for the account of the Borrower on any Business Day during the
Revolving Credit Commitment Period in such form as may be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Revolving Credit Commitments would be less
than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii)
expire no later than the earlier of (x) the first anniversary of its date of
issuance and (y) the date which is five Business Days prior to the Revolving
Credit Termination Date, provided that any Letter of Credit with a one-year term
may provide for the renewal thereof for additional one-year periods (which shall
in no event extend beyond the date referred to in clause (y) above).
<PAGE>
35
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
3.3 Commissions, Fees and Other Charges. (a) The Borrower will pay
-----------------------------------
a commission on the average daily amount of all outstanding Letters of Credit at
a per annum rate equal to the Applicable Margin then in effect with respect to
Eurodollar Loans under the Revolving Credit Facility, shared ratably among the
Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee
Payment Date after the issuance date. In addition, the Borrower shall pay to
the Issuing Lender for its own account a fronting fee of 1/4 of 1% per annum of
the undrawn and unexpired amount of the Letter of Credit, payable quarterly in
arrears on each L/C Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Lender for such normal and customary costs
and expenses as are incurred or charged by the Issuing Lender in issuing,
negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal
<PAGE>
36
to such L/C Participant's Revolving Credit Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans under the Revolving Credit Facility. A certificate
of the Issuing Lender submitted to any L/C Participant with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
provided, however, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall
be payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in
Section 2.13(c). Each drawing under any Letter of Credit shall (unless an event
of the type described in clause (i) or (ii) of Section 8(f) shall have occurred
and be continuing with respect to the Borrower, in which case the procedures
specified in Section 3.4 for funding by L/C Participants shall apply) constitute
a request by the Borrower to the Administrative Agent for a borrowing pursuant
to Section 2.5 of Base Rate Loans in the amount of such drawing. The Borrowing
Date with respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing
<PAGE>
37
Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower
also agrees with the Issuing Lender that the Issuing Lender shall not be
responsible for, and the Borrower's Reimbursement Obligations under Section 3.5
shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Issuing Lender. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards or care specified in
the Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender to the
Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
------------
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement and
to make the Loans and issue or participate in the Letters of Credit, Holdings
and the Borrower hereby jointly and severally represent and warrant to each
Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
-------------------
balance sheet of the Borrower and its consolidated Subsidiaries as at September
30, 1997 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies
of which have heretofore been furnished to each Lender, has been prepared giving
effect (as if such events had occurred on such date) to (i) the consummation of
the Acquisition, (ii) the Loans to be made and the Senior Notes to be issued on
the Closing Date and the use of proceeds thereof and (iii) the payment of fees
and expenses in connection with the foregoing. The Pro Forma Balance Sheet has
been prepared based on the best information available to the Borrower as of the
date of delivery thereof, and presents fairly on a pro forma basis the estimated
financial position of Borrower and its consolidated Subsidiaries as at September
30, 1997, assuming that the events specified in the preceding sentence had
actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower (i) as at
December
<PAGE>
38
31, 1996, and the related consolidated statements of income and of cash flows
for the fiscal year ended on such date, reported on by and accompanied by an
unqualified report from Ernst & Young L.L.P., present fairly the consolidated
financial condition of the Borrower as at such date, and the consolidated
results of its operations and its consolidated cash flows for the fiscal year
then ended. The audited consolidated balance sheet of the Borrower as at
September 30, 1997 and the related consolidated statements of income and of cash
flows for the nine month period ended on such date, reported on by and
accompanied by an unqualified report from Ernst & Young L.L.P., present fairly
the consolidated financial condition of the Borrower as at such date, and the
consolidated results of its operations and its consolidated cash flows for the
nine month period then ended. The unaudited consolidated balance sheet of the
Borrower as at November 30, 1997, and the related unaudited consolidated
statements of income and cash flows for the eleven month period ended on such
date, present fairly the consolidated financial condition of the Borrower as at
such date, and the consolidated results of its operations and its consolidated
cash flows for the eleven month period then ended (subject to normal year-end
audit adjustments and accounting adjustments described on Schedule 4.1). All
such financial statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by the aforementioned firm of accountants
and disclosed therein). Holdings, the Borrower and its Subsidiaries do not have
any material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction or other obligation in respect of derivatives, which are
not reflected in the most recent financial statements referred to in this
paragraph (b). During the period from September 30, 1997 to and including the
date hereof there has been no Disposition by the Borrower of any material part
of its business or Property other than the Acquisition and subsequent merger.
4.2 No Change. Except as set forth in Schedule 4.2 (which matter is
---------
set forth for purposes of disclosure and has not had and could not reasonably be
expected to have a Material Adverse Effect), since September 30, 1997, there has
been no development or event which has had or could reasonably be expected to
have a Material Adverse Effect.
4.3 Corporate Existence; Compliance with Law. Each of Holdings, the
----------------------------------------
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Acquisition and the borrowings
<PAGE>
39
hereunder or the operation of the Borrower's business following the Closing Date
or with the execution, delivery, performance, validity or enforceability of this
Agreement or any of the Loan Documents, except (i) consents, authorizations,
filings and notices described in Schedule 4.4, as to which the failure to obtain
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect and (ii) the filings referred to in Section 4.19. Each Loan Document has
been duly executed and delivered on behalf of each Loan Party party thereto.
This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of each Loan Party party
thereto, enforceable against each such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of Holdings, the Borrower or
any of its Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of their respective properties or revenues
pursuant to any Requirement of Law or any such Contractual Obligation (other
than the Liens created by the Security Documents). No Requirement of Law or
Contractual Obligation applicable to the Borrower or any of its Subsidiaries
could reasonably be expected to have a Material Adverse Effect.
4.6 No Material Litigation. Except as set forth in Schedule 4.6
----------------------
(which matter is set forth for purposes of disclosure and has not had and could
not reasonably be expected to have a Material Adverse Effect), no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of Holdings or the Borrower,
threatened by or against Holdings, the Borrower or any of its Subsidiaries or
against any of their respective properties or revenues (a) with respect to any
of the Loan Documents or any of the transactions contemplated hereby or thereby,
or (b) which could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither Holdings, the Borrower nor any of its
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of Holdings, the Borrower and
----------------------------
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its material real property, and good title to, or a valid leasehold interest
in, all its other material Property, and none of such Property is subject to any
Lien except as permitted by Section 7.3.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries
---------------------
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
Holdings or Borrower know of any valid basis for any such claim. The use of
Intellectual Property by Holdings, the Borrower and its Subsidiaries does not
infringe on the rights of any Person in any material respect.
<PAGE>
40
4.10 Taxes. Except as set forth in Schedule 4.10, each of Holdings,
-----
the Borrower and each of its Subsidiaries has filed or caused to be filed all
Federal, state and other material tax returns which are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its Property and all other taxes, fees or
other charges imposed on it or any of its Property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of Holdings, the Borrower
or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to
the knowledge of Holdings and the Borrower, no material claim is being asserted,
with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U as now
and from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation G or
Regulation U, as the case may be.
4.12 Labor Matters. There are no strikes or other labor disputes
-------------
against Holdings, the Borrower or any of its Subsidiaries pending or, to the
knowledge of Holdings or the Borrower, threatened that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect.
Hours worked by and payment made to employees of Holdings, the Borrower and its
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Requirement of Law dealing with such matters that (individually
or in the aggregate) could reasonably be expected to have a Material Adverse
Effect. All payments due from Holdings, the Borrower or any of its Subsidiaries
on account of employee health and welfare insurance that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect if not
paid have been paid or accrued as a liability on the books of Holdings, the
Borrower or the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA to the Borrower, and the Borrower could not reasonably be
expected to become subject to any material liability under ERISA if the Borrower
or any such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the date on
which this representation is made or deemed made. No such Multiemployer
<PAGE>
41
Plan is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 Subsidiaries. (a) Schedule 4.15 sets forth as of the Closing
------------
Date the name and jurisdiction of incorporation of each Subsidiary and, as to
each such Subsidiary, the percentage of each class of Capital Stock owned by any
Loan Party.
(b) There are no outstanding subscriptions, options, warrants, calls,
rights or other agreements or commitments (other than stock options granted to
employees or directors and directors' qualifying shares) of any nature relating
to any Capital Stock of the Borrower or any Subsidiary.
4.16 Use of Proceeds. The proceeds of the Tranche B Term Loans shall
---------------
be used to refinance the Acquisition Facility and to pay related fees and
expenses. The proceeds of the Revolving Credit Loans and the Letters of Credit
shall be used for general corporate purposes in the ordinary course of business
and to finance Permitted Acquisitions.
4.17 Environmental Matters. Except as individually or in the
---------------------
aggregate could not reasonably be expected to result in the payment of a
Material Environmental Amount:
(a) The facilities and properties owned, leased or operated by
Holdings, the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations or under circumstances which (i) constitute
or constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law.
(b) The Properties and all operations at the Properties are in
material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated by
Holdings, the Borrower or any of its Subsidiaries (the "Business") which could
materially interfere with the continued operation of the Properties or
materially impair the fair saleable value thereof. Neither Holdings, the
Borrower nor any of its Subsidiaries has assumed any liability of any other
Person under Environmental Laws.
(c) Neither Holdings, the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation, non-
compliance, liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the Properties or the
Business, nor does Holdings or the Borrower have knowledge or reason to believe
that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could give rise to liability under, any Environmental Law, nor have any
Materials of Environmental Concern been
<PAGE>
42
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could give rise to liability under, any
applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of Holdings and the Borrower, threatened, under
any Environmental Law to which Holdings, the Borrower or any Subsidiary is or
will be named as a party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties or the
Business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of Holdings, the Borrower or any Subsidiary in connection with
the Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could give rise to liability under Environmental
Laws.
4.18 Accuracy of Information, etc. No statement or information
----------------------------
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other material document, certificate or statement
furnished to the Administrative Agent or the Lenders or any of them, by or on
behalf of any Loan Party for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents, contained as of the
date such statement, information, document or certificate was so furnished (or,
in the case of the Confidential Information Memorandum, as of the date of this
Agreement), any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. The projections and pro forma financial information
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount. As of the
date hereof, the representations and warranties contained in the Acquisition
Agreement are true and correct in all material respects. There is no fact known
to any Loan Party that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein, in the other Loan
Documents, in the Confidential Information Memorandum or in any other documents,
certificates and statements furnished to the Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby and by
the other Loan Documents.
4.19 Security Documents. The Guarantee and Collateral Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements in appropriate form are filed in the
offices specified on Schedule 4.19 and such other filings as are specified on
Schedule 3 to the Guarantee and Collateral Agreement are made, the Guarantee and
Collateral Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the Guarantee and Collateral Agreement), in each case prior and superior in
right to any other Person (except, in the case of Collateral other
<PAGE>
43
than Pledged Stock, Liens permitted by Section 7.3).
4.20 Solvency. Each Loan Party is, and after giving effect to the
--------
Acquisition and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date (which date shall occur on or before
February 19, 1998), of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of
Holdings and the Borrower, (ii) the Guarantee and Collateral Agreement,
executed and delivered by a duly authorized officer of Holdings, the
Borrower and each Subsidiary Guarantor, and (iii) for the account of each
relevant Lender, Notes conforming to the requirements hereof and executed
and delivered by a duly authorized officer of the Borrower.
(b) Senior Notes. The Borrower shall have issued the Senior Notes
------------
for at least $100,000,000 in aggregate gross cash proceeds on terms and
conditions reasonably satisfactory to the Administrative Agent and the
Syndication Agent.
(c) Structure. The capital, tax and legal structure of each Loan
---------
Party after the financing contemplated hereby shall be as described in this
Agreement and in the Acquisition Documentation.
(d) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
---------------------------------------------
have received (i) the Pro Forma Balance Sheet, (ii) the audited
consolidated financial statements of the Borrower for the fiscal year ended
on December 31, 1996 and the nine-month period ended September 30, 1997 and
(iii) unaudited interim consolidated financial statements of the Borrower
for each fiscal month and quarterly period ended subsequent to the date of
the latest applicable financial statements delivered pursuant to clause
(ii) of this paragraph as to which such financial statements are available
(including as of and for the period ended November 30, 1997 and for such
subsequent periods as are available), and such financial statements shall
not, in the reasonable judgment of the Lenders, reflect any Material
Adverse Effect in the consolidated financial condition of the Borrower, as
reflected in the financial statements or projections contained in the
Confidential Information Memorandum.
(e) Approvals. All governmental and third party approvals (including
---------
landlords' consents and other consents and approvals necessary for the
conduct of the debt collection business of the Borrower and its
Subsidiaries in all material respects subsequent to the change of control
to occur as a result of the Acquisition) reasonably necessary or reasonably
advisable in connection with the Acquisition, the continuing operations of
the Borrower and its Subsidiaries and the transactions contemplated hereby
shall have been obtained and be in full force and effect, and all
applicable waiting periods shall have
<PAGE>
44
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Acquisition or the financing contemplated hereby.
(f) Related Agreements. The Syndication Agent shall have received
------------------
(in a form reasonably satisfactory to the Syndication Agent), with a copy
for each Lender, true and correct copies, certified as to authenticity by
the Borrower, of the Acquisition Agreement and such other documents or
instruments as may be reasonably requested by the Syndication Agent,
including, without limitation, a copy of the Senior Note Indenture and any
other debt instrument, security agreement or other material contract to
which the Loan Parties may be a party.
(g) Termination of Acquisition Facility. The Administrative Agent
-----------------------------------
shall have received evidence satisfactory to the Administrative Agent that
the Acquisition Credit Agreement shall be simultaneously terminated and all
amounts thereunder shall be simultaneously paid in full with the initial
borrowings under this Agreement.
(h) Fees. The Lenders, the Arranger, the Syndication Agent and the
----
Administrative Agent shall have received all fees required to be paid, and
all expenses for which invoices have been presented, including, without
limitation, the reasonable fees and expenses of legal counsel, on or before
the Closing Date.
(i) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Loan Parties except for liens permitted by Section
7.3 or discharged on or prior to the Closing Date pursuant to documentation
satisfactory to the Administrative Agent.
(j) Environmental Due Diligence. The Administrative Agent shall have
---------------------------
received reasonably satisfactory environmental due diligence results with
respect to the real properties owned or leased by the Borrower and its
Subsidiaries.
(k) Expenses. The Administrative Agent shall have received
--------
satisfactory evidence that the fees and expenses to be incurred in
connection with the Acquisition and the financing thereof shall not exceed
$10,250,000.
(l) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(m) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Weil, Gotshal & Manges LLP,
counsel to Holdings, the Borrower and its Subsidiaries, substantially
in the form of Exhibit E-1;
(ii) the legal opinion of Weil, Gotshal & Manges LLP,
delivered in connection with the Acquisition Documentation,
accompanied by a
<PAGE>
45
reliance letter in favor of the Lenders; and
(iii) the legal opinion of Troutman Sanders LLP, Georgia
counsel to the Borrower, substantially in the form of Exhibit E-2.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(n) Pledged Stock; Stock Power. The Administrative Agent shall have
--------------------------
received the certificates representing the shares of Capital Stock pledged
pursuant to the Guarantee and Collateral Agreement, together with an
undated stock power for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof.
(o) Filings, Registrations and Recordings. Each document (including,
-------------------------------------
without limitation, any Uniform Commercial Code financing statement)
required by the Security Documents or under law or reasonably requested by
the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(p) Insurance. The Administrative Agent shall have received
---------
insurance certificates satisfying the requirements of Section 5.3 of the
Guarantee and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or any Agent
hereunder, each of Holdings and the Borrower shall and shall cause each of its
Subsidiaries to:
6.1 Financial Statements. Furnish to each Agent and each Lender:
--------------------
<PAGE>
46
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Ernst & Young LLP or other independent
certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified (with respect to the 1998 fiscal year and thereafter) by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45 days
after the end of each month occurring during each fiscal year of the
Borrower (other than the third, sixth, ninth and twelfth such month), the
unaudited consolidated balance sheets of the Borrower and its Subsidiaries
as at the end of such month and the related unaudited consolidated
statements of income and of cash flows for such month and the portion of
the fiscal year through the end of such month, setting forth in each case
in comparative form the figures for the previous year, certified (with
respect to the 1998 fiscal year and thereafter) by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to each Agent and each
-------------------------------
Lender, or, in the case of clause (g), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no
<PAGE>
47
knowledge of any Default or Event of Default except as specified in such
certificate and (ii) in the case of quarterly or annual financial
statements, (x) a Compliance Certificate containing all information
necessary for determining compliance by Holdings, the Borrower and its
Subsidiaries with the provisions of this Agreement referred to therein as
of the last day of the fiscal quarter or fiscal year of the Borrower, as
the case may be, and (y) to the extent not previously disclosed to the
Administrative Agent, a listing of any county or state within the United
States where any Loan Party keeps inventory or equipment and of any
Intellectual Property acquired by any Loan Party since the date of the most
recent list delivered pursuant to this clause (y) (or, in the case of the
first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, and the related consolidated statements of projected
cash flow, projected changes in financial position and projected income),
and, as soon as available, significant revisions, if any, of such budget
and projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion
of the Projections covering such periods and to the comparable periods of
the previous year;
(e) to the extent approval is required by the Required Lenders
pursuant to Section 7.9, no later than 10 Business Days prior to the
effectiveness thereof, copies of substantially final drafts of any proposed
amendment, supplement, waiver or other modification with respect to the
Senior Note Indenture or the Acquisition Documentation;
(f) within five days after the same are sent, copies of all financial
statements and reports which Holdings or the Borrower sends to the holders
of any class of its debt securities or public equity securities and within
five days after the same are filed, copies of all financial statements and
reports which Holdings or the Borrower may make to, or file with, the SEC;
and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of Holdings, the Borrower or its Subsidiaries, as the case may be.
