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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-95951
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CLIENTLOGIC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 541990 16-1556476
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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TWO AMERICAN CENTER
3102 WEST END AVENUE, SUITE 1000
NASHVILLE, TENNESSEE 37203
(615) 301-7100
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
GENE S. MORPHIS
CHIEF FINANCIAL OFFICER
CLIENTLOGIC CORPORATION
TWO AMERICAN CENTER
3102 WEST END AVENUE, SUITE 1000
NASHVILLE, TENNESSEE 37203
(615) 301-7100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
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MARY R. KORBY, ESQ. MARC S. ROSENBERG, ESQ.
WEIL, GOTSHAL & MANGES LLP CRAVATH, SWAINE & MOORE
100 CRESCENT COURT WORLDWIDE PLAZA
SUITE 1300 825 EIGHTH AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10019
(214) 746-7700 (212) 474-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(2)
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Class A Common Stock, $0.01 par value per share $253,000,000 $66,792
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(1) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(2) A registration fee in the amount of $60,720 has been previously paid in
connection with the initial filing of the Registration Statement (based on a
proposed maximum aggregate offering price of $230,000,000). An additional
registration fee in the amount of $6,072 has been paid with this 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
'CLIENTLOGIC LOGO'
20,000,000 SHARES
CLASS A COMMON STOCK
$ PER SHARE
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We are selling 20,000,000 shares of our Class A common stock. The
underwriters named in this prospectus may purchase up to 3,000,000 additional
shares of our Class A common stock to cover over-allotments.
This is an initial public offering of our Class A common stock. We
currently expect the initial public offering price to be between $9.00 and
$11.00 per share. We have applied to have our Class A common stock included for
quotation on the Nasdaq National Market under the symbol "CLGC".
As of the date of this prospectus, Onex Corporation, our principal
stockholder, beneficially owns 103,368,588 shares of our outstanding Class B
common stock. Our Class B common stock is entitled to 25 votes per share
compared to one vote per share for our Class A common stock. As a result, Onex
Corporation will control approximately 98.8% of the combined voting power of the
Class A and Class B common stock outstanding after completion of this offering.
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INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
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Public Offering Price $ $
Underwriting Discount $ $
Proceeds to ClientLogic (before expenses) $ $
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The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
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SALOMON SMITH BARNEY ROBERTSON STEPHENS
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DONALDSON, LUFKIN & JENRETTE
TD SECURITIES
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
, 2000
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DESCRIPTION OF INSIDE FRONT COVER ART
On the left side of the page halfway down the page is the ClientLogic logo.
The ClientLogic logo consists of the name ClientLogic with a globe as the letter
"o" and has the phrase "The service engine of the new economy(sm)" beneath it.
The "e" in economy is surrounded by a red circle.
On the right side of the page, listed from the top of the page to the
bottom are the following phrases, each having a representative icon to its
right:
-- "CUSTOMER RELATIONSHIP MANAGEMENT"
-- "MARKETING SERVICES"
-- "CUSTOMER CONTACT MANAGEMENT"
-- "eFULFILLMENT"
-- "eBUSINESS"
-- "LIST SERVICES"
-- "LOYALTY PROGRAMS"
-- "CUSTOMIZED PROGRAM DEVELOPMENT"
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DESCRIPTION OF GATEWAY ART
On the far left, on the top of the page, is the ClientLogic logo.
Below the ClientLogic logo extending to the bottom of the page begin some
streaming lines which extend to the middle of the page into a globe and then
extends to the right side of the page. There is a larger, translucent globe
behind the smaller globe in the center of the page.
Contained within these lines on the left side of the globe are the
following images:
- a computer screen showing some empty fields
- a woman pointing to something on a page
- a man sitting in front of a computer screen
- a shopping cart
- a man speaking on a cell phone
- part of an email address starting info@we. . .
- two men carrying boxes
- a woman typing on a keyboard
Contained within the streaming lines to the right of the globe are the
following images:
- a series of numbers
- a woman talking into a headset
- American and British currency
- a barcode
- a forklift operator in a warehouse
- a woman signing for a box
- a computer screen showing some icons
Below the streaming lines, to the right of the globe, extending to the end
of the page is the following:
"ClientLogic is an international provider of integrated marketing,
customer contact management and fulfillment services focused on e-commerce
and technology companies. We help our clients acquire and retain customers
and maximize the profitability of their customer relationships."
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Special Note About Forward-Looking Statements............... 20
Use of Proceeds............................................. 21
Dividend Policy............................................. 22
Dilution.................................................... 23
Capitalization.............................................. 24
Unaudited Pro Forma Consolidated Balance Sheet and Statement
of Operations............................................. 25
Selected Historical Financial Data.......................... 30
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 31
Business.................................................... 39
Management.................................................. 50
Security Ownership of Certain Beneficial Owners............. 61
Certain Relationships and Related Party Transactions........ 65
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 75
United States Federal Tax Considerations for Non-United
States Holders............................................ 77
Underwriting................................................ 79
Legal Matters............................................... 81
Experts..................................................... 82
Additional Information...................................... 82
Index to Financial Statements............................... F-1
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Until , 2000, all dealers that buy, sell or trade the Class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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PROSPECTUS SUMMARY
This summary only highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the
information under "Risk Factors" and the financial statements and the related
notes included in this prospectus, before making an investment decision.
OUR SERVICES
ClientLogic is an international provider of marketing, customer contact
management and fulfillment services focused on electronic commerce and
technology companies. We are able to integrate these services for our clients,
allowing them to manage their customer relationships through a single service
provider. Our services, which we refer to collectively as customer relationship
management services, include:
- Marketing services. We create customized marketing programs which help
our Internet-based clients profile and target new customers and increase
the loyalty of existing customers. Our marketing services include
developing, maintaining and providing access to customer information
databases and analyzing this information to identify and address specific
needs of our clients' customers.
- Customer contact management services. We provide customer service and
technical support to our clients' customers 24 hours a day, seven days a
week through e-mail, online chat, fax, phone and mail. Our ability to
communicate with our clients' customers through multiple channels enables
us to more effectively respond to their inquiries and needs.
- Fulfillment services. We conduct our clients' order and payment
processing, warehousing, inventory management, picking, packing, shipping
and returns processing activities. Through these services we distribute
our clients' products to their customers efficiently and cost
effectively.
We believe that the breadth of our services and our ability to integrate
these services for our clients are competitive advantages for our company. By
outsourcing to us, our clients can avoid the complexity and costs associated
with coordinating these services from multiple suppliers or providing these
services in-house. Additionally, our proprietary marketing software allows us to
collect and analyze valuable customer information generated by our customer
contact management and fulfillment operations. This gives us the ability to help
clients better design their marketing programs, develop their products, improve
the effectiveness of their Web sites and further enhance their customers'
satisfaction. Our range of services assist our clients in acquiring and
retaining customers and in maximizing the profitability of customer
relationships.
OUR OPPORTUNITY
We believe that, to date, companies have directed most of their
Internet-related investments to creating online storefronts and to advertising
with the objective of creating brand awareness and achieving market leadership.
As electronic commerce, or e-commerce, evolves, we believe companies will need
to focus on acquiring customers more efficiently and converting Web site visits
into lasting and profitable customer relationships. To do so, and as part of
developing successful e-commerce strategies, we believe that companies must
establish sophisticated customer relationship management systems.
We believe that a large number of e-commerce companies are failing to
perform customer relationship management functions adequately or are failing to
integrate these functions to create a viable customer relationship management
program. Jupiter Communications estimated that, as of September 1999, 44% of
e-commerce Web sites lacked real-time integrated call center support, 46% lacked
real-time integrated inventory management systems and 41% lacked real-time
integrated fulfillment systems. In the fourth quarter of 1999, high order
volume, combined with insufficient customer service support and
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product fulfillment capabilities, resulted in a number of e-commerce companies
being unable to meet delivery deadlines, provide responsive customer service or
maintain satisfactory inventory levels.
Faced with the growing costs and operational complexities of developing
comprehensive customer relationship management services, many e-commerce
companies are seeking to outsource these critical business functions.
Outsourcing allows these companies to focus on their core competencies and to
take advantage of the expertise, flexibility and efficiencies of an outsourced
provider.
OUR COMPETITIVE ADVANTAGE
We believe the following key factors position us to take advantage of this
opportunity:
- Integrated Service Offerings. We are able to integrate and customize our
marketing, customer contact management and fulfillment services for our
clients, allowing them to manage the interaction with their customers
through a single service provider. By taking advantage of our integrated
services, our clients do not need to expend significant management time
and capital resources to coordinate these services from multiple
providers or to design, build and manage in-house customer relationship
management capabilities.
- Technology and Systems. We have developed high quality technology systems
designed to allow us to rapidly deploy our integrated service offerings
and to offer customized services in response to the evolving needs of our
clients. Our proprietary database technology provides a flexible system
for tracking relationships between a customer and the factors affecting
its buying decisions.
- Business Processes. We have designed our organizational structure and
business processes to allow us to effectively respond to our clients'
needs, efficiently expand our business globally and consistently achieve
a high level of service across the markets that we serve.
- International Presence. We have 33 service facilities located throughout
North America and Europe. Nineteen of our North American facilities are
in the United States and one is in Canada. Four of our international
facilities are in Germany, three facilities are in the United Kingdom and
one facility is in each of Austria, France, Ireland, the Netherlands,
Norway and Switzerland. The diverse locations of our facilities make it
possible for us to efficiently serve our clients in both North America
and Europe.
OUR STRATEGY
Our objective is to be the leading global provider of integrated customer
relationship management services. To achieve this objective we plan to:
- Capitalize on the rapid growth of the Internet;
- Extend our global presence;
- Expand our relationships with existing clients;
- Attract new e-commerce clients; and
- Enhance our service offerings.
OUR COMPANY
Our company was formed in September 1998 and we have acquired six separate
businesses since that time with the most recent acquisition completed in
December 1999. During our limited history, we have incurred substantial costs to
complete and integrate acquisitions, to create and introduce our services and to
grow and develop our business. As a result, we incurred net losses of
approximately $2.7 million in 1998 and approximately $45.4 million in 1999 and
we had an accumulated deficit of approximately $48.2 million
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at December 31, 1999. We expect to incur losses for the next several years as we
continue to integrate our businesses and implement our growth strategies.
Our primary strategy is to focus on e-commerce and technology companies to
capitalize on the rapid growth of the Internet. However, we operate in a highly
competitive market, facing competition from in-house customer relationship
management programs and other companies who provide customer relationship
management services. This competition may adversely affect our ability to
attract new e-commerce and technology clients. Further, in 1999, our ten largest
clients accounted for approximately 44.1% of our revenues.
Our principal executive offices are located at Two American Center, 3102
West End Avenue, Suite 1000, Nashville, Tennessee 37203 and our telephone number
is (615) 301-7100.
Onex Corporation is our principal stockholder and, following this offering,
will control approximately 98.8% of the voting power of our company. Onex is a
diversified North American company based in Toronto, Canada, with a history of
investing in outsourcing companies. In 1999, Onex had consolidated revenues of
approximately CDN $14.9 billion. Onex is a public company and its shares are
traded on the Toronto Stock Exchange under the symbol "OCX". You can review
Onex's public documents at one of the Securities and Exchange Commission's
public reference rooms or by visiting the Commission's Internet site at
www.sec.gov. You can also find more information about Onex on their Web site at
www.onexcorp.com. Information contained in Onex's public documents and on Onex's
Web site does not constitute a part of this prospectus and is not incorporated
by reference in this prospectus.
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THE OFFERING
Class A common stock offered........ 20,000,000 shares
Common stock to be outstanding after
the offering:
Class A........................... 32,062,214 shares
Class B........................... 103,368,588 shares
Total..................... 135,430,802 shares
Recapitalization.................... On March 1, 2000, we amended and
restated our certificate of
incorporation to convert each
outstanding share of our common stock
into one share of a new class of common
stock designated Class A common stock
and to create another class of common
stock designated Class B common stock.
The amended and restated certificate of
incorporation provided that, until March
15, 2000, each holder of the new Class A
common stock had the option to convert
all, but not less than all, of its
shares into the same number of shares of
Class B common stock. Onex and the
holders of an additional shares
of Class A common stock elected to
convert their Class A shares into shares
of Class B common stock. The purpose of
this recapitalization was to provide our
company the flexibility to raise capital
by selling shares of Class A common
stock, including in this offering, while
allowing our current stockholders,
primarily Onex, to retain voting control
over our company.
Voting rights; conversion........... Our Class A common stock and Class B
common stock have identical rights
except for voting and conversion rights.
The holders of Class A common stock are
entitled to one vote per share and the
holders of Class B common stock are
entitled to 25 votes per share. Holders
of Class A common stock have no
conversion rights. Holders of shares of
Class B common stock may convert some or
all of their shares into the same number
of shares of Class A common stock at any
time. In addition, shares of Class B
common stock will automatically convert
into the same number of shares of Class
A common stock upon the occurrence of
any of the following:
- if transferred to anyone except to
Onex or any affiliate, director,
officer or employee of Onex or to any
purchaser of all of the outstanding
Class A and Class B common stock, the
shares of Class B common stock
transferred will automatically convert
into shares of Class A common stock;
- if any holder of Class B common stock
who is an affiliate of Onex ceases to
be an affiliate of Onex, the shares of
Class B common stock held by that
former
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affiliate will automatically convert
into shares of Class A common stock;
- if Onex and its affiliates
collectively cease to have the right,
in all cases, to exercise or direct
the voting rights of the Class B
common stock held by them, their Class
B common stock will automatically
convert into shares of Class A common
stock; and
- if at any time the number of
outstanding shares of Class B common
stock represents less than 5% of the
total number of outstanding shares of
Class A and Class B common stock, all
of the outstanding shares of Class B
common stock will automatically
convert into shares of Class A common
stock.
Use of proceeds..................... We intend to use the proceeds of this
offering to repay existing indebtedness,
expand our business domestically and
internationally, fund other general
corporate expenditures, and potentially
make strategic investments and
acquisitions.
Nasdaq National Market symbol....... CLGC
Unless we indicate otherwise, all information contained in this prospectus:
- is based on 12,062,214 shares of our Class A common stock outstanding as
of March 6, 2000, which includes 9,008,159 shares of our Class A common
stock issued and outstanding as of March 6, 2000, and 3,054,055 shares of
stock of one of our subsidiaries outstanding as of March 6, 2000 which
are exchangeable at the option of the holders into shares of our common
stock;
- is based on 103,368,588 shares of our Class B common stock outstanding as
of March 6, 2000;
- excludes 9,335,735 shares of Class A common stock subject to options and
warrants and 251,667 shares of Class A common stock subject to our
deferred compensation plan, in each case outstanding as of March 6, 2000;
the weighted average exercise price of the options and warrants as of
March 6, 2000 is $1.74 per share;
- excludes 105,000 shares of Class A common stock which may be issued to
two holders of promissory notes, at their election, as payment for
installments under their notes due April 1, 2000;
- assumes no exercise of the underwriters' option to purchase up to
3,000,000 shares of Class A common stock to cover over-allotments;
- assumes an initial public offering price of $10.00 per of Class A common
share, the midpoint of the initial public offering price range; and
- presents financial information for ClientLogic on a consolidated basis.
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RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before you decide whether to purchase
our Class A common stock. Investing in our Class A common stock is speculative
and involves significant risk. Any of the following risks, as well as other
risks and uncertainties that we have not yet identified or that we currently
believe are immaterial, could impair our business, financial condition and
operating results, could cause the trading price of our Class A common stock to
decline and could result in a partial or total loss of your investment.
RISKS RELATING TO OUR BUSINESS
OPERATING RISKS
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES IN THE FUTURE AND WE CANNOT ASSURE
YOU THAT WE WILL BECOME PROFITABLE.
We had net losses of $2.7 million in 1998 and $45.4 million in 1999. In
addition, after giving pro forma effect to all of our material acquisitions in
1999, our net loss for 1999 would have been $53.4 million. We have incurred
substantial costs to develop and grow our business, to complete and integrate
acquisitions, to create and introduce our services and to operate these
services. For example, we recorded a total of $190.6 million for goodwill and
other intangible assets in 1998 and 1999 in connection with acquisitions. We are
amortizing this goodwill over 15 years from the date of each acquisition, which
will adversely affect our results of operations for such periods. If we record
additional goodwill or other intangible assets, the amount of our annual
amortization charges could increase. If we incur significant losses, we may not
be able to demonstrate an ability to recover the amount of our goodwill and
other intangible assets. If this occurs, we may have to write off our goodwill
in a one-time noncash charge, which could be significant and would likely harm
our operating results.
We expect to incur significant operating expenses and capital expenditures
during the next several years to implement our growth strategies. We expect to
incur losses for the next several years as we continue to incur these expenses,
and these losses may increase from current levels. If our revenues do not
increase substantially or if our expenses exceed our expectations, we may never
become profitable. Even if we do achieve profitability, we may not sustain
profitability on a quarterly or annual basis in the future.
OUR EXPERIENCE TO DATE HAS CONSISTED PRIMARILY OF OFFERING CUSTOMER CONTACT
MANAGEMENT AND FULFILLMENT SERVICES, AND WE MAY NOT SUCCEED IN OUR EFFORTS TO
OFFER INTEGRATED MARKETING AND OTHER SERVICES PRINCIPALLY TO E-COMMERCE
COMPANIES OVER A VARIETY OF COMMUNICATIONS CHANNELS.
In 1999, a majority of our revenues were derived from companies that either
did not sell goods or services over the Internet or that retained us to provide
services unrelated to their e-commerce activities. Because we do not have a
longer history of working with companies focusing on the Internet, we cannot
assure you that we will be able to meet the needs of these types of businesses.
In addition, we have only recently begun to offer the advanced relational
database and other advanced marketing services that we believe are critical to
our efforts to increase our revenues. These advanced marketing services, which
we acquired as part of our December 1999 acquisition of MarketVision, Inc., did
not generate significant revenues for us in 1999. Similarly, during 1999
approximately 86% of our customer contact was conducted by the telephone. If we
are not able to efficiently handle increased customer demand for other means of
communication, such as e-mail and online chat, we may not be successful in
growing our business.
OUR LIMITED HISTORY OF COMBINED OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND
FINANCIAL FORECASTING DIFFICULT.
We have acquired six businesses, including our predecessor, since April
1998. We completed the most recent acquisition in December 1999. Our limited
history of combined operations makes it difficult to evaluate our business and
our prospects. As a result, forecasts of our future revenues, expenses and
operating results may not be as accurate as they would be if we had a longer
history of operations.
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Because of our limited operating history and the emerging nature of the
e-commerce industry, it may be difficult to accurately forecast our results.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
REVENUES AND OPERATING RESULTS, WHICH WOULD CAUSE OUR STOCK PRICE TO DECLINE.
Our revenues and operating results may vary significantly from quarter to
quarter and our results in some quarters may be below market expectations. If
this happens, the price of our Class A common stock may decline.
In addition to changes in general economic and market conditions, our
quarterly revenues and results of operations may fluctuate for reasons we may or
may not control, including:
- Changes in demand for our services. Factors which may affect the demand
for our services include seasonality, the level of acceptance of
outsourced customer relationship management services, the loss of
existing clients, our ability to satisfy clients' requirements, and
competition.
- Increases in our operating, administrative and other expenses. Factors
which may result in increases in our expenses include possible
acquisitions of businesses, facilities and equipment, enhancements to our
systems and technology, expansion into new markets and increased costs to
retain qualified employees.
- The growth of e-commerce and usage of the Internet. Factors which may
affect the growth of e-commerce and usage of the Internet include
government regulation and taxation, privacy concerns, the performance and
reliability of the Internet and security concerns.
Each of the factors identified above may also affect the long-term viability of
our company and are discussed in greater detail elsewhere in these risk factors.
The sales cycle for our services is variable and the length of time between
our initial contact with a client and the signing of a contract to provide our
services may take several months and has taken as long as six months. To
successfully market our services, we typically must educate our potential
clients on the types and benefits of our services, which can require significant
time and resources. In addition, our clients often must complete thorough
internal and external pricing analyses and operating comparisons, competitive
evaluations and internal approval processes before purchasing our services. Once
a client contracts to purchase our services, the time required to implement the
customized services and integrate the client with our systems may take longer
than we plan. Delays in executing client contracts or implementing services for
our clients may adversely affect our revenues and reputation and cause our
operating results to fluctuate.
In addition, we may have to make contingent payments in connection with our
recent acquisitions or future acquisitions based upon whether the acquired
company achieves target levels of revenues or earnings. These payments may cause
our operating results to fluctuate.
THE DEMAND FOR SOME OF OUR SERVICES IS SEASONAL, WHICH MAY ALSO CAUSE OUR
QUARTERLY OPERATING RESULTS TO FLUCTUATE.
We expect to experience seasonal fluctuations of revenues and expenses
which may contribute to fluctuations in our quarterly operating results. Our
clients include technology companies whose computer hardware and software sales
traditionally peak in the fourth quarter. Also, our catalog and e-commerce
fulfillment activities increase during the Christmas season. As a result, we
typically generate higher revenues and expenses in the last three months of the
year. If we are unable to process large volumes of transactions in periods of
higher demand or are unable to process large volumes in a cost-effective manner,
we could lose revenue opportunities that we may not recover in periods of lower
demand.
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IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, OUR BUSINESS MAY
BE HARMED.
We are continuing to work to integrate the six businesses we have acquired
since April 1998. Integrating the different services, facilities, management,
personnel, technology and cultures of these acquired businesses represents a
significant challenge and diverts our management's attention and our resources
from other business concerns. In addition, we are currently in the process of
integrating our technology infrastructure to include all of our European
facilities. We have incurred significant costs to integrate our acquired
businesses and expect to incur significant costs to complete this integration.
If we are unsuccessful in integrating these acquired companies or our
technology, our business and financial results could be materially adversely
affected.
Our growth strategies include the potential acquisition of complimentary
businesses, facilities or services. To the extent we complete future
acquisitions, we will face the same integration challenges discussed above. In
addition, we may enter into strategic relationships with providers of services
complimentary with our own, such as website and/or software developers, to
enhance our service offerings. Integrating the services and technologies of
these providers with our own will also present significant challenges. We can
not assure you that we will be able to complete or successfully integrate future
acquisitions or strategic relationships.
IF DEMAND FOR OUTSOURCED OR INTEGRATED CUSTOMER RELATIONSHIP MANAGEMENT SERVICES
DOES NOT GROW AS WE EXPECT, OUR BUSINESS COULD BE HARMED.
The growth of our business depends on the acceptance by e-commerce and
technology companies of outsourced customer relationship management services. If
the market for outsourced customer relationship management services fails to
grow, or grows more slowly than we anticipate, our business could be materially
adversely affected. Because many companies may choose not to outsource their
customer relationship activities for various reasons, our services may not
achieve broad market acceptance. Therefore, we cannot estimate the size or
growth rate of the potential market for our services. Companies that have
invested substantial resources to manage customer relationships in-house may be
reluctant or slow to accept outsourced services which may replace, limit or
compete with their existing systems. Other companies may resist outsourcing for
various reasons, including:
- risks or perceived risks of allowing third-party service providers access
to their proprietary information;
- a desire to retain control over some or all points of contact with their
customers;
- concerns relating to warehousing large amounts of inventory with a third
party; and
- concerns over the level and quality of services that may be provided by a
third party.
If a significant number of e-commerce and technology companies conclude
that the disadvantages of outsourcing their customer relationship activities
outweigh the advantages, our business and prospects could be harmed.
Further, companies that decide to outsource their customer relationship
management services may choose to use multiple providers rather than a single
integrated provider. A majority of our clients are currently utilizing services
from only one of our customer relationship management service offerings. If our
existing clients do not expand the types of services they receive from us, or if
future clients do not purchase our fully integrated services, our business could
be adversely affected.
CONTROLLING AND MANAGING OUR CLIENTS' INFORMATION AND PROPERTY EXPOSES US TO
ADDITIONAL BUSINESS RISKS.
As part of our marketing services, we manage a broad range of our clients'
confidential customer and operational information. As part of our fulfillment
services, we store and manage our clients' inventory. If our clients'
information or property is misused, damaged or lost, or perceived to be misused,
it could
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expose us to liability and could have a material impact on our ability to
continue to do business with those clients or attract new business.
IF WE FAIL TO PROPERLY MANAGE OUR GROWTH, OUR BUSINESS COULD BE ADVERSELY
AFFECTED.
Our business has grown at a rapid pace and we intend to continue the
expansion of our operations for the foreseeable future. Our growth has placed
significant demands on our management, personnel, systems and resources.
Additional growth will further strain these resources. In order to manage our
growth effectively, we must continue to invest in our systems and facilities and
continue to expand, train and manage our work force. We also must continue to
improve and coordinate our managerial, operational and financial controls and
our reporting systems and other procedures. If we do not manage the growth of
our business effectively, our results of operations and financial condition
could be materially adversely affected.
OUR REVENUES ARE DEPENDENT UPON OUR CLIENTS' BUSINESSES AND PRODUCT SALES; WE
FACE CREDIT RISKS FROM START-UP COMPANIES.
Our revenues will fluctuate with the volume of transactions and the level
of sales of our clients' products and services. We generally dedicate a
substantial amount of resources to each of our clients. If we dedicate our
resources to clients whose businesses do not generate significant transactions
or product sales, our business will be adversely affected. In addition, our
revenues are based in part on the success of new, or start-up, Internet
companies with limited experience and resources and with largely untested
business plans. For example, two of our five largest customers did not exist two
years ago. We cannot assure you that these clients' businesses will succeed or
will generate revenues sufficient to cover the expenses and resources we must
incur to implement their customer relationship management services. In addition,
start-up companies often pose significant credit risks for the companies that do
business with them. If a significant number of our start-up clients are not
successful, our business could be adversely affected as a result of
uncollectible accounts receivable and unrecovered costs, expenses and resources
which we could have directed to more successful clients or potential clients.
OUR CLIENT CONTRACTS ARE TERMINABLE ON SHORT NOTICE.
Our agreements to provide services for our clients, including the contracts
with some of our largest clients, typically are terminable upon short notice. Of
our client contracts with our 20 largest U.S. and 20 largest international
clients, which together represented approximately 58% of our 1999 revenues, 35
of those contracts are terminable upon notice of 90 days or less, including 19
which are terminable upon 30 days notice. These clients may choose to
discontinue our services at any time and for any reason. Termination of our
services by one or more large clients or by a significant number of smaller
clients could materially adversely affect our business, results of operations
and prospects.
THE LOSS OF ONE OR MORE OF OUR TOP CLIENTS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
In 1999, our largest client accounted for approximately 9.9% of our
revenues and our ten largest clients accounted for approximately 44.1% of our
revenues. We cannot be certain that our current clients will continue to do
business with us, that business from existing clients will continue at the same
levels as previous periods or that we will be able to do significant amounts of
business with other new or existing clients. If we lose one or more of our top
clients, our revenues may decrease significantly and quickly.
WE MAY NOT BE ABLE TO SATISFY THE REQUIREMENTS OF OUR CLIENTS AND OUR BUSINESS
AND REPUTATION MAY SUFFER AS A RESULT.
We target e-commerce and technology companies as our potential clients.
Most e-commerce companies have unique and sophisticated requirements for their
customer relationship management operations and many e-commerce companies are
growing, or expect to grow, rapidly. In addition, some of these companies have
existing technology infrastructures and business processes which we must
integrate with our service offerings, business processes and technology to
provide our customized services. If we
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experience difficulties meeting client requirements or implementing our
customized services, our business could be adversely affected.
If one or more of our clients grow more rapidly than we expect, we may be
unable to expand our services, facilities and other resources to necessary
levels, do so in a cost-effective manner or maintain adequate service quality.
For example, during the 1999 holiday season, the shipping volume of one of our
fulfillment centers increased significantly, primarily as a result of unexpected
higher orders relating to one client. The processing and shipping volume at this
fulfillment center increased from approximately 15,000 items a day during
November to approximately 20,000 items a day in December. While we were able to
meet this increased demand, we had to expend considerable time and expense,
including overtime and reallocation of personnel, to do so. As a result of
problems associated with this volume increase, we agreed to terminate the
customer's contract and we recorded an aggregate $1.9 million in reserves
against its obligations to us. As a result, we did not profit from the services
we provided at that center during that period. We may be unable to meet the
requirements of potential clients or the changing needs of existing clients
profitably or at all. As a result, we could lose potential and existing clients
and our reputation for providing customized services may suffer.
WE FACE COMPETITION FROM MANY SOURCES THAT COULD ADVERSELY AFFECT OUR BUSINESS.
The market for our services is very competitive and subject to rapid
technological advances. We expect the intensity of competition to continue to
increase in the future as existing competitors enhance and expand their service
offerings and as new participants enter the market. Our failure to maintain and
enhance our competitive position would limit our ability to maintain or increase
our market share, which could adversely affect our business and prospects.
Increased competition also may result in price reductions, reduced gross margins
and loss of market share.
We currently face competition for our services from in-house operations and
from third-party providers such as Doubleclick, Epiphany, ASD Systems, PFS Web
and Sykes Enterprises. Many third party providers offer one or more of the same
services we do, and we face competition from many different sources depending
upon the type and range of services needed by a potential client. Our
competitors include companies that offer a single service, such as call centers,
public warehouses, database management and marketing campaign management, as
well as companies that offer multiple services. Some of these competitors have
greater capabilities and more experience than we do with respect to the service
or services that they provide. Our competitors also may develop and promote
their services more effectively than we do.
Many of our competitors have greater financial, personnel, capacity and
other resources than we have. As a result, our competitors may be in a stronger
position to respond quickly to potential acquisitions and other market
opportunities, new or emerging technologies, and changes in client requirements.
Competitors with greater financial resources may be able to offer lower prices,
additional services or other incentives that we cannot match or do not offer.
For example, some of our distribution and fulfillment competitors purchase and
retain title to their clients' inventories while we generally do not. Therefore,
we may be at a competitive disadvantage with respect to existing and potential
clients who desire a third party to assume their inventory risks. We cannot be
certain that we will be able to compete successfully against existing or other
competitors in the future.
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES, WHICH MAY HARM OUR
BUSINESS.
Our business and financial results depend in part on our ability to attract
and retain highly skilled technical, managerial and other employees. Our
industry is very labor-intensive and has experienced high personnel turnover. If
our employee turnover rate increases significantly, our recruiting and training
costs could rise and our operating efficiency and productivity could decline.
Individuals with the experience and technical qualifications that we generally
require are in short supply. As a result, competition to hire qualified
employees is intense. To attract and retain qualified employees, we may need to
pay higher compensation than we currently pay or expect to pay. We have from
time to time experienced, and we
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expect to continue to experience, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications.
We may not be able to hire or retain necessary personnel to implement our
growth strategies. In addition, new clients or expanded services for existing
clients may require us to accelerate the recruiting, hiring and training of
qualified employees. We cannot assure you that we will be able to continue to
hire, train and retain sufficient qualified personnel to meet our anticipated
growth.
Our clients often experience both expected and unexpected surges in demand,
such as upon the introduction of a new product release, following a special
advertising campaign or during periods of seasonal high demand. In order to
respond to these surges in demand, we must employ a large number of skilled
temporary employees. If we are unable to obtain the services of qualified
temporary employees during periods of high demand, on short notice and in
adequate numbers, we might fail to meet the requirements of our clients on a
timely basis. Any such failure could result in the loss of one or more of our
clients or could damage our reputation.
RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS MAY DECREASE OUR REVENUES AND
INCREASE OUR COSTS.
In 1999, we generated approximately 19% of our revenues from international
operations. In addition, after giving pro forma effect to all of the material
acquisitions we completed during 1999, we would have generated approximately 30%
of our 1999 pro forma revenues from international operations.
We currently conduct international operations in Canada, Austria, France,
Germany, Ireland, the Netherlands, Norway, Switzerland and the United Kingdom.
Our operations in these countries present additional challenges which may result
in increased operational difficulties, lower revenues, higher costs and reduced
profitability compared to our operations in the United States. For example,
Germany and Canada have higher income tax rates than the United States, which
may result in lower profits from our operations in these countries. Also,
products sold over the Internet in countries located in Europe as well as Canada
generally are subject to the same value-added taxes as products sold through
traditional channels while sales over the Internet in the United States may be
exempt from sales taxes where the purchaser and seller are located in different
states. The applicability of value-added taxes to Internet sales may result in
slower growth of e-commerce in these countries compared to the growth of
e-commerce in the United States, which may adversely affect our operations in
these countries. In addition, the European Union has adopted a directive
limiting the collection, storage, transfer and use of personal data. This
directive could adversely affect our marketing services by limiting our ability
to collect personal information over the Internet with respect to customers in
countries who are members of the European Union. As a result, we may experience
lower demand for our marketing services in these countries. In Ireland and the
United Kingdom we employ multilingual personnel to service our clients'
customers. In these countries we face a limited supply of skilled, multilingual
personnel, which may increase our costs and adversely affect our ability to
staff our international operations.
As part of our business strategy, we intend to increase our global presence
by following our clients' expansion into new international markets and by
acquiring new facilities to grow our international client base, particularly in
regions where Internet usage is predicted to grow, such as Asia and Latin
America. As we implement this strategy, we expect to face challenges similar to
those described above and we may face additional risks including:
- reduced protection for intellectual property and proprietary rights;
- potential problems enforcing or collecting contractual obligations;
- legal uncertainty regarding foreign laws, tariffs and trade barriers;
- differing technology standards and limited access to the Internet; and
- political and economic instability.
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Any one or more of these factors may materially adversely affect our
business in a number of ways, such as increased costs, operational difficulties
and reductions in revenue. We cannot assure you that we will be successful in
maintaining our revenues from international operations at existing levels or
expanding into additional international markets.
CURRENCY FLUCTUATIONS AND EXCHANGE CONTROL REGULATIONS MAY ADVERSELY AFFECT OUR
BUSINESS.
Our reporting currency is the United States dollar. Our customers outside
the United States, however, are generally billed in local currencies. Our
accounts receivable from these customers and our other international assets will
decline in value if the local currencies depreciate relative to the United
States dollar. To date, we have not tried to reduce our exposure to exchange
rate fluctuations by using hedging transactions. We may seek to enter hedging
transactions in the future but we may be unable to enter into hedging
transactions successfully or at all. In addition, our currency exchange losses
may be magnified if we become subject to exchange control regulations
restricting our ability to convert local currencies into United States dollars.
OUR CASH FLOW FROM OPERATIONS IS NOT SUFFICIENT TO FUND OUR CURRENT OPERATIONS
AND WE WILL REQUIRE EXTERNAL SOURCES OF FINANCING TO FUND THE GROWTH OF OUR
BUSINESS.
We expect to incur losses for the next several years and our cash flow from
operations will not be sufficient to fund ongoing operations and the expansion
of our business. We will rely on our existing $40 million revolving facility and
the proceeds of this offering remaining after repayment of our indebtedness to
fund our operations and our growth strategies. If these sources of funds are not
sufficient, we will need to obtain additional financing. For example, if we
pursue acquisitions or similar investments, we will likely require additional
financing. If we need additional financing, we cannot be certain that it will be
available on favorable terms, if at all. The terms of our revolving credit
facility may limit our ability to obtain additional financing. In addition, our
existing stockholders have registration rights that could interfere with our
ability to issue more common stock to raise needed capital. If we need funds and
cannot raise them on acceptable terms, we may not be able to:
- develop or enhance our services;
- respond to clients and competition;
- fund our growth strategies; or
- take advantage of future opportunities.
TECHNOLOGY RISKS
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE WE MUST
CONTINUALLY ENHANCE OUR COMPUTER AND TECHNOLOGY SYSTEMS TO COMPLY WITH EVOLVING
STANDARDS.
To remain competitive, we must continue to enhance and improve the
responsiveness, reliability and features of our services and underlying computer
systems. Our industry is characterized by rapid technological advances, changes
in user requirements and preferences, frequent new products and services
embodying new technologies and the emergence of new industry standards and
practices that could render our technology and systems obsolete. Our success
will depend, in part, on our ability to license or internally develop leading
technologies to enhance our existing services and develop new services. We must
continue to address the increasingly sophisticated and varied needs of our
clients and respond to technological advances and emerging industry standards on
a cost-effective and timely basis. If we are unable to license or internally
develop technology to adapt to changing market conditions, client requirements
or emerging industry standards, our business could be adversely affected.
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OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A SYSTEMS OR EQUIPMENT FAILURE,
WHETHER OUR OWN OR OF OUR CLIENTS.
Our operations are dependent upon our ability to protect our fulfillment
centers, customer contact management centers, computer and telecommunications
equipment, software and other systems against damage and failures. Damage or
failures could result from fire, power loss, equipment malfunctions, system
failures, problems with Internet access or usage, natural disasters and other
causes. If our business is interrupted by natural disasters, accidents or the
intentional acts of others, our business could be materially adversely affected.
In addition, in the event of widespread damage or failures, our disaster
recovery and contingency plans and insurance coverage may not be sufficient.
Any system or equipment failures we experience could also harm our clients'
businesses. In that event, our relationship with these clients may be damaged,
we may lose these clients, our ability to attract new clients may be adversely
affected and we could be exposed to liability.
Interruptions also could result from the intentional acts of others, like
so-called hackers. If non-authorized parties penetrate our systems, or if
computer viruses infect our systems, our computers could fail or our proprietary
information could be misappropriated.
If our clients suffer similar interruptions in their operations, due to the
reasons discussed above or others, our business could be adversely affected.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS MAY BE HARMED.
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect the
proprietary rights in our software and systems. However, we will not be able to
protect our intellectual property if we are unable to enforce our rights or if
we do not detect unauthorized use of our intellectual property. In addition,
these legal protections only provide us with limited protection. Litigation to
enforce our rights could be expensive, would divert management resources and may
not be adequate to protect our business.
We have not filed any United States patent applications with respect to our
proprietary technology, nor do we have any patent applications pending. As a
result, we currently do not have patented technology that would preclude or
inhibit competitors from entering our market. Moreover, we have not patented our
technology abroad, nor do we currently have any international patent
applications pending. As of the date of this prospectus, we have not secured
registration on any of our service marks in the United States or Europe,
although we have filed applications to register three service marks in both the
United States and the European Union. We cannot be certain that future patents,
registered trademarks or registered service marks, if any, will be granted or
that any future patent, trademark or service mark will not be challenged,
invalidated or circumvented. Also, we cannot assure you that rights granted
under any future patents, trademarks or service marks will actually provide a
competitive advantage to us.
The steps we have taken to protect our technology and intellectual
property, such as confidentiality agreements and access controls, may be
inadequate. Our competitors may independently develop technologies that are
substantially equivalent or superior to ours or may jointly develop these
technologies under agreements giving them rights to exploit those technologies.
IF OTHERS CLAIM THAT WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR SIGNIFICANT EXPENSES OR BE PREVENTED FROM PROVIDING OUR SERVICES.
We cannot assure you that others will not claim that our proprietary or
licensed systems and software are infringing on their intellectual property
rights or that we do not in fact infringe on those intellectual property rights.
We have not conducted a search for existing intellectual property registrations
and we may be unaware of intellectual property rights of others that may cover
some of our technology.
If someone claimed that our proprietary or licensed systems and software
infringed on their intellectual property rights, any resulting litigation could
be costly and time consuming and would divert
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the attention of management and key personnel from other business issues. The
complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. Claims of intellectual property
infringement also might require us to enter into costly royalty or license
agreements. However, we may be unable to obtain royalty or license agreements on
terms acceptable to us or at all. We also may be subject to significant damages
or an injunction against use of our proprietary or licensed systems. A
successful claim of patent or other intellectual property infringement against
us could materially adversely effect our business and financial condition.
A BREACH OF OUR SECURITY MEASURES COULD REDUCE DEMAND FOR OUR SERVICES.
The continued growth of e-commerce is dependent upon the secure
transmission of confidential information over public networks. A party who is
able to circumvent our security measures could misappropriate proprietary
information, such as credit card numbers, or interrupt our operations. Any
compromise or elimination of our security could disrupt our operations, damage
our reputation, expose us to litigation and liability and reduce demand for our
services. We may need to expend significant capital and other resources to
continue to protect against security breaches or to address any problem they may
cause.
RISKS RELATED TO THE INTERNET
OUR GROWTH LARGELY DEPENDS ON WIDESPREAD ACCEPTANCE OF THE INTERNET AND THE
RELIABILITY OF THE INTERNET.
Use of the Internet by businesses and consumers is at an early stage of
development and market acceptance of the Internet as a medium for commerce is
subject to a high level of uncertainty. The growth projections for
Internet-related activities included in this prospectus are only estimates by
industry analysts and may not prove to be accurate. Because clients for our
customer relationship management services presently include companies conducting
business over the Internet and because we intend to target these types of
businesses to be our clients in the future, if usage of the Internet does not
continue to grow, or grows at a rate significantly lower than current trends,
our business prospects will be harmed. The continued use of the Internet depends
on many factors that are outside our control. These factors include the
following:
- the Internet infrastructure may be unable to support the demands placed
on it;
- the performance and reliability of the Internet may decline as usage
grows;
- use of the Internet may decline if security and authentication concerns
regarding transmission of confidential information over the Internet and
attempts by unauthorized users, or hackers, to penetrate online security
systems grow; and
- use of the Internet may decline if the ability to gather information
about Internet users without their knowledge or consent results in
increased concerns about privacy protection.
The recent growth in Internet usage has caused frequent interruptions and
delays in accessing the Internet and transmitting data over the Internet.
Interruptions and delays in Internet access and usage will harm our clients'
operations and could adversely affect our business and results of operations.
Our growth depends in part on improvements being made to the entire Internet
infrastructure to alleviate overloading and congestion and to provide for
reliable access to and usage of the Internet.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADVERSELY AFFECT OUR
BUSINESS AND COULD LIMIT THE GROWTH OF THE INTERNET.
The current legal and regulatory environment that pertains to the Internet
is uncertain and may change. As usage of the Internet and the development of
e-commerce evolves, we expect that federal, state and foreign governments will
adopt laws or regulations covering issues such as:
- user privacy;
- sales, value-added and other taxes;
- pricing;
- characteristics and quality of products and services;
- consumer protection; and
- cross-border commerce.
The adoption or modification of such laws or regulations could inhibit the
growth of Internet use and decrease the acceptance of the Internet as a
communications and commercial medium, which could materially adversely affect
our business and results of operations.
If enacted, laws or regulations applicable to user privacy and the
solicitation, collection or processing of personal and consumer information
could directly impact our business. The effectiveness of our marketing services
is dependent on the use of customer data collected from various sources,
including information collected on Web sites, as well as other data derived from
customer registrations, billings, purchase transactions and surveys. Our
collection and use of this data for customer profiling may raise privacy and
security concerns. Because of privacy concerns, some Internet commentators,
consumer advocates and governmental agencies have suggested legislation to limit
the use of customer data and customer profiling technologies. The European Union
and some European countries already have adopted restrictions on the use of
customer data. If other countries, regions or states adopt legislation or other
restrictions on the use of customer data or customer profiling technologies, or
if existing legislation or restrictions become more stringent, our marketing
services will be less useful to our clients and our results of operations may be
adversely affected.
IF INTERNET SALES BECOME SUBJECT TO SALES AND OTHER TAXES, PURCHASING ON THE
INTERNET MAY DECREASE AND OUR BUSINESS MAY BE HARMED.
Companies that conduct business over the Internet may be subject to state
sales taxes for shipments of goods to or services performed in some states. In
addition, products sold over the Internet from companies located in Europe
generally are subject to the same value-added taxes as other products sold in
Europe. These taxes may discourage customers from purchasing goods and services
on the Internet. In addition, if other states or foreign countries successfully
assert that companies should collect sales, value-added or other taxes on the
sale of products made over the Internet, use of the Internet as a sales channel
may decrease. Although the U.S. Congress recently placed a three-year moratorium
on state and local taxes on Internet access and discriminatory taxes on
e-commerce, existing state and local laws were exempted from the moratorium. In
addition, once the moratorium expires, new or additional federal and state taxes
may be imposed on e-commerce. If sales and other taxes result in decreased
purchasing on the Internet or cause e-commerce to grow more slowly than we
anticipate, our business and results of operations could be adversely affected.
IF DATABASE ACCESS BECOMES STANDARDIZED, DEMAND FOR OUR MARKETING SERVICES WILL
BE REDUCED.
In providing our marketing services, we collect and integrate data from a
variety of sources. Adoption of uniform standards across various database and
analytic software programs could minimize the importance of our data collection
and integration services. This, in turn, could adversely affect the
competitiveness and market acceptance of our marketing services. If large
numbers of our clients or potential clients adopt a single standard, demand for
our marketing services would decrease and we could lose existing clients.
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RISKS RELATING TO ONEX'S CONTROL OF OUR COMPANY
ONEX CORPORATION WILL BE ABLE TO CONTROL OUR MANAGEMENT AND CORPORATE AFFAIRS
AND OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF CORPORATE
MATTERS.
After the completion of this offering, Onex Corporation will own, through
its subsidiaries, 103,368,588 shares of our outstanding Class B common stock,
representing approximately 76.3% of the total number of shares of our
outstanding Class A and Class B common stock. As a result of its ownership of
Class B common stock, Onex will control approximately 98.8% of the votes in any
matter submitted to our stockholders after this offering. As long as Onex
retains this control, Onex will continue to be able to elect our entire board of
directors, to remove any director, including the chairman of our board, with
cause and generally to determine the outcome of all corporate actions requiring
stockholder approval. As a result, Onex will be in a position to control all
matters affecting our company, including:
- any decisions about our corporate direction and policies;
- future issuances of our common stock or other securities;
- our incurrence of debt;
- amendments to our certificate of incorporation and bylaws;
- payment of dividends on our common stock; and
- decisions about acquisitions, sales of our assets, mergers or similar
transactions, including decisions involving a change of control.
Because of Onex's control of our company, potential investors will be unable to
affect or change the management or the direction of our company. As a result,
some investors may be unwilling to purchase our Class A common stock. If the
demand for our Class A common stock is reduced because of Onex's control of our
company, the price of our Class A common stock could be depressed.
CONTRACTS ENTERED INTO WITH AN AFFILIATE OF ONEX MAY CONFLICT WITH THE INTERESTS
OF OUR OTHER STOCKHOLDERS.
We have entered into two contracts with Onex Service Partners. An affiliate
of Onex is a general partner of Onex Service Partners. Under these contracts we
pay Onex Service Partners fees for management, financial and other advisory
services. One of these contracts entitles Onex Service Partners to receive a fee
in connection with each acquisition or similar transaction that we complete.
Because Onex can control decisions to pursue acquisitions and other
transactions, these contracts may present a conflict of interest between Onex
and our other stockholders.
ONEX'S RELATIONSHIPS WITH THOMAS O. HARBISON, THE CHAIRMAN OF OUR BOARD OF
DIRECTORS, MAY CONFLICT WITH THE INTERESTS OF OUR STOCKHOLDERS.
Thomas O. Harbison, the chairman of our board of directors, is a party to a
contract with Onex Service Partners which provides that Mr. Harbison will
receive a salary of $360,000 annually from Onex Service Partners for his
services to that partnership, including serving on its behalf as chairman of our
board of directors. Mr. Harbison also performs other services for Onex Service
Partners which are unrelated to our company. We do not pay Mr. Harbison any
compensation. Mr. Harbison also has an agreement with Onex Corporation which
entitles him to receive cash or Class A common stock if and when Onex realizes
specified performance targets on its equity investment in our company. In
addition, an affiliate of Mr. Harbison is a general partner of Onex Service
Partners and, therefore, Mr. Harbison will indirectly benefit from the payments
to Onex Service Partners under the management agreements between our company and
Onex Service Partners. As a result of these relationships, Mr. Harbison's
interests are closely aligned with those of Onex and, as a result, may conflict
with the interests of our other stockholders.
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RISKS RELATED TO THIS OFFERING AND THE TRADING MARKET FOR OUR CLASS A COMMON
STOCK
FUTURE SALES OF OUR CLASS A COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET
PRICE.
Sales of a substantial number of shares of our Class A common stock in the
public market after this offering could cause the market price for our Class A
common stock to decline. Sales of Class A common stock by our existing
stockholders, or the possibility that these sales may occur, also could make it
more difficult for us to sell our Class A common stock or other equity
securities in the future.
Onex owns 103,368,588 shares of our Class B common stock. Onex has the
right to require us to file registration statements covering the shares of Class
A common stock it would receive upon conversion of its shares of Class B common
stock. In addition, all of our existing stockholders, including Onex, have
rights to include their shares in registration statements that we may file for
our company and other stockholders. As of March 6, 2000, our Class A
stockholders owned 12,062,214 shares of our Class A common stock. Upon
registration of our existing stockholders' shares, those shares will become
freely tradeable and our stockholders, including Onex, will be able to sell
their shares without regard to the volume or holding period limitations
contained in Rule 144 under the Securities Act of 1933. By exercising their
registration rights and selling a large number of shares, these stockholders
could cause the price our Class A common stock to fall.
After this offering, we will have 32,062,214 outstanding shares of Class A
common stock, assuming no exercise of the underwriters' over-allotment option,
and 103,368,588 outstanding shares of Class B common stock. Up to 9,335,735
additional shares of our Class A common stock may be issued upon the exercise of
outstanding options and warrants to acquire our Class A common stock at an
average weighted exercise price of $1.74. All of the shares of Class A common
stock sold in this offering will be freely tradable immediately after this
offering, except for shares purchased by affiliates, which will be subject to
Rule 144. Holders of our currently outstanding Class A and Class B common stock
may sell their shares after this offering subject to the expiration of lock-up
periods and holding periods required under Rule 144. Pursuant to our amended and
restated certificate of incorporation, shares of our Class B common stock must
be converted into shares of Class A common stock upon any transfer to a person
other than Onex or any affiliate, director, officer or employee of Onex or other
than a transfer to any purchaser of all of the outstanding Class A and Class B
common stock.
Approximately 93,054,371 shares of our outstanding Class A and Class B
common stock will become available for sale, subject to volume limitations,
following the expiration of lock-up agreements that prohibit the sale of these
shares for 180 days after the date of this prospectus. As discussed below, these
lock-up agreements may be waived by Salomon Smith Barney Inc. on behalf of the
underwriters prior to the expiration of 180 days after the offering. The
remaining shares of our outstanding Class A and Class B common stock will become
available for sale, subject to volume limitations, at various later dates upon
the expiration of one year holding periods required by Rule 144.
While Salomon Smith Barney may waive the lock-up restrictions prior to the
expiration of the lock-up periods, Salomon Smith Barney has informed us that it
has no current intentions of releasing any shares subject to the lock-up
agreements. Any determination by Salomon Smith Barney to release any shares
subject to the lock-up agreements would be based on a number of factors at the
time of determination, including the market price of the Class A common stock,
the liquidity of the trading market for the Class A common stock, general market
conditions, the number of shares proposed to be sold and the timing, purpose and
terms of the proposed sale.
While we have no current intention to issue more shares of our Class A
common stock, other than pursuant to the exercise of options, warrants and other
rights to acquire our Class A common stock, we may seek to issue additional
shares in the future to raise capital or to complete acquisitions of
complimentary businesses. Future sales of Class A common stock by us may dilute
your investment and may cause the market price of our Class A common stock to
decline.
17
<PAGE> 23
OUR CLASS A COMMON STOCK MAY NOT TRADE ACTIVELY, MAKING IT DIFFICULT FOR YOU TO
SELL YOUR STOCK.
This is our initial public offering, which means our Class A common stock
currently does not trade in any market. We cannot assure you that after this
offering our Class A common stock will trade actively. An illiquid market for
our Class A common stock may result in price volatility and poor execution of
buy and sell orders for investors. The initial public offering price may bear no
relationship to the price at which the Class A common stock will trade upon
completion of this offering.
Historically, stock prices and trading volumes for newly public companies
have fluctuated widely for a number of reasons, including some reasons that may
be unrelated to their businesses or results of operations. Stock market
volatility could depress the market price of our Class A common stock without
regard to our operating performance. In addition, our operating results may be
below market expectations. If this were to occur, the market price of our Class
A common stock could decrease, perhaps significantly.
WE MAY USE THE PROCEEDS OF THIS OFFERING INEFFECTIVELY OR IN WAYS WITH WHICH YOU
MAY NOT AGREE.
Our management will have significant flexibility in applying the net
proceeds of this offering, including ways with which stockholders may disagree.
If we do not effectively apply the funds we receive, our accumulated deficit may
increase and we may lose significant business opportunities.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, OUR AMENDED AND RESTATED
BYLAWS AND DELAWARE LAW MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US,
DESPITE THE POSSIBLE BENEFIT TO OUR STOCKHOLDERS.
In addition to Onex's control of our company and the enhanced voting rights
of our Class B common stock, provisions of our amended and restated certificate
of incorporation, our amended and restated bylaws and Delaware law could make it
more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. For example, our amended and restated
certificate of incorporation provides for a classified board of directors,
meaning that only approximately one-third of our directors will be subject to
re-election at each annual stockholder meeting. Our amended and restated
certificate of incorporation also permits our board of directors to issue one or
more series of preferred stock which may have rights and preferences superior to
those of our common stock. The ability to issue preferred stock could have the
effect of delaying or preventing a third party from acquiring us. In addition,
Section 203 of the Delaware General Corporation Law limits future business
combination transactions with stockholders owning 15% or more of our common
stock if our board of directors has not approved those transactions. These
provisions could discourage takeover attempts and could materially adversely
affect the market price of our Class A common stock.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR CLASS A COMMON STOCK; YOU WILL NOT
RECEIVE FUNDS WITHOUT SELLING YOUR SHARES AND YOU MAY LOSE THE ENTIRE AMOUNT OF
YOUR INVESTMENT.
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay dividends in the foreseeable future. We intend to invest
our future earnings, if any, to fund our growth. In addition, we intend to enter
into an amended revolving credit facility concurrently with the completion of
this offering and we expect that the terms of this facility will limit our
ability to pay dividends. Any payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our earnings, financial condition, capital requirements, level of indebtedness,
statutory and contractual restrictions applying to the payment of dividends, and
other considerations that our board of directors deems relevant. Further, we are
a holding company with no independent operations and no source of funds to pay
dividends other than dividends we receive from our subsidiaries. Our credit
facility limits the ability of our subsidiaries to pay dividends to us.
Therefore, it is unlikely that you will receive any funds from your investment
in our Class A common stock without selling your shares. We cannot assure you
that you will receive a gain on your investment when you sell your shares or
that you will not lose the entire amount of your investment.
18
<PAGE> 24
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing our Class A common stock in this offering will incur
immediate and substantial dilution in net tangible book value per share.
Assuming our sale of the 20,000,000 shares of Class A common stock in this
offering at an assumed initial public offering price of $10.00 per share, the
deduction of the underwriting discount and estimated offering expenses and the
application of the estimated net proceeds, our net tangible book value as of
December 31, 1999 would have been $48,030,000, or $0.04 per share of Class A
common stock. This represents an immediate dilution of $9.96 per share to new
investors. To the extent that outstanding options, warrants and other rights to
acquire our common stock are exercised, further dilution will occur.
19
<PAGE> 25
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus, including in the
sections entitled "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business," that are based
on our management's beliefs and assumptions and on information currently
available to our management. Forward-looking statements include the information
concerning our possible or assumed future results of operations, business
strategies, financing plans, competitive position, potential growth
opportunities, this offering and the effects of competition. Forward-looking
statements include all statements that are not historical facts and can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" and
similar expressions. You should understand that many important factors,
including those discussed under "Risk Factors," could cause our results to
differ materially from those expressed in forward-looking statements.
This prospectus contains information concerning the Internet market
generally which is forward-looking in nature and is based on a variety of
assumptions regarding the ways in which this market will develop. These
assumptions have been derived from information currently available to us and to
the third party market observers quoted herein, including International Data
Corporation, Forrester Research and Jupiter Communications. They include the
following general underlying expectations:
- no catastrophic failure of the Internet will occur;
- the number of people and businesses online and the total number of hours
spent online will increase significantly over the next five years;
- government regulations will not prohibit or materially adversely affect
our business;
- e-commerce will grow significantly over the next five years; and
- Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions is incorrect, actual market
results may differ from those predicted. While we do not know what impact any
such differences may have on our business, our future business, results of
operations and financial condition and the market price of our shares of Class A
common stock may be materially adversely impacted.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. Except to the extent required under the federal
securities laws and the rules and regulations of the Securities and Exchange
Commission, we do not have any intention or obligation to update forward-looking
statements after we distribute this prospectus.
20
<PAGE> 26
USE OF PROCEEDS
We expect that the net proceeds from our sale of Class A common stock in
this offering will be approximately $184.3 million after deducting estimated
underwriting discounts and our estimated offering expenses, based on an assumed
initial public offering price of $10.00, the midpoint of the initial public
offering price range. If the underwriters' over-allotment option is exercised in
full, we estimate that our net proceeds will be approximately $212.3 million.
We intend to use the net proceeds of this offering as follows:
- approximately $115.9 million to repay our existing indebtedness described
below:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING ESTIMATED INTEREST RATE
AS OF AMOUNT TO ORIGINAL USE INTEREST RATE AS OF MATURITY OR
TYPE OF FACILITY FEBRUARY 29, 2000 BE REPAID(1) OF PROCEEDS CALCULATION MARCH 7, 2000 EXPIRATION
-------------------- ----------------- ------------ --------------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Bank indebtedness $ 3,064 $ 3,064 Working capital Prime + 1.50% 7.5% 2000
Revolving credit $38,900 $39,700 Capital expenditures, Prime + 0.00% 8.96% 2003-2006
facility(2) acquisitions and to 2.00% or
working capital Libor + 1.00%
to 3.00%
Term credit $60,000 $60,000 Refinance debt Prime + 0.75% 9.19% 2007
facility(2) to 2.25% or
Libor + 1.75%
to 3.25%
Subordinated -- 3,500 Working capital Prime + 3.50% -- 2006
revolving credit to 6.50% or
facility(2)(3) LIBOR + 4.50%
to 7.50%
Subsidiary term loan $ 9,592 $ 9,592 Working capital Libor + 1.88% 7.38% 2000
</TABLE>
----------------------
(1) The estimated amount to be repaid is based on our estimate of
outstanding indebtedness on April 30, 2000.
(2) Following repayment, our term credit facility, subordinated revolving
credit facility and subsidiary term loan will terminate. Our
revolving credit facility will remain in effect after the offering.
(3) On March 10, 2000, we entered into a $25 million subordinated
revolving credit facility to fund capital expenditures and working
capital requirements through the closing of this offering. This
facility matures on May 25, 2006, but our ability to repay and
reborrow funds terminates on July 10, 2000 when this facility will
convert to a term loan if not previously repaid and terminated.
- approximately $40.0 million to expand our business both domestically and
internationally; and
- approximately $28.4 million for general corporate purposes.
Although we do not currently have any commitments to enter into strategic
relationships or make acquisitions, we may use a portion of the proceeds of this
offering to do so.
21
<PAGE> 27
DIVIDEND POLICY
We do not anticipate paying cash dividends on our Class A common stock in
the foreseeable future because we expect to retain our future earnings, if any,
for use in the operation and expansion of our business. Also, we anticipate
that, after this offering, our revolving credit facility will likely restrict
our ability to pay dividends. Any payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our earnings, financial condition, capital requirements, level of indebtedness,
statutory and contractual restrictions applying to the payment of dividends, and
other considerations that our board of directors deems relevant. Finally, we are
a holding company with no independent operations. Since we have no other source
of revenue, we can pay dividends only if and to the extent that we receive
dividends from our subsidiaries. These subsidiaries may be restricted from
paying any dividends to us by contractual limitations and capital surplus
requirements under the laws of their jurisdiction of incorporation. Under our
senior revolving credit facility, our wholly owned subsidiaries are not
restricted from paying dividends to us. However, no subsidiary which is not
wholly owned may pay a dividend to us if the dividend would result in a default
under our facility or would exceed, together with other dividends by that
subsidiary since January 1, 1999, 50% of the consolidated net income of that
subsidiary since January 1, 1999.
22
<PAGE> 28
DILUTION
Purchasers of our Class A common stock offered by this prospectus will
suffer an immediate and substantial dilution in net tangible book value per
share. Our net tangible book value as of December 31, 1999 was approximately
$(39,668,000), or $(0.36) per share of our common stock. Net tangible book value
per share is determined by dividing the amount of our total tangible assets less
total liabilities, excluding subsidiary preferred stock, by the number of shares
of our common stock outstanding as of December 31, 1999. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of Class A common stock in this offering and
the net tangible book value per share of common stock immediately after this
offering. Assuming our sale of the 20,000,000 shares of Class A common stock
offered in this offering at an assumed initial public offering price of $10.00
per share, the deduction of underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds, our net
tangible book value as of December 31, 1999 would have been $48,030,000, or
$0.04 per share of common stock. This represents an immediate increase in net
tangible book value of $0.40 per share to existing stockholders and an immediate
dilution of $9.96 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 10.00
Net tangible book value per share at December 31, 1999.... $ (0.36)
Increase in net tangible book value per share attributable
to new investors....................................... 0.40
-------
Net tangible book value per share after the offering...... 0.04
--------
Dilution per share to new investors....................... $ 9.96
========
</TABLE>
The following table summarizes, on an as adjusted basis as of December 31,
1999, the total number of shares of Class A and Class B common stock purchased
from us, the total consideration paid to us for our common stock, and the
average price per share paid by existing stockholders and the new investors
purchasing shares of Class A common stock in this offering at an assumed initial
offering price of $10.00 per share.
<TABLE>
<CAPTION>
CLASS A AND CLASS B COMMON STOCK
-------------------------------------------------------------------
TOTAL CONSIDERATION
SHARES PURCHASED --------------------------------------
-------------------------- AVERAGE PRICE
NUMBER OF SHARES PERCENT AMOUNT PERCENT PER SHARE
---------------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 111,011,277 84.7% $151,019,000 43.0% $ 1.36
New investors..................... 20,000,000 15.3% 200,000,000 57.0% $10.00
----------- ------ ------------ ------
Total................... 131,011,277 100.0% 351,019,000 100.0%
=========== ====== ============ ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of Class A common stock held by existing stockholders will be reduced
to 82.8% of the total number of shares of Class A common stock outstanding after
this offering and the number of shares of Class A common stock held by new
investors will be increased to 23,000,000, or 17.2% of the total number of
shares of Class A common stock outstanding after this offering.
To the extent any options, warrants and other rights to acquire our Class A
common stock are exercised, your stock will be further diluted.
23
<PAGE> 29
CAPITALIZATION
The following table sets forth our cash and cash equivalents, long-term
debt and capitalization as of December 31, 1999 on an actual basis and on an as
adjusted basis to give effect to:
- this offering, including the application of the estimated net proceeds of
this offering;
- the conversion of our existing common stock into Class A common stock in
connection with our recapitalization; and
- Onex's conversion of its Class A common shares into Class B common shares
and no conversion by any other Class A stockholder.