<PAGE>
48
6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i)
------------------------------------------------------
Preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all Property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its Property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
6.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of Holdings,
the Borrower and its Subsidiaries with officers and employees of Holdings, the
Borrower and its Subsidiaries and with its independent certified public
accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings, the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time between
Holdings, the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely determined,
as the case may be, could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding affecting Holdings, the Borrower or
any of its Subsidiaries in which the amount involved is $2,500,000 or more
and not covered by insurance or in which injunctive or similar relief is
sought;
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan, any of which are
reasonably likely to result in a material liability to the Borrower, or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any
<PAGE>
49
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or Insolvency of, any
Plan; and
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the Borrower or the relevant
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with,
------------------
and ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Additional Collateral, etc. (a) With respect to any Property
--------------------------
acquired after the Closing Date by Holdings, the Borrower or any of its
Subsidiaries (other than an Excluded Foreign Subsidiary) (other than any
Property described in paragraph (b), (c) or (d) below and real property having a
value (including improvements thereof) of less than $1,000,000) as to which the
Administrative Agent, for the benefit of the Lenders, does not have a perfected
Lien, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such Property and (ii) take all actions necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in such Property, including without limitation, the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
required by the Guarantee and Collateral Agreement or by law or as may be
requested by the Administrative Agent.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $1,000,000 acquired after
the Closing Date by Holdings, the Borrower or any of its Subsidiaries (other
than any such real property owned by an Excluded Foreign Subsidiary or subject
to a Lien expressly permitted by Section 7.3(g)), promptly (i) execute and
deliver a first priority mortgage in form and substance reasonably satisfactory
to the Administrative Agent in favor of the Administrative Agent, for the
benefit of the Lenders, covering such real property, (ii) if requested by the
Administrative Agent, provide the Lenders with (x) title and extended coverage
insurance covering such real property in an amount at least equal to the
purchase price of such real estate (or such other amount as shall be reasonably
specified by the Administrative Agent) as well as a current ALTA survey thereof,
together with a surveyor's certificate and (y) any consents or estoppels
reasonably deemed necessary or advisable by the Administrative Agent in
connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent and (iii) if
<PAGE>
50
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by Holdings
(which, for the purposes of this paragraph (c), shall include any existing
Subsidiary that ceases to be an Excluded Foreign Subsidiary and Master Collector
if at any time the fair market value of Master Collector exceeds $1,000,000),
the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
as the Administrative Agent deems necessary or advisable in order to grant to
the Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in the Capital Stock of such new Subsidiary which is
owned by Holdings, the Borrower or any of its Subsidiaries, (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of Holdings, the Borrower or such Subsidiary, as the case may be, (iii)
cause such new Subsidiary (A) to become a party to the Guarantee and Collateral
Agreement and (B) to take such actions necessary or advisable to grant to the
Administrative Agent for the benefit of the Lenders a perfected first priority
security interest in the Collateral described in the Guarantee and Collateral
Agreement with respect to such new Subsidiary, including, without limitation,
the filing of Uniform Commercial Code financing statements in such jurisdictions
as may be required by the Guarantee and Collateral Agreement or by law or as may
be requested by the Administrative Agent, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings, the Borrower or any of its Domestic
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable in order to grant to the Administrative Agent, for
the benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by Holdings, the Borrower or
any of its Domestic Subsidiaries (provided that in no event shall more than 65%
of the total outstanding Capital Stock of any such new Subsidiary be required to
be so pledged), (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of Holdings, the Borrower or
such Subsidiary, as the case may be, and take such other action as may be
necessary or, in the opinion of the Administrative Agent, desirable to perfect
the Lien of the Administrative Agent thereon, and (iii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(e) If at any time the fair market value of any Foreign Subsidiary
existing on or created after the Closing Date shall exceed $2,000,000, promptly
(i) execute and deliver to the Administrative Agent a pledge agreement governed
by the law of the country in which such Foreign Subsidiary is organized if the
Administrative Agent (upon notice by the Borrower of such fair market value of a
Foreign Subsidiary) deems such action necessary or advisable in order to grant
to the Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in the Capital Stock of such new Subsidiary which is
owned by Holdings, the Borrower or
<PAGE>
51
any of its Domestic Subsidiaries (provided that in no event shall more than 65%
of the total outstanding Capital Stock of any such new Subsidiary be required to
be so pledged), (ii) if not previously done so, deliver to the Administrative
Agent the certificates representing such Capital Stock, together with undated
stock powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the case may be, and take such
other action as may be necessary or, in the opinion of the Administrative Agent,
desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
SECTION 7. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or any Agent
hereunder, each of Holdings and the Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly:
7.1 Financial Covenants.
-------------------
(a) Minimum Consolidated EBITDA. Permit the Consolidated EBITDA for
---------------------------
any period of four consecutive fiscal quarters of the Borrower (or, if less, the
number of full fiscal quarters in 1998) ending with any fiscal quarter set forth
below to be less than the amount set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum Consolidated EBITDA
-------------- ---------------------------
March 31, 1998 $ 5,400,000
June 30, 1998 $10,500,000
September 30, 1998 $16,500,000
December 31, 1998 $23,000,000
March 31, 1999 $23,250,000
June 30, 1999 $23,500,000
September 30, 1999 $23,750,000
December 31, 1999 $24,000,000
March 31, 2000 $24,250,000
June 30, 2000 $24,500,000
September 30, 2000 $24,750,000
December 31, 2000 $25,000,000
March 31, 2001 $25,250,000
June 30, 2001 $25,500,000
September 30, 2001 $25,750,000
December 31, 2001 $26,000,000
March 31, 2002 $26,250,000
June 30, 2002 $26,500,000
September 30, 2002 $26,750,000
December 31, 2002 $27,000,000
March 31, 2003 $27,000,000
June 30, 2003 $27,000,000
<PAGE>
52
September 30, 2003 $27,000,000
December 31, 2003 $27,000,000
(b) Consolidated Total Debt Ratio. Permit the Consolidated Total
-----------------------------
Debt Ratio as at the last day of any period of four consecutive fiscal quarters
of the Borrower (or, if less, the number of full fiscal quarters in 1998) ending
with any fiscal quarter set forth below to exceed the ratio set forth below
opposite such fiscal quarter:
Consolidated
Fiscal Quarter Total Debt Ratio
-------------- ----------------
March 31, 1998 5.70 to 1.00
June 30, 1998 5.75 to 1.00
September 30, 1998 5.50 to 1.00
December 31, 1998 5.20 to 1.00
March 31, 1999 5.00 to 1.00
June 30, 1999 4.80 to 1.00
September 30, 1999 4.60 to 1.00
December 31, 1999 4.40 to 1.00
March 31, 2000 4.30 to 1.00
June 30, 2000 4.20 to 1.00
September 30, 2000 4.10 to 1.00
December 31, 2000 4.00 to 1.00
Thereafter 4.00 to 1.00
; provided that, if the Borrower shall Repurchase (as defined in Section 7.9(a))
Senior Notes in an aggregate principal amount of more than $5,000,000, then as
of the last day of each fiscal quarter of the Borrower after the date of such
Repurchase the ratio set forth above under the heading "Consolidated Total Debt
Ratio" shall be deemed to be as follows: (i) if the aggregate principal amount
of Senior Notes Repurchased (on a cumulative basis from the date hereof) is less
than $12,5000,000, 3.83 to 1.00; (ii) if the aggregate principal amount of
Senior Notes Repurchased (on a cumulative basis from the date hereof) is less
than $20,000,000, 3.66 to 1.00; and (iii) if the aggregate principal amount of
the Senior Notes Repurchased (on a cumulative basis from the date hereof) is
greater than or equal to $20,000,000, 3.50 to 1.00.
(c) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower (or, if less, the number of full fiscal quarters in 1998) ending
with any fiscal quarter set forth below to be less than the ratio set forth
below opposite such fiscal quarter:
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
March 31, 1998 1.80 to 1.00
June 30, 1998 1.75 to 1.00
September 30, 1998 1.80 to 1.00
December 31, 1998 1.90 to 1.00
March 31, 1999 1.95 to 1.00
<PAGE>
53
June 30, 1999 2.00 to 1.00
September 30, 1999 2.05 to 1.00
December 31, 1999 2.10 to 1.00
March 31, 2000 2.15 to 1.00
June 30, 2000 2.20 to 1.00
September 30, 2000 2.25 to 1.00
December 31, 2000 2.30 to 1.00
March 31, 2001 2.35 to 1.00
June 30, 2001 2.40 to 1.00
September 30, 2001 2.45 to 1.00
December 31, 2001 2.50 to 1.00
Thereafter 2.50 to 1.00
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) (i) Indebtedness of the Borrower in respect of the Senior Notes
in an aggregate principal amount not to exceed $100,000,000 and (ii)
Guarantee Obligations of any Subsidiary Guarantor in respect of such
Indebtedness;
(d) (i) Indebtedness secured by Liens permitted by Section 7.3(g) and
(ii) Capital Lease Obligations, so long as the principal amount of the
Indebtedness and the Capital Lease Obligation outstanding pursuant to
clauses (i) and (ii) shall not exceed $5,000,000 in the aggregate at any
one time;
(e) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(e) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(f) guarantees made in the ordinary course of business by the
Borrower or any of its Subsidiaries of obligations of any Wholly Owned
Subsidiary Guarantor;
(g) Indebtedness of any Specified Entity to the Borrower or any
Subsidiary Guarantor (so long as no Default or Event of Default shall have
occurred and be continuing at the time of the incurrence of such
Indebtedness), provided that (x) the requirements of Section 6.9 are
satisfied, (y) the aggregate principal amount of such Indebtedness to the
Borrower or any Subsidiary Guarantor at any time outstanding shall not
exceed $2,000,000 less the aggregate amount of all investments made in or
loans to such Specified Entities pursuant to Section 7.8(h) and (z) no such
Indebtedness (other than Indebtedness in an aggregate principal amount not
to exceed $275,000 incurred by Yanci Services Company) shall be incurred by
the Joint Ventures subsequent to the Closing Date; and
<PAGE>
54
(h) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all
Subsidiaries) not to exceed $5,000,000 at any one time outstanding.
7.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, collection attorneys' or other like Liens arising in the
ordinary course of business which are not overdue for a period of more than
30 days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(e), provided that no such
Lien is spread to cover any additional Property after the Closing Date and
that the principal amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition
of fixed or capital assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any Property other than
the Property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor under any Capital Lease
Obligation or other lease entered into by the Borrower or any other
Subsidiary in the ordinary course of its business and covering only the
assets so leased; and
(j) Liens not otherwise permitted by this Section 7.3 so long as
neither (i) the
<PAGE>
55
aggregate outstanding principal amount of the obligations secured thereby
nor (ii) the aggregate fair market value (determined as of the date such
Lien is incurred) of the assets subject thereto exceeds (as to the Borrower
and all Subsidiaries) $2,000,000 at any one time.
7.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
continuing or surviving corporation);
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor;
(c) each of the Joint Ventures may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to any Person or
liquidate, wind up or dissolve itself in any manner; and
(d) any Excluded Foreign Subsidiary may be merged or consolidated
with or into, or Dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to, any other Excluded Foreign Subsidiary.
7.5 Limitation on Sale of Assets. Dispose of any of its Property or
----------------------------
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) Dispositions permitted by Section 7.4;
(c) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(d) the Disposition of Property having a book value or a fair market
value not to exceed $1,000,000 in the aggregate for any fiscal year of the
Borrower;
(e) any Recovery Event, provided that the requirements of Section
2.10(b) are complied with in connection therewith; and
(f) Asset Sales in respect of assets having an aggregate book value
not exceeding $5,000,000 in any fiscal year, provided, that the
requirements of Section 2.10(b) are complied with in connection therewith.
<PAGE>
56
7.6 Limitation on Dividends. Declare or pay any dividend (other than
-----------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of Holdings, the
Borrower or any Subsidiary or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of Holdings, the Borrower or any Subsidiary
(collectively, "Restricted Payments"), except that (a) any Subsidiary may make
Restricted Payments to the Borrower or any Wholly Owned Subsidiary Guarantor,
(b) any Excluded Foreign Subsidiary may make Restricted Payments to any other
Excluded Foreign Subsidiary and (c) the Borrower may pay dividends to Holdings
to permit Holdings to pay any taxes which are due and payable by Holdings and
the Borrower (and its Subsidiaries) as part of a consolidated, combined or
unitary tax filing group or which are due and payable by Holdings with respect
to its own operations.
7.7 Limitation on Capital Expenditures. Make or commit to make (by
----------------------------------
way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure, except (a) Capital Expenditures of the Borrower and its
Subsidiaries not exceeding $8,350,000 in fiscal year 1998, $6,100,000 in fiscal
year 1999 and $5,500,000 in each fiscal year thereafter, provided, that (i) any
such amount referred to above, if not so expended in the fiscal year for which
it is permitted, may be carried over for expenditure in the next succeeding
fiscal year and (ii) Capital Expenditures made pursuant to this clause (a)
during any fiscally year shall be deemed made, first, in respect of amounts
permitted for such fiscal year as provided above and second, in respect of
amounts carried over from the prior fiscal year pursuant to subclause (i) above,
and (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred
Amounts.
7.8 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of a business
unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) the Acquisition;
(e) investments made by the Borrower or any of its Subsidiaries with
the proceeds of any Reinvestment Deferred Amount resulting from a Recovery
Event;
(f) investments by Holdings, the Borrower or any of its Subsidiaries
in the Borrower or a Wholly Owned Subsidiary Guarantor;
(g) other investments constituting Permitted Acquisitions, provided
that the aggregate consideration for all Permitted Acquisitions while this
Agreement is in effect shall not exceed $30,000,000 unless the Borrower
shall have obtained the prior written consent of the Required Lenders;
<PAGE>
57
(h) so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower and any Subsidiary may make investments in or
loans to, or create, any Specified Entity (by way of capital contribution
or otherwise), provided that (x) the requirements of Section 6.9 are
satisfied, (y) the aggregate amount of all investments in or loans to such
Specified Entities shall not exceed $2,000,000 minus the aggregate
principal amount of any Indebtedness of any Specified Entity at any such
time outstanding in accordance with Section 7.2(h) and (z) no such
investments shall be made in and no such loans shall be made to (other than
loans to Yanci Services Company in an aggregate principal amount not to
exceed $275,000) any Joint Ventures subsequent to the Closing Date;
(i) loans and advances to employees or directors of the Borrower made
pursuant to a form of promissory note provided to the Administrative Agent
prior to the date hereof (with any such changes as are reasonably
satisfactory to the Administrative Agent) and made solely to fund purchases
of Capital Stock of Holdings to the extent the proceeds therefrom are
concurrently received by Holdings and contributed to the Borrower, in an
aggregate amount not to exceed $500,000 at any one time outstanding; and
(j) in addition to investments otherwise expressly permitted by this
Section 7.8, so long as no Default or Event of Default shall have occurred
and be continuing, investments by the Borrower or any of its Subsidiaries
in an aggregate amount (valued at cost) not to exceed $2,000,000 during the
term of this Agreement.
7.9 Limitation on Optional Payments and Modifications of Debt
---------------------------------------------------------
Instruments, etc.; Limitation on Modification of Certificate of Incorporation.
- ------------------------------------------------------------------------------
(a) Make or offer to make any payment, prepayment, repurchase or redemption of
or otherwise defease or segregate funds (collectively, a "Repurchase") with
respect to the Senior Notes (other than scheduled interest payments required to
be made in cash); provided that if (i) the Tranche B Term Loans have been repaid
in full, (ii) the Consolidated Total Debt Ratio on a pro forma basis after
giving effect to such Repurchase recomputed as of the last day of the most
recently ended fiscal quarter of the Borrower and its Subsidiaries as if such
Repurchase had occurred on the first day of the relevant period for testing such
compliance shall be less than 3.50 to 1.00 and (iii) no Default or Event of
Default shall have occurred and be continuing or would result therefrom, then
the Borrower may Repurchase up to an aggregate principal amount of $25,000,000
of Senior Notes, (b) amend, modify, waive or otherwise change, or consent or
agree to any amendment, modification, waiver or other change to, any of the
terms of the Senior Notes (other than any such amendment, modification, waiver
or other change which (i) would extend the maturity or reduce the amount of any
payment of principal thereof or which would reduce the rate or extend the date
for payment of interest thereon and (ii) does not involve the payment of a
consent fee) or (c) amend its certificate of incorporation in any manner
determined by the Administrative Agent to be adverse to the Lenders without the
prior written consent of the Required Lenders.
7.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than Holdings,
the Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction
is (a) otherwise permitted under this Agreement, (b) in the ordinary course of
business of Holdings, the Borrower or such Subsidiary, as the case may be, and
(c) upon fair and reasonable
<PAGE>
58
terms no less favorable to Holdings, the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's length transaction with
a Person which is not an Affiliate, except the provision to administrative
services to any Specified Entity in the ordinary course of business consistent
with past practices.
7.11 Limitation on Sales and Leasebacks. Enter into any arrangement
----------------------------------
with any Person providing for the leasing by Holdings, the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by Holdings, the Borrower or such Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of Holdings, the Borrower or
such Subsidiary.
7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year
---------------------------------------
of the Borrower to end on a day other than December 31 or change the Borrower's
method of determining fiscal quarters.
7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to
-------------------------------------
exist or become effective any agreement which prohibits or limits the ability of
Holdings, the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its Property or revenues, whether now owned
or hereafter acquired, to secure the Obligations or, in the case of Holdings or
any Subsidiary Guarantor, its obligations under the Guarantee and Collateral
Agreement, other than (a) this Agreement and the other Loan Documents, (b) any
agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby or Indebtedness permitted pursuant to Section 7.2(c)
(in which case, any prohibition or limitation shall only be effective against
the assets financed thereby) and (c) the Senior Note Indenture.
7.14 Limitation on Restrictions on Subsidiary Distributions. Enter
------------------------------------------------------
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any
other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or
any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances
or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents and (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement which has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary.
7.15 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are reasonably related thereto.
7.16 Limitation on Amendments to Acquisition Documentation. (a)
-----------------------------------------------------
Amend, supplement or otherwise modify (pursuant to a waiver or otherwise) the
terms and conditions of the indemnities and licenses furnished to the Borrower
or any of its Subsidiaries pursuant to the Acquisition Documentation such that
after giving effect thereto such indemnities or licenses shall be materially
less favorable to the interests of the Loan Parties or the Lenders with respect
thereto or (b) otherwise amend, supplement or otherwise modify the terms and
conditions of the Acquisition Documentation except to the extent that any such
amendment, supplement or
<PAGE>
59
modification could not reasonably be expected to have a Material Adverse Effect.
7.17 Limitation on Activities of Holdings. In the case of Holdings,
------------------------------------
notwithstanding anything to the contrary in this Agreement or any other Loan
Document, (a) conduct, transact or otherwise engage in, or commit to conduct,
transact or otherwise engage in, any business or operations other than (I) those
incidental to its ownership of the Capital Stock of the Borrower or (II) the
issuance of Capital Stock so long as no Default or Event of Default shall have
occurred and be continuing or would result therefrom, (b) incur, create, assume
or suffer to exist any Indebtedness or other liabilities or financial
obligations, except (i) nonconsensual obligations imposed by operation of law,
(ii) pursuant to the Loan Documents to which it is a party and (iii) obligations
with respect to its Capital Stock, or (c) own, lease, manage or otherwise
operate any properties or assets (including cash (other than cash received in
connection with dividends made by the Borrower in accordance with Section 7.6
pending application in the manner contemplated by said Section) and cash
equivalents) other than the ownership of shares of Capital Stock of the
Borrower.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) Any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to Holdings and the Borrower only), Section 6.7(a), Section 7 or
Section 5.6 of the Guarantee and Collateral Agreement; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days; or
(e) Holdings, the Borrower or any of its Subsidiaries shall (i)
default in making any payment of any principal of any Indebtedness
(including, without limitation, any Guarantee Obligation, but excluding the
Loans) on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest on any such Indebtedness
beyond the period of grace (not to exceed 31 days), if any, provided in the
instrument or agreement under which such Indebtedness was created; or (iii)
default in the observance or performance of any other agreement or
condition relating to any such
<PAGE>
60
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or beneficiary of such Indebtedness (or a trustee
or agent on behalf of such holder or beneficiary) to cause, with the giving
of notice if required, such Indebtedness to become due prior to its stated
maturity or (in the case of any such Indebtedness constituting a Guarantee
Obligation) to become payable; provided, that a default, event or condition
described in clause (i), (ii) or (iii) of this paragraph (e) shall not at
any time constitute an Event of Default unless, at such time, one or more
defaults, events or conditions of the type described in clauses (i), (ii)
and (iii) of this paragraph (e) shall have occurred and be continuing with
respect to Indebtedness the outstanding principal amount of which exceeds
in the aggregate $2,000,000; or
(f) (i) Holdings, the Borrower or any of its Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or Holdings, the
Borrower or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against
Holdings, the Borrower or any of its Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) there shall be commenced against Holdings, the Borrower or
any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) Holdings, the Borrower or any of its
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) Holdings, the Borrower or any of
its Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise
on the assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence
to have a trustee appointed, or a trustee shall be appointed, to administer
or to terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Required Lenders is likely to,
<PAGE>
61
incur any liability in connection with a withdrawal from, or the Insolvency
or Reorganization of, a Multiemployer Plan or (vi) any other similar event
or condition not in the ordinary course shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Required Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
Holdings, the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance as to which
the relevant insurance company has acknowledged coverage or not paid or
covered by an indemnity made by First Data Corporation ("FDC") as to which
FDC has acknowledged responsibility for payment) of $1,000,000 or more, and
all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 30 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party shall so assert, or any Lien
created by any of the Security Documents shall cease to be enforceable and
of the same effect and priority purported to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party shall so assert; or
(k) (i) The Permitted Investors (including any combination thereof)
shall cease to have the power to vote or direct the voting of securities
having a majority of the ordinary voting power for the election of
directors of Holdings (determined on a fully diluted basis); (ii) the
Permitted Investors (including any combination thereof) shall cease to own
of record and beneficially an amount of common stock of Holdings equal to
at least 80% of the amount of common stock of Holdings owned by the
Permitted Investors of record and beneficially as of the Closing Date;
(iii) the board of directors of Holdings shall cease to consist of a
majority of Continuing Directors; (iv) Holdings shall cease to own and
control, of record and beneficially, directly, 100% of each class of
outstanding Capital Stock of the Borrower free and clear of all Liens
(except Liens created by the Guarantee and Collateral Agreement); or (v) a
Specified Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Administrative Agent may, or upon the request of the Majority Revolving
Credit Facility Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Revolving Credit Commitments to be terminated forthwith,
whereupon the Revolving Credit Commitments shall immediately terminate; and (ii)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by
<PAGE>
62
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable. With
respect to all Letters of Credit with respect to which presentment for honor
shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrower hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
other Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto).
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its duties
--------------------
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their
----------------------
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any
<PAGE>
63
other Loan Document or for any failure of any Loan Party a party thereto to
perform its obligations hereunder or thereunder. The Agents shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and
------------------
shall be fully protected in relying, upon any instrument, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to Holdings or the Loan Parties), independent accountants
and other experts selected by the Administrative Agent. The Agents may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. Each Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders (or, if so specified by this Agreement, all Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. No Agent shall be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default hereunder unless
such Agent has received notice from a Lender, Holdings or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Administrative
Agent receives such a notice, the Administrative Agent shall give notice thereof
to the Lenders. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders (or, if so specified by this Agreement, all Lenders); provided that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem
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64
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Loan Parties and their affiliates. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, no Agent shall have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party which may come into the possession of such Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in
---------------
its capacity as such (to the extent not reimbursed by Holdings or the Borrower
and without limiting the obligation of Holdings or the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section 9.7 (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Loans) be imposed on, incurred by or asserted
against such Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by such Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which are found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from such Agent's gross negligence or willful misconduct. The
agreements in this Section 9.7 shall survive the payment of the Loans and all
other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 Successor Agents. The Administrative Agent may resign as
----------------
Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 8(a) or Section 8(f) with
respect to the Borrower shall have occurred and be continuing) be subject to
approval by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative
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65
Agent shall be terminated, without any other or further act or deed on the part
of such former Administrative Agent or any of the parties to this Agreement or
any holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 10 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective, and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. The Syndication Agent may, at any time, by notice
to the Lenders and the Administrative Agent, resign as Syndication Agent
hereunder, whereupon the duties, rights, obligations and responsibilities
hereunder shall automatically be assumed by, and inure to the benefit of, the
Administrative Agent, without any further act by the Syndication Agent, the
Administrative Agent or any Lender. After any retiring Agent's resignation as
Agent, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
9.10 Authorization to Release Liens. The Administrative Agent is
------------------------------
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Borrower or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 10.1.
9.11 The Arranger. The Arranger, in its capacity as such, shall have
------------
no duties or responsibilities, and shall incur no liability, under this
Agreement and the other Loan Documents.
9.12 The Documentation Agent. The Documentation Agent, in its
-----------------------
capacity as such, shall have no duties or responsibilities, and shall incur no
liability, under this Agreement and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Agents and each Loan
Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders, or the Agents, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount or extend the final
scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Tranche B Term Loan, reduce the stated
rate of any interest, fee or letter of credit commission payable hereunder or
extend the scheduled date of any payment thereof, or increase the amount or
extend the expiration date of any Lender's Revolving Credit Commitment, in each
case without the consent of each Lender directly affected thereby; (ii) amend,
modify or waive any provision of this Section 10.1 or reduce any percentage
specified in the definition of Required Lenders or Required Prepayment Lenders,
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under
<PAGE>
66
this Agreement and the other Loan Documents, release all or substantially all of
the Collateral or release all or substantially all of the Subsidiary Guarantors
from their obligations under the Guarantee and Collateral Agreement, in each
case without the written consent of all Lenders; (iii) amend, modify or waive
any condition precedent to any extension of credit under the Revolving Credit
Facility set forth in Section 5.2 (including, without limitation, in connection
with any waiver of an existing Default or Event of Default) without the written
consent of the Majority Revolving Credit Facility Lenders; (iv) reduce the
percentage specified in the definition of Majority Facility Lenders without the
written consent of all Lenders under each affected Facility; (v) amend, modify
or waive any provision of Section 9 without the written consent of the Agents;
(vi) amend, modify or waive any provision of Section 3 without the written
consent of the Issuing Lender or (vii) amend, modify or waive any provision of
Section 2.10 without the written consent of the Required Prepayment Lenders. Any
such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Loan Parties, the Lenders and the Administrative Agent
shall be restored to their former position and rights hereunder and under the
other Loan Documents, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower, the
Syndication Agent and the Administrative Agent, and as set forth in an
administrative questionnaire delivered to the Administrative Agent in the case
of the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto:
Holdings: NCI Acquisition Corporation
2255 Northwest Parkway, Suite H
Marietta, Georgia 30067
Attention: Jerry Kaufman
Telecopy: (770) 644-7414
Telephone: (770) 644-7411
The Borrower: Nationwide Credit, Inc.
2255 Northwest Parkway, Suite H
Marietta, Georgia 30067
Attention: Jerry Kaufman
Telecopy: (770) 644-7414
Telephone: (770) 644-7411
In the case of Holdings, and the Weiss, Peck & Greer
Borrower, with a copy to: One New York Plaza, 30th Floor
New York, New York 10004
Attention: Craig S. Whiting
Telecopy: (212) 908-0112
Telephone: (212) 908-9500
<PAGE>
67
Centre Partners Management LLC
30 Rockefeller Plaza, Suite 5050
New York, New York 10020
Attention: Paul Zepf
Telecopy: (212) 332-5801
Telephone: (212) 332-5800
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Jane McDonald
The Syndication Agent or Lehman Commercial Paper Inc.
the Administrative Agent: 3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
provided that any notice, request or demand to or upon the either Agent or the
Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the either Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
10.5 Payment of Expenses. The Borrower agrees (a) to pay or
-------------------
reimburse the Agents and the Arranger for all their reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Agents for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents,
including, without limitation, the fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to the Agents, (c) to pay, indemnify, and hold each Lender and the
Agents harmless from, any and all recording and
<PAGE>
68
filing fees or any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement, the other Loan Documents and any
such other documents, and (d) to pay, indemnify, and hold each Lender, the
Arranger and the Agents and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "indemnitee") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including, without limitation, any of the foregoing
relating to the use of proceeds of the Loans or the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
Holdings, the Borrower any of its Subsidiaries or any of the Properties and the
reasonable fees and expenses of legal counsel in connection with claims, actions
or proceedings by any indemnitee against the Borrower hereunder (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
provided, that the Borrower shall have no obligation hereunder to any indemnitee
with respect to indemnified liabilities to the extent such indemnified
liabilities are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of such indemnitee. Without limiting the foregoing, and to the extent
permitted by applicable law, the Borrower agrees not to assert and to cause its
Subsidiaries not to assert, and hereby waive and agree to cause its Subsidiaries
to so waive, all rights for contribution or any other rights of recovery with
respect to all claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature, under or related to
Environmental Laws, that any of them might have by statute or otherwise against
any indemnitee. The agreements in this Section shall survive repayment of the
Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Agents, all future holders of the Loans and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agents and each Lender.
(b) Any Lender may, without the consent of the Borrower and with
notice to the Syndication Agent, in accordance with applicable law, at any time
sell to one or more banks, financial institutions or other entities (each, a
"Participant") participating interests in any Loan owing to such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Agents shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and the other Loan Documents. In no
event shall any Participant under any such participation have any right to
approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by any Loan Party therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Loans or any fees payable hereunder, or postpone the date of the final
maturity of the Loans, in each case to the extent subject to such participation.
The Borrower agrees that if amounts outstanding under this Agreement and the
Loans are due or unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of
<PAGE>
69
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.17, 2.18 and 2.19 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 2.18, such Participant shall have
complied with the requirements of said Section and provided, further, that no
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable law
and with written notice to the Syndication Agent, at any time and from time to
time assign to any Lender or any affiliate thereof or a Person under common
management with a Lender or, with the consent of the Borrower and the Syndicate
Agent (which, in each case, shall not be unreasonably withheld or delayed), to
an additional bank, financial institution or other entity (an "Assignee") all or
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance (an "Assignment and Acceptance") substantially in the
form of Exhibit D, executed by such Assignee, such Assignor, the Syndication
Agent and the Administrative Agent (and, where the consent of the Borrower is
required pursuant to the foregoing provisions, by the Borrower) and delivered to
the Administrative Agent for its acceptance and recording in the Register;
provided that no such assignment to an Assignee (other than any Lender or any
affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), unless otherwise agreed by the Borrower, the
Syndication Agent and the Administrative Agent. Any such assignment need not be
ratable as among the Facilities. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment and/or Loans as set
forth therein, and (y) the Assignor thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto). Notwithstanding any provision of this Section
11.6, the consent of the Borrower shall not be required for any assignment which
occurs at any time when any Event of Default shall have occurred and be
continuing.