You should read the information provided below together with the financial
statements and the related notes beginning on page F-1 of this prospectus and
the information under "Selected Financial Data," "Unaudited Pro Forma Financial
Information" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 10,090 $ 97,788
======== ========
Bank indebtedness........................................... $ 3,324 $ --
Long-term debt, including current portion:
Revolving credit facility.............................. 23,400 --
Term credit facility................................... 60,000 --
Term loans............................................. 15,128 5,250
Other.................................................. 3,127 3,127
-------- --------
Total long-term debt, including current portion... 101,655 8,377
Capital lease obligations, including current portion........ 7,996 7,996
Subsidiary preferred stock.................................. 5,058 5,058
Stockholder's equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized on an actual basis; 20,000,000 shares
authorized on as adjusted basis; none issued or
outstanding on an actual or as adjusted basis........ -- --
Common stock, $.01 par value:
Common stock: 150,000,000 shares authorized;
111,011,277 issued and outstanding on an actual
basis; none issued and outstanding on an as
adjusted basis.................................... 1,110 --
Class A: 225,000,000 shares authorized; none issued
or outstanding on an actual basis; 27,642,689
issued and outstanding on as adjusted basis....... -- 276
Class B: 130,000,000 shares authorized; none issued
and outstanding on an actual basis; 103,368,588
issued and outstanding on an as adjusted basis.... -- 1,034
Common stock issuable.................................. 5,000 5,000
Exchangeable shares.................................... 3,054 3,054
Additional paid-in capital............................. 149,909 349,709
Accumulated deficit.................................... (48,178) (49,578)
Accumulated other comprehensive loss................... (666) (666)
Less: unearned compensation............................ (263) (263)
-------- --------
Total stockholders' equity........................ 109,966 309,966
-------- --------
Total capitalization.............................. $227,999 $331,397
======== ========
</TABLE>
Our accumulated deficit on an as adjusted basis reflects an estimated
charge of approximately $1.4 million from the write-off of unamortized deferred
financing costs associated with the repayment of our debt.
24
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND
STATEMENT OF OPERATIONS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated balance sheet and statement
of operations is based on our audited consolidated balance sheet and statement
of operations for the year ended December 31, 1999 and gives effect to:
- our acquisition of LCS Industries, Inc. completed on January 27, 1999 for
an aggregate purchase price of approximately $69.3 million;
- our acquisition of Cordena Call Management B.V. completed on October 7,
1999 for an aggregate purchase price of approximately $24.1 million;
- our acquisition of MarketVision, Inc. completed on December 6, 1999 for
an aggregate purchase price of approximately $22.6 million; and
- our distribution of all of the stock of the parent company of
InsLogic.com Corporation, our subsidiary which holds the assets we
acquired from Canadian Access, as a dividend to our existing stockholders
and to the holders of shares of one of our subsidiaries which are
exchangeable for our common stock.
The amounts shown on the unaudited pro forma consolidated statement of
operations under the column headings LCS, Cordena and MarketVision represent the
historical results of operations of the relevant company for the period from
January 1, 1999 through the date of purchase. We accounted for each of these
acquisitions using the purchase method of accounting. The unaudited pro forma
consolidated statement of operations gives effect to these acquisitions as if
each of them had been completed on January 1, 1999. The Cordena results of
operations were translated from Dutch guilders to U.S. dollars using the average
exchange rate during the year ended December 31, 1999 of $0.504.
We have not given pro forma effect to our acquisition of a portion of the
assets of Canadian Access Insurance Services Inc. in March 1999 or our
acquisition of Groupe Adverbe International S.A. in October 1999 because neither
of these acquisitions had a material effect on our results of operations as
determined by criteria set by the Securities and Exchange Commission. However,
the results of operations of each of these companies are included from the dates
of their acquisition in our audited consolidated financial statements for the
year ended December 31, 1999.
The pro forma adjustments are based on estimates, available information and
certain assumptions by our management. The pro forma financial data may not
represent what our financial position and results of operations would actually
have been if these transactions in fact had occurred on January 1, 1999 and are
not necessarily representative of our financial position and results of
operations for any future period. You should read this unaudited pro forma
consolidated balance sheet and statement of operations together with the other
financial statements and related notes and the risk factors included in this
prospectus.
25
<PAGE> 31
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CLIENTLOGIC ADJUSTMENTS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 10,090 $(2,656)(1) $ 7,434
Accounts receivable, net................................. 59,428 59,428
Prepaids and other current assets........................ 17,886 (96)(1) 17,790
-------- ------- --------
Total current assets............................. 87,404 (2,752) 84,652
Capital assets............................................. 52,982 (3,128)(1) 49,854
Other noncurrent assets.................................... 6,521 (949)(1) 5,572
Goodwill................................................... 154,692 -- 154,692
Debt issue costs........................................... 1,479 -- 1,479
-------- ------- --------
Total assets..................................... $303,078 $(6,829) $296,249
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness........................................ $ 3,324 -- $ 3,324
Accounts payable......................................... 36,013 (88)(1) 35,925
Accrued liabilities and other............................ 37,553 (58)(1) 37,495
Current installments of long term debt................... 12,017 -- 12,017
Current portion of capital lease obligations............. 2,726 -- 2,726
-------- ------- --------
Total current liabilities........................ 91,633 (146) 91,487
Long-term debt............................................. 89,638 -- 89,638
Capital lease obligations.................................. 5,270 -- 5,270
Other noncurrent liabilities............................... 1,513 -- 1,513
-------- ------- --------
Total liabilities................................ 188,054 (146) 187,908
-------- ------- --------
Subsidiary preferred stock................................. 5,058 (5,058)(1) --
Stockholders' equity:
Common stock............................................. 1,110 1,110
Common stock issuable.................................... 5,000 5,000
Exchangeable shares...................................... 3,054 3,054
Additional paid-in-capital............................... 149,909 (1,625)(3) 148,284
Accumulated deficit...................................... (48,178) --(2) (48,178)
Accumulated other comprehensive loss..................... (666) -- (666)
Unearned compensation.................................... (263) -- (263)
-------- ------- --------
Stockholders' equity..................................... 109,966 (1,625) 108,341
-------- ------- --------
Total liabilities and stockholders' equity....... $303,078 $(6,829) $296,249
======== ======= ========
</TABLE>
26
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CLIENTLOGIC LCS CORDENA MARKETVISION ADJUSTMENTS TOTAL
----------- ------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $177,791 $ 4,722 $31,477 $3,352 $ -- $217,342
Costs and expenses
Cost of services........... 99,478 2,041 22,034(4) 1,253 -- 124,806
Selling, general and
administrative
expenses................ 75,261 2,008 11,038 1,641 -- 89,948
Depreciation expense....... 11,063 189 1,161 183 -- 12,596
Amortization expense....... 8,347 24 4,060 226 (890)(5) 11,473
(294)(6)
Impairment of intangible
assets.................. 22,273 -- -- -- -- 22,273
-------- ------- ------- ------ ------- --------
Operating gain (loss)........ (38,631) 460 (6,816) 49 1,184 (43,754)
Interest expense, net........ 6,480 19 859 80 -- 7,438
Transaction expenses(7)...... -- 2,052 -- -- -- 2,052
Other, net................... -- (124) -- (4) -- (128)
-------- ------- ------- ------ ------- --------
Loss before income taxes..... (45,111) (1,487) (7,675) (27) 1,184 (53,116)
Income taxes................. 322 138 46 -- (184)(8) 322
-------- ------- ------- ------ ------- --------
Net loss..................... $(45,433) $(1,625) $(7,721) $ (27) $ 1,368 $(53,438)
======== ======= ======= ====== ======= ========
Basic loss per share......... $ (0.47) $ (0.49)
======== ========
Weighted average number of
shares used in computing
basic loss per share....... 96,450 109,204
======== ========
</TABLE>
Dilutive earnings per share has not been presented as all potentially
convertible shares are antidilutive.
27
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AND STATEMENT OF OPERATIONS
(IN THOUSANDS)
(1) The pro forma adjustments reflect the InsLogic balances included in our
December 31, 1999 consolidated balance sheet.
(2) The distribution of all of the stock of InsLogic as a dividend does not have
any impact on the pro forma consolidated statement of operations as InsLogic
is being distributed at historical cost, thereby creating no gain or loss.
(3) The pro forma adjustment reflects the distribution of all of the stock of
Inslogic as a dividend.
(4) Certain amounts have been reclassified for consistency with the ClientLogic
basis of presentation.
(5) The pro forma adjustment to amortization expense reflects a full year of pro
forma amortization of our goodwill related to each of the acquisitions, net
of:
- amortization expense related to the acquisition of the acquired companies
included in our consolidated financial statements for the year ended
December 31, 1999; and
- amortization expense included in each of the acquired companies'
financial statements from January 1, 1999 through the relevant date of
acquisition.
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
----------------------------------------------------------------------------------------
RELATED TO
RELEVANT ACQUISITION
-------------------------------------
INCLUDED IN PERIOD FROM JANUARY 1, 1999 UNTIL
PRO FORMA CLIENTLOGIC RELEVANT ACQUISITION DATE
YEAR ENDED 1999 CONSOLIDATED ----------------------------------- PRO FORMA
DECEMBER 31, 1999 FINANCIALS LCS CORDENA MARKETVISION ADJUSTMENT
----------------- ----------------- ------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
LCS(a)................ $2,258 $(2,719) $(24) $ -- $ -- $ (485)
Cordena(b)............ 2,562 (641) -- (4,060) -- (2,139)
MarketVision(c)....... 2,078 (118) -- -- (226) 1,734
------ ------- ---- ------- ----- -------
$6,898 $(3,478) $(24) $(4,060) $(226) $ (890)
====== ======= ==== ======= ===== =======
</TABLE>
-----------------------
(a) The excess of purchase price over the fair value of net assets
acquired in the LCS acquisition was $56,145. Of this amount, $1,650
was assigned to the value of a contract with a key customer, $21,659
was allocated to business process methodologies and $32,836 was
allocated to goodwill. Goodwill relating to our acquisition of LCS
is amortized over fifteen years and resulted in monthly amortization
of $188 per month. The LCS amortization for the year ended December
31, 1999 includes approximately $1,036 of amortization expense
relating to intangible assets, other than goodwill, in the amount of
$22,273, which were deemed impaired and written off. This
amortization expense was incurred from the time of our acquisition
through the time of the impairment.
(b) Goodwill relating to our acquisition of Cordena is amortized over
fifteen years. The goodwill amount of $38,433 results in monthly
amortization of $214 per month.
(c) The excess of purchase price over the fair value of the net assets
acquired in the MarketVision acquisition was $21,239. Of this
amount, $4,975 was allocated to software development cost and is
amortized over five years resulting in monthly amortization of $83.
The balance of $16,264 was attributed to goodwill and is amortized
over fifteen years, resulting in monthly amortization of $90.
(6) The remaining $(294) of adjustment to amortization expense reflects the
impact of the differences between U.S. GAAP and Dutch GAAP relating to
Cordena prior to its acquisition by us. Under Dutch GAAP, acquisitions may
be recorded at the beginning of the year in which the company acquires
economic control, which is defined as the ability to exercise influence over
the acquired company. For U.S. GAAP purposes, the purchase is recorded on
the effective date of the acquisition. This adjustment reduces amortization
expense to conform with U.S. GAAP and reflects the
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<PAGE> 34
CLIENTLOGIC CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AND STATEMENT OF OPERATIONS -- (CONTINUED)
elimination of amortization expense from the beginning of the year through
the effective date of the acquisition.
(7) LCS incurred nonrecurring transaction expenses of $2,052 during January 1999
in connection with the sale of LCS to us.
(8) The pro forma adjustment to income taxes of $(184) relates to the reversal
of estimated income taxes from January 1, 1999 through the relevant date of
acquisition of LCS and Cordena.
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<PAGE> 35
SELECTED HISTORICAL FINANCIAL DATA
You should read this selected historical financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes presented in this
prospectus. The selected historical financial data as at and for the period from
inception to December 31, 1996 is derived from the audited financial statements
of North Direct Response Inc., our predecessor company, which are not presented
in this prospectus. The selected historical financial data as at and for year
ended December 31, 1997 and as at and for the period ended April 27, 1998 is
derived from audited financial statements of North Direct Response which are
presented in this prospectus. The selected historical financial data as at and
for the period ended December 31, 1998 represents the combined results of
operations derived from our audited consolidated financial statements as at and
for the period from September 25, 1998 to December 31, 1998 and the audited
financial statements of North Direct Response Inc. for the period April 28, 1998
to December 17, 1998. This combined financial data is presented in this
prospectus. The selected historical financial data as at and for the year ended
December 31, 1999 is derived from our audited consolidated financial statements
which are presented in this prospectus.
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR COMPANY
--------------------------- -----------------------------------------
COMBINED PERIOD
PERIOD FROM FROM PERIOD FROM
APRIL 28, JANUARY 1, INCEPTION
CONSOLIDATED 1998 1998 (OCTOBER 9,
YEAR ENDED THROUGH THROUGH YEAR ENDED 1996) TO
DECEMBER 31, DECEMBER 31, APRIL 27, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues................................ $177,791 $27,283 $ 1,633 $2,617 $ --
Cost and expenses
Cost of services...................... 99,478 16,353 962 1,426 --
Selling, general and administrative
expenses............................ 75,261 9,452 786 1,451 29
Depreciation expense.................. 11,063 1,900 145 329 2
Amortization expense.................. 8,347 1,337 2 4 --
Impairment of intangible assets....... 22,273 -- -- -- --
-------- ------- ------- ------ ------
Operating loss.......................... (38,631) (1,759) (262) (593) (31)
Interest expense, net................... 6,480 921 68 142 1
-------- ------- ------- ------ ------
Loss before income taxes................ (45,111) (2,680) (330) (735) (32)
Income taxes............................ 322 65 -- -- --
-------- ------- ------- ------ ------
Net loss................................ $(45,433) $(2,745) $ (330) $ (735) $ (32)
======== ======= ======= ====== ======
Basic loss per share.................... $ (0.47) $ (0.09) $ (0.03) $(0.08) $(0.00)
======== ======= ======= ====== ======
Weighted average number of shares
outstanding (in thousands)............ 96,450 29,992 10,309 9,372 7,113
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital......................... $ (4,229) $ 4,948 $ 589 $ 880 $ 361
Total assets............................ 303,078 113,785 3,645 3,966 370
Long-term debt, including current
portion............................... 101,655 31,925 1,748 895 --
Stockholders' equity.................... 109,966 61,739 538 1,607 402
</TABLE>
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<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
You should read the following discussion and analysis of our results of
operations and financial condition together with the financial statements and
the related notes beginning on page F-1 of this prospectus.
OVERVIEW
We are an international provider of marketing, customer contact management
and fulfillment services to e-commerce and technology companies. We are able to
integrate these services for our clients, allowing them to manage their customer
relationships through a single service provider. We offer a range of services to
assist our clients in acquiring and retaining customers and in maximizing the
profitability of customer relationships.
Our predecessor, North Direct Response, Inc., a provider of outsourced
customer contact management services located in Toronto, Ontario, Canada, began
operating in October 1996. In April 1998, Onex Corporation formed a Canadian
company, which we refer to as the successor company, to acquire the majority of
the shares of North Direct Response. Onex formed our company in September 1998.
In October 1998 we acquired Upgrade Corporation of America (d/b/a SOFTBANK
Services Group), a provider of outsourced customer contact management and
fulfillment services. In December 1998, Onex contributed the successor company
to our company. We accounted for the combination of the successor company to our
company at historical cost without revaluing either entity since both our
company and the successor company were under the common control of Onex. In
January 1999, we acquired LCS Industries, Inc., a provider of outsourced
list-based marketing services and fulfillment. In October 1999, we acquired
Cordena Call Management B.V. and Groupe Adverbe International S.A. Cordena
provides customer contact management and fulfillment services in six European
countries. Adverbe is an outsourced provider of customer contact management
services in France. In December 1999, we acquired MarketVision, Inc., a provider
of marketing services, including relational database management services and
software. All acquired companies now operate as our subsidiaries.
In March 1999, we acquired a portion of the assets of Canadian Access
Insurance Services Inc., a provider of outsourced customer relationship services
to the insurance marketplace. In September 1999, we formed a subsidiary,
InsLogic.com Corporation, to perform our insurance related services. We
currently intend to distribute the shares of InsLogic's parent company to our
existing stockholders in a taxable spin-off prior to the completion of this
offering. We expect this distribution will create taxable income to our company
that will be offset by a portion of our tax loss carryforwards. InsLogic's
operations are insignificant to our financial results.
Revenues. We generate revenues principally through our marketing, customer
contact management and fulfillment services. Revenues for marketing services
related to list management are reported net of the cost we incurred to obtain
the list, if any. Our other marketing services revenues are charged on a per
project or per software license sold basis or under the terms of database
maintenance and analysis arrangements. Revenues for our customer contact
management and fulfillment services are reported net of freight,
telecommunications and other expenses that are reimbursed by our clients. Our
customer contact management and fulfillment services are generally charged on a
per transaction basis, such as per minute, per employee or per item.
Revenues are generally recognized at the time services are provided. The
majority of our clients are billed on a monthly basis. We price our services
based on a variety of factors including the complexity of the service, the
amount of required systems customization or the length of contract. The majority
of our client contracts can be cancelled within 90 days. For the year ended
December 31, 1999, our largest client, on the basis of revenues, accounted for
approximately 9.9% of our revenues and our ten largest clients, on the basis of
revenues, accounted for approximately 44.1% of our revenues. In 1999
approximately 6.9% of our revenues were derived from marketing services,
approximately 73.7% from customer contact management services and approximately
19.4% from fulfillment services.
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<PAGE> 37
Cost of Services. Our cost of services consist primarily of salaries and
benefits for personnel directly associated with delivering or managing our
marketing, customer contact management or fulfillment operations. Additional
items include costs of materials used in fulfillment, such as packaging
materials.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses are comprised primarily of expenses related to
facilities, information technology and professional services; compensation and
related expenses for sales and marketing, finance, human resources and
information technology personnel; and provision for bad debt.
Depreciation and Amortization Expense. We calculate and record depreciation
for capital assets over lives ranging from three to fifteen years and for
software development costs over three to five years. We amortize goodwill over
fifteen years.
Income Taxes. We record income tax expense in accordance with local
requirements in countries where we have taxable earnings. At December 31, 1999,
we had approximately $22.2 million of U.S. federal net operating loss tax
carryforwards which will begin to expire in 2006. We have additional loss
carryforwards for our European operations. We have recorded a substantial
valuation allowance against our deferred tax asset.
ACQUISITIONS
We made several acquisitions during 1998 and 1999. These acquisitions are
summarized as follows:
- In October 1998, we acquired SOFTBANK Services Group for approximately
$73.3 million in cash, including the assumption of approximately $17.9
million of existing indebtedness. In addition, we contributed $6.7
million in cash to provide for working capital needs. We financed the
cash component of the consideration and the working capital contribution
by selling approximately $50.0 million of our capital stock principally
to Onex and by incurring approximately $30.0 million of term debt. This
acquisition created approximately $57.5 million of goodwill.
- In January 1999, we acquired LCS for approximately $69.3 million in cash,
including the assumption of approximately $28.5 million of existing
indebtedness. We financed the cash component of the consideration by
selling approximately $35.0 million of our capital stock principally to
Onex and by incurring approximately $34.3 million of term debt. This
acquisition created approximately $32.8 million of goodwill and
approximately $23.3 million of other intangible assets. In 1999, as a
result of the loss of a significant customer of LCS, we wrote down the
remaining balance of approximately $22.3 million relating to other
intangible assets.
- In October 1999, we acquired Cordena and Adverbe for an aggregate of
approximately $34.9 million in cash and stock, including the assumption
of approximately $32.0 million of existing indebtedness. In addition, we
contributed $6.3 million in cash to provide for working capital needs and
transaction expenses. We financed the cash component of the consideration
and the working capital contribution by selling approximately $35.0
million of our capital stock principally to Onex and the stock component
of the consideration by issuing approximately $4.5 million of our capital
stock and approximately $1.7 million of in-the-money options and warrants
to the shareholders of the acquired companies. These acquisitions created
approximately $48.3 million of goodwill. In addition, some of the sellers
may receive a contingent payment of approximately $3.4 million in cash
and approximately $0.2 million of our existing common stock.
- In December 1999, we acquired MarketVision for approximately $22.6
million in cash and stock, including the assumption of approximately $1.2
million of existing indebtedness. We financed the cash component of the
consideration by selling approximately $12.0 million of our capital stock
principally to Onex, by incurring approximately $5.3 million in
subordinated term debt and by utilizing approximately $0.3 million of
cash on hand and the stock component of the consideration by issuing
approximately $5.0 million of our existing common stock in January 2000
to the shareholders of MarketVision. This acquisition created
approximately $16.3 million of goodwill. In addition, the sellers may
receive a contingent payment of approximately $0.8 million in cash based
on meeting specific revenue targets.
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<PAGE> 38
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage of
our consolidated revenue represented by selected items in our income statement.
Results for the year ended December 31, 1999 present our consolidated
information. Results for the period from April 28 to December 31, 1998 present,
on a combined basis, the successor company from its date of formation by Onex
and SSG from the date of acquisition by us. Results for the period from January
1 to April 27, 1998 present North Direct Response as the predecessor company, as
do results for 1997.
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR COMPANY
--------------------------------------- -----------------------------------
RESULTS FOR RESULTS FOR
RESULTS FOR THE COMBINED PERIOD THE PERIOD FROM RESULTS FOR
THE YEAR ENDED FROM APRIL 28 TO JANUARY 1 TO THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0%
Cost and expenses
Cost of services.............. 56.0 59.9 58.9 54.5
Selling, general and
administrative expenses....... 42.3 34.6 48.1 55.4
Depreciation expense.......... 6.2 7.0 8.9 12.6
Amortization expense.......... 4.7 4.9 0.1 0.2
Impairment of intangible
assets..................... 12.5 -- -- --
----- ----- ----- -----
Operating loss.................. (21.7)% (6.4)% (16.0)% (22.7)%
Interest expense, net........... 3.6 3.4 4.2 5.4
Loss before income taxes........ (25.4) (9.8) (20.2) (28.1)
Income taxes.................... 0.2 0.2 -- --
----- ----- ----- -----
Net loss........................ (25.5)% (10.0)% (20.2)% (28.1)%
===== ===== ===== =====
</TABLE>
IN LIGHT OF THE EVOLVING NATURE OF OUR BUSINESS, OUR LIMITED OPERATING
HISTORY AND OUR MATERIAL ACQUISITION HISTORY, WE BELIEVE THAT PERIOD-TO-PERIOD
COMPARISONS OF OUR RESULTS ARE NOT MEANINGFUL AND SHOULD NOT BE RELIED UPON AS
INDICATIONS OF FUTURE PERFORMANCE.
CLIENTLOGIC CORPORATION
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE PERIOD FROM APRIL 28, 1998 TO
DECEMBER 31, 1998
Revenues. Our revenues were approximately $177.8 million for the year ended
December 31, 1999, an increase of approximately $150.5 million over our revenues
for the period from April 28, 1998 to December 31, 1998, as a result of:
- the LCS acquisition in January 1999 which contributed approximately $51.5
million;
- the acquisitions of Cordena and Adverbe in October 1999 which together
contributed approximately $11.0 million;
- revenues of approximately $78.4 million from our ten largest clients for
the year ended December 31, 1999 as compared to revenues of approximately
$14.8 million from these same clients for and during the period from
April 28, 1998 to December 31, 1998; and
- revenues of approximately $105.0 million for a full year of operations of
SOFTBANK Services Group as compared to approximately $20.4 million for
the period from April 28, 1998 to December 31, 1998.
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<PAGE> 39
Cost of Services. Our cost of services was approximately $99.5 million for
the year ended December 31, 1999, an increase of approximately $83.1 million
over our cost of services for the period from April 28, 1998 to December 31,
1998. This increase resulted primarily from:
- the LCS acquisition in January 1999 which contributed approximately $24.2
million;
- the acquisitions of Cordena and Adverbe in October 1999 which together
contributed approximately $7.0 million; and
- cost of services of approximately $61.4 million for a full year of
operations of SOFTBANK Services Group as compared to approximately $11.7
million for the period from April 28, 1998 to December 31, 1998.
As a percentage of revenues, cost of services decreased approximately 3.9%,
primarily due to the effect of the acquisition of LCS, which had a relatively
lower cost of service associated with marketing and fulfillment services.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $75.3 million for the year ended
December 31, 1999, an increase of approximately $65.8 million over the period
from April 28, 1998 to December 31, 1998. This increase resulted primarily from
the following:
- selling, general and administrative expenses of approximately $41.3
million for a full year of operations of SOFTBANK Services Group as
compared to approximately $7.7 million for the period from April 28, 1998
to December 31, 1998; and
- selling, general and administrative expenses of approximately $25.9
million attributable to the operations of LCS, Cordena, Adverbe and
MarketVision included in our consolidated results since each of their
acquisition dates.
As a percentage of revenue, selling, general and administrative expenses
increased approximately 7.7% primarily as a result of hiring executive officers
and marketing personnel, additional spending for marketing our services,
expanding an existing fulfillment facility and opening four additional customer
contact management facilities and our headquarters in Nashville, Tennessee.
Depreciation Expense. Our depreciation expense was approximately $11.1
million for the year ended December 31, 1999, an increase of approximately $9.2
million over our depreciation expense for the period from April 28, 1998 to
December 31, 1998. This increase resulted primarily from the following:
- capital spending of approximately $26.0 million as compared to
approximately $2.8 million for the period from April 28, 1998 to December
31, 1998;
- depreciation expense of approximately $7.3 million from our ownership of
the assets of SOFTBANK Services Group for a full year as compared to
approximately $1.5 million for the period from April 28, 1998 to December
31, 1998; and
- depreciation expense of approximately $2.9 million from our ownership of
the assets of LCS, Cordena, Adverbe and MarketVision from each of their
acquisition dates.
Amortization Expense. Our amortization expense was approximately $8.3
million for the year ended December 31, 1999, an increase of approximately $7.0
million over our amortization expense for the period from April 28, 1998 to
December 31, 1998. This increase resulted primarily from the following:
- amortization expense of approximately $3.9 million due to the inclusion
of goodwill amortization relating to our acquisition of SOFTBANK Services
Group for a full year as compared to approximately $1.0 million for the
period from April 28, 1998 to December 31, 1998; and
- amortization expense of approximately $4.0 million from the goodwill
amortization relating to our acquisitions of LCS, Cordena, Adverbe and
MarketVision.
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<PAGE> 40
Impairment of Intangible Assets. We recorded a nonrecurring noncash charge
of approximately $22.3 million for the year ended December 31, 1999. This charge
reflects the writedown of other intangibles associated with our acquisition of
LCS due to the loss in August 1999 of a significant customer.
Interest Expense, net. Our net interest expense was approximately $6.5
million for the year ended December 31, 1999, an increase of approximately $5.6
million over our net interest expense for the period from April 28, 1998 to
December 31, 1998. This increase was a result of an increase in our debt and
capital leases.
Income Taxes. Our income taxes of $0.3 million represented current state,
local and foreign taxes of approximately $1.4 million and a deferred tax benefit
of approximately $1.1 million relating to the reduction of the valuation
allowance on deferred tax assets for certain U.S. operating loss carryforwards.
PREDECESSOR COMPANY
PERIOD FROM JANUARY 1, 1998 TO APRIL 27, 1998 COMPARED TO YEAR ENDED DECEMBER
31, 1997
Revenues. Our revenues were approximately $1.6 million for the period from
January 1, 1998 to April 27, 1998, a decrease of approximately $1.0 million from
our revenues for the year ended December 31, 1997. This decrease primarily
results from comparing a full year of revenues to a partial year of revenues.
Cost of Services. Our cost of services was approximately $1.0 million for
the period from January 1, 1998 to April 27, 1998, a decrease of approximately
$0.5 million from our cost of services from the year ended December 31, 1997.
This decrease is the result of comparing a full year of cost of services to a
partial year of cost of services. As a percentage of revenues, costs of services
increased to approximately 58.9% for the period ending April 27, 1998 from
approximately 54.5% for the year ended December 31, 1999. This increase
primarily results from initial expenses incurred in connection with providing
services to a new customer.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $0.8 million for the period from
January 1, 1998 to April 27, 1998, a decrease of approximately $0.7 million from
our selling, general and administrative expenses for the year ended December 31,
1997. This decrease primarily results from comparing a full year of selling,
general and administrative expense to a partial year. As a percentage of
revenues, selling, general and administrative expenses decreased to
approximately 48.1% for the period ending April 27, 1998 from approximately
55.4% for the period ending December 31, 1997. This decrease was a result of our
revenues growing faster than our selling, general and administrative expense.
Depreciation Expense. Our depreciation expense was approximately $0.1
million for the period from January 1, 1998 to April 27, 1998, a decrease of
approximately $0.2 million from our depreciation expense for the year ended
December 31, 1997. This decrease is the result of comparing a full year of
depreciation expense to a partial year of depreciation expense.
Amortization Expense. Amortization expense was not material in either
period.
Interest Expense, net. Net interest expense was not material in either
period.
Income Taxes. Income taxes were not material in either period.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations, capital expenditures and acquisitions
primarily through the issuance of our capital stock, borrowings under our
revolving credit facility and term loans and capital lease arrangements.
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<PAGE> 41
At December 31, 1999, our outstanding debt primarily consisted of:
- $23.4 million under our $40 million revolving credit facility;
- $3.3 million under our $4.6 million bank overdraft line;
- $60.0 million under our term credit facility;
- $9.8 million under our Cordena term loan; and
- $8.4 million of other interest bearing debt.
We will use a portion of the proceeds from this offering to repay the
outstanding indebtedness under our revolving credit facility, bank overdraft
line, term credit facility, and Cordena term loan. If this indebtedness had been
repaid on January 1, 1999, our net interest expense for the year ended December
31, 1999 would have been decreased by approximately $5.9 million. We will use a
portion of the proceeds of this offering to repay and terminate our $25 million
subordinated revolving credit facility which we entered on March 10, 2000 to
fund capital expenditures and working capital requirements through the closing
of this offering. We will retain our $40 million credit facility after
completion of the offering.
Our revolving credit facility is secured by substantially all of our North
American assets and will be available after the offering for general corporate
purposes. This facility will require us to maintain financial ratios and will
impose restrictions on us that limit, among other things, our ability to pay
dividends.
We believe our current cash and cash equivalents, in addition to the funds
available under our revolving credit facility will be sufficient to support our
operations, capital expenditures and various repayment obligations under debt
and lease agreements for at least the next 12 months. However, if funds
generated from these sources are insufficient to satisfy our liquidity
requirements, we will be required to rely on all or a portion of the remaining
proceeds from this offering or to raise additional funds. In addition, if we
enter into commitments for acquisitions or other strategic alliances, we will
need to raise additional funds. Such financing may not be available in amounts
or on terms acceptable to us, if at all.
CLIENTLOGIC CORPORATION
During the year ended December 31, 1999, net cash used in our operating
activities of $3.9 million was a result of a net loss of $45.4 million, a $3.4
million gain on the sale of an investment and an increase of $5.7 million in
working capital, offset by depreciation and amortization of $19.4 million, bad
debt expense of $2.3 million, a $3.0 million loss on write-off of assets, and
noncash charges of $3.6 million relating to a non-cash stock compensation charge
and $22.3 million relating to the write-down of intangible assets. During the
period from April 28, 1998 to December 31, 1998, net cash used in our operating
activities of $4.3 million was a result of a net loss of $2.7 million, an
increase of $5.3 million in working capital including foreign currency
adjustments, offset by depreciation and amortization expense of $3.2 million,
bad debt expense of $0.2 million and a noncash stock compensation charge of $0.3
million.
Our investing activities during the year ended December 31, 1999 consisted
primarily of capital expenditures of $26.0 million, net of lease financing
arrangements, and the acquisitions of LCS, assets of Canadian Access, Cordena,
Adverbe and MarketVision for $114.7 million. Our capital expenditures consisted
primarily of building and upgrading customer contact management centers. From
April 28, 1998 to December 31, 1998 we incurred capital expenditures of $2.8
million, net of lease financing arrangements, and acquired SOFTBANK Services
Group for $57.2 million.
Our cash flows from our financing activities, during the year ended
December 31, 1999, included cash investments by our stockholders of $87.0
million primarily to fund our acquisitions and $5.3 million of subsidiary
preferred stock. We also used net borrowings of $56.9 million to fund operating
activities, capital expenditures and acquisitions, and paid debt issue costs of
$1.6 million. From April 28, 1998 to December 31, 1998 we received proceeds from
the sale of our capital stock of $62.1 million principally
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<PAGE> 42
used to fund the acquisition of SOFTBANK Services Group. We also used net
borrowings of $7.9 million to fund operating activities, capital expenditures
and acquisitions.
PREDECESSOR COMPANY
From January 1, 1998 to April 27, 1998, our net cash from operating
activities was $0.1 million as a result of a net loss of $0.3 million, offset by
a decrease of $0.3 million in working capital requirements and by depreciation
and amortization of $0.1 million. During the year ended December 31, 1997, net
cash used in our operating activities of $1.3 million was a result of a net loss
of $0.7 million, and an increase of $0.9 million in working capital
requirements, offset by depreciation and amortization of $0.3 million.
Investing activities were immaterial during the period from January 1, 1998
to April 27, 1998, with no individual item over $0.1 million. Our investing
activities during the year ended December 31, 1997 consisted primarily of
capital expenditures of $2.1 million, net of lease financing arrangements.
From January 1, 1998 to April 27, 1998, financing activities were
immaterial. During the year ended December 31, 1997, we received proceeds from
the sale of our capital stock of $1.3 million principally used to fund capital
expenditures. We also used net borrowings of $1.9 million to fund working
capital requirements and capital expenditures.
SEASONALITY
Seasonal influences have historically affected our operations, with higher
sales typically realized in the fourth quarter. Our clients include technology
companies whose computer hardware and software sales traditionally peak in
fourth quarter, resulting in increases in our fulfillment and customer support
activities for those clients. Also, our catalog and e-commerce fulfillment
activities increase during the Christmas season.
MARKET RISK
As a result of our financing and international operating activities, we are
exposed to market risk from changes in interest rates and foreign currency
exchange rates that may adversely affect our financial position and results of
operations. We seek to minimize the risks from interest rate and foreign
currency exchange rate fluctuations through our normal operating and financing
activities. We do not use derivative financial instruments for trading or other
speculative purposes, nor have we entered into any derivative instruments for
hedging purposes during the respective financial statement periods or at the
respective balance sheet dates.
Our exposure to market risk for changes in foreign currency exchange rates
arises from investments in and intercompany balances with foreign subsidiaries,
and accounts receivable and payable. Our exposure is with respect to several
currencies, principally the UK pound, Irish punt, Dutch guilder, German mark,
Canadian dollar, French franc and the euro; none of these would be considered
hyper-inflationary environments. We attempt to have all such exposures hedged,
where practical, by purchasing goods and services in local currencies and by
using local currency borrowings, thereby creating natural hedges.
Our exposure to market risk for changes in interest rates relates primarily
to our debt obligations which have variable interest rates tied mainly to the
U.S. prime rate and the London Interbank Offered Rate, or LIBOR. At year-end
1999, we had adjustable rate debt totaling $96.9 million. If interest rates were
to increase three percentage points from our weighted average interest rate at
year-end of 9.63%, our net interest expense would have increased $2.9 million.
The above discussion and the estimated amounts generated from the
sensitivity analysis referred to above include forward-looking statements of
market risk which assume that certain adverse market conditions may occur.
Actual future market conditions may differ materially from such assumptions.
Accordingly, the forward-looking statements should not be considered projections
by us of future events or losses.
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<PAGE> 43
YEAR 2000
As of the date of this prospectus, we have not experienced any significant
Year 2000 problems relating to our computer systems and business operations.
Since certain computer programs do not execute daily and may not have been used
before the date of this prospectus and devices with embedded computer chips may
not have been tested or used for their intended purpose, risk of device failure
continues.
It is likely that we have computer programs that will not execute until a
quarter-end or the year-end 2000, so risks of program failures exist until such
times. Therefore, while the results of our Year 2000 plans have proven
satisfactory to date, we cannot assure you that all aspects of the Year 2000
issues are entirely resolved.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants, or
the AICPA, issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." This Statement of
Position, or SOP, requires entities to capitalize costs related to internal-use
software once certain criteria have been met. We implemented SOP 98-1 during our
fiscal year ended December 31, 1999 with no material impact on our financial
position, results of operations or cash flows.
In April 1998, the AICPA issued SOP 98-5. "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires entities to expense all start-up costs
related to new operations as incurred. In addition, all start-up costs that were
capitalized in the past must be written off upon adoption of SOP 98-5. We
adopted SOP 98-5 during our fiscal year ended December 31, 1999 with no material
impact on our financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. We expect that the adoption of SFAS No. 133 will have no material
impact on our financial position, results of operations or cash flows. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133,"
which deferred the required date of adoption of SFAS No. 133 for one year, to
fiscal years beginning after June 15, 2000.
In January 1999, we adopted SFAS No. 130 "Comprehensive Income."
Comprehensive income is defined as the "change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources." Under this statement, the term "comprehensive income"
is used to describe the total net earnings plus other comprehensive income or
loss. For our company, other comprehensive loss includes currency translation
adjustments on foreign subsidiaries.
EXCHANGEABLE SHARES
As part of the contribution of the successor company to our company, we
exchanged the 3,085,099 minority shares held in a subsidiary of the successor
company for exchangeable preferred shares of the subsidiary. The exchangeable
preferred shares are exchangeable into 3,054,055 shares of our existing common
stock. The shares are exchangeable at the option of the holder or of our
subsidiary at any time. At December 31, 1999, no exchanges had occurred. These
shares are considered common stock equivalents for determination of earnings per
share and are included in stockholders' equity.
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BUSINESS
OUR SERVICES
ClientLogic is an international provider of marketing, customer contact
management and fulfillment services focused on e-commerce and technology
companies. We are able to integrate these services for our clients, allowing
them to manage their customer relationships through a single service provider.
Our services, which we refer to collectively as customer relationship management
services, include:
- Marketing services. We create customized marketing programs which help
our Internet-based clients profile and target new customers and increase
the loyalty of existing customers. Our marketing services include
developing, maintaining and providing access to customer information
databases, analyzing this information to identify and address specific
needs of our clients' customers and providing expertise in developing
marketing programs.
- Customer contact management services. We provide customer service and
technical support to our clients' customers 24 hours a day, seven days a
week through e-mail, online chat, fax, phone and mail. Our ability to
communicate with our clients' customers through multiple channels enables
us to more effectively respond to their inquiries and needs.
- Fulfillment services. We conduct our clients' order and payment
processing, warehousing, inventory management, picking, packing, shipping
and returns processing activities. Through these services we distribute
our clients' products to their customers efficiently and cost
effectively.
We believe that the breadth of our services and our ability to integrate
these services for our clients are competitive advantages for our company. These
solutions help our clients to market their products more effectively and enhance
customer loyalty by providing a high level of service at the point of initial
customer contact and throughout the customer relationship. Moreover, we collect
valuable information at each point of contact with our clients' customers and
analyze this data using our proprietary database technology. This analysis
provides us insight into customer buying patterns, product design preferences,
specific customer support requirements and demographic data. Our clients can use
this information to better design their marketing programs, develop their
products, improve the effectiveness of their Web sites and further enhance their
customers' satisfaction. Our range of services assist our clients in acquiring
and retaining customers and in maximizing the profitability of customer
relationships.
Our clients include e-commerce companies and established companies seeking
to expand or develop their Internet operations. Our services are designed to
accommodate the requirements of e-commerce and are made available to our clients
24 hours a day, seven days a week, in 11 languages through 33 facilities located
in 10 countries.
OUR OPPORTUNITY
The Internet is rapidly becoming a powerful communications medium, creating
opportunities for both emerging e-commerce and other companies to bypass
traditional marketing and distribution channels and to serve customers in ways
not previously possible. According to International Data Corporation, or IDC,
the number of Internet users is expected to increase from approximately 142
million in 1998 to approximately 500 million by 2003. IDC further predicts that
the amount of worldwide business-to-business and business-to-consumer commerce
conducted over the Web will increase from approximately $50 billion in 1998 to
approximately $1.3 trillion in 2003. The United States has been the primary
country driving the development of the Internet and is one of the most advanced
countries in the acceptance of e-commerce. However, IDC predicts that over the
next several years Western Europe will experience substantial Internet growth,
with e-commerce spending estimated to increase from approximately $5.6 billion
in 1998 to approximately $430 billion in 2002.
We believe that, to date, companies have directed most of their
Internet-related investments to creating online storefronts and to advertising
with the objective of creating brand awareness and achieving market leadership.
As e-commerce evolves, we believe companies will need to focus on acquiring
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customers more efficiently and converting Web site visits into lasting and
profitable customer relationships. To do so, and as part of developing
successful e-commerce strategies, we believe that companies must establish
sophisticated customer relationship management capabilities to:
- develop and execute effective marketing analysis and programs;
- develop facilities and an operational infrastructure that can satisfy
rapidly increasing volume requirements;
- accept and process customer orders and inquiries 24 hours a day, seven
days a week;
- efficiently and courteously respond to customer inquiries by e-mail,
online chat, fax or phone;
- execute billing and payment functions such as secure credit card
processing, sales and other tax calculations, data verification and fraud
detection;
- pick, pack and ship customer orders promptly and accurately; and
- process product returns and customer refunds.
We believe that a large number of e-commerce companies are either failing
to perform customer relationship management functions adequately or are failing
to integrate these functions to create a viable customer relationship management
program. For example, Jupiter Communications estimated that, as of September
1999, 44% of e-commerce Web sites lacked real-time integrated call center
support, 46% lacked real-time integrated inventory management systems and 41%
lacked real-time integrated fulfillment systems. In the fourth quarter of 1999,
high order volume, combined with insufficient customer service support and
product fulfillment capabilities, resulted in a number of e-commerce companies
being unable to meet delivery deadlines, provide responsive customer service or
maintain satisfactory inventory levels.
Faced with the growing cost and operational complexities of developing
comprehensive customer relationship management services, many e-commerce
companies are seeking to outsource these critical business functions. According
to Forrester Research, U.S. corporate spending on outsourced e-commerce
services, including Internet strategy, marketing, design and technical
implementation, is expected to increase from $10.6 billion in 1999 to $64.8
billion in 2003. By outsourcing critical business functions, companies can
establish their e-commerce businesses with reduced upfront expenses, gain a
considerable time to market advantage and access marketing, customer contact and
fulfillment services capable of expanding as their businesses grow.
OUR COMPETITIVE ADVANTAGE
We believe the following attributes of our customer relationship management
services position us to take advantage of this opportunity:
Integrated Service Offerings. We are able to integrate and customize
our marketing, customer contact management and fulfillment services for our
clients, allowing them to manage the interaction with their customers
through a single service provider. We accomplish this integration by
combining our proprietary business processes with both proprietary and
licensed technology and by serving clients through process teams composed
of professionals from each of our three service areas. We have designed
this approach to ensure that we incorporate the necessary services into the
design and implementation of every client program. The integration of our
services allows us to collect data at each point of customer contact and
store this data in a unified database which both our clients and our
employees can access.
By taking advantage of our integrated services, our clients do not
need to expend significant management time and capital resources to
coordinate these services from multiple providers or to design, build and
manage in-house customer relationship management capabilities. During 1999,
we generated a majority of our revenues from clients for whom we performed
more than one of our customer relationship management services.
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Technology and Systems. We have designed our technology and systems to
interface seamlessly with our clients' information systems. We have also
designed our technology and systems to support the rapid deployment of our
integrated service offerings to a growing client base located in diverse
geographical areas and to change the level and combination of services in
response to the evolving needs of our clients. Our proprietary database
technology provides a flexible system for tracking relationships between a
customer and the factors that affect its buying decisions.
Business Processes. We operate under a set of formalized internal
processes and disciplines developed to enable us to expand our business
globally and maintain a consistently high level of service across the
markets that we serve. Our processes measure performance levels to promote
the satisfaction of our clients, their customers and our employees.
International Presence. We have 33 service facilities located
throughout North America and Europe. Nineteen of our North American
facilities are in the United States and one is in Canada. Four of our
international facilities are in Germany, three facilities are in the United
Kingdom and one facility is in each of Austria, France, Ireland, the
Netherlands, Norway and Switzerland. Our U.S. and Canadian facilities share
a common technology infrastructure and customer information database. We
are in the process of converting our international facilities to share
these common systems and database. We have the ability to communicate with
our clients' customers in 11 languages. We believe our geographic presence
positions us to service companies that desire consistent, high quality
customer relationship management services in North America and Europe.
OUR STRATEGY
Our objective is to be the leading global provider of integrated customer
relationship management services. To achieve this objective, we plan to:
Capitalize on the Rapid Growth of the Internet. We have designed our
business processes, systems and infrastructure to expand and adapt with the
rapid growth of Internet access, usage and commerce. We will continue to
invest in the expansion of our operations in order to profitably manage
anticipated demand while maintaining our high quality services.
Extend Our Global Presence. The U.S. has been a leader in Internet
usage; however, according to IDC, Europe, Asia, and Latin America are
projected to have higher user growth rates over the next three years. We
plan to position our company to serve clients across these regions. We are
increasing the size and number of our facilities in Europe so that we can
continue to assist U.S. companies expand their e-commerce activities
abroad, as well as to continue to serve and grow our European client base.
We have recently agreed with one of our existing U.S. clients to provide
our services for them in France and Germany and in the Pacific Rim, a
region in which we do not currently conduct operations. We will also assist
non-U.S. companies to compete in North America.
Expand Our Relationships with Existing Clients. We believe that
existing clients will represent a large portion of our anticipated growth.
As our existing clients grow in size and expand into new geographic
regions, we expect them to require more of the current services we provide
them. We plan to work with our clients to anticipate their growth
requirements and to position our company to increase our services to timely
meet those requirements. Also, we plan to continue our marketing efforts to
clients who are not utilizing our full suite of services in order to expand
the range of services they are currently using.
Attract New E-Commerce Clients. We will continue to direct our sales
and marketing efforts toward companies developing Internet-based
strategies, whether they are emerging e-commerce or established companies.
We will offer these companies our integrated services so they can increase
speed to market, reduce capital outlays and improve the quality of services
delivered to their customers.
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Enhance Our Service Offerings. We will enhance our integrated customer
relationship management offering by selectively expanding the services we
provide to our clients. These services may include consulting services
related to the implementation and execution of Web-based strategies.
OUR SERVICES
Marketing Services
Our marketing services are part of our complete customer relationship
management offerings and are built around our proprietary software. We focus our
marketing services on the following key objectives of our clients:
- acquiring new customers cost effectively;
- identifying the most desirable customers;
- encouraging customer loyalty; and
- increasing the profitability of customer relationships.
We can integrate our marketing services with our fulfillment and customer
contact management services to facilitate data collection and increase the speed
at which we can implement new marketing programs.
We believe our customer relationship management software is valuable to our
clients because it allows us to track the numerous evolving relationships
between our clients' customers and the factors that affect their buying
decisions. The flexible nature of our data architecture allows us to update the
relationships we track without extensive reprogramming. We can then perform
sophisticated analyses to identify, among other things, the attributes of our
clients' most profitable customers and the factors that influence their buying
decisions. With this knowledge, we are better equipped to design marketing
programs to retain the most profitable customers and to attract new customers
with similar attributes. These programs often can be implemented quickly and
efficiently through the integration of marketing services with our fulfillment
and customer contact management services.
The Internet has made it possible for companies to develop a deeper
understanding of their customers; however, we believe traditional methods of
analyzing customer behavior generally do not make sufficient use of the
information available. Traditional methods are designed to track historical
transactions and lack the flexibility required to track evolving relationships.
For this reason, we believe our customer relationship management software is
particularly well suited to e-commerce. We have recently begun to implement our
relational database services and have not yet generated significant revenues
from these services. However, we expect that our marketing services, integrated
with our other service offerings, will benefit our clients as they develop or
expand their Internet-based operations.
We design our marketing services for each clients' particular needs
according to their stage of development, the sophistication of their systems,
and their particular competitive environments. Our specific services include:
- Customer acquisition programs, which include developing and analyzing
databases of prospective customer information, implementing customer
acquisition strategies and managing e-mail and direct mail list
strategies;
- Member-based communications, which include opt-in communication
strategies to enable customers to receive information and offers on
topics they are interested in; continuity programs, where a customer may
enroll to receive products or services at periodic intervals; and loyalty
programs, where customers are rewarded for their continued patronage in
the form of discounts or other valuable goods and services; and
- Building relationship management infrastructure, which includes designing
and building core marketing databases, integrating them into our clients'
operations and performing sophisticated statistical analyses.
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For the year ended December 31, 1999, we derived approximately 6.9% of our
revenues from marketing services.
Customer Contact Management Services
We have designed our customer contact management services to foster lasting
and profitable relationships between our clients and their customers. We
communicate with customers over a variety of channels, including e-mail, online
chat, fax, phone and mail, and coordinate these communications through a unified
database that our clients and our employees can access. We feel this
coordination of communication channels allows us to more effectively respond to
customer inquiries and needs.
We offer customer service, technical support, order processing, payment
processing, and marketing program response processing through a network of 24
customer contact centers in the U.S., Canada and Europe. Through these centers,
we responded to an average of 125,000 customer inquiries each day during
December 1999. In 1999, approximately 86% of our customer contact was conducted
by telephone and in December 1999 approximately 82% of our customer contact was
conducted by telephone. While we expect that voice-based communications will
continue to be an important channel for customer contact management services, we
believe that electronic communications channels will become increasingly
important in our contact with customers. In 1999, we responded to approximately
1 million e-mails.
Our customer contact management employees receive both initial and ongoing
training to provide troubleshooting assistance and information on products,
services and customer orders. We also provide multiple back-end services
including real-time credit card validation and secure processing, tax
calculations, address verification, fraud detection, return authorizations and
customer credits.
For the year ended December 31, 1999, we derived approximately 73.7% of our
revenues from customer contact management services.
Fulfillment Services
Our fulfillment services provide the means by which the products sold by
our clients reach their customers. We provide these services through two
fulfillment centers in the United States and four fulfillment centers in Europe.
We receive client inventory in our fulfillment centers, verify shipment
accuracy, unpack, inspect for damage and stock for shipment. We manage our
clients' inventory by auditing and forecasting inventory levels and identifying
obsolete or damaged inventory. While we maintain and manage inventory on behalf
of our clients, we typically do not take ownership of inventory.
On behalf of our clients, we pick, pack, label and ship their customer
orders and can provide customized packaging, gift wrapping, inserts and
promotional literature for distribution with customer orders. Based upon our
clients' needs, we use a variety of shipping and delivery options, including
next day service. In addition, we offer product return services for our clients,
including receiving and disposing of returned products.
For the year ended December 31, 1999, we derived approximately 19.4% of our
revenues from fulfillment services.
CUSTOMER OPERATIONS PERFORMANCE CENTER CERTIFICATION
We believe our COPC certifications are a competitive advantage in
attracting clients. Customer Operations Performance Center, Inc., or COPC, is an
internationally recognized organization providing certification for outsourced
services and facilities performing these services.
The COPC standard for certification is a comprehensive operations
performance standard that specifies operational measurements of 32 critical
function areas. The COPC standard requires third party customer service
providers to measure both end-user and outsourcer satisfaction, but it does not
define a minimum level of satisfaction (e.g., 95% satisfied) third party
customer service providers must obtain. The
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COPC standard was developed in 1996 by individuals from Microsoft, Novell, Dell,
Compaq, American Express, L.L. Bean and other customer-focused companies
concerned with the level of service quality provided to customers by third party
customer service providers. We are unaware of any other certifications
applicable to third party customer service providers. You can also find more
information about COPC on their Web site at www.copc.com. Information contained
on COPC's Web site does not constitute a part of this prospectus and is not
incorporated by reference in this prospectus.
In 1999, COPC recertified our facilities in Buffalo, New York; Columbus,
Ohio and Las Vegas, Nevada and granted conditional certification to our
facilities in Dublin, Ireland and Toronto, Ontario. In addition, we have applied
for certification of our Watford, England facility and will apply for
certification of our Albuquerque, New Mexico; Oak Ridge, Tennessee; Davie,
Florida; and Dover, Delaware facilities this year and our Paris, France; Almelo,
Netherlands; Exeter, England; and Huntington, West Virginia facilities in 2001.
To date, none of our facilities that have applied for COPC certification have
failed to obtain certification.
OUR CLIENTS
We direct substantially all of our sales and marketing efforts towards
e-commerce companies and companies seeking to increase their Internet
operations. We target clients who plan to grow globally, understand the
importance of an integrated service offering that is designed to expand with
their business and demonstrate the potential for a long term relationship with
us. Our clients include leading software providers, Internet service providers,
Internet-based retailers, computer and peripheral original equipment
manufacturers and online investment brokerages. A majority of our 1999 revenues
were derived from e-commerce and technology companies. For the year ended
December 31, 1999 our ten largest clients contributed approximately 44.1% of our
revenue and our largest client contributed approximately 9.9% of our revenue.
SALES AND MARKETING
We use a variety of sales channels to market our services to companies
pursuing Internet-based strategies. We currently employ a direct sales force of
32 sales representatives who cover individual clients in North America and
Europe. We maintain close contact with our clients through 17 regional sales
offices across North America and eight countries in Europe. In addition to our
direct sales effort, we also promote our company through relationships with web
developers, systems integrators and other business process outsourcing
companies.
We conduct a comprehensive marketing program to support our sales efforts
and to actively promote the ClientLogic brand. We participate in a variety of
Internet, marketing, customer relationship management and financial industry
conferences and encourage our officers and employees to pursue speaking
engagements at these conferences. In addition, we host an annual customer
relationship management conference for current and prospective clients.
TECHNOLOGY
Our information technology systems are an important part of our ability to
provide high quality customer relationship management services. We have designed
our systems to improve our clients' speed to market, the consistency of our
services and the reliability of our systems and to scale cost effectively, as
follows:
- Speed to market. We use common business applications, meaning that
computer code written once can be used repeatedly for multiple
applications and across multiple communications channels. This improves
our clients' speed to market by reducing the time we spend in designing
new and adjusting our existing customer relationship management services.
- Consistent levels of service. By using databases that are shared among
our North American fulfillment, customer contact and marketing services
systems, we are able to track all contacts in
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real time. We are in the process of enabling our international facilities
to share these common databases.
- Systems reliability. The reliability of our systems is achieved by using
industry standard hardware and software in addition to a series of
redundant design features.
- Scalability. Our technology systems are designed to be expandable,
allowing us to cost effectively increase our computing power to meet the
growing needs of our clients.
We use licensed software for our contact management, inventory management,
warehouse management and e-mail management and our proprietary software for
order management and marketing services applications.
We deploy industry standard hardware and an open architecture that includes
Windows NT for our desktops, Hewlett-Packard/HP UX and Sun Microsystems/Solaris
for our servers, Oracle, Informix, and SQL Server for our databases and a frame
relay network to connect facilities and data centers.
We currently have five data centers, each of which has redundant power
sources, uninterruptable power systems and security over access to our systems
and facilities. Each data center also has access to all of the software
applications used across all of our service offerings, providing for both
redundancy and increases in capacity. We manage our technology infrastructure
from centralized operating centers that are manned by skilled technicians 24
hours a day, seven days a week.
As of December 31, 1999, we employed 225 employees in our technical
services organization. We plan to increase our technical services organization
by up to an additional 60 employees by the end of 2000.
COMPETITION
We operate in an industry characterized by intense competition. Many of our
competitors offer one or more of the same services we provide. However, we are
unaware of any other company which provides comprehensive integrated customer
relationship management services allowing clients to outsource their marketing,
customer contact and fulfillment functions to a single provider.
Primary competitors for our marketing services include Acxiom, Doubleclick,
E.piphany and Harte-Hanks. With respect to our marketing services, we compete on
the basis of:
- quality and comprehensiveness of the information provided;
- flexibility to assemble and analyze information based on numerous
factors;
- ability to prepare customized reports in understandable and useful
formats; and
- capability to process analyses in a timely manner.
Primary competitors for our customer contact management services include
ASD Systems, OrderTrust, PFSweb, Startek and Sykes Enterprises. With respect to
our customer contact management services, we compete on the basis of:
- ability to provide efficient and reliable 24-hour customer
communications;
- quality of customer service;
- quality of information technology;
- capability to hire and train employees to meet cyclical and growth
demand; and
- quality of back-end services such as payment processing and verification,
reporting, and product return management.
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Primary competitors for our fulfillment services include ASD Systems,
Fingerhut, OrderTrust and PFSweb. With respect to our fulfillment services, we
compete on the basis of:
- the ability to coordinate manufacturers, transportation providers and
other suppliers;
- inventory management;
- number, location and reach of fulfillment centers; and
- flexibility to meet seasonal and other changes in demand for products.
We believe that we presently compete favorably with respect to each of the
services we provide, as well as with respect to other general factors such as
pricing. However, the market for our services is still changing and we expect to
face further competition from new market entrants and consolidation from
existing providers in the future, some of which may have greater resources or
may offer more diverse services than us.
FACILITIES
We currently operate 24 customer contact management centers, six
fulfillment centers, six marketing centers and five administration centers in
the United States, Canada, Austria, the United Kingdom, France, Germany,
Ireland, The Netherlands, Norway and Switzerland. We offer multiple services at
three of these facilities. Our facilities cover approximately 1.56 million
square feet, of which our fulfillment centers represent approximately 763,730
square feet and our customer contact management centers represent approximately
699,091 square feet. We lease all of our facilities and we believe our
facilities and equipment are in good condition and are well maintained. Our
employees at these locations are able to communicate with clients and their
customers in 11 languages. Our worldwide headquarters are located in Nashville,
Tennessee.
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Set forth below is the location, principal function and size for our
principal facilities as of December 31, 1999:
<TABLE>
<CAPTION>
AGGREGATE
LOCATION PRINCIPAL FUNCTION SQUARE FT.
- -------- ------------------ ----------
<S> <C> <C>
U.S.
Albuquerque, NM......................... Customer Contact 57,478
Buffalo, NY............................. Customer Contact 138,678
Clifton, NJ............................. Customer Contact 78,645
Columbus, OH............................ Fulfillment 202,496
Denver, CO.............................. Marketing 13,168
Dover, DE............................... Customer Contact and Fulfillment 472,472
Huntington, WV.......................... Customer Contact 33,000
Las Vegas, NV........................... Customer Contact 50,536
Nashville, TN........................... Corporate Headquarters 19,453
Oak Ridge, TN........................... Customer Contact 50,000
Weehawken, NJ........................... Marketing 18,113
CANADA
Toronto, ON............................. Customer Contact 43,404
EUROPE
Salzburg, Austria....................... Customer Contact 7,191
Paris, France........................... Customer Contact 24,854
Duisburg, Germany....................... Customer Contact 13,724
Dusseldorf, Germany..................... Customer Contact 11,520
Dublin, Ireland......................... Customer Contact and Fulfillment 49,500
Almelo, Netherlands..................... Customer Contact and Fulfillment 142,085
Oslo, Norway............................ Customer Contact 12,583
Exeter, United Kingdom.................. Customer Contact and Fulfillment 59,486
Watford, United Kingdom................. Customer Contact 10,000
</TABLE>
In addition to the facilities listed above, at December 31, 1999, we
maintained additional facilities in Dallas, Texas; Davie, Florida; Fairlawn, New
Jersey; Katonah, New York; Concord, California; Doylestown, Pennsylvania;
Oberhausen, Germany; Nordhorn, Germany, The Hague, Netherlands and St. Gallen,
Switzerland. We also have several small sales and marketing offices located
throughout North America and Europe, all of which are leased.
EMPLOYEES
As of December 31, 1999, we employed approximately 7,129 people, which
include 5,489 customer support personnel at our customer contact centers, 286
fulfillment personnel at our fulfillment centers and 213 marketing services
personnel. We have 5,477 full-time and 1,652 part-time and temporary personnel.
We have approximately 5,616 employees in North America and 1,513 employees in
Europe. None of our employees is subject to a collective bargaining agreement.
We consider our relations with our employees to be good.
GOVERNMENT REGULATION AND LEGAL ENVIRONMENT
General. There are an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, user privacy, taxation and quality of products and services. Moreover,
whether existing laws governing issues such as intellectual property ownership
and infringement, copyright, trademark, trade secret, employment and personal
privacy are applicable to the Internet is uncertain and developing. Any new
legislation or regulation, or the
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application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition.
Privacy Concerns. The United States Federal Trade Commission, or FTC, is
considering adopting regulations regarding the collection and use of personal
identifying information obtained from individuals when accessing Web sites, with
particular emphasis on access by minors. These regulations may include
requirements that companies establish procedures to, among other things:
- give adequate notice to consumers regarding information collection and
disclosure practices;
- provide consumers with the ability to have personal identifying
information deleted from a company's database;
- provide consumers with access to their personal information and with the
ability to rectify inaccurate information;
- clearly identify affiliations or a lack of affiliations with third
parties that may collect information or sponsor activities on a company's
Web site; and
- obtain express parental consent prior to collecting and using personal
identifying information obtained about children under 13 years of age.
In addition, Representative Bruce Vento, of the United States House of
Representatives, has introduced legislation that would:
- prohibit an interactive computer service from disclosing to a third party
any personal identifying information provided by a subscriber without the
subscriber's consent;
- prohibit an interactive computer service from knowingly disclosing to a
third party any personal identifying information provided by a subscriber
that the interactive computer service has knowingly falsified;
- require, at a subscriber's request, an interactive computer service to:
(1) provide the subscriber's personal identifying information maintained
by the service and (2) permit the subscriber to verify and correct the
information and prohibits charging a fee for the correction of the
information;
- grant the FTC the authority to: (1) investigate whether a service has
been or is engaged in any act or practice prohibited by this legislation
and (2) if so, issue a cease and desist order if an interactive computer
service were in violation of specified provisions of the Federal Trade
Commission Act; and
- grant subscribers aggrieved by a violation of this legislation a right to
obtain relief in a civil action.
Our business model is in part based upon our ability to obtain information
about consumers and to use this information for our marketing services. If new
laws or regulations are adopted that limit or eliminate our ability to use this
information, our business, results of operations and financial condition could
be materially adversely affected. Even in the absence of new legislation or
regulations, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. The FTC's regulatory and
enforcement efforts alone may adversely affect the ability to collect
demographic and personal information, which similarly could have an adverse
effect on our ability to provide our marketing services.
It is also possible that "cookies," or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become subject to laws
limiting or prohibiting their use. A number of Internet commentators, advocates
and governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of our use of cookies could limit the effectiveness of our data
collection
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<PAGE> 54
processes, which could have a material adverse effect on our business, results
of operations and financial condition.
The European Union has adopted a directive that imposes restrictions on the
collection, storage, transfer and use of personal data. Under the directive, EU
citizens are guaranteed rights to access their data, rights to know where the
data originated, rights to have inaccurate data rectified, rights to recourse in
the event of unlawful processing and rights to withhold permission to use their
data for direct marketing. The directive could, among other things, affect our
ability to collect information over the Internet from individuals in EU member
countries, and may impose restrictions that are more stringent than current
Internet privacy standard in the United States. In particular, our facilities
located in EU countries will not be allowed to send personal information to
countries that do not maintain adequate standards of privacy. The directive does
not, however, define what standards of privacy are adequate. As a result, the
directive may adversely affect our activities because we engage in data
collection from users in EU member countries.
Internet Taxation. A number of legislative proposals have been made at the
United States federal, state and local level, and by certain European
governments, that would impose additional taxes on the sale of goods and
services over the Internet and certain states have taken measures to tax
Internet-related activities. Although the United States Congress recently placed
a three-year moratorium on state and local taxes on Internet access and
discriminatory taxes on electronic commerce, existing state or local laws were
expressly excepted from this moratorium. Further, once this moratorium is
lifted, some type of federal and/or state taxes may be imposed upon Internet
commerce. This legislation, or other attempts at regulating commerce over the
Internet, may substantially impede the growth of commerce on the Internet and,
as a result, materially adversely affect our opportunity to derive financial
benefit from those activities.
LEGAL MATTERS
From time to time we may be involved in litigation arising in the normal
course of our business operations. As of the date of this prospectus, we are not
a party to any litigation we believe could reasonably be expected to have a
material adverse effect on our business or results of operations.
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<PAGE> 55
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning our current directors and
executive officers. The ages listed below are as of January 31, 2000.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Thomas O. Harbison....... 56 Chairman of the Board of Directors
Mark R. Briggs........... 43 President, Chief Executive Officer and Chief Operating
Officer, Director
Gene S. Morphis.......... 51 Chief Financial Officer and Secretary
Jules T. Kortenhorst..... 38 Chief of International Operations, Director
Joanne G. Biltekoff...... 51 Chief Administrative Officer
Julie M. Casteel......... 38 Chief Client Management Officer
Robert B. Fetter......... 43 Chief Marketing Officer
Steven M. Kawalick....... 48 General Counsel
Jeffrey J. Michel........ 52 Chief Technology Officer
Lee O. Waters............ 41 Chief Solution Delivery Officer
Thomas P. Dea............ 35 Director
Seth M. Mersky........... 40 Director
</TABLE>
Thomas O. Harbison has served as Chairman of the Board of ClientLogic since
June 1999. Mr. Harbison has served as a director of ClientLogic since September
1998 and served as our Chief Executive Officer from September 1998 through June
1999. Mr. Harbison also serves as the Managing Director of Onex Service
Partners. Before joining ClientLogic, Mr. Harbison served as President of
CustomerSolutions, a division of Electronic Data Systems, from November 1996
through February 1998. From September 1995 to October 1996, Mr. Harbison served
as President of EDS' Media Strategic Business unit. In addition, Mr. Harbison
served as a director and as Chief Executive Officer of Neodata Corporation, of
which Mr. Harbison was a founder, from February 1983 through June 1993.
Mark R. Briggs has served as Chief Executive Officer of ClientLogic since
June 1999. Mr. Briggs has been a director of ClientLogic since September 1998
and has served as President and Chief Operating Officer of ClientLogic since
September 1998. Mr. Briggs served as President and Chief Executive Officer of
SOFTBANK Services Group from January 1997 to September 1998 when ClientLogic
acquired SOFTBANK Services Group. Mr. Briggs also serves on the board of
directors of En Pointe Technologies, Inc., a national provider of information
technology products and services, and its Internet focused subsidiary,
FirstSource.com. From March 1990 through December 1996, Mr. Briggs held several
positions with Intelligent Electronics Inc., including Vice President, Chief
Financial Officer and President of Intelligent Electronics' Corporate Service
and Franchise Divisions and Chief Executive Officer of Intelligent Electronics'
Reseller Network Division.
Gene S. Morphis has served as Chief Financial Officer of ClientLogic since
August 1999 and served as Senior Vice President of ClientLogic from May 1999 to
August 1999. Before joining ClientLogic, Mr. Morphis served as Senior Vice
President and Chief Financial Officer of Modus Media International, Inc. from
December 1997 through April 1999. From April 1995 to December 1997, Mr. Morphis
served as Senior Vice President and Chief Financial Officer of Stream
International Inc. Prior to joining Stream International, Inc., Mr. Morphis
served as Executive Vice President and Chief Financial Officer of CVS
Corporation from 1992 to April 1995.
Jules T. Kortenhorst has served as a director and as Chief of International
Operations of ClientLogic since October 1999, when ClientLogic acquired Cordena.
Mr. Kortenhorst served as President and Chief Executive Officer of Cordena from
November 1997 through October 1999. Prior to joining Cordena, Mr. Kortenhorst
served as Chief Operating Officer of Staff Leasing L.P. from August 1994 through
July 1996. From 1986 to 1994, Mr. Kortenhorst was employed by Royal Dutch Shell
in various international
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<PAGE> 56
positions. Mr. Kortenhorst has served as the Chairman of the Board of Panta
Electronics S.A.R.L. since January 1998. Mr. Kortenhorst also serves as a
director of the American University, a nonprofit corporation with locations in
the U.S. and Bulgaria.
Joanne G. Biltekoff has served as ClientLogic's Chief Administrative
Officer since September 1998 and currently oversees ClientLogic's
administrative, facilities, quality initiatives and human resources departments.
Prior to joining ClientLogic, Ms. Biltekoff served as Executive Vice President
of Administration for SOFTBANK Services Group from August 1993 through September
1998 when ClientLogic acquired SOFTBANK Services Group. Prior to her employment
with SOFTBANK Services Group, Ms. Biltekoff served as Executive Vice President
of Elan, Inc.
Julie M. Casteel has served as ClientLogic's Chief Client Management
Officer since October 1998. Prior to joining ClientLogic, Ms. Casteel served as
Vice President of Strategic Sales for Centrobe, an Electronic Data Systems
company, from November 1997 through September 1998. From February 1991 through
October 1997, Ms. Casteel served as Vice President of Strategic Sales for
Neodata Corporation. Ms. Casteel has also been a board member of the Society of
Consumer Affairs Professionals since April 1997.
Robert A. Fetter has served as ClientLogic's Chief Marketing Officer since
April 1999. Prior to joining ClientLogic, Mr. Fetter served as President and
Chief Executive Officer of Prime Response Americas, a subsidiary of Prime
Response Group, Inc. from October 1997 through March 1999. From January 1995
through September 1997, Mr. Fetter served as President of dbINTELLECT
Technologies, a division of Electronic Data Systems.
Steven M. Kawalick has served as General Counsel of ClientLogic since
October 1998. Mr. Kawalick also served as Chief Financial Officer for
ClientLogic's European operations from November 1998 through July 1999 and as
General Counsel and Vice President - Special Projects of SOFTBANK Services Group
from April 1998 through September 1998. Prior to joining SOFTBANK Services
Group, Mr. Kawalick served as General Counsel of Intelligent Electronics from
April 1997 through January 1998. Mr. Kawalick also served as Corporate Counsel
and Assistant Secretary of Intelligent Electronics from September 1994 through
April 1997.
Jeffrey J. Michel has served as the Chief Technology Officer of ClientLogic
since June 1999. Prior to joining ClientLogic, Mr. Michel served as President of
AIMS, the outsourcing unit of Alliance Data Systems, Inc. from August 1998
through May 1999. Mr. Michel served as Chief Information Officer of Alliance
Data Systems from April 1996 through July 1998. Mr. Michel also served as Chief
Information Officer of Electronic Payment Service, Inc. from September 1993
through February 1996.
Lee O. Waters joined ClientLogic in October 1998 as ClientLogic's Chief
Solution Delivery Officer. Prior to joining ClientLogic, Mr. Waters served as
Executive Vice President of SOFTBANK Services Group from September 1997 to
September 1998 where he was responsible for all client process teams. Prior to
that time, Mr. Waters served as Executive Vice President of the Inbound
Teleservices Division of West Teleservices Corporation from 1994 through August
1997. Mr. Waters also served in a variety of sales management and administrative
positions at FedEx Corporation from 1985 through 1994 where he last held the
position of Regional Manager in FedEx Logistics Services.
Thomas P. Dea has served as a director of ClientLogic since September 1998
and was a director of our predecessor company, North Direct Response, Inc., from
April 1998 until September 1998. Mr. Dea served as Secretary of ClientLogic from
September 1998 through April 1999 and served as Vice President of ClientLogic
from January 1999 through January 2000. Mr. Dea is also a Vice President of Onex
and a director of Lantic Sugar Limited. Mr. Dea was a Principal at Onex from
January 1997 through December 1999 and an Associate at Onex from June 1995
through December 1996. Prior to joining Onex, Mr. Dea worked as an Associate at
CIBC Wood Gundy Capital, now CIBC Capital Partners, from August 1993 to June
1995.
Seth M. Mersky has served as a director of ClientLogic since September
1998. Mr. Mersky served as Vice President of ClientLogic from December 1998 to
January 2000. Mr. Mersky also served as Chairman
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<PAGE> 57
of the Board of ClientLogic from September 1998 through June 1999. He was also
Chairman of the Board of our predecessor company, North Direct Response, Inc.,
from April 1998 until September 1998. Mr. Mersky has been a Vice President of
Onex since April 1997. He also serves as the Chairman of the Board of Rogers
Sugar Limited and Lantic Sugar Limited, positions he has held since September
1997. Prior to joining Onex, Mr. Mersky was a Senior Vice President of The Bank
of Nova Scotia from May 1993 to April 1997.
COMPOSITION OF OUR BOARD OF DIRECTORS
Our board of directors is divided into three classes serving staggered
terms. Directors in each class serve for three year terms. Each year, the
directors of one class will stand for election as their terms of office expire.
The Class I directors have terms of office expiring in 2001; the Class II
directors have terms of office expiring in 2002; and the Class III directors
have terms of office expiring in 2003.
We currently have five directors, including our Chairman of the Board. Our
board of directors is evaluating candidates to be elected as independent
directors. To be an independent director, an individual must satisfy the
qualifications specified by the NASD in its Marketplace Rules. Under these
rules, an independent director is a person other than an officer or employee of
our company or our subsidiaries or any other individual having a relationship
which, in the opinion of our board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. We anticipate that our board of directors will elect two independent
directors prior to or concurrently with the completion of this offering. The
independent directors will serve as a Class I directors. Thomas O. Harbison, our
Chairman of the Board, Mark R. Briggs and Jules T. Kortenhorst serve as our
Class II directors. Thomas P. Dea and Seth M. Mersky serve as our Class III
directors.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our board of directors has appointed an audit committee and a compensation
committee.
Audit Committee. The members of our audit committee are Messrs. Harbison,
Dea and Mersky. After this offering, the members of our audit committee will be
our two independent directors and . The functions of the audit
committee include:
- reviewing the adequacy of our system of internal accounting controls;
- reviewing the results of our independent accountant's annual audit;
- determining the duties and responsibilities of the internal audit staff;
- reviewing the scope and results of our internal auditing procedures;
- reviewing the audit reports submitted by both our independent accountants
and our internal audit staff; and
- annually recommending independent accountants.
Compensation Committee. The members of our compensation committee are
Messrs. Briggs, Harbison and Mersky. After this offering, the members of our
compensation committee will be our two independent directors and . The
functions of the compensation committee include:
- reviewing our general compensation strategy;
- reviewing and approving compensation for our executive officers;
- reviewing the terms of employment agreements for our executive officers;
and
- administering our compensation and benefit plans, including our stock
option plan and deferred compensation plan.
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<PAGE> 58
COMPENSATION OF DIRECTORS
We expect that our independent directors will receive an annual fee for
their services. We have not yet determined the amount of this fee. Other than
our independent directors, our directors do not receive compensation for their
services as directors. We reimburse all of our directors for their reasonable
out-of-pocket expenses in connection with their travel to and attendance at the
meetings of the board of directors or board committees.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table provides information
regarding the compensation paid in 1999 to our Chief Executive Officer and each
of our four other most highly compensated executive officers serving in that
capacity on December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------------------------
SECURITIES
BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) $(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- --------------------------- --------- ------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas O. Harbison...................... 360,000 -- -- 50,753(4)
Chairman of the Board of Directors and
former Chief Executive
Officer(3)
Mark R. Briggs.......................... 250,004 100,000(5) 1,001,282(6) 68,014(7)
President, Chief Executive Officer and
Chief Operating Officer
Gene S. Morphis......................... 242,307(9) 100,000 -- 66,667(10) 66,304(11)
Chief Financial Officer and
Secretary(8)
Joanne G. Biltekoff..................... 160,000 -- 40,000 677(12)
Chief Administrative Officer
Lee O. Waters........................... 207,077 -- 40,000 65,000(13)
Chief Solution Delivery Officer
</TABLE>
- ---------------
(1) Bonuses earned in 1999 will be paid in 2000. We have not yet determined the
amount of 1999 bonuses for our executive officers other than Mr. Morphis.
(2) Unless otherwise indicated, these figures reflect the number of shares of
Class A common stock that each named executive may acquire upon the
exercise of options granted under our stock option plan. See "-- Benefit
Plans -- Stock Option Plan."
(3) Mr. Harbison's salary for 1999 was paid by Onex Service Partners, an
affiliate of Onex, pursuant to his employment agreement with that
partnership. The employment agreement provides that Mr. Harbison will
receive an annual salary of $360,000 for his services to Onex Service
Partners, including serving as the Chief Executive Officer and as a
director or other executive officer of ClientLogic on behalf of Onex
Service Partners. Mr. Harbison served as our Chief Executive Officer from
September 1998 through June 1999 and has served as our Chairman of the
Board since June 1999.
(4) Represents a car allowance of $18,785 and life insurance premiums in the
amount of $31,968 paid by Onex Service Partners during 1999.
(5) Represents $100,000 of Mr. Briggs' base salary for 1999 which Mr. Briggs
elected to defer in accordance with our deferred compensation plan. Mr.
Briggs' employment agreement provides that Mr. Briggs may defer up to
$100,000 of his salary during each of the first two years of his employment
to purchase phantom stock units under our deferred compensation plan at a
price of $1.00 per unit. Therefore, Mr. Briggs acquired 100,000 phantom
stock units in 1999. Under our deferred compensation plan, each phantom
stock unit will become available for distribution upon the occurrence of
events specified in the deferred compensation plan. Upon distribution, each
phantom stock unit will be converted into cash in an amount equal to the
market value of one share of our Class A common stock at the time of
conversion or one share of Class A common stock, as
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<PAGE> 59
determined by our compensation committee. See "-- Benefit Plans -- Deferred
Compensation Plan." We expect that Mr. Briggs' phantom stock units will
become available for distribution upon the completion of this offering.
(6) Represents shares of Class A common stock that Mr. Briggs may acquire upon
the exercise of options granted by ClientLogic under our stock option plan.
(7) Includes $5,717 we paid to Mr. Briggs as reimbursement for expenses in
connection with Mr. Briggs' relocation to Nashville, Tennessee, $60,000 of
life insurance premiums we paid on Mr. Briggs' behalf and $2,297 of
matching amounts we contributed to our 401(k) plan.
(8) Mr. Morphis commenced his employment with ClientLogic in April 1999.
(9) From April through September of 1999, Mr. Morphis was paid $184,615 by Onex
Service Partners for his services to ClientLogic. From October through
December of 1999, Mr. Morphis was paid $57,692 by our company.
(10) Represents the number of shares of Class A common stock that Mr. Morphis
may acquire upon the exercise of an option granted under a contingent
securities purchase agreement between Mr. Morphis and ClientLogic. See
"-- Employment Agreements -- Gene S. Morphis Employment Agreement".
(11) Represents reimbursement for expenses in connection with Mr. Morphis'
relocation to Nashville, Tennessee.
(12) Represents $677 of matching amounts we contributed to our 401(k) plan.
(13) Represents reimbursement for expenses in connection with Mr. Waters'
relocation to Nashville, Tennessee.
OPTION GRANTS DURING 1999. The following table summarizes option grants
made with respect to our common stock during 1999 to the executive officers
named in the summary compensation table above:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF ASSUMED ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(2)
UNDERLYING EMPLOYEES IN PRICE ------------------------------
OPTIONS(1) 1999 ($/SHARE) EXPIRATION DATE 5%($) 10%($)
------------- --------------- --------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Harbison... -- -- -- -- -- --
Mark R. Briggs....... 583,333(3) 14.94 1.20 January 27, 2009 440,226 1,115,619
2,868(3) 0.07 1.50 March 19, 2009 2,706 6,856
347,081(3) 8.89 2.25 October 7, 2009 491,124 1,244,605
68,000(3) 1.74 5.00 December 6, 2009 213,824 541,872
Gene S. Morphis...... 66,667(4) 1.71 1.50 June 1, 2000 62,890 159,375
Joanne G.
Biltekoff.......... 40,000 1.02 3.50 November 22, 2009 88,045 223,124
Lee O. Waters........ 40,000 1.02 3.50 November 22, 2009 88,045 223,124
</TABLE>
- ---------------
(1) Unless otherwise indicated, these figures reflect the number of shares of
Class A common stock that each named executive may acquire upon the exercise
of options granted under our stock option plan. See " -- Benefit
Plans -- Stock Option Plan." Unless otherwise indicated, options granted
under our stock option plan vest at a rate of 25% over 4 years.
(2) Amounts represent hypothetical gains that could be achieved for the listed
options if exercised immediately prior to the expiration date. The 5% and
10% assumed annual rates of compounded stock price appreciation are required
by rules of the Commission and do not represent our estimates or projections
of the future prices of our Class A common stock. These amounts represent
assumed rates of appreciation in the value of our Class A common stock from
the deemed fair market value for accounting purposes on the date of grant.
Actual gains, if any, over stock option exercise prices are dependent on the
future performance of our Class A common stock and overall stock market
conditions. The potential values reflected in this table may not be
achieved. All amounts have been rounded to the nearest whole dollar.
(3) Represents an aggregate of 1,001,282 shares of Class A common stock that Mr.
Briggs may acquire upon the exercise of options granted under our stock
option plan. These options vest 25% on the
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<PAGE> 60
second anniversary of the date of grant and 75% on the third anniversary of
the date of grant. However, the vesting of these options will accelerate
upon the completion of this offering. These options are not exercisable
unless and until Onex realizes a 15% compounded annual internal rate of
return on its equity investment in our company, after expenses.
(4) Represents the number of shares of Class A common stock that Mr. Morphis may
acquire upon the exercise of an option granted by ClientLogic under Mr.
Morphis' contingent securities purchase agreement. These options will vest
and become exercisable upon payment of Mr. Morphis' 1999 bonus. As of the
date of this prospectus, we have not yet paid Mr. Morphis' 1999 bonus. See
"-- Employment Agreements -- Gene S. Morphis Employment Agreement."
OPTION EXERCISES DURING 1999 AND YEAR END OPTION VALUES. The following
table sets forth information about the number and value of unexercised options
held at December 31, 1999 by each of our executive officers named in the summary
compensation table above. None of these executive officers exercised options
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark R. Briggs(2)........................... -- 2,301,282 -- 19,887,586
Thomas O. Harbison.......................... -- -- -- --
Gene S. Morphis(3).......................... -- 66,667 -- 566,670
Joanne G. Biltekoff......................... 45,000 175,000 382,500 1,407,500
Lee O. Waters............................... 45,000 175,000 382,500 1,407,500
</TABLE>
- ---------------
(1) Based upon an assumed value of $10.00 per share, the midpoint of the initial
public offering price range.
(2) These options will vest upon the completion of this offering but are not
exercisable until Onex realizes a 15% compounded annual internal rate of
return on its equity investment in our company, after expenses.
(3) Represents the number of shares of Class A common stock that Mr. Morphis may
acquire upon the exercise of an option granted by ClientLogic under Mr.
Morphis' contingent securities purchase agreement. These options will vest
and become exercisable upon payment of Mr. Morphis' 1999 bonus. As of the
date of this prospectus, we have not yet paid Mr. Morphis' 1999 bonus. See
"-- Employment Agreements -- Gene S. Morphis Employment Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors created our compensation committee in August 1999.
Prior to the creation of the compensation committee, compensation decisions were
made by the entire board of directors of ClientLogic. Messrs. Briggs and
Harbison each served as both an executive officer and a director between January
and August 1999 and, during such time, participated in deliberations of the
board of directors concerning compensation of executive officers. However, Mr.
Harbison's salary is paid by Onex Service Partners and not by our company. In
addition, neither Mr. Mersky nor Mr. Dea has received any compensation from our
company for their services as executive officers.
From the time of the creation of our compensation committee in August 1999
to the end of our 1999 fiscal year, Messrs. Harbison, Briggs and Mersky were the
members of the compensation committee. Mr. Harbison has served as our Chairman
of the Board since June 1999 and served as our Chief Executive Officer from
September 1998 to June 1999. Mr. Briggs has served as our Chief Executive
Officer since June 1999 and has served as our President and Chief Operating
Officer since September 1998. Mr. Mersky served as a Vice President of our
company from December 1998 to January 2000 and served as our Chairman of the
Board from September 1998 to June 1999. Mr. Mersky received no compensation from
our company for his services as Vice President or Chairman of the Board.
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<PAGE> 61
Messrs. Harbison, Dea and Mersky are affiliates of Onex Service Partners
which is a party to a Monitoring and Oversight Agreement and a Financial
Advisory Agreement with our company pursuant to which we pay fees to Onex
Service Partners in exchange for management, financial and other advisory
services. See "Certain Relationships and Related Party
Transactions -- Monitoring and Oversight Agreement" and "-- Financial Advisory
Agreement." In addition, each of Messrs. Harbison, Briggs, Dea and Mersky is a
party to an indemnification agreement with our company with respect to his
service as a director of our company. See "Certain Relationships and Related
Party Transactions -- Director Indemnity Agreements."
No executive officer of our company serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of our board of directors or compensation committee.
EMPLOYMENT AGREEMENTS
Thomas O. Harbison Employment Agreement with Onex Service Partners
On August 13, 1998, Onex Service Partners entered into an employment
agreement with Mr. Harbison. Onex Service Partners is a general partnership
whose general partners are OMI Partnership Holdings Ltd., an affiliate of Onex,
and the Harbison Family Limited Partnership. Mr. Harbison's employment agreement
provides that, in addition to his services to Onex Service Partners, Mr.
Harbison shall serve, on Onex Service Partner's behalf, as the Chief Executive
Officer or as a director or other executive officer of our company. Mr. Harbison
served as our Chief Executive Officer from September 1998 through June 1999 and
has served as our Chairman of the Board since June 1999.
The employment agreement has an initial term of two years from the date of
the agreement and extends automatically for one year terms unless terminated by
Onex Service Partners or Mr. Harbison by three months notice prior to the end of
the initial term or any subsequent one-year term.
The employment agreement provides that Mr. Harbison shall receive an annual
base salary of $360,000, which may be increased, but not decreased, after the
first year as determined by the general partner of Onex Service Partners. The
employment agreement does not specifically provide for a bonus for Mr. Harbison,
but the partnership has discretion to pay Mr. Harbison a bonus based on his
contribution to the partnership and any other criteria which the partnership
considers relevant. The employment agreement also provides that Mr. Harbison is
entitled to a car allowance of $1,500 per month, payment of life insurance
premiums of $30,000 per year and to benefits typically provided to senior
executives in our industry. Our company is not the beneficiary under Mr.
Harbison's life insurance policy.
The employment agreement also provides that if Mr. Harbison's employment is
terminated for cause or due to his disability, Mr. Harbison will receive his
base salary through the date of termination. The employment agreement terminates
on Mr. Harbison's death and his legal representatives shall be entitled to
receive Mr. Harbison's base salary for 45 days after his death. If he is
terminated for any reason other than for cause or disability, Mr. Harbison will
be entitled to receive his base salary for the remaining term of the agreement.
Mark R. Briggs Employment Agreement
We have entered into an employment agreement with Mr. Briggs which we have
agreed to amend and restate prior to completion of this offering. This agreement
will provide that Mr. Briggs will serve as our President and Chief Executive
Officer through December 31, 2001, unless terminated earlier as provided in his
employment agreement. The amended and restated agreement will also include the
provisions described below.
The compensation provided to Mr. Briggs under his employment agreement
includes an annual base salary of $350,000, subject to upward adjustment at the
sole discretion of our board of directors. In addition, Mr. Briggs is entitled
to the same benefits as are generally provided to our senior executives as long
as Mr. Briggs' employment agreement is in force. The employment agreement
provides that the board
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<PAGE> 62
of directors will determine Mr. Briggs' bonus for the year ended December 31,
1999 based upon whether we achieve specific levels of earnings before interest,
income taxes, depreciation and amortization. For periods after 1999, the board
of directors is required to establish bonus targets for Mr. Briggs consistent
with industry practices for similarly situated executives.
Mr. Briggs is entitled to the following additional benefits under his
employment agreement:
- deferral of up to $100,000 of Mr. Briggs' compensation in each of the
first two years following September 30, 1998 through the purchase of
phantom stock units, at a price of $1.00 per unit, in accordance with our
deferred compensation plan;
- payment of up to $60,000 in annual premiums, from September 1998 through
September 2001, to maintain Mr. Briggs' $1 million split-dollar life
insurance policy; and
- reimbursement for Mr. Briggs' reasonable business expenses, in accordance
with our then-existing policies.
Mr. Briggs' employment agreement provides that, in the event that we issue
to Onex any number of shares of Class A or Class B common stock during the term
of Mr. Briggs' employment agreement, we must grant to Mr. Briggs options to
purchase shares of Class A common stock equal to two percent (2%) of the
aggregate number of additional shares of Class A or Class B common stock so
issued. The options will have an exercise price equal to the price per share of
Class A or Class B common stock paid for the additional shares to which the
options relate, as determined by the board of directors. The options are not
exercisable unless and until Onex realizes a 15% compounded annual internal rate
of return on its equity investment in our company, after expenses. If Mr.
Briggs' employment is terminated for cause, he forfeits the options, whether or
not the options have vested at the time of his termination.
Mr. Briggs' employment agreement also provides that if Mr. Briggs'
employment is terminated without cause or Mr. Briggs resigns for good reason,
Mr. Briggs will continue to receive his then-current base salary and benefits,
including the premium payments on his split-dollar life insurance policy, for a
period of one year following termination, as well as any accrued but unpaid base
salary and any additional payments to which he is entitled under the terms of
the benefit plans or programs in which he participates at the time. We may
terminate Mr. Briggs' employment upon his death or permanent disability and no
further compensation will be payable, except that he or his estate, heirs or
beneficiaries, as applicable, will receive any accrued but unpaid base salary
and any additional payments to which he is entitled under the terms of the
benefit plans or programs in which he participated at the time of termination.
Mr. Briggs' employment agreement also provides that he will not compete with or
solicit employees from our company for a period of one year from the date of his
termination or three years from the date of termination if he has vested options
to purchase our common stock.
Gene S. Morphis Employment Agreement
We have entered into an employment agreement with Mr. Morphis, effective as
of April 1, 1999. Mr. Morphis' employment agreement provides that Mr. Morphis
will serve as our Chief Financial Officer through April 1, 2001, unless earlier
terminated. The term of Mr. Morphis' employment agreement will be automatically
extended for 12 additional months unless we or Mr. Morphis give the other party
written notice of termination at least 12 months prior to the end of the initial
term of the agreement.
The compensation provided to Mr. Morphis under his employment agreement
includes an annual base salary of $250,000, subject to upward adjustment at the
sole discretion of board of directors. Mr. Morphis is entitled to receive
benefits as are generally provided to our senior executives as long as Mr.
Morphis' employment agreement is in force. The employment agreement provides
that Mr. Morphis' is eligible to receive a bonus for the year ended December 31,
1999 based upon whether we achieve specified levels of our earnings before
interest, income taxes, depreciation and amortization. In addition, the
employment agreement provides that the compensation committee of our board of
directors has the discretion to grant an annual bonus up to $100,000 to Mr.
Morphis. For periods after 1999, our board of directors will
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<PAGE> 63
establish bonus targets for Mr. Morphis consistent with industry practices for
similarly situated executives. Mr. Morphis' employment agreement also provides
that he will not compete with or solicit employees from our company for a period
of one year after termination and, if he has vested options one year after
termination, for a period of three years. Mr. Morphis is entitled to
reimbursement for his reasonable business expenses, in accordance with our
then-existing policies, in carrying out his duties and responsibilities.
Mr. Morphis' employment agreement also provides that if Mr. Morphis'
employment is terminated without cause or in anticipation of a change of
control, or Mr. Morphis resigns for good reason or within 90 days after a change
of control, Mr. Morphis shall continue to receive his then-current base salary
and benefits for a period of one year following such termination, any accrued
but unpaid base salary, any additional payments to which he is entitled under
the terms of the benefit plans or programs in which he participates at such time
and an additional amount representing a portion of his annual bonus for the year
in which he was terminated, prorated to the date of termination. We may
terminate Mr. Morphis' employment upon his death or permanent disability and no
further compensation will be payable, except that he or his estate, heirs or
beneficiaries, as applicable, will receive any accrued but unpaid base salary
and any additional payments to which he is entitled under the terms of the
benefit plans or programs in which he participated at the time of termination.
In connection with Mr. Morphis' employment agreement, we entered into a
contingent securities purchase agreement with Mr. Morphis. This agreement
granted an option to Mr. Morphis to purchase shares of our Class A common stock
from us at a purchase price of $1.50 per share. The number of shares that Mr.
Morphis can purchase is based upon Mr. Morphis' 1999 bonus and will be equal to
the amount of Mr. Morphis' 1999 bonus divided by $1.50. The maximum number of
shares which Mr. Morphis may purchase pursuant to the option is limited to
233,333 shares. Our compensation committee has determined that Mr. Morphis will
receive a bonus of $100,000 for 1999. Therefore, the number of shares subject to
Mr. Morphis' option will be 66,667.
The contingent securities purchase agreement provides that the option shall
expire on June 1, 2000. The option will vest and become exercisable upon payment
of Mr. Morphis' 1999 bonus. As of the date of this prospectus, we have not yet
paid Mr. Morphis' 1999 bonus.
Lee O. Waters Employment Agreement
On August 25, 1997, SOFTBANK Services Group entered into an employment
agreement with Mr. Waters, effective as of September 1, 1997. We acquired
SOFTBANK in September 1998 and assumed this agreement. Mr. Waters' employment
agreement provides that his employment is an "at will" arrangement without a
specific term. Pursuant to his employment agreement, we may change Mr. Waters'
position responsibilities, title, position location, compensation and benefits
from time to time. Mr. Waters currently serves as our Chief Solution Delivery
Officer.
Mr. Waters' current annual base salary is $250,000, which may adjusted at
the sole discretion of our board of directors, and benefits as are generally
provided to our executive officers. In addition, Mr. Waters is entitled to bonus
in 1999 up to $40,000. Mr. Waters' employment agreement also provides that he
will not compete with our company for one year following the termination of his
employment.
BENEFIT PLANS
Stock Option Plan
We adopted the ClientLogic 1998 Stock Option Plan in September 1998 which
we amended most recently on March 1, 2000. The plan provides that we may issue
incentive, non-qualified and performance-based stock options to any of our key
employees, key employees of our affiliates and persons that provide bona fide
consulting, advisory or other services for our company. A total of 15,862,000
shares of Class A common stock have been reserved for issuance under the stock
option plan. As of March 6, 2000, options to purchase up to an aggregate of
7,485,874 shares of Class A common stock are outstanding. The plan
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<PAGE> 64
provides that we may grant a maximum of 8,000,000 options to any key employee or
eligible non employee.
The stock option plan provides that it is to be administered by a committee
of our board of directors. Our entire board of directors may act as the
committee if it chooses to do so. The committee has the authority to grant any
participant one or more stock options and to establish the terms and conditions
of his or her options, with limitations specified in the stock option plan. For
example, the per-share exercise price of each incentive option granted under the
plan must not be less than 100% of the fair market value of the Class A common
stock on the date the option is granted, and no incentive stock option may be
exercisable after ten years from the date of grant. If a change of control
occurs, the committee, in its discretion, may take the actions it deems
appropriate regarding outstanding awards, including, without limitation,
accelerating the exercisability or vesting of the awards. The stock option plan
will terminate on September 30, 2008, unless terminated earlier by our board of
directors.
Deferred Compensation Plan
We adopted the ClientLogic deferred compensation plan in October 1998. The
plan provides that participants may elect to defer all or part of their
compensation in amounts and for periods approved by the compensation committee
of our board of directors. Plan participants must be officers, directors, other
management employees, or other highly compensated employees or consultants of
our company or a parent or subsidiary company.
The compensation committee may in its sole discretion designate the persons
who are eligible to participate in the plan and to establish the terms,
conditions, restrictions and limitations of each participant's elective
deferrals under the plan, with limitations specified in the deferred
compensation plan.
We maintain a separate deferral account for each plan participant
reflecting:
- the amounts of compensation deferred by the participant;
- the hypothetical investment gains or losses on these amounts; and
- any expenses attributable to such amounts.
Unless otherwise provided in the plan or agreed in writing by the
compensation committee and a participant, all compensation deferred by a
participant under the plan, and all other amounts credited to a deferral
account, are converted into and deemed to be invested in phantom stock units on
the day compensation or any other amount would have otherwise been paid. The
value of the phantom stock units is based on the fair market value of a share of
Class A common stock, as determined in accordance with the terms of the deferred
compensation plan. A total of 5,000,000 shares of Class A common stock may be
subject to phantom stock units under the plan. As of March 6, 2000, 251,667
shares of Class A common stock were subject to phantom stock units under the
plan representing compensation deferrals totaling $251,667.
The vested portion of a participant's deferral account is available for
distribution to the participant, or upon his or her death or total and permanent
disability, to his or her beneficiaries or legal guardian, as of the earliest to
occur of the following distribution events:
- the date we or our affiliates terminate the participant's employment;
- the date of the participant's resignation with good reason;
- the second anniversary of the participant's resignation without good
reason; or
- if we complete this offering, the date or dates following the offering
elected in writing by the participant.
Distributions made under the deferred compensation plan may be made in
cash, shares of Class A common stock, or any combination thereof, as determined
in the sole discretion of the compensation
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<PAGE> 65
committee. Distributions in cash will be paid in an amount per phantom stock
unit equal to the fair market value of one share of our Class A common stock on
the date of distribution. Distributions in shares of Class A common stock will
equal one share of Class A common stock for each phantom stock unit.
If a change in control occurs, the compensation committee, in its sole
discretion, may take the actions it deems appropriate regarding outstanding
deferral accounts, including accelerating the distribution of the vested portion
of any or all deferral accounts. The compensation committee may terminate the
deferred compensation plan at any time, without the consent of any participant,
unless termination would materially impair the rights or benefits of the
participants.
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<PAGE> 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides information with respect to the beneficial
ownership of our Class A common stock as of March 6, 2000 and as adjusted to
reflect the sale of our Class A common stock in this offering, for:
- each person who beneficially owns more than 5% of our Class A common
stock;
- each of our directors, including our chairman of the board;
- our Chief Executive Officer and each of our other executive officers
named in the summary compensation table included under the heading
"Management" above; and
- all of our directors and executive officers as a group.
On March 1, 2000, we filed an amendment to our certificate of incorporation
to convert each outstanding share of our common stock into one share of Class A
common stock. Until March 15, 2000, each holder of the new Class A common stock
has the option to convert all, but not less than all, of its shares into the
same number of shares of Class B common stock. Each share of Class B common
stock is entitled to 25 votes per share while each share of our Class A common
stock is entitled to one vote per share. For a description of the rights of our
Class A and Class B common stock, see "Description of Capital Stock -- Common
Stock".
As of March 6, 2000, Onex and its affiliates owned of record and
beneficially 100% of our Class B common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF CLASS A COMMON
CLASS A STOCK BENEFICIALLY
COMMON OWNED
STOCK ------------------- PERCENT OF
BENEFICIALLY BEFORE AFTER TOTAL VOTING POWER
OWNED(1) OFFERING OFFERING AFTER THE OFFERING
------------ -------- -------- ------------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Gerald W. Schwartz(2)......................... 103,368,588 91.98% 78.09% 98.89%
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, Ontario MSJ 2S1
Onex Corporation(2)........................... 103,368,588 91.98 78.09 98.89
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, Ontario MSJ 2S1
Onex ClientLogic Holdings LLC(2).............. 103,368,588 91.98 78.09 98.89
c/o Nachurs Alpine Solutions
421 Leader Street
Marion, Ohio 43302
Edward Schwartz(3)............................ 4,697,063 48.01 15.77 *
18 Banigan Drive
Toronto, Ontario M4H IE9
William Rella(4).............................. 585,232 6.42 2.01 *
120 Brighton Road
Clifton, New Jersey 07012
Joseph L. Temple(5)........................... 552,500 6.10 1.90 *
40 Clientlogic Corporation
10065 East Harvard, Suite 750
Denver, Colorado 80231
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF CLASS A COMMON
CLASS A STOCK BENEFICIALLY
COMMON OWNED
STOCK ------------------- PERCENT OF
BENEFICIALLY BEFORE AFTER TOTAL VOTING POWER
OWNED(1) OFFERING OFFERING AFTER THE OFFERING
------------ -------- -------- ------------------
<S> <C> <C> <C> <C>
S. Dianne Thompson(5)......................... 552,500 6.10 1.90 *
c/o Clientlogic Corporation
10065 East Harvard, Suite 750
Denver, Colorado 80231
OFFICERS AND DIRECTORS:
Thomas O. Harbison(6)......................... -- -- -- --
Mark R. Briggs(7)............................. 200,000 2.22 * *
Gene S. Morphis(8)............................ 66,667 *
Jules T. Kortenhorst(9)....................... 1,920,629 18.74 6.35 *
Joanne G. Biltekoff(10)....................... 62,779 * * *
Lee O. Waters(11)............................. 50,926 * * *
Thomas P. Dea(12)............................. -- -- -- --
Seth M. Mersky(13)............................ -- -- -- --
All executive officers and directors as a
group (12 persons)(14)...................... 2,591,257 24.65 8.49 *
</TABLE>
- ---------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock and options and warrants that are
currently exercisable within 60 days of March 6, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding the options
or warrants for the purpose of computing the percentage ownership of the
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. For this table, we exclude the
3,054,055 shares of one of our subsidiaries which are exchangeable at the
option of the holders into shares of our Class A common stock from the
issued and outstanding shares of Class A common stock.
(2) Represents 103,368,588 shares of Class A common stock issuable upon
conversion, on a one for one basis, of Class B common stock held of record
by Onex ClientLogic Holdings LLC, which may be attributed to Onex, its
indirect parent, and Gerald W. Schwartz. Mr. Schwartz is the controlling
stockholder of Onex and serves as its Chairman of the Board, President and
Chief Executive Officer. Accordingly, Mr. Schwartz may be deemed to be the
beneficial owner of Class A common stock beneficially held by Onex and Onex
ClientLogic Holdings LLC. Mr. Schwartz disclaims beneficial ownership of
the Class A Common Stock not owned of record by him.
(3) Includes 775,219 shares of stock of one of our subsidiaries which are
exchangeable for shares of Class A common stock.
(4) Includes 110,553 options to purchase shares of Class A common stock granted
under his employment agreement.
(5) Includes 52,500 shares of Class A common stock that may be acquired by each
of Mr. Temple and Ms. Thompson if they elect to receive shares of Class A
common stock instead of cash as payment of an installment due April 1, 2000
under their promissory notes issued in connection with our purchase of
Marketvision, assuming a fair market value of our Class A common stock of
$10.00 per share.
(6) Excludes 366,072 shares of Class A common stock in which Mr. Harbison has
an indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holdings LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Harbison disclaims beneficial ownership of these shares.
In addition, Mr. Harbison is eligible to receive additional cash or Class A
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<PAGE> 68
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes a 15% compounded annual internal rate of return on its equity
investment in our company, after expenses.
(7) These figures do not include 2,301,282 shares of Class A common stock that
Mr. Briggs may acquire upon the exercise of options granted under the stock
option plan. These options will vest upon the completion of this offering
but are not exercisable unless and until Onex realizes a 15% compounded
annual internal rate of return on its equity investment in our company,
after expenses. These figures do not include 141,667 phantom stock units
held by Mr. Briggs under our deferred compensation plan. The deferred
compensation plan provides that each phantom stock unit will become
available for distribution upon the occurrence of specified events. Upon
distribution, each phantom stock unit will be converted into cash in an
amount equal to the market value of one share of our Class A common stock
at the time of conversion or one share of Class A common stock, as
determined by our compensation committee. We expect that Mr. Briggs'
phantom stock units will become available for distribution upon completion
of this offering. See "Management -- Benefit Plans -- Deferred Compensation
Plan." In addition, Mr. Briggs is eligible to receive additional cash or
shares of Class A common stock, determinable in the sole discretion of
Onex, in the event Onex realizes a 15% compounded annual internal rate of
return on its equity investment in our company, after expenses.
(8) Includes 66,667 shares of Class A common stock, which Mr. Morphis may
acquire upon the exercise of an option we granted under Mr. Morphis'
contingent securities purchase agreement. Excludes 22,155 shares of Class A
common stock through which Mr. Morphis has an indirect interest through an
interest in Onex ClientLogic Holdings LLC. Onex, Onex ClientLogic Holding
LLC and Mr. Schwartz share beneficial ownership of these shares. Mr.
Morphis disclaims beneficial ownership of these shares. In addition, Mr.
Morphis is eligible to receive additional cash or stock, determinable in
the sole discretion of Onex, in the event Onex realizes a 15% compounded
annual internal rate of return on its equity investment in our company,
after expenses.
(9) Includes 611,395 shares of Class A common stock held of record by Mr.
Kortenhorst and 1,146,715 options and warrants to acquire shares of Class A
common stock. Also includes 67,691 shares of Class A common stock and
94,828 options and warrants to acquire shares of Class A common stock held
of record by affiliates of Mr. Kortenhorst.
(10) Includes 45,000 shares of Class A common stock that Ms. Biltekoff may
acquire upon the exercise of options granted under our stock option plan
and does not include 55,000 shares of Class A common stock that Ms.
Biltekoff is eligible to receive upon a distribution under our deferred
compensation plan. We expect that the 55,000 phantom stock units held by
Ms. Biltekoff will become available for distribution upon completion of
this offering. The deferred compensation plan provides that, upon a
distribution, Ms. Biltekoff will receive cash, Class A common stock or a
combination of cash and Class A common stock as determined by the
compensation committee of the board of directors. See
"Management -- Benefit Plans -- Deferred Compensation Plan". In addition,
Ms. Biltekoff is eligible to receive additional cash or shares of Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes a 15% compounded annual internal rate of return on its
equity investment in our company, after expenses.
(11) Includes 45,000 shares of Class A common stock that Mr. Waters may acquire
upon the exercise of options granted under our stock option plan. In
addition, Mr. Waters is eligible to receive additional cash or Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes a 15% compounded annual internal rate of return on its equity
investment in our company, after expenses.
(12) Excludes 224,175 shares of Class A common stock in which Mr. Dea has an
indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holding LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Dea disclaims beneficial ownership of these shares. In
addition, Mr. Dea is eligible to receive additional cash or Class A common
stock, determinable in the sole discretion of Onex, in the event Onex
realizes a 15% compounded annual internal rate of return on its equity
investment in our company, after expenses.
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<PAGE> 69
(13) Excludes 292,677 shares of Class A common stock in which Mr. Mersky has an
indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holdings LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Mersky disclaims beneficial ownership of these shares. In
addition, Mr. Mersky is eligible to receive additional cash or Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes a 15% compounded annual internal rate of return on its equity
investment in our company, after expenses.
(14) Includes 1,376,543 shares which may be acquired upon the exercise of
options, warrants and other rights to acquire our Class A common stock.
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<PAGE> 70
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Monitoring and Oversight Agreement. We have entered into a ten-year
monitoring and oversight agreement with Onex Service Partners, effective as of
January 1, 1999. Onex Service Partners is an affiliate of Onex and Thomas O.
Harbison, the chairman of our board of directors. Under the monitoring and
oversight agreement, we receive monitoring and oversight services and are
required to pay Onex Service Partners an annual fee of $600,000, payable
quarterly. Seth M. Mersky, Thomas P. Dea and Thomas O. Harbison, directors of
our company, are each directors of Onex Service Partners. Onex Service Partners
is also entitled to reimbursement for any expenses incurred by it in connection
with rendering services allocable to Onex Service Partners under the monitoring
and oversight agreement. In addition, we have agreed to indemnify Onex Service
Partners, its affiliates, and each of their respective directors, officers,
controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees related to the services rendered
by Onex Service Partners under the monitoring and oversight agreement and not
resulting primarily from the bad faith, gross negligence, or willful misconduct
of Onex Service Partners. Our subsidiaries are also parties to this agreement.
For the year ended December 31, 1999, we owe Onex Service Partners $600,000
under this agreement.
Financial Advisory Agreement. We also entered into a ten-year financial
advisory agreement with Onex Service Partners on May 1, 1999. Under the
financial advisory agreement, Onex Service Partners is entitled to receive a fee
equal to 1.5% of the transaction value for each transaction in which we or any
of our subsidiaries are involved. For transactions during the year ended
December 31, 1999, we paid Onex Service Partners aggregate fees of approximately
$1,776,390 under this agreement. The term "transaction value" means the total
value of the transaction, including the aggregate amount of the funds required
to complete the transaction, excluding any fees payable under the financial
advisory agreement, and including the amount of any indebtedness and preferred
stock assumed, net of cash. The term "transaction" means any proposal by a third
party for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly involving
us or any of our subsidiaries. In addition, we have agreed to indemnify Onex
Service Partners, its affiliates, and each of their directors, officers,
controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees related to the services rendered
by Onex Service Partners under the financial advisory agreement and not
resulting primarily from the bad faith, gross negligence, or willful misconduct
of Onex Service Partners. Our subsidiaries are also parties to this agreement.
Financing Provided by Onex. We and our domestic subsidiaries are currently
parties to an amended and restated credit agreement dated as of May 25, 1999,
among Onex ClientLogic Finance LLC, an indirect subsidiary of Onex, as the
lender, and Toronto Dominion (Texas), Inc., as the agent. The credit agreement
relates to a $60 million term loan from Onex ClientLogic Finance to us. The
following is a description of the material terms of the credit agreement and is
subject to, and qualified in its entirety by reference to, the full text of the
credit agreement, a copy of which has been filed with the Securities and
Exchange Commission as an exhibit to the Registration Statement of which this
prospectus forms a part.
The credit agreement provides for a term loan of $60 million. At December
31, 1999 we had $60 million of outstanding borrowings under the agreement. The
principal of the loan must be repaid as follows:
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL REPAYMENT DATE AMOUNT
- ---------------------------------- -----------
<S> <C>
May 25, 2003............................................ $ 500,000
May 25, 2004............................................ $17,000,000
May 25, 2005............................................ $17,000,000
May 25, 2006............................................ $25,500,000
</TABLE>
We must repay the loan in full on May 25, 2006. We cannot reborrow any
amounts that we have repaid.
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<PAGE> 71
We pay interest on borrowings at a rate equal to:
- the higher of the federal funds rate plus 1.5% or Toronto Dominion's
prime commercial lending rate, or
- the annual London interbank offered rate for dollar deposits having
comparable interest periods and loan amounts, divided by one minus the
average maximum rate at which reserves are required to be maintained by
the Federal Reserve System for Eurocurrency liabilities;
plus additional annual interest ranging from 0.75% to 3.25% depending on
the ratio of our total debt to cash flow at the time of borrowing. As of
March 7, 2000, the interest rate under the credit agreement was 9.19%.
During the year ended December 31, 1999, we paid $92,000 in interest under
our credit agreement.
Our domestic subsidiaries guarantee our obligations under the credit
agreement and secure the guarantee by granting Toronto Dominion a first-priority
perfected security interest to substantially all of their assets. Additionally,
we have granted Toronto Dominion a first-priority perfected security interest in
substantially all of our assets and have pledged the capital stock of our
domestic subsidiaries. Each of our domestic subsidiaries other than ClientLogic
International, Inc. has pledged the capital stock of its subsidiaries to Toronto
Dominion. However, not more than 65% of the capital stock of any of our indirect
subsidiaries that are not organized under the laws of the United States has been
pledged to secure our obligations under the credit agreement.
The credit agreement contains customary restrictive covenants, which, among
other things and with some exceptions, limit our ability to incur additional
indebtedness, enter into transactions with affiliates, pay dividends,
consolidate, merge or sell assets, issue additional stock, make capital
expenditures or enter new lines of business. The credit agreement also limits
our ability to make additional acquisitions in excess of $15.0 million on an
individual basis. We are also required to maintain specified financial ratios
and to comply with financial tests, such as maximum total debt to cash flow,
minimum cash flow to debt service and minimum cash flow to interest expense
ratios. Additionally, we are restricted in the amount of capital expenditures we
may make on an annual basis. We are also required to make mandatory prepayments
on the loans on the occurrence of specified events, including the generation of
excess cash flow and the sale of material assets.
The credit agreement contains customary events of default, including
defaults in the payment of principal or interest when due and in the performance
of covenants and other specified defaults, including payment defaults under
other debt agreements, bankruptcy or similar proceedings. We intend to repay all
of the borrowings under this credit agreement with the proceeds of this
offering.
Funding of Acquisitions. In January 1999, Onex ClientLogic Holdings LLC
funded our acquisition of LCS by providing cash in the amount of $25,000,000 for
20,833,333 shares of common stock and an unsecured promissory note for
$10,000,000. We repaid the promissory note in October 1999 by issuing to Onex
6,323,957 shares of common stock and paying to Onex $2,411,252. The purchase
price per share of common stock was $1.20, which our board of directors
determined to be the fair market value.
In October 1999, Onex ClientLogic Holdings LLC funded our acquisition of
Cordena and Adverbe by providing us with cash in the amount of $34,594,559 for
15,375,360 shares of common stock. The purchase price per share was $2.25, which
the board of directors determined to be fair market value.
In December 1999, Onex ClientLogic Holdings LLC funded our acquisition of
MarketVision by providing us with cash in the amount of $11,929,335 for
2,385,867 shares of common stock. The purchase price per share was $5.00, which
the board of directors determined to be fair market value.
Loans for Relocation. In October 1999, we made two loans to Lee O. Waters
in connection with his relocation to Nashville, Tennessee. The first loan has a
principal amount of $65,000.00, an annual interest rate of 8% and is payable
upon the sale of Mr. Waters' residence in Williamsville, New York, or April 11,
2000, whichever occurs first. The second loan has a principal amount of
$374,270.57, an annual interest
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rate of 8% and is payable on or before February 28, 2000. Both loans are secured
by the shares of Class A common stock owned or acquired by Mr. Waters. On
February 1, 2000, Mr. Waters repaid the second loan in full.
Loan Commitment to Mr. Kortenhorst. In connection with our acquisition of
Cordena, we entered into a letter agreement with Mr. Kortenhorst. Under the
agreement, we agreed to loan Mr. Kortenhorst up to NLG 1,000,000 if the bonus
Mr. Kortenhorst is eligible to receive under the Cordena purchase agreement is
less than NLG 1,000,000. The loan accrues interest annually at our cost of
borrowing and is due and payable on December 31, 2001. The loan is also due and
payable upon Mr. Kortenhorst's termination for cause or if he voluntarily
terminates his employment.
Director Indemnity Agreements. We entered into indemnification agreements
in January 1999 with Mark R. Briggs, Thomas P. Dea, Thomas O. Harbison and Seth
M. Mersky in connection with their service as directors and/or executive
officers of our company and of our subsidiaries. The indemnification agreements
provide that we and our subsidiaries will indemnify Messrs. Briggs, Dea,
Harbison and Mersky for any losses they incur in connection with any proceedings
against them in their capacity as an officer or director to the fullest extent
permitted under the General Corporation Law of the State of Delaware. In the
indemnification agreements, the term "losses" means all liabilities, losses and
claims, including judgments, fines, penalties, and amounts to be paid in
settlement, incurred in connection with any proceeding. The term "proceeding"
means a threatened, pending or completed action, suit, arbitration, mediation,
alternate dispute resolution mechanism, investigation, administrative hearing or
other proceeding, whether civil, criminal, administrative or investigative.
Stockholders Agreement. In October 1998, we entered into a stockholders
agreement with each of our stockholders. The stockholders agreement contains
provisions concerning:
- the grant to an affiliate of Onex of a proxy to vote on behalf of all
stockholders for all material matters;
- contractual preemptive rights;
- limitations on transfer of our common stock;
- registration rights;
- Onex's option to purchase an unaccredited stockholder's shares in some
circumstances; and
- confidentiality, noncompetition and nonsolicitation.
By its terms, all provisions of the stockholders agreement other than
registration rights will terminate upon the completion of this offering. The
registration rights provisions of the stockholders agreement will be replaced,
effective upon completion of this offering, by the registration rights agreement
described below.
Registration Rights Agreement. The registration rights agreement will be
effective upon completion of this offering and will amend and restate the
registration rights provisions of the stockholders agreement. The registration
rights agreement will grant to Onex the ability to make three requests for
registration of its Class A or Class B common stock on a Form S-1 registration
statement and unlimited requests for registration on a Form S-3 registration
statement. Our other existing Class A stockholders will be allowed to
participate pro rata in any of these registrations. Also, if we offer any new
equity shares under a registration statement filed with the Commission, other
than registrations relating to employee plans or for the purpose of
acquisitions, our existing Class A stockholders will be allowed to participate
pro rata except where inclusion of their shares would materially affect the
offering.
Contribution of Canadian Access to InsLogic.com Holding Corporation. In
March 1999, our wholly-owned subsidiary, ClientLogic Operating Corporation,
acquired a portion of the assets of Canadian Access Insurance Services, Inc., a
provider of outsourced customer relationship services to the insurance
marketplace. In September 1999, we formed a subsidiary, InsLogic.com Holding
Corporation, which we refer to as InsLogic, to serve as the holding company of a
new subsidiary, InsLogic.com Corporation. InsLogic.com Corporation was formed to
hold the assets acquired from Canadian Access. ClientLogic
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Operating transferred the assets acquired from Canadian Access to InsLogic.com
Corporation under a contribution agreement. In connection with that transfer, we
entered into the following agreements:
- Contribution Agreement. In September of 1999, ClientLogic Operating
entered into a contribution agreement with InsLogic and InsLogic.com
Corporation. Under the contribution agreement, Clientlogic Operating
contributed the acquired assets and liabilities of Canadian Access in
return for 50,000,000 shares of InsLogic common stock.
- Transition Services Agreement. Effective as of September 1999,
ClientLogic Operating entered into a transitional services agreement with
InsLogic.com Corporation. Under the transition services agreement, we
agreed to provide payroll and benefits, use of facilities and
professional services from our legal and accounting departments until the
later of August 31, 2000 or until we no longer own a majority of
InsLogic's common stock on a fully diluted basis. We provide these
services to InsLogic.com Corporation at cost plus specified percentages
depending on the services provided. As of February 29, 2000, we have not
received any fees under this agreement, but we have received
approximately $1.8 million in reimbursements of costs incurred by us in
providing personnel and services under this agreement.
- Master Service Agreement. Effective as of September 1999, ClientLogic
Operating entered into a master service agreement with InsLogic.com
Corporation. Under the master service agreement, ClientLogic Operating
agreed to provide call center and related services to InsLogic.com
Corporation for three years. We provide these services at cost plus
specified percentages based upon the services provided. As of March 1,
2000 we have not provided any services or received any fees under this
agreement.
- Non-competition Agreement. In December 1999, we entered into a
noncompetition agreement with InsLogic and InsLogic.com Corporation.
Under the noncompetition agreement, we agreed not to compete with
InsLogic or InsLogic.com Corporation in the insurance services business
and InsLogic and InsLogic.com Corporation agreed not to compete in the
customer service, sales, support and fulfillment services business. The
noncompetition agreement expires in December 2002.
Spin-Off of InsLogic and its Subsidiaries. We have declared a dividend of
the shares of common stock of InsLogic to our existing stockholders of record as
of March 15, 2000, except for a small percentage which we contributed to one of
our indirect subsidiaries for distribution to holders of shares of that
subsidiary's stock which are exchangeable at the option of the holders into
shares of our common stock. We will pay the remaining shares of InsLogic as a
dividend to our existing stockholders, pro rata based on the number of shares
held by each stockholder. After our payment of this dividend, we will no longer
have any ownership interest in InsLogic or any of its subsidiaries. However, the
agreements between us and InsLogic will remain in effect.
We have estimated the fair market value of InsLogic to be approximately
$28,700,000 based on information InsLogic has provided to us. Based on this
estimate, we expect to realize a tax gain of approximately $27,100,000 as a
result of the distribution, but we expect this gain to be fully offset by
operating losses and loss carryforwards.
MarketVision Transaction. In connection with our acquisition of
MarketVision, we issued a promissory note and a contingent promissory note to
each of Joseph L. Temple and S. Dianne Thompson, who each beneficially own more
than 5% of our Class A common stock. The promissory notes have the following
terms:
- $2,625,000 in principal amount;
- 8.25% interest on unpaid principal amounts, payable quarterly;
- 10.25% interest on past due amounts; and
- principal payable in five equal annual installments, commencing on April
1, 2000.
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Mr. Temple and Ms. Thompson may elect to receive their principal payments
in Class A common stock or cash. If Mr. Temple or Ms. Thompson elects to receive
his or her principal payment in Class A common stock, the number of shares of
Class A common stock received shall be based on the fair market value as
determined by the board of directors on the date of payment.
The contingent promissory notes have the following terms:
- $375,000 principal amount;
- 8.30% interest on unpaid principal amounts payable quarterly in arrears
if the conditions described below are met;
- 10.30% interest on any past due amounts;
- one half of the principal amount and accrued interest is payable by April
15, 2001 if MarketVision achieves its revenue goals for 2001; and
- one half of the principal amount and accrued interest is payable by April
15, 2002 if MarketVision achieves its revenue goals for 2002.
Payments of any amounts under the contingent promissory notes may be made
only in cash.
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DESCRIPTION OF CAPITAL STOCK
The following description of our common stock, preferred stock, amended and
restated certificate of incorporation and amended and restated bylaws are
summaries thereof and are qualified by reference to our amended and restated
certificate of incorporation and our amended and restated bylaws, copies of
which have been filed with the Securities and Exchange Commission as exhibits to
the Registration Statement of which this prospectus forms a part.
We are authorized to issue up to 225,000,000 shares of Class A common
stock, par value $.01 per share, 130,000,000 shares of Class B common stock, par
value $.01 per share, and 20,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
As of March 6, 2000, we had 12,062,214 shares of Class A common stock
outstanding held of record by 83 stockholders and 103,368,588 shares of Class B
common stock outstanding held by Onex. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of an aggregate of
20,000,000 shares of Class A common stock in this offering, there will be
approximately 32,062,214 shares of Class A common stock and 103,368,588 shares
of Class B common stock outstanding upon the closing of this offering.
All of the issued and outstanding shares of Class A and Class B common
stock and the shares of Class A common stock to be issued in this offering are
or will be fully paid and nonassessable. Except as described below, shares of
Class A common stock and Class B common stock will generally have identical
rights. In addition, under our amended and restated certificate of
incorporation, holders of Class A common stock have no preemptive or other
subscription rights to purchase shares of our stock, nor are they entitled to
the benefits of any redemption or sinking fund provisions.
Voting Rights. The holders of Class A common stock and Class B common stock
are entitled to notice of and to attend all meetings of our stockholders and to
vote at all meetings together as a single class, except on matters where the
holders of a class are entitled to vote separately under law or pursuant to our
amended and restated certificate of incorporation. The holders of Class A common
stock are entitled to one vote per share on all matters to be voted on by
stockholders generally, including the election of directors. The holders of
Class B common stock is entitled to 25 votes per share on all matters to be
voted on by stockholders generally, including the election of directors. The
holders of Class B common stock are entitled to one vote per share when voting
on a matter for which they are entitled to vote as a separate class. There are
no cumulative voting rights. Accordingly, holders of a majority of the total
votes entitled to vote in an election of directors will be able to elect all of
the directors standing for election. See "Risk Factors -- Onex Corporation will
be able to control our management and corporate affairs and other stockholders
will be unable to affect the outcome of corporate matters."
Liquidation Preferences. If we are liquidated, dissolved or wound up, the
holders of Class A common stock and Class B common stock will be entitled to
receive distributions only after satisfaction of all of our liabilities and the
prior rights of any outstanding class of our preferred stock. If we are
liquidated, dissolved or wound up, our assets legally available after
satisfaction of all of our liabilities and the prior rights of our preferred
stock shall be distributed to the holders of Class A common stock and Class B
common stock pro rata on a per share basis.
Conversion Rights/Mandatory Conversion. Holders of Class A common stock
will have no rights to convert into Class B common stock after March 15, 2000.
Holders of Class B common stock may convert each share into one share of Class A
common stock at any time. In addition, shares of Class B common
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stock will automatically convert into the same number of shares of Class A
common stock upon the occurrence of any of the following:
- if transferred to anyone except to Onex or any affiliate, director,
officer or employee of Onex or to any purchaser of all of the outstanding
Class A and Class B common stock, the shares of Class B common stock
transferred will automatically convert into shares of Class A common
stock;
- if any holder of Class B common stock who is an affiliate of Onex ceases
to be an affiliate of Onex, the shares of Class B common stock held by
that former affiliate will automatically convert into shares of Class A
common stock;
- if Onex and its affiliates collectively cease to have the right, in all
cases, to exercise or direct the voting rights of the Class B common
stock held by them, their Class B common stock will automatically convert
into shares of Class A common stock; and
- if at any time the number of outstanding shares of Class B common stock
represents less than 5% of the total number of outstanding shares of
Class A and Class B common stock, all of the outstanding shares of Class
B common stock will automatically convert into shares of Class A common
stock.
Dividends. The Class A and Class B shares are entitled to share equally on
a per share basis in any dividends declared by our board of directors, subject
to any preferential dividend rights of any outstanding preferred stock.