(d) The Administrative Agent (acting for this purpose as agent of the
Borrower) shall maintain at its address referred to in Section 10.2 a copy of
each Assignment and Acceptance delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Lenders and the Commitment
of, and principal amount of the Loans owing to, each Lender from time to time
and any Notes evidencing such Loans. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loan and any Note evidencing such
Loan recorded therein for all purposes of this Agreement. Any assignment of any
Loan whether or not evidenced by a Note shall be effective only upon
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70
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of a
Loan evidenced by a Note shall be registered on the Register only upon surrender
for registration of assignment or transfer of the Note evidencing such Loan,
accompanied by a duly executed Assignment and Acceptance, and thereupon one or
more new Notes in the same aggregate principal amount shall be issued to the
designated Assignee and the old Notes shall be returned by the Administrative
Agent to the Borrower marked "cancelled". The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof or a Person under common management with
such Lender, by the Borrower, the Administrative Agent, the Syndication Agent
and the Issuing Lender) together with payment to the Administrative Agent of a
registration and processing fee of $2,000 (except that no such registration and
processing fee shall be payable (y) in connection with an assignment by or to
Lehman Commercial Paper Inc. or (z) in the case of an Assignee which is already
a Lender or is an affiliate of a Lender or a Person under common management with
a Lender), the Administrative Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. On or prior to such
effective date, the Borrower, at its own expense, upon request, shall execute
and deliver to the Administrative Agent (in exchange for the Revolving Credit
Note and/or Term Notes, as the case may be, of the assigning Lender) a new
Revolving Credit Note and/or Term Notes, as the case may be, to the order of
such Assignee in an amount equal to the Revolving Credit Commitment and/or
applicable Tranche B Term Loans, as the case may be, assumed or acquired by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Revolving Credit Commitment and/or Tranche B Term Loans, as the case
may be, upon request, a new Revolving Credit Note and/or Term Notes, as the case
may be, to the order of the assigning Lender in an amount equal to the Revolving
Credit Commitment and/or applicable Tranche B Term Loans, as the case may be,
retained by it hereunder. Such new Notes shall be dated the Closing Date and
shall otherwise be in the form of the Note replaced thereby.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, if any Lender (a "Benefitted Lender") shall at any time
receive any payment of all or part of its Loans or the Reimbursement Obligations
owing to it, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 8(f), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans or the Reimbursement
Obligations owing to such other Lender, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan and/or of the Reimbursement
Obligations owing to each such other Lender, or shall provide such other Lenders
with the benefits of any such collateral, or the
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71
proceeds thereof, as shall be necessary to cause such Benefitted Lender to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to Holdings or the
Borrower, any such notice being expressly waived by Holdings and the Borrower to
the extent permitted by applicable law, upon any amount becoming due and payable
by Holdings or the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of Holdings or the Borrower.
Each Lender agrees promptly to notify Holdings, the Borrower and the
Administrative Agent after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of Holdings, the Borrower, the Administrative Agent and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings and the
-----------------------------------
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States for the
<PAGE>
72
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to Holdings
or the Borrower, as the case may be at its address set forth in Section
10.2 or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 10.12 any special, exemplary, punitive or consequential
damages.
10.13 Acknowledgements. Each of Holdings and the Borrower hereby
----------------
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to Holdings or the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and
Holdings and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among Holdings, the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE AGENTS AND
---------------------
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agents and each Lender agrees to
---------------
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent any Agent or any Lender
from disclosing any such information (a) to the Administrative Agent, any other
Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each,
a "Transferee") or prospective Transferee which agrees to comply with the
<PAGE>
73
provisions of this Section, (c) to the employees, directors, agents, attorneys,
accountants and other professional advisors of such Lender or its affiliates,
(d) upon the request or demand of any Governmental Authority having jurisdiction
over the such Agent or such Lender, (e) in response to any order of any court or
other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) which has been publicly disclosed other
than in breach of this Section 10.15, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender's investment
portfolio in connection with ratings issued with respect to such Lender, or (i)
in connection with the exercise of any remedy hereunder or under any other Loan
Document.
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
NCI ACQUISITION CORPORATION
By: /s/ JERRY KAUFMAN
-------------------------------------
Name: Jerry Kaufman
Title: President and Chief Executive
Officer
NATIONWIDE CREDIT, INC.
By: /s/ JERRY KAUFMAN
-------------------------------------
Name: Jerry Kaufman
Title: President and Chief Executive
Officer
<PAGE>
75
LEHMAN BROTHERS INC.,
as Arranger
By: /s/ DENNIS DEE
-------------------------------------
Name: Dennis Dee
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By: /s/ DENNIS DEE
-------------------------------------
Name: Dennis Dee
Title:
<PAGE>
76
SOUTHERN PACIFIC BANK, as a Lender
By: /s/ CHARLES D. MARTORANO
-------------------------------------
Name: Charles D. Martorano
Title: Senior Vice President
<PAGE>
77
BHF - BANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH, as Documentation
Agent and as a Lender
By: /s/ JOHN SYKES
-------------------------------------
Name: John Sykes
Title: Assistant Vice President
By: TONY HEYMAN
-------------------------------------
Name: Tony Heyman
Title: Assistant Treasurer
<PAGE>
78
FLEET CAPITAL CORPORATION,
as Administrative Agent and as a Lender
By: /s/ CHARLES GAROKIANIAN
-------------------------------------
Name: Charles Garokianian
Title: Senior Vice President
<PAGE>
79
Annex A
-------
Pricing Grid
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Consolidated Applicable Margin Applicable Margin
Total Debt for Eurodollar Loans for Base Rate Loans
Ratio
-----------------------------------------------------------
Revolving Tranche B Revolving Tranche B Commitment
Credit Term Credit Term Fee
Loans Loans Loans Loans Rate
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Greater than or Equal to 5.00 to 1.00 2.000% 2.250% 1.000% 1.250% 0.375
- --------------------------------------------------------------------------------------------------------------------
Less than 5.00 to 1.00 1.875% 2.125% 0.875% 1.125% 0.375
but Greater than or Equal to 4.50 to 1.00
- --------------------------------------------------------------------------------------------------------------------
Less than 4.50 to 1.00 1.625% 2.000% 0.625% 1.000% 0.375
but Greater than or Equal to 4.00 to 1.00
- --------------------------------------------------------------------------------------------------------------------
Less than 4.00 to 1.00 1.500% 1.875% 0.500% 0.875% 0.375
but Greater than or Equal to 3.50 to 1.00
- --------------------------------------------------------------------------------------------------------------------
Less than 3.50 to 1.00 1.375% 1.750% 0.375% 0.750% 0.250
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Changes in the Applicable Margin with respect to the Revolving Credit Loan and
the Tranche B Term Loans resulting from changes in the Consolidated Total Debt
Ratio shall become effective on the date (the "Adjustment Date") on which
financial statements are delivered to the Lenders pursuant to Section 6.1 (but
in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Total Debt
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 5.00 to
1. In addition, at all times while an Event of Default shall have occurred and
be continuing, the Consolidated Total Debt Ratio shall for the purposes of this
definition be deemed to be greater than 5.00 to 1. Each determination of the
Consolidated Total Debt Ratio pursuant to this definition shall be made with
respect to the period of four consecutive fiscal quarters of the Borrower ending
at the end of the period covered by the relevant financial statements.
<PAGE>
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
Commitments
-----------
Name of Lender and Tranche B
Information for Notices Revolving Credit Term Loan
- ----------------------- ---------------- ---------
<PAGE>
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
<PAGE>
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
<TABLE>
<CAPTION>
Name of Lender and Revolving Term Loan
Information for Notices Credit Commitment Commitment
----------------------- ----------------- ----------
<S> <C> <C>
Lehman Commercial Paper Inc. $10,000,000 $19,000,000
3 World Financial Center
New York, NY 10285
Attention: Michele Swanson
Telephone: (212) 528-0819
Telecopy: (212) 526-0330
Southern Pacific Bank $ 7,000,000
12300 Wilshire Boulevard
Los Angeles, CA 90025
Attention: Chris Keller or
Chuck Martorano
Telephone: (310) 442-3351
Telecopy: (310) 207-4067
BHF - Bank Aktiengesellschaft $ 9,000,000
590 Madison Avenue
New York, NY 10022-2504
Attention: Renate Boston
Telephone: (212) 756-5543
Telecopy: (212) 756-5536
Fleet Capital Corporation $ 9,000,000 $ 6,000,000
200 Glastonbury
Glastonbury, CT 06033
Attention: Timothy Broderick
Telephone: (860) 657-7774
Telecopy: (860) 657-7759
</TABLE>
2
<PAGE>
SCHEDULE 4.1
ACCOUNTING ADJUSTMENTS TO FINANCIAL STATEMENTS
3
<PAGE>
SCHEDULE 4.1
ACCOUNTING ADJUSTMENTS TO FINANCIAL STATEMENTS
Adjustments to Unaudited Unadjusted 11/30/97 Balance Sheet:
Balance sheet reclassifications:
CPS out of balance (intercompany balancing account)
Reclass dividends recorded in equity to payable to FDC
Intra-equity reclass re: 1990 recapitalization
Correct purchase accounting classifications re: Consolidated
Collections acquisition
Reclass intercompany payables/receivables, acquisition reserves
True up trust cash, pension liability
Not recorded by NCI because already recorded by FDC (or zero impact to FDC)
Adjust income tax liability/deferred asset/liability
Push down adjustments (e.g., goodwill, purchase accounting, etc.)
Correct equity for effect of 1996 CPS overhead charge (zero impact to
FDC)
Prior period adjustments not recorded
Remove Phoenix Collections Alliance asset & related liability
Q3 1997 P&L adjustments reflected in the audited financials, not recorded
on the general ledger
Adjust equity for impact of 6/30/97 audit adjustments recorded in 9/97
10/97 & 11/97 P&L adjustments (should be immaterial)
4
<PAGE>
SCHEDULE 4.2
DEVELOPMENTS SINCE SEPTEMBER 30, 1997
5
<PAGE>
SCHEDULE 4.2
DEVELOPMENTS SINCE SEPTEMBER 30, 1997
1. The Company has been notified by the Department of Education ("DOE") that
the additional contractors would be added to the list of DOE contractors
named in response to DOE's Request for Proposal ("RFP") by letter dated
October 7, 1997.
2. The Company has been notified by the Department of the Treasury that
addtional contractors would be added to list of contractors initially named
in response to its RFP.
3. In January 1998, management became aware that, through chargebacks, the DOE
intends to revise the amounts it previously paid to the Company during the
years ended December 31, 1994 through 1997. To date, the Company has been
notified that the chargeback amount is approximately $600,000, although the
DOE has not completed its audit of the prior periods. The Company is
currently evaluating the notification from the DOE, intends to vigorously
contest chargebacks which it believes are not appropriate and expects to
record such amounts it deems estimable and probable in its financial
statements for the year ending December 31, 1997.
6
<PAGE>
SCHEDULE 4.4
CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES
7
<PAGE>
SCHEDULE 4.4
CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES
1. License applications pending but not yet approved: Illinois and New York
City, NY.
2. Material Software Licenses
CUBS (licensed from Columbia Ultimate);
FACS System (licensed from Ontario Systems Corp.);
Collection Partner to Collection Partner; and
Electronic Data Interface Module (licensed from Jim Hubbard &
Associates).
3. Leases
21253 Northwest Parkway, Marietta, GA;
3395 Northeast Expressway, Atlanta, GA; and
6190 Powers Ferry Road, Atlanta, GA.
4. Assigned Contracts
Agreement dated 11/8/96 between BOSI and Lanier Worldwide; and
Agreement dated 11/1/94 between BOSI and Regional Medical Center of
Orangebury.
8
<PAGE>
SCHEDULE 4.6
MATERIAL LITIGATION
9
<PAGE>
SCHEDULE 4.6
MATERIAL LITIGATION
On December 24, 1996, the staff of the Federal Trade Commission ("FTC")
notified Nationwide that it was conducting an informal inquiry into Nationwide's
compliance with the requirements of a consent decree dated June 4, 1992 (the
"Decree"), and into compliance with the Fair Debt Collection Practices Act. The
FTC conducted investigational hearings in regard to the inquiry, and has taken
sworn testimony of several current Nationwide employees, including its current
present and director of branch operations.
As of December 29, 1997, Nationwide was informed that the FTC would seek a
monetary fine in the amount of $3,000,000, as well as certain injunctive relief
in connection with the operation of the business, consisting primarily of
disclosure to debtors of their rights and enhanced training and compliance
reporting requirements. Pursuant to the Merger Agreement, First Data
Corporation is required to indemnify NCI Merger Corporation, NCI Acquisition
Corporation and their Affiliates against monetary fines, but not against the
immediate and ongoing costs associated with operational aspects of the proposed
relief.
10
<PAGE>
SCHEDULE 4.10
TAXES
11
<PAGE>
SCHEDULE 4.10
TAXES
See attached Schedule 5.7 to the Merger Agreement.
12
<PAGE>
respect of which such Tax Returns were required to be filed has expired, except
for:
Nationwide has been included in the consolidated federal income tax returns
of FFMC and its subsidiaries since its acquisition on May 23, 1990. FFMC and
its subsidiaries have been audited by the Internal Revenue Service ("IRS")
through the tax year ending December 31, 1993 (the IRS has surveyed, but has not
audited, the tax year ending December 31, 1992). The statute of limitations on
assessment of tax for the tax periods ended December 31, 1994 and October 27,
1995 has not expired.
The IRS has not completed its examination of the consolidated federal
income tax returns filed by American Express Company and its subsidiaries for
the tax periods ended December 31, 1989 through December 31, 1992. ACM Inc.,
which acquired substantially all of the assets of ACB Management Services, Inc.
and ACB Sales & Services, Inc. in March 1993 and changed its name to ACB
Business Services, Inc. in May 1993 (for purposes of this Schedule 5.7,
------------
hereinafter referred to as "ACB" whether before or after the asset acquisition
and name change) was included in these tax returns through April 16, 1992 when
American Express closed the initial public offering of the stock of First Data
Corporation ("FDC"), the indirect parent company of ACB at that time. No
adjustments have been proposed to date. American Express Company executed Form
872, Consent to Extend the Time to Assess Tax, for the tax periods ended
December 31, 1989 through December 31, 1992 until June 1998.
FDC and its subsidiaries are being audited by the IRS for the tax years
ending December 31, 1992 through December 31, 1994. ACB was included in these
returns for the entire audit period. On April 1, 1996, ACB merged with and into
Nationwide. For the tax years ending December 31, 1992 and December 31, 1993
FDC executed Form 872-A, Special Consent to Extend the Time to Assess Tax, which
extends the statute of limitations for an indefinite period of time. The
statute of limitations for assessment of taxes for the tax periods ended
December 31, 1994, December 31, 1995 and December 31, 1996 has not expired.
Nationwide purchased the stock of Master Ventures, Inc. on March 25, 1994.
At that time, Master Ventures Inc. had a less than 80% ownership interest in
Master Collectors of Dallas, Inc., The Master Collectors of Colorado, Inc., The
Master Collectors of Maryland, Inc. and Texas Master Collectors, Inc. These
corporations, which are less than 80% owned, retained a September 30 fiscal year
end. On June 30, 1995, The Master Collectors of Colorado, Inc., The Master
Collectors of Maryland, Inc. and Texas Master Collectors, Inc. merged with and
into Master Ventures, Inc. In July 1995, Master Venture, Inc. merged with
13
<PAGE>
and into Nationwide. The statute of limitations for assessment of taxes for the
tax periods ended September 30, 1994 and June 30, 1995 for The Master Collectors
of Colorado, Inc., The Master Collectors of Maryland, of the Subsidiaries, which
waiver or extension is currently in effect except for:
American Express Company and its subsidiaries are being audited by the IRS
for the tax periods ended December 31, 1989 through December 31, 1992, ACB was
included in these tax returns through April 16, 1992. For the tax periods ended
December 31, 1989 through December 31, 1992, American Express Company executed
Form 872, Consent to Extend the Time to Assess Tax, which extends the statute of
limitations until June 1998.
FDC and its subsidiaries are being audited by the IRS for the tax years
ending December 31, 1992 through December 31, 1994. For the tax years ending
December 31, 1992 and December 31, 1993, FDC executed Form 872-A, Special
Consent to Extend the Time to Assess Tax, which extends the statute of
limitations for an indefinite period of time. This statute extension is
revocable both by the IRS and FDC with 60 days notice. FDC modified the
standard language so that the statute extension with regard to "rollover" items
from the 1989-1992 audit is not revocable by either party until 90 days after
the 1989 -1992 audit is complete,
Nationwide has received notification from the state of Indiana of its
intent to audit the tax years 1993 through 1995. For the tax year ending
December 31, 1993 a waiver has been filed with the State of Indiana until
October 15, 1998.
Nationwide, as part of the FFMC combined group, is included in a state of
New York franchise tax audit under Article, 9 - A for the years 1993 and 1994.
No preliminary workpapers have been issued. For the tax year ended December 31,
1993 a waiver has been filed with the state of New York until March 15, 1998.
Nationwide, as part of First Data Resources Inc.'s combined corporate
excise return, is currently being audited by the Commonwealth of Massachusetts
for the period October 28, 1995 through December 31, 1995. For the tax year
ending December 31, 1995 a waiver has been filed with the Commonwealth of
Massachusetts until December 31, 1998.
ACB, as part of First Data Resources Inc.'s combined corporate excise
return is currently being audited by the Commonwealth of Massachusetts for the
tax years ending December 31, 1993 through December 31, 1995. For these tax
years, a waiver has been filed with the Commonwealth of Massachusetts until
December 31, 1998.
14
<PAGE>
(c) (i) NONE
(c) (ii) NONE
(c) (iii) NONE
ACB, as part of First Data Corporation's 1992 through 1995 combined
corporate returns, has received notification from the state of Arizona of its
intent to audit these periods. Audit to be scheduled for early 1998.
Nationwide, as part of FFMC unitary group, is included in a California
franchise tax audit for the years 1989 through 1991. The field work is
complete. No issues pertain to Nationwide.
15
<PAGE>
SCHEDULE 4.15
SUBSIDIARIES
16
<PAGE>
Schedule 4.15
SUBSIDIARIES
<TABLE>
<CAPTION>
Percentage of Each
Jurisdiction of Class of Capital Stock
Name Incorporation Owned by Any Loan Party
---- ------------- -----------------------
<S> <C> <C>
The Master Collectors of Texas 66.8% owned by Nationwide
Dallas, Inc. Credit, Inc.
NCI Recoveries Limited United Kingdom limited All but one subscriber
company share owned by Nationwide
Credit, Inc.
Yanci Services Company Georgia general partnership 50% of equity interest
owned by Nationwide Credit,
Inc.
</TABLE>
17
<PAGE>
SCHEDULE 4.19
UCC FILING JURISDICTIONS
18
<PAGE>
Schedule 4.19
UCC FILING JURISDICTIONS
Nationwide Credit, Inc.
Secretary of State, AZ
Secretary of State, CA
Secretary of State, CO
Secretary of State, CT
Secretary of State, FL
Cobb County, GA
Fulton Company, GA
Secretary of State, KS
Secretary of State, KY
Jefferson County Clerk, KY
Secretary of the Commonwealth, MA
Andover Town, MA
Secretary of State, NC
Guilford County, NC
Secretary of State, NJ
Secretary of State, NY
Broome County, NY
Secretary of State, OH
Cuyohoga County, OH
Secretary of State, TN
Secretary of State, TX
Department of Licensing, WA
NCI Acquisition Corporation
Cobb County, GA
19
<PAGE>
SCHEDULE 7.2(e)
EXISTING INDEBTEDNESS
20
<PAGE>
SCHEDULE 7.2(e)
EXISTING INDEBTEDNESS
1. See attached chart.
2. Lease of the Northern Telecom phone switch located at the Company's Delk
location.
3. Note payable to Ingram & Associates, Inc. ("Ingram"), due in May 1998, in
the amount of $1,500,000, in consideration of the covenants set forth in
Section 2 of the Non-Compete Agreement, dated as of March 11, 1993, among
Ingram, the Stockholders party thereto and ACM, Inc. ("ACM"), in connection
with the Stock Purchase Agreement, dated as of December 15, 1992, among
ACM, Ingram, the Stockholders party thereto, and H. Preston Ingram.
4. Standby Letter of Credit, balance of $141,334.00, issued by Norwest Bank of
Minnesota N.A. to Southwood Properties Corporation for property leased by
Nationwide at 3600 East University Drive, Phoenix, Arizona.
21
<PAGE>
SCHEDULE 7.3(f)
EXISTING LIENS
22
<PAGE>
LIEN SUMMARY
JURISDICTION: COBB COUNTY, GEORGIA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NAME OF DEBTOR NAME OF SECURED PARTY FILING #/FILING DATE COLLATERAL
DESCRIPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nationwide Credit, Inc. ADVANTA Leasing Corp. 93 7668 8/26/93 Equipment
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. MFP Technology Services Inc. 9403973 5/9/94 Equipment
Assignee: Mutual of Omaha Insurance 9403973 11/8/94
Company
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. Unisys Corporation 9494343 5/17/94 Computer products
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. Unisys Corporation 9405828 6/28/94 Computer products
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. MFP Technology Services Inc. 94101150 11/7/94 Equipment
Assignee: Mutual of Omaha Life
Insurance Company
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. MFP Technology Services Inc. 033199502650 3/16/95 Equipment
Assignee: Mutual of Omaha Life 033199512668 9/12/95
Insurance Company
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit Pitney Bowes Credit Corporation 033199510248 7/31/95 Equipment
Incorporated
- --------------------------------------------------------------------------------------------------------------
Lessee: Nationwide Lessor: Bellsouth Financial 03319951885 8/25/95 Telecommunications
Credit Inc. Services Corporation Equipment
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit Pitney Bowes Credit Corporation 033199517127 12/12/95 Equipment
Incorporated
- --------------------------------------------------------------------------------------------------------------
Nationwide Credit, Inc. BSFS Equipment Leasing 0331199611308 8/13/96 Equipment
- --------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
================================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
NCI ACQUISITION CORPORATION
NATIONWIDE CREDIT, INC.
and certain of its Subsidiaries
in favor of
FLEET CAPITAL CORPORATION,
as Administrative Agent
Dated as of January , 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINED TERMS................................................. 1
1.1 Definitions.................................................. 1
1.2 Other Definitional Provisions................................ 4
SECTION 2. GUARANTEE.................................................... 5
2.1 Guarantee.................................................... 5
2.2 Right of Contribution........................................ 5
2.3 No Subrogation............................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations.... 6
2.5 Guarantee Absolute and Unconditional......................... 6
2.6 Reinstatement................................................ 7
2.7 Payments..................................................... 7
SECTION 3. GRANT OF SECURITY INTEREST................................... 7
SECTION 4. REPRESENTATIONS AND WARRANTIES............................... 8
4.1 Representations in Credit Agreement.......................... 8
4.2 Title; No Other Liens........................................ 8
4.3 Perfected First Priority Liens............................... 8
4.4 Chief Executive Office....................................... 9
4.5 Inventory and Equipment...................................... 9
4.6 Farm Products................................................ 9
4.7 Pledged Securities........................................... 9
4.8 Receivables.................................................. 9
4.9 Intellectual Property........................................ 9
SECTION 5. COVENANTS 10
5.1 Covenants in Credit Agreement................................ 10
5.2 Delivery of Instruments and Chattel Paper.................... 10
5.3 Maintenance of Insurance..................................... 10
5.4 Payment of Obligations....................................... 11
5.5 Maintenance of Perfected Security Interest;
Further Documentation...................................... 11
5.6 Changes in Locations, Name, etc.............................. 11
5.7 Notices...................................................... 12
5.8 Pledged Securities........................................... 12
5.9 Receivables.................................................. 13
5.10 Intellectual Property........................................ 13
SECTION 6. REMEDIAL PROVISIONS.......................................... 14
6.1 Certain Matters Relating to Receivables...................... 14
6.2 Communications with Obligors; Grantors Remain Liable......... 15
i
<PAGE>
Page
----
6.3 Pledged Stock................................................ 15
6.4 Proceeds to be Turned Over To Administrative Agent........... 16
6.5 Application of Proceeds...................................... 16
6.6 Code and Other Remedies...................................... 17
6.7 Registration Rights.......................................... 17
6.8 Waiver; Deficiency........................................... 18
SECTION 7. THE ADMINISTRATIVE AGENT..................................... 18
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc.. 18
7.2 Duty of Administrative Agent................................. 20
7.3 Execution of Financing Statements............................ 20
7.4 Authority of Administrative Agent............................ 20
SECTION 8. MISCELLANEOUS................................................ 21
8.1 Amendments in Writing........................................ 21
8.2 Notices...................................................... 21
8.3 No Waiver by Course of Conduct; Cumulative Remedies.......... 21
8.4 Enforcement Expenses; Indemnification........................ 21
8.5 Successors and Assigns....................................... 22
8.6 Set-Off...................................................... 22
8.7 Counterparts................................................. 22
8.8 Severability................................................. 22
8.9 Section Headings............................................. 22
8.10 Integration.................................................. 22
8.11 GOVERNING LAW................................................ 23
8.12 Submission To Jurisdiction; Waivers.......................... 23
8.13 Acknowledgements............................................. 23
8.14 WAIVER OF JURY TRIAL......................................... 23
8.15 Additional Grantors.......................................... 24
8.16 Releases..................................................... 24
ii
<PAGE>
EXHIBIT A
FORM OF
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of January __, 1998, made
by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, the "Grantors"), in favor of Fleet
Capital Corporation, as Administrative Agent (in such capacity, the
"Administrative Agent") for the banks and other financial institutions (the
"Lenders") from time to time parties to the Credit Agreement, dated as of
January __, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among NCI Acquisition Corporation, Nationwide
Credit, Inc. (the "Borrower"), the Lenders, Lehman Brothers, Inc., as Arranger,
Lehman Commercial Paper Inc., as Syndication Agent, the Administrative Agent and
BHF - Bank Aktiengesellschaft, Grand Cayman Branch, as Documentation Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of companies
that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable transfers
to one or more of the other Grantors in connection with the operation of their
respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect benefit
from the making of the extensions of credit under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective extensions of credit to the Borrower under the Credit
Agreement that the Grantors shall have executed and delivered this Agreement to
the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the Borrower
thereunder, each Grantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
-----------
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Instruments, Inventory and Investment Property.
<PAGE>
2
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same may
---------
be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid
--------------------
principal of and interest on the Loans and Reimbursement Obligations and
all other obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and Reimbursement
Obligations and interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding) to the Administrative
Agent or any Lender (or, in the case of any Hedge Agreement referred to
below, any Affiliate of any Lender), whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Credit Agreement,
this Agreement, the other Loan Documents, any Letter of Credit or any Hedge
Agreement entered into by the Borrower with any Lender (or any Affiliate of
any Lender) or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
the Administrative Agent or to the Lenders that are required to be paid by
the Borrower pursuant to the terms of any of the foregoing agreements).
"Collateral": as defined in Section 3.
----------
"Collateral Account": any collateral account established by the
------------------
Administrative Agent as provided in Section 6.1 or 6.4.
"Copyrights": (i) all copyrights arising under the laws of the United
----------
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in Schedule 6), all registrations and
recordings thereof, and all applications in connection therewith,
including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, and (ii) the right to
obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any Grantor as
------------------
licensor or licensee (including, without limitation, those listed in
Schedule 6), granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright.
"General Intangibles": all "general intangibles" as such term is
-------------------
defined in Section 9-106 of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such
Grantor is a party or under which such Grantor has any right, title or
interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of
<PAGE>
3
such Grantor to perform and to exercise all remedies thereunder, in each
case to the extent the grant by such Grantor of a security interest
pursuant to this Agreement in its right, title and interest in such
contract, agreement, instrument or indenture is not prohibited by such
contract, agreement, instrument or indenture without the consent of any
other party thereto, would not give any other party to such contract,
agreement, instrument or indenture the right to terminate its obligations
thereunder, or is permitted with consent if all necessary consents to such
grant of a security interest have been obtained from the other parties
thereto (it being understood that the foregoing shall not be deemed to
obligate such Grantor to obtain such consents); provided, that the
foregoing limitation shall not affect, limit, restrict or impair the grant
by such Grantor of a security interest pursuant to this Agreement in any
Receivable or any money or other amounts due or to become due under any
such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
---------------------
collective reference to (i) the Borrower Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Loan Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all fees and disbursements of
counsel to the Administrative Agent or to the Lenders that are required to
be paid by such Guarantor pursuant to the terms of this Agreement or any
other Loan Document).
"Guarantors": the collective reference to each Grantor other than the
----------
Borrower.
"Hedge Agreements": as to any Person, all interest rate swaps, caps
----------------
or collar agreements or similar arrangements entered into by such Person
providing for protection against fluctuations in interest rates or currency
exchange rates or the exchange of nominal interest obligations, either
generally or under specific contingencies.
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.
"Intercompany Note": any promissory note evidencing loans made by any
-----------------
Grantor to Holdings or any of its Subsidiaries.
"Issuers": the collective reference to each issuer of a Pledged
-------
Security.
"New York UCC": the Uniform Commercial Code as from time to time in
------------
effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
-----------
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any other
-------
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to in Schedule 6, (ii) all
<PAGE>
4
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to in Schedule
6, and (iii) all rights to obtain any reissues or extensions of the
foregoing.
"Patent License": all agreements, whether written or oral, providing
--------------
for the grant by or to any Grantor of any right to manufacture, use or sell
any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 6.
"Pledged Notes": all promissory notes listed on Schedule 2, all
-------------
Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than promissory
notes issued in connection with extensions of trade credit by any Grantor
in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged Notes
------------------
and the Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
-------------
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-
--------
306(1) of the Uniform Commercial Code in effect in the State of New York on
the date hereof and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Securities, collections thereon
or distributions or payments with respect thereto.
"Receivable": any right to payment for goods sold or leased or for
----------
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Securities Act": the Securities Act of 1933, as amended.
--------------
"Trademarks": (i) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to in Schedule 6, and (ii) the
right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
-----------------
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
in Schedule 6.
1.2 Other Definitional Provisions. (a) The words "hereof,"
-----------------------------
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement
<PAGE>
5
as a whole and not to any particular provision of this Agreement, and Section
and Schedule references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
---------
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Administrative Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding and the
Commitments shall be terminated, notwithstanding that from time to time during
the term of the Credit Agreement the Borrower may be free from any Borrower
Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any other
guarantor or any other Person or received or collected by the Administrative
Agent or any Lender from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any set-
off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Subsidiary Guarantor hereby agrees
---------------------
that to the extent that a Subsidiary Guarantor shall have paid more than its
proportionate share of any payment
<PAGE>
6
made hereunder, such Subsidiary Guarantor shall be entitled to seek and receive
contribution from and against any other Subsidiary Guarantor hereunder which has
not paid its proportionate share of such payment. Each Subsidiary Guarantor's
right of contribution shall be subject to the terms and conditions of Section
2.3. The provisions of this Section 2.2 shall in no respect limit the
obligations and liabilities of any Subsidiary Guarantor to the Administrative
Agent and the Lenders, and each Subsidiary Guarantor shall remain liable to the
Administrative Agent and the Lenders for the full amount guaranteed by such
Subsidiary Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
--------------
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower on
account of the Borrower Obligations are paid in full, no Letter of Credit shall
be outstanding and the Commitments are terminated. If any amount shall be paid
to any Guarantor on account of such subrogation rights at any time when all of
the Borrower Obligations shall not have been paid in full, such amount shall be
held by such Guarantor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Administrative Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the
Administrative Agent, if required), to be applied against the Borrower
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine.
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
---------------------------------------------------------
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Administrative Agent or any Lender, and the
Credit Agreement and the other Loan Documents and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Administrative Agent (or the Required
Lenders or all Lenders, as the case may be) may deem advisable from time to
time, and any collateral security, guarantee or right of offset at any time held
by the Administrative Agent or any Lender for the payment of the Borrower
Obligations may be sold, exchanged, waived, surrendered or released. Neither
the Administrative Agent nor any Lender shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Borrower Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed,
<PAGE>
7
extended, amended or waived, in reliance upon the guarantee contained in this
Section 2; and all dealings between the Borrower and any of the Guarantors, on
the one hand, and the Administrative Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this Section 2. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower or any of the Guarantors with respect to the
Borrower Obligations. Each Guarantor understands and agrees that the guarantee
contained in this Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Loan Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower or any other Person against the
Administrative Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrower or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Borrower Obligations, or of such Guarantor
under the guarantee contained in this Section 2, in bankruptcy or in any other
instance. When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against any Guarantor, the Administrative Agent or any Lender
may, but shall be under no obligation to, make a similar demand on or otherwise
pursue such rights and remedies as it may have against the Borrower, any other
Guarantor or any other Person or against any collateral security or guarantee
for the Borrower Obligations or any right of offset with respect thereto, and
any failure by the Administrative Agent or any Lender to make any such demand,
to pursue such other rights or remedies or to collect any payments from the
Borrower, any other Guarantor or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the Borrower, any other Guarantor or any other Person or any such
collateral security, guarantee or right of offset, shall not relieve any
Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent or any Lender against any Guarantor.
For the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2 shall
-------------
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
--------
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at
Three World Financial Center, New York, New York.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Administrative Agent,
and hereby grants to the Administrative Agent, for the ratable benefit of the
Lenders, a security interest in, all of the following property now owned or at
any time hereafter acquired by such Grantor or in which such Grantor now has or
at any time in the future may acquire any right, title or interest
(collectively, the
<PAGE>
8
"Collateral"), as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of such Grantor's Obligations,:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Documents;
(d) all Equipment;
(e) all General Intangibles;
(f) all Instruments;
(g) all Intellectual Property;
(h) all Inventory;
(i) all Pledged Securities;
(j) all Investment Property;
(k) all books and records pertaining to the Collateral; and
(l) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrower thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:
4.1 Representations in Credit Agreement. In the case of each
-----------------------------------
Guarantor, the representations and warranties set forth in Section 4 of the
Credit Agreement as they relate to such Guarantor or to the Loan Documents to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Administrative Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty to
the Borrower's knowledge shall, for the purposes of this Section 4.1, be deemed
to be a reference to such Guarantor's knowledge.
4.2 Title; No Other Liens. Except for the security interest granted
---------------------
to the Administrative Agent for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No financing statement or other
public notice with respect to all or any part of the Collateral is on file or of
record in any public
<PAGE>
9
office, except such as have been filed in favor of the Administrative Agent, for
the ratable benefit of the Lenders, pursuant to this Agreement or as are
permitted by the Credit Agreement.