Dividends consisting of shares of Class A common stock and Class B common stock
may be paid only as follows:
- Class A shares may be paid only to holders of Class A common stock and
Class B shares may be paid only to holders of Class B common stock; and
- the number of shares of Class B common stock paid as a dividend on each
outstanding share of Class B common stock must be equal to the number of
shares of Class A common stock paid as a dividend on each share of Class
A common stock.
Modification, Subdivision and Consolidation. Any change to the provisions
in our amended and restated certificate of incorporation relating to the Class A
common stock or the Class B common stock requires the separate affirmative vote
of two-thirds of the votes cast by the holders of the class affected by such
change, voting as a separate class. We may not subdivide or consolidate the
shares of Class A common stock or the shares of Class B common stock without at
the same time proportionately subdividing or consolidating the shares of the
other class.
SPECIAL PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
AMENDED AND RESTATED BYLAWS AND VARIOUS PROVISIONS OF DELAWARE LAW WHICH MAY
HAVE ANTI-TAKEOVER EFFECTS
Our amended and restated certificate of incorporation and amended and
restated bylaws include certain provisions that could deter an attempt to take
over our company. The provisions are intended to enhance the likelihood of
continuity and stability in the composition of, and policies formulated by, our
board.
Blank Check Preferred Stock. Our amended and restated certificate of
incorporation provides that our board of directors may authorize the issuance of
up to 20,000,000 shares of preferred stock in one or more series and may
designate the dividend rate, voting rights and other rights, preferences and
restrictions of each such series. We have no present intention to issue any
preferred stock. However, we could issue a series of preferred stock that could,
depending on the terms of such series, either impede or facilitate the
completion of a merger, tender offer or other takeover attempt. Although the
board of directors is required to make any determination to issue such stock
based on its judgment as to the best interests of the stockholders of the
company, the board of directors could act in a manner that would discourage an
acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in
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their best interests or in which stockholders might receive a premium for their
stock over the then market price. The board of directors does not intend to seek
stockholder approval prior to any issuance of such preferred stock, unless
otherwise required by law or stock exchange rules.
Classified Board of Directors. Our amended and restated certificate of
incorporation provides for a board of directors divided into three classes of
directors serving staggered three-year terms. The classification of directors
has the effect of making it more difficult for stockholders to change the
composition of the board of directors in a relatively short period of time. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the board of directors.
Director Vacancies; Removal of Directors. Our amended and restated bylaws
provide that our board of directors, acting by majority vote of the directors
then in office, may fill any newly created directorships or vacancies on the
board of directors. Moreover, under the General Corporation Law of the State of
Delaware, in the case of a corporation having a classified board, stockholders
may remove a director only for cause. This provision, when coupled with the
provision of the bylaws authorizing the board of directors to fill vacant
directorships, will preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the board of directors by
filling the vacancies created by such removal with its own nominees.
Special Meetings. Our amended and restated bylaws provide that special
meetings of our stockholders may be called by a majority of the board of
directors or any holder or holders of at least 50% of the total voting power of
our outstanding Class A and Class B common stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. Our amended and restated bylaws establish an advance notice procedure
with regard to business proposed to be submitted by a stockholder at any annual
or special meeting of stockholders, including the nomination of candidates for
election as directors. The procedure provides that a notice of proposed
stockholder business must be timely given in writing to the secretary of our
company prior to the meeting. In all cases, to be timely, notice relating to an
annual meeting must be received at our principal executive offices not less than
60 days nor more than 90 days before the first anniversary of the prior year's
annual meeting.
Notice to our company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
that person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act, including that person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case that
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before that
meeting in accordance with the bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
procedure will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the above-mentioned procedures.
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Delaware Takeover Statute. Section 203 of the Delaware corporation law
prohibits persons deemed "interested stockholders" from engaging in a "business
combination" with a Delaware corporation for three years following the date
these persons become interested stockholders. Interested stockholders generally
include:
- persons who are the beneficial owners of 15% or more of our outstanding
voting stock; and
- persons who are our affiliates or associates and who hold 15% or more of
our outstanding voting stock at any time within three years before the
date on which such person's status as an interested stockholder is
determined.
Subject to certain exceptions, a "business combination" includes, among other
things:
- mergers and consolidations;
- the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market
value of all our outstanding stock;
- transactions that result in our issuance or transfer of any of our stock
to the interested stockholder, except pursuant to certain exercises,
exchanges, conversions, distributions or offers to purchase with respect
to securities outstanding prior to the time that the interested
stockholder became such and that, generally, do not increase the
interested stockholder's proportionate share of any class or series of
our stock;
- any transaction involving us that has the effect of increasing the
proportionate share of our stock of any class or series, or securities
convertible into the stock of any class or series, that is owned directly
or indirectly by the interested stockholder; or
- any receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits which we provided.
Section 203 does not apply to a business combination if:
- before a person becomes an interested stockholder, our board approves the
transaction in which the interested stockholder became an interested
stockholder or approves the business combination;
- upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of our voting stock outstanding at the time
the transaction commences (other than certain excluded shares); or
- following a transaction in which the person became an interested
stockholder, the business combination is approved by our board and
authorized at a regular or special meeting of stockholders (and not by
written consent) by the affirmative vote of the holders of at least two-
thirds of our outstanding voting stock not owned by the interested
stockholder.
These provisions of Delaware law and our amended and restated certificate
of incorporation and bylaws could have the effect of discouraging others from
attempting hostile takeovers and, as a consequence, they may also inhibit
temporary fluctuations in the market price of our common stock that often result
from actual or rumored hostile takeover attempts. Such provisions may also have
the effect of preventing changes in our management. It is possible that these
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
LIMITATIONS ON DIRECTOR LIABILITY
Our amended and restated certificate of incorporation also contains
provisions permitted under the General Corporation Law of the State of Delaware
regarding liability of directors. These provisions eliminate the personal
liability of our directors to us and our stockholders for monetary damages for
any breach of their fiduciary duties in their capacity as directors, except for
any breach of the duty of loyalty, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for
liability under Section 174 of the General Corporation Law of the State of
Delaware (regarding
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certain unlawful dividends, stock repurchases or stock redemptions), or for any
transaction from which the director derived an improper personal benefit. These
provisions do not eliminate a director's duty of care and do not affect the
availability of equitable remedies such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty. In addition, these provisions
do not apply to claims against a director for violation of certain laws,
including the federal securities laws. Our amended and restated certificate of
incorporation further provides that we must indemnify our directors and
officers, and may indemnify any employee or agent of the company, to the fullest
extent permitted by Delaware law. We believe these provisions will assist us in
attracting and retaining qualified individuals to serve as directors and
officers.
We have also entered into indemnification agreements with Mark R. Briggs,
Thomas P. Dea, Thomas O. Harbison and Seth M. Mersky which further limit their
potential liability as directors of our company. For a description of these
agreements, see "Certain Relationships and Related Party
Transactions -- Director Indemnity Agreements."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American
Securities Transfer & Trust, Inc.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 32,062,214 shares of Class A
common stock issued and outstanding, assuming no exercise of the underwriters'
over-allotment option, and 103,368,588 shares of Class B common stock issued and
outstanding. Of these shares, the 20,000,000 shares of Class A common stock sold
in this offering, plus any shares issued upon exercise of the underwriters'
over-allotment option, will be freely transferable without restriction in the
public market, except to the extent that our affiliates acquired any of these
shares. Resales of shares acquired by affiliates are subject to restrictions
under Rule 144 under the Securities Act. The shares of our outstanding Class A
common stock were issued in reliance on exemptions from the registration
requirements of the Securities Act, and these shares are "restricted" securities
under Rule 144. The number of "restricted" shares available for sale in the
public market is limited by the restrictions under Rule 144.
LOCK-UP AGREEMENTS
Our directors, members of senior management and substantially all of the
holders of our Class A common stock have agreed pursuant to lock-up agreements
not to sell or otherwise dispose of their shares of Class A common stock, for a
period of 180 days after the date of this prospectus without the prior written
consent of Salomon Smith Barney.
Salomon Smith Barney Inc. has informed us that it has no current intentions
of releasing any shares subject to the lock-up agreements. Any determination by
Salomon Smith Barney Inc. to release any shares subject to the lock-up
agreements would be based on a number of factors at the time of determination,
including the market price of the common stock, the liquidity of the trading
market for the common stock, general market conditions, the number of shares
proposed to be sold and the timing, purpose and terms of the proposed sale.
RULE 144
In general, under Rule 144, as currently in effect, a person who has
beneficially owned our common stock for at least one year is entitled to sell a
number of shares within any three month period that does not exceed the greater
of:
- 1% of the then outstanding shares of the class of common stock; or
- the average weekly trading volume of the Class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
A stockholder who is deemed not to have been an affiliate for at least
three months prior to the date of sale and who has beneficially owned the shares
to be sold for at least two years would be entitled to sell the shares under
Rule 144 without regard to the volume, manner of sale and other limitations
described above.
Approximately 93,054,371 shares of our outstanding Class A common stock
will become available for sale, subject to the volume limitations of Rule 144,
after the expiration of the lock-up period. The remaining shares of our
outstanding Class A common stock will become available for sale, subject to the
volume limitations of Rule 144, at various times after the expiration of the
lock-up period and upon expiration of one-year holding periods required by Rule
144.
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RULE 701
In general, under Rule 701 of the Securities Act, as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory share plan or other written agreement is eligible
to resell such shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with restrictions, including the
holding period, contained in Rule 144.
CLASS B COMMON STOCK
Each share of our Class B common stock is convertible at any time into
shares of our Class A common stock. In addition, shares of Class B common stock
will automatically convert into shares of Class A common stock upon transfer to
a person other than Onex or its affiliates. Shares of Class B common stock will
also convert to shares of Class A common stock upon other occurrences described
under "Description of Capital Stock -- Common Stock."
EXCHANGEABLE SHARES
In connection with our acquisition of North Direct Response during 1998,
some of the holders of the common stock of one of our subsidiaries have the
right to exchange their shares for an aggregate of 3,054,055 shares of our
common stock.
REGISTRATION RIGHTS
Onex has the right to require us to file registration statements covering
the shares of Class A common stock it would receive upon conversion of its Class
B common stock and Onex and all of our existing holders of our Class A common
stock have rights to include their shares in registration statements we may file
for our company or for other stockholders. If these holders exercise their right
to have their shares registered, they could sell their shares immediately
without regard to the holding periods or volume limitations under Rule 144.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our Class A
common stock applicable to Non-U.S. Holders.
A "Non-U.S. Holder" is generally an individual, corporation, estate or
trust other than:
- an individual who is a citizen or resident of the United States for U.S.
federal income tax purposes;
- a corporation created or organized in the United States or under the laws
of the United States or of any subdivision thereof;
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of source; and
- a trust subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons.
The following discussion is based on provisions of the U.S. Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, and
administrative and judicial interpretations as of the date of this prospectus,
all of which are subject to change, possibly with retroactive effect. The
following summary is for general information and applies only to Non-U.S.
Holders that hold our Class A common stock as a capital asset. In addition, this
discussion does not apply to persons holding our shares through a partnership or
other pass-through entity. If you are a Non-U.S. Holder, you should consult a
tax advisor about the U.S. federal tax consequences, in your particular
circumstances (for example, if you are a former citizen or resident of the
United States), of holding and disposing of our Class A common stock, as well as
any tax consequences under the laws of any U.S. state or local or non-U.S.
taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A common stock generally will
be subject to withholding of U.S. federal income tax at a 30% rate or a lower
rate that an applicable income tax treaty may specify. Non-U.S. Holders should
consult their tax advisors on their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct
of a trade or business in the U.S. are generally subject to U.S. federal income
tax on a net income basis at regular graduated rates, but are not generally
subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate
IRS form with withholding agent. Any U.S. trade or business income received by a
Non-U.S. Holder that is a corporation may, under specific circumstances, be
subject to an additional "branch profits tax" at a 30% rate or a lower rate that
an applicable income tax treaty may specify.
Dividends paid prior to January 1, 2001 to an address in a foreign country
are presumed, absent actual knowledge to the contrary, to be paid to a resident
of that country for purposes of the withholding discussed above and for purposes
of determining the applicability of an income tax treaty rate. For dividends
paid after December 31, 2000, a Non-U.S. Holder of Class A common stock that
claims the benefit of an income tax treaty rate generally will be required to
satisfy applicable certification and other requirements.
A Non-U.S. Holder of Class A common stock that is eligible for a reduced
rate of U.S. withholding tax under an income tax treaty may obtain a refund or
credit of any excess amounts withheld by filing an appropriate claim for a
refund with the IRS.
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DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Class A common stock unless:
- the gain is effectively connected with a U.S. trade or business, in which
case the branch profits tax may also apply to a corporate Non-U.S.
Holder;
- the Non-U.S. Holder is an individual who is present in the United States
for 183 or more days in the taxable year of the disposition and meets
other requirements;
- the Non-U.S. Holder is subject to U.S. tax under provisions applicable to
certain U.S. expatriates (including certain former citizens or residents
of the United States); or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition and the Non-U.S.
Holder's holding period for the Class A common stock.
The tax relating to stock in a "U.S. real property holding corporation"
does not apply to a Non-U.S. Holder whose holdings, actual and constructive, at
all times during the applicable period, amount to 5% or less of the Class A
common stock, provided that the Class A common stock is regularly traded on an
established securities market. Generally, a corporation is a "U.S. real property
holding corporation" if the fair market value of its "U.S. real property
interests" equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests and its other assets used or held for use in a
trade or business. We believe that we have not been, are not, and do not
anticipate becoming, a "U.S. real property holding corporation" for U.S. federal
income tax purposes.
FEDERAL ESTATE TAXES
Class A common stock owned or treated as owned by an individual who is a
Non-U.S. Holder at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes and may be subject to U.S. federal
estate tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under specific circumstances, the IRS requires information reporting and
backup withholding at a rate of 31% on specific payments on Class A common
stock. Under currently applicable law, Non-U.S. Holders of Class A common stock
generally will be exempt from information reporting and backup withholding on
dividends paid prior to January 1, 2001, to an address outside the U.S. For
dividends paid after December 31, 2000, however, a Non-U.S. Holder of Class A
common stock that fails to certify its Non-U.S. Holder status under applicable
Treasury regulations may be subject to information reporting backup withholding
at a rate of 31% on payments of dividends.
With respect to the payment of proceeds upon the disposition of Class A
common stock, under current law, Non-U.S. Holder's are not subject to backup
withholding and will generally not be subject to information reporting but may
be required to comply with certification or identification requirements to prove
their exemption. For proceeds paid after December 31, 2000, backup withholding
may apply in any circumstance in which information reporting would apply.
Non-U.S. Holders should consult their own tax advisors on the application
of information withholding and backup withholding to them in their particular
circumstances (including, upon their disposition of Class A common stock).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the holder's U.S. federal income tax liability, if any, if the
holder provides the required information to the IRS.
78
<PAGE> 84
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ----------
<S> <C>
Salomon Smith Barney Inc. ..................................
FleetBoston Robertson Stephens Inc. ........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
TD Securities (USA) Inc. ...................................
DLJdirect Inc. .............................................
----------
Total............................................. 20,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of particular legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares (other than those covered
by the over-allotment option described below) if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., FleetBoston Robertson
Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation, TD
Securities (USA) Inc. and Thomas Weisel Partners LLC are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on sales
to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms. The representatives have advised us that the underwriters
do not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 3,000,000 additional shares of
Class A common stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters will reserve up to 7.0% of the shares of
our Class A common stock to be sold in this offering, at the initial public
offering price, to our directors, officers and employees, as well as to clients,
vendors and individuals associated with officers, directors and Onex. This
directed share program will be administered by Salomon Smith Barney Inc. and TD
Securities (USA) Inc. The number of shares of Class A common stock available for
sale to the general public will be reduced to the extent these individuals
purchase reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the other
shares offered by this prospectus. We have agreed to indemnify the underwriters
against certain liabilities and expenses, including liabilities under the
Securities Act of 1933 in connection with sales of the directed shares.
We, our officers and directors, and holders of substantially all of our
existing outstanding shares of our Class A and Class B common stock have agreed
that, for a period of 180 days from the date of this prospectus, we will not,
without the prior written consent of Salomon Smith Barney Inc., dispose of or
hedge any shares of our Class A common stock or any securities convertible into
or exchangeable for our Class A common stock. Salomon Smith Barney Inc. in its
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice.
79
<PAGE> 85
Prior to this offering, there has been no public market for our Class A
common stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the Class A common stock
will develop and continue after this offering.
We have applied to have our Class A common stock included for quotation on
the Nasdaq National Market under the symbol "CLGC".
The following table shows the underwriting discount that we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of Class A common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of Class A common stock in the
open market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of Class A common stock in excess of the number of shares to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Class A common stock in
the open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of Class A common stock made for the purpose of preventing or
retarding a decline in the market price of the Class A common stock while the
offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the Class A common stock to
be higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that our total expenses of this offering, excluding the
underwriting discount, will be $2.2 million.
An electronic prospectus is being made available on a Web site maintained
by DLJdirect Inc. The representatives have agreed to allocate shares
to DLJdirect for sale to its brokerage account holders. Other than the
prospectus in electronic format, any information on its Web site relating to
this offering is not part of this prospectus and has not been approved or
endorsed by us or any underwriter and should not be relied upon by prospective
investors.
DLJdirect will make all allocations of securities distributed in this
offering through the use of the Internet. Approximately two to three weeks prior
to the scheduled offering date, DLJdirect will post on its Web site
(www.dljdirect.com) a brief description of the offering which contains only the
information permitted under Rule 134 of the Securities Act. At this time,
DLJdirect will also send an e-mail to all DLJdirect account holders with
$100,000 or more in assets in their accounts advising them of the offering.
These account holders will have access to the preliminary prospectus by links on
the DLJdirect Web site.
80
<PAGE> 86
DLJdirect will allocate the shares it has underwritten based on its judgment of
what is in the best interest of the issuer, considering the following criteria
with respect to the account holders expressing an interest in the offering:
asset level of the account, investment objectives of the account holder, trading
history of the account, tenure of the account at DLJdirect and post-offering
activity in previous offerings.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 110
filed public offerings of equity securities, of which 79 have been completed,
and has acted as a syndicate member in an additional 54 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except with respect to its contractual relationship with us pursuant to
the underwriting agreement entered into in connection with this offering.
Because TD Securities (USA) Inc. is an affiliate of Toronto Dominion Bank,
who will receive approximately $116 million of the proceeds of this offering to
repay our senior credit facilities, TD Securities may be deemed to have a
"conflict of interest" under Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers. When an NASD member with a "conflict
of interest" participates as an underwriter in a public offering, the public
offering price per share can be no higher than that recommended by a "qualified
independent underwriter" meeting specified standards. In accordance with this
rule, Salomon Smith Barney Inc. has assumed the responsibilities of acting as a
qualified independent underwriter. In its role as a qualified independent
underwriter, Salomon Smith Barney has performed a due diligence investigation
and participated in the preparation of this prospectus and the registration
statement of which this prospectus is a part. Salomon Smith Barney will receive
no compensation for acting in this capacity; however, we have agreed to
indemnify Salomon Smith Barney for acting as a qualified independent underwriter
against certain liabilities under the Securities Act.
The representatives have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The representatives may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
The validity of the shares of Class A common stock offered by this
prospectus will be passed upon for us by Weil, Gotshal & Manges LLP, Dallas,
Texas and New York, New York. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Cravath, Swaine & Moore,
New York, New York.
81
<PAGE> 87
EXPERTS
The financial statements of ClientLogic Corporation at December 31, 1999
and 1998 and for the year ended December 31, 1999 and for the period from April
28, 1998 through December 31, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of North Direct Response, Inc., the predecessor
company, at April 27, 1998 and for the period from January 1, 1998 through April
27, 1998 and for the year ended December 31, 1997 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Upgrade Corporation of America and
Subsidiary (d/b/a SOFTBANK Services Group) and The Ivy Group Limited at December
31, 1997 and 1996 and for the years ended December 31, 1997 and 1996 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated balance sheets of LCS Industries, Inc. and subsidiaries as
of September 30, 1997 and 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended September 30, 1998 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report included
herein and is included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Cordena Call Management B.V. at
December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers N.V., independent accountants, given on authority of
said firm as experts in accounting and auditing.
The financial statements of MarketVision, Inc. at December 31, 1998 and for
the year ended December 31, 1998 included in this prospectus have been so
included in reliance on the report of Terry & Stephenson, P.C., independent
accountants, given on authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form S-1 with the Commission
regarding this offering. This prospectus, which is part of the registration
statement, does not contain all of the information included in the registration
statement, and you should refer to the registration statement and its exhibits
to read that information. References in this prospectus to any of our contracts
or other documents are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may read and copy the registration statement, the
related exhibits and the other material we file with the Commission at the
Commission's public reference room in Washington, D.C. and at the Commission's
regional offices in Chicago, Illinois and New York, New York. You can also
request copies of those documents, upon payment of a duplicating fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Commission also
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file with the
Commission. The site's address is www.sec.gov. You may also request a copy of
these filings, at no cost, by writing or telephoning us as follows: One American
Center, 3100 West End Avenue, Suite 150, Nashville, Tennessee 37203, Attention:
Chief Financial Officer or (615) 301-7100.
82
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CLIENTLOGIC CORPORATION
Independent Auditor's Reports............................... F-3
Balance Sheets as at December 31, 1999 and 1998 and
Predecessor Company Balance Sheet as at April 27, 1998.... F-5
Statement of Operations for the year ended December 31,
1999, Statement of Operations for the period April 28,
1998 through December 31, 1998 and Predecessor Company
Statement of Operations for the period January 1, 1998
through April 27, 1998 and the year ended December 31,
1997...................................................... F-6
Statement of Stockholders' Equity for the year ended
December 31, 1999, Statement of Stockholders' Equity for
the period April 28, 1998 through December 31 1998, and
Predecessor Company Statement of Stockholders' Equity for
the period January 1, 1998 through April 27, 1998 and the
year ended December 31, 1997.............................. F-7
Statement of Cash Flows for the year ended December 31,
1999, Statement of Cash Flows for the period April 28,
1998 through December 31, 1998 and Predecessor Company
Statement of Cash Flows for the period January 1, 1998
through April 27, 1998 and for the year ended December 31,
1997...................................................... F-8
Notes to Financial Statements............................... F-9
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
Independent Auditor's Report................................ F-31
Combined Balance Sheets as at December 31, 1997 and 1996.... F-32
Combined Statement of Operations for the years ended
December 31, 1997 and 1996................................ F-33
Combined Statement of Stockholders' Deficit for the years
ended December 31, 1997 and 1996.......................... F-34
Combined Statement of Cash Flows for the years ended
December 31, 1997 and 1996................................ F-35
Notes to Combined Financial Statements...................... F-36
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
Combined Balance Sheets as at September 30, 1998 (unaudited)
and December 31, 1997..................................... F-45
Combined Statement of Operations for the period January 1,
1998 through September 30, 1998 (unaudited) and the period
January 1, 1997 through September 30, 1997 (unaudited).... F-46
Combined Statement of Stockholders' Deficit for the period
January 1, 1998 through September 30, 1998 (unaudited) and
the period January 1, 1997 through September 30, 1997
(unaudited)............................................... F-47
Combined Statement of Cash Flows for the period January 1,
1998 through September 30, 1998 (unaudited) and the period
January 1, 1997 through September 30, 1997 (unaudited).... F-48
Notes to Combined Financial Statements (unaudited).......... F-49
LCS INDUSTRIES, INC.
Independent Auditor's Report................................ F-51
Consolidated Balance Sheets as at September 30, 1998 and
1997...................................................... F-52
Consolidated Statement of Income for the years ended
September 30, 1998, 1997 and 1996......................... F-53
Consolidated Statement of Changes in Stockholders' Equity
for the years ended September 30, 1998, 1997 and 1996..... F-54
Consolidated Statement of Cash Flows for the years ended
September 30, 1998, 1997 and 1996......................... F-55
Notes to Consolidated Financial Statements.................. F-57
</TABLE>
F-1
<PAGE> 89
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
LCS INDUSTRIES, INC.
Consolidated Balance Sheets as at December 31, 1998
(unaudited) and September 30, 1998........................ F-70
Consolidated Statement of Income and Retained Earnings for
the period October 1, 1998 through December 31, 1998
(unaudited) and the period October 1, 1997 through
December 31, 1997 (unaudited)............................. F-71
Consolidated Statement of Cash Flows for the period October
1, 1998 through December 31, 1998 (unaudited) and the
period October 1, 1997 through December 31, 1997
(unaudited)............................................... F-72
Notes to Consolidated Financial Statements (unaudited)...... F-73
CORDENA CALL MANAGEMENT B.V., THE HAGUE
Independent Auditor's Report................................ F-76
Consolidated Balance Sheets as at December 31, 1998 and
1997...................................................... F-77
Consolidated Statement of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-78
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-79
Notes to Consolidated Financial Statements.................. F-80
CORDENA CALL MANAGEMENT B.V., THE HAGUE
Consolidated Balance Sheets as at September 30, 1999
(unaudited) and December 31, 1998......................... F-91
Consolidated Statement of Income for the period January 1,
1999 through September 30, 1999 (unaudited) and the period
January 1, 1998 through September 30, 1998 (unaudited).... F-92
Consolidated Statement of Cash Flows for the period January
1, 1999 through September 30, 1999 (unaudited) and the
period January 1, 1998 through September 30, 1998
(unaudited)............................................... F-93
Notes to Consolidated Financial Statements (unaudited)...... F-95
MARKETVISION, INC.
Independent Auditor's Report................................ F-100
Balance Sheet as at December 31, 1998....................... F-101
Statement of Income and Retained Earnings for the year ended
December 31, 1998......................................... F-102
Statement of Cash Flows for the year ended December 31,
1998...................................................... F-103
Notes to Financial Statements............................... F-104
MARKETVISION, INC.
Balance Sheets as at November 30, 1999 (unaudited) and
December 31, 1998......................................... F-109
Statement of Income and Retained Earnings for the period
January 1, 1999 through November 30, 1999 (unaudited) and
the period January 1, 1998 through November 30, 1998
(unaudited)............................................... F-110
Statement of Cash Flows for the period January 1, 1999
through November 30, 1999 (unaudited) and the period
January 1, 1998 through November 30, 1998 (unaudited)..... F-111
Notes to Financial Statements (unaudited)................... F-112
</TABLE>
F-2
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ClientLogic Corporation
In our opinion, the accompanying balance sheets at December 31, 1999 and
1998 and related statements of operations and comprehensive loss, of
stockholders' equity and of cash flows for the year ended December 31, 1999 and
the period from April 28, 1998 through December 31, 1998 present fairly, in all
material respects, the financial position of ClientLogic Corporation and its
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and cash flows for the year ended December 31, 1999 and the period from April
28, 1998 through December 31, 1998 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSE COOPERS LLP
PricewaterhouseCoopers LLP
Buffalo, New York
January 29, 2000
except as to Note 20, for
which the date is
March 9, 2000
F-3
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of North Direct Response, Inc.
("Predecessor Company")
In our opinion, the accompanying balance sheet at April 27, 1998 and the
related statements of operations and comprehensive loss, of stockholders' equity
and of cash flows for the period from January 1, 1998 through April 27, 1998 and
the year ended December 31, 1997 present fairly, in all material respects, the
financial position of North Direct Response, Inc. at April 27, 1998 and the
results of its operations and cash flows for the period from January 1, 1998
through April 27, 1998 and the year ended December 31, 1997 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSE COOPERS LLP
PricewaterhouseCoopers LLP
Buffalo, New York
January 29, 2000
F-4
<PAGE> 92
CLIENTLOGIC CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
CLIENTLOGIC
CORPORATION
------------------- PREDECESSOR
COMPANY
DECEMBER 31, -----------
------------------- APRIL 27,
1999 1998 1998
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,090 $ 5,584 $ --
Accounts receivable, less allowance for doubtful accounts
of $2,478, $280 and $0, respectively................... 59,428 15,614 1,344
Prepaids and other current assets......................... 17,886 1,791 66
-------- -------- ------
Total current assets.............................. 87,404 22,989 1,410
Capital assets.............................................. 52,982 22,964 2,208
Other noncurrent assets..................................... 6,521 1,066 27
Goodwill.................................................... 154,692 66,766 --
Debt issue costs............................................ 1,479 -- --
-------- -------- ------
Total assets...................................... $303,078 $113,785 $3,645
======== ======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ 3,324 $ 343 $ 404
Accounts payable.......................................... 36,013 9,607 184
Accrued liabilities and other............................. 37,553 6,905 100
Current installments of long-term debt.................... 12,017 71 --
Current portion of capital lease obligations.............. 2,726 1,115 133
-------- -------- ------
Total current liabilities......................... 91,633 18,041 821
Long-term debt.............................................. 89,638 31,854 1,748
Capital lease obligations................................... 5,270 1,588 363
Other noncurrent liabilities................................ 1,513 563 175
-------- -------- ------
Total liabilities................................. 188,054 52,046 3,107
-------- -------- ------
Subsidiary preferred stock.................................. 5,058 -- --
Stockholders' equity:
Common stock.............................................. 1,110 614 --
Common stock issuable..................................... 5,000 -- --
Exchangeable shares....................................... 3,054 3,054 --
Additional paid-in capital................................ 149,909 61,678 1,666
Accumulated deficit....................................... (48,178) (2,745) (1,095)
Accumulated other comprehensive loss...................... (666) (862) (33)
Unearned compensation..................................... (263) -- --
-------- -------- ------
Total stockholders' equity........................ 109,966 61,739 538
-------- -------- ------
Total liabilities and stockholders' equity........ $303,078 $113,785 $3,645
======== ======== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 93
CLIENTLOGIC CORPORATION
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED -----------------------------------
PERIOD FROM PERIOD FROM
CONSOLIDATED APRIL 28, 1998 JANUARY 1, 1998
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues...................... $177,791 $27,283 $ 1,633 $2,617
Costs and expenses
Cost of services............ 99,478 16,353 962 1,426
Selling, general and
administrative
expenses................. 75,261 9,452 786 1,451
Depreciation expense........ 11,063 1,900 145 329
Amortization expense........ 8,347 1,337 2 4
Impairment of intangible
assets................... 22,273 -- -- --
-------- ------- ------- ------
Operating loss................ (38,631) (1,759) (262) (593)
Interest expense, net......... 6,480 921 68 142
-------- ------- ------- ------
Loss before income taxes...... (45,111) (2,680) (330) (735)
Income taxes.................. 322 65 -- --
-------- ------- ------- ------
Net loss...................... $(45,433) $(2,745) $ (330) $ (735)
======== ======= ======= ======
Other comprehensive income
(loss), net of tax:
Foreign currency transaction
adjustment............... 196 (862) 2 (35)
-------- ------- ------- ------
Comprehensive loss............ $(45,237) $(3,607) $ (328) $ (770)
======== ======= ======= ======
Basic loss per share.......... $ (0.47) $ (0.09) $ (0.03) $(0.08)
======== ======= ======= ======
Weighted average number of
shares outstanding (in
thousands).................. 96,450 29,992 10,309 9,372
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 94
CLIENTLOGIC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
NUMBER OF PAR COMMON STOCK EXCHANGEABLE PAID-IN ACCUMULATED
SHARES VALUE ISSUABLE SHARES CAPITAL DEFICIT
----------- ------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE DECEMBER 31, 1996.................. 7,113,396 $ -- $ -- $ -- $ 403 $ (30)
----------- ------ ------ ------ -------- --------
Issued for cash........................... 3,195,904 -- -- -- 1,263 --
Net loss for the year..................... -- -- -- -- -- (735)
Other comprehensive loss for the year..... -- -- -- -- -- --
----------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1997.................. 10,309,300 -- -- -- 1,666 (765)
=========== ====== ====== ====== ======== ========
Net loss for the period................... -- -- -- -- -- (330)
Other comprehensive income for the
period.................................. -- -- -- -- -- --
----------- ------ ------ ------ -------- --------
BALANCE APRIL 27, 1998..................... 10,309,300 $ -- $ -- $ -- $ 1,666 $ (1,095)
=========== ====== ====== ====== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998..................... -- $ -- $ -- $ -- $ -- $ --
----------- ------ ------ ------ -------- --------
Issued for cash........................... 11,526,055 -- -- 12,142 --
Net loss for the period...................
April 28, 1998 - December 17, 1998...... -- -- -- -- -- (1,196)
Other comprehensive loss for the period
April 28, 1998 - December 17, 1998...... -- -- -- -- -- --
Conversion of shares and transfer to
ClientLogic Corporation on December 17,
1998.................................... (11,526,055) -- -- (12,142) 1,196
----------- ------ ------ ------ -------- --------
BALANCE DECEMBER 17, 1998.................. -- $ -- $ -- $ -- $ -- $ --
=========== ====== ====== ====== ======== ========
CLIENTLOGIC CORPORATION
BALANCE SEPTEMBER 25, 1998................. -- $ -- $ -- $ -- $ -- $ --
----------- ------ ------ ------ -------- --------
Issued for cash in financing of SSG
acquisition............................. 50,000,000 500 -- -- 49,500 --
Conversion of shares of Successor Company
and transfer to ClientLogic Corporation
on December 17, 1998.................... 11,410,071 114 -- -- 12,028 (1,196)
Issuance of subsidiary exchangeable
shares.................................. -- -- -- 3,054
Net loss for the period
September 25, 1998 - December 31,
1998.................................... -- -- -- -- -- (1,549)
Other comprehensive loss for the period
September 25, 1998 - December 31,
1998.................................... -- -- -- -- -- --
Stock option grants....................... -- -- -- -- 150 --
----------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1998.................. 61,410,071 $ 614 $ -- $3,054 $ 61,678 $ (2,745)
----------- ------ ------ ------ -------- --------
.......................................... -- -- --
Issued for cash in financing of LCS
acquisition............................. 29,166,667 292 -- -- 34,708 --
Issued for cash........................... 557,122 5 -- -- 677 --
Issued for cash and as purchase
consideration in financing of
Cordena/Adverbe acquisitions............ 17,451,917 174 -- -- 39,093 --
Issued for cash in financing of
MarketVision acquisition................ 2,400,000 24 -- -- 11,976 --
Purchase consideration relating to
MarketVision acquisition to be issued... -- -- 5,000 -- -- --
Stock option exercises.................... 25,500 1 -- -- 36 --
Stock option grants....................... -- -- -- -- 1,741 --
Net loss for the year..................... -- -- -- -- -- (45,433)
Other comprehensive income for the year... -- -- -- -- -- --
Unearned compensation on stock option
grants.................................. -- -- -- -- -- --
----------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1999.................. 111,011,277 $1,110 $5,000 $3,054 $149,909 $(48,178)
=========== ====== ====== ====== ======== ========
<CAPTION>
OTHER
COMPREHENSIVE UNEARNED
INCOME (LOSS) COMPENSATION TOTAL
------------- ------------- --------
<S> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE DECEMBER 31, 1996.................. $ -- $ -- $ 373
----- ----- --------
Issued for cash........................... -- -- 1,263
Net loss for the year..................... -- -- (735)
Other comprehensive loss for the year..... (35) -- (35)
----- ----- --------
BALANCE DECEMBER 31, 1997.................. (35) -- 866
===== ===== ========
Net loss for the period................... -- -- (330)
Other comprehensive income for the
period.................................. 2 -- 2
----- ----- --------
BALANCE APRIL 27, 1998..................... $ (33) $ -- $ 538
===== ===== ========
- -------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998..................... $ -- $ -- $ --
----- ----- --------
Issued for cash........................... -- -- 12,142
Net loss for the period................... --
April 28, 1998 - December 17, 1998...... -- -- (1,196)
Other comprehensive loss for the period
April 28, 1998 - December 17, 1998...... (721) -- (721)
Conversion of shares and transfer to
ClientLogic Corporation on December 17,
1998.................................... 721 -- (10,225)
----- ----- --------
BALANCE DECEMBER 17, 1998.................. $ -- $ -- $ --
===== ===== ========
CLIENTLOGIC CORPORATION
BALANCE SEPTEMBER 25, 1998................. $ -- $ -- $ --
----- ----- --------
Issued for cash in financing of SSG
acquisition............................. -- -- 50,000
Conversion of shares of Successor Company
and transfer to ClientLogic Corporation
on December 17, 1998.................... (721) -- 10,225
Issuance of subsidiary exchangeable
shares.................................. 3,054
Net loss for the period
September 25, 1998 - December 31,
1998.................................... -- -- (1,549)
Other comprehensive loss for the period
September 25, 1998 - December 31,
1998.................................... (141) -- (141)
Stock option grants....................... -- -- 150
----- ----- --------
BALANCE DECEMBER 31, 1998.................. $(862) $ -- $ 61,739
----- ----- --------
.......................................... -- --
Issued for cash in financing of LCS
acquisition............................. -- -- 35,000
Issued for cash........................... -- -- 682
Issued for cash and as purchase
consideration in financing of
Cordena/Adverbe acquisitions............ -- -- 39,267
Issued for cash in financing of
MarketVision acquisition................ -- -- 12,000
Purchase consideration relating to
MarketVision acquisition to be issued... -- -- 5,000
Stock option exercises.................... -- -- 37
Stock option grants....................... -- -- 1,741
Net loss for the year..................... -- -- (45,433)
Other comprehensive income for the year... 196 -- 196
Unearned compensation on stock option
grants.................................. -- (263) (263)
----- ----- --------
BALANCE DECEMBER 31, 1999.................. $(666) $(263) $109,966
===== ===== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 95
CLIENTLOGIC CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net cash relating to operating
activities:
Net loss............................. $ (45,433) $ (2,745) $(330) $ (735)
Adjustments to reconcile net loss to
net cash relating to operating
activities:
Depreciation expense............... 11,063 1,900 145 329
Amortization expense............... 8,347 1,337 2 4
Bad debt expense................... 2,305 206 -- --
Impairment of intangible assets.... 22,273 -- -- --
Non-cash stock compensation
expenses......................... 3,594 285 -- --
Gain on sale of investment......... (3,395) -- -- --
Loss on write-off of assets........ 2,968 -- -- --
Cumulative translation
adjustment....................... 196 (862) 2 (35)
Minority share of loss............. (205) -- -- --
Increase (decrease) in cash due to
changes in working capital:
Accounts receivable.............. (14,341) (4,123) 231 (1,578)
Prepaids and other current
assets......................... (7,778) (150) 4 92
Accounts payable................. 2,285 863 30 545
Accrued liabilities and other.... 14,174 (685) 22 100
Other............................ -- (347) -- --
--------- -------- ----- -------
Net cash relating to operating
activities................... (3,947) (4,321) 106 (1,278)
--------- -------- ----- -------
Net cash relating to investing
activities:
Acquisition of operating companies,
net of cash acquired............... (114,723) (57,246) -- --
Purchase of capital assets........... (26,055) (2,845) (76) (2,098)
Proceeds from sale of investment..... 3,395 -- -- --
Other................................ (557) -- -- --
--------- -------- ----- -------
Net cash relating to investing
activities................... (137,940) (60,091) (76) (2,098)
--------- -------- ----- -------
Net cash relating to financing
activities:
Proceeds from the issuance of
stock.............................. 86,987 62,142 -- 1,263
Proceeds from the issuance of
subsidiary preferred stock......... 5,263 -- -- --
Repayment of long-term debt and
capital lease obligation........... (101,437) (6,289) (30) --
Issuance of long-term debt........... 158,330 14,185 -- 1,922
Payment of debt issue costs.......... (1,580) -- -- --
Other................................ (1,170) (42) -- --
--------- -------- ----- -------
Net cash relating to financing
activities................... 146,393 69,996 (30) 3,185
--------- -------- ----- -------
Net increase (decrease) in cash........ 4,506 5,584 -- (191)
Cash at beginning of period............ 5,584 -- -- 191
--------- -------- ----- -------
Cash at end of period.................. $ 10,090 $ 5,584 $ -- $ --
========= ======== ===== =======
Cash paid during the year for:
Interest............................. $ 6,713 $ 953 $ 62 $ 136
Taxes................................ $ 366 $ 1 $ -- $ --
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 96
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. OVERVIEW, ORGANIZATION AND NATURE OF BUSINESS
ClientLogic Corporation ("ClientLogic" or the "Company") is an
international provider of marketing, customer contact management and fulfillment
services to the electronic commerce, or e-commerce marketplace. The Company
enables clients to build lasting customer relationships by managing every aspect
of the customer experience. The Company does this by offering an integrated
suite of services that include order and payment processing, customer care,
technical support, client inventory, warehousing and fulfillment. The Company
also provides a full range of marketing and database solutions designed to
assist clients in acquiring, retaining and expanding customer relationships. We
design each of our service offerings to accommodate the unique requirements of
Internet-based commerce, making these services available to clients and their
customers, 24 hours per day, 7 days per week.
Onex Corporation ("Onex") formed a Canadian company ("Successor Company")
on April 28, 1998 to acquire the majority of the shares of North Direct
Response, Inc. ("NDR" or "Predecessor Company"). For the period April 28, 1998
through December 17, 1998, the operations of the Successor Company principally
include the operations of their operating subsidiary, NDR. NDR provided customer
contact management services principally in Canada to telecommunications and
technology companies. Subsequent to its acquisition of the Successor Company,
Onex formed ClientLogic on September 25, 1998 to conduct all its business
activities associated with providing customer contact management services. Both
the Successor Company and ClientLogic operated as stand-alone entities. On
October 1, 1998, ClientLogic acquired Upgrade Corporation of America, d/b/a
SOFTBANK Services Group, and The Ivy Group (collectively, "SSG"), a customer
contact management and fulfillment services company offering services primarily
in the United States and on a limited basis in Europe.
Subsequently, on December 17, 1998, the Successor Company was contributed
to ClientLogic. In connection, 11,526,055 outstanding shares of the Successor
Company owned by Onex were exchanged for 11,410,071 newly issued shares of
voting common stock, $0.01 par value, of ClientLogic. In addition, the 3,085,099
minority interest shares held in a subsidiary of the Successor Company were
exchanged for exchangeable preferred shares of the subsidiary. These
exchangeable preferred shares are referred to as the "NDR Minority Interest".
Pursuant to the charter and a related support agreement, (collectively, the
"Agreement"), the NDR Minority Interest has the right to exchange their shares
for 3,054,055 ClientLogic shares, plus any dividends declared on the ClientLogic
shares. NDR Minority Interest shareholders have no voting rights or other rights
of redemption. The outstanding NDR Minority Interest shares were reclassified
from minority interest liability of the subsidiary of the Successor Company to
ClientLogic permanent stockholders' equity at the fair value of the exchangeable
preferred shares of $1.00. The excess of the fair value over the minority
interest liability was recorded as goodwill. In connection with the SSG
acquisition, the NDR Minority Interest shareholders also purchased 2,760,000
newly issued ClientLogic common stock for cash at $1.00 per share.
The contribution of the Successor Company to ClientLogic was accounted for
at historical cost and the entities were not revalued given that both entities
were under Onex common control. For the period of Onex ownership from April 28,
1998 to December 17, 1998, the balance sheet and statements of operations and
cash flows represent the results of the combined accounts of the merged entities
at their historical costs. For the period prior to Onex ownership for the year
ended December 31, 1997 and for the period January 1, 1998 to April 27, 1998,
the balance sheet and statements of operations and cash flows represent the
results of the Predecessor Company.
F-9
<PAGE> 97
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
a) Principles of consolidation
The consolidated financial statements of the Company for the year
ended December 31, 1999 include the financial statements of its
wholly-owned operating subsidiaries including NDR, SSG and 1999
acquisitions of LCS Industries, Inc. ("LCS"), Cordena Call Management B.V.
("Cordena"), Groupe Adverbe International S.A. ("Adverbe") and MarketVision
Inc. ("MarketVision"). All significant intercompany balances and
transactions have been eliminated on consolidation.
The financial statements of the Company for the period from April 28,
1998 to December 31, 1998 include the financial results of the Successor
Company for the period April 28, 1998 through December 17, 1998, the date
the Successor Company was contributed to the Company, with the financial
results of the Company for the period September 25, 1998 through December
31, 1998.
b) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments, such
as term deposits, money market instruments and commercial paper carried
with original maturities of three months or less.
c) Customer remittances payable
Cash collected on behalf of clients from their customers in connection
with the sale of products is remitted to the clients monthly. Such
remittances are not considered revenues of the Company and, as such, are
not reflected in the Company's financial statements. Amounts received but
not yet remitted are accumulated as customer remittances payable and are
classified in the balance sheet as accounts payable.
d) List accounts receivable and accounts payable
Accounts receivable from list marketing activities are recorded at the
gross amount including both the Company's revenue and the amount due to the
list owner. The offsetting liability for the amount due to the list owner
is recorded as accounts payable.
e) Capital assets
Capital assets are carried at cost and depreciated over their
estimated useful lives on a straight-line basis. Estimated useful lives for
the principal asset categories are as follows:
<TABLE>
<S> <C>
Building and improvements............................. Up to 10 years or term of lease
Computer software..................................... 3 to 5 years
Property and equipment................................ 3 to 15 years
Furniture and fixtures................................ 5 to 15 years
</TABLE>
Maintenance and repairs are charged to operations as incurred;
significant betterments are capitalized.
Internal use software costs incurred during the application
development stage are capitalized as incurred. Those costs related to the
development of internal use software, other than those incurred during the
application development stage, are expensed as incurred. Capitalized
internal use software costs are amortized using the straight-line method
over the remaining estimate economic life of the software.
Software production costs for computer software that is to be used as
an integral part of a product or process is not capitalized until both (a)
technological feasibility has been established for
F-10
<PAGE> 98
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the software and (b) all research and development activities for the other
components of the product or process have been completed. Amortization of
these computer software costs commences immediately following technological
feasibility and is computed using the straight-line method over the
remaining economic life of the product.
f) Goodwill
Goodwill represents the excess of cost over the net book value of
assets acquired through acquisitions. Goodwill is presented net of
accumulated amortization and is amortized on a straight-line basis over a
period of fifteen years.
g) Impairment
The Company reviews long-lived assets for impairment on a regular
basis or whenever events or changes in circumstances indicate that the
carrying amount of the long-lived asset may not be recoverable.
Recoverability of long-lived assets is measured by comparison of the
carrying amount of the long-lived assets to the projected future net cash
flows the long-lived assets are expected to generate.
The Company assesses the recoverability of enterprise level goodwill
by determining whether the unamortized goodwill balance can be recovered
through undiscounted projected future net cash flows of the acquired
operation. The amount of enterprise level goodwill impairment, if any, is
measured based on discounted projected future net cash flows.
h) Debt issue costs
Costs related to the acquisition of long term debt are amortized over
the life of the related debt instrument. Amortization of debt issue costs
amounted to $132 during the year ended December 31, 1999. This amount is
recorded as interest expense in the accompanying statement of operations.
i) Revenue recognition
The Company generates revenue principally through its marketing,
customer contact management, and fulfillment services.
Marketing services. The Company's marketing services include
developing, maintaining and providing access to customer information
databases and analyzing this information to identify and address specific
needs of our clients' customers. Revenue for these services are charged
under the terms of database maintenance and analysis arrangements, or per
project or per software license sold. Additionally, the Company performs
list management and list brokerage services, providing a variety of
individual, business and e-mail names and addresses, which the Company
normally obtains from list owners, such as catalog marketers. These
services are typically charged per thousand names provided. Revenue in the
accompanying statement of operations represents the Company's brokerage fee
or management fee and is recognized net of the cost payable to the
underlying list owner, if any.
Customer contact management services. The Company provides customer
service and technical support to our clients' customers through e-mail,
online chat, phone and mail. These services are generally charged by the
minute or per employee, or on a per item basis for each transaction
processed. Revenue is reported net of any telecommunications costs
reimbursed directly by our clients.
Fulfillment services. The Company conducts order and payment
processing, warehousing, inventory management, picking, packing and
shipping and returns processing for our clients. The Company generally
charges for these services per transaction, such as per order processed or
per item returned. Revenue is reported net of any freight costs that are
directly reimbursed by our clients. The
F-11
<PAGE> 99
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company typically does not take title or ownership of any physical goods as
part of its fulfillment services, normally operating only on a
fee-for-service basis.
Software licenses. Software arrangements range from those that provide
a license for a single software product to those that, in addition to the
delivery of software or a software system, require significant production,
modification, or customization of software. If an arrangement to deliver
software or a software system, either alone or together with other products
or services, requires significant production, modification or customization
of software, the entire arrangement is accounted for in conformity with
current accounting guidelines. If the arrangement does not require
significant production, modification or customization of software, the
Company recognizes revenue when all the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred; the
fee is fixed or determinable; and collectibility is probable.
j) Income taxes
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of operating loss
and tax credit carryforwards, and temporary differences between the
carrying amounts and the tax bases of assets and liabilities. No provision
has been made for United States income taxes applicable to undistributed
earnings of foreign subsidiaries as it is the intention of the Company to
indefinitely reinvest those earnings in the operations of those entities.
k) Loss per share
Loss per share amounts reflect the 1997 adoption of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
Basic loss per share is calculated based on net income less preferred stock
dividend requirements, if any, divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
assumes exercise of all contingently issuable shares into common shares at
the beginning of the period or date of issuance, unless the contingently
issuable shares are antidilutive. The following table discloses, by type of
potentially dilutive security, the number of additional common shares that
could potentially dilute earnings per share in the future that were not
included in the computation of diluted earnings per share because to do so
would have been antidilutive for the periods presented:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR COMPANY
-------------------------------------- -------------------------------
COMBINED PERIOD PERIOD FROM
YEAR ENDED FROM APRIL 28, 1998 TO JANUARY 1, 1998 YEAR ENDED
DECEMBER 31, DECEMBER 31, TO APRIL 27, DECEMBER 31,
1999 1998 1998 1997
------------ ---------------------- --------------- ------------
<S> <C> <C> <C> <C>
Stock options.............. 2,912,227 140,156 97,236 --
Convertible securities..... 760,000 135,000 -- --
</TABLE>
Convertible securities include phantom stock units provided under the
Company's deferred compensation plan and convertible debt to the former
shareholders of MarketVision.
l) Foreign currency translation
The accounts of the Company's foreign operations are translated into
U.S. dollars using the current rate method. Assets and liabilities are
translated at the year-end exchange rate and revenue and expenses are
translated at average exchange rates. Gains and losses arising from the
translation of the financial statements of foreign operations are deferred
in a "Comprehensive Income" account included as a separate component of
stockholders' equity.
F-12
<PAGE> 100
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The functional currency of the Company is the U.S. dollar although
certain subsidiaries operate under local currency and convert to U.S.
dollars for reporting purposes. These currencies include the Canadian
dollar, Euro, French franc, U.K. pounds sterling, and Irish punts.
m) Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and
expenses during the reporting period. These items would include
determination of the market value of common shares, costs expected to be
incurred during restructuring, impairment assessments and allowance for
doubtful accounts. Actual results could differ from those estimates.
n) Comparative amounts
Certain amounts presented in the prior year have been reclassified to
conform to the presentation adopted in the current year.
3. ACQUISITIONS
With the exception of NDR, the Company completed certain acquisitions
during 1999 and 1998 which were accounted for as purchases. The results of
operations of the entities acquired are included in the Company's financial
statements from their respective dates of acquisition.
1999 ACQUISITIONS
a) LCS Industries, Inc.
In January 1999, the Company acquired LCS, headquartered in Clifton,
New Jersey. LCS is a provider of marketing services, including e-mail and
mailing lists, order and payment processing, catalog fulfillment and
continuity programs. The total purchase price of $69,300 was financed with
$35,000 cash on hand and $34,300 of indebtedness. In connection with the
acquisition, the Company also acquired the former shareholders' interest in
subsidiaries of LCS for $3,534. This amount is to be paid to the former
shareholders in cash and through the issuance of 225,000 shares of the
Company's common stock. The cash payments are to be made during 2000 and
2001. The issuance of common stock was made in January 2000. The unpaid
balance as of December 31, 1999 is recorded as other current liabilities in
accrued liabilities and other.
b) Cordena Call Management B.V.
In October 1999, the Company acquired Cordena, headquartered in The
Hague, Netherlands. Cordena provides integrated customer relationship
management services and fulfillment services in Europe. The total purchase
price of $24,099 was financed with cash of $19,722, the issuance to Cordena
management and shareholders of 1,172,511 shares of the Company's common
stock with a fair value of $2,638, and $1,739 of in-the-money value of
options and warrants. In addition, the Company contributed $5,217 in cash
to provide for working capital needs. The entire investment in Cordena
amounted to $29,316. Under the earn-out provisions of the purchase
agreement, some of sellers may earn additional cash consideration to a
maximum of $1,822. The earn-out is based on Cordena achieving certain
agreed upon earning targets for the 12 months ending December 31, 1999 or
December 31, 2000. At December 31, 1999 these targets were not met. This
contingent consideration will be recorded as compensation, if and when
earned.
At the acquisition date, the Company agreed to issue 1,783,194 common
shares to the holders of certain options and warrants to purchase shares in
Cordena. The exercise price is equal to the exercise price the holders of
the options and warrants had to purchase shares in Cordena. The holders of
these
F-13
<PAGE> 101
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options and warrants agreed to accept the shares of the Company's common
stock but have yet to exercise these options and warrants as of December
31, 1999. Accordingly, the Company has recorded a liability to these
holders for $1,739, which represents the in-the-money value of these
options and warrants at the date of acquisition. This amount is recorded as
other current liabilities in accrued liabilities and other in the
accompanying balance sheet at December 31, 1999.
A restructuring reserve of $2,211 was recorded to accrued liabilities
at the date of acquisition. This reserve principally relates to anticipated
closings of certain acquired locations, lease termination and exit costs,
severance and other costs. The cost of the restructuring, number and group
of employees to be severed, and cost of providing termination benefits and
other costs are expected to be finalized during early 2000. Should actual
costs incurred differ from the recorded reserve, there will be a related
adjustment to goodwill. The activities that will not be continued as a
result of the restructuring are not considered significant to the Company's
revenues or results of operations.
c) Groupe Adverbe International S.A.
In October 1999, the Company acquired Adverbe, located in France.
Adverbe provides customer contact management services. The total cost of
this purchase was $10,777, which was financed through $8,985 in cash and
the issuance to Adverbe management of 796,235 shares of the Company's
common stock with a fair value of $1,792. Under earn-out provisions of the
purchase agreement, the sellers may earn additional consideration,
consisting of $1,638 in cash and 72,385 shares in the Company's common
stock with a fair value of $162. The earn-out provisions relate to
achieving certain targets that are based on revenues and net earnings for
the 12 months ending December 31, 1999. At the date of acquisition
approximately $1,800 in contingent consideration was recorded as purchase
price since the threshold amounts were attained.
d) MarketVision, Inc.
In December 1999, the Company acquired MarketVision, located in
Denver, Colorado. MarketVision is a creator of customer relationship
management software systems for technology and Web-based companies. The
total purchase price of $22,595 was financed with cash of $12,345, $5,250
of debt and 1,000,000 shares of common stock issuable to MarketVision
management with a fair value of $5,000. Under the earn-out provisions of
the purchase agreement, the sellers may earn additional cash consideration
up to a maximum $750. The agreed upon targets are based on revenue
F-14
<PAGE> 102
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
achievements for the years ending 2000 and 2001. This contingent
consideration will be recorded in compensation, if and when earned.
<TABLE>
<CAPTION>
LCS(A) CORDENA(B) ADVERBE(C) MARKETVISION(D)
-------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 6,118 $ -- $ 191 $ 43
Accounts receivable.................. 23,420 5,783 1,636 939
Other current assets................. 3,538 3,303 1,402 76
Capital assets....................... 6,528 4,427 569 6,472
Other noncurrent assets.............. 2,063 999 267 35
Goodwill............................. 32,836 38,433 9,833 16,264
Intangible assets.................... 23,309 -- -- --
-------- -------- ------- -------
Total identifiable assets............ 97,812 52,945 13,898 23,829
Liabilities assumed.................. (28,512) (28,846) (3,121) (1,234)
-------- -------- ------- -------
Net assets acquired.................. $ 69,300 $ 24,099 $10,777 $22,595
======== ======== ======= =======
Financed by:
Cash............................... $ 35,000 $ 19,722 $ 8,985 $12,345
Debt............................... 34,300 -- -- 5,250
Issues of shares................... -- 2,638 1,792 5,000
Other.............................. -- 1,739 -- --
-------- -------- ------- -------
$ 69,300 $ 24,099 $10,777 $22,595
======== ======== ======= =======
</TABLE>
1998 ACQUISITIONS
a) NDR
In April 1998, Onex formed the Successor Company to effectively
acquire approximately 84% of the stock of NDR. The total purchase price for
this transaction was $12,142. In December 1998, as part of a
reorganization, the Successor Company was contributed to ClientLogic and
all minority shares were exchanged for exchangeable preferred shares
convertible into ClientLogic common stock.
b) SOFTBANK Services Group
In October 1998, the Company acquired all the outstanding stock of
SSG, a leading provider of integrated customer relationship management
services to the electronic commerce marketplace. SSG is headquartered in
Buffalo, New York. The total purchase price of $73,253 was financed with
F-15
<PAGE> 103
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$43,253 in cash and $30,000 of indebtedness. In addition, the Company
contributed $6,747 in cash to provide for working capital needs. The entire
investment in SSG amounted to $80,000.
<TABLE>
<CAPTION>
NDR(A) SSG(B)
------- --------
<S> <C> <C>
Accounts receivable......................................... $ 2,753 $ 9,998
Other current assets........................................ 1,007 2,783
Capital assets.............................................. 3,457 19,824
Other non-current assets.................................... 60 998
Goodwill.................................................... 7,424 57,507
------- --------
Total identifiable assets................................... 14,701 91,110
Liabilities assumed......................................... (2,559) (17,857)
------- --------
Net assets acquired......................................... $12,142 $ 73,253
======= ========
Financed by:
Cash...................................................... $ -- $ 43,253
Debt...................................................... -- 30,000
Issues of shares.......................................... 12,142 --
------- --------
$12,142 $ 73,253
======= ========
</TABLE>
The following pro forma consolidated financial information reflects
the impact of material 1999 and 1998 acquisitions of the Company assuming
the acquisitions had occurred at the beginning of 1998. This pro forma
consolidated financial information has been provided for information
purposes only and is not necessarily indicative of the results of
operations or financial condition that would have been achieved if the
acquisition had been completed on the date indicated or dates reported in
the future as of the beginning of each year. Included in the 1999 and 1998
pro-forma results is $2,763 and $9,396, respectively, of revenues from the
service contract written off in 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $217,342 $177,112
Net loss.................................................... $(53,438) $ (4,812)
Basic loss per share........................................ $ (0.49) $ (0.08)
</TABLE>
4. CAPITAL ASSETS
The composition of capital assets as of each period are as follows:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
DECEMBER 31, 1999
---------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Building and improvements............................. $ 6,234 $ 1,365 $ 4,869
Computer software..................................... 16,411 1,599 14,812
Property and equipment................................ 35,719 8,050 27,669
Furniture and fixtures................................ 6,550 918 5,632
------- ------- -------
$64,914 $11,932 $52,982
======= ======= =======
</TABLE>
F-16
<PAGE> 104
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
DECEMBER 31, 1998
---------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Building and improvements............................. $ 3,916 $ 257 $ 3,659
Computer software..................................... 5,425 15 5,410
Property and equipment................................ 11,590 1,465 10,125
Furniture and fixtures................................ 3,862 92 3,770
------- ------ -------
$24,793 $1,829 $22,964
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
APRIL 27, 1998
--------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------ ------------ --------
<S> <C> <C> <C>
Building and improvements.............................. $ 451 $ 48 $ 403
Property and equipment................................. 1,873 377 1,496
Furniture and fixtures................................. 391 82 309
------ ---- ------
$2,715 $507 $2,208
====== ==== ======
</TABLE>
Capitalized computer software costs in the accompanying balance sheets are
mostly comprised of internal use software acquired direct from vendors or in an
acquisition. To the extent software is acquired in an acquisition, costs
required to further enhance the software following the date technological
feasibility had been established were capitalized.
Amortization of computer software amounted to the following:
<TABLE>
<S> <C>
CLIENTLOGIC CORPORATION
Year ended December 31, 1999................................ $2,112
Combined period from April 28, 1998 to December 31, 1998.... $ 15
</TABLE>
Included in capital assets are the following net book value of capital
leases by period:
<TABLE>
<CAPTION>
CLIENTLOGIC
CORPORATION PREDECESSOR
--------------- COMPANY
DECEMBER 31, -----------
--------------- APRIL 27,
1999 1998 1998
------ ------ -----------
<S> <C> <C> <C>
Property and equipment................................... $8,315 $2,297 $ --
Furniture and fixtures................................... 533 655 235
------ ------ ----
$8,848 $2,952 $235
====== ====== ====
</TABLE>
5. IMPAIRMENT
During 1999, the Company completed a review of intangible assets and
determined that an impairment of the other intangibles associated with the
acquisition of LCS existed.
LCS had developed a specialty service in creating and maintaining
customized marketing databases for domestic and foreign communications
companies. This service was performed under a multi-year contract for one
client. At the time of acquisition, the Company assigned $1,650 to the value of
the contract and $21,659 to the business process methodology involved in
database development. In August 1999 revenues for marketing services were
substantially reduced due to the loss of LCS' sole customer for those services.
As a result of this event, ClientLogic abandoned this activity at LCS. Both the
value
F-17
<PAGE> 105
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assigned to the contract and all associated severance costs and other related
assets were expensed. The revenues for this service had contributed
approximately $2,462 in 1999 from the time of acquisition until the time the
contract was terminated. The database management services contributed
significant revenues and operating income to LCS prior to its acquisition by
ClientLogic. This resulted in a net $22,273 non-cash charge to reflect the
write-down of intangibles attributable to the LCS acquisition.
6. ACCRUED LIABILITIES AND OTHER
The composition of accrued liabilities and other as of each period are as
follows:
<TABLE>
<CAPTION>
CLIENTLOGIC
CORPORATION PREDECESSOR
---------------- COMPANY
DECEMBER 31, -----------
---------------- APRIL 27,
1999 1998 1998
------- ------ -----------
<S> <C> <C> <C>
Accrued expenses............................................ $13,326 $3,026 $100
Accrued salaries and benefits............................... 5,429 1,421 --
Accrued professional fees................................... 3,824 -- --
Accrued income taxes........................................ 2,626 78 --
Other current liabilities................................... 12,348 2,380 --
------- ------ ----
$37,553 $6,905 $100
======= ====== ====
</TABLE>
7. BANK INDEBTEDNESS
Cordena has available an overdraft facility up to a maximum of $4,556. The
facility bears interest at the bank's standard rate plus 1.50% (5.50% at
December 31, 1999) and is secured by shares in its subsidiary companies,
inventory and receivables. At December 31, 1999 $3,324 of the facility had been
used.