4.3 Perfected First Priority Liens. The security interests granted
------------------------------
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Administrative Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for Liens permitted by the Credit Agreement.
4.4 Chief Executive Office. On the date hereof, such Grantor's
----------------------
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.5 Inventory and Equipment. On the date hereof, the Inventory and
-----------------------
the Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
4.6 Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by
------------------
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor; provided,
that the security interest granted hereby in any Capital Stock of any Excluded
Foreign Subsidiary is limited to 65% of the Capital Stock of each Excluded
Foreign Subsidiary.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement.
4.8 Receivables. (a) No amount payable to such Grantor under or in
-----------
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent.
(b) The amounts represented by such Grantor to the Lenders from time
to time as owing to such Grantor in respect of the Receivables will at such
times be accurate.
<PAGE>
10
4.9 Intellectual Property. (a) Schedule 6 lists all Intellectual
---------------------
Property owned by such Grantor in its own name on the date hereof.
(b) On the date hereof, all material Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and does not
infringe the intellectual property rights of any other Person.
(c) Except as set forth in Schedule 6, on the date hereof, none of
the Intellectual Property is the subject of any licensing or franchise agreement
pursuant to which such Grantor is the licensor or franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge of such
Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question
the validity of any Intellectual Property or such Grantor's ownership interest
therein, or (ii) which, if adversely determined, would have a material adverse
effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative Agent and
the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Commitments shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor,
-----------------------------
such Guarantor shall take, or shall refrain from taking, as the case may be,
each action that is necessary to be taken or not taken, as the case may be, so
that no Default or Event of Default is caused by the failure to take such action
or to refrain from taking such action by such Guarantor or any of its
Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any amount payable
-----------------------------------------
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Administrative Agent, duly indorsed in a manner
satisfactory to the Administrative Agent, to be held as Collateral pursuant to
this Agreement.
5.3 Maintenance of Insurance. (a) Such Grantor will maintain, with
------------------------
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the Administrative Agent and
(ii) insuring such Grantor, the Administrative Agent and the Lenders against
liability for personal injury and property damage relating to such Inventory and
Equipment, such policies to be in such form and amounts and having such coverage
as may be reasonably satisfactory to the Administrative Agent and the Lenders.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Administrative Agent of
written notice thereof, (ii) name the Administrative Agent as insured
<PAGE>
11
party or loss payee, (iii) if reasonably requested by the Administrative Agent,
include a breach of warranty clause and (iv) be reasonably satisfactory in all
other respects to the Administrative Agent.
(c) The Borrower shall deliver to the Administrative Agent and the
Lenders a report of a reputable insurance broker with respect to such insurance
during the month of November in each calendar year and such supplemental reports
with respect thereto as the Administrative Agent may from time to time
reasonably request.
5.4 Payment of Obligations. Such Grantor will pay and discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.
5.5 Maintenance of Perfected Security Interest; Further
---------------------------------------------------
Documentation. (a) Such Grantor shall maintain the security interest created
- -------------
by this Agreement as a perfected security interest having at least the priority
described in Section 4.3 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Administrative Agent and the
Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in reasonable
detail.
(c) At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby,
including, without limitation, compliance with any applicable federal laws with
respect to Receivables as to which the obligor is a Governmental Authority
(provided that the Borrower shall give the Administrative Agent written notice
of the aggregate book value of such Receivables at such time as the aggregate
book value of such Receivables exceeds $10,000,000).
5.6 Changes in Locations, Name, etc. Such Grantor will not, except
-------------------------------
upon 15 days' prior written notice to the Administrative Agent and delivery to
the Administrative Agent of (a) all additional executed financing statements and
other documents reasonably requested by the Administrative Agent to maintain the
validity, perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 5 showing any additional
location at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a location
other than those listed on Schedule 5;
<PAGE>
12
(ii) change the location of its chief executive office or sole place
of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.
5.7 Notices. Such Grantor will advise the Administrative Agent and
-------
the Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Administrative Agent to exercise any of its
remedies hereunder; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.8 Pledged Securities. (a) If such Grantor shall become entitled
------------------
to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Administrative Agent and the Lenders, hold the same in
trust for the Administrative Agent and the Lenders and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power covering such certificate duly executed in blank by such
Grantor and with, if the Administrative Agent so requests, signature guaranteed,
to be held by the Administrative Agent, subject to the terms hereof, as
additional collateral security for the Obligations. Any sums paid upon or in
respect of the Pledged Securities upon the liquidation or dissolution of any
Issuer shall be paid over to the Administrative Agent to be held by it hereunder
as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall, unless otherwise subject to a perfected security interest in
favor of the Administrative Agent, be delivered to the Administrative Agent to
be held by it hereunder as additional collateral security for the Obligations.
If any sums of money or property so paid or distributed in respect of the
Pledged Securities shall be received by such Grantor, such Grantor shall, until
such money or property is paid or delivered to the Administrative Agent, hold
such money or property in trust for the Lenders, segregated from other funds of
such Grantor, as additional collateral security for the Obligations.
(b) Without the prior written consent of the Administrative Agent,
such Grantor will not (i) vote to enable, or take any other action to permit,
any Issuer to issue any stock or other equity securities of any nature or to
issue any other securities convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of any Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Pledged Securities or Proceeds thereof (except
pursuant to a transaction expressly permitted by the Credit Agreement), (iii)
create, incur or permit to exist any Lien or option in favor of, or any claim of
any
<PAGE>
13
Person with respect to, any of the Pledged Securities or Proceeds thereof, or
any interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the right
or ability of such Grantor or the Administrative Agent to sell, assign or
transfer any of the Pledged Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer
agrees that (i) it will be bound by the terms of this Agreement relating to the
Pledged Securities issued by it and will comply with such terms insofar as such
terms are applicable to it, (ii) it will notify the Administrative Agent
promptly in writing of the occurrence of any of the events described in Section
5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms
of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to
all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with
respect to the Pledged Securities issued by it.
(d) Notwithstanding any other provision of this Agreement, no Grantor
shall be obligated to pledge or deliver to the Administrative Agent or the
Lenders more than 65% of the Capital Stock of any Excluded Foreign Subsidiary.
5.9 Receivables. (a) Other than in the ordinary course of business
-----------
consistent with its past practice, such Grantor will not (i) grant any extension
of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Administrative Agent a copy of
each material demand, notice or document received by it that questions or calls
into doubt the validity or enforceability of more than 5% of the aggregate
amount of the then outstanding Receivables.
5.10 Intellectual Property. (a) Such Grantor (either itself or
---------------------
through licensees) will (i) continue to use each material Trademark on each and
every trademark class of goods applicable to its current line as reflected in
its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Administrative Agent, for the ratable
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way.
(b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any material Patent may become forfeited,
abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i) will employ
each material Copyright and (ii) will not (and will not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
material portion of the Copyrights may become invalidated or otherwise impaired.
Such Grantor will not (either itself or through licensees) do any act whereby
any material portion of the Copyrights may fall into the public domain.
<PAGE>
14
(d) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.
(e) Such Grantor will notify the Administrative Agent and the Lenders
immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal in
any country) regarding such Grantor's ownership of, or the validity of, any
material Intellectual Property or such Grantor's right to register the same or
to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within five Business Days after the last day
of the fiscal quarter in which such filing occurs. Upon request of the
Administrative Agent, such Grantor shall execute and deliver, and have recorded,
any and all agreements, instruments, documents, and papers as the Administrative
Agent may request to evidence the Administrative Agent's and the Lenders'
security interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby.
(g) Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Administrative
---------------------------------------
Agent shall have the right to make test verifications of the Receivables in any
manner and through any medium that it reasonably considers advisable, and each
Grantor shall furnish all such assistance and information as the Administrative
Agent may require in connection with such test verifications. At any time and
from time to time, upon the Administrative Agent's request and at the expense of
the relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Administrative Agent to furnish to the Administrative
Agent reports showing reconciliations, aging and test verifications of, and
trial balances for, the Receivables.
<PAGE>
15
(b) The Administrative Agent hereby authorizes each Grantor to
collect such Grantor's Receivables, subject to the Administrative Agent's
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of an
Event of Default. If required by the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any
event, within two Business Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Administrative Agent if required,
in a Collateral Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
account of the Lenders only as provided in Section 65, and (ii) until so turned
over, shall be held by such Grantor in trust for the Administrative Agent and
the Lenders, segregated from other funds of such Grantor. Each such deposit of
Proceeds of Receivables shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
(c) At the Administrative Agent's request, each Grantor shall deliver
to the Administrative Agent all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the Receivables,
including, without limitation, all original orders, invoices and shipping
receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a) The
----------------------------------------------------
Administrative Agent in its own name or in the name of others may at any time
communicate with obligors under the Receivables to verify with them to the
Administrative Agent's satisfaction the existence, amount and terms of any
Receivables.
(b) Upon the request of the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables that the Receivables have been assigned
to the Administrative Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Administrative Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise thereto. Neither the
Administrative Agent nor any Lender shall have any obligation or liability under
any Receivable (or any agreement giving rise thereto) by reason of or arising
out of this Agreement or the receipt by the Administrative Agent or any Lender
of any payment relating thereto, nor shall the Administrative Agent or any
Lender be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
-------------
occurred and be continuing and the Administrative Agent shall have given notice
to the relevant Grantor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Notes, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided,
<PAGE>
16
however, that no vote shall be cast or corporate right exercised or other action
taken which, in the Administrative Agent's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement, this Agreement or any other Loan Document.
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the relevant Grantor or Grantors, (i) the Administrative Agent shall have the
right to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in the order set forth in Section 6.5, and (ii) any or all of the
Pledged Securities shall be registered in the name of the Administrative Agent
or its nominee, and the Administrative Agent or its nominee may thereafter
exercise (x) all voting, corporate and other rights pertaining to such Pledged
Securities at any meeting of shareholders of the relevant Issuer or Issuers or
otherwise and (y) any and all rights of conversion, exchange and subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization or
other fundamental change in the corporate structure of any Issuer, or upon the
exercise by any Grantor or the Administrative Agent of any right, privilege or
option pertaining to such Pledged Securities, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Grantor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Administrative Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each Issuer
shall be fully protected in so complying, and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Securities directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In addition
--------------------------------------------------
to the rights of the Administrative Agent and the Lenders specified in Section
6.1 with respect to payments of Receivables, if an Event of Default shall occur
and be continuing, all Proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required). All
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a
Collateral Account (or by such Grantor in trust for the Administrative Agent and
the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 65.
6.5 Application of Proceeds. At such intervals as may be agreed upon
-----------------------
by the Borrower and the Administrative Agent, or, if an Event of Default shall
have occurred and be continuing, at any time at the Administrative Agent's
election, the Administrative Agent may apply all or any part of Proceeds
constituting Collateral, whether or not held in any Collateral Account, and
<PAGE>
17
any proceeds of the guarantee set forth in Section 2, in payment of the
Obligations in the following order:
First, to pay incurred and unpaid fees and expenses of the
-----
Administrative Agent under the Loan Documents;
Second, to the Administrative Agent, for application by it towards
------
payment of amounts then due and owing and remaining unpaid in respect of
the Obligations, pro rata among the Lenders according to the amounts of the
Obligations then due and owing and remaining unpaid to the Lenders;
Third, to the Administrative Agent, for application by it towards
-----
prepayment of the Obligations, pro rata among the Lenders according to the
amounts of the Obligations then held by the Lenders; and
Fourth, any balance of such Proceeds remaining after the Obligations
------
shall have been paid in full, no Letters of Credit shall be outstanding and
the Commitments shall have terminated shall be paid over to the Borrower or
to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and
-----------------------
be continuing, the Administrative Agent, on behalf of the Lenders, may exercise,
in addition to all other rights and remedies granted to them in this Agreement
and in any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the New York UCC
or any other applicable law. Without limiting the generality of the foregoing,
the Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent or any Lender shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released. Each Grantor
further agrees, at the Administrative Agent's request, to assemble the
Collateral and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor's premises
or elsewhere. The Administrative Agent shall apply the net proceeds of any
action taken by it pursuant to this Section 6.6, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Administrative Agent and the Lenders
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Obligations, in such
order as the Administrative Agent may elect, and only after such application and
after the payment by the Administrative Agent of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
New York UCC, need the Administrative Agent account for the surplus, if any, to
any Grantor. To the extent permitted by applicable law, each Grantor waives all
<PAGE>
18
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.
6.7 Registration Rights. (a) If the Administrative Agent shall
-------------------
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 6.6, and if in the opinion of the Administrative Agent it is
necessary or advisable to have the Pledged Stock, or that portion thereof to be
sold, registered under the provisions of the Securities Act, the relevant
Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Grantor agrees to
cause such Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions which the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of Section 11(a) of the Securities Act.
(b) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the Issuer thereof to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section 6.7 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section 6.7 will cause irreparable injury to the Administrative Agent and
the Lenders, that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in this Section 6.7 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert
------------------
any rights or privileges which it may acquire under Section 9-112 of the New
York UCC. Each Grantor shall
<PAGE>
19
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Administrative Agent or
any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. (a)
-----------------------------------------------------------
Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Administrative Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or with respect to any other Collateral and file any claim or
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Administrative Agent for the purpose of
collecting any and all such moneys due under any Receivable or with respect
to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's and the Lenders' security interest in such
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section 6.6
or 6.7, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (2) ask or demand for, collect, and receive payment of
and receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral; (3)
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect
of any Collateral; (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (6) settle, compromise
or adjust any such suit, action or proceeding and, in connection therewith,
give
<PAGE>
20
such discharges or releases as the Administrative Agent may deem
appropriate; (7) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such conditions,
and in such manner, as the Administrative Agent shall in its sole
discretion determine; and (8) generally, sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Administrative Agent were the
absolute owner thereof for all purposes, and do, at the Administrative
Agent's option and such Grantor's expense, at any time, or from time to
time, all acts and things which the Administrative Agent deems necessary to
protect, preserve or realize upon the Collateral and the Administrative
Agent's and the Lenders' security interests therein and to effect the
intent of this Agreement, all as fully and effectively as such Grantor
might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 7.1(a) unless an Event of Default shall
have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in connection
with actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Revolving Credit Loans that are Base Rate Loans
under the Credit Agreement, from the date of payment by the Administrative Agent
to the date reimbursed by the relevant Grantor, shall be payable by such Grantor
to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's sole
----------------------------
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9-402 of
---------------------------------
the New York UCC and any other applicable law, each Grantor authorizes the
Administrative Agent to file or record
<PAGE>
21
financing statements and other filing or recording documents or instruments with
respect to the Collateral without the signature of such Grantor in such form and
in such offices as the Administrative Agent reasonably determines appropriate to
perfect the security interests of the Administrative Agent under this Agreement.
A photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
---------------------
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 10.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
-------
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in subsection 10.2 of the Credit Agreement; provided that any such
notice, request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the
---------------------------------------------------
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor
-------------------------------------
agrees to pay or reimburse each Lender and the Administrative Agent for all its
costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any rights
under this Agreement and the other Loan Documents to which such Guarantor is a
party, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Administrative Agent.
<PAGE>
22
(b) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Administrative
Agent and the Lenders harmless from, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to subsection 10.5 of
the Credit Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns; provided
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
-------
Administrative Agent and each Lender at any time and from time to time while an
Event of Default shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or such
Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Loan Document
or otherwise, as the Administrative Agent or such Lender may elect, whether or
not the Administrative Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
<PAGE>
23
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents to which it is a
party;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to any Grantor arising out of or in connection
with this Agreement or any of the
<PAGE>
24
other Loan Documents, and the relationship between the Grantors, on the one
hand, and the Administrative Agent and Lenders, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Grantors and the Lenders.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
--------------------
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower that is
-------------------
required to become a party to this Agreement pursuant to subsection 6.9 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
8.16 Releases. (a) At such time as the Loans, the Reimbursement
--------
Obligations and the other Obligations shall have been paid in full, the
Commitments have been terminated and no Letters of Credit shall be outstanding,
the Collateral shall be released from the Liens created hereby, and this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Administrative Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At
the request and sole expense of any Grantor following any such termination, the
Administrative Agent shall deliver to such Grantor any Collateral held by the
Administrative Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby on
such Collateral. At the request and sole expense of the Borrower, a Subsidiary
Guarantor shall be released from its obligations hereunder in the event that all
the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or
otherwise disposed of in a transaction permitted by the Credit Agreement;
provided that the Borrower shall have delivered to the Administrative Agent, at
least ten Business Days prior to the date of the proposed release, a written
request for release identifying the relevant Subsidiary Guarantor and the terms
of the sale or other disposition in reasonable detail, including the price
thereof and any expenses in connection therewith, together with a certification
by the Borrower stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents.