The Successor Company and Predecessor Company utilized bank facilities and
demand lines of credit in the aggregate amounts of $3,800 and $520,
respectively, during the period from April 28, 1998 through December 31, 1998
and the period from January 1, 1998 to April 27, 1998, respectively. These lines
bore interest at prime plus 0.25% to 1.75% and were secured by a general
security agreement covering all assets and a general assignment of accounts
receivable. As of December 31, 1998 and April 27, 1998, the Successor Company
and Predecessor Company had $343 and $404, respectively, outstanding on these
facilities.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR
------------------------ COMPANY
DECEMBER 31, -----------
------------------------ APRIL 27,
1999 1998 1998
---------- --------- -----------
<S> <C> <C> <C>
Revolving Credit Facility................................. $ 23,400(a) $ -- $ --
Term Credit Facility...................................... 60,000(b) 30,000(e) --
Term Loans................................................ 15,128(c) -- --
Other..................................................... 3,127(d) 1,925(f) 1,748(g)
-------- ------- ------
101,655 31,925 1,748
Less: Long-term debt maturing within one year............. 12,017 71 --
-------- ------- ------
$ 89,638 $31,854 $1,748
======== ======= ======
</TABLE>
During May 1999, the Company refinanced and consolidated its existing term
debt from the SSG and LCS acquisitions into one $60,000 term credit facility. It
also replaced its previous $15,000 revolving credit
F-18
<PAGE> 106
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
facility with a $40,000 revolving credit facility to fund capital expenditures,
future acquisitions and working capital requirements.
a) The revolving credit facility provides for floating rate advances
and/or Eurodollar advances as selected at the time of the advance up to a
maximum $40,000. A $15,000 component of this facility, which expires on May
25, 2006, is available based on 75% of eligible receivables. At December
31, 1999 the Company had fully utilized this component of this facility.
The remaining $25,000 is reduced by outstanding letters of credit and is
not subject to any borrowing base requirements. At December 31, 1999 there
was an outstanding letter of credit for $300. This component is reduced to
$12,250 in May 2002 and will expire in May 2003. Floating rate advances
bear interest at the bank's base rate plus a premium of 0.00% to 2.00%. The
premium is based on the debt to cash flow ratio at specific times. At
December 31, 1999, the premium was 2.00% on outstanding advances.
Eurodollar advances bear interest at the LIBOR rate plus 1.00% to 3.00%,
based on the same ratios. At December 31, 1999 the premium ranged from
2.50% to 3.00% on outstanding advances. The interest rates applicable at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
ADVANCE AMOUNT INTEREST RATE
- -------------- -------------
<C> <S> <C>
$4,400 .................................................... 10.50%
4,000 .................................................... 9.50%
9,000 .................................................... 9.00%
6,000 .................................................... 8.69%
-------
$23,400
=======
</TABLE>
The effective interest rate on this facility, after considering
amortization of related debt issue costs, approximated 9.9% during the year
ended December 31, 1999.
The revolving credit facility provides for a quarterly commitment fee,
which is calculated by ratios prescribed in the agreement. The revolving
credit facility is secured by substantially all of the Company's North
American assets. Under the provisions of the agreement, if the Company
either achieves cash flows in excess of certain defined amounts or sells
significant assets, it generally will be required to make early repayments
of this facility.
b) The term credit facility provides for floating rate advances and/or
Eurodollar advances, as selected at the time of borrowing up to a maximum
of $60,000. Floating rate advances bear interest at the bank's base rate
plus a premium of 0.75% to 2.25% on the date of the advance. At December
31, 1999, the premium was 2.25%. Eurodollar advances bear interest at the
LIBOR rate plus a premium of 1.75% to 3.25%. At December 31, 1999, the
premium was 3.25% on any new advances. The lender is a subsidiary of the
Company's parent, Onex Corporation. It is secured by substantially all of
the Company's assets and ranks pari passu with the revolving credit
facility. There is no recourse to Onex on this credit facility. The average
interest rates at December 31, 1999 and 1998 were 9.63% and 8.31%
respectively. The effective interest rate on this facility, after
considering amortization of related debt issue costs, approximated 8.6%
during the year ended December 31, 1999. The facility is payable in four
varying annual installments commencing May 25, 2003. Under the provisions
of the agreement, if the Company achieves cash flows in excess of certain
defined amounts or sells significant assets, it generally will be required
to make early repayments of this facility.
c) A subsidiary of the Company has a term loan of $9,878, bearing
interest at LIBOR plus 1.875% (8.475% at December 31, 1999). The loan is
secured by a pledge of shares in its subsidiary companies, inventory and
receivables and is due during the next fiscal year.
F-19
<PAGE> 107
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A subsidiary of the Company has $5,250 of notes payable to its former
stockholders. The notes bear interest at a rate of 8.3% and are due in five
equal consecutive annual installments of $1,050 commencing in December
2000. These notes are subordinated to the $60,000 term and the $40,000
revolving credit facility. The holders of the Notes may elect to be paid in
cash or shares of the Company's stock at each respective payment date. If
the election of the holder is to be paid in shares of the Company's stock,
the number of shares to be issued will be determined by market value at the
date of election.
d) The Company has an obligation of $2,872 to the former shareholders
of a subsidiary of LCS. The obligation, which is recorded at present value,
bears interest at a rate of 8.75%. Payments of $1,013, including principal
and interest, are due in annual installments commencing in January 2000.
e) The $30,000 debt facility in 1998 was with a subsidiary of the
Company's parent, Onex. The facility provided for both floating rate
advances and/or Euro dollar advances, as selected at the time of borrowing.
This facility was secured by substantially all of the Company's assets, and
was paid off in May 1999.
f) Of the other debt at December 31, 1998, $1,628 bore interest at
9.5% and was secured by the assets of the Successor Company. During 1999,
this term loan was paid in full and all security agreements were
terminated.
g) In April 1997, the Predecessor Company signed an agreement with a
minority shareholder for a term loan of $1,748 bearing interest at 9.5%.
This amount was repaid in full at the time of Onex's acquisition of the
Predecessor Company.
The Company is required under the terms of various credit facilities and
term loans to maintain certain financial ratios. The financing arrangements
contain certain restrictive covenants, including limitations or prohibitions on
additional indebtedness, payment of cash dividends, redemption of stock, capital
spending, investments, acquisitions and asset sales. At December 31, 1999 the
Company was in compliance with all the various covenants.
The annual minimum repayment requirements for the next five years are as
follows:
<TABLE>
<S> <C>
2000...................................... $12,017
2001...................................... $ 2,076
2002...................................... $ 2,042
2003...................................... $ 9,950
2004...................................... $18,050
</TABLE>
9. CAPITAL STOCK
Authorized
10,000,000 preferred shares, par value $0.01 per share issuable in series.
The Board of Directors will determine the voting rights, dividend policy and
conversion rights, when and if this class of stock is issued.
150,000,000 common shares, par value $0.01 per share entitled to one vote
per share and to receive dividends as declared.
F-20
<PAGE> 108
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Issued and outstanding
<TABLE>
<CAPTION>
PREDECESSOR
CLIENTLOGIC CORPORATION COMPANY
------------------------ -----------
DECEMBER 31, APRIL 27,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Preferred shares........................................ -- -- --
Common shares........................................... 111,011,277 61,410,071 10,309,300
</TABLE>
Common Stock Issuable
At December 6, 1999, the Company's Board of Directors had approved the
issuance of 1,000,000 common shares in connection with the acquisition of
MarketVision. These shares have been issued during January 2000.
Options
The Company applies APB No. 25, "Accounting for Stock Issued to Employees"
in accounting for its stock option plans. Accordingly, no compensation expense
is charged to earnings for options that have an exercise price at least equal to
100% of the fair market value of the stock at the date of grant.
The Company may grant non-qualified stock options to officers, employees
and advisers at an exercise price equal to 100% of market price, and incentive
stock options to officers and other key employees at an exercise price not less
than 100% of market price, up to an aggregate of 9,306,376 options. Generally,
the options may be exercised in cumulative annual increments of 25% commencing
one year from the date of grant and expire ten years from the date of grant. The
options vest over varying periods, typically four years.
The following table summarizes the option plans' activity in non-qualified
options for the periods indicated:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance at January 1, 1997................... -- $ --
--------- -----
Granted.................................... 559,953 0.45
--------- -----
Balance at December 31, 1997................. 559,953 0.45 559,953 $0.45
========= ===== ======= =====
Granted.................................... 40,000 0.87
Forfeited.................................. (37,217) 0.49
--------- -----
Balance at April 27, 1998.................... 562,736 0.46 562,736 0.46
--------- ----- ------- -----
__________________________________________________________________________________________
CLIENTLOGIC CORPORATION
Granted.................................... 2,878,924 $1.06
--------- -----
Balance at December 31, 1998................. 2,878,924 1.06 247,483 $0.41
--------- ----- ------- -----
Granted.................................... 1,615,470 2.04
Forfeited.................................. (127,574) 1.48
Exercised.................................. (1,650) 0.82
--------- -----
Balance at December 31, 1999................. 4,365,170 $1.41 409,321 $0.82
========= ===== ======= =====
</TABLE>
F-21
<PAGE> 109
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the option plans' activity in incentive
stock options for the periods indicated:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
CLIENTLOGIC CORPORATION
Balance at September 25, 1998................ -- $ --
Granted.................................... 1,887,735 1.50
Forfeited.................................. (200) 1.50
--------- -----
Balance at December 31, 1998................. 1,887,535 1.50 -- $ --
--------- ----- ------- -----
Granted.................................... 2,223,190 2.64
Forfeited.................................. (642,410) 1.60
Exercised.................................. (23,850) 1.50
--------- -----
Balance at December 31, 1999................. 3,444,465 $2.22 345,786 $1.50
========= ===== ======= =====
</TABLE>
Options outstanding at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE EXERCISABLE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE OPTIONS
- --------------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
$0.41 - $1.05.............................. 2,277,700 4.5 years $0.94 257,383
$1.20 - $1.75.............................. 3,964,866 9.2 years $1.53 497,724
$2.25 - $3.50.............................. 1,184,069 9.9 years $2.96 --
$5.00 - $7.50.............................. 383,000 9.9 years $5.36 --
</TABLE>
The fair value of the options issued was determined using the Black-Scholes
option consistency pricing model with the following assumptions:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Risk-free rate.................. 5.47% 4.41% 5.72% 6.17%
Dividend yield rate............. 0% 0% 0% 0%
Volatility factor of the
expected market price of the
Company's shares.............. 80% 80% 80% 80%
Weighted-average expected
term.......................... 9.5 years 8.67 years 4 years 4 years
Weighted-average fmv equal(1)... $0.8609 $0.3272 $0.1717 $0.0967
Weighted-average fmv
greater(2).................... -- $0.6128 -- --
Weighted-average fmv less(3).... $0.6477 $0.0265 -- --
</TABLE>
- ---------------
(1) Weighted average fair market value for options with fair market value of the
stock on the date of grant equal to the exercise price.
(2) Weighted average fair market value for options with fair market value of the
stock on the date of grant greater than the exercise price.
(3) Weighted average fair market value for options with fair market value of the
stock on the date of grant less than the exercise price.
F-22
<PAGE> 110
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had the Company adopted the provisions of SFAS 123, "Accounting for Stock
Based Compensation," expense for options granted would have resulted in the pro
forma net loss and basic loss per share as follows:
<TABLE>
<CAPTION>
BASIC LOSS
NET LOSS PER SHARE
-------- ----------
<S> <C> <C>
CLIENTLOGIC CORPORATION
Year ended December 31, 1999.............................. $46,130 $(0.48)
Combined period from April 28, 1998 to December 31,
1998................................................... $ 2,943 $(0.10)
PREDECESSOR COMPANY
Period from January 1, 1998 to April 27, 1998............. $ 331 $(0.03)
Year ended December 31, 1997.............................. $ 781 $(0.08)
</TABLE>
10. INCOME TAXES
Loss before income taxes consisted of:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Domestic........................ $(39,863) $(1,509) $ -- $ --
Foreign......................... (5,248) (1,171) (330) (735)
-------- ------- ----- -----
Total................. $(45,111) $(2,680) $(330) $(735)
======== ======= ===== =====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Current tax provision:
U.S. Federal.................. $ -- $-- $ -- $ --
State and local............... 182 50 -- --
Foreign....................... 1,211 15 -- --
------- --- ----- -----
Total current tax
provision........... 1,393 65 -- --
------- --- ----- -----
Deferred tax provision:
U.S. Federal.................. (1,170) -- -- --
State and local............... 71 -- -- --
Foreign....................... 28 -- -- --
------- --- ----- -----
Total deferred tax
provision........... (1,071) -- -- --
------- --- ----- -----
Total provision for
income.............. $ 322 $65 $ -- $ --
======= === ===== =====
</TABLE>
F-23
<PAGE> 111
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax loss from continuing operations as a result of the following:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Tax at statutory U.S. tax
rate...................... $(15,789) $(938) $(115) $(257)
State and local taxes, less
federal effect............ 164 33 -- --
Amortization of goodwill.... 1,871 -- -- --
Write-down of goodwill...... 8,212 -- -- --
Unremitted earnings and tax
rate differences of
foreign subsidiaries...... 153 13 (32) (71)
Valuation allowance......... 5,649 957 147 328
Other....................... 62 -- -- --
-------- ----- ----- -----
$ 322 $ 65 $ -- $ --
======== ===== ===== =====
</TABLE>
Deferred tax assets (liabilities) consisted of the following:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR
------------------------ COMPANY
DECEMBER 31, -----------
------------------------ APRIL 27,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Operating loss carryforwards................................ $ 14,516 $ 7,982 $ 298
Accrued liabilities and reserves............................ 2,286 128 --
Other....................................................... 531 495 28
-------- ------- -----
Total deferred tax assets......................... 17,333 8,605 326
-------- ------- -----
Capital assets.............................................. (1,548) -- --
Other....................................................... (323) (78) --
-------- ------- -----
Total deferred tax liabilities.................... (1,871) (78) --
-------- ------- -----
Net deferred tax assets..................................... 15,462 8,527 326
Valuation allowance......................................... (10,628) (8,527) (326)
-------- ------- -----
$ 4,834 $ -- $ --
======== ======= =====
</TABLE>
At December 31, 1999 the Company had approximately $22,204 of U.S. federal
operating loss carryforwards of which approximately $12,749 is related to SSG
and subject to certain limitations.
The carryforwards expire beginning in 2006. The Company also has foreign
operating loss carryforwards in the following jurisdictions, which begin to
expire at the dates indicted:
<TABLE>
<S> <C> <C>
United Kingdom........................................ $3,540 Indefinite carryforward
Ireland............................................... $1,809 Indefinite carryforward
Canada................................................ $2,479 2003
Germany............................................... $4,526 Indefinite carryforward
Switzerland........................................... $2,361 2001
Norway................................................ $1,327 2007
</TABLE>
F-24
<PAGE> 112
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net change in the valuation allowance from 1998 includes the effect of
operating loss carryforwards acquired in the 1999 acquisition of Cordena for
which no benefit has been recognized. The subsequent recognition of these
acquired tax benefits of approximately $2,200 will reduce any goodwill related
to this acquisition remaining at the time the losses are recognized. In
addition, the Company reduced the valuation allowance applied against U.S.
operating loss carryforwards of $10,728 based upon future taxable income
projections including the planned distribution of InsLogic. This resulted in a
reduction to goodwill recorded on the acquisition of SSG of $3,570 and a
deferred tax benefit of $1,170. The subsequent recognition of the remaining
acquired tax benefits (related to SSG's acquisition) of approximately $1,400 at
December 31, 1999 will reduce any goodwill remaining at the time the losses are
recognized. Acquired tax benefits of approximately $410 related to the Company's
1998 acquisition of NDR, when recognized, will also reduce any remaining
goodwill.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. Undistributed earnings amounted to approximately $1,468
at December 31, 1999. If earnings of such foreign subsidiaries were not
reinvested, the resulting U.S. tax would be substantially offset by the
utilization of operating loss carryforwards. In addition, foreign withholding
taxes would be imposed on actual distributions.
11. FORMATION OF INSLOGIC AND SUBSIDIARY PREFERRED STOCK
In 1999, the Company purchased certain of the assets and assumed certain of
the liabilities of Canadian Access Corporation, a provider of customer contact
management and software development for the insurance industry principally in
Canada. These purchases were the basis of the formation of InsLogic.com Holding
Corporation ("InsLogic"), a wholly-owned subsidiary of the Company.
During 1999, the subsidiary issued $5,263 in preferred stock. This
preferred stock has no dividend rate, is non-cumulative, and is convertible into
common stock of InsLogic at the option of the holder at an initial conversion
rate of $0.50 per share. The holders of the preferred stock earn dividends if
and when declared by InsLogic, as consistent with common shareholders, but must
be paid dividends prior to common shareholders. Preferred shareholders vote on
an as converted basis at an initial conversion rate of $0.50. At December 31,
1999, the preferred shareholders have the right to elect one of the five
directors of InsLogic. If all the preferred shares were converted to common
shares, the preferred shareholders would own approximately 17% of InsLogic.
Included in the consolidated results of the Company at December 31, 1999
are $6,829 of assets and $146 of liabilities of InsLogic. InsLogic operated at a
net loss of $976 during the year ended December 31, 1999. The minority interest
share of InsLogic losses during the year ended December 31, 1999 was $205. This
amount is recorded as selling, general and administrative expenses in the
accompanying statement of operations.
As of January 2000, the Company adopted a resolution to dividend its
holdings of its investment in InsLogic to its stockholders. As of the date of
this report, the distribution has not been completed, however, it is expected to
occur before the Company's initial public offering. At the time of this
distribution, the shares of InsLogic will be distributed to existing
shareholders at historical cost.
F-25
<PAGE> 113
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. EMPLOYEE BENEFITS AND COMPENSATION
The Company sponsors various employee retirement plans. In the United
States, the Company sponsors a 401k savings plan that covers substantially all
U.S. employees. In both Canada and Europe, the Company sponsors similar defined
contribution plans.
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR COMPANY
------------------------------------- --------------------------------------
COMBINED
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Expenses relating to Company
sponsored pension plans.... $335 $41 $ -- $ --
</TABLE>
The Company also has certain employment contracts that entitle the
employees to stock compensation in the form of stock options.
The Company employs various stock plans which offer employees stock
options/shares at an exercise price considered below fair value, including a
deferred compensation plan that allowed certain members of management to defer a
portion of their salary in return for shares of phantom stock of the Company.
The phantom stock is exercisable at the election of the holder and payable in
cash or common stock of the Company, as at the election of the holder. Upon
exercise, the holder of the phantom stock receives the number of shares held in
the plan at the fair market value of the common stock of the Company at the
exercise date.
APB 25, "Accounting for Stock Issued to Employees," states that for
purposes of compensation expense, a charge equal to the aggregate difference
between the fair value of the underlying common shares and the exercise price
must be included in income. For the period ending December 31, 1999 and the
combined period from April 28, 1998 to December 31, 1998, the Company recorded a
non-cash compensation charge in selling, general and administrative expense of
$3,594 and $285, respectively, related to the above.
13. RELATED PARTY TRANSACTIONS
The Company entered into a ten-year management and oversight agreement
effective as of January 1, 1999 and a financial services agreement as of May 1,
1999 with an affiliate of the Company's parent, Onex. Under the terms of these
agreements, the Company pays an annual management fee of $600 and a fee
associated with any acquisitions calculated at 1.5% of the transaction value. In
1999, the Company expensed management-related fees of $600 and capitalized
acquisition-related fees of $1,776 relating to the above. At December 31, 1999,
the Company had a receivable from this related party of $798. Management
believes that the fees charged were reasonable in relation to the services
provided. The Company had paid this same party $750 in 1998 for similar
services.
The Company had a secured note receivable outstanding from an executive
employee for home relocation of $439 at December 31, 1999. The majority of this
amount is due in early 2000.
14. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
The carrying amount of cash, short-term investments, accounts receivable,
accounts payable and term loans approximate fair value due to the short-term
nature of these instruments.
F-26
<PAGE> 114
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of the Company's long-term debt, including the current
portion thereof, is estimated based on the current trading value, where
available, or with reference to similarly traded instruments with similar terms.
In the opinion of the Company, the carrying amount of these financial
instruments approximates fair value.
15. LEASE COMMITMENTS
The Company leases certain equipment under capital and operating leases
that expire over the next five years. Interest on the capital leases is
calculated at annual rates ranging from 3.44% to 9.87%. Future minimum lease
payments under non-cancelable operating leases, with initial or remaining lease
terms in excess of one year, and future minimum capital lease payments as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
2000...................................................... $3,525 $10,589
2001...................................................... 3,089 8,505
2002...................................................... 1,633 7,264
2003...................................................... 680 7,176
2004...................................................... 371 6,590
Thereafter................................................ -- 24,780
------ -------
Total minimum lease payments...................... 9,298 $64,904
=======
Less: Amount representing interest........................ 1,302
------
Present value of net minimum capital lease payments....... 7,996
Less current installments of obligations under capital
leases................................................. 2,726
------
Long-term obligations under capital leases................ $5,270
======
</TABLE>
Rent expense under operating leases for the periods indicated amounted to
the following:
<TABLE>
<S> <C>
CLIENTLOGIC CORPORATION
Year ended December 31, 1999.............................. $8,135
Combined period from April 28 to December 31, 1998........ $1,164
PREDECESSOR COMPANY
Period from January 1 to April 27, 1998................... $ 102
Year ended December 31, 1997.............................. $ 123
</TABLE>
16. OTHER
During October 1999, there was a gain of $3,395 realized from the sale of
one of the foreign subsidiary's investments. In addition, during December 1999,
there was a loss of $2,968 from the write-off of certain of the Company's
capital assets. Both of these amounts were recorded to selling, general and
administrative expense in the accompanying statement of operations.
17. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries may become subject to legal claims arising
in the ordinary course of business. It is management's opinion that the
resolution of known claims should not have a material adverse impact on the
financial position of the Company. There can be no assurance, however, that
unforeseen circumstances will not result in significant costs.
F-27
<PAGE> 115
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a contingent liability with the Irish government that
is related to its continued occupancy of its facilities in Ireland with a
covenant to maintain agreed levels of employment at those facilities.
18. SIGNIFICANT CUSTOMERS AND CONCENTRATED CREDIT RISK
During the year ended December 31, 1999, no single customer accounted for
more than 10% of the Company's revenue. During the combined period April 28,
1998 through December 31, 1998, one customer's revenue accounted for
approximately 18% of the revenue. During the period January 1, 1998 through
April 27, 1998 and the year ended December 31, 1997, no single customer
accounted for more than 10% of the Company's revenue.
Accounts receivable from the aforementioned customer accounted for
approximately $1,340 at December 31, 1998. The Company maintains allowances for
credit losses considered adequate to absorb estimated credit-related losses.
19. SEGMENTED INFORMATION
The Company operates as an integrated business and therefore has no
segmented operational data. The following is a breakdown of financial results by
geographical segment:
<TABLE>
<CAPTION>
UNITED STATES CANADA EUROPE TOTAL
------------- ------- ------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1999
Revenue.......................................... $144,265 $10,024 $23,502 $177,791
Total assets..................................... $209,658 $17,015 $76,405 $303,078
For the combined period April 28, 1998 through
December 31, 1998
Revenue.......................................... $ 17,440 $ 6,910 $ 2,933 $ 27,283
Total assets..................................... $ 90,794 $16,608 $ 6,383 $113,785
</TABLE>
For the period January 1, 1998 through April 27, 1998 and for the year
ended December 31, 1997, most revenue and total assets of the Predecessor
Company were in Canada.
20. SUBSEQUENT EVENTS
During the holiday season, the shipping volume for one of the Company's
customers grew significantly. In order to meet this increased demand, the
Company had to expend considerable time and effort, including overtime and
reallocating personnel. These costs were expensed during 1999. Despite the best
efforts of the Company, problems were encountered with the related fulfillment
of customer orders. As a result, management estimated the need for a $500
reserve against the customers' accounts receivable balance. The customer's
accounts receivable balance at December 31, 1999 was $2.1 million, which
consisted of $500 in net revenues billed and $1.6 million in freight costs
re-billed to the customer.
During March 2000, the Company reached a settlement with this customer that
provided for $700 to be placed in escrow and paid to the Company following the
return of the customer merchandise. The settlement also provides for the escrow
amount to be reduced for any inventory shrink. Based on the Company's estimate
of costs to return the merchandise and related inventory shrink, an additional
reserve of $1.4 million was recorded in the December 31, 1999 financial records.
In addition to the above, during March 2000, the Company's compensation
committee approved the payment of a $100 bonus to one of its executives based on
1999 performance. The bonus can be paid in cash or used to acquire a number of
common shares equal to the amount of the bonus divided by $1.50.
F-28
<PAGE> 116
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
This resulted in a non-cash stock compensation charge of $567 that was recorded
in the December 31, 1999 financial records.
21. RECENT ACCOUNTING PRONOUNCEMENTS
In January 1999, the Company adopted SFAS No. 130 "Comprehensive Income".
Comprehensive income is defined as the "change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources". Under this statement, the term "comprehensive income"
is used to describe the total net earnings plus other comprehensive income or
loss. For the Company, other comprehensive loss includes currency translation
adjustments on foreign subsidiaries.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133",
which deferred the required date of adoption of SFAS No. 133 for one year, to
fiscal years beginning after June 15, 2000. At adoption, existing hedging
relationships must be designated anew and documented pursuant to the provisions
of the Statement. The Company expects the adoption of SFAS No. 133 will have no
material impact on its financial position, results of operations or cash flows.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. The
Company adopted SOP 98-5 during its fiscal year ended December 31, 1999 with no
material impact on financial position, results of operations or cash flows.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company adopted SOP 98-1 during fiscal year
ended December 31, 1999 with no material impact on financial position, results
of operations or cash flows.
F-29
<PAGE> 117
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
22. COMBINED PERIOD
The following table presents the results of the operating companies that
comprise the combined statements of operations for the period April 28, 1998
through December 31, 1998 in the financial statements.
<TABLE>
<CAPTION>
CLIENTLOGIC SUCCESSOR
CORPORATION COMPANY
--------------------- -----------------
PERIOD FROM PERIOD FROM
SEPTEMBER 25, 1998 TO APRIL 28, 1998 TO
DECEMBER 31, 1998 DECEMBER 17, 1998 COMBINED
--------------------- ----------------- --------
<S> <C> <C> <C>
Revenue......................................... $20,373 $ 6,910 $27,283
Cost and expenses
Cost of services.............................. 11,728 4,625 16,353
Selling, general and administrative
expenses................................... 6,839 2,613 9,452
Depreciation expense.......................... 1,518 382 1,900
Amortization expense.......................... 959 378 1,337
------- ------- -------
Operating loss.................................. (671) (1,088) (1,759)
Interest expense, net........................... 813 108 921
------- ------- -------
Loss before income taxes........................ (1,484) (1,196) (2,680)
Income taxes.................................... 65 -- 65
------- ------- -------
Net loss........................................ $(1,549) $(1,196) $(2,745)
======= ======= =======
</TABLE>
F-30
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Upgrade Corporation of America and Subsidiary
(d/b/a SOFTBANK Services Group) and The Ivy Group Limited, (both wholly-owned
subsidiaries of SOFTBANK Holdings, Inc.)
In our opinion, the accompanying combined balance sheets at December 31,
1997 and 1996 and related combined statements of operations, stockholders'
deficit and cash flows present fairly, in all material respects, the financial
position of Upgrade Corporation of America and subsidiary, (d/b/a SOFTBANK
Services Group) and The Ivy Group Limited at December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSE COOPERS, LLP
PricewaterhouseCoopers, LLP
Buffalo, New York
January 21, 2000
F-31
<PAGE> 119
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,582,357 $ 2,107,841
Inventory................................................. 412,592 114,026
Trade accounts receivable less allowance for doubtful
accounts of $511,864 in 1997, $493,529 in 1996......... 14,821,562 17,722,806
Related party receivables................................. 625,178 2,451,059
Prepayments and other current assets...................... 1,905,217 2,013,367
------------ -----------
19,346,906 24,409,099
------------ -----------
Equipment and improvements, net............................. 20,224,664 20,503,645
Notes receivable............................................ 634,040 --
Other assets................................................ 816,057 1,335,250
------------ -----------
Total assets...................................... $ 41,021,667 $46,247,994
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt......................... $ 480,371 $ 593,570
Current portion of leases................................. 898,002 719,511
Trade accounts payable.................................... 9,999,561 15,011,565
Related party payables.................................... 4,427,561 2,872,368
Accrual................................................... 8,424,841 7,392,538
Other current liabilities................................. 376,345 485,489
------------ -----------
24,606,681 27,075,041
------------ -----------
Long-term debt.............................................. 16,384,486 15,114,864
Long-term lease obligations................................. 1,482,912 1,910,150
Deferred income and other................................... 533,333 100,000
------------ -----------
Total liabilities................................. 43,007,412 44,200,055
------------ -----------
Redeemable preferred shares................................. 10,085,966 5,085,966
Stockholders' deficit:
Common shares............................................. 129,448 127,090
Additional paid-in-capital................................ 6,090,597 6,052,900
Accumulated deficit....................................... (17,979,075) (9,069,646)
Foreign currency translation adjustment................... (312,681) (148,371)
------------ -----------
Total stockholders' deficit....................... (12,071,711) (3,038,027)
------------ -----------
Total liabilities and stockholders' deficit....... $ 41,021,667 $46,247,994
============ ===========
</TABLE>
See accompanying notes to financial statements
F-32
<PAGE> 120
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue..................................................... $ 74,630,299 $ 63,334,494
Cost of services............................................ (44,273,371) (33,573,934)
------------ ------------
Gross profit................................................ 30,356,928 29,760,560
Selling, general and administrative expenses................ 37,695,667 34,854,524
Loss on abandonment of software development project......... -- 1,550,000
------------ ------------
Operating loss.............................................. (7,338,739) (6,643,964)
Other (income) expense:
Interest expense and similar charges...................... 1,835,780 1,195,573
Other, net................................................ (232,453) (200,390)
------------ ------------
Loss before income taxes.................................... (8,942,066) (7,639,147)
Income taxes (benefit)...................................... (32,637) 5,908
------------ ------------
Net loss.......................................... $ (8,909,429) $ (7,645,055)
============ ============
</TABLE>
See accompanying notes to financial statements
F-33
<PAGE> 121
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
CURRENCY TOTAL
COMMON ADDITIONAL ACCUMULATED TRANSLATION STOCKHOLDERS'
STOCK PAID-IN CAPITAL DEFICIT ADJUSTMENT DEFICIT
-------- --------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
SOFTBANK SERVICES GROUP
Balance at December 31,
1995....................... $108,978 $5,519,812 $ (1,599,525) $ (21,081) $ 4,008,184
Net loss..................... -- -- (5,617,814) -- (5,617,814)
Stock options exercised...... 131 19,392 -- -- 19,523
Dividends paid............... -- (190,558) -- -- (190,558)
Foreign currency translation
adjustment................. -- -- -- 70,222 70,222
-------- ---------- ------------ --------- ------------
Balance at December 31,
1996....................... 109,109 5,348,646 (7,217,339) 49,141 (1,710,443)
Net loss..................... -- -- (7,235,424) -- (7,235,424)
Stock options exercised...... 2,358 387,697 -- -- 390,055
Dividends declared........... -- (350,000) -- -- (350,000)
Foreign currency translation
adjustment................. -- -- -- (210,970) (210,970)
-------- ---------- ------------ --------- ------------
Balance at December 31,
1997....................... $111,467 $5,386,343 $(14,452,763) $(161,829) $ (9,116,782)
======== ========== ============ ========= ============
THE IVY GROUP LIMITED
Ivy Group common stock....... $ 17,981 $ 709,477 $ 174,934 $ -- $ 902,392
Net loss..................... -- -- (2,027,241) -- (2,027,241)
Dividends.................... -- (5,223) -- -- (5,223)
Foreign currency translation
adjustment................. -- -- -- (197,512) (197,512)
-------- ---------- ------------ --------- ------------
Balance at December 31,
1996....................... 17,981 704,254 (1,852,307) (197,512) (1,327,584)
Net loss..................... -- -- (1,674,005) -- (1,674,005)
Foreign currency translation
adjustment................. -- -- -- 46,660 46,660
-------- ---------- ------------ --------- ------------
Balance at December 31,
1997....................... $ 17,981 $ 704,254 $ (3,526,312) $(150,852) $ (2,954,929)
======== ========== ============ ========= ============
COMBINED STOCKHOLDERS'
DEFICIT AT DECEMBER 31,
1996....................... $127,090 $6,052,900 $ (9,069,646) $(148,371) $ (3,038,027)
======== ========== ============ ========= ============
COMBINED STOCKHOLDERS'
DEFICIT AT DECEMBER 31,
1997....................... $129,448 $6,090,597 $(17,979,075) $(312,681) $(12,071,711)
======== ========== ============ ========= ============
</TABLE>
See accompanying notes to financial statements
F-34
<PAGE> 122
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Net cash relating to operating activities:
Net loss.................................................. $(8,909,429) $ (7,645,054)
Adjustments to reconcile net loss to net cash relating to
operating activities:
Depreciation and amortization.......................... 5,776,404 4,384,240
Provision for allowance of doubtful accounts........... 18,335 (1,471)
(Gain)loss on disposal of equipment.................... (5,626) 2,616,252
Deferred income........................................ 433,333 --
Translation adjustment................................. (196,206) (101,325)
Increase(decrease) in cash due to changes in:
Inventory.............................................. (298,566) (75,131)
Trade receivables...................................... 2,901,244 (3,547,478)
Related party receivables.............................. 1,825,881 (2,229,819)
Prepaid expenses and other current assets.............. 108,150 (135,841)
Other assets........................................... 519,193 (497,497)
Trade accounts payable................................. (5,012,004) 1,120,308
Related party payables................................. 1,555,193 2,725,840
Accruals............................................... 1,032,303 985,734
Other current liabilities.............................. (109,144) (333,540)
----------- ------------
Net cash provided(used) by operations....................... (360,939) (2,734,782)
Net cash relating to investing activities:
Proceeds from maturities of investment securities......... -- --
Notes receivable.......................................... (634,040) --
Equipment disposal proceeds............................... 52,666 314,631
Additions to equipment.................................... (5,530,793) (10,053,551)
Assets acquired upon acquisition.......................... -- --
----------- ------------
Net cash provided(used) by investing activities............. (6,112,167) (9,738,920)
Net cash relating to financing activities:
Proceeds from issuance of redeemable preferred stock...... -- 5,000,000
Proceeds from long-term advance from affiliate............ 9,250,000 11,940,000
Repayments of long term debt.............................. (2,593,578) (8,725,309)
Dividend paid............................................. (190,558) (1,232,768)
Proceeds from stock options exercised..................... 212,187 19,523
Capital lease repayments.................................. (730,429) (297,506)
----------- ------------
Net cash provided(used) by financing activities............. 5,947,622 6,703,940
----------- ------------
Increase(decrease) in cash.................................. (525,484) (5,769,762)
Cash -- beginning of period................................. 2,107,841 7,877,603
----------- ------------
Cash -- end of period....................................... $ 1,582,357 $ 2,107,841
=========== ============
Supplemental cash flow disclosures:
Interest payments......................................... $ 573,760 $ 989,041
Income taxes.............................................. 38,178 --
Noncash activities:
Conversion of revolving loan to preferred stock........... $ 5,000,000 $ --
Capital lease obligations incurred........................ 495,516 1,979,139
Dividends accrued, not paid............................... 350,000 190,558
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE> 123
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. PRINCIPLES OF COMBINATION
The combined financial statements include the financial statements of
SOFTBANK Services Group consolidated with its wholly-owned subsidiary UCA&L
Limited ("SSG Group") and combined with The Ivy Group Limited ("Ivy Group")
which is consolidated with its wholly owned subsidiaries Professional Support
Center Limited ("PSC") and Avalan Technology Limited ("Avalan") for 1997 and
1996 (collectively referred to as the "Company"). The SSG Group and the Ivy
Group are sister companies under the common control of SOFTBANK Holdings, Inc.
both performing common activities. All significant intercompany balances and
transactions have been eliminated on combination.
2. BUSINESS
The Company provides a range of services including direct to end-user
telesales, customer care, technical support and product fulfillment, primarily
to computer software and hardware manufacturers. The Company holds software
inventory on consignment from the manufacturers and is responsible for packaging
and shipping products to customers. The accompanying combined statements of
operations reflect, as revenues, the sum of fees earned by the Company. Third
party charges include freight, credit card, telephone and other costs for which
the Company is reimbursed by the manufacturers.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Cash Equivalents
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
B. Equipment and Improvements
Furniture, equipment and motor vehicles are stated at cost or
valuation less depreciation. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets.
Estimated useful lives range from four to fifteen years. Leasehold
improvements are amortized on the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Computer software includes incremental costs incurred in connection
with the development of software for use by the Company. Such costs are
amortized over the estimated useful life at the time the software is placed
in use.
C. Customer Remittances Payable
Cash collected on behalf of the manufacturers from their customers in
connection with software sales is generally remitted to the manufacturers
monthly. Amounts received but not yet remitted are accumulated as customer
remittances payable.
D. Fee Revenue
Telephone fees are recognized as income at a stated rate per minute.
Fulfillment fees are recognized as income upon shipment of the software
product to the customer.
E. Income Taxes
U.S. Federal taxable income of SSG Group is included in the
consolidated U.S. Federal income tax return of SOFTBANK Holdings, Inc., the
majority shareholder. The portion of the consolidated Federal income tax
provision allocated to SSG Group is that which would result if the Company
filed
F-36
<PAGE> 124
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
a Federal income tax return on a stand-alone basis. The Company's foreign
subsidiaries file in various foreign jurisdictions on a stand-alone basis.
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
operating loss and tax credit carryforwards, and temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
F. Translation of Foreign Currencies
The Company's assets and liabilities are translated into U.S. dollars
at the rate of exchange in effect at the balance sheet date. Income and
expense items are translated at the average exchange rates prevailing
during the period. Gains and losses resulting from foreign currency
transactions are recognized currently in income and those resulting from
translation of financial statements are accumulated as a separate component
of stockholders' equity.
G. Fair Value of Financial Instruments
The estimated fair value of all financial instruments approximate
their carrying amounts in the balance sheet. Such financial instruments
include cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, and long-term debt.
H. Concentration of Credit Risk
The Company grants credit to domestic and foreign microcomputer
software manufacturers. Exposure to losses on receivables is principally
dependent on each customer's financial condition. The Company monitors its
exposure to credit losses and maintains allowances for anticipated losses.
I. Use of Estimates
Management has made estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
J. Reclassifications
Certain reclassifications have been made to the financial statements
to conform with the current year presentation.
4. RELATED PARTY TRANSACTIONS
UCA&L paid management fees totaling $364,016 to an affiliate in the UK for
shared administrative and executive resources. Also included in accounts
receivable from affiliates at December 31, 1997, is a $465,316 demand note from
an affiliate. The note bears interest at 8% and is unsecured.
Included in notes receivable at December 31, 1997 is a $440,000 note from a
related party. The note bears interest at 7% and is secured by a first priority
security interest in the related party's intellectual property, licenses,
contract rights, patents and trade secrets. SSG Group also has notes receivable
with three former executives of the company totaling $177,872. All three notes
bear interest at 8%, mature by the year 2001, and are secured by common stock in
the company that is owned by each of the former executives.
F-37
<PAGE> 125
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Included in related party payables at December 31, 1997 is $4,427,561
($2,758,372 at December 31, 1996) owed to SOFTBANK Holdings, Inc. Substantially
all of the balance payable relates to interest and dividends due on a revolving
loan agreement, redeemable preferred stock and working capital requirements.
5. EQUIPMENT AND IMPROVEMENTS
Total equipment and leasehold improvements and related accumulated
depreciation consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Furniture and equipment.................................... $20,657,896 $17,917,740
Leasehold improvements..................................... 5,462,385 5,271,435
Computer software.......................................... 6,891,502 4,554,873
Motor vehicles............................................. 263,594 353,140
----------- -----------
33,275,377 28,097,188
Less accumulated depreciation and amortization............. 13,050,713 7,593,543
----------- -----------
Net equipment and improvements............................. $20,224,664 $20,503,645
=========== ===========
</TABLE>
Depreciation and amortization expense amounted to $5,457,170 in 1997 and
$3,879,925 in 1996.
6. BORROWINGS
Total borrowings consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revolving loan............................................. $15,690,000 $11,940,000
Term notes payable to:
Banks.................................................... 799,976 3,199,984
Regional Development Corporation......................... 10,417 135,417
Buffalo Enterprise Development Corporation............... 364,463 433,033
----------- -----------
16,864,856 15,708,434
Less current portion of long-term debt..................... 480,371 593,570
----------- -----------
$16,384,485 $15,114,864
=========== ===========
</TABLE>
SSG Group maintains a $22,000,000 revolving loan agreement with SOFTBANK
Holdings, Inc. The facility bears interest at a rate of SOFTBANK Holdings' cash
investment rate plus .50% (6.47% at December 31, 1997) and is payable October 1,
2001. SOFTBANK Holdings has subordinated $15 million of its revolving loan to
the term note and other credit facilities with a bank as described below.
SSG Group has a $799,976 term note with a bank at December 31, 1997. The
note bears interest at the prime rate plus 3/4% (9.25% at December 31, 1997).
Principal installments of $33,334, plus interest, are due through December 1999.
At December 31, 1996, the Company also had a $2,000,000 term note with another
bank bearing interest at the federal funds rate plus .25%. This note was fully
paid during 1997.
The term note to the Regional Development Corporation (RDC) bears interest
at 6%, is secured by substantially all the assets of SSG Group, is guaranteed by
certain stockholders of SSG Group and matures in January 1998.
F-38
<PAGE> 126
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The term note to the Buffalo Enterprises Development Corporation bears
interest at 2%, is secured by all the assets of the Company and is subordinate
to the lines of credit and the RDC term loan. Monthly principal and interest
payments of $6,384 are due through December 2002.
SSG Group also maintains a $6,500,000 working capital line of credit and a
$3,500,000 capital expenditures line of credit with a bank. The facilities bear
interest at the lower of the bank's prime rate or the Eurodollar rate plus 2%,
and are secured by substantially all assets of the Company. There were no
outstanding borrowings on these facilities at December 31, 1997 and 1996. The
working capital line of credit expires in December 1998. The capital
expenditures line expires in 2001. Availability of funds under the capital
expenditures line is reduced by $750,000 in 1998 and each subsequent year until
expiration.
The debt agreements include certain restrictions concerning capital
expenditures, dividends, and advances to and from affiliates. In addition, SSG
Group is also required to meet certain financial covenants including those
relating to the maintenance of minimum tangible net worth, minimum net working
capital, minimum current ratio, minimum debt-to-equity ratio, and minimum debt
service coverage ratio, each as defined in their respective agreements. SSG
Group failed to meet certain restrictions and financial covenants as required by
the agreements at December 31, 1997; however, SSG Group's lenders have waived
these events of default.
The aggregate maturities of long-term debt for each of the next five years
are as follows: 1998, $480,379; 1999, $471,334; 2000, $72,807; 2001,
$15,764,276; and 2002, $76,059.
There was no long-term debt in The Ivy Group.
7. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital and operating leases
that expire over the next five years. Interest on the capital leases is
calculated at annual rates ranging from 6.71% to 12.57%. Future minimum lease
payments under noncancelable operating leases, with initial or remaining lease
terms in excess of one year, and future minimum capital lease payments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ------------
<S> <C> <C>
Year ending December 31:
1998.................................................... $1,090,794 $(10,000,000)
1999.................................................... 746,771
2000.................................................... 495,304
2001.................................................... 343,375
2002.................................................... 27,071
Thereafter.............................................. --
---------- ------------
Total minimum lease payments.................... $2,703,315 $(10,000,000)
========== ============
Less amount representing interest......................... 322,401
----------
Present value of net minimum capital lease payments....... 2,380,914
Less current installments of obligations under capital
leases.................................................. 898,002
----------
Long-term obligations under capital leases................ $1,482,912
==========
</TABLE>
Rent expense was $5,053,184 in 1997 and $4,206,672 in 1996.
F-39
<PAGE> 127
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of equipment and related accumulated amortization recorded under
capital leases at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment................................................... $3,202,543 $2,612,729
Less accumulated amortization............................... 965,273 256,587
---------- ----------
$2,237,270 $2,356,142
========== ==========
</TABLE>
8. STOCKHOLDERS' EQUITY
Capital stock for SSG Group at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Common stock, $.01 par value. 15,500,000 shares authorized;
issued and outstanding 11,146,785 and 10,190,939 shares at
December 31, 1997 and 1996, respectively.................. $111,467 $109,109
======== ========
</TABLE>
Capital stock for the Ivy Group at December 31, 1997 and 1996 consists of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Common shares, 10,500 shares authorized, issued and
outstanding at December 31, 1997 and 1996................. $17,981 $17,981
======= =======
</TABLE>
9. PREFERRED SHARES
Preferred shares for SSG Group at December 31, 1997 and 1996 consists of
the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Redeemable preferred stock (Series 1), $100 par value.
100,000 and 50,000 shares authorized, issued and
outstanding at December 31, 1997 and 1996, respectively... $10,000,000 $5,000,000
=========== ==========
</TABLE>
During June 1996, SSG Group issued preferred stock in its entirety to
SOFTBANK Holdings, Inc. The stock entitles SOFTBANK Holdings, Inc. to 7%
cumulative annual dividends payable quarterly, and to certain preferences
including preference in the payment of dividends. Beginning on June 1, 2001, the
stock is redeemable, at a price per share equal to $100, plus all accrued and
unpaid dividends thereon. Dividends of $190,558 are accrued at December 31,
1996.
During December 1997, SSG Group issued 50,000 preferred shares to SOFTBANK
Holdings, Inc. SSG Group used the proceeds to retire $5,000,000 of the
outstanding revolving loan with the parent company. The preferred stock entitles
SOFTBANK Holdings, Inc. to 7% cumulative annual dividends payable quarterly, and
to certain preferences including the payment of dividends. Beginning on June l,
2001, the stock is redeemable, at a price per share equal to $100, plus all
accrued and unpaid dividends thereon. At December 31, 1997, SOFTBANK Holdings,
Inc. holds all of the preferred shares issued and outstanding in their entirety.
Dividends of $540,562 are accrued at December 31, 1997.
F-40
<PAGE> 128
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred shares for the Ivy Group at December 31, 1997 and 1996 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
2,000 'A' Redeemable Preference Shares, 2,000 shares
authorized, issued and outstanding at December 31, 1997
and 1996.................................................. $ 3,425 $ 3,425
320,000 9% 'A' Redeemable Preference Shares, 320,000 shares
authorized, issued and outstanding at December 31, 1997
and 1996.................................................. 5,480 5,480
14,167 5% 'A' Redeemable Preference Shares, 14,167 shares
authorized, no shares issued or outstanding at December
31, 1997 and 1996......................................... -- --
28,333 8% 'B' Redeemable Preference Shares, 28,333 shares
issued, authorized and outstanding at December 31, 1997
and 1996.................................................. 48,520 48,520
8,333 10% 'B' Redeemable Preference Shares, 8,333 shares
issued, no shares issued or outstanding at December 31,
1997 and 1996............................................. -- --
16,667 10% 'C' Redeemable Preference Shares, 16,667 shares
authorized, issued and outstanding at December 31, 1997
and 1996.................................................. 28,541 28,541
15,000 0% 'C' Redeemable Preference Shares, 15,000 shares
authorized, no shares issued and outstanding at December
31, 1997 and 1996......................................... -- --
------- -------
$85,966 $85,966
======= =======
</TABLE>
The 'B' and 'C' redeemable preference shares are redeemable over three
years in equal tranches starting on April 1, 1996. They are repayable at par
consideration. No shares have been redeemed during 1997 or 1996.
10. STOCK OPTIONS
At December 31, 1997, SSG Group has three stock-based compensation plans,
which are described below. SSG Group applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for any of the stock option plans as stock options granted
under these plans have an exercise price equal to 100% of the market price on
the date of grant.
Had compensation cost for SSG Group stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the pro forma effect on
SSG Group 1997 and 1996 net losses is indicated below (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Net loss: As reported....................................... $ 8,909 $7,645
Pro forma......................................... 10,150 7,785
</TABLE>
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1997 and 1996, respectively: risk-free interest rates ranging from 5.64% to
6.78% in 1997 and 1996 expected lives of 9.5 years for both years; and dividend
yield and volatility of 0 percent for both years.
INCENTIVE STOCK OPTION PLANS
SSG Group's incentive stock option plans provide for granting officers and
other key employees stock options to acquire up to an aggregate of 2,060,000
common shares at an exercise price of not less than 100% of the fair market
value of the shares on the date of grant. These options are exercisable at the
rate of 25% per year commencing on the date of grant and expire ten years from
the date of grant.
F-41
<PAGE> 129
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of SSG Group's incentive stock option plans as of
December 31, 1997 and 1996, and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of year............ 1,116,787 $1.80 906,384 $1.51
Granted................................... 471,900 2.50 234,500 2.50
Exercised................................. (236,890) 1.65 (13,106) 1.49
Forfeited................................. (419,085) 2.19 (100,991) 1.48
--------- ---------
Outstanding, end of year.................. 932,712 2.00 1,026,787 1.80
========= =========
Options exercisable at year-end........... 384,829 475,814
Weighted-average fair value of options.... $ 1.22 $ 1.07
</TABLE>
The following table summarizes information about incentive stock options
outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- WEIGHTED- -------------------
NUMBER AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING EXERCISABLE AT
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE DECEMBER 31, 1997
- --------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
$0.25.................................. 10,000 5 years 10,000
0.40.................................. 94,312 6 years 83,204
1.00.................................. 20,000 7 years 15,000
1.80.................................. 307,000 8 years 254,000
2.50.................................. 501,400 9 years 22,625
------- -------
932,712 384,829
======= =======
</TABLE>
NON-QUALIFIED STOCK OPTION PLAN:
SSG Group's Non-Qualified Stock Option Plan provides for granting officers
and employees as well as non-employee directors and advisers to acquire an
aggregate of 650,000 common shares at exercise prices ranging from $.40 to
$2.50. The options may be exercised in cumulative annual increments of 25%
commencing one year after date of grant. A summary of the status of the plan as
of December 31, 1997 and 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of year................ 27,905 $0.40 27,905 $0.40
Granted....................................... 551,875 2.47 -- --
Exercised..................................... -- -- -- --
Forfeited..................................... -- -- -- --
------- ------
Outstanding, end of year...................... 579,780 2.37 27,905 0.40
======= ======
Options exercisable at year-end............... 34,780 27,905
Weighted-average fair value of options........ $1.21 $ --
</TABLE>
F-42
<PAGE> 130
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about non-qualified stock
options outstanding at December 31 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- WEIGHTED- -------------------
NUMBER AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING EXERCISABLE AT
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE DECEMBER 31, 1997
- --------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
$0.40.................................. 27,905 7 years 27,905
1.80.................................. 3,750 9 years --
2.20.................................. 48,125 9 years 6,875
2.50.................................. 500,000 9 years --
------- ------
579,780 34,780
======= ======
</TABLE>
There are no stock option plans within The Ivy Group.
11. 401(k) SAVINGS PLAN
SSG Group sponsors a 401(k) Savings Plan for all employees with more than
one year of service. Participants may elect to defer up to 15% of their annual
compensation. The Company matches 25% of each dollar of employee contributions,
up to the first 4% of compensation deferred by each participant. Such employer
contributions vest over five years. Expense recognized related to the plan was
$80,621 in 1997 and $80,113 in 1996.
12. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Current tax provision
U.S. Federal.............................................. $ -- $ --
State..................................................... -- --
Foreign................................................... (32,637) 5,908
-------- ------
Total current tax provision....................... $(32,637) $5,908
======== ======
</TABLE>
The provision for income taxes differs from the "expected" tax expense
computed by applying the U.S. federal statutory rate of 35% to the loss before
income taxes primarily due to state and foreign taxes and the valuation
allowance.
Deferred income taxes result principally from net operating loss
carryforwards and from temporary differences between the accounting and tax
bases of equipment and improvements and various reserves. The deferred tax
assets and liabilities at December 31, 1997 and 1996 are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- ------------
<S> <C> <C>
Deferred tax assets..................................... $ 7,234,511 $ 3,436,497
Less: Valuation allowance............................... (6,725,511) (3,027,497)
----------- -----------
Net deferred tax assets................................. 509,000 409,000
Deferred tax liabilities................................ (509,000) (409,000)
----------- -----------
Net deferred taxes...................................... $ -- $ --
=========== ===========
</TABLE>
F-43
<PAGE> 131
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the Company has U.S. federal operating loss
carryforwards of approximately $13,475,000 which begin to expire in 2008. The
utilization of the operating loss carryforwards may be limited as a result of
certain ownership changes that occurred during 1995. The Company has operating
loss carryforwards of approximately $334,000 and $3,734,000 in Ireland and the
United Kingdom, respectively, which have an unlimited carryforward period.
13. RELOCATION AND OTHER COSTS
During 1997, SSG Group transferred its Union City, California warehouse
operations to the master distribution center in Grove City, Ohio. In conjunction
with the transfer of these operations, SSG Group incurred one-time costs
totaling $511,000, including a loss on the disposal of certain capital assets
totaling $149,000. SSG Group also incurred $241,000 for severance arrangements
in conjunction with the elimination of certain positions. These amounts are
included in selling, general and administrative costs.
During 1996, SSG Group transferred its Monterey, California call center and
Salinas, California warehouse operations to new facilities in Las Vegas, Nevada,
the Grove City, Ohio, respectively, which were opened in that year. In
conjunction with the transfer of these operations, the Company incurred one-
time costs totaling $2,077,988, including a loss on the disposal of certain
capital assets totaling $1,066,252, and a provision of $394,630 for anticipated
expenses pending completion of the transfer. These amounts are included in
selling, general and administrative costs.
14. ABANDONMENT OF SOFTWARE DEVELOPMENT PROJECT
Included in the SSG Group 1996 results is $1,550,000 of costs associated
with an internal software development project that was abandoned.
F-44
<PAGE> 132
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,205,150 $ 1,582,357
Inventory................................................. 104,602 412,592
Trade accounts receivable less allowance for doubtful
accounts of $287,165 at September 30, 1998 and $511,864
at December 31,
1997................................................... 10,185,846 14,821,562
Related party receivables................................. 1,059,325 625,178
Prepayments and other current assets...................... 1,025,583 1,905,217
------------ ------------
13,580,506 19,346,906
------------ ------------
Equipment and improvements, net............................. 19,827,186 20,224,664
Notes receivable............................................ 1,200,082 634,040
Other assets................................................ 827,949 816,057
------------ ------------
Total assets...................................... $ 35,435,723 $ 41,021,667
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt......................... $ 393,511 $ 480,371
Short-term bank debt...................................... 3,515,995 --
Current portion of leases................................. 641,960 898,002
Trade accounts payable.................................... 7,696,371 9,999,561
Related party payables.................................... 3,690,503 4,427,561
Accruals.................................................. 3,787,038 8,424,841
Other current liabilities................................. 2,376,605 376,345
------------ ------------
22,101,983 24,606,681
------------ ------------
Long-term debt.............................................. 15,931,117 16,384,486
Long-term lease obligations................................. 1,678,957 1,482,912
Deferred income............................................. 317,299 533,333
------------ ------------
Total liabilities................................. 40,029,356 43,007,412
------------ ------------
Redeemable preferred shares................................. 10,085,966 10,085,966
Stockholders' Deficit
Common shares............................................. 381,449 129,448
Additional paid-in capital................................ 10,692,001 6,090,597
Accumulated deficit....................................... (25,272,852) (17,979,075)
Foreign currency translation adjustment................... (480,197) (312,681)
------------ ------------
Total stockholders' deficit....................... (14,679,599) (12,071,711)
------------ ------------
Total liabilities and stockholders' deficit....... $ 35,435,723 $ 41,021,667
============ ============
</TABLE>
F-45
<PAGE> 133
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue..................................................... $ 49,106,982 $ 54,278,402
Cost of services............................................ (30,025,148) (32,498,122)
------------ ------------
Gross profit................................................ 19,081,834 21,780,280
Selling, general and administrative expenses................ 25,242,171 29,312,268
------------ ------------
Operating loss.............................................. (6,160,337) (7,531,988)
Other (income) expense:
Interest expense and similar charges...................... 1,135,887 1,251,579
Other, net................................................ (2,447) (185,274)
------------ ------------
Loss before income taxes.................................... (7,293,777) (8,598,293)
Income taxes................................................ -- 6,172
------------ ------------
Net loss.................................................... $ (7,293,777) $ (8,604,465)
============ ============
</TABLE>
F-46
<PAGE> 134
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL DEFICIT ADJUSTMENT DEFICIT
----------- ----------- ------------ ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SOFTBANK SERVICES GROUP
Balance at December 31,
1996....................... $109,109 $ 5,348,646 $ (7,217,339) $ 49,141 $ (1,710,443)
Net loss................... -- -- (6,865,625) -- (6,865,625)
Stock options exercised.... 1,895 341,552 -- -- 343,447
Dividends declared......... -- (262,503) -- -- (262,503)
Foreign currency
translation
adjustment.............. -- -- -- (125,788) (125,788)
-------- ----------- ------------ --------- ------------
Balance at September 30,
1997....................... $111,004 $ 5,427,695 $(14,082,964) $ (76,647) $ (8,620,912)
======== =========== ============ ========= ============
Balance at December 31,
1997....................... 111,467 5,386,343 (14,452,763) (161,829) (9,116,782)
Net loss................... -- -- (5,430,972) -- (5,430,972)
Stock options exercised.... 2,352 383,084 -- -- 385,436
Dividends declared......... -- (525,006) -- -- (525,006)
Foreign currency
translation
adjustment.............. -- -- -- 21,418 21,418
-------- ----------- ------------ --------- ------------
Balance at September 30,
1998....................... $113,819 $ 5,244,421 $(19,883,735) $(140,411) $(14,665,906)
======== =========== ============ ========= ============
THE IVY GROUP LIMITED
Balance at December 31,
1996....................... 17,981 704,254 (1,852,307) (197,512) (1,327,584)
Net loss................... -- -- (1,738,840) -- (1,738,840)
Foreign currency
translation
adjustment.............. -- -- -- 80,203 80,203
-------- ----------- ------------ --------- ------------
Balance at September 30,
1997....................... $ 17,981 $ 704,254 $ (3,591,147) $(117,309) $ (2,986,221)
======== =========== ============ ========= ============
Balance at December 31,
1997....................... 17,981 704,254 (3,526,312) (150,852) (2,954,929)
Issuance of common stock... 249,649 4,743,326 -- -- 4,992,975
Net loss................... -- -- (1,862,805) -- (1,862,805)
Foreign currency
translation
adjustment.............. -- -- -- (188,934) (188,934)
-------- ----------- ------------ --------- ------------
Balance at September 30,
1998....................... $267,630 $ 5,447,580 $ (5,389,117) $(339,786) $ (13,693)
======== =========== ============ ========= ============
COMBINED STOCKHOLDERS'
DEFICIT AT SEPTEMBER 30,
1997....................... $128,985 $ 6,131,949 $(17,674,111) $(193,956) $(11,607,133)
======== =========== ============ ========= ============
COMBINED STOCKHOLDERS'
DEFICIT AT SEPTEMBER 30,
1998....................... $381,449 $10,692,001 $(25,272,852) $(480,197) $(14,679,599)
======== =========== ============ ========= ============
</TABLE>
F-47
<PAGE> 135
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net cash relating to operating activities:
Net loss.................................................. $ (7,293,777) $(8,604,465)
Adjustments to reconcile net loss to net cash relating to
operating activities:
Depreciation........................................... 4,667,841 4,250,844
Provision for allowance of doubtful accounts........... (224,699) (1,456)
(Loss)/profit on disposal of equipment................. (7,251) --
Deferred income........................................ (216,034) 433,333
Translation adjustment................................. (234,675) (160,352)
Increase (decrease) in cash due to changes in:
Inventory.............................................. 307,990 (103,759)
Trade receivables...................................... 4,635,716 (877,734)
Related party receivables.............................. (434,147) 1,750,986
Prepayments and other current assets................... 879,634 (368,811)
Other assets........................................... (11,892) (218,305)
Notes receivable....................................... (566,042) 11,234
Trade accounts payable................................. (2,303,190) (4,684,715)
Related party payables................................. (737,058) 1,580,152
Accruals............................................... (4,637,803) 947,519
Other current liabilities.............................. 2,000,260 (218,674)
------------ -----------
Net cash provided/(used) by operations............ (4,175,127) (6,264,203)
Net cash relating to investing activities:
Equipment disposal proceeds............................... (249,709) 4,077
Additions to equipment.................................... (4,020,654) (2,999,006)
Capital leases............................................ -- (240,023)
------------ -----------
Net cash provided/(used) by investing activities............ (4,270,363) (3,234,952)
Net cash relating to financing activities:
Repayments of long-term debt.............................. 2,981,767 9,004,945
Dividend paid............................................. (525,006) --
Proceeds from stock options exercised..................... 383,084 (262,503)
Proceeds from issuance of stock........................... 4,995,327 343,449
Capital lease repayments.................................. 233,111 (149,541)
------------ -----------
Net cash provided/(used) by financing activities............ 8,068,283 8,936,350
Decrease in cash............................................ (377,207) (562,805)
------------ -----------
Cash -- beginning of period................................. 1,582,357 2,107,841
Cash -- end of period....................................... $ 1,205,150 $ 1,545,036
============ ===========
</TABLE>
F-48
<PAGE> 136
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
1. PRINCIPLES OF COMBINATION
The interim financial data as of September 30, 1998 and for the nine months
ended September 30, 1997 and the nine months ended September 30, 1998 is
unaudited. In the opinion of management, the financial statements reflect all
adjustments, consisting of normal recurring adjustments of the Company, in
accordance with generally accepted accounting principles applicable to interim
periods. The financial statements do not include all of the information and
footnotes required by generally accepted accounting principles. The accompanying
combined unaudited financial statements should be read in conjunction with the
December 31, 1997 combined audited financial statements of SOFTBANK Services
Group and the Ivy Group Limited. Interim results of operations are not
necessarily indicative of results for the full year.
The combined financial statements include the financial statements of
SOFTBANK Services Group consolidated with its wholly-owned subsidiary UCA&L
Limited ("SSG Group") and combined with The Ivy Group Limited ("Ivy Group")
which is consolidated with its wholly owned subsidiaries Professional Support
Centre Limited ("PSC"), and Avalan Inc. ("Avalan"), (collectively referred to as
the "Company"). The SSG Group and the Ivy Group are sister companies under the
common control of SOFTBANK Holdings, Inc. both performing common activities. All
significant intercompany balances and transactions have been eliminated on
combination.
2. BUSINESS
The Company provides a range of services including direct to end-user
telesales, customer care, technical support, product fulfillment, and Internet
commerce, primarily to computer software and hardware manufacturers. The Company
holds software inventory on consignment from the manufacturers and is
responsible for packaging and shipping products to customers. The accompanying
combined statements of operations reflect, as gross revenues, the sum of fees
earned by the Company. Third party charges include freight, credit card,
telephone and other costs for which the Company is reimbursed by the
manufacturers.
3. RELATED PARTY TRANSACTIONS
Included in related party receivables at September 30, 1998 is $1,049,221
in cash advances to an affiliate in the UK. The advances are for working capital
requirements and bear interest at 7%.
Included in notes receivable at September 30, 1998 is a $599,907 note from
a related party. The note bears interest at 9% and is secured by a first
priority security interest in the related party's intellectual property,
licenses, contract rights, patents and trade secrets. The Company also has notes
receivable with four former executives of the Company totaling $537,872. All
four notes bear interest at 8%, mature by the year 2001, and are secured by
common stock in the Company that is owned by each of the former executives.
Included in related party payables at September 30, 1998 is $2,978,014 owed
to SOFTBANK Holdings, Inc. Substantially all of the balance payable relates to
interest and dividends due on a revolving loan agreement and preferred stock.
F-49
<PAGE> 137
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. BORROWINGS
Total borrowings consist of the following at September 30, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Revolving loan..................................... $15,690,000 $15,690,000
Line of credit..................................... 3,515,995 --
Term notes payable to:
Banks............................................ 328,510 799,976
Regional Development Corporation................. -- 10,417
Buffalo Enterprise Development Corporation....... 312,118 364,463
----------- -----------
19,846,623 16,864,856
Less current portion of long-term debt............. 3,915,506 480,371
----------- -----------
$15,931,117 $16,384,485
=========== ===========
</TABLE>
The Company maintains a $22,000,000 revolving loan agreement with SOFTBANK
Holdings, Inc. The facility bears interest at a rate of SOFTBANK Holdings' cash
investment rate plus .50% (6.08% at September 30, 1998) and is payable October
1, 2001. SOFTBANK Holdings has subordinated $15 million of its revolving loan to
the term note and other credit facilities with a bank as described in the
paragraph below.
The Company has a $328,510 term note with a bank at September 30, 1998. The
note bears interest at the prime rate plus 3/4%. Principal installments of
$33,334, plus interest, are due through December 1999.
The term note to the Buffalo Enterprises Development Corporation bears
interest at 2%, is secured by all the assets of the Company and is subordinate
to the lines of credit and the RDC term loan. Monthly principal and interest
payments of $6,384 are due through December 2002.
The Company also maintains a $6,500,000 working capital line of credit with
a bank. The facility bears interest at the lower of the bank's prime rate or the
Eurodollar rate plus 2%, and is secured by substantially all assets of the
Company. The Company has $3,200,000 of outstanding borrowings at September 30,
1998. The working capital line of credit expires in December 1998.
The aggregate maturities of long-term debt for each of the next five years
are as follows: 1999, $3,915,506; 2000, $72,807; 2001, $15,782,251; and 2002,
$76,059.
F-50
<PAGE> 138
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
LCS Industries, Inc.
Clifton, New Jersey
We have audited the accompanying consolidated balance sheets of LCS
Industries, Inc. and Subsidiaries (the "Company") as of September 30, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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
misstatements. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of LCS Industries, Inc. and its
Subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Parsippany, NJ
November 3, 1998
(December 17, 1998, as to Note 18)
F-51
<PAGE> 139
LCS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $19,702,803 $14,619,271
Investments -- held-to-maturity........................... 11,479,120 14,410,101
Accounts receivable (less allowance for doubtful accounts:
1998 -- $502,000 and 1997 -- $496,000)................. 22,020,995 23,163,774
Prepaid expenses and other current assets................. 1,623,264 1,460,990
Deferred taxes............................................ 295,000 684,000
----------- -----------
Total current assets.............................. 55,121,182 54,338,136
----------- -----------
Investments -- available for sale, net...................... -- 123,708
Property and equipment, net................................. 6,452,529 7,093,790
Goodwill (net of accumulated amortization:
1998 -- $1,092,553 and 1997 -- $806,204).................. 6,994,628 7,280,977
Other assets................................................ 811,022 672,656
----------- -----------
Total assets...................................... $69,379,361 $69,509,267
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $13,691,193 $14,798,326
Accrued salaries and commissions.......................... 2,311,796 3,127,141
Other accrued expenses.................................... 2,993,400 3,899,876
Income taxes payable...................................... 151,210 290,407
Current portion of long-term debt......................... 1,026,147 1,087,511
Current portion of capital lease obligations.............. -- 211,580
Deferred revenue.......................................... -- 4,124,699
----------- -----------
Total current liabilities................................... 20,173,746 27,539,540
----------- -----------
Long-term debt, net of current portion...................... 2,574,598 3,444,533
Deferred taxes.............................................. 107,000 249,000
Deferred compensation....................................... 313,922 --
Commitments and contingencies
Stockholders' Equity:
Preferred stock $.01 par value; authorized 1,000,000
shares; issued -- none................................. -- --
Common stock $.01 par value; authorized 15,000,000 shares;
issued 1998 -- 5,111,899 shares and 1997 -- 4,854,847
shares................................................. 51,119 48,548
Common stock issuable..................................... 1,071,532 1,490,431
Additional paid-in capital................................ 10,424,048 8,702,971
Retained earnings......................................... 35,368,901 28,245,206
----------- -----------
46,915,600 38,487,156
Less: Treasury stock, at cost; 1998 -- 214,663 shares and
1997 -- 187,766 shares.................................... (705,505) (207,953)
Available-for-sale securities valuation adjustment, net of
deferred income taxes.................................. -- (3,009)
----------- -----------
Total stockholders' equity........................ 46,210,095 38,276,194
----------- -----------
$69,379,361 $69,509,267
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-52
<PAGE> 140
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net sales............................................ $94,209,365 $100,627,292 $95,570,436
Cost of sales........................................ 65,973,405 69,383,846 66,120,153
----------- ------------ -----------
Gross profit....................................... 28,235,960 31,243,446 29,450,283
Selling and administrative expenses.................. 16,533,318 17,905,852 16,678,548
Other (income) expense:
Dividend and interest income....................... (1,631,706) (1,442,707) (990,108)
Interest expense................................... 332,874 443,642 437,198
Other (income) expense............................. (210,000) 1,914,000 --
----------- ------------ -----------
Income before income taxes........................... 13,211,474 12,422,659 13,324,645
Provision for income taxes........................... 5,376,000 5,436,000 5,487,000
----------- ------------ -----------
Net income........................................... $ 7,835,474 $ 6,986,659 $ 7,837,645
=========== ============ ===========
Per common and common equivalent share:
Basic earnings..................................... $ 1.63 $ 1.51 $ 1.81
=========== ============ ===========
Diluted earnings................................... $ 1.52 $ 1.37 $ 1.53
=========== ============ ===========
Dividends.......................................... $ 0.15 $ 0.14 $ 0.09
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements
F-53
<PAGE> 141
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK --
$.01 PAR VALUE COMMON ADDITIONAL AT COST
-------------------- STOCK PAID-IN RETAINED --------------------
BALANCE SHARES AMOUNT ISSUABLE CAPITAL EARNINGS SHARES AMOUNT
- ------- ---------- ------- ---------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
October 1, 1995................. 4,347,886 $43,479 $2,407,521 $ 5,431,455 $14,451,854 $187,766 $(207,953)
Acquisition of Catalog
Resources, Inc.
Common stock issued......... 34,621 346 (461,538) 461,192 -- -- --
Exercise of stock options..... 216,903 2,169 -- 617,504 -- -- --
Stock dividend -- converted
shares...................... 360 4 -- 251 -- -- --
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... 11,717 117 -- 153,861 -- -- --
Dividends paid................ -- -- -- -- (401,762) -- --
Valuation adjustment, net..... -- -- -- -- -- -- --
Tax benefit of exercise of
stock options............... -- -- -- 559,000 -- -- --
Net income.................... -- -- -- -- 7,837,645 -- --
---------- ------- ---------- ----------- ----------- -------- ---------
September 30, 1996.............. 4,611,487 46,115 1,945,983 7,223,263 21,887,737 187,766 (207,953)
---------- ------- ---------- ----------- ----------- -------- ---------
Acquisition of Catalog
Resources, Inc.
Common stock issued......... 38,762 388 (455,552) 455,164 -- -- --
Exercise of stock options..... 195,675 1,956 -- 517,543 -- -- --
Stock dividend -- converted
shares...................... 318 3 -- 218 -- -- --
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... 8,605 86 -- 106,783 -- -- --
Dividends paid................ -- -- -- -- (629,190) -- --
Valuation adjustment, net..... -- -- -- -- -- -- --
Tax benefit of exercise of
stock options............... -- -- -- 400,000 -- -- --
Net income.................... -- -- -- -- 6,986,659 -- --
---------- ------- ---------- ----------- ----------- -------- ---------
September 30, 1997.............. 4,854,847 48,548 1,490,431 8,702,971 28,245,206 187,766 (207,953)
---------- ------- ---------- ----------- ----------- -------- ---------
Acquisition of Catalog
Resources, Inc.
Common stock issuable
exchanged for long-term
debt...................... -- -- (418,899) (87,351) -- -- --
Exercise of stock options..... 249,600 2,496 -- 938,080 -- -- --
Stock dividend -- converted
shares...................... 716 8 -- 494 -- -- --
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... 6,736 67 -- 89,854 -- -- --
Treasury stock acquired....... -- -- -- -- -- 26,897 (497,552)
Dividends paid................ -- -- -- -- (711,779) -- --
Valuation adjustment, net..... -- -- -- -- -- -- --
Tax benefit of exercise of
stock options............... -- -- -- 780,000 -- -- --
Net income.................... -- -- -- -- 7,835,474 -- --
---------- ------- ---------- ----------- ----------- -------- ---------
September 30, 1998.............. 5,111,899 $51,119 $1,071,532 $10,424,048 $35,368,901 214,663 $(705,505)
========== ======= ========== =========== =========== ======== =========
<CAPTION>
AVAILABLE-FOR-
SALE SECURITIES
VALUATION
BALANCE ADJUSTMENT TOTAL
- ------- ---------------- -----------
<S> <C> <C>
October 1, 1995................. $(78,837) $22,047,519
Acquisition of Catalog
Resources, Inc.
Common stock issued......... -- --
Exercise of stock options..... -- 619,673
Stock dividend -- converted
shares...................... -- 255
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... -- 153,978
Dividends paid................ -- (401,762)
Valuation adjustment, net..... 44,245 44,245
Tax benefit of exercise of
stock options............... -- 559,000
Net income.................... -- 7,837,645
-------- -----------
September 30, 1996.............. (34,592) 30,860,553
-------- -----------
Acquisition of Catalog
Resources, Inc.
Common stock issued......... -- --
Exercise of stock options..... -- 519,499
Stock dividend -- converted
shares...................... -- 221
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... -- 106,869
Dividends paid................ -- (629,190)
Valuation adjustment, net..... 31,583 31,583
Tax benefit of exercise of
stock options............... -- 400,000
Net income.................... -- 6,986,659
-------- -----------
September 30, 1997.............. (3,009) 38,276,194
-------- -----------
Acquisition of Catalog
Resources, Inc.
Common stock issuable
exchanged for long-term
debt...................... -- (506,250)
Exercise of stock options..... -- 940,576
Stock dividend -- converted
shares...................... -- 502
Stock purchased through
Employee Stock Purchase Plan
and employment agreements... -- 89,921
Treasury stock acquired....... -- (497,552)
Dividends paid................ -- (711,779)
Valuation adjustment, net..... 3,009 3,009
Tax benefit of exercise of
stock options............... -- 780,000
Net income.................... -- 7,835,474
-------- -----------
September 30, 1998.............. $ -- $46,210,095
======== ===========
</TABLE>
See notes to consolidated financial statements
F-54
<PAGE> 142
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income.............................................. $ 7,835,474 $ 6,986,659 $ 7,837,645
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 2,610,430 2,504,699 2,321,718
Deferred income taxes................................. 245,000 (220,600) (21,000)
Provision for doubtful accounts receivable............ 134,168 119,000 65,000
Deferred compensation................................. 313,922 -- --
Gain on sale of available-for-sale securities, net.... -- (474) (1,046)
----------- ----------- ------------
Total adjustments................................ 3,303,520 2,402,625 2,364,672
Changes in operating assets and liabilities:
Accounts receivable..................................... 1,008,611 1,236,276 (768,131)
Prepaid expenses and other current assets............... (968,626) (426,921) 295,018
Accounts payable and accrued expenses................... (2,733,740) 2,366,400 347,847
Income taxes payable.................................... 640,725 74,450 215,635
Deferred revenue........................................ (4,124,699) (4,015,068) 4,525,436
Security deposits....................................... (188,701) 12,893 331,262
Other, net.............................................. 51,851 15,244 29,111
----------- ----------- ------------
Total adjustments and changes.................... (3,011,059) 1,665,899 7,340,850
----------- ----------- ------------
Net cash provided by operating activities........ 4,824,415 8,652,558 15,178,495
----------- ----------- ------------
Cash flows from financing activities:
Changes in note payable, long-term debt and capital
leases (including current portion):
Borrowings............................................ -- -- 2,500,000
Repayments............................................ (1,744,343) (1,448,425) (1,251,888)
Dividends paid.......................................... (711,277) (628,969) (401,507)
Exercise of stock options............................... 443,024 919,499 1,178,673
Employee Stock Purchase Plan and employment agreement
proceeds.............................................. 89,921 106,869 153,978
----------- ----------- ------------
Net cash provided by (used in) financing
activities..................................... (1,922,675) (1,051,026) 2,179,256
----------- ----------- ------------
Cash flows from investing activities:
Additions to property and equipment..................... (1,682,820) (1,762,911) (4,362,085)
Net sales (purchases) of investments.................... 3,864,612 (3,113,332) (9,732,515)
----------- ----------- ------------
Net cash provided by (used in) investing
activities..................................... 2,181,792 (4,876,243) (14,094,600)
----------- ----------- ------------
Cash and cash equivalents:
Net increase in cash and cash equivalents............... 5,083,532 2,725,289 3,263,151
Cash and cash equivalents at beginning of period........ 14,619,271 11,893,982 8,630,831
----------- ----------- ------------
Cash and cash equivalents at end of period....... $19,702,803 $14,619,271 $ 11,893,982
=========== =========== ============
Supplemental disclosures of cash flow information: Cash
paid during the period for:
Interest.............................................. $ 263,000 $ 273,000 $ 219,000
Income taxes.......................................... $ 4,210,000 $ 5,337,000 $ 4,261,000
</TABLE>
See notes to consolidated financial statements
F-55
<PAGE> 143
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30
Supplemental disclosures of noncash investing and financing activities:
VALUATION ADJUSTMENT:
For the year ended September 30, 1998, the valuation adjustment
account is no longer required as a result of selling the available-for-sale
securities portfolio to which the valuation adjustment related. For the
years ended September 30, 1997 and 1996, the account was adjusted to
reflect an increase in market values of the available-for-sale securities
portfolio of $31,583 and $44,245, respectively, net of deferred income
taxes.
STOCK DIVIDENDS:
For the years ended September 30, 1998, 1997, and 1996, 716, 318 and
360 shares of the Company's common stock were paid as dividends upon
exchange of 299, 133 and 150 shares, respectively, of the Company's "old"
common stock.
TREASURY STOCK:
For the year ended September 30, 1998, 26,897 shares of the Company's
outstanding common stock were received in exchange for options exercised
covering 176,000 shares of common stock.
LONG-TERM DEBT AND ACQUISITION OF BUSINESS:
As a result of Amendment No. 2 of the Catalog Resources, Inc. purchase
agreement, (as explained in Note 2 to the Consolidated Financial
Statements), additional long-term debt of $506,250 was recorded, offset by
charges to common stock issuable of $418,899 and additional paid-in capital
of $87,351 during fiscal 1998. For the years ended September 30, 1997 and
1996, $455,552 and $461,538 of common stock issuable was converted into
38,762 and 34,621 issued shares, respectively, of the Company's common
stock, in accordance with the terms of the Catalog Resources, Inc. purchase
agreement, as amended.
See notes to consolidated financial statements
F-56
<PAGE> 144
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Consolidation
The consolidated financial statements include the accounts of LCS
Industries, Inc. and its subsidiaries (the "Company"). The Company provides
outsourcing services specializing in fulfillment, list and computer services and
international telecommunications database development and management. The
Company's services are performed within the United States and Canada except for
a computer services contract with a non-U.S. telecommunications company. All
material intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are made when accounting for
allowance for doubtful accounts, sales adjustments, depreciation and
amortization, carrying value of goodwill, costs to complete long-term contracts
which are accounted for using the percentage-of-completion method of accounting,
taxes and contingencies.
Cash and Cash Equivalents
Cash and cash equivalents include short-term cash investments with
maturities of three months or less at date of acquisition. Such investments are
carried at cost, which approximates market, and amounted to $18,409,000 and
$12,931,000 at September 30, 1998 and 1997, respectively.
Investments
The Company records its investments based on the provisions of Statement of
Financial Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. In accordance with the provisions of this statement, the
Company has classified its investments in debt securities into held-to-maturity
or available-for-sale based upon management's intent with respect to such
investments and the Company's ability to so hold. Debt securities are stated at
amortized cost. Equity securities are classified as available-for-sale or
trading depending on management's intent. Market values are based on publicly
quoted market prices.
Long-Lived Assets
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. Long-lived assets and
identifiable intangibles to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Impairment is measured by comparing the carrying value
of the long-lived assets to the estimated undiscounted future cash flows
expected to result from use of the assets and their eventual disposition. If the
sum of the expected undiscounted future cash flows is less than the carrying
amount of the assets, the Company would recognize an impairment loss. The
impairment loss, if determined to be necessary, would be measured as the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
The Company determined that as of September 30, 1998 and 1997, there had been no
impairment in the carrying value of long-lived assets.
F-57
<PAGE> 145
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization,
which includes the amortization of assets recorded under capital leases, are
computed using the straight-line method over the estimated serviceable lives of
the respective assets or the initial or remaining terms of leases. Leasehold
improvements are amortized, using the straight-line method, over the shorter of
the estimated useful life of the asset or the life of the lease.
Goodwill
Represents the unamortized excess cost of acquiring Catalog Resources, Inc.
over the fair value of the net assets received at the acquisition date. This
asset is being amortized on the straight-line basis over 30 years. The
consolidated statements of operations for the fiscal years ended September 30,
1998, 1997 and 1996 include goodwill amortization of $286,300, $286,300 and
$286,400, respectively. The Company regularly assesses the recoverability of
goodwill in accordance with the provisions of SFAS No. 121.
Revenue Recognition
Sales and related cost of sales are recognized when services are performed.
Revenues under long-term consulting contracts are recognized based on the
percentage-of-completion method of accounting measured by the percentage of
labor hours incurred to date to the estimated total labor hours required for
each contract. Deferred revenue represents billings in excess of revenues
recognized as sales.
Income Taxes
The Company records income taxes based on the provisions of Statement of
Financial Standards No. 109, Accounting for Income Taxes. Deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled.
Earnings Per Common Share
Effective October 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, issued
in March 1997. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of the
Company. The prior years' earnings per share amounts have been restated to
reflect the provisions of SFAS No. 128.
F-58
<PAGE> 146
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is the reconciliation of the weighted average shares used in
the computations of basic and dilutive earnings per share:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding used for
basic earnings per share.......................... 4,808,274 4,624,702 4,329,663
Weighted average dilutive stock options............. 259,633 371,985 627,947
Shares issuable in connection with the acquisition
of Catalog Resources, Inc. ....................... 89,733 107,151 160,475
--------- --------- ---------
Weighted average common shares outstanding for
dilutive earnings per share....................... 5,157,640 5,103,838 5,118,085
========= ========= =========
</TABLE>
The weighted average shares used in the computations of fiscal years 1998,
1997 and 1996 diluted earnings per share include the shares issuable in
accordance with the agreement, as amended, related to the acquisition of Catalog
Resources, Inc.
Disclosure of Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires a reconciliation of net income to comprehensive income in
the financial statements. Comprehensive income includes items that are excluded
from net income and reported as components of stockholders' equity, such as
unrealized gains and losses on certain investments in debt and equity
securities, foreign currency items and minimum pension liability adjustments.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Management of the Company does not believe there will be any material effect
from adopting SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets and other amounts disclosed for
segments to the corresponding amounts in the general-purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company is planning to adopt the provisions of SFAS No. 131 for
its fiscal year beginning October 1, 1998 but has not yet fully determined what
additional disclosures may be required to complete its implementation.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. Generally, it
requires that an entity recognized all derivatives as either an asset or
liability and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. The
Company does not have any derivative instruments.
2. ACQUISITION
On April 1, 1993, the Company completed the purchase of all the outstanding
stock of Catalog Resources, Inc. ("CRI"). CRI's results of operations are
included in the Company's Consolidated Statements of Income from that date. The
initial purchase price was $3,500,000 with additional payments earned if CRI's
pretax income, as defined by the agreement, reached certain amounts during the
next five years. Of the initial purchase price, a total of $1,900,000 was paid
consisting of $950,000 in cash and 324,956 shares of the Company's common stock.
F-59
<PAGE> 147
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective August 1, 1994, the purchase agreement was amended to limit to
$8,100,000 the aggregate amount of additional purchase consideration to be paid
in addition to the $1,900,000 paid at such date. The additional amount to be
paid is based upon the operating performance of CRI over the eight-year period
beginning October 1, 1993. Based upon CRI's earnings for each fiscal year ending
on September 30, a maximum annual payment of $1,012,500 is payable in January of
the following year, which amount is subject to a dollar-for-dollar reduction
based on CRI's operating results. Such payments are calculated separately for
each year. Each payment will consist of 50 percent in cash and 50 percent in
common stock of the Company with the maximum number of shares to be delivered
under the purchase agreement, as amended, not to exceed 660,000 shares. The
portion of these payments not made in stock is payable in cash. The number of
shares to be issued will be based on the market value, as defined, of the common
stock at the future payment dates. Based on the terms of the amended agreement
and the achievement of the required operating results for the preceding fiscal
year, payments of $1,012,500, 50 percent in cash and 50 percent in stock, were
made on January 1, 1995, 1996 and 1997. As of September 30, 1997, 538,287 shares
had been delivered under the provisions of the purchase agreement, as amended.
On December 30, 1997, the Company and former shareholders of Catalog
Resources, Inc. agreed to Amendment No. 2 of the purchase agreement dated April
1, 1993 and amended August 1, 1994. This Amendment provided for the payment made
January 2, 1998 of $1,012,500 to be 100 percent in cash compared to the
previously agreed 50 percent in cash and 50 percent in common stock of the
Company, subject to a maximum number of shares to be issued of 660,000.
Accordingly, the current portion of long-time debt at December 31, 1997 was
increased by $506,250 (50% of the $1,012,500 payment). This was offset by a
reduction in common stock issuable of $418,899, representing the present value
at September 30, 1995 of the originally anticipated stock issuance, and a charge
to additional paid-in capital of $87,351.
As a result of Amendment No. 2, the parties agreed to reduce the maximum
number of share issuable under the amended agreement by the shares which would
have been issued on January 2, 1998 based on the provisions of the original
agreement. The revised maximum number of shares issuable is 628,020 of which
538,287 shares have been previously issued.
The common stock issuable amount reflects the maximum number of shares
(628,020, as adjusted for Amendment No. 2 to the purchase agreement, less those
shares issued and delivered prior to September 30, 1995) issuable under the
terms of the purchase agreement, as amended, based on the market price of the
Company's common stock at September 30, 1995. This amount is subject to
adjustment, based on the future movements in the market price of the Company's
common stock. No adjustment was recorded during the current fiscal year. Based
on the operating results for the fiscal year ended September 30, 1998, the
January 1, 1999 scheduled payment of $1,012,000 will be paid.
3. INVESTMENTS
During the year ended September 30, 1997, the valuation account related to
the available-for-sale marketable securities portfolio was adjusted to reflect
an increase in market values of $31,583, net of deferred taxes. The valuation
account was no longer required in fiscal year 1998 as a result of selling the
available-for-sale securities portfolio to which the valuation account related.
F-60
<PAGE> 148
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the components of investments held at
September 30, 1998:
<TABLE>
<CAPTION>
UNREALIZED
COST MARKET VALUE HOLDING GAIN
----------- ------------ ------------
<S> <C> <C> <C>
Held-to-Maturity:
U.S. Government due January 31, 1999........ $ 24,996 $ 25,016 $20
Commercial paper-various issues............. 11,454,124 11,454,124 --
----------- ----------- ---
Total............................... $11,479,120 $11,479,140 $20
=========== =========== ===
</TABLE>
During the year ended September 30, 1998, proceeds from redemptions of
investments were $36,731,307. The Company uses specific identification for
securities sold.
The following table sets forth the components of investments held at
September 30, 1997:
<TABLE>
<CAPTION>
UNREALIZED
COST MARKET VALUE HOLDING LOSS
----------- ------------ ------------
<S> <C> <C> <C>
Available-for-sale:
U.S. Government due January 31, 1999........ $ 24,996 $ 24,695 $ (301)
Equity securities........................... 103,799 99,013 (4,786)
----------- ----------- -------
Total............................... $ 128,795 $ 123,708 $(5,087)
=========== =========== =======
Held-to-Maturity:
Commercial paper-various issues............. $14,410,101 $14,410,101 $ --
=========== =========== =======
</TABLE>
During the year ended September 30, 1997, proceeds from redemptions of
investments were $24,445,993 resulting in a realized gain of $474. The Company
uses specific identification for securities sold.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the Allowance for Doubtful Accounts for the three years ended
September 30, 1998 includes:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $ 496,000 $ 627,000 $624,000
Additions -- charged to expense.................... 134,000 119,000 65,000
Deductions......................................... (128,000) (250,000) (62,000)
--------- --------- --------
Balance at end of year............................. $ 502,000 $ 496,000 $627,000
========= ========= ========
</TABLE>
F-61
<PAGE> 149
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
The components of property and equipment include:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Furniture and fixtures.................................. $ 3,267,647 $ 3,094,284
Leasehold improvements.................................. 2,231,127 2,207,228
Computer equipment...................................... 8,216,147 7,508,056
Computer equipment under capital leases................. 1,915,567 1,915,567
Other equipment......................................... 4,984,534 4,228,200
------------ ------------
20,615,022 18,953,335
Less: Accumulated depreciation and amortization......... (14,162,493) (11,859,545)
------------ ------------
$ 6,452,529 $ 7,093,790
============ ============
</TABLE>
Depreciation and amortization charged to operations was approximately
$2,324,000, $2,218,000, and $2,035,000 for 1998, 1997 and 1996, respectively.
6. UNSECURED LINE OF CREDIT
A bank holds available, until March 31, 1999, a $5,000,000 unsecured bank
line of credit. The line of credit has been renewed annually. During fiscal
years 1998 and 1997, the available line of credit was not used.
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Payable to former shareholders of CRI....................... $2,176,260 $2,499,945
Notes payable to banks...................................... 1,424,485 2,032,099
---------- ----------
3,600,745 4,532,044
Less: Current portion....................................... 1,026,147 1,087,511
---------- ----------
$2,574,598 $3,444,533
========== ==========
</TABLE>
See Note 2 for a description of the amounts due to the former shareholders
of CRI.
Notes payable to banks consist of one note for a five-year term loan
payable through December 15, 1998 with interest at 6.90%. The loan is secured by
certain equipment located at CRI with a net book value of $180,314 as of
September 30, 1998. A second note is for a five-year term loan payable through
June 27, 2001 with interest at 7.99%. This loan is secured by certain equipment
located at CRI with a net book value at September 30, 1998 of $1,631,812. CRI
must continue to meet a financial ratio test and maintain net worth of at least
$5,000,000 after September 30, 1996. The Company has guaranteed the repayment of
this loan.
F-62
<PAGE> 150
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt include:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, AMOUNT
----------------- ----------
<S> <C>
1999...................................................... $1,026,147
2000...................................................... 1,018,464
2001...................................................... 767,215
2002...................................................... 788,919
----------
Total long-term debt........................................ $3,600,745
==========
</TABLE>
8. PROVISION FOR INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal........................................ $3,994,000 $4,413,000 $4,292,000
State.......................................... 1,137,000 1,244,000 1,216,000
---------- ---------- ----------
Total provision for current income
taxes................................ 5,131,000 5,657,000 5,508,000
Deferred
Federal........................................ 175,000 (179,000) (22,000)
State.......................................... 70,000 (42,000) 1,000
---------- ---------- ----------
Total provision for deferred income
taxes................................ 245,000 (221,000) (21,000)
---------- ---------- ----------
Total provision for income taxes................. $5,376,000 $5,436,000 $5,487,000
========== ========== ==========
</TABLE>
The total provision for income taxes varies from the U.S. federal statutory
rate. The following reconciliation shows the significant differences in the tax
at statutory and effective rates:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate............. $4,524,000 $4,248,000 $4,564,000
State income taxes -- net of federal tax
benefit........................................ 794,000 740,000 791,000
Non-deductible expenses.......................... 145,000 149,000 148,000
Non-taxable income............................... (1,000) (5,000) (16,000)
Valuation allowance against capital loss
carryforward................................... (86,000) 298,000 --
Other............................................ -- 6,000 --
---------- ---------- ----------
Total provision for income taxes................. $5,376,000 $5,436,000 $5,487,000
========== ========== ==========
</TABLE>
F-63
<PAGE> 151
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax assets and liabilities at September
30, 1998 include:
<TABLE>
<CAPTION>
NET NON- NET NON-
NET CURRENT CURRENT NET CURRENT CURRENT
ASSET LIABILITY ASSET LIABILITY
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Property and equipment.................. $ -- $ 235,000 $ -- $251,000
Allowance for doubtful accounts......... 205,000 -- 201,000 --
Non-deductible expenses................. -- -- 392,000 --
Unrealized holding loss on marketable
securities............................ -- -- -- (2,000)
Vacation accrual........................ 90,000 -- 91,000 --
Deferred compensation................... -- (128,000) -- --
Capital loss carryforward............... 212,000 -- 298,000 --
Valuation allowance against capital loss
carryforward.......................... (212,000) -- (298,000) --
--------- --------- --------- --------
Total......................... $ 295,000 $ 107,000 $ 684,000 $249,000
========= ========= ========= ========
</TABLE>
9. STOCK OPTIONS
The Company has an Incentive Stock Option Plan (the "Plan") which was
adopted and became effective in May, 1993. The Plan calls for granting incentive
stock options to certain officers and other employees, as defined, under current
tax laws to purchase shares of the Company's common stock. The stock options are
exercisable at prices not less than the fair market value of the common stock on
the date the options are granted. The aggregate number of shares which may be
issued under the Plan is 2,200,000.
The 1996 non-qualified Non-Employee Directors Stock Option Plan ("1996
Plan"), provides for the granting of options covering 250,000 shares. Each
non-employee director, who is a non-employee director at the date of grant of
the option and who was a non-employee at all times during the fiscal year
preceding the date of grant, shall be granted an option to purchase 11,000
shares of the common stock on the date the 1996 Plan was approved by the
stockholders and on each succeeding fifth business day following the public
release of the Company's annual earnings for any fiscal year in which sales and
net income per share of common stock increase by more than 5% over the prior
fiscal year. Options granted under the 1996 Plan are based on the market value
on the date of grant. During fiscal 1997, 22,000 shares were granted, based on
fiscal year 1996 results, at a price of $15.00, all of which are outstanding. At
September 30, 1998, 8,800 of these shares were exercisable. No options were
granted for fiscal years 1998 and 1997. The 1993 non-qualified Non-Employee
Directors Stock Option Plan ("1993 Plan") was terminated when the 1996 Plan was
approved. The 1993 Plan has 11,600 options which remain outstanding at prices of
$3.53-$16.00. At September 30, 1998, 7,400 shares were exercisable at prices of
$3.53-$16.00. There was no other activity in this plan during fiscal years 1998
and 1997.
Non-employee directors have been granted non-qualified options, at the fair
market value on the date of grant, to purchase 54,000 shares of the Company's
common stock at prices of $2.05 to $5.38 per share. At September 30, 1998,
46,000 options were exercisable. During the current year, no options were
exercised and no options were cancelled.
During the year ended September 30, 1995, certain officers of the Company
were issued non-qualified options to purchase 75,000 shares of the Company's
common stock at a price of $5.75 per share (100 percent of fair market value).
During fiscal year 1998, options to purchase 50,000 shares were exercised.
F-64
<PAGE> 152
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule sets forth the activity under the 1983 Incentive
Stock Option Plan for the years ended September 30, 1998, 1997 and 1996.
Granting of options under this plan ceased in May 1994.
<TABLE>
<CAPTION>
INCENTIVE OPTIONS NUMBER OPTION PRICE
- ----------------- -------- ------------
<S> <C> <C>
Outstanding September 30, 1995.............................. 565,900 $1.25-$3.75
Exercised................................................... (165,200) $2.05- 3.41
--------
Outstanding September 30, 1996.............................. 400,700 $1.25- 3.41
Exercised................................................... (176,300) $2.25- 3.41
--------
Outstanding September 30, 1997.............................. 224,400 $1.25- 2.69
Exercised................................................... (136,400) $1.25- 2.69
--------
Outstanding September 30, 1998.............................. 88,000 $2.61
========
Exercisable September 30, 1998.............................. 88,000 $2.61
========
</TABLE>
The following schedule sets forth the activity of the 1993 Incentive Stock
Option Plan for the years ended September 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
INCENTIVE OPTIONS NUMBER OPTION PRICE
- ----------------- --------- -------------
<S> <C> <C>
Outstanding September 30, 1995............................. 554,374 $ 2.88- $16.85
Granted.................................................... 110,000 15.50
Exercised.................................................. (32,403) 2.88- 5.75
Expired or Cancelled....................................... (23,998) 2.96- 5.75
---------
Outstanding September 30, 1996............................. 607,973 2.96- 16.85
Granted.................................................... 110,800 12.75- 15.00
Exercised.................................................. (17,375) 2.96- 15.50
Expired or Cancelled....................................... (117,448) 2.96- 15.50
---------
Outstanding September 30, 1997............................. 583,950 2.96- 16.85
Granted.................................................... 159,200 14.00- 14.63
Exercised.................................................. (63,200) 2.96- 15.50
Expired or Cancelled....................................... (215,500) 2.96- 16.85
---------
Outstanding September 30, 1998............................. 464,450 $ 2.96- 16.85
=========
Exercisable September 30, 1998............................. 195,725 $ 2.96- $16.85
=========
Available for grant September 30, 1998..................... 1,602,146
=========
</TABLE>
F-65
<PAGE> 153
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule sets forth the status of the incentive stock options
outstanding and exercisable at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
RANGE OF NUMBER REMAINING EXERCISE AVERAGE # EXERCISE
EXERCISE PRICES OF SHARES LIFE-YEARS PRICE OF SHARES PRICE
- --------------- --------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
1983 Incentive Plan
$2.61..................................... 88,000 4.5 $ 2.61 88,000 $ 2.61
1993 Incentive Plan
$2.96 to $5.50............................ 62,650 6.1 3.84 50,150 3.79
$12.75 to $16.85.......................... 401,800 8.2 14.49 145,575 15.19
------- -------
Total 1993 Plan........................... 464,450 195,725
------- -------
Total Plans............................... 552,450 283,725
======= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, issued in October, 1995. In accordance with the provisions of SFAS
No. 123, the Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans and, accordingly, does not recognize
compensation cost. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at the various grant dates, as
prescribed by SFAS No. 123, net income and earnings per share would have been
adjusted to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income -- as reported........................ $7,835,474 $6,986,659 $7,837,645
Net income -- pro forma.......................... 7,548,105 6,751,871 7,726,185
Diluted earnings per share -- as reported........ 1.52 1.37 1.53
Diluted earnings per share -- pro forma.......... 1.46 1.32 1.51
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Binery Option Pricing Model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected dividend yield......................... 1.10% .80% .80%
Expected stock volatility....................... 48.83% 59.65% 59.65%
Risk free interest rates........................ 4.61-4.66% 5.86-6.13% 5.84-5.93%
Expected life of options........................ 7 years 5-10 years 5-7 years
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of the effect on future amounts.
The Company's stock options are not transferable, and the actual value of
the stock options that an employee may realize, if any, will depend on the
excess of the market price on the date of exercise over the exercise price. The
Company has based its assumption for stock price volatility on the variance of
weekly closing prices of the Company's stock for the last three years. The
risk-free rate of return used equals the yield on zero-coupon U.S. Treasury
issues on the grant date based on the grants estimated life.
F-66
<PAGE> 154
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. 1994 EMPLOYEE STOCK PURCHASE PLAN AND EMPLOYMENT AGREEMENTS
At the annual meeting of stockholders in March 1994, the 1994 Employee
Stock Purchase Plan (the "Purchase Plan") was adopted. The Purchase Plan
provides eligible employees of the Company and its subsidiaries the opportunity
to acquire up to 300,000 shares of common stock. Purchases are made on a monthly
basis through payroll deductions of 1 percent to 10 percent of eligible
compensation. Shares are offered at a 15 percent discount from the closing price
on the last trading date of each month with no brokerage commissions.
Participation in the Purchase Plan began September 1, 1994. For the years ended
September 30, 1998, 1997 and 1996, shares purchased totaled 6,341, 6,892 and
9,968, respectively.
Employment agreements with current and former officers of a subsidiary
include the provision for the quarterly purchase of the Company's common stock
to the extent of 5 percent of any bonus earned, as defined. Shares are offered
at a discount from the quarter end closing market price of the common stock.
During fiscal years 1998, 1997 and 1996, a total of 395, 1,713 and 1,749 shares,
respectively, were purchased under these agreements. Effective December 31,1997,
the election for future purchases was terminated by the remaining participant.
11. EMPLOYEE RETIREMENT SAVINGS PLAN (401(k))
The Company sponsors a tax deferred retirement savings plan ("401(k) Plan")
which permits eligible employees to contribute varying percentages of their
compensation up to the limit allowed by the Internal Revenue Service. The 401(k)
Plan also provides for discretionary Company contributions. No discretionary
contributions were made for the years ended September 30, 1998, 1997 and 1996.
The Company matches employees' contributions to a maximum of 25 percent of
the employee's first 6 percent contributed. The Company's matching contributions
were temporarily increased to 35 percent of eligible employee contributions in
fiscal years 1998, 1997 and 1996, during the period of January 1 to June 30.
Matching contributions charged to expense were $233,000, $189,000 and $196,000
for the fiscal years ended September 30, 1998, 1997 and 1996, respectively.
12. NON-QUALIFIED DEFERRED COMPENSATION PLANS
During the current fiscal year, the Company established Plans providing
senior and other executives of the Company and its subsidiaries the opportunity
to participate in unfunded deferred compensation programs.
The Executive Non-Qualified Deferred Compensation Plan provides senior
officers retirement benefits through the deferring of compensation, as defined,
on a pre-tax basis to a maximum of $30,000 per year. The Company provides a 30
percent matching contribution of the amounts deferred. Participants fully vest
in the Company's matching contributions and related earnings/losses after three
years of service with the Company.
The Management Non-Qualified Deferred Compensation Plan provides certain
management employees retirement benefits through the deferring of compensation,
as defined, on a pre-tax basis to a maximum of $10,000 per year. The Company
provides a 20 percent matching contribution of the amounts deferred.
Participants fully vest in the Company's matching contribution and related
earnings/losses after five years of participation in the plan or attaining age
62.
The Plans are not qualified under Section 401 of the Internal Revenue Code
and, therefore, the participants are general creditors of the Company with
respect to these benefits. The Company has established irrevocable rabbi trusts
to assist in funding the Plan's benefits. Trust investments are recorded as
assets of the Company with the related earnings/losses passed on to the Plan
participants.
F-67
<PAGE> 155
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred compensation expense for the year, represented by the Company
matching contributions and net earnings/losses, was $77,000.
13. OPERATING LEASE COMMITMENTS
The Company and its subsidiaries lease certain properties, equipment and
software under noncancellable long-term operating leases, which expire at
various dates. Certain of the leases on real estate require the payment of real
estate taxes. Minimum rentals under the leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR OPERATING LEASES
- ----------- ----------------
<S> <C>
1999.................................................. $2,309,000
2000.................................................. 1,594,000
2001.................................................. 1,224,000
2002.................................................. 1,204,000
2003.................................................. 1,141,000
Thereafter............................................ 1,409,000
----------
Total....................................... $8,881,000
==========
</TABLE>
Real estate, equipment and software operating lease costs include:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Real estate...................................... $2,634,000 $2,535,000 $2,324,000
Equipment and software........................... 719,000 740,000 788,000
---------- ---------- ----------
Total.................................. $3,353,000 $3,275,000 $3,112,000
========== ========== ==========
</TABLE>
14. OTHER (INCOME) EXPENSE
In June 1997, the Company recorded a loss on investment of $954,000
($863,000 net of taxes) representing a non-recurring charge for the write-off of
the Company's investment in McIntyre & King, Ltd. ("M&K"). This charge
represented $.17 per diluted share. The Company's Board of Directors decided to
sever the relationship with M&K due to unexpected operating losses that would
have required unacceptable demands on management's time and financial support
required to attempt to return M&K to profitability. As a result, effective April
5, 1997, the Company agreed to rescind its acquisition of M&K. The rescission
agreement, dated June 30, 1997, provided for the return of a portion of the down
payment in one year. However, recovery was uncertain and, therefore, the Company
expensed all payments, advances and all related costs. On November 28, 1997, the
Company received a payment from M&K of approximately $210,000 in final
settlement of a portion of the down payment, which was recorded in other income
in the quarter ended December 31, 1997.
On October 6, 1997, the Company announced the recording of a non-recurring
charge of $960,000 ($570,000 net of taxes or $.11 per diluted share) in the
period ended September 30, 1997 related to death benefits payable under
employment agreements and other severance amounts due to the Company's former
Chairman, the late Arnold J. Scheine, who passed away on September 22, 1997.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, investments
held-to-maturity, trade receivables, other current assets, accounts payable and
amounts included in investments and accruals meeting the definition of a
financial instrument approximate fair value. The carrying values and related
estimated fair
F-68
<PAGE> 156
LCS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
values for the Company's long-term debt payable to banks is estimated based on
the current rates offered to the Company for debt of the same maturities as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Carrying value.............................................. $1,424,000 $2,032,000
Fair value.................................................. 1,439,000 2,037,000
</TABLE>
16. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal claims and disputes that are
normal and incidental to the Company's business. In the opinion of management,
after consultation with legal counsel, the amount of losses that might be
sustained, if any, from such claims and disputes would not have a material
effect on the Company's financial statements.
The Company has entered into agreements with certain of its key management
employees providing for payments totaling $385,000 if there is a change in
control transaction signed by the Company.
At September 30, 1998, the Company and its subsidiaries have employment
agreements with certain of their officers with terms expiring at various times
through September 30, 2002, which provide for aggregate future minimum
compensation of $1,175,000. One of the agreements provides for a bonus based on
the results of the respective subsidiary's operations. Certain of the agreements
provide for severance payments equal to six months salary.
During the current fiscal year, one of the Company's subsidiaries had in
effect a $500,000 standby letter of credit agreement securing the timely
payments, by the subsidiary, of amounts owing to a customer. No claims were made
against this agreement during the year. The fair value of the standby agreement
approximates the cost of the agreement.
17. MAJOR CUSTOMERS
For the years ended September 30, 1998, 1997 and 1996, revenues recognized
under the contract to provide computer services to a non-U.S. telecommunications
company amounted to 12 percent, 15 percent and 14 percent, respectively, of
consolidated sales.
18. SUBSEQUENT EVENT
On December 17, 1998, the Company and CustomerONE Holding Corporation, a
subsidiary of Onex Corporation announced that they have entered into a
definitive merger agreement pursuant to which CustomerONE will acquire all of
the outstanding shares of LCS common stock at a price of $17.50 per share in
cash, representing an aggregate transaction value of approximately $97.3
million. Onex Corporation is a diversified company with 1997 consolidated
revenues of $11 billion Canadian and consolidated assets of $6.4 billion
Canadian.
Pursuant to the merger agreement, CustomerONE will make a cash tender offer
for all of the outstanding common shares of LCS common stock. The tender offer
is expected to commence the week of December 21. Consummation of the tender
offer is subject to U.S. antitrust regulatory clearance and other customary
closing conditions.
The tender offer is not subject to financing. Onex has agreed to provide
CustomerONE with all necessary funds to effect the tender offer and merger.
The Board of Directors of LCS has unanimously approved the merger and has
recommended that LCS stockholders accept the tender offer and approve and adopt
the merger agreement.
F-69
<PAGE> 157
LCS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $26,686,545 $19,702,803
Investments -- held-to-maturity........................... 6,737,645 11,479,120
Accounts receivable, net (less allowance for doubtful
accounts: December 31 -- $497,000 and September
30 -- $502,000)........................................ 21,720,927 22,020,995
Inventory................................................. 157,133 --
Prepaid expenses and other current assets................. 1,652,620 1,623,264
Deferred taxes............................................ 287,000 295,000
----------- -----------
Total current assets.............................. 57,241,870 55,121,182
----------- -----------
Property and equipment, net............................... 6,886,610 6,452,529
Goodwill (net of accumulated amortization: December
31 -- $1,164,141 and September 30 -- $1,092,553)....... 6,923,040 6,994,628
Other assets.............................................. 931,449 811,022
----------- -----------
Total assets...................................... $71,982,969 $69,379,361
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $13,149,996 $13,691,193
Accrued salaries and commissions.......................... 2,782,952 2,311,796
Other accrued expenses.................................... 2,184,983 2,993,400
Income taxes payable...................................... 986,906 151,210
Current portion of long-term debt......................... 1,536,948 1,026,147
Current portion of capital lease obligations.............. 262,608 --
----------- -----------
Total current liabilities......................... 20,904,393 20,173,746
----------- -----------
Long-term debt, net of current portion.................... 2,473,172 2,574,598
Capital lease obligations................................. 522,020 --
Deferred taxes............................................ 16,000 107,000
Deferred compensation and other........................... 1,118,364 313,922
Stockholders' Equity:
Common stock $.01 par value; authorized 15,000,000
shares; issued December 31 -- 4,898,447 shares and
September 30 -- 5,111,899 shares...................... 51,131 51,119
Common stock issuable..................................... -- 1,071,532
Additional paid-in capital................................ 10,315,953 10,424,048
Retained earnings......................................... 37,287,441 35,368,901
----------- -----------
47,654,525 46,915,600
Less: Treasury stock, at cost............................. (705,505) (705,505)
----------- -----------
Total stockholders' equity........................ 46,949,020 46,210,095
----------- -----------
$71,982,969 $69,379,361
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-70
<PAGE> 158
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales................................................... $24,965,427 $25,646,160
Cost of sales............................................... 18,372,075 17,771,754
----------- -----------
Gross profit.............................................. 6,593,352 7,874,406
Selling and administrative expenses......................... 3,808,157 4,180,503
Other (income) expense:
Dividend and interest income.............................. (423,367) (420,580)
Interest expense.......................................... 77,806 96,706
Other (income) expense.................................... -- (210,000)
----------- -----------
Income before income taxes.................................. 3,130,756 4,227,777
Provision for income taxes.................................. 1,030,000 1,640,000
----------- -----------
Net income.................................................. 2,100,756 2,587,777
----------- -----------
Retained earnings beginning of period....................... 35,368,901 28,245,206
Dividends................................................... (182,216) (173,722)
----------- -----------
Retained earnings end of period............................. $37,287,441 $30,659,261
=========== ===========
Per common and common equivalent share:
Basic earnings............................................ $ 0.429 $ 0.55
=========== ===========
Diluted earnings.......................................... $ 0.411 $ 0.50
=========== ===========
Dividends................................................. $ 0.04 $ 0.04
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-71
<PAGE> 159
LCS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income................................................ $ 2,100,756 $ 2,587,777
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 635,913 700,786
Deferred income taxes.................................. (83,000) (58,000)
Provision for doubtful accounts receivable............. (5,000) 80,000
Deferred compensation.................................. 118,104 156,000
----------- -----------
Total adjustments................................. 666,017 878,786
Changes in operating assets and liabilities:
Accounts receivable.................................... 305,068 (258,800)
Prepaid expenses and other current assets.............. (388,843) (234,314)
Accounts payable and accrued expenses.................. (835,243) (1,986,754)
Income taxes payable................................... 835,696 1,289,560
Deferred revenue....................................... -- (1,275,500)
Other, net............................................. (120,427) (20,204)
----------- -----------
Total adjustments and changes..................... 462,268 (1,607,226)
----------- -----------
Net cash provided by operating activities......... 2,563,024 980,551
----------- -----------
Cash flows from investing activities:
Additions to property and equipment....................... (213,778) (303,100)
Sales of investments...................................... 4,943,829 2,964
----------- -----------
Net cash provided by (used in) investing
activities...................................... 4,730,051 (300,136)
----------- -----------
Cash flows from financing activities:
Repayments of note payable, long-term debt and capital
leases (including current portion)..................... (140,090) (246,682)
Dividends paid............................................ (182,216) (173,722)
Exercise of stock options................................. -- 120,628
Other..................................................... 12,973 31,424
----------- -----------
Net cash used in financing activities............. (309,333) (268,352)
----------- -----------
Cash and cash equivalents:
Net increase in cash and cash equivalents................. 6,983,742 412,063
Cash and cash equivalents at beginning of period.......... 19,702,803 14,619,271
----------- -----------
Cash and cash equivalents at end of period........ $26,686,545 $15,031,334
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 34,598 $ 44,055
Income taxes........................................... $ 282,323 $ 233,932
</TABLE>
See notes to consolidated financial statements
F-72
<PAGE> 160
LCS INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial data as of December 31, 1998 and for the three months
ended December 31, 1997 and the three months ended December 31, 1998 is
unaudited. In the opinion of management, the financial statements reflect all
adjustments, consisting of normal recurring adjustments of the Company, in
accordance with generally accepted accounting principles applicable to interim
periods. The financial statements do not include all of the information and
footnotes required by generally accepted accounting principles. The accompanying
unaudited financial statements should be read in conjunction with the September
30, 1998 audited financial statements of LCS Industries, Inc. Interim results of
operations are not necessarily indicative of results for the full year.
2. ACQUISITION
On April 1, 1993, the Company completed the purchase of all the outstanding
stock of Catalog Resources, Inc. ("CRI"). CRI's results of operations are
included in the Company's Consolidated Statements of Income from that date. The
initial purchase price was $3,500,000 with additional payments earned if CRI's
pretax income, as defined by the agreement, reached certain amounts during the
next five years. Of the initial purchase price, a total of $1,900,000 was paid
consisting of $950,000 in cash and 324,956 shares of the Company's common stock.
Effective August 1, 1994, the purchase agreement was amended to limit to
$8,100,000 the aggregate amount of additional purchase consideration to be paid
in addition to the $1,900,000 paid at such date. The additional amount to be
paid is based upon the operating performance of CRI over the eight-year period
beginning October 1, 1993. Based upon CRI's earnings for each fiscal year ending
on September 30, a maximum annual payment of $1,012,500 is payable in January of
the following year, which amount is subject to a dollar-for-dollar reduction
based on CRI's operating results. Such payments are calculated separately for
each year. Each payment will consist of 50 percent in cash and 50 percent in
common stock of the Company with the maximum number of shares to be delivered
under the purchase agreement, as amended, not to exceed 660,000 shares. The
portion of these payments not made in stock is payable in cash. The number of
shares to be issued will be based on the market value, as defined, of the common
stock at the future payment dates. Based on the terms of the amended agreement
and the achievement of the required operating results for the preceding fiscal
year, payments of $1,012,500, 50 percent in cash and 50 percent in stock, were
made on January 1, 1995, 1996 and 1997. As of September 30, 1997, 538,287 shares
had been delivered under the provisions of the purchase agreement, as amended.
On December 30, 1997, the Company and former shareholders of Catalog
Resources, Inc. agreed to Amendment No. 2 of the purchase agreement dated April
1, 1993 and amended August 1, 1994. This Amendment provided for the payment made
January 2, 1998 of $1,012,500 to be 100 percent in cash compared to the
previously agreed 50 percent in cash and 50 percent in common stock of the
Company, subject to a maximum number of shares to be issued of 660,000.
Accordingly, the current portion of long-term debt at December 31, 1997 was
increased by $506,250 (50% of the $1,012,500 payment). This was offset by a
reduction in common stock issuable of $418,899, representing the present value
at September 30, 1995 of the originally anticipated stock issuance, and a charge
to additional paid-in capital of $87,351.
As a result of Amendment No. 2, the parties agreed to reduce the maximum
number of share issuable under the amended agreement by the shares which would
have been issued on January 2, 1998 based on the provisions of the original
agreement. The revised maximum number of shares issuable is 628,020 of which
538,287 shares have been previously issued.
F-73
<PAGE> 161
LCS INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The common stock issuable amount reflects the maximum number of shares
(628,020, as adjusted for Amendment No. 2 to the purchase agreement, less those
shares issued and delivered prior to September 30, 1995) issuable under the
terms of the purchase agreement, as amended, based on the market price of the
Company's common stock at September 30, 1995. This amount is subject to
adjustment, based on the future movements in the market price of the Company's
common stock. No adjustment was recorded during the current fiscal year. Based
on the operating results for the fiscal year ended September 30, 1998, the
January 1, 1999 scheduled payment of $1,012,000 will be paid.
On December 31, 1998, the Company and former shareholders of Catalog
Resources, Inc. agreed to Amendment No. 3 of the purchase agreement dated April
1, 1993 and amended August 1, 1994 and December 30, 1997. This Amendment
provided for the payment made January 3, 1999 of $1,012,000 to be 100 percent in
cash compared to the previously agreed 50 percent in cash and 50 percent in
common stock of the Company, subject to a maximum number of shares to be issued
of 660,000. Accordingly, the current portion of long-term debt at December 31,
1998 was increased by $506,250 (50% of the $1,012,000 payment). This was offset
by a reduction in common stock issuable of $385,194, representing the present
value at September 30, 1995 of the originally anticipated stock issuance, and a
charge to additional paid-in capital of $121,056.
As a result of Amendment No. 3, the parties agreed to reduce the maximum
number of share issuable under the amended agreement by the shares which would
have been issued on January 3, 1999 based on the provisions of the original
agreement. The revised maximum number of shares issuable is 628,020 of which
570,833 shares have been previously issued.
The common stock issuable amount reflects the maximum number of shares
(628,020, as adjusted for Amendment No. 3 to the purchase agreement, less those
shares issued and delivered prior to September 30, 1995) issuable under the
terms of the purchase agreement, as amended, based on the market price of the
Company's common stock at September 30, 1995. This amount is subject to
adjustment, based on the future movements in the market price of the Company's
common stock. No adjustment was recorded during the current fiscal year. Based
on the operating results for the fiscal year ended September 30, 1998, the
January 3, 1999 scheduled payment of $1,012,000 will be paid.
Pursuant to the definitive merger agreement with CustomerOne Holding
Corporation (see note 5), subsequent to January 2, 1999, all remaining payments
under the initial CRI purchase agreement will be made in cash. As a result, the
common stock issuable has been reclassified as a long-term liability at December
31, 1998.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the Allowance for Doubtful Accounts for December 31, 1998
includes:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Balance at beginning of year............................ $502,000
Additions -- charged to expense......................... 15,000
Deductions.............................................. (20,000)
--------
Balance at end of year.................................. $497,000
========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal claims and disputes that are
normal and incidental to the Company's business. In the opinion of management,
after consultation with legal counsel, the amount of
F-74
<PAGE> 162
LCS INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
losses that might be sustained, if any, from such claims and disputes would not
have a material effect on the Company's financial statements.
At December 31, 1998, the Company and its subsidiaries have employment
agreements with certain of their officers with terms expiring at various times
through September 30, 2002, which provide for aggregate future minimum
compensation of $1,016,250. One of the agreements provides for a bonus based on
the results of the respective subsidiary's operations. Certain of the agreements
provide for severance payments equal to six months salary.
5. MERGER
On December 17, 1998, the Company and CustomerONE Holding Corporation, a
subsidiary of Onex Corporation announced that they have entered into a
definitive merger agreement pursuant to which CustomerONE will acquire all of
the outstanding shares of LCS common stock at a price of $17.50 per share in
cash, representing an aggregate transaction value of approximately $97.3
million. Onex Corporation is a diversified company with 1997 consolidated
revenues of $11 billion Canadian and consolidated assets of $6.4 billion
Canadian. The transaction was completed January 27, 1999.
F-75
<PAGE> 163
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and to
the Shareholders of Cordena Call Management B.V.
In our opinion the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity presented in Dutch Guilders (NLG) present fairly, in all material
respects, the financial position of Cordena Call Management B.V. and
subsidiaries as at December 31, 1998 and 1997, and the results of their
operations and cash flows for the years ended December 31, 1998, 1997 and 1996
and in conformity with accounting principles generally accepted in the
Netherlands. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the Netherlands which
are substantially similar to generally accepted auditing standards in the United
States of America. These standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the Netherlands vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income for the years ended December 31, 1998 and 1997, and the
determination of consolidated shareholders' equity at December 31, 1998 and
1997, respectively to the extent summarised in Note 2.7 to the consolidated
financial statements.
Utrecht, March 30, 1999
/s/ PRICWATERHOUSECOOPERS N.V.
PricewaterhouseCoopers N.V.
F-76
<PAGE> 164
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- -------------------
NLG '000 NLG '000 NLG '000 NLG '000
<S> <C> <C> <C> <C>
FIXED ASSETS
Intangible fixed assets
Goodwill........................................... 37,946 12,880
Formation expenses................................. 2,912 675
------ ------
Tangible fixed assets.............................. 40,858 13,555
Leasehold building improvements.................... 291 207
Equipment.......................................... 8,882 687
------ ------
CURRENT ASSETS....................................... 9,173 894
Receivables
Trade debtors, net of NLG 100 and NLG 100,
respectively.................................... 13,253 2,816
Unbilled revenues.................................. 1,711 1,298
Taxes and social security premiums................. 1,240 844
Other receivables and prepaid expenses............. 4,532 1,504
------ ------
20,736 6,462
Cash............................................... 765 2,572
------ ------
71,532 23,483
====== ======
SHAREHOLDERS' EQUITY................................. 19,568 6,026
LONG TERM LIABILITIES
Bank loan.......................................... 15,447 5,300
Acquisition liabilities............................ 6,147 0
Other long term loans and lease obligations........ 1,355 67
------ ------
22,949 5,367
CURRENT LIABILITIES
Short term portion of long term loans and lease
obligations and other short term loans.......... 2,504 1,449
Bank overdraft..................................... 0 298
Trade creditors.................................... 9,037 2,807
Payable to vendors of acquired companies........... 1,347 0
Acquisition liabilities............................ 200 2,012
Taxes and social security premiums................. 5,554 1,730
Other payables and accrued expenses................ 10,373 3,794
------ ------
29,015 12,090
------ ------
71,532 23,483
====== ======
</TABLE>
The notes hereto form an integral part of the financial statements.
F-77
<PAGE> 165
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998, DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------------- ------------------- ------------
NLG '000 NLG '000 NLG '000 NLG '000 NLG '000
<S> <C> <C> <C> <C> <C>
Net sales.................................... 73,767 8,376 --
Cost of sales................................ 18,908 1,699 --
------ ------ -----
Gross margin................................. 54,859 6,677 --
Personnel expenses........................... 36,154 2,499 --
Depreciation of tangible fixed assets........ 1,772 292 --
Amortization of intangible fixed assets...... 8,612 1,431 --
Other operating expenses..................... 12,131 3,683 --
------ ----- ------
58,669 7,905 --
------ ------ -----
Operating (loss)/income...................... (3,810) (1,228) --
Interest expense............................. (1,565) (201) --
------ ------ -----
Result before taxation....................... (5,375) (1,429) --
Income taxes................................. (1,420) 59 --
------ ------ -----
Result after taxation........................ (6,795) (1,370) --
====== ====== =====
</TABLE>
The notes hereto form an integral part of the financial statements.
F-78
<PAGE> 166
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998, DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------------- ------------------- ------------
NLG '000 NLG '000 NLG '000 NLG '000 NLG '000
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities
Operating result...................... (3,810) (1,228) --
Depreciation and amortisation......... 10,384 1,723 --
------- ------- -------
6,574 495 --
Changes in current assets and
liabilities:
- receivables...................... (1,208) (1,843) --
- current liabilities excluding
financing........................ (324) 3,232 --
------- ------- -------
(1,532) 1,389 --
------- ------- -------
Cash flow from operations before tax.... 5,042 1,884 --
Interest expense...................... (1,565) (201) --
Income taxes.......................... (1,420) 59 --
------- ------- -------
(2,985) (142) --
------- ------- -------
Net cash flow from operating
activities............................ 2,057 1,742 --
Cash flow from investing activities
Purchase of intangible fixed assets... (2,653) (750) --
Purchase of tangible fixed assets..... (3,795) (602) --
Acquisitions, net of cash acquired.... (35,156) (12,453) --
------- ------- -------
(41,604) (13,805) --
------- ------- -------
To carry forward...................... (39,547) (12,063) --
Carried forward....................... (39,547) (12,063) --
Cash flow from financing activities
Bank loans............................ 10,007 4,928 --
Due to shareholders................... 7,694 2,012 --
Capital contribution.................. 20,337 856 --
------- ------- -------
38,038 7,796 --
------- ------- -------
Net (decrease) in cash.................. (1,509) (4,267) --
Cash at the beginning of the year....... 2,274 6,541 6,541
------- ------- -------
Cash less bank overdraft at year-end.... 765 2,274 6,541
======= ======= =======
</TABLE>
The impact on the consolidated cash flow statement of acquisitions is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
NLG '000 NLG '000 NLG '000
<S> <C> <C> <C>
Intangible fixed assets........................ (34,240) (14,311) --
Tangible fixed assets.......................... (6,256) (510) --
Inventories.................................... 0 (30) --
Receivables.................................... (13,066) (4,588) --
Provisions..................................... 0 610 --
Long term liabilities.......................... 0 110 --
Short term loans............................... 1,324 1,778 --
Current liabilities excluding bank overdrafts
and short term loans......................... 17,082 4,488 --
------- ------- -------
(35,156) (12,453) --
======= ======= =======
</TABLE>
The notes hereto form an integral part of the financial statements.