<PAGE>
25
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
and Collateral Agreement to be duly executed and delivered as of the date first
above written.
NCI ACQUISITION CORPORATION
By: _________________________________
NATIONWIDE CREDIT, INC.
By: _________________________________
Title:
<PAGE>
Schedule 1
----------
NOTICE ADDRESSES OF GUARANTORS
<PAGE>
Schedule 2
----------
DESCRIPTION OF PLEDGED SECURITIES
PLEDGED STOCK:
<TABLE>
<CAPTION>
Issuer Class of Stock Stock Certificate No. No. of Shares
---------------------------- ------------------ ------------------------- ---------------
<S> <C> <C> <C>
</TABLE>
PLEDGED NOTES:
<TABLE>
<CAPTION>
Issuer Payee Principal Amount
- ------------------------------- -------------- -------------------------
<S> <C> <C>
</TABLE>
<PAGE>
Schedule 3
----------
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
[List each office where a financing statement is to be filed]
Patent and Trademark Filings
----------------------------
[List all filings]
Actions with respect to Pledged Stock
-------------------------------------
Other Actions
-------------
[Describe other actions to be taken]
<PAGE>
Schedule 4
----------
LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE
Grantor Location
------- --------
<PAGE>
Schedule 5
----------
LOCATION OF INVENTORY AND EQUIPMENT
Grantor Locations
------- ---------
<PAGE>
Schedule 6
----------
COPYRIGHTS AND COPYRIGHT LICENSES
PATENTS AND PATENT LICENSES
TRADEMARKS AND TRADEMARK LICENSES
<PAGE>
ACKNOWLEDGEMENT AND CONSENT*
The undersigned hereby acknowledges receipt of a copy of the Guarantee and
Collateral Agreement dated as of January ___, 1998 (the "Agreement"), made by
the Grantors parties thereto for the benefit of _________________, as
Administrative Agent. The undersigned agrees for the benefit of the
Administrative Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the Agreement and will
comply with such terms insofar as such terms are applicable to the undersigned.
2. The undersigned will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) of
the Agreement.
3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
pursuant to Section 6.3(a) or 6.7 of the Agreement.
[NAME OF ISSUER]
By
---------------------------------------
Title
------------------------------------
Address for Notices:
------------------------------------------
------------------------------------------
Fax:
--------------------------------------
- ---------------------
* This consent is necessary only with respect to any Issuer which is
not also a Grantor.
<PAGE>
Annex 1 to
Guarantee and Collateral Agreement
----------------------------------
ASSUMPTION AGREEMENT, dated as of ________________, 199_, made by
______________________________, a ______________ corporation (the "Additional
Grantor"), in favor of ____________________, as administrative agent (in such
capacity, the "Administrative Agent") for the banks and other financial
institutions (the "Lenders") parties to the Credit Agreement referred to below.
All capitalized terms not defined herein shall have the meaning ascribed to them
in such Credit Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, NCI Acquisition Corporation, Nationwide Credit, Inc. (the
"Borrower"), the Lenders, Lehman Brothers Inc., as Arranger, Lehman Commercial
Paper Inc., as Syndication Agent and the Administrative Agent have entered into
a Credit Agreement, dated as of January __, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement");
WHEREAS, in connection with the Credit Agreement, the Borrower and
certain of its Affiliates (other than the Additional Grantor) have entered into
the Guarantee and Collateral Agreement, dated as of January __, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Guarantee
and Collateral Agreement") in favor of the Administrative Agent for the benefit
of the Lenders;
WHEREAS, the Credit Agreement requires the Additional Grantor to
become a party to the Guarantee and Collateral Agreement; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Guarantee and Collateral
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. Guarantee and Collateral Agreement. By executing and delivering
this Assumption Agreement, the Additional Grantor, as provided in Section 8.15
of the Guarantee and Collateral Agreement, hereby becomes a party to the
Guarantee and Collateral Agreement as a Grantor thereunder with the same force
and effect as if originally named therein as a Grantor and, without limiting
the generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Grantor thereunder. The information set forth in Annex 1-A
hereto is hereby added to the information set forth in Schedules
____________** to the Guarantee and Collateral Agreement. The Additional
Grantor hereby represents and warrants that each of the representations and
warranties contained in Section 4 of the Guarantee and Collateral Agreement is
true and correct on and as the date hereof (after giving effect to this
Assumption Agreement) as if made on and as of such date.
- ---------------
** Refer to each Schedule which needs to be supplemented.
<PAGE>
2
2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered to you pursuant to Section
6.2 of the Credit Agreement, dated as of January __, 1998, as amended,
supplemented or modified from time to time (the "Credit Agreement"), among NCI
Acquisition Corporation, Nationwide Credit, Inc. (the "Borrower"), the financial
institutions from time to time party thereto as lenders (the "Lenders"), Lehman
Brothers, Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent,
Fleet Capital Corporation , as Administrative Agent for the Lenders (in such
capacity, the "Administrative Agent") and BHF - Bank Aktiengesellshcaft, Grand
Cayman Branch, as Documentation Agent. Terms defined in the Credit Agreement
and not otherwise defined herein are used herein with the meanings so defined.
1. I am the duly elected, qualified and acting Vice President -
Finance of the Borrower.
2. I have reviewed and am familiar with the contents of this
Certificate.
3. I have reviewed the terms of the Credit Agreement and the Loan
Documents and have made or caused to be made under my supervision, a review in
reasonable detail of the transactions and condition of the Borrower during the
accounting period covered by the financial statements attached hereto as
Attachment 1 (the "Financial Statements"). Such review did not disclose the
existence during or at the end of the accounting period covered by the Financial
Statements, and I have no knowledge of the existence, as of the date of this
Certificate, of any condition or event which constitutes a Default or Event of
Default [, except as set forth below].
4. Attached hereto as Attachment 2 are the computations showing
compliance with the covenants set forth in Section 7.1, 7.2, 7.5 7.6 and 7.7 of
the Credit Agreement.
IN WITNESS WHEREOF, I execute this Certificate this _____ day of
_________, 199__.
NATIONWIDE CREDIT, INC.
By:
----------------------------------
Title:
--------------------------------
<PAGE>
Attachment 2
to Exhibit B
The information described herein is as of ____________, 199_,
and pertains to the period from ______________ ___, 19__ to ________________ __,
19__.
[Set forth Covenant Calculations]
<PAGE>
EXHIBIT C
FORM OF CLOSING CERTIFICATE
Pursuant to subsection 5.1(l) of the Credit Agreement dated as of
January __, 1998 (the "Credit Agreement"; terms defined therein being used
herein as therein defined), among NCI Acquisition Corporation, Nationwide
Credit, Inc. (the "Borrower"), the Lenders parties thereto, Lehman Brothers,
Inc., as Arranger, Lehman Commercial Paper Inc., as Syndication Agent, Fleet
Capital Corporation, as Administrative Agent, and BHF - Bank Aktiengesellschaft,
Grand Cayman Branch, the undersigned [INSERT TITLE OF OFFICER] of [INSERT NAME
OF COMPANY] (the "Company") hereby certifies as follows:
1. The representations and warranties of the Company set forth in
each of the Loan Documents to which it is a party or which are contained in any
certificate furnished by or on behalf of the Company pursuant to any of the Loan
Documents to which it is a party are true and correct in all material respects
on and as of the date hereof with the same effect as if made on the date hereof,
except for representations and warranties expressly stated to relate to a
specific earlier date, in which case such representations and warranties were
true and correct in all material respects as of such earlier date.
2. ___________________ is the duly elected and qualified Corporate
Secretary of the Company and the signature set forth for such officer below is
such officer's true and genuine signature.
3. No Default or Event of Default has occurred and is continuing as
of the date hereof or after giving effect to the Loans to be made on the date
hereof.
4. The conditions precedent set forth in Section 5.1 of the Credit
Agreement were satisfied as of the Closing Date.
The undersigned Corporate Secretary of the Company certifies as
follows:
5. There are no liquidation or dissolution proceedings pending or to
my knowledge threatened against the Company, nor has any other event occurred
adversely affecting or threatening the continued corporate existence of the
Company.
6. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its organization.
7. Attached hereto as Annex 1 is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Company of Acquisition
Co; such resolutions have not in any way been amended, modified, revoked or
rescinded, have been in full force and effect since their adoption to and
including the date hereof and are now in full force and effect and are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein.
8. Attached hereto as Annex 2 is a true and complete copy of the By-
Laws of the Company as in effect on the date hereof.
<PAGE>
2
9. Attached hereto as Annex 3 is a true and complete copy of the
Certificate of Incorporation of the Company as in effect on the date hereof, and
such certificate has not been amended, repealed, modified or restated.
10. The following persons are now duly elected and qualified officers
of the Company holding the offices indicated next to their respective names
below, and such officers have held such offices with the Company at all times
since the date indicated next to their respective titles to and including the
date hereof, and the signatures appearing opposite their respective names below
are the true and genuine signatures of such officers, and each of such officers
is duly authorized to execute and deliver on behalf of the Company each of the
Loan Documents to which it is a party and any certificate or other document to
be delivered by the Company pursuant to the Loan Documents to which it is a
party:
Name Office Date Signature
---- ------ ---- ---------
IN WITNESS WHEREOF, the undersigned have hereunto set our names as of
the date set forth below.
- ----------------------------------- -----------------------------------
Name: Name:
Title: Title:
Date: 199
--------------, --
<PAGE>
ANNEX 1
[Board Resolutions]
<PAGE>
ANNEX 2
[By-Laws]
<PAGE>
ANNEX 3
[Certificate of Incorporation]
<PAGE>
EXHIBIT D
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of January __,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among NCI Acquisition Corporation, Nationwide Credit, Inc.
(the "Borrower"), the Lenders named therein, Lehman Brothers, Inc., as Arranger,
Lehman Commercial Paper Inc., as Syndication Agent, Fleet Capital Corporation,
as administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), and BHF - Bank Aktiengesellschaft, Grand Cayman Branch, as
Documentation Agent. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
The Assignor identified on Schedule l hereto (the "Assignor") and the
Assignee identified on Schedule l hereto (the "Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
the Credit Agreement with respect to those credit facilities contained in the
Credit Agreement as are set forth on Schedule 1 hereto (individually, an
"Assigned Facility"; collectively, the "Assigned Facilities"), in a principal
amount for each Assigned Facility as set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower, any of its Subsidiaries or any other
obligor or the performance or observance by the Borrower, any of its
Subsidiaries or any other obligor of any of their respective obligations under
the Credit Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (c) attaches any Notes held
by it evidencing the Assigned Facilities and (i) requests that the
Administrative Agent, upon request by the Assignee, exchange the attached Notes
for a new Note or Notes payable to the Assignee and (ii) if the Assignor has
retained any interest in the Assigned Facility, requests that the Administrative
Agent exchange the attached Notes for a new Note or Notes payable to the
Assignor, in each case in amounts which reflect the assignment being made hereby
(and after giving effect to any other assignments which have become effective on
the Effective Date).
<PAGE>
2
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to subsection 4.1 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the Agents
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto or thereto; (d) appoints
and authorizes the Agents to take such action as agent on its behalf and to
exercise such powers and discretion under the Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Agents by the terms thereof, together with such
powers as are incidental thereto; and (e) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to
be performed by it as a Lender including, if it is organized under the laws of a
jurisdiction outside the United States, its obligation pursuant to subsection
2.17(d) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be the
Effective Date of Assignment described in Schedule 1 hereto (the "Effective
Date"). Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective as of the
Effective Date (which shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) [to the Assignor for amounts which have accrued to the Effective Date
and to the Assignee for amounts which have accrued subsequent to the Effective
Date] [to the Assignee whether such amounts have accrued prior to the Effective
Date or accrued subsequent to the Effective Date. The Assignor and the Assignee
shall make all appropriate adjustments in payments by the Agent for periods
prior to the Effective Date or with respect to the making of this assignment
directly between themselves.]
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule 1
to Assignment and Acceptance
Name of Assignor:
----------------------------------------------
Name of Assignee:
---------------------------------------------
Effective Date of Assignment:
---------------------------------
Credit Principal Commitment Percentage Assigned/1/
Facility Assigned Amount Assigned
- ------------------- ----------------- -----------------------------------
$________ __._______ %
[Name of Assignee] [Name of Assignor]
By: By:
------------------------- ------------------------------
Title: Title:
________________
1. Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all Lenders.
<PAGE>
2
Accepted:
LEHMAN COMMERCIAL PAPER INC.,
------------------------------,
as Syndication Agent as Administrative Agent
By: By:
------------------------- ------------------------------
Title: Title:
[Consented To:
NATIONWIDE CREDIT, INC.
By:
-------------------------
Title:]
<PAGE>
EXHIBIT F-1
FORM OF TRANCHE B TERM NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$___________ New York, New York
January __, 1998
FOR VALUE RECEIVED, the undersigned, Nationwide Credit, Inc., a
Georgia corporation (the "Borrower"), hereby unconditionally promises to pay to
_______________ (the "Lender") or its registered assigns at the Payment Office
specified in the Credit Agreement (as hereinafter defined) in lawful money of
the United States and in immediately available funds, the principal amount of
(a) _______________________ DOLLARS ($_________), or, if less, (b) the unpaid
principal amount of the Tranche B Term Loan made by the Lender pursuant to
Section 2.1 of the Credit Agreement. The principal amount shall be paid in the
amounts and on the dates specified in Section 2.3 of the Credit Agreement. The
Borrower further agrees to pay interest in like money at such office on the
unpaid principal amount hereof from time to time outstanding at the rates and on
the dates specified in the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the
Tranche B Term Loan and the date and amount of each payment or prepayment of
principal with respect thereto, each conversion of all or a portion thereof to
another Type, each continuation of all or a portion thereof as the same Type
and, in the case of Eurodollar Loans, the length of each Interest Period with
respect thereto. Each such endorsement shall constitute prima facie evidence of
the accuracy of the information endorsed. The failure to make any such
endorsement or any error in any such endorsement shall not affect the
obligations of the Borrower in respect of the Tranche B Term Loan.
This Note (a) is one of the Tranche B Term Notes referred to in the
Credit Agreement dated as of January __, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
Borrower, NCI Acquisition Corporation, the Lender, the other banks and financial
institutions or entities from time to time parties thereto, __________________,
as Administrative Agent, Lehman Brothers, Inc., as Arranger and Lehman
Commercial Paper Inc., as Syndication Agent, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions
<PAGE>
2
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE
CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN
ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
NATIONWIDE CREDIT, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
Schedule A
to Tranche B Term Note
----------------------
LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
Amount Amount of Base Rate Unpaid Principal
Amount of Base Converted to Amount of Principal of Loans Converted to Balance of
Date Rate Loans Base Rate Loans Base Rate Loans Repaid Eurodollar Loans Base Rate Loans Notation Made By
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule B
to Tranche B Term Note
----------------------
LOANS, CONTINUATIONS, CONVERSIONSS AND REPAYMENTS OF EURODOLLAR LOANS
Amount Interest Period and Amount of Principal Amount of Eurodollar
Amount of Converted to Eurodollar Rate with of Eurodollar Loans Loans Converted to
Date Eurodollar Loans Eurodollar Loans Respect Thereto Repaid Base Rate Loans
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Unpaid Principal
Balance of Eurodollar Notation
Loans Made By
<S> <C>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
=========================================================
</TABLE>
<PAGE>
EXHIBIT F-2
FORM OF REVOLVING CREDIT NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$ New York, New York
- ------------ January __, 1998
FOR VALUE RECEIVED, the undersigned, Nationwide Credit, Inc., a Georgia
corporation (the "Borrower"), hereby unconditionally promises to pay to
____________________ (the "Lender") or its registered assigns at the Payment
Office specified in the Credit Agreement (as hereinafter defined) in lawful
money of the United States and in immediately available funds, on the Revolving
Credit Termination Date the principal amount of (a) ________________ DOLLARS
($__________), or, if less, (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Lender to the Borrower pursuant to Section
2.4 of the Credit Agreement. The Borrower further agrees to pay interest in
like money at such Payment Office on the unpaid principal amount hereof from
time to time outstanding at the rates and on the dates specified in the Credit
Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of each
Revolving Credit Loan made pursuant to the Credit Agreement and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
accuracy of the information endorsed. The failure to make any such endorsement
or any error in any such endorsement shall not affect the obligations of the
Borrower in respect of any Revolving Credit Loan.
This Note (a) is one of the Revolving Credit Notes referred to in the Credit
Agreement dated as of January __, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, NCI
Acquisition Corporation, the Lender, the other banks and financial institutions
or entities from time to time parties thereto, ___________________, as
Administrative Agent, Lehman Brothers, Inc., as Arranger, and Lehman Commercial
Paper Inc., as Syndication Agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. This Note is secured and guaranteed
as provided in the Loan Documents. Reference is hereby made to the Loan
Documents for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions
<PAGE>
2
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all principal
and all accrued interest then remaining unpaid on this Note shall become, or may
be declared to be, immediately due and payable, all as provided in the Credit
Agreement.