F-79
<PAGE> 167
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL NOTES
General
Cordena Call Management B.V. ("Cordena" or "the company") started
operations in 1997 and is active in the outsourced call center market in Europe.
Prior to 1997, the entity was named Cordena Holding B.V. and was inactive. The
company has its statutory seat in Amsterdam, The Netherlands.
In 1997, Cordena acquired all outstanding shares in HDM B.V. (formerly
named Hulsink Direct Marketing B.V.) of Almelo, The Netherlands and its
subsidiaries. In 1998, the group acquired operations in Austria, Switzerland,
United Kingdom, Germany and Norway.
Consolidation principles
The consolidated financial statements include the financial information of
Cordena Call Management B.V. and companies which constitute an economic and
organisational unit with Cordena Call Management B.V. These companies are fully
consolidated, minority interests being stated separately. Intercompany
receivables, payables and transactions are eliminated from the consolidated
financial statements.
Based on these criteria the consolidated financial statements include the
financial information of the parent company and of the following subsidiary
companies:
<TABLE>
<CAPTION>
PARTICIPATION
-------------
<S> <C>
HDM B.V., Almelo, The Netherlands........................ 100%
HDM GmbH, Nordhorn, Germany.............................. 100%
HDM Aps, Copenhagen, Denmark............................. 100%
HDM Sarl, Lille, France.................................. 100%
Cordena Call Management Beteiligungs GmbH, Frankfurt,
Germany................................................ 100%(1)
Cordena Call Management Erste Verwaltungs GmbH,
Frankfurt, Germany..................................... 100%(1)
Cordena Call Management Zweite Verwaltungs GmbH,
Frankfurt, Germany..................................... 100%(1)
Tetel GmbH, Duisburg, Germany............................ 100%(1)
DTS GmbH, Duisburg, Germany.............................. 100%(1)
Intercall GmbH, Dusseldorf, Germany...................... 100%(1)
Cordena UK Holding Ltd, Exeter, United Kingdom........... 100%(2)
Salestrac Ltd., Exeter, United Kingdom................... 100%(2)
Cordena Call Management Norway, Gjerdrum, Norway......... 100%(3)
Cordena Call Management Beteiligungs GmbH, Vienna,
Austria................................................ 100%(4)
Cordena Handels GmbH, Vienna, Austria.................... 100%(4)
Cordena Telefondienst GmbH, St. Gallen, Switzerland...... 100%(4)
Tetel Osterreich GmbH, Salzburg, Austria................. 100%(5)
</TABLE>
- ---------------
(1) as from January 1, 1998
(2) as from April 1, 1998
(3) as from July 1, 1998
(4) as from September 1, 1998
(5) as from December 31, 1998
F-80
<PAGE> 168
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary of significant accounting policies
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost accounting
convention.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities as well as revenues and expenses of foreign
subsidiaries are translated at year-end rates of exchange. Gains and losses
resulting from translation are accumulated in shareholders' equity. Gains and
losses resulting from foreign currency transactions and from the conversion into
local currency of assets and liabilities denominated in foreign currency are
included in net income.
INTANGIBLE FIXED ASSETS
Intangible fixed assets relate to goodwill arising from acquisitions and to
formation expenses. Goodwill consists of the difference between the purchase
consideration and the value of the acquired company as determined on the basis
of the fair value of the subsidiary's assets and liabilities at the time of the
acquisition. Formation expenses and goodwill are amortised on a straight-line
basis.
TANGIBLE FIXED ASSETS
Tangible fixed assets are valued at purchase price less accumulated
depreciation calculated on a straight-line basis over the expected useful life
of the assets.
INVENTORIES
Inventories are carried at the lower of historical cost or market, with
cost determined on a first-in, first-out (FIFO) basis. Provisions are made for
slow moving, obsolete or defective inventories.
RECEIVABLES
Receivables are stated at nominal value less required provision for
doubtful accounts of NLG 100,000 both at December 31, 1998 and 1997.
UNBILLED REVENUES
Unbilled revenues are services performed for clients that have not yet been
invoiced at the balance sheet date.
OTHER ASSETS AND LIABILITIES
Unless explicitly stated otherwise assets and liabilities are stated at
face value.
DETERMINATION OF INCOME
Income is determined on the basis of the difference between realisable
value of services rendered and costs and other expenses for the year. Income
from transactions is accounted for in the year in which it is realised. Losses
are accounted for as soon as they are foreseeable.
REVENUE RECOGNITION
Net turnover represents the amounts charged to third parties for
telemarketing and fulfilment services provided, disbursements charged through
and other income rendered in the reporting year, less discounts and exclusive of
VAT.
F-81
<PAGE> 169
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE FIXED ASSETS
The movements in intangible fixed assets can be summarised as follows:
<TABLE>
<CAPTION>
FORMATION
GOODWILL EXPENSES TOTAL
-------- --------- --------
NLG '000 NLG '000 NLG '000
<S> <C> <C> <C>
Bookvalue January 1, 1998.............................. 12,880 675 13,555
------ ----- -------
CHANGES
Acquisition of subsidiary companies.................. 33,262 2,653 35,915
Amortisation......................................... (8,196) (416) (8,612)
------ ----- -------
25,066 2,237 27,303
------ ----- -------
Bookvalue December 31, 1998............................ 37,946 2,912 40,858
====== ===== =======
DECEMBER 31, 1998
At cost.............................................. 47,573 3,403 50,976
Accumulated depreciation............................. (9,627) (491) (10,118)
------ ----- -------
Bookvalue December 31, 1998.......................... 37,946 2,912 40,858
====== ===== =======
Yearly amortisation rate............................. 20% 20%
------ -----
</TABLE>
TANGIBLE FIXED ASSETS
The movements in tangible fixed assets can be summarised as follows:
<TABLE>
<CAPTION>
LEASEHOLD
BUILDING
IMPROVEMENTS EQUIPMENT TOTAL
------------ --------- --------
NLG '000 NLG '000 NLG '000
<S> <C> <C> <C>
Bookvalue January 1, 1998...................... 207 687 894
----- -------- ------
CHANGES
Acquisition of subsidiary companies.......... 15 6,241 6,256
Net investments.............................. 171 3,624 3,795
Depreciation................................. (102) (1,670) (1,772)
----- -------- ------
84 8,195 8,279
----- -------- ------
Bookvalue December 31, 1998.................... 291 8,882 9,173
===== ======== ======
DECEMBER 31, 1998
At cost...................................... 1,162 14,930 16,092
Accumulated depreciation..................... (871) (6,048) (6,919)
----- -------- ------
Bookvalue December 31, 1998.................. 291 8,882 9,173
===== ======== ======
Yearly depreciation rates.................... 20-25% 20-33,33%
----- --------
</TABLE>
F-82
<PAGE> 170
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Movements in shareholders' equity are as follows:
<TABLE>
<CAPTION>
ADDITIONAL
SHARE PAID-IN LEGAL OTHER
CAPITAL CAPITAL RESERVE RESERVES TOTAL
-------- ---------- -------- -------- --------
NLG '000 NLG '000 NLG '000 NLG '000 NLG '000
<S> <C> <C> <C> <C> <C>
December 31, 1997.................. 100 6,392 675 (1,141) 6,026
New shares issued.................. 125 20,212 0 0 20,337
Result for the year................ 0 0 0 (6,795) (6,795)
Transfer to legal reserve.......... 0 0 2,237 (2,237) 0
--- ------ ----- ------- ------
December 31, 1998.................. 225 26,604 2,912 (10,173) 19,568
=== ====== ===== ======= ======
</TABLE>
ISSUED AND PAID-UP SHARE CAPITAL
The authorised share capital amounts to NLG 500,000, divided into
12,500,000 shares of NLG 0.04 each. The issued and paid-up share capital amounts
to NLG 224.587, divided into 5,614,664 shares of NLG 0.04 each.
LEGAL RESERVE
The company has to maintain a non-distributable reserve for the bookvalue
of the formation expenses of NLG 2,912,000.
OPTION SCHEMES
Under the Stock Option Plan, the company has granted options to its
directors and senior management to purchase 1,009,480 Depository Receipts of
Shares at an option price of NLG 3.00, 178,112 Depository Receipts of Shares at
an option price of NLG 6.00 and 371,067 Depository Receipts of Shares at an
option price of NLG 7.00. The options vest at December 30, 2000 and 2001
respectively and are exercisable until December 30, 2002 and 2003 respectively.
During 1998 no options have been exercised.
LONG TERM BANK LOAN
The long term liabilities comprises:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
NLG '000 NLG '000
<S> <C> <C>
Bank loan.................................................. 16,007 6,000
Acquisition liabilities.................................... 6,147 0
Other long term loans and lease obligations................ 1,355 67
------ -----
23,509 6,067
Amount due in 1999 (classified under short term
liabilities)............................................. 560 700
------ -----
22,949 5,367
====== =====
</TABLE>
The long term bank loan comprises a 6 year loan at LIBOR + 1.875% interest.
Repayment is due in 11 installments as follows: 3.5% in December 1999, 15% in
2000, 15% in 2001, 20% in 2002, 20% in 2003 and the remaining 26.5% in 2004. The
amount due in 1999 is classified under short term liabilities.
F-83
<PAGE> 171
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loan is covered by the following securities:
- Pledge on the shares in the subsidiary companies.
- Pledge of stocks.
- Pledge of receivables.
- Pledge of business chattels
The acquisition liabilities are classified as long term liabilities as
these are covered by the 6 year bank loan agreement. These loans will be
contracted when the acquisition liabilities are settled.
OVERDRAFT FACILITIES
The group has an overdraft facility of NLG 7 million. The overdraft
facility is covered by the same securities that cover the long term bank loan.
On December 31, 1998 the facility was not used.
OFF BALANCE SHEET OBLIGATIONS
At December 31, 1998 the group has the following obligations not evident
from the balance sheet:
- lease-obligations of approximately NLG 490,000 for 1999; which relate to
operating leases;
- at December 31, 1998 the company has issued a bank guarantee amounting to
approximately NLG 125,000;
- the annual amount for rental commitments is approximately NLG 2 million,
per year.
F-84
<PAGE> 172
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEAR ENDED DECEMBER 31, 1998
NET SALES
The group's activities comprise inbound and outbound telemarketing services
and fulfilment operations. In 1998, approximately 28% (1997: 73%) of its
turnover was realised in The Netherlands, the remainder being realised in other
Western European countries.
TAXATION
The consolidated taxable income of the group is approximately NLG 4
million. The difference with the loss for reporting purposes mainly comprises
the non-deductible amortisation of goodwill. As at December 31, 1998 the group
has net operating losses available for carryforward of approximately NLG
3,000,000, of which some NLG 2,400,000 is indefinitely available. No deferred
tax asset has, however, been accounted for as it is too uncertain when these
losses will be utilised.
PERSONNEL
At year-end the number of staff employed by the group was approximately 805
(December 31, 1997: 130).
REMUNERATION OF DIRECTORS
The group has two executive directors (1997: 2), who together received NLG
740,000 remuneration (1997: NLG 49,167) and who were granted options to purchase
878,164 Depository Receipts of Shares at an option price of NLG 3.00 and 39,613
Depository Receipts of Shares at an option price of NLG 7.00. The group has two
Supervisory Directors (1997: none). The Supervisory Directors received no
remuneration.
F-85
<PAGE> 173
CORDENA CALL MANAGEMENT B.V., THE HAGUE
SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(IN THOUSANDS OF DUTCH GUILDERS (NLG))
The company's financial statements have been prepared in accordance with
generally accepted accounting principles in The Netherlands (Dutch GAAP), which
differ in certain significant respects from generally accepted accounting
principles in the United States (US GAAP). The effect of the application of US
GAAP to net income and shareholders' equity is set out in the tables below.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
NLG '000 NLG '000 NLG '000
<S> <C> <C> <C>
NET INCOME UNDER DUTCH GAAP............................. (6,795) (1,370) --
1) HDM -- Goodwill amortisation......................... 120 1,001 --
1) HDM -- Effective date of inclusion of the results of
acquisition........................................... 0 (486) --
2) Formation Expenses................................... (118) (225) --
3) Provisions and Restructuring......................... (800) 0 --
4) Tetel -- Goodwill amortisation....................... 2,486
4) Tetel -- Effective date of inclusion of results of
Operations, including effect of minority interest.... (1,022)
5) Salestrac -- Acquisition and Contingent
Consideration......................................... 210
6) Cordena Handels -- Provisions........................ (234)
7) Other acquisitions................................... 49
8) Deferred taxes on US GAAP adjustments................ 761 249 --
------ ------ --
NET INCOME UNDER US GAAP................................ (5,343) (831) --
====== ====== ==
SHAREHOLDERS' EQUITY UNDER DUTCH GAAP................... 19,568 6,026
1) HDM -- Goodwill -- accumulated amortisation.......... 1,121 1,001
1) HDM -- Effective date of inclusion of the results of
acquisition........................................... (486) (486)
2) Formation Expenses................................... (343) (225)
3) Provisions and Restructuring......................... (800)
4) Tetel -- Goodwill amortisation....................... 2,486
4) Tetel -- Effective date of inclusion of results of
Operations, including the effect of the minority
interest............................................. (1,022)
5) Salestrac -- Acquisition and Contingent
Consideration......................................... 210
6) Cordena Handels -- Provisions........................ (234)
7) Other Acquisitions................................... 49
8) Deferred tax on US GAAP adjustments.................. 1,010 249
------ ------
SHAREHOLDERS' EQUITY UNDER US GAAP...................... 21,559 6,565
====== ======
</TABLE>
1) HDM -- GOODWILL, AMORTISATION AND EFFECTIVE DATE OF INCLUSION OF THE RESULTS
OF THE ACQUISITION
Under Dutch GAAP, acquisitions are recorded when the Company has "economic"
control which is defined as ability to exercise influence over the target
company. Management has identified this date as July 1, 1997 and as such the
acquisition was recorded on this date in the Dutch financial statements. For US
GAAP purposes the purchase is recorded on the effective date of the transfer of
the shares and the closing date of the agreement. The transfer and closing date
was November 16, 1997.
F-86
<PAGE> 174
CORDENA CALL MANAGEMENT B.V., THE HAGUE
SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(IN THOUSANDS OF DUTCH GUILDERS (NLG)) -- (CONTINUED)
Since the date for recording the acquisition for US GAAP and Dutch GAAP was
different, the results of the subsidiary for inclusion in the financial
statements is July 1, 1997 for Dutch GAAP and November 16, 1997 for US GAAP.
Goodwill is recorded as the excess of purchase price less the fair value of
the assets and liabilities acquired. For Dutch GAAP, certain provisions are
allowed to be included in the fair value adjustments which do not meet the
criteria of fair value adjustments under US GAAP.
The amount of goodwill for US GAAP purposes is less than goodwill recorded
for Dutch GAAP by NLG 1,398 due to the difference of the fair value (assets
acquired less liabilities assumed) of the subsidiary acquired.
Due to the timing differences of the recording of the acquisition and the
difference in the amount of goodwill, amortisation expense is different for US
and Dutch GAAP.
2) FORMATION EXPENSES
Under Dutch GAAP, various expenses that are incurred for and around the
time of the acquisition, can be capitalised as formation expenses and amortised
over five years. For US GAAP, only certain costs which include financing costs
related to debt incurred, legal fees and other consulting costs directly related
to the acquisition can be capitalised.
The costs included in formation expenses capitalised under Dutch GAAP that
are not allowed to be capitalised under US GAAP relate to costs associated with
hiring a new managing director for the new company. This cost has been expensed
as incurred for US GAAP purposes.
3) PROVISIONS AND RESTRUCTURING PROVISIONS
Dutch GAAP allows provisions to be made for obligations, losses which exist
on the balance sheet date for which an amount can be reasonably estimated.
Provision can also be made for expenses to be incurred in a subsequent financial
year, provided that such expenses originated, at least partly, in the current or
a preceding financial year and that the purpose of the provision is to spread
the expenses over a number of financial years.
Under US GAAP provisions are made for estimated losses if prior to issuance
of the financial statements it is probable that the liability has been incurred
or an asset had been impaired and the amount can be reasonably estimated.
Provisions can not be recognised for future expenses if no obligation existed at
the balance sheet date to incur those expenses.
Under Dutch GAAP when a decision has been made to reorganise part of the
Group's business, provisions are made for redundancy as well as other closing,
integration and moving costs.
Under US GAAP only costs that qualify as exit costs under the guidelines
set out in EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring) and therefore do not relate to the ongoing operations of the
company may be provided for. In addition, a number of specific criteria also
must be met before these costs that do qualify as exit costs can be recognised
as an expense. Among these is the requirement that all the significant actions
to be taken as part of the reorganisation must be identified along with their
expected completion dates and the exit program must be approved by the balance
sheet date. Costs that do not qualify as exit costs are expensed when the
obligation exists to pay cash or otherwise sacrifice assets.
F-87
<PAGE> 175
CORDENA CALL MANAGEMENT B.V., THE HAGUE
SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(IN THOUSANDS OF DUTCH GUILDERS (NLG)) -- (CONTINUED)
In 1997, provisions of NLG 800 were recorded in the Dutch GAAP accounts as
set out in footnote 1 above. In 1998, the Company reversed the provision against
income for Dutch GAAP purposes due to the fact that the provision was no longer
needed. For US GAAP purposes, this release of the provision has been reversed as
the original provision did not meet the criteria set out above for a fair value
adjustment.
THE TETEL ACQUISITION
4) GOODWILL AMORTISATION AND EFFECTIVE DATE OF INCLUSION OF FINANCIAL
INFORMATION IN THE FINANCIAL STATEMENTS
On May 19, 1998, the Company acquired 75% of the outstanding shares in
Tetel GmbH, Intercall GmbH, and DTS Gmbh (collectively "Tetel") for
consideration of Deutche Marks 16,125,000 (NLG 18,170). In this transaction, the
Company obtained a call option to purchase the remaining 25% of the Tetel shares
for a consideration of 8 to 9 times the amount of EBITDA (Earnings before taxes,
depreciation and amortisation). The option was exercisable immediately and had
an expiration date of December 31, 2001.
On December 30, 1998, the Company exercised the option and purchased the
25% of the shares.
Under Dutch GAAP, acquisitions are recorded when the Company has "economic"
control which is defined as ability to exercise some influence over the target
company.
The above transaction was recorded as of January 1, 1998 as management
determined that the Company had economic control and intended to exercise the
option. 100% of the assets and liabilities of Tetel were recorded and 100% of
the results were included from January 1, 1998 in the financial statements under
Dutch GAAP.
Under US GAAP, the purchase of the subsidiary is recorded on the closing
and the effective date of the legal transfer of shares and ownership.
The date for recording the acquisition for US GAAP purposes is different
than for Dutch GAAP purposes and as such the results of the subsidiary for
inclusion in the financial statements was January 1, 1998 for Dutch GAAP
purposes and May 19, 1998 for US GAAP purposes.
As the Company only owned 75% of the shares from May 19, 1998 to December
30, 1998, a minority interest for that portion of the year was recorded for US
GAAP purposes.
For US GAAP purposes, the exercise of the option to purchase the remaining
25% of the Company was recorded when executed and the consideration was
exchanged which was December 30, 1998.
For Dutch and US GAAP, the company assigned the purchase price to the fair
value of the assets acquired and liabilities assumed with the excess recorded as
goodwill however the criteria of when and how to record the liabilities under US
GAAP are more stringent than the guidelines under Dutch GAAP. As such NLG 245 of
liabilities recorded were not allowed to be recorded for US GAAP purposes. The
amount of goodwill for US GAAP purposes differs from Dutch GAAP due to the
difference of the fair value of the subsidiary acquired on January 1, 1998 and
May 18, 1998 and the recording of the 25% interest. Goodwill for US GAAP
purposes at the acquisition date was NLG 5,979 less than the goodwill recorded
in the Dutch GAAP accounts due to the fact that the 25% interest was actually
purchased on December 30, 1998.
Due to the difference in the amount of goodwill, amortisation expense under
US GAAP was NLG 2,486 less than amortisation expense under Dutch GAAP for the
year ended December 31, 1998.
F-88
<PAGE> 176
CORDENA CALL MANAGEMENT B.V., THE HAGUE
SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(IN THOUSANDS OF DUTCH GUILDERS (NLG)) -- (CONTINUED)
5) SALESTRAC -- ACQUISITION AND CONTINGENT CONSIDERATION
On April 6, 1998, the Company acquired 100% of the outstanding shares of
Salestrac Ltd. for an initial consideration of NLG 4,430 and contingent
consideration of NLG 826 based on the gross profit of Salestrac Ltd. for the
year ended March 31, 1999.
For Dutch GAAP this consideration was estimated and recorded in 1998
however for US GAAP purposes, contingent consideration is not recorded until
determined thus this additional consideration should be recorded in 1999. This
additional goodwill is being amortised over five years for US and Dutch GAAP
purposes.
Based on the timing difference on the contingent consideration and the
recording of a deferred tax asset for US GAAP, goodwill was NLG 1,401 less than
goodwill for Dutch GAAP purposes.
6) CORDENA HANDELS -- ACQUISITION
The Company acquired Cordena Handels on September 1, 1999, the effective
date of the transaction. Under Dutch GAAP, a provision was recorded for
restructuring which did not meet the purchase accounting criteria for US GAAP.
This provision was reversed for US GAAP and the expenses related to this
restructuring are included in the profit and loss statement when incurred.
As a result of the additional provisions recorded for Dutch GAAP and other
fair value adjustments, goodwill was NLG 527 less for US GAAP than for Dutch
GAAP.
7) OTHER ACQUISITIONS
For all of the other minor acquisitions in 1998, there were differences in
the accounting treatment under Dutch and US GAAP as set out above in note 1 and
5.
8) DEFERRED TAXATION
The deferred taxes on other adjustments is calculated as the tax effect at
35% (statutory rate) of the expected reversal of the income statement items
which are tax deductible.
ADDITIONAL US GAAP DISCLOSURES
DEFERRED TAXATION
At December 31, 1997 and 1998, the Company has a net deferred tax assets
which mainly consist of net operating loss carryforwards of NLG 0 and NLG 3,000.
These net operating loss carryforwards were acquired through the various
acquisitions. For Dutch GAAP purposes, a full valuation allowance has been
recorded against these assets based on the expected utilisation of losses and
historical losses. The majority of these losses have an indefinite life.
For US GAAP purposes, the evaluation of a deferred tax asset and the
potential utilization is different. If a deferred tax asset has an indefinite
life, based on the going concern assumption at some point in the future the
Company will be able to utilise these carryforwards. As such, a valuation
allowance is only recorded for the net operating loss carryforwards that have a
limited life. These deferred tax assets have been recorded in the purchase
accounting for each subsidiary.
For US GAAP purposes, at December 31, 1997 and December 31, 1998, the net
operating loss carryforwards are 0 and NLG 3,000, respectively.
F-89
<PAGE> 177
CORDENA CALL MANAGEMENT B.V., THE HAGUE
SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(IN THOUSANDS OF DUTCH GUILDERS (NLG)) -- (CONTINUED)
STOCK OPTIONS
The Company accounts for stock options under APB 25. If the exercise of the
stock option price is less than the fair value of the common stock, the
difference between the fair value and the exercise price is compensation
expense.
The Company has a stock option plan and has granted options to its
directors and senior management in 1997 and 1998. The fair value of the common
stock as determined by the board of directors in 1997 was NLG 3. Stock options
in 1997 were granted with the exercise price of NLG 3.
In 1998, the fair value of the common stock as determined by the board of
directors was NLG 6 in the first and second quarter and then was determined to
be NLG 7 during the second half of 1998. All stock options were granted fair
market value at the grant date throughout 1998.
SUBSEQUENT EVENT
On October 7, 1999, the Company was purchased by Client Logic, Inc. and all
stock options for all employees of Cordena vested immediately.
F-90
<PAGE> 178
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(AFTER APPROPRIATION OF RESULT)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------- -----------------------
NLG '000 NLG '000 NLG '000 NLG '000
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Fixed assets:
Intangible fixed assets......................... 35,112 40,858
Tangible fixed assets........................... 9,125 9,173
Current assets:
Inventories..................................... 234 0
Receivables
Trade debtors and unbilled revenues net of NLG
100 and 100, respectively.................... 11,922 13,253
Other receivables and prepaid expenses............ 6,576 7,483
------ ------
18,498 20,736
Cash and banks.................................... 0 765
------ ------
62,969 71,532
====== ======
Shareholders' equity.............................. 7,290 19,568
Long term liabilities:
Loans........................................... 0 15,447
Acquisition liabilities......................... 0 6,147
Other long term loans and lease obligations..... 2,558 1,355
------ ------
2,558 22,949
Current liabilities
Short term portion of long term loan and lease
obligations and other short term loans....... 23,254 2,504
Bank overdraft.................................. 9,458 0
Trade creditors................................. 10,899 9,037
Payable to vendors of acquired companies........ 0 1,347
Acquisition liabilities......................... 300 200
Taxes and social security premiums................ 2,380 5,554
Other payables and accrued expenses............. 6,830 10,373
------ ------
53,121 29,015
------ ------
62,969 71,532
====== ======
</TABLE>
F-91
<PAGE> 179
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
-------------------- --------------------
NLG '000 NLG '000 NLG '000 NLG '000
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales......................................... 62,380 49,235
Cost of sales..................................... (14,617) (12,117)
------- -------
Gross profit...................................... 47,763 37,118
Personnel expenses................................ 35,383 23,536
Depreciation of tangible fixed assets............. 2,301 1,359
Amortization of intangible fixed assets........... 8,046 6,345
Other operating expenses.......................... 15,541 9,335
------ ------
61,271 40,575
------- -------
Operating result.................................. (13,508) (3,457)
Financial income and (expense).................... (1,703) (540)
------- -------
Result before taxation............................ (15,211) (3,997)
Income taxes...................................... (46) (336)
------- -------
Result after taxation............................. (15,257) (4,333)
======= =======
</TABLE>
F-92
<PAGE> 180
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED CASH FLOW STATEMENT FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
NLG '000 NLG '000 NLG '000 NLG '000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operating activities...............
Operating result.................................. (13,507) (3,457)
Depreciation and amortisation..................... 10,347 7,704
Changes in current assets and liabilities:
-- receivables.................................. 2,004 641
-- current liabilities excluding financing...... (4,855) (5,383)
------ -------
(2,851) (4,742)
------- -------
Cash flow from operations before tax.............. (6,011) (495)
Financial income and (expense).................... (1,703) (540)
Income taxes...................................... (46) (336)
------ -------
(1,749) (876)
------- -------
Net cash flow from operating activities........... (7,760) (1,371)
Cash flow from investing activities
Purchase of intangible fixed assets............... (2,300) (1,132)
Purchase of tangible fixed assets................. (2,253) (1,660)
Acquisitions, net of cash acquired................ 0 (35,156)
------ -------
(4,553) (37,948)
------- -------
To carry forward.................................. (12,313) (39,319)
</TABLE>
F-93
<PAGE> 181
CORDENA CALL MANAGEMENT B.V., THE HAGUE
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
-------------------- --------------------
NLG '000 NLG '000 NLG '000 NLG '000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Carried forward................................... (12,313) (39,319)
Cash flow from financing activities
Bank loans........................................ 6,506 14,456
Due to shareholders............................... (7,394) 5,682
Capital input..................................... 2,247 16,615
Translation adjustments........................... 731 0
------ ------
2,090 36,753
------- -------
Net (decrease) in cash............................ (10,223) (2,566)
Cash at the beginning of the year................. 765 2,274
------- -------
Cash less bank overdraft at year-end.............. (9,458) (292)
------- -------
</TABLE>
The impact on the consolidated cash flow statement of acquisitions is as
follows:
<TABLE>
<CAPTION>
9 MONTHS
1999 1998
-------- --------
NLG '000 NLG '000
<S> <C> <C>
Intangible fixed assets................................. 0 (34,240)
Tangible fixed assets................................... 0 (6,256)
Inventories............................................. 0 0
Receivables............................................. 0 (13,066)
Provisions.............................................. 0 0
Long term liabilities................................... 0 0
Short term loans........................................ 0 1,324
Current liabilities excluding bank overdrafts and short
term loans............................................ 0 17,082
-- -------
0 (35,156)
== =======
</TABLE>
F-94
<PAGE> 182
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented in Dutch
Guilders and are based on the historical cost convention prepared in accordance
with accounting principles generally accepted in the Netherlands ("Dutch GAAP").
These standards vary in certain material respects from accounting principles
generally accepted in the United States ("US GAAP"). See Note 2 for a summary of
material differences between Dutch GAAP and US GAAP as applied to Cordena Call
Management B.V.
2. SUMMARY OF DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The company's financial statements have been prepared in accordance with
generally accepted accounting principles in The Netherlands (Dutch GAAP), which
differ in certain significant respects from generally accepted accounting
principles in the United States (US GAAP). The effect of the application of US
GAAP to net income and shareholder's equity is set out in the tables below.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
NLG NLG
<S> <C> <C>
Net income under Dutch GAAP............................... (15,257) (4,333)
(1) HDM -- Goodwill amortisation........................ 90 90
(2) Formation Expenses.................................. 19 (89)
(3) Provisions and Restructuring........................ (600)
(4) Tetel -- Goodwill amortisation...................... 217 2,187
(4) Tetel -- Effective date of inclusion of results of
operations, Including the effect of minority
interest............................................ (901)
(5) Sales trac -- Acquisition and contingent
consideration........................................ 137 118
(7) Other Acquisitions.................................. 127 12
(8) Deferred tax on adjustments......................... (7) 553
------- ------
Net income under US GAAP.................................. (14,674) (2,963)
======= ======
</TABLE>
During 1998, there were various acquisitions as set out in the notes. In
1999, there were not any acquisitions from the period of January 1, 1999 to
September 30, 1999.
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Shareholders' equity under Dutch GAAP.................... 7,290 18,308
(1) HDM -- Goodwill and accumulated amortisation....... 1,211 1,091
(1) HDM -- Effective date of inclusion of the results
of acquisition..................................... (486) (486)
(2) Formation Expenses................................. (324) (314)
(3) Provisions and Restructuring....................... (800) (600)
(4) Tetel -- Goodwill amortisation..................... 2,703 2,187
(4) Tetel -- Effective date of inclusion in the
financials......................................... (1,022) (901)
(5) Salestrac -- Acquisition and contingent
consideration...................................... 347 118
(6) Cordena Handels -- Acquisition..................... (234)
(7) Other Acquisitions................................. 176
(8) Deferred taxes on US GAAP adjustments.............. 1,003 801
------ ------
Shareholders' equity under US GAAP....................... 9,864 20,204
====== ======
</TABLE>
F-95
<PAGE> 183
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) HDM -- Goodwill, Amortisation and Effective date of inclusion of the
results of the acquisition
Under Dutch GAAP, acquisitions are recorded when the Company has "economic"
control which is defined as ability to exercise influence over the target
company. Management has identified this date as July 1, 1997 as such the
acquisition was recorded on this date in the Dutch accounts. For US GAAP
purposes the purchase is recorded on the effective date of the transfer of the
shares and the closing date of the agreement. The transfer and closing date was
November 16, 1997.
Goodwill is recorded as the excess of purchase price less the fair value of
the assets and liabilities acquired. For Dutch GAAP, certain provisions are
allowed to be included in the fair value adjustments which do not meet the
criteria of fair value adjustments under US GAAP.
The amount of goodwill for US GAAP purposes is less than goodwill recorded
for Dutch GAAP by NLG 1,398 due to the difference of the fair value (assets
acquired less liabilities assumed) of the subsidiary acquired.
Due to the timing differences of the recording of the acquisition and the
difference in the amount of goodwill, amortisation expense is different for US
and Dutch GAAP.
Since the date for recording the acquisition for US GAAP and Dutch GAAP was
different, the results of the subsidiary for inclusion in the financial
statements is July 1, 1997 for Dutch GAAP and November 16, 1997 for US GAAP.
(2) Formation Expenses
Under Dutch GAAP, various expenses that are incurred for and around the
time of the acquisition, can be capitalised as formation expenses and amortised
over five years. For US GAAP, only certain costs which include financing costs
related to debt incurred, legal fees and other consulting costs directly related
to the acquisition can be capitalised.
The costs included in formation expenses capitalised under Dutch GAAP that
are not allowed to be capitalised under US GAAP relate to costs associated with
hiring a new managing director for the new company. This cost has been expensed
for US GAAP purposes.
(3) Provisions and Restructuring Provisions
Dutch GAAP allows provisions to be made for obligations, losses which exist
on the balance sheet date for which an amount can be reasonably estimated.
Provision can also be made for expenses to be incurred in a subsequent financial
year, provided that such expenses originated, at least partly, in the current or
a preceding financial year and that the purpose of the provision is to spread
the expenses over a number of financial years.
Under US GAAP provisions are made for estimated losses if prior to issuance
of the financial statements it is probable that the liability has been incurred
or an asset had been impaired and the amount can be reasonably estimated.
Provisions can not be recognised for future expenses if no obligation existed at
the balance sheet date to incur those expenses.
Under Dutch GAAP when a decision has been made to reorganise part of the
Group's business, provisions are made for redundancy as well as other closing,
integration and moving costs.
Under US GAAP only costs that qualify as exit costs under the guidelines
set out in EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring) and therefore do not relate to the ongoing operations of the
company may be provided for. In addition, a number of specific criteria also
must be met before these costs that do qualify as exit costs can be recognised
as an expense. Among these is the
F-96
<PAGE> 184
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requirement that all the significant actions to be taken as part of the
reorganisation must be identified along with their expected completion dates and
the exit program must be approved by the balance sheet date. Costs that do not
qualify as exit costs are expensed when the obligation exists to pay cash or
otherwise sacrifice assets.
In 1997, provisions of NLG 800 were recorded in the Dutch GAAP. In 1998,
the Company reversed the provision against income for Dutch GAAP purposes due to
the fact that the provision was no longer needed. For US GAAP purposes, this
release of the provision has been reversed as the original provision did not
meet the criteria set out above for a fair value adjustment.
THE TETEL ACQUISITION
(4) Goodwill amortisation and Effective Date of Inclusion of Financial
Information in the Financial Statements
On May 19, 1998, the Company acquired 75% of the outstanding shares in
Tetel GmbH, Intercall GmbH and DTS GmbH (collectively "Tetel") for consideration
of Deutche Marks 16,125,000 (NLG 18,170). In this transaction, the Company
obtained a call option to purchase the remaining 25% of the Tetel shares for a
consideration of 8 to 9 times the amount of EBITDA (Earnings before taxes,
depreciation and amortisation). The option was exercisable immediately and had
an expiration date of December 31, 2001.
On December 30, 1998, the Company exercised the option and purchased the
25% of the shares. Under Dutch GAAP, acquisitions are recorded when the Company
has "economic" control which is defined as ability to exercise influence over
the target company.
The above transaction was recorded as of January 1, 1998 as management
determined that the Company had economic control and intended to exercise the
option. 100% of the assets and liabilities of Tetel were recorded and 100% of
the results were included form January 1, 1998 in the financial statements under
Dutch GAAP.
Under US GAAP as noted in footnote (1), on the closing and the effective
date of the legal transfer of shares and ownership, the purchase of a subsidiary
is recorded.
As discussed in note (1) above, the date for recording the acquisition for
US GAAP purposes is different than for Dutch GAAP purposes and as such the
results of the subsidiary for inclusion in the financial statements was January
1, 1998 for Dutch GAAP purposes and May 19, 1998 for US GAAP purposes.
For US GAAP purposes, as the Company only owned 75% of the shares from May
19, 1998 to December 30, 1998, a minority interest for that portion of the year
was recorded for US GAAP purposes.
Under US GAAP, the purchase of the subsidiary should be recorded on the
effective legal date of the transaction which was May 19, 1998 and only 75% of
the assets and liabilities of Tetel were recorded. For US GAAP purposes, the
exercise of the option to purchase the remaining 25% of the Company was recorded
when executed and the consideration was exchanged which was December 30, 1998.
For Dutch and US GAAP, the company assigned the purchase price to the fair
value of the assets acquired and liabilities assumed with the excess recorded as
goodwill however as noted in footnote 4, the criteria of when and how to record
the liabilities under US GAAP are more stringent than the guidelines under Dutch
GAAP. As such NLG 245 of liabilities recorded were not allowed to be recorded
for US GAAP purposes. The amount of goodwill for US GAAP purposes differs from
Dutch GAAP due to the difference of the fair value of the subsidiary acquired on
January 1, 1998 and May 18, 1998 and the recording of the 25% interest. Goodwill
for US GAAP purposes at the acquisition date was NLG 5,979
F-97
<PAGE> 185
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
less than the goodwill recorded in the Dutch GAAP accounts due to the fact that
the 25% interest was actually purchased on December 30, 1998.
Due to the difference in the amount of goodwill, amortisation expense under
US GAAP was NLG 2,486 less than amortisation expense under Dutch GAAP for the
year ended December 31, 1998.
(5) Salestrac -- Acquisition and Contingent Consideration
On April 6, 1998, the Company acquired 100% of the outstanding shares of
Salestrac Ltd. for an initial consideration of NLG 4,430 and contingent
consideration of NLG 826 based on the gross profit of Salestrac Ltd. for the
year ended March 31, 1999.
For Dutch GAAP this consideration was estimated and recorded in 1998
however for US GAAP purposes, contingent consideration is not recorded until
determined thus this additional consideration should be recorded in 1999. This
additional goodwill is being amortised over five years for US and Dutch GAAP
purposes.
Based on the timing difference on the contingent consideration and the
recording of a deferred tax asset for US GAAP, goodwill was NLG 1,401 less than
goodwill for Dutch GAAP purposes.
(6) Cordena Handels -- Acquisition
The Company acquired Cordena Handels on September 1, 1999, the effective
date of the transaction. Under Dutch GAAP, a provision was recorded for
restructuring which did not meet the purchase accounting criteria for US GAAP.
This provision was reversed for US GAAP and the expenses related to this
restructuring are included in the profit and loss statement when incurred.
As a result of the additional provisions recorded for Dutch GAAP and other
fair value adjustments, goodwill was NLG 527 less for US GAAP than for Dutch
GAAP.
(7) Other Acquisitions
For all of the other minor acquisitions in 1998, there were differences in
the accounting treatment under Dutch and US GAAP as set out above in note 1 and
5.
(8) Deferred taxation
The deferred taxes on other adjustments is calculated as the tax effect at
35% (statutory rate) of the expected reversal of the income statement items
which are tax deductible.
ADDITIONAL US GAAP DISCLOSURES
Deferred Taxation
At December 31, 1997 and 1998, the Company has a net deferred tax asset
which mainly consist of net operating loss carryforwards of NLG 0 and NLG 3,000.
These net operating loss carryforwards were acquired through the various
acquisitions. For Dutch GAAP purposes, a full valuation allowance has been
recorded against these assets based on the expected utilisation of losses and
historical losses. These assets have an indefinite life.
For US GAAP purposes, if a deferred tax asset has an indefinite life, based
on the going concern assumption at some point in the future the Company will be
able to utilise these carryforwards. As such, a valuation allowance is only
recorded for the net operating loss carryforwards that have a limited life.
These deferred tax assets have been recorded in the purchase accounting for each
subsidiary.
F-98
<PAGE> 186
CORDENA CALL MANAGEMENT B.V., THE HAGUE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For US GAAP purposes, at December 31, 1997 and December 31, 1998, the net
operating loss carryforwards are 0 and NLG 3,000, respectively.
STOCK OPTIONS
The Company accounts for stock options under APB 25. If the exercise of the
stock option price is less than the fair value of the common stock, the
difference between the fair value and the exercise price is compensation
expense.
The Company has a stock option plan and has granted options to its
directors and senior management in 1997 and 1998. The fair value of the common
stock as determined by the board of directors in 1997 was NLG 3. Stock options
in 1997 were granted with the exercise price of NLG 3.
In 1998, the fair value of the common stock as determined by the board of
directors was NLG 6 in the first and second quarter and then was determined to
be NLG 7 during the second half of 1998. All stock options were granted fair
market value at the grant date throughout 1998.
SUBSEQUENT EVENT
On October 7, 1999, the Company was purchased by Client Logic, Inc. and all
stock options for all employees of Cordena vested immediately.
F-99
<PAGE> 187
INDEPENDENT AUDITORS' REPORT
Board of Directors
MarketVision, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of MarketVision as of
December 31, 1998, and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MarketVision as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
[TERRY & STEPHENSON SIG]
May 11, 1999
Denver, Colorado
F-100
<PAGE> 188
MARKETVISION, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 200,807
Accounts receivable....................................... 864,007
Contracts receivable...................................... 19,587
Other current assets...................................... 28,145
----------
Total current assets.............................. 1,112,546
----------
Fixed assets:
Furniture, equipment, and commercial software............. 634,640
Capitalized software...................................... 610,212
----------
Total fixed assets................................ 1,244,852
Other assets................................................ 37,140
----------
Total assets................................................ $2,394,538
==========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 115,583
Payroll taxes............................................. 22,260
Current portion of long-term debt......................... 97,585
Current portion of capital lease obligations.............. 128,551
Other current liabilities................................. 7,771
----------
Total current liabilities......................... 371,750
----------
Long-term debt
Capital lease obligations................................. 112,004
Bank loans................................................ 216,036
----------
Total long-term debt.............................. 328,040
----------
Total liabilities........................................... 699,790
----------
CAPITAL
Common stock.............................................. 5,000
Retained earnings......................................... 1,689,748
----------
Total capital............................................... 1,694,748
----------
Total liabilities and capital............................... $2,394,538
==========
</TABLE>
See accompanying notes to financial statements
F-101
<PAGE> 189
MARKETVISION, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Income
RMS software revenue...................................... $2,594,416
Service revenues.......................................... 1,274,942
----------
Total Income................................................ 3,869,358
Expenses
Account management expenses............................... 263,065
Call center expenses...................................... 491,693
Administrative expenses................................... 1,016,509
Sales and marketing expenses.............................. 381,694
Development expenses...................................... 376,997
Operational expenses...................................... 215,145
Amortization and depreciation............................. 312,935
----------
Total S, G, & A expenses.................................... 3,058,038
----------
Operating income............................................ 811,320
Other income and expenses................................... (61,312)
----------
Net income.................................................. 750,008
Retained earnings beginning of year......................... 1,018,003
Distributions............................................... (78,263)
----------
Retained earnings end of year............................... $1,689,748
==========
</TABLE>
See accompanying notes to financial statements
F-102
<PAGE> 190
MARKETVISION, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) from operations......................... $ 750,008
Adjustment to net income:
Depreciation and amortization.......................... 312,935
Net change is operating assets and liabilities:
(Increase) decrease in accounts receivable............. (157,738)
(Increase) decrease in contracts receivable............ (19,587)
(Increase) decrease in other current assets............ (22,001)
Increase (decrease) in accounts payable................ 26,098
Increase (decrease) in payroll taxes................... 10,145
Increase (decrease) in other current liabilities....... 2,674
---------
Net cash provided by operations........................... 902,534
Cash flows from investment activities:
Purchases of property, plant and equipment................ (20,603)
Capitalization of software................................ (179,192)
---------
Net cash used in investment activities.................... (199,795)
Cash flows from financing activities:
Payments on line of credit................................ (325,000)
Payments on notes payable................................. (67,578)
Payments on capitalized leases............................ (127,840)
Proceeds from notes payable............................... 31,652
Distributions to shareholders............................. (106,246)
---------
Net cash used in financing activities..................... (595,012)
---------
Net increase (decrease) in cash............................. 107,727
Cash and cash equivalents at beginning of period............ 93,079
---------
Cash and cash equivalents at end of period.................. $ 200,806
=========
Supplemental information:
Interest payments......................................... $ 64,363
=========
Capital lease obligations of $157,360 were incurred when the
Company entered into leases for new equipment.
Shareholder debt of $139,910 and a shareholder note
receivables of $111,927 were converted to distributions
during 1998.
</TABLE>
See accompanying notes to financial statements
F-103
<PAGE> 191
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. NATURE OF OPERATIONS
MarketVision, Inc. was established in June of 1992 as a provider of
data-driven marketing solutions ranging from direct marketing to relationship
marketing. The Relationship Management System (RMS(TM)) is an integrated
platform supporting traditional and emerging programs for customer and channel
marketing. MarketVision, Inc.'s client list includes Global Fortune 500
companies crossing many industries, including Newspaper, Pharmaceuticals,
Telecommunications, Computer Hardware and Software, and Subscription based
publishing.
2. SIGNIFICANT ACCOUNTING POLICIES
Software Revenue Recognition
Software arrangements range from those that provide a license for a single
software product to those that, in addition to the delivery of software or a
software system, require significant production, modification, or customization
of software. If an arrangement to deliver software or a software system, either
alone or together with other products or services, requires significant
production, modification, or customization of software, the entire arrangement
is accounted for in conformity with current accounting guidelines.
If the arrangement does not require significant production, modification,
or customization of software, revenue is recognized when all the following
criteria are met:
- Persuasive evidence of an arrangement exists;
- Delivery has occurred;
- The vendor's fee is fixed or determinable;
- Collectibility is probable.
If an arrangement includes multiple elements, the fee is allocated to the
various elements based on vendor-specific objective evidence of fair value.
Production Costs of Computer Software
Software production costs for computer software that is to be used as an
integral part of a product or process is not capitalized until both (a)
technological feasibility had been established for the software and (b) all
research and development activities for the other components of the product or
process have been completed.
Costs of producing product masters incurred subsequent to establishing
technological feasibility is capitalized. Those costs included coding and
testing performed subsequent to establishing technological feasibility. Costs of
maintenance and customer support are charged to expense when related revenue is
recognized or when those costs are incurred.
Amortization of Capitalized Software Costs
The annual amortization is the greater of the amount computed using (a) the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
remaining estimated economic life of the product including the period being
reported on. Amortization starts when the product is available for general
release to customers. The
F-104
<PAGE> 192
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
capitalized software costs is being amortized through the year 2000.
Amortization of capitalized software costs charged to operations in 1998 was
$146,747.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. The cost of leasehold improvements is amortized
over the lessor of the length of the related leases or the estimated useful
lives of the assets. Depreciation is computed on the straight-line method for
financial reporting purposes.
The useful lives of the fixed assets for purposes of computing depreciation
are:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Leasehold improvements...................................... 3 years
Computers and peripherals................................... 5 years
Commercial software......................................... 3 years
Equipment................................................... 5 years
Third party development software............................ 3 years
</TABLE>
Trademark
The cost of the trademark acquired is being amortized over the
straight-line method over 15 years; it's remaining life. Amortization expense
charged to operations in 1998 was $1,147.
Allowance for Doubtful Accounts
Management reviews the list of customer accounts receivable balances on a
regular basis. When accounts are determined to be uncollectible, they are
written off. As of December 31, 1998, all balances are considered collectible.
Income Taxes
The Company operates as an S corporation under the internal revenue code
section. As a result, all profits and losses flow through to the shareholders of
the Company. The Company does not incur any income tax liabilities or benefits.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principals requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
F-105
<PAGE> 193
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less
accumulated depreciation:
<TABLE>
<S> <C>
Furniture and fixtures.................................. $ 186,262
Leasehold improvements.................................. 2,694
Artwork................................................. 6,234
Computers and peripherals............................... 640,780
Commercial software..................................... 124,466
Equipment............................................... 103,842
Third party development software........................ 53,001
Capitalized software.................................... 1,182,033
-----------
2,299,312
Less: Accumulated depreciation and amortization......... (1,054,460)
-----------
Total......................................... $ 1,244,852
===========
</TABLE>
Depreciation charged to operations was $166,188. All property and equipment
are pledged as collateral for bank loans. The above list includes the assets
held under capitalized leases. See note 5 for the detail.
4. NOTES PAYABLE
Following is a summary of long-term debt at December 31, 1998:
<TABLE>
<S> <C>
Note payable to bank due March 21, 2003, plus interest
payable monthly at 1.3755% above prime, secured by the
property and equipment.................................... $246,266
9% note due May 10, 2000, payable to bank in monthly
installments of $2,385, secured by property and
equipment................................................. 38,101
12% note payable to supplier in monthly installments of
$1,880, due March 30, 2000, secured by software with a
book value of $44,510..................................... 29,254
--------
313,621
Less: Current maturities included in current liabilities.... (97,585)
--------
$216,036
========
</TABLE>
Under the terms of a revolving credit agreement with a bank, dated
September 18, 1998, the Company may borrow up to $750,000 at 1% above the bank's
prime interest rate through September 18, 1999. Funds from these borrowings may
be used for any purpose. At December 31, 1998, the Company had $750,000 of
unused funds available through the revolving credit agreement.
Following are maturities of long-term debt for each of the next years:
<TABLE>
<S> <C>
1999...................................................... $ 97,585
2000...................................................... 77,190
2001...................................................... 61,788
2002...................................................... 67,668
2003...................................................... 9,390
--------
$313,621
========
</TABLE>
F-106
<PAGE> 194
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company is the lessee of computers and equipment under capital leases
expiring in various years through 2002. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum of lease
payments or the fair value of the asset. The assets are amortized over their
estimated productive lives. Amortization of assets under capital leases is
included in depreciation expense for 1998.
Following is a summary of property held under capital leases which are
included in property and equipment in Note 3:
<TABLE>
<S> <C>
Computers and peripherals................................ $ 319,360
Equipment................................................ 12,847
Furniture and fixtures................................... 110,751
Capitalized software..................................... 67,879
---------
510,837
Less: Accumulated amortization........................... (137,138)
---------
$ 373,699
=========
</TABLE>
Minimum future lease payments under capital leases as of December 31, 1998
for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
1999...................................................... $145,146
2000...................................................... 78,367
2001...................................................... 41,607
2002...................................................... 1,533
--------
Total minimum lease payments.............................. 266,653
Less: Amount representing interest........................ (26,103)
--------
Present value of net minimum lease payments............... $240,550
========
</TABLE>
Interest rates on capitalized leases vary from 8.0% to 11.7% and are
imputed based on the lessor's implicit rate of interest.
Certain capital leases provide for renewal, and/or purchase options.
Generally, purchase options are at prices representing the expected fair value
of the property at the expiration of the lease term.
Minimum future rental payments under noncancellable operating leases having
remaining terms in excess of one year as of December 31, 1998 for each of the
next five years and in the aggregate are:
<TABLE>
<S> <C>
1999...................................................... $329,578
2000...................................................... 255,005
2001...................................................... 180,628
--------
$765,211
========
</TABLE>
Rent expense under all operating leases for 1998 was $68,899.
The annual rental costs for office space for 1998 was $262,172. The office
space lease expires on September 14, 2001. There is a renewal option to extend
the lease for an additional two 60-month periods at the current fair rental
rate.
F-107
<PAGE> 195
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDER'S EQUITY
The aggregate number of shares of stock the Corporation is authorized to
issue is 50,000 shares of common stock with a par value of $1 per share. The
Corporation has 5,000 shares issued and outstanding as of December 31, 1998.
7. EMPLOYMENT PENSION PLAN
The Company offers a 401(k) plan to its employees. The employee must have a
minimum of three months of service, and a minimum of 21 years of age to
participate in the plan. The Company has the right to contribute to the plan but
has elected not to during 1998. Entry dates for the plan are January 1, April 1,
July 1, and October 1.
8. DISTRIBUTIONS
The distributions account consists of cash and non-cash transactions. The
cash transactions consist of a $106,246 distribution to the shareholder. The
non-cash transactions consist of a $139,910 forgiveness of a note payable to the
shareholder and $111,927 on a forgiveness of a note receivable from the
shareholder. The effects of these transactions ($78,263) were recorded in the
distributions account.
F-108
<PAGE> 196
MARKETVISION, INC.
BALANCE SHEETS
NOVEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 26,144 $ 200,807
Accounts receivable....................................... 1,245,974 864,007
Contracts receivable...................................... 106,296 19,587
Other current assets...................................... 37,315 28,145
---------- ----------
Total current assets.............................. 1,415,729 1,112,546
---------- ----------
Fixed assets:
Furniture, equipment, and commercial software............. 581,875 634,640
Capitalized software...................................... 885,631 610,212
---------- ----------
Total fixed assets................................ 1,467,506 1,244,852
Other assets................................................ 34,695 37,140
---------- ----------
Total assets...................................... $2,917,930 $2,394,538
========== ==========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 257,720 $ 115,583
Payroll taxes............................................. 26,949 22,260
Current portion of long-term debt......................... 418,543 97,585
Current portion of capital lease obligations.............. 91,895 128,551
Other current liabilities................................. 121,713 7,771
---------- ----------
Total current liabilities......................... 916,820 371,750
---------- ----------
Long-term debt
Capital lease obligations................................. 91,674 112,004
Bank loans................................................ 544,820 216,036
---------- ----------
Total long-term debt.............................. 636,494 328,040
---------- ----------
Total liabilities................................. 1,553,314 699,790
---------- ----------
Capital
Common stock.............................................. 5,000 5,000
Retained earnings......................................... 1,359,616 1,689,748
---------- ----------
Total capital..................................... 1,364,616 1,694,748
---------- ----------
Total liabilities and capital..................... $2,917,930 $2,394,538
========== ==========
</TABLE>
See accompanying notes to financial statements
F-109
<PAGE> 197
MARKETVISION, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Income
RMS software revenue...................................... $ 401,789 $2,329,271
Service revenues.......................................... 2,950,187 1,177,920
---------- ----------
Total Income...................................... 3,351,976 3,507,191
Expenses
Cost of services.......................................... 1,252,854 1,046,680
Administrative Expenses................................... 915,892 876,328
Sales and marketing expenses.............................. 467,311 340,610
Operational expenses...................................... 257,474 276,306
Amortization and Depreciation............................. 408,862 344,669
---------- ----------
Total S, G, & A expenses.......................... 3,302,393 2,884,593
---------- ----------
Operating income............................................ 49,583 622,598
Other income and expenses................................... (76,765) (48,512)
---------- ----------
Net income.................................................. (27,182) 574,086
Retained earnings beginning of year......................... 1,689,748 1,052,142
Distributions............................................... (302,950) (102,746)
---------- ----------
Retained earnings end of year............................... $1,359,616 $1,523,482
========== ==========
</TABLE>
See accompanying notes to financial statements
F-110
<PAGE> 198
MARKETVISION, INC.
STATEMENTS OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) from operations......................... $ (27,182) $ 574,086
Adjustment to net income:
Depreciation and amortization.......................... 408,862 343,628
Net change is operating assets and liabilities:
(Increase) decrease in accounts receivable............. (381,967) (36,925)
(Increase) decrease in contracts receivable............ (86,709) (95,550)
(Increase) decrease in other current assets............ (9,170) (34,908)
(Increase) decrease in other assets.................... -- (21,246)
Increase (decrease) in accounts payable................ 138,638 57,745
Increase (decrease) in payroll taxes................... 4,689 12,293
Increase (decrease) in other current liabilities....... 113,942 1,544
---------- ---------
Net cash provided by operations................... 161,103 800,667
Cash flows from investment activities:
Purchases of property, plant and equipment................ (72,444) (23,787)
Capitalization of software................................ (485,520) (78,203)
Decrease in other assets.................................. 1,363 --
---------- ---------
Net cash used in investment activities.................... (556,601) (101,990)
Cash flows from financing activities:
Borrowings from revolving credit agreement................ 1,205,000 --
Payments on revolving credit agreement.................... (950,000) --
Payments on short-term borrowings......................... -- (325,000)
Payments on long-term borrowings.......................... -- (61,366)
Payments on capitalized leases............................ (125,957) (95,699)
Proceeds from other notes payable......................... 500,000 39,932
Payments on other notes payable........................... (105,258) (18,587)
Distributions to shareholders............................. (302,950) (102,746)
---------- ---------
Net cash provided by (used in) financing
activities...................................... 220,835 (563,466)
---------- ---------
Net increase (decrease) in cash............................. (174,663) 135,211
Cash and cash equivalents at beginning of period............ 200,807 93,079
---------- ---------
Cash and cash equivalents at end of period.................. $ 26,144 $ 228,290
========== =========
Supplemental information:
Interest payments......................................... $ 76,044 $ 50,904
========== =========
Noncash capital lease obligations......................... $ 72,471 $ 146,983
========== =========
</TABLE>
See accompanying notes to financial statements
F-111
<PAGE> 199
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial data as of November 30, 1999 and for the eleven
months ended November 30, 1998 and the eleven months ended November 30, 1999 is
unaudited. In the opinion of management, the financial statements reflect all
adjustments, consisting of normal recurring adjustments of the Company, in
accordance with generally accepted accounting principles applicable to interim
periods. The financial statements do not include all of the information and
footnotes required by generally accepted accounting principles. The accompanying
unaudited financial statements should be read in conjunction with the December
31, 1998 audited financial statements of MarketVision, Inc. Interim results of
operations are not necessarily indicative of results for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES
Amortization of Capitalized Software Costs
Capitalized software costs are amortized on the straight-line method over
the remaining estimated economic life of the product which ranges from three to
five years. Amortization starts when the product is available for general
release to customers. Amortization of capitalized software costs charged to
operations for the eleven months ended November 30, 1999 was $210,101. There was
approximately $627,000 of capitalized software costs as of November 30, 1999
that had yet to commence amortization as the products were not available for
general release to customers.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management reviews the list of customer accounts receivable balances on a
regular basis. When accounts are determined to be uncollectible, they are
written off. As of November 30, 1999, all balances are considered collectible.
3. LEASES
The Company is the lessee of computers and equipment under capital leases
expiring in various years through 2002. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum of lease
payments or the fair value of the asset. The assets are amortized over their
estimated productive lives. Amortization of assets under capital leases is
included in depreciation expense for 1999.
Following is a summary of property held under capital leases which are
included in property and equipment in Note 3:
<TABLE>
<S> <C>
Computers and peripherals............................... $ 366,514
Equipment............................................... 12,847
Furniture and fixtures.................................. 136,069
Capitalized software.................................... 67,879
---------
583,309
Less: Accumulated amortization.......................... (237,531)
---------
$ 345,778
=========
</TABLE>
F-112
<PAGE> 200
MARKETVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under capital leases as of December 31, 1999
for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
2000...................................................... $ 91,895
2001...................................................... 66,225
2002...................................................... 25,449
--------
Total minimum lease payments.................... $183,569
========
</TABLE>
Interest rates on capitalized leases vary from 6.6% to 11.7% and are
imputed based on the lessor's implicit rate of interest.
Certain capital leases provide for renewal, and/or purchase options.
Generally, purchase options are at prices representing the expected fair value
of the property at the expiration of the lease term.
Minimum future rental payments under noncancellable operating leases having
remaining terms in excess of one year as of November 30, 1999 for each of the
next five years and in the aggregate are:
<TABLE>
<S> <C>
2000...................................................... $259,410
2001...................................................... 183,028
--------
$442,438
========
</TABLE>
Equipment rental expense under all operating leases for 1999 was $54,008.
The annual rental costs for office space for the eleven months ended
November 30, 1999 was $238,651. The office space lease expires on September 14,
2001. There is a renewal option to extend the lease for an additional two
60-month periods at the current fair rental rate.
4. SUBSEQUENT EVENT NOTES
On December 5, 1999, in anticipation of the sale of the Company,
MarketVision, Inc. paid a special bonus totaling $364,000 to all of the
employees of the Company. The bonus was funded through a capital contribution of
the MarketVision, Inc. owners prior to the sale to ClientLogic, Inc.
On December 6, 1999, MarketVision, Inc. was acquired by ClientLogic, Inc.
for $21,250,000. The consideration was comprised of $11,000,000 in cash,
1,000,000 shares of ClientLogic common stock valued at $5,000,000 (to be issued
in January 2000), and a promissory note in the amount of $5,250,000, with an
annual interest rate of 8.30%, payable in five equal annual installments
commencing on December 6, 2000. In connection with the acquisition, ClientLogic
assumed all of the liabilities of MarketVision, Inc. ($1,234,000 at December 6,
1999) including $709,000 in outstanding debt.
F-113
<PAGE> 201
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20,000,000 SHARES
CLIENTLOGIC CORPORATION
CLASS A COMMON STOCK
'CLIENTLOGIC LOGO'
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
TD SECURITIES
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table lists the fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses we expect to incur in connection with the issuance and
distribution of the Class A common stock being registered. We are responsible
for paying all of the fees and expenses listed below.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 66,792
NASD Fee.................................................... 25,800
Nasdaq National Market Listing Fee.......................... 96,000
Printing and Engraving Expenses............................. 400,000
Accounting Fees and Expenses................................ 650,000
Legal Fees and Expenses..................................... 600,000
Transfer Agent Fees and Expenses............................ 36,800
Blue Sky qualifications fees and expenses................... 10,000
Miscellaneous............................................... 314,608
----------
Total............................................. $2,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation may indemnify any person, including officers and
directors, who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) because that person was an officer, director, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by a person in connection with an
action, suit or proceeding, provided that officer, director, employee or agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or on the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or our company director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually or reasonably incurred.
Our amended and restated certificate of incorporation provides that we
shall indemnify each person who is or was an officer or director of our company
to the fullest extent permitted under the General Corporation Law of the State
of Delaware (including the right to be paid expenses incurred in investigating
or defending any proceeding in advance of its final disposition).
In addition, our amended and restated certificate of incorporation provides
that our directors shall not be personally liable to us and our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
- under Section 174 of the General Corporation Law of the State of
Delaware; or
- for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE> 203
We have purchased a directors' and officers' liability insurance policy. We
have also entered into indemnification agreements with Mark B. Briggs, Thomas P.
Dea, Thomas O. Harbison and Seth M. Mersky in connection with their service as
directors and/or executive officers on our behalf and on behalf of our
subsidiaries. The indemnification agreements provide that we will indemnify
Messrs. Briggs, Dea, Harbison and Mersky for any losses in connection with any
proceedings to the fullest extent permitted under the General Corporation Law of
the State of Delaware. See "-- Certain Relationships and Related Party
Transactions -- Director Indemnification Agreements."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1998, we issued 35,000,000 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $35,000,000. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1998, we issued 12,040,000 shares of our common stock to Onex
ClientLogic Holdings LLC as repayment of a promissory note in the amount of
$12,040,000. The securities were issued in a private placement in reliance on
Section 4(2).
In December 1998, we issued 200,000 shares of our common stock to Mark R.
Briggs for an aggregate purchase price of $200,000. The securities were issued
in a private placement in reliance on Section 4(2).
In December 1998, we issued 2,760,000 shares of our common stock to Edward
Schwartz and Peter Berczi for an aggregate purchase price of $2,760,000. The
securities were issued in a private placement in reliance on Regulation S
promulgated under the Securities Act.
In December 1998, we issued 11,410,071 shares of our common stock to Onex
Corporation in consideration for 11,526,055 shares of common stock of
Onexco -- 1293219 Ontario Inc. The securities were issued in a private placement
in reliance on Regulation S promulgated under the Securities Act.