All parties now and hereafter liable with respect to this Note, whether maker,
principal, surety, guarantor, endorser or otherwise, hereby waive presentment,
demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE CREDIT
AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN ACCORDANCE
WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE CREDIT
AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
NATIONWIDE CREDIT, INC.
By:
---------------------------------
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
TO REVOLVING CREDIT NOTE
-----------------------
LOANS, CONVERSIONS AND REPAYMENTS OF BASE RATE LOANS
Amount Amount of Base Rate Unpaid Principal
Amount of Base Converted to Amount of Principal of Loans Converted to Balance of
Date Rate Loans Base Rate Loans Base Rate Loans Repaid Eurodollar Loans Base Rate Loans Notation Made By
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule B
to Revolving Credit Note
------------------------
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Amount Interest Period end Amount of Principal Amount of Eurodollar
Amount of Base Converted to Eurodollar Rate with of Eurodollar Loans Loans Converted to Notation
Date Eurodollar Loans Eurodollar Loans Respect Thereto Repaid Base Rate Loans Made By
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================-
</TABLE>
<PAGE>
EXHIBIT G
FORM OF EXEMPTION CERTIFICATE
Reference is made to the Credit Agreement, dated as of January __, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") among NCI Acquisition Corporation, Nationwide Credit, Inc. (the
"Borrower"), the several banks and other financial institutions from time to
time parties thereto (the "Lenders"), Fleet Capital Corporation, as
administrative agent for the Lenders hereunder (in such capacity, the
"Administrative Agent"), Lehman Brothers, Inc., as Arranger, and Lehman
Commercial Paper Inc., as Syndication Agent and BHF - Bank Aktiengesellschaft,
Grand Cayman Branch, as Documentation Agent. Capitalized terms used herein that
are not defined herein shall have the meanings ascribed to them in the Credit
Agreement. ______________________ (the "Non-U.S. Lender") is providing this
certificate pursuant to subsection 2.17(d) of the Credit Agreement. The Non-
U.S. Lender hereby represents and warrants that:
1. The Non-U.S. Lender is the sole record and beneficial owner of the Loans
or the obligations evidenced by Note(s) in respect of which it is providing this
certificate.
2. The Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A)
of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard,
the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other legal
requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes
of any tax, securities law or other filing or submission made to any
Governmental Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other
legal requirements;
3. The Non-U.S. Lender is not a 10-percent shareholder of the Borrower within
the meaning of Section 881(c)(3)(B) of the Code; and
4. The Non-U.S. Lender is not a controlled foreign corporation receiving
interest from a related person within the meaning of Section 881(c)(3)(C) of the
Code.
IN WITNESS WHEREOF, the undersigned has duly executed this certificate.
[NAME OF NON-U.S. LENDER]
By:
--------------------------------
Name:
Title:
Date: ____________________
<PAGE>
EXHIBIT 10.15
AMENDMENT
AMENDMENT, dated as of August 7, 1998 (this "Amendment"), to the Credit
---------
Agreement, dated as of January 28, 1998 (the Credit Agreement"), among NCI
----------------
ACQUISITION CORPORATION, a Delaware corporation ("Holdings"), NATIONWIDE CREDIT,
--------
INC., a Georgia corporation (the "Borrower"), the several banks and other
--------
financial institutions or entities from time to time parties to thereto (the
"Lenders"), LEHMAN BROTHERS INC., as advisor and arranger (in such capacity,
- --------
the "Arranger"), LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such
--------
capacity, the "Syndication Agent"), FLEET CAPITAL CORPORATION, as administrative
-----------------
agent (in such capacity, the "Administrative Agent"), and BHF - BANK
--------------------
AKTIENGESELLSCHAFT, GRAND CAYMAN BRANCH, as Documentation Agent (in such
capacity, the "Documentation Agent").
-------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Required Lenders have agreed, to amend certain provisions of the
Credit Agreement as provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used herein
-------------
shall have the meanings given to them in the Credit Agreement.
II. Amendments to Credit Agreement.
------------------------------
1. Amendment to Section 1.1. Section 1.1 of the Credit Agreement is
------------------------
hereby amended by adding the following definition in its proper alphabetical
order:
"Amendment Effective Date": the date of effectiveness of the
------------------------
Amendment, dated as of August 7, 1998, to this Agreement.
2. Amendment to Section 2.8. Section 2.8 of the Credit Agreement is
------------------------
hereby amended by adding the following sentence at the end of such Section:
"The Revolving Credit Commitments shall be permanently reduced by
$20,000,000 on the Amendment Effective Date."
<PAGE>
2
3. Amendment to Section 2.10. Sentence 2.10 of the Credit Agreement is
-------------------------
hereby amended by adding the following paragraph (e) at the end thereof:
"(e) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date consideration shall be paid pursuant to the Acquisition
Documentation in respect of a purchase price adjustment or in lieu thereof,
an amount equal to 75% of such consideration shall be applied on such date
toward the prepayment of the Tranche B Term Loans and the reduction of the
Revolving Credit Commitments as set forth in Section 2.10(d)."
4. Amendments to Section 7.1. Section 7.1 of the Credit Agreement is
-------------------------
hereby amended by deleting such Section in its entirety and substituting in lieu
thereof the following:
"(a) Minimum Consolidated EBITDA. Permit the Consolidated EBITDA for
---------------------------
any period of four consecutive fiscal quarters of the Borrower (or, if
less, the number of full fiscal quarters in 1998) ending with any fiscal
quarter set forth below to be less than the amount set forth below opposite
such fiscal quarter:
Fiscal Quarter Minimum Consolidated EBITDA
-------------- ---------------------------
June 30, 1998 $ 9,000,000
September 30, 1998 $13,000,000
December 31, 1998 $20,000,000
March 31, 1999 $20,000,000
June 30, 1999 $22,000,000
September 30, 1999 $23,750,000
December 31, 1999 $24,000,000
March 31, 2000 $24,250,000
June 30, 2000 $24,500,000
September 30, 2000 $24,750,000
December 31, 2000 $25,000,000
March 31, 2001 $25,250,000
June 30, 2001 $25,500,000
September 30, 2001 $25,750,000
December 31, 2001 $26,000,000
March 31, 2002 $26,250,000
June 30, 2002 $26,500,000
September 30, 2002 $26,750,000
December 31, 2002 $27,000,000
March 31, 2003 $27,000,000
June 30, 2003 $27,000,000
September 30, 2003 $27,000,000
December 31, 2003 $27,000,000
<PAGE>
3
(b) Consolidated Total Debt Ratio. Permit the Consolidated Total
-----------------------------
Debt Ratio as at the last day of any period of four consecutive fiscal
quarters of the Borrower (or, if less, the number of full fiscal quarters
in 1998) ending with any fiscal quarter set forth below to exceed the ratio
set forth below opposite such fiscal quarter:
Consolidated
Fiscal Quarter Total Debt Ratio
-------------- ----------------
June 30, 1998 7.00 to 1.00
September 30, 1998 7.00 to 1.00
December 31, 1998 6.00 to 1.00
March 31, 1999 6.00 to 1.00
June 30, 1999 4.80 to 1.00
September 30, 1999 4.60 to 1.00
December 31, 1999 4.40 to 1.00
March 31, 2000 4.30 to 1.00
June 30, 2000 4.20 to 1.00
September 30, 2000 4.10 to 1.00
December 31, 2000 4.00 to 1.00
Thereafter 4.00 to 1.00
; provided that, if the Borrower shall Repurchase (as defined in Section
--------
7.9(a)) Senior Notes in an aggregate principal amount of more than
$5,000,000, then as of the last day of each fiscal quarter of the Borrower
after the date of such Repurchase the ratio set forth above under the
heading "Consolidated Total Debt Ratio" shall be deemed to be as follows:
(i) if the aggregate principal amount of Senior Notes Repurchased (on a
cumulative basis from the date hereof) is less than $12,5000,000, 3.83 to
1.00; (ii) if the aggregate principal amount of Senior Notes Repurchased
(on a cumulative basis from the date hereof) is less than $20,000,000, 3.66
to 1.00; and (iii) if the aggregate principal amount of the Senior Notes
Repurchased (on a cumulative basis from the date hereof) is greater than or
equal to $20,000,000, 3.50 to 1.00.
(c) Consolidated Interest Coverage Ratio. Permit the
------------------------------------
Consolidated Interest Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower (or, if less, the number of full fiscal
quarters in 1998) ending with any fiscal quarter set forth below to be less
than the ratio set forth below opposite such fiscal quarter:
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
June 30, 1998 1.50 to 1.00
September 30, 1998 1.45 to 1.00
December 31, 1998 1.60 to 1.00
<PAGE>
4
March 31, 1999 1.65 to 1.00
June 30, 1999 1.85 to 1.00
September 30, 1999 2.05 to 1.00
December 31, 1999 2.10 to 1.00
March 31, 2000 2.15 to 1.00
June 30, 2000 2.20 to 1.00
September 30, 2000 2.25 to 1.00
December 31, 2000 2.30 to 1.00
March 31, 2001 2.35 to 1.00
June 30, 2001 2.40 to 1.00
September 30, 2001 2.45 to 1.00
December 31, 2001 2.50 to 1.00
Thereafter 2.50 to 1.00"
4. Amendment to Annex A. Annex A to the Credit Agreement is hereby
--------------------
amended by deleting such Annex A in its entirety and substituting in lieu
thereof Annex A hereto.
III. Conditions to Effectiveness. This Amendment shall become effective
---------------------------
on the date (the "Amendment Effective Date") on which (i) the Borrower, the
------------------------
Agents and the Required Lenders shall have executed and delivered this Amendment
and (ii) the Borrower shall have paid to Administrative Agent for distribution
to each Lender that executes this Amendment prior to August 7, 1998 an amendment
fee equal to the product of .10% times such Lender's Aggregate Exposure as of
the Amendment Effective Date.
IV. General.
-------
1. Representation and Warranties. To induce the Agents and the Lenders
-----------------------------
parties hereto to enter into this Amendment, the Borrower hereby represents and
warrants to the Agent and all of the Lenders as of the Amendment Effective Date
that (a) the representations and warranties made by the Loan Parties in the Loan
Documents are true and correct in all material respects on and as of the
Amendment Effective Date, after giving effect to the effectiveness of this
Amendment, as if made on and as of the Amendment Effective Date and (b) no
Default or Event of Default shall have occurred and be continuing.
2. Payment of Expenses. The Borrower agrees to pay or reimburse the
-------------------
Agents for all of their out-of-pocket costs and reasonable expenses incurred in
connection with this Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel.
3. No Other Amendments; Confirmation. Except as expressly amended,
---------------------------------
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect. This
Amendment shall be a Loan Document.
<PAGE>
5
4. Governing Law; Counterparts. (a) This Amendment and the rights and
---------------------------
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A set
of the copies of this Amendment signed by all the parties shall be lodged with
the Borrower and the Administrative Agent. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
NCI ACQUISITION CORPORATION
By:/s/ JERRY KAUFMAN
-------------------------------------
Name: Jerry Kaufman
Title:
NATIONWIDE CREDIT, INC.
By:/s/ JERRY KAUFMAN
-------------------------------------
Name: Jerry Kaufman
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:/s/ MICHAEL E. O'BRIEN
-------------------------------------
Name: Michael E. O'Brien
Title: Authorized Signatory
<PAGE>
6
BHF - BANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH,
By:/s/ JOHN SYKES
-----------------------------------
Name: John Sykes
Title: VP
By:/s/ TONY HEYMAN
-----------------------------------
Name: Tony Heyman
Title: AVP
FLEET CAPITAL CORPORATION,
as Administrative Agent and as a Lender
By:/s/ JENNIFER S. MELLITT
-----------------------------------
Name: Jennifer S. Mellitt
Title: Vice President
BALANCED HIGH-YIELD FUND I LTD.
By: BHF - Bank Aktiengesellschaft
acting through its New York Branch
as attorney-in-fact
By:/s/ JOHN SYKES TONY HEYMAN
-----------------------------------
Name: John Sykes Tony Heyman
Title: VP AVP
<PAGE>
Annex A
-------
Pricing Grid
Consolidated Applicable Margin Applicable Margin
Total Debt for Eurodollar Loans for Base Rate Loans
Ratio
Revolving Tranche B Revolving Tranche B Commitment
Credit Term Credit Term Fee
Loans Loans Loans Loans Rate
- --------------------------------------------------------------------------------
Greater than
6.00 to 1.00 2.500% 2.750% 1.500% 1.750% 0.625
- --------------------------------------------------------------------------------
Less than
6.00 to 1.00 2.250% 2.500% 1.250% 1.500% 0.500
but greater than
5.50 to 1.00
- --------------------------------------------------------------------------------
Less than
5.50 to 1.00 2.000% 2.250% 1.000% 1.250% 0.375
but greater than
5.00 to 1.00
Less than
5.00 to 1.00 1.875% 2.125% 0.875% 1.125% 0.375
but greater than
4.50 to 1.00
Less than
4.50 to 1.00 1.625% 2.000% 0.625% 1.000% 0.375
but greater than
4.00 to 1.00
Less than
4.00 to 1.00 1.500% 1.875% 0.500% 0.875% 0.375
but greater than
3.50 to 1.00
Less than
3.50 to 1.00 1.375% 1.750% 0.375% 0.750% 0.250
- -------------------------------------------------------------------------------
Changes in the Applicable Margin with respect to the Revolving Credit Loan and
the Tranche B Term Loans resulting from changes in the Consolidated Total Debt
Ratio shall become effective on the date (the "Adjustment Date") on which
---------------
financial statements are delivered to the Lenders pursuant to Section 6.1 (but
in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Total Debt
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 6.00 to
1. In addition, at all times while an Event of Default shall have occurred and
be continuing, the Consolidated Total Debt Ratio shall for the purposes of this
definition be deemed to be greater than 6.00 to 1. Each determination of the
Consolidated Total Debt Ratio pursuant to this definition shall be made with
respect to the period of four consecutive fiscal quarters of the Borrower ending
at the end of the period covered by the relevant financial statements.
<PAGE>
Exhibit 12
Nationwide Credit, Inc.
Statement Regarding Computation of
Earnings to Fixed Charges
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
PRO FORMA ------------
1993 1994 1995 1996 1997 1997 1997 1998
----- ------ ----- ------ ----- --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense*..... 526 680 501 241 122 12,798 63 7,175
Portion of rent
expense
representative of
interest (1/3)....... 943 1,371 1,498 1,437 1,575 1,590 783 682
----- ------ ----- ------ ----- ------- ----- ------
1,469 2,051 1,999 1,678 1,697 14,388 846 7,857
Earnings:
Income (loss) from
continuing operations
before income taxes
and extraordinary
item................. 5,503 18,910 4,102 8,766 2,316 (19,312) 2,036 (9,829)
Fixed charges per
above................ 1,469 2,051 1,999 1,678 1,697 14,388 846 7,857
----- ------ ----- ------ ----- ------- ----- ------
6,972 20,961 6,101 10,444 4,013 (4,924) 2,882 (1,972)
Ratio of earnings to
fixed charges.......... 4.8 10.2 3.1 6.2 2.4 -- 3.4 --
Deficit in fixed charges
coverage............... N/A N/A N/A N/A N/A $19,312 N/A $9,829
</TABLE>
- --------
* Includes amortization of deferred debt issuance costs.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Historical
and Pro Forma Financial and Other Data," "Selected Historical Financial
Information and Other Data" and "Experts" and to the use of our report dated
March 31, 1998 (except for Note 13, as to which the date is May 18, 1998), in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-57429) and
related Prospectus of Nationwide Credit, Inc. for the registration of
$100,000,000 of its 10 1/4% Senior Notes due 2008.
/s/ Ernst & Young LLP
Atlanta, Georgia
September 1, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 1982 9044
<SECURITIES> 0 0
<RECEIVABLES> 12871 12387
<ALLOWANCES> 4449 2371
<INVENTORY> 0 0
<CURRENT-ASSETS> 19001 22462
<PP&E> 27607 13638
<DEPRECIATION> 16017 2245
<TOTAL-ASSETS> 190865 169859
<CURRENT-LIABILITIES> 13148 14557
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 63879 28277
<TOTAL-LIABILITY-AND-EQUITY> 190865 169859
<SALES> 119013 54577
<TOTAL-REVENUES> 119013 54577
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 116375 57231
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 122 7175
<INCOME-PRETAX> 2516 (9829)
<INCOME-TAX> 2423 0
<INCOME-CONTINUING> 93 (9829)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (869)
<CHANGES> 0 0
<NET-INCOME> 93 (10698)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