In February 1999, we issued 307,050 shares of our common stock to Jordan
Levy and Ronald Schreiber for an aggregate purchase price of $307,050. The
securities were issued in a private placement in reliance on Section 4(2).
In April 1999, we issued an aggregate of 143,406 shares of our common stock
to Paul Ford and Greg Zehr upon the exercise of subscription rights for an
aggregate purchase price of $215,109. The securities were issued in a private
placement in reliance on Regulation S of the Securities Act.
In July 1999, we issued 1,650 shares of our common stock to Anne Marie
Casey Christiansen upon her exercise of a stock option. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In August 1999, we issued 106,666 shares of common stock to Howard Sarna
for an aggregate purchase price of $159,999. The securities were issued in a
private placement in reliance on Regulation S of the Securities Act.
In October 1999, we issued 20,833,333 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $25,000,000. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we issued 6,323,957 shares of our common stock to Onex
ClientLogic Holdings LLC as partial repayment of a promissory note in the amount
of $10,000,000. We repaid the remaining $2,411,252 of the promissory note in
cash. The securities were issued in a private placement in reliance on Section
4(2) of the Securities Act.
In October 1999, we issued 587,533 shares of our common stock to Melissa
Bailey, Joanne G. Biltekoff, Sandi Bush, Julie M. Casteel, Gary M. Crosby,
Joseph Duryea, Steven M. Kawalick, William Rella and Lee O. Waters for an
aggregate purchase price of $705,039. The securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
II-2
<PAGE> 204
In October 1999, we issued 1,421,844 shares of our common stock to Edward
Schwartz for an aggregate purchase price of $1,706,212.80. The securities were
issued in a private placement in reliance on Regulation S of the Securities Act.
In October 1999, we issued 1,118,038 shares of our common stock to Jan L.
Bardoux, Peter E. Dekker, Ole Sommer Erickson, Sytze Koopmans, Allesandra M.
Kortenhorst, Jules K. Kortenhorst, Jules T.H.M. Kortenhorst, Ranier G.
Kortenhorst, Winston P. Kortenhorst, Caroline J.G. Smits, Jeroen J. Smits,
Carien J.G. van der Laan, and Joost A.J. van Gaal as partial consideration for
their depository receipts in Stichting Administratiekantoor Cordena Call
Management. The securities we issued in a private placement in reliance on
Regulation S promulgated under the Securities Act.
In October 1999, we issued 54,473 shares of our common stock to the
Kortenhorst Vetter Family Trust as partial consideration for its depository
receipts in Stichting Administratiekantoor Cordena Call Management. The
securities we issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we issued 723,850 shares of our common stock to Frank
Loubaresse, Laurent Loubaresse and Online Services SARL as partial consideration
for their shares of Groupe Adverbe SA capital stock. The securities we issued in
reliance on Regulation S promulgated under the Securities Act.
In October of 1999, we issued 22,500 shares of our common stock to Stephen
C. Wright upon his exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In November 1999, we issued 50 shares of our common stock to Brent Fiene
upon his exercise of a stock option. The securities were issued in a transaction
exempt from Section 5 of the Securities Act pursuant to Rule 701 under the
Securities Act.
In November 1999, we issued 50 shares of our common stock to John Syzmanski
upon his exercise of a stock option. The securities were issued in a transaction
exempt from Section 5 of the Securities Act pursuant to Rule 701 under the
Securities Act.
In December 1999, we issued 160,437 shares of our common stock to Joanne G.
Biltekoff, Julie M. Casteel, Joseph Duryea, Robert A. Fetter, Steven M.
Kawalick, Jordan Levy, Ronald Schreiber and Lee O. Waters for an aggregate
purchase price of $360,983.25. These securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
In December 1999, we issued 19,759 shares of our common stock to Howard
Sarna for an aggregate purchase price of $44,457.75. These securities were
issued in reliance on Regulation S promulgated under the Securities Act.
In December 1999, we issued 1,250 shares of our common stock to Robert
Carnall upon his exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In December 1999, we issued 15,375,360 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $34,594,560. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1999, we issued 2,385,867 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $11,929,335. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1999, we issued 14,133 shares of our common stock to Joseph
Duryea, William Rella, Sandi Bush and Melissa Bailey for an aggregate purchase
price of $70,665. The securities were issued in a private placement in reliance
on Section 4(2) of the Securities Act.
II-3
<PAGE> 205
In January 2000, we issued 1,000,000 shares of our common stock to Joseph
L. Temple, Jr. and S. Dianne Thompson as partial consideration for their shares
of common stock of Marketvision, Inc. We will issue the securities in a private
placement in reliance on Section 4(2) of the Securities Act.
In January 2000, we issued 25,000 shares of our common stock to Greg Young
and Ihab Ghabour upon the exercise of stock options. The securities were issued
in a transaction exempt from Section 5 of the Securities Act pursuant to Rule
701 under the Securities Act.
In January 2000, we issued 225,000 shares to Lonnie Mandel and Anthony
Capato as partial payment for their shares of capital stock of two of our
subsidiaries. These securities were issued in a private placement in reliance on
Section 4(2) of the Security Act.
In February 2000, we issued 102,795 shares of our Class A common stock to
Patrick D. Andrews, Maria C. Arraiz, Steven C. Baskin, Tracy Brege, Sandra Bush,
Norman Hidalgo, Caroline Jones, Gloria Kaplan, Aleksandra Karbowniczek, Mitchell
B. Levy, Christopher J. Maraszek, Greg Muscato, Frances Piekos, Christine
Procknal, Edward Regan, David Reisman, William Rella, Jane Reukauf, Julienne
Ricchiazzi, Charles Roberts, Elizabeth Rott, Josett Sfeir, Doug VanSant, Deborah
Wachowicz, Peter Weinbrecht and Stacey Wright upon the exercise of stock
options. These securities were issued in transactions exempt from Section 5 of
the Securities Act pursuant to Rule 701 under the Securities Act.
In March 2000, we issued 12,675 shares of our Class A common stock to
Jeffrey Bubak, Catherine Fischer, Charles Fischer, Paul J. Ford, Frederick W.
Molland, Teresa Nance, John Nettina, Jo Ann Palmatier and Victor Winder upon the
exercise of stock options. These securities were issued in transactions exempt
from Section 5 of the Securities Act pursuant to Rule 701 under the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(2)
2.1 -- Stock Purchase Agreement, dated September 30, 1998, among
Upgrade Corporation of America, Softbank Holdings Inc.,
SB Holdings (Europe) Ltd., CustomerOne Holding
Corporation, and SSG Acquisition Corp.(1)
2.2 -- Share Exchange Agreement, dated December 17, 1998,
between Onex Corporation and CustomerOne Holding
Corporation.(1)
2.3 -- Agreement and Plan of Merger, dated December 17, 1998, by
and among LCS Industries, Inc., CustomerOne Holding
Corporation and Catalog Acquisition Co.(1)
2.4 -- Asset Purchase Agreement, dated March 19, 1999, among
CustomerOne Corporation, Canadian Access Insurance
Services Inc. and the Stockholders of Canadian Access
Insurance Services Inc.(1)
2.5 -- Share Purchase Agreement, dated as of October 7, 1999, by
and among ClientLogic Holding Corporation, ClientLogic
International Holding, Inc., Stichting
Administratiekantoor Cordena Call Management and the
Management Shareholders listed on the signature pages
thereto.(1)
2.6 -- Stock Purchase Agreement, dated October 8, 1999, among
ClientLogic International Holding, Inc., Messrs. Franck
Loubaresse, Laurent Loubaresse, Jacques Loubaresse and
Online Services.(1)
2.7 -- Stock Purchase Agreement, dated December 6, 1999, among
ClientLogic Holding Corporation, Marketvision, Inc.,
Joseph L. Temple, Jr. and S. Dianne Thompson.(1)
</TABLE>
II-4
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of
ClientLogic Corporation.(3)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(2)
4.1 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
the lender signatory thereto and Toronto Dominion
(Texas), Inc. as agent. (2)
4.2 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
each of the lenders signatory thereto and Toronto
Dominion (Texas), Inc. as agent.(3)
4.3 -- Amendment No. 1 to the Credit Agreement, dated October 4,
1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
4.4 -- Amendment No. 1 to the Credit Agreement, dated October 4,
1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.5 -- Amendment No. 2 to the Credit Agreement, dated September
1, 1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
4.6 -- Amendment No. 2 to the Credit Agreement, dated September
1, 1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.7 -- Amendment No. 3 to the Credit Agreement, dated March 10,
2000, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
4.8 -- Amendment No. 3 to the Credit Agreement, dated March 10,
2000, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.9 -- Credit Agreement, dated March 10, 2000, between
ClientLogic Corporation and Toronto Dominion (Texas),
Inc. (3)
4.10 -- Subordination Agreement, dated as of March 10, 2000,
among ClientLogic Corporation, the subsidiary guarantors
party thereto and Toronto Dominion (Texas), Inc. (3)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
10.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
10.3 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
</TABLE>
II-5
<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.5 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.6 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.7 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.8 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
10.9 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.10 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.11 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.12 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.13 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.14 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
10.15 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.16 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.17 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(2)
10.18 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.19 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.20 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.21 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(2)
10.22 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
10.23 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated June 8, 1998.(2)
10.24 -- Employment Agreement, dated , 2000, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(2)
10.25 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
</TABLE>
II-6
<PAGE> 208
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.26 -- Employment Agreement, dated , 2000, between
ClientLogic Corporation and Robert A. Fetter.(2)
10.27 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.28 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.29 -- Employment Agreement, dated , 1999, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.30 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
10.31 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(2)
10.32 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.33 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.34 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.35 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.36 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.37 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.38 -- Promissory Note, dated December 6, 1999 between
MarketVision, Inc. and Joseph L. Temple.(3)
10.39 -- Promissory Note, dated December 6, 1999, between
MarketVision, Inc. and S. Dianne Thompson.(3)
10.40 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and Joseph L. Temple.(3)
10.41 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and S. Dianne Thompson.(3)
10.42 -- Third Amendment to the Client Logic Holding Corporation
Stock Option Plan, effective as of March 1, 2000.(3)
21.1 -- Subsidiaries of ClientLogic Corporation(1)
23.1 -- Consent of Weil, Gotshal & Manages LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of PricewaterhouseCoopers LLP(3)
23.3 -- Consent of Deloitte & Touche, LLP.(3)
23.4 -- Consent of PricewaterhouseCoopers LLP(3)
23.5 -- Consent of PricewaterhouseCoopers N.V.(3)
23.6 -- Consent of Terry & Stephenson, P.C.(3)
23.7 -- Consent of PricewaterhouseCoopers LLP(3)
</TABLE>
II-7
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(3)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE NUMBER DESCRIPTION
----------- -----------
<C> <S>
S-1 -- Reports of Independent Public Accountants on Financial
Statement Schedules
S-3 -- Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because the required information is not
present or is not present in the amounts sufficient to require submission of the
schedules, or because the information required is included in the financial
statements and notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer of controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in Nashville, Tennessee, on March 10, 2000.
CLIENTLOGIC CORPORATION
By: /s/ GENE S. MORPHIS
----------------------------------
Gene S. Morphis,
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board March 10, 2000
- ----------------------------------------------------- (Principal Executive
Thomas O. Harbison Officer)
* President, Chief Executive March 10, 2000
- ----------------------------------------------------- Officer and Chief Operating
Mark R. Briggs Officer and Director
/s/ GENE S. MORPHIS Chief Financial Officer March 10, 2000
- ----------------------------------------------------- (Principal Financial and
Gene S. Morphis Accounting Officer)
* Chief of International March 10, 2000
- ----------------------------------------------------- Operations and Director
Jules T. Kortenhorst
* Director March 10, 2000
- -----------------------------------------------------
Thomas P. Dea
* Director March 10, 2000
- -----------------------------------------------------
Seth M. Mersky
*By: /s/ GENE S. MORPHIS
------------------------------------------------
Gene S. Morphis, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 211
REPORTS OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of ClientLogic Corporation
Our report on the financial statements of ClientLogic Corporation at
December 31, 1999 and 1998, and for the year ended December 31, 1999 and the
period from April 28, 1998 through December 31, 1998 is included on page F-3 of
this Form S-1. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed on pages S-3
and S-4 of this Form S-1.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ PRICEWATERHOUSE COOPERS LLP
PricewaterhouseCoopers LLP
Buffalo, New York
January 29, 2000, except as to Note 20,
for which the date is March 9, 2000
S-1
<PAGE> 212
REPORTS OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of North Direct Response, Inc. ("Predecessor Company")
Our report on the financial statements of North Direct Response, Inc. at
April 27, 1998, and for the period January 1, 1998 through April 27, 1998 and
the year ended December 31, 1997, is included on page F-4 of this Form S-1. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed on page S-3 of this Form S-1.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ PRICEWATERHOUSE COOPERS LLP
PricewaterhouseCoopers LLP
Buffalo, New York
January 29, 2000
S-2
<PAGE> 213
SCHEDULE II
CLIENTLOGIC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
($000'S OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO RESERVE AT
BALANCE AT CHARGED TO OTHER DATE OF BALANCE AT
BEGINNING COST AND ACCOUNTS BUSINESS END OF
DESCRIPTION OF PERIOD EXPENSE (DESCRIBE) DEDUCTIONS ACQUISITION PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company
Year ended December 31, 1997:
Allowance for deferred tax
asset........................ $ 28 $ -- $ 150(a) $ -- $ -- $ 178
Period from January 1, 1998 to
April 27, 1998:
Allowance for deferred tax
asset........................ 178 -- 148(a) -- -- 326
- --------------------------------------------------------------------------------------------------------------------
ClientLogic Corporation
Period from April 28, 1998 to
December 31, 1998:
Allowance for deferred tax
asset........................ 326 -- 711(a) -- 7,490 8,527
Year ended December 31, 1999:
Allowance for deferred tax
asset........................ 8,527 (1,170) 1,085(b) -- 2,186 10,628
</TABLE>
- ---------------
(a) Additions to allowance for deferred taxes generated during the period for
which no benefit was recognized, net of true-ups.
(b) Includes reversal of valuation allowance due to the anticipated
distribution of InsLogic in 2000.
S-3
<PAGE> 214
SCHEDULE II
CLIENTLOGIC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
($000'S OF DOLLARS)
<TABLE>
<CAPTION>
RESERVE AT
BALANCE AT CHARGED TO DATE OF BALANCE AT
BEGINNING OF COST AND BUSINESS END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS ACQUISITION PERIOD
- ----------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ClientLogic Corporation
Period from April 28, 1998 to December 31, 1998:
Allowance for doubtful accounts............... -- (206) (91) 577 280
Year ended December 31, 1999:
Allowance for doubtful accounts............... 280 2,305 (442) 335 2,478
</TABLE>
S-4
<PAGE> 215
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(2)
2.1 -- Stock Purchase Agreement, dated September 30, 1998, among
Upgrade Corporation of America, Softbank Holdings Inc.,
SB Holdings (Europe) Ltd., CustomerOne Holding
Corporation, and SSG Acquisition Corp.(1)
2.2 -- Share Exchange Agreement, dated December 17, 1998,
between Onex Corporation and CustomerOne Holding
Corporation.(1)
2.3 -- Agreement and Plan of Merger, dated December 17, 1998, by
and among LCS Industries, Inc., CustomerOne Holding
Corporation and Catalog Acquisition Co.(1)
2.4 -- Asset Purchase Agreement, dated March 19, 1999, among
CustomerOne Corporation, Canadian Access Insurance
Services Inc. and the Stockholders of Canadian Access
Insurance Services Inc.(1)
2.5 -- Share Purchase Agreement, dated as of October 7, 1999, by
and among ClientLogic Holding Corporation, ClientLogic
International Holding, Inc., Stichting
Administratiekantoor Cordena Call Management and the
Management Shareholders listed on the signature pages
thereto.(1)
2.6 -- Stock Purchase Agreement, dated October 8, 1999, among
ClientLogic International Holding, Inc., Messrs. Franck
Loubaresse, Laurent Loubaresse, Jacques Loubaresse and
Online Services.(1)
2.7 -- Stock Purchase Agreement, dated December 6, 1999, among
ClientLogic Holding Corporation, Marketvision, Inc.,
Joseph L. Temple, Jr. and S. Dianne Thompson.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
ClientLogic Corporation.(3)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(2)
4.1 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
the lender signatory thereto and Toronto Dominion
(Texas), Inc. as agent. (2)
4.2 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
each of the lenders signatory thereto and Toronto
Dominion (Texas), Inc. as agent.(3)
4.3 -- Amendment No. 1 to the Credit Agreement, dated October 4,
1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
4.4 -- Amendment No. 1 to the Credit Agreement, dated October 4,
1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.5 -- Amendment No. 2 to the Credit Agreement, dated September
1, 1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
</TABLE>
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.6 -- Amendment No. 2 to the Credit Agreement, dated September
1, 1999, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.7 -- Amendment No. 3 to the Credit Agreement, dated March 10,
2000, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, the lender signatory thereto and
Toronto Dominion (Texas), Inc. as agent. (3)
4.8 -- Amendment No. 3 to the Credit Agreement, dated March 10,
2000, among ClientLogic Corporation, each of the
subsidiaries of ClientLogic Corporation identified on the
signature pages thereto, each of the lenders signatory
thereto and Toronto Dominion (Texas), Inc. as agent. (3)
4.9 -- Credit Agreement, dated March 10, 2000, between
ClientLogic Corporation and Toronto Dominion (Texas),
Inc. (3)
4.10 -- Subordination Agreement, dated as of March 10, 2000,
among ClientLogic Corporation, the subsidiary guarantors
party thereto and Toronto Dominion (Texas), Inc. (3)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
10.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
10.3 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
10.4 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.5 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.6 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.7 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.8 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
10.9 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.10 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.11 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.12 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.13 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.14 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
</TABLE>
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.16 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.17 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(2)
10.18 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.19 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.20 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.21 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(2)
10.22 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
10.23 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated June 8, 1998.(2)
10.24 -- Employment Agreement, dated , 2000, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(2)
10.25 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
10.26 -- Employment Agreement, dated , 2000, between
ClientLogic Corporation and Robert A. Fetter.(2)
10.27 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.28 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.29 -- Employment Agreement, dated , 1999, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.30 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
10.31 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(2)
10.32 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.33 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.34 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.35 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.36 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
</TABLE>
<PAGE> 218
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.38 -- Promissory Note, dated December 6, 1999 between
MarketVision, Inc. and Joseph L. Temple.(3)
10.39 -- Promissory Note, dated December 6, 1999, between
MarketVision, Inc. and S. Dianne Thompson.(3)
10.40 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and Joseph L. Temple.(3)
10.41 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and S. Dianne Thompson.(3)
10.42 -- Third Amendment to the Client Logic Holding Corporation
Stock Option Plan, effective as of March 1, 2000.(3)
21.1 -- Subsidiaries of ClientLogic Corporation(1)
23.1 -- Consent of Weil, Gotshal & Manages LLP (included in the
opinion filed as Exhibit 5.1)
23.2 -- Consent of PricewaterhouseCoopers LLP(3)
23.3 -- Consent of Deloitte & Touche, LLP.(3)
23.4 -- Consent of PricewaterhouseCoopers LLP(3)
23.5 -- Consent of PricewaterhouseCoopers N.V.(3)
23.6 -- Consent of Terry & Stephenson, P.C.(3)
23.7 -- Consent of PricewaterhouseCoopers LLP(3)
24.1 -- Power of Attorney.(1)
27.1 -- Financial Data Schedule.(3)
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
<PAGE> 1
EXHIBIT 3.1
State of Delaware
PAGE 1
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "CLIENTLOGIC HOLDING CORPORATION", CHANGING ITS NAME FROM
"CLIENTLOGIC HOLDING CORPORATION" TO "CLIENTLOGIC CORPORATION", FILED IN THIS
OFFICE ON THE FIRST DAY OF MARCH, A.D. 2000, AT 3 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0290549
DATE: 03-01-00
<PAGE> 2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CLIENTLOGIC HOLDING CORPORATION
- --------------------------------------------------------------------------------
The undersigned, being the Chief Financial Officer and Secretary of
ClientLogic Holding Corporation, a Delaware corporation, hereby certifies the
following:
1. (a) The name of the corporation is ClientLogic Holding Corporation.
(the "Corporation").
(b) The date of filing of the original Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") was
September 25, 1998 and the name under which it was originally incorporated was
CustomerOne Holding Corporation.
2. This Amended and Restated Certificate of Incorporation amends and
restates the Certificate OF Incorporation in its entirety.
3. This Amended and Restated Certificate of Incorporation has been duly
adopted by the unanimous written consent of the Board of Directors of the
Corporation (the "Board of Directors") and by the written consent of the
majority stockholder of the Corporation, in accordance with the provisions of
Sections 141, 228, 242 and 245 of the General Corporation Law of the State of
Delaware (the "DGCL"), as applicable.
4. The Certificate of Incorporation of the Corporation, as amended and
restated hereby, shall upon the filing of this Amended and Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware, read in
its entirety as follows:
ARTICLE FIRST
The name of the Corporation is ClientLogic Corporation.
ARTICLE SECOND
The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of the
registered agent of the Corporation at such address is The Corporation
Trust Company.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 03/01/2000
001104361 - 29484347
<PAGE> 3
ARTICLE THIRD
The purpose for which the Corporation is organized is to
engage in any and all lawful acts and activities for which corporations
may be organized under the DGCL. The Corporation will have perpetual
existence.
ARTICLE FOURTH
The total number of shares of stock which the Corporation
shall have authority to issue is 375,000,000 shares of capital stock,
classified as (i) 225,000,000 shares of class A common stock, par
value $0.01 per share (the "Class A Common Stock"), (ii) 130,000,000
shares of class B common stock, par value $0.01 per share (the "Class B
Common Stock," and collectively with the Class A Common Stock, the
"Common Stock"), and (iii) 20,000,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock").
The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock,
the Class A Common Stock and the Class B Common Stock are as follows:
SECTION A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time
in one or more classes or series, the shares of each class or series to
have such designations, powers, preferences, rights, qualifications,
limitations, and restrictions thereof, as are stated and expressed
herein and in the resolution or resolutions providing for the issue of
such class or series adopted by the Board of Directors as hereafter
prescribed.
2. Authority is hereby expressly granted to and vested
in the Board of Directors to authorize the issuance of the Preferred
Stock from time to time in one or more classes or series, and with
respect to each class or series of the Preferred Stock, to fix and
state by the resolution or resolutions from time to time adopted
providing for the issuance thereof the following:
(a) whether or not the class or series is to
have voting rights, full, special, or limited, or is to be
without voting rights, and whether or not such class or series
is to be entitled to vote as a separate class either alone or
together with the holders of one or more other classes or
series of stock;
(b) the number of shares to constitute the class
or series and the designations thereof;
(c) the preferences, and relative,
participating, optional, or other special rights, if any, and
the qualifications, limitations, or restrictions thereof, if
any, with respect to any class or series;
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<PAGE> 4
(d) whether or not the shares of any class or
series shall be redeemable at the option of the Corporation or
the holders thereof or upon the happening of any specified
event, and, if redeemable, the redemption price or prices
(which may be payable in the form of cash, notes, securities
or other property), and the time or times at which, and the
terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
(e) whether or not the shares of a class or
series shall be subject to the operation of retirement or
sinking funds to be applied to the purchase or redemption of
such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the annual amount
thereof, and the terms and provisions relative to the
operation thereof;
(f) the dividend rate, whether dividends are
payable in cash, stock of the Corporation, or other property,
the conditions upon which and the times when such dividends
are payable, the preference to or the relation to the payment
of dividends payable on any other class or classes or series
of stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which
such dividends shall accumulate;
(g) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall
be entitled to receive upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(h) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof
or upon the happening of any specified event, shall be
convertible into or exchangeable for, the shares of any other
class or classes or of any other series of the same or any
other class or classes of stock, securities or other property
of the Corporation and the conversion price or prices or ratio
or ratios or the rate or rates at which such exchange may be
made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions;
and
(i) such other special rights and protective
provisions with respect to any class or series as may to the
Board of Directors seem advisable.
3. The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in
any or all of the foregoing respects. The Board of Directors may
increase the number of shares of the Preferred Stock designated for any
existing class or series by a resolution adding
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<PAGE> 5
to such class or series authorized and unissued shares of the Preferred
Stock not designated for any other class or series. The Board of
Directors may decrease the number of shares of the Preferred Stock
designated for any existing class or series by a resolution subtracting
from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the
shares so subtracted shall become authorized, unissued, and
undesignated shares of the Preferred Stock.
SECTION B. Provisions Relating to the Class A Common Stock and the
Class B Common Stock.
1. Dividends. Subject to the prior rights and
preferences, if any, applicable to shares of the Preferred Stock or any
series thereof, the holders of shares of the Class A Common Stock and
the Class B Common Stock shall be entitled to receive dividends
(payable in cash, stock or otherwise), and the Corporation shall pay
dividends on the Class A Common Stock and the Class B Common Stock, as
and when declared by the Board of Directors from statutory capital
surplus, in such amount and in such form as the Board of Directors may
from time to time determine. Except as hereinafter provided with
respect to dividends consisting of shares of Class A Common Stock and
Class B Common Stock, all dividends that the Board of Directors may
declare from time to time on the Class A Common Stock and the Class B
Common Stock shall be declared and paid in an equal amount per share on
all shares of Class A Common Stock and Class B Common Stock then
outstanding. Dividends consisting of shares of Class A Common Stock and
Class B Common Stock shall be declared by the Board of Directors and
shall be paid by the Corporation only as follows: (i) dividends
consisting of shares of Class A Common Stock shall only be declared and
paid to holders of shares of Class A Common Stock and dividends
consisting of shares of Class B Common Stock shall only be declared and
paid to holders of shares of Class B Common Stock; and (ii) the number
of shares of Class B Common Stock declared and paid as a dividend with
respect to each outstanding share of Class B Common Stock shall be
equal to the number of shares of Class A Common Stock declared and paid
as a dividend with respect to each outstanding share of Class A Common
Stock.
2. Voting Rights. The holders of shares of Class A
Common Stock and the holders of shares of Class B Common Stock shall be
entitled to receive notice of and to attend all meetings of the
stockholders of the Corporation and to vote together at all such
meetings, except meetings at which only the holders of one class or
series of shares of the Corporation's capital stock are entitled to
vote separately as a class or series, as the case may be. At any
meeting at which the holders of shares of Class A Common Stock and the
holders of shares of Class B Common Stock are entitled to vote
together, the shares of Class A Common Stock shall carry one vote per
share and the shares of Class B Common Stock shall carry 25 votes per
share. The holders of shares of Class B Common Stock shall be entitled
to one vote per share held at any meeting of holders of shares of Class
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<PAGE> 6
B Common Stock at which they are entitled to vote separately as a
class. The holders of shares of Class A Common Stock shall be entitled
to one vote per share at any meeting of holders of shares of Class A
Common Stock at which they are entitled to vote separately as a class.
3. Conversion of Shares of Class B Common Stock.
(a) Each share of Class B Common Stock shall be
convertible at any time at the option of the holder thereof
into one share of Class A Common Stock.
(b) Shares of Class B Common Stock will be
converted automatically into shares of Class A Common Stock
upon any transfer thereof, except (A) a transfer to Onex (as
hereinafter defined) or any Affiliate (as hereinafter
defined), director, officer or direct or indirect employee of
Onex or (B) a transfer of 100% of the outstanding shares of
Class B Common Stock to a purchaser who has offered to
purchase all of the outstanding shares of Class A Common Stock
for a per share consideration identical to, and otherwise on
the same terms as, that offered for the shares of Class B
Common Stock, provided that the shares of Class B Common Stock
held by such purchaser thereafter shall be subject to the
provisions of this paragraph 3. as if all references to Onex
in this paragraph 3. were references to such purchaser.
(c) If any holder of shares of Class B Common
Stock that is an Affiliate of Onex at the time of receipt of
such shares ceases to be an Affiliate of Onex, the shares of
Class B Common Stock held by such holder shall convert
automatically into shares of Class A Common Stock on a
one-for-one basis.
(d) If Onex and its Affiliates, collectively,
cease to have the right, in all cases, to exercise the votes
attached to, or to direct the voting of, any of the shares of
Class B Common Stock held by Onex and its Affiliates, such
shares of Class B Common Stock shall convert automatically
into shares of Class A Common Stock on a one-for-one basis.
(e) If at any time the number of outstanding
shares of Class B Common Stock shall represent less than 5% of
the aggregate number of the outstanding shares of Common
Stock, all of the outstanding shares of Class B Common Stock
shall automatically be converted at such time into shares of
Class A Common Stock.
(f) As used herein, (A) "Onex" includes Onex
Corporation, any successor legal entity resulting from an
amalgamation, merger, arrangement, sale of all or
substantially all of the assets, or other business
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<PAGE> 7
combination or reorganization involving Onex, provided that
such successor legal entity beneficially owns directly or
indirectly all shares of Class B Common Stock beneficially
owned directly or indirectly by Onex immediately prior to such
transaction, and is Controlled by the same Person or Persons
that Controlled Onex prior to the consummation of such
transaction; (B) a legal entity shall be deemed to be a
"Subsidiary" of another legal entity if, but only if (1) it
is Controlled directly or indirectly by such other entity, or
such other entity and one or more legal entities each of which
is Controlled by such other entity, or two or more legal
entities each of which is Controlled by such other entity; or
(2) it is a Subsidiary of a legal entity that is such other
entity's Subsidiary; (C) "Affiliate" means a Subsidiary of
Onex or a legal entity Controlled directly or indirectly by
the same Person that Controls Onex; (D) "Control" means
beneficial ownership of, or Control or direction over, (i)
securities carrying more than 50% of the votes that may be
cast to elect directors if those votes, if cast, could elect
more than 50% of the directors or (ii) if the entity in
question is not a corporation, securities having the right to
seat more than 50% of such entity's principal policy-making
body; (E) a Person is deemed to beneficially own any security
which is beneficially owned by a legal entity Controlled by
such Person; and (F) "Person" means any natural person, other
corporation, association, joint stock association, business
trust, estate, cooperative, partnership, firm, trust, limited
liability company, joint venture, political subdivision,
instrumentality, or other entity and the heirs, executors,
administrators, successors and permitted assigns of any such
Person where the context requires. Notwithstanding the prior
sentence, "Control" will be deemed to exist if 50% or more of
the members of such policy-making body are obligated by
contract or otherwise to vote in accordance with instructions
from another entity. The Board of Directors shall determine,
in the exercise of its good-faith judgment, whether an entity
is Controlled by another for purposes of this Section 3.3. As
used herein, "beneficial ownership" shall be determined
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934,
as amended, and applicable interpretations thereof.
4. Modification, Subdivision and Consolidation. Any
modification to the provisions attaching to the Class A Common Stock or
the Class B Common Stock, respectively, shall require the separate
affirmative vote of two-thirds of the votes cast by the holders of
shares of Class A Common Stock and Class B Common Stock, respectively,
voting as a separate class. The Corporation may not subdivide or
consolidate the shares of Class A Common Stock or the shares of Class B
Common Stock without at the same time proportionately subdividing or
consolidating the shares of the other class.
5. Rights on Dissolution. In the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of
the Corporation among its stockholders for the
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<PAGE> 8
purpose of winding up its affairs, subject to the prior rights and
preferences, if any, of the holders of the Preferred Stock, the holders
of shares of the Class A Common Stock and Class B Common Stock then
outstanding shall be entitled to receive the remaining property and
assets of the Corporation ratably in proportion to the number of shares
of both classes of Common Stock held by each holder.
SECTION C.
1. Reclassification. This Amended and Restated
Certificate of Incorporation is intended to, and shall, effect a
reclassification of the common stock, par value $0.01 per share, of the
Corporation (the "Old Common Stock") into Class A Common Stock in
accordance with the provisions of this Section C (the
"Reclassification"). Upon this Amended and Restated Certificate of
Incorporation becoming effective in accordance with Section 103 of the
DGCL (the "Effective Time"), each share of Old Common Stock that was
issued and outstanding immediately prior to the Effective Time shall
automatically and without any action on the part of the holder thereof
or any other Person be reclassified as one share of Class A Common
Stock.
2. Exchange Procedures. As soon as practicable after the
Effective Time, the Corporation shall, or shall cause its transfer
agent to, mail to each holder of record (a "Record Holder") of a
certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of Old Common Stock (the "Old
Certificates") (i) a letter of transmittal in appropriate and customary
form (the "Letter of Transmittal") and (ii) instructions for the use of
such letter of transmittal by such holder in effecting the surrender of
the Old Certificate(s) that immediately prior to the Effective Time
represented Old Common Stock in exchange for a stock certificate
representing an equivalent number of shares of Class A Common Stock.
Upon delivery of (i) an Old Certificate for cancellation as provided
herein and (ii) the Letter of Transmittal, duly executed and delivered
in accordance with its terms, the holder of such Old Certificate(s)
shall be entitled to receive in exchange therefor a new stock
certificate evidencing a number of shares of Class A Common Stock that
is equal to the aggregate number of shares of Old Common Stock
represented by the Old Certificate(s) surrendered, and the Old
Certificate(s) so surrendered shall be cancelled. Until surrender of
Old Certificates for exchange as contemplated by this Section C, each
Old Certificate shall be deemed at any time after the Effective Time to
represent a number of shares of Class A Common Stock that is equal to
the number of shares of Old Common Stock formerly represented by such
Old Certificate (as such number or class of shares may be hereafter
from time to time changed by exchange, reclassification, subdivision,
combination or cancellation of stock or rights of stockholders; herein,
a "Fundamental Change"), and the holder thereof shall have all the
rights and privileges of a holder of Class A Common Stock (as such
stock may be hereafter from time to time changed by a Fundamental
Change) under the DGCL, this Amended and Restated Certificate
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<PAGE> 9
of Incorporation, as it may be further amended, and the Corporation's
bylaws as in effect from time to time.
3. Exchange for Class B Common Stock. Any Record Holder
shall have the right, until 5:00 P.M. Eastern Time on the date that is
15 days following the Effective Time (the "Election Time"), to elect to
exchange each share of Class A Common Stock such Record Holder received
as a result of the Reclassification into one share of Class B Common
Stock; provided, however, that such holder may only elect to exchange
all, and not less than all, of the shares of Class A Common Stock held
by such holder into shares of Class B Common Stock. In order to effect
such exchange, such Record Holder shall, not later than the Election
Time, indicate his, her or its election to receive shares of Class B
Common Stock in the space indicated in the Letter of Transmittal and
deliver such Letter of Transmittal in accordance with its provisions by
the Election Time. The Corporation, acting in good faith, shall
determine whether or not any such Letter of Transmittal has been
validly delivered by the Election Time, and neither the Corporation nor
any officer, director, stockholder, employee, agent or representative
thereof shall have any liability to any Record Holder, or such Record
Holder's heirs, devisees, agents or representatives, for any failure of
a Letter of Transmittal to be received by the Election Time or any
determination made in good faith in respect thereof. Upon delivery of
such Letter of Transmittal by a Record Holder in accordance with the
provisions of this Section, such Record Holder shall be deemed from
5:00 P.M. Eastern Time on the date of receipt of such Letter of
Transmittal at the address for delivery provided therein to hold a
number of shares of Class B Common Stock that is equal to the number of
shares of Old Common Stock previously represented by the stock
certificate(s) surrendered with the Letter of Transmittal.
SECTION D. General.
1. Subject to the foregoing provisions of this Amended
and Restated Certificate of Incorporation, the Corporation may issue
shares of Preferred Stock and shares of Common Stock from time to time
for such consideration (not less than the par value thereof) as may be
fixed by the Board of Directors, which is expressly authorized to fix
the same in its absolute and uncontrolled discretion, subject to the
foregoing conditions. Shares so issued for which the consideration
shall have been paid or delivered to the Corporation shall be deemed
fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable
for any further payments in respect of such shares.
2. The Corporation shall have authority to create and
issue rights and options entitling their holders to purchase shares of
the Corporation's capital stock of any class or series or other
securities of the Corporation, and such rights and options shall be
evidenced by instrument(s) approved by the Board of Directors or any
duly authorized committee thereof. The Board of Directors, or a
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<PAGE> 10
duly appointed committee thereof, shall be empowered to set the
exercise price, duration, times for exercise, and other terms of such
options or rights by resolution(s); provided, however, that the
consideration to be received for any shares of capital stock subject
thereto shall not be less than the par value thereof.
ARTICLE FIFTH
Composition of the Board of Directors.
1. Directors of the Corporation need not be elected by
written ballot unless the bylaws of the Corporation otherwise provide.
2. The number of directors constituting the entire Board
of Directors shall be fixed by, or in the manner provided in, the
bylaws of the Corporation. Commencing on the date on which this Amended
and Restated Certificate of Incorporation becomes effective pursuant to
the DGCL, the directors of the Corporation shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall
consist as nearly as possible of one-third (1/3) of the total number of
directors making up the entire Board of Directors. The term of office
of the initial Class I directors shall expire at the first annual
meeting of stockholders after the date on which this Amended and
Restated Certificate of Incorporation becomes effective, the term of
office of the initial Class II directors shall expire at the second
annual meeting of stockholders after such date and the term of office
of the initial Class III directors shall expire at the third annual
meeting of stockholders after such date, with each director to hold
office until his or her successor shall have been duly elected and
qualified. At each annual meeting of stockholders, commencing with the
first annual meeting after the date on which this Amended and Restated
Certificate of Incorporation becomes effective, directors elected to
succeed those directors whose terms then expire shall be elected for a
term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office
until his or her successor shall have been duly elected and qualified.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of
directors in each class as nearly equally as possible, but in no case
will a decrease in the number of directors shorten the term of any
incumbent director.
3. The term of a director elected to fill a newly
created directorship or other vacancy shall expire at the same time as
the terms of the other directors of the class for which the new
directorship is created or in which the vacancy occurred.
4. Notwithstanding the foregoing, whenever the holders
of any one or more classes or series of Preferred Stock shall have the
right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such
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<PAGE> 11
directorships shall be governed by the terms of this Amended and
Restated Certificate of Incorporation and the resolutions adopted by
the Board of Directors applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this Article
Fifth unless expressly provided by such terms.
ARTICLE SIXTH
The directors of the Corporation shall have the power to
adopt, amend, and repeal the bylaws of the Corporation.
ARTICLE SEVENTH
No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the
Corporation and any Person in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or
have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee
which authorizes the contract or transaction, or solely because his,
her, or their votes are counted for such purpose, if: (i) the material
facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his
or her relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract
or transaction.
ARTICLE EIGHTH
To the extent permitted by law, the Corporation shall
indemnify any Person who was, is, or is threatened to be made a party
to a Proceeding (as hereinafter defined) by reason of the fact that he
or she (i) is or was a director or officer of the Corporation or (ii)
while a director or officer of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner,
manager, member, venturer, proprietor, trustee, employee, agent or
similar functionary of another Person, to the fullest extent permitted
under the DGCL, as the same exists or may hereafter be amended. Such
right shall be a contract right and as such shall run to the benefit of
any director or officer who is elected and accepts the position of
director or officer of the Corporation or elects to continue
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<PAGE> 12
to serve as a director or officer of the Corporation while this Article
Eighth is in effect. Any repeal or amendment of this Article Eighth
shall be prospective only and shall not limit the rights of any such
director or officer or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director
or officer in any of the foregoing capacities prior to any such repeal
or amendment to this Article Eighth. Such right shall include the right
to be paid by the Corporation expenses (including attorney's fees)
incurred in defending any such Proceeding in advance of its final
disposition to the maximum extent permitted under the DGCL, as the
same exists or may hereafter be amended. If a claim for indemnification
or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim, and if successful in whole or in part, the claimant shall also
be entitled to be paid the expenses of prosecuting such claim. It shall
be a defense to any such action that such indemnification or
advancement of costs of defense is not permitted under the DGCL, but
the burden of proving such defense shall be on the Corporation. Neither
the failure of the Corporation (including the Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to have
made its determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant
is permissible in the circumstances nor an actual determination by the
Corporation (including the Board of Directors or any committee thereof,
independent legal counsel, or stockholders) that such indemnification
or advancement is not permissible shall be a defense to the action or
create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any Person having a right of
indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators, and
personal representatives. The rights conferred above shall not be
exclusive of any other right which any Person may have or hereafter
acquire under any statute, bylaw, resolution of stockholders or
directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or
agent of the Corporation to the fullest extent permitted by law.
As used herein, the term "Proceeding" means any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative, any appeal in
such a Proceeding, and any inquiry or investigation that could lead to
such a Proceeding.
ARTICLE NINTH
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith
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<PAGE> 13
or which involve intentional misconduct or knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
amendment of this Article Ninth by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a
director of the Corporation is not personally liable as set forth in
the foregoing provisions of this Article Ninth, a director shall not
be liable to the Corporation or its stockholders to such further extent
as permitted by any law hereafter enacted, including without limitation
any subsequent amendment to the DGCL.
ARTICLE TENTH
The Corporation expressly elects not to be governed by Section
203 of the DGCL.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, I, the undersigned, being the Chief
Financial Officer and Secretary of the Corporation, have executed,
signed and acknowledged this Amended and Restated Certificate of
Incorporation as of the 1st day of March, 2000 and do certify that this
is my act and deed and that the facts stated herein are true.
/s/ Gene S. Morphis
-------------------------------------
Gene S. Morphis
Chief Financial Officer and Secretary
<PAGE> 1
EXHIBIT 4.2
************************************************************
CLIENTLOGIC HOLDING CORPORATION
-----------------------------
CREDIT AGREEMENT
Dated as of May 25, 1999
------------------------------
TORONTO DOMINION (TEXAS), INC.
as Agent and Bookrunner
THE BANK OF NOVA SCOTIA
as Documentation Agent
************************************************************
<PAGE> 2
i
Page
----
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Accounting Matters 1
1.1 Certain Defined Terms 1
1.2 Accounting Terms and Determinations 16
1.3 Classes and Types of Loans 16
Section 2. Commitments, Loans, Notes and Prepayments 17
2.1 Loans 17
2.2 Borrowings of Loans 17
2.3 Changes of Commitments 17
2.4 Lending Offices 18
2.5 Several Obligations; Remedies Independent 18
2.5.1 Notes 18
2.6 Optional Prepayments and Conversions or Continuations of Loans 19
2.7 Letters of Credit 19
2.8 Commitment Fee 22
2.9 Mandatory Prepayments and Reductions of Commitments 22
Section 3. Payments of Principal and Interest 23
3.1 Repayment of Loans 23
3.2 Interest 24
Section 4. Payments; Pro Rata Treatment; Computations; Etc. 24
4.1 Payments 24
4.2 Pro Rata Treatment 25
4.3 Computations 25
4.4 Minimum Amounts 25
4.5 Certain Notices 26
4.6 Non-Receipt of Funds by the Agent 26
4.7 Sharing of Payments, Etc. 27
4.7.4.1 Yield Protection, Etc. 28
4.8 Additional Costs 28
4.9 Limitation on Types of Loans 29
4.10 Illegality 30
4.11 Treatment of Affected Loans 30
4.12 Compensation 31
4.13 Additional Costs in Respect of Letters of Credit 31
4.14 Replacement Lenders under Certain Circumstances 31
4.15 Foreign Lenders 32
Section 5. Guarantee 32
5.1 The Guarantee 32
5.2 Obligations Unconditional 33
5.3 Reinstatement 33
5.4 Subrogation 33
5.5 Remedies 34
5.6 Continuing Guarantee 34
5.6.1 Rights of Contribution 34
5.7 General Limitation on Guarantee Obligations 34
</TABLE>
<PAGE> 3
ii
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6. Conditions Precedent 35
6.1 Conditions for the Initial Loans 35
6.2 Conditions for all Extensions of Credit 36
Section 7. Representations and Warranties 36
7.1 Corporate Existence 36
7.2 Financial Condition 36
7.3 Litigation 37
7.4 No Breach 37
7.5 Action 37
7.6 Approvals 37
7.7 Use of Credit 37
7.8 ERISA 38
7.9 Taxes 38
7.10 Investment Company Act 38
7.11 Public Utility Holding Company Act 38
7.12 Environmental Matters 38
7.13 Capitalization 38
7.14 True and Complete Disclosure 38
7.15 Year 2000 39
Section 8. Covenants of the Company 39
8.1 Financial Statements, Etc. 39
8.1 Litigation 41
8.2 Existence, Etc. 41
8.3 Insurance 42
8.3.1 Prohibition of Fundamental Changes 42
8.4 Limitation on Liens 44
8.5.1 Indebtedness 45
8.6 Investments 46
8.7 Dividend Payments 47
8.8 Capital Expenditures 48
8.8.1 Lines of Business 49
8.9 Transactions with Affiliates 49
8.10 Use of Proceeds 49
8.11 Total Debt to Cash Flow Ratio 49
8.12 Cash Flow to Debt Service Ratio 49
8.13 Cash Flow to Interest Expense Ratio 49
8.13.1 Management Fee Payments 50
8.14 Holding Company; Subsidiaries; Etc. 50
Section 9. Events of Default 50
Section 10. The Agent 53
10.1 Appointment, Powers and Immunities 53
10.2 Reliance by Agent 53
10.3 Defaults 53
10.4 Rights as a Lender 54
10.5 Indemnification 54
10.6 Non-Reliance on Agent and Other Lenders 54
10.7 Failure to Act 54
10.8 Resignation or Removal of Agent 54
10.8.1 Consents under Other Basic Documents 55
Section 11. Miscellaneous 55
</TABLE>
<PAGE> 4
iii
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.1 Waiver 55
11.2 Notices 55
11.3 Expenses, Etc. 55
11.4 Amendments, Etc. 56
11.5 Successors and Assigns 56
11.6 Assignments and Participations 56
11.7 Survival 58
11.8 Captions 58
11.8.1 Counterparts 58
11.9 Governing Law; Submission to Jurisdiction 58
11.10 Waiver of Jury Trial 58
11.11 Confidentiality 58
</TABLE>
SCHEDULE 8.02 - Matters Not Disclosed in December 31, 1998 Financials
SCHEDULE 8.04 - Required Consents
SCHEDULE 8.09 - Certain Tax Matters
SCHEDULE 8.13 - Capitalization
SCHEDULE 8.15 - Year 2000 Compliance Costs
SCHEDULE 9.06(b) - Existing Liens
SCHEDULE 9.07(b) - Existing Indebtedness
SCHEDULE 9.08 - Existing Investments
EXHIBIT A-1 - Form of Tranche 1 Note
EXHIBIT A-2 - Form of Tranche 2 Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C - Form of Opinion of Counsel to the Obligors
EXHIBIT D - Form of Opinion of Special Counsel to TD
EXHIBIT E - Form of Borrowing Base Certificate
EXHIBIT F - Form of Assignment Agreement
<PAGE> 5
1
CREDIT AGREEMENT dated as of May 25, 1999 among:
(a) CLIENTLOGIC HOLDING CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware (the "Company");
(b) Each of the Subsidiaries of the Company identified under the
caption "Subsidiary Guarantors" on the signature pages hereto (together
with each Subsidiary of the Company that becomes a Subsidiary Guarantor
pursuant to Section 9.18(b) hereof, individually, a "Subsidiary Guarantor"
and, collectively, the "Subsidiary Guarantors", and the Subsidiary
Guarantors collectively with the Company, the "Obligors");
(c) Each of the lenders that is a signatory hereto identified under
the caption "Lenders" on the signature pages hereto or that, pursuant to
Section 12.06(b) hereof, shall become a "Lender" hereunder (individually, a
"Lender" and, collectively, the "Lenders"); and
(d) TORONTO DOMINION (TEXAS), INC., as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent").
The Obligors have requested that the Lenders make extensions of credit to
the Company and, to induce the Lenders to make such extensions of credit, the
Obligors propose to enter into this Agreement pursuant to which the Lenders will
make extensions of credit to the Company, and each Subsidiary Guarantor will
guarantee the extensions of credit so made to the Company and each of the
Obligors will agree to execute and deliver security agreements providing for
security interests and liens to be granted by the Obligors on the Collateral (as
that term is hereinafter defined) as collateral security for the obligations of
the Obligors to the Lenders and the Agent hereunder. Accordingly, the parties
hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.1. Certain Defined Terms . As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Additional Costs" shall have the meaning set forth in Section 5.01(a)
hereof.
"Adjusted Cash Flow" shall mean, for any period, Gross Cash Flow for such
period, reduced by the excess (if any) of:
(a) the aggregate amount of Gross Cash Flow generated by all Foreign
Subsidiaries of the Company for such period, over
(b) an amount equal to 20% of Gross Cash Flow for such period.
"Advance Date" shall have the meaning set forth in Section 4.06 hereof.
"Affiliate" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Company and, if such
Person is an individual, any member of the immediate family (including parents,
spouse, children and siblings) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of power to direct or cause the direction of
<PAGE> 6
2
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise). Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of the Company or any of its
Subsidiaries; (b) none of the Subsidiaries of the Company shall be Affiliates;
and (c) neither the Agent nor any Lender shall be an Affiliate.
"Agent" shall have the meaning given to that term in the preamble to this
Agreement.
"Agreement" shall mean this Credit Agreement as amended, modified and
supplemented and in effect from time to time.
"Applicable Commitment Fee Rate" shall have the meaning given to that term
in Section 2.09 hereof.
"Applicable Lending Office" shall mean, for each Lender and for each Type
of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
office of such Lender (or of an affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Company as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, for each Type of Tranche 1 Loan and Tranche
2 Loan, the rate calculated by reference to the Total Debt to Cash Flow Ratio as
at the last day of the most recently ended fiscal quarter of the Company (an
"Applicable Margin Testing Date"), which if such Total Debt to Cash Flow Ratio
shall fall within any of the ranges set forth (i) in the Schedule A below, then,
the "Applicable Margin" for each such Type of Tranche 1 Loan shall be the
respective percentage per annum set forth opposite such range in Schedule A and
(ii) in the Schedule B below, then, the "Applicable Margin" for each such Type
of Tranche 2 Loan shall be the respective percentage per annum set forth
opposite such range in Schedule B below, in either case during the period
commencing on the Margin Change Date for such Applicable Margin Testing Date to
but not including the Margin Change Date for the next succeeding Applicable
Margin Testing Date (except that notwithstanding the foregoing, the Applicable
Margin for any Type of Loan shall not be reduced for any period during which an
Event of Default shall have occurred and be continuing):
<TABLE>
<CAPTION>
Schedule A - Tranche 1 Loans
----------------------------
Total Debt to Cash Flow Ratio Eurodollar Loans Base Rate Loans
- ----------------------------- ---------------- ---------------
<S> <C> <C>
3.00 to 1 1.0% zero
4.00 to 1 1.5% 0.5%
5.00 to 1 2.0% 1.0%
> 5.00 to 1 2.5% 1.5%
</TABLE>
<TABLE>
<CAPTION>
Schedule B - Tranche 2 Loans
----------------------------
Total Debt to Cash Flow Ratio Eurodollar Loans Base Rate Loans
- ----------------------------- ---------------- ---------------
<S> <C> <C>
3.00 to 1 1.5% 0.5%
4.00 to 1 2.0% 1.0%
5.00 to 1 2.5% 1.5%
> 5.00 to 1 3.0% 2.0%
</TABLE>
<PAGE> 7
3
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate
for such day. Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take effect as of
the opening of business on the date on which such change in the Base Rate became
effective.
"Base Rate Loans" shall mean Loans that bear interest at rates based upon
the Base Rate.
"Basic Documents" shall mean, collectively, this Agreement, the Notes, the
Letter of Credit Documents and the Security Documents.
"Basle Accord" shall have the meaning given to such term in Section 5.01(c)
hereof.
"Borrowing Base" shall mean, as at any date, 75% of the aggregate amount of
Eligible Receivables.
"Borrowing Base Certificate" shall mean a certificate of a Responsible
Officer of the Company, substantially in the form of Exhibit E hereto, and
appropriately completed.
"Business Day" shall mean (a) any day on which commercial banks are not
authorized or required to close in New York City and (b) if such day relates to
the giving of notices in connection with a borrowing of, a payment or prepayment
of principal of or interest on, a Conversion of or into, or an Interest Period
for, a Eurodollar Loan or a notice by the Company with respect to any such
borrowing, payment, prepayment, Conversion or Interest Period, any day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Company or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals and
improvements, but excluding replacements and repairs to the extent expensed in
accordance with GAAP) during such period computed in accordance with GAAP.
"Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Cash Flow to Interest Expense Ratio" shall mean, as at any date for the
calculation thereof, the ratio of:
(a) for the following calculation dates:
(i) March 31, 1999, the product of (A) Adjusted Cash Flow for the
period of two consecutive fiscal quarters ending on March 31, 1999
multiplied by (B) 2;
(ii) June 30, 1999, the product of (A) Adjusted Cash Flow for the
period of three consecutive fiscal quarters ending on June 30, 1999
multiplied by (B) 4/3; and
<PAGE> 8
4
(iii) for any calculation date thereafter, Adjusted Cash Flow for
the period of four consecutive fiscal quarters ending on, or most
recently ended prior to, such date; to
(b) Interest Expense for the period of four consecutive fiscal
quarters ending on, or most recently ended prior to, such calculation date.
"Cash Flow to Debt Service Ratio" shall mean, as at any date of the
calculation thereof, the ratio of:
(a) for the following calculation dates:
(i) March 31, 1999, the product of (A) Adjusted Cash Flow for the
period of two consecutive fiscal quarters ending March 31, 1999
multiplied by (B) 2;
(ii) June 30, 1999, the product of (A) Adjusted Cash Flow for the
period of three consecutive fiscal quarters ending June 30, 1999
multiplied by (B) 4/3; and
(iii) for any calculation date thereafter, Adjusted Cash Flow for
the four consecutive fiscal quarters ending on, or most recently ended
prior to, such date; to
(b) Prospective Debt Service for such calculation date.
"Class" shall have the meaning given to that term in Section 1.03 hereof.
"Closing Date" shall mean the date upon which the initial Loans hereunder
are made.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall have the meaning given to that term in the Security
Agreement.
"Collateral Account" shall have the meaning given to that term in the
Security Agreement.
"Commitment Fee Testing Date" shall have the meaning given to that term in
Section 2.09 hereof.
"Commitment Percentage" shall mean, with respect to any Tranche 2 Lender,
the ratio of (a) the amount of the Tranche 2 Commitment of such Lender to (b)
the aggregate amount of the Tranche 2 Commitments of all of the Tranche 2
Lenders.
"Commitments" shall mean the Tranche 1 Commitments and the Tranche 2
Commitments.
"Company" shall have the meaning given to that term in the preamble to this
Agreement.
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.07 hereof of a Eurodollar Loan as a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.07 hereof of one Type of Loans into another Type of Loans.
"CRI Earn-out" shall mean, as at any time, the present value of the
outstanding amount of the deferred purchase price payable by LCS Industries,
Inc. under the Agreement of Purchase and Stock Sale dated April 1, 1993 (as
amended), as such amount may be reduced from time to time pursuant to the terms
of said Agreement.
<PAGE> 9
5
"Debt for Borrowed Money" shall mean, for any Person: (a) obligations
created, issued, assumed or incurred by such Person for borrowed money (whether
by loan, the issuance and sale of debt securities or the sale of Property to
another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such Property from such Person, and including, without
limitation, all obligations evidenced by a note, bond, debenture or other
similar instrument); and (b) Capital Lease Obligations of such Person.
"Default" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) of the
Company or any of its Subsidiaries to any other Person, provided that any
transfer of the $805,411 promissory note of Life Cycle Systems, Inc. to Softbank
Holdings, Inc. as a working capital adjustment shall not constitute a
"Disposition."
"Dividend Payment" shall mean dividends (in cash, Property or obligations)
on, or other payments or distributions on account of, or the setting apart of
money for a sinking or other analogous fund for, or the purchase, redemption,
retirement or other acquisition of, any shares of any class of stock of the
Company or of any warrants, options or other rights to acquire the same (or to
make any payments to any Person, such as "phantom stock" payments, where the
amount thereof is calculated with reference to the fair market or equity value
of the Company or any of its Subsidiaries), but excluding dividends payable
solely in shares of capital stock of the Company.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Eligible Receivables" shall mean, as at any date, the aggregate amount of
all Receivables at such date payable to the Company or any Subsidiary Guarantor,
other than the following (determined without duplication):
(a) any Receivable not payable in Dollars or in Canadian dollars;
(b) any Receivable that, at the date of issuance of the invoice
therefor, was payable more than 60 days after the date of the original
invoice therefor;
(c) any Receivable owing from a Subsidiary or Affiliate of an Obligor;
(d) any Receivable owing from an account debtor whose principal place
of business is located outside of the United States of America or Canada,
unless either (i) both (A) such Receivable is supported by a letter of
credit from an issuer acceptable to the Agent, and (B) such letter of
credit is otherwise acceptable to the Agent (the Agent to act reasonably
making a such determination of acceptability, provided that such a
determination by the Agent shall be prima facie evidence of
reasonableness), or (ii) the Agent shall otherwise agree;
(e) any Receivable that remains unpaid for more than 90 days after the
date of issuance of the original invoice therefor;
(f) all Receivables of any account debtor if more than 35% of the
aggregate amount of the Receivables owing from such account debtor shall at
the time have remained unpaid for more than 90 days after the date of the
original invoice therefor;
<PAGE> 10
6
(g) Receivables owing from any account debtor if the Receivables owing
from such account debtor and its Affiliates at the time exceed 15% of all
Receivables then payable to the Obligors (but only to the extent of such
excess);
(h) any Receivable owing from an account debtor that the Agent have
notified the Company (at least ten Business Days prior to such date) does
not have a satisfactory credit standing (the Agent to act reasonably in
making such a determination of creditworthiness, provided that such a
determination by the Agent shall be prima facie evidence of
reasonableness);
(i) any Receivable as to which there is any unresolved dispute with
the respective account debtor (but only to the extent of the amount thereof
in dispute);
(j) any Receivable evidenced by an Instrument (as that term is defined
in the Security Agreement) not in the possession of the Agent;
(k) any Receivable representing an obligation for goods sold on
consignment, approval or a sale-or-return basis or subject to any other
repurchase or return arrangement (other than the Obligors' customary return
arrangements);
(l) any Receivable owing by (x) the United States of America, any
State thereof, or any agency or instrumentality of any thereof, unless in
the case of a Receivable owing by the United States of America or any
agency or instrumentality thereof, the Agent's security interest in such
Receivable has been duly perfected under the Assignment of Claims Act of
1940, or (y) the federal government of Canada, unless the Agent's security
interest in such Receivable has been duly perfected under the Canadian
Financial Administration Act;
(m) any Receivable as to which the Agent does not have a first
priority perfected Lien under the Security Agreement, and
(n) any Receivable payable in respect of List Brokerage Services.
"Environmental Claim" shall mean, with respect to any Person, any written
notice, claim, demand or other communication (collectively, a "claim") by any
other Person alleging or asserting such Person's liability for investigatory
costs, cleanup costs, governmental response costs, damages to natural resources
or other Property, personal injuries, fines or penalties arising out of, based
on or resulting from (i) the presence, or Release into the environment, of any
Hazardous Material at any location, whether or not owned by such Person, or (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law. The term "Environmental Claim" shall include, without
limitation, any claim by any governmental authority for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean, to the extent applicable, any and all
present and future federal, state, local and foreign laws, rules or regulations,
and any orders or decrees, in each case as now or hereafter in effect, relating
to the regulation or protection of the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes into the environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
<PAGE> 11
7
"Equipment" shall have the meaning given to that term in the Security
Agreement.
"Equity Rights" shall mean, with respect to any Person, any subscriptions,
options, warrants, commitments, preemptive rights or agreements of any kind
(including, without limitation, any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or securities convertible
into, any additional shares of capital stock of any class, or partnership or
other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
"Eurodollar Loans" shall mean Loans that bear interest at rates based on
the Eurodollar Rate.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any
Interest Period therefor, a rate per annum determined by the Agent to be equal
to:
(a) the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) on the date two Business Days prior to the first
day of such Interest Period on Dow Jones Telerate Service Page 3750 as the
London interbank offered rate for Dollar deposits having a term comparable
to such Interest Period and in an amount equal to or greater than
$1,000,000, divided by
(b) 1 minus the Reserve Requirement (if any) for such Eurodollar Loan
for such Interest Period.
"Event of Default" shall have the meaning given to that term in Section 10
hereof.
"Excess Cash Flow" shall mean, for any period, the sum of the following for
the Company and its Subsidiaries:
(a) the sum of (i) Gross Cash Flow for such period plus (ii) decreases
in working capital for such period, minus
(b) the sum of the following:
(i) Capital Expenditures made during such period, plus
(ii) Retrospective Debt Service for such period, plus
(iii) Management Fees paid during such period, plus
(iv) taxes paid in cash during such period, plus
(v) increases in working capital during such period.
<PAGE> 12
8
For purposes of this definition, "working capital" shall have the meaning given
to that term by GAAP, but shall not include (x) any of the Loans, (y) any
current maturities of long-term debt or (z) any cash balances.
"Excess Funding Subsidiary Guarantor" shall have the meaning given to that
term in Section 6.07 hereof.
"Excess Payment" shall have the meaning given to that term in Section 6.07
hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (a) if the day for which such rate is to be determined is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Rate for such Business Day shall be the average
of the rates quoted to the Agent by three federal funds brokers of recognized
standing selected by it.
"Foreign Subsidiary" shall have the meaning given to that term in Section
9.18(b) hereof.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Global Tax Restructuring" shall mean one or more transactions entered into
by the Company and one or more of its Subsidiaries which may involve creating
new Subsidiaries of the Company, changing the jurisdiction of the Company or of
a Subsidiary of the Company from one State to another State, and changing the
form of the Company or of a Subsidiary from a corporation to any other Person,
so long as such transactions are otherwise permitted under Section 9.05 or do
not in the sole opinion of the Agent, materially and adversely affect the
Agent's Lien on any of the Collateral, materially and adversely affect the
Agent's remedies under this Agreement and the other Basic Documents, or
otherwise have a Material Adverse Effect.
"Gross Cash Flow" shall mean, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP, and adjusted on a pro form basis as if the Company had
acquired LCS and its Subsidiaries on October 1, 1998), of the following:
(a) net operating income (calculated before taxes, Interest Expense,
extraordinary and unusual items and income or loss attributable to equity
in Affiliates) for such period plus
(b) depreciation and amortization (to the extent deducted in
determining net operating income) for such period.
"Guarantee" shall mean a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.
<PAGE> 13
9
"Guaranteed Obligations" shall have the meaning given to that term in
Section 6.01 hereof.
"Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB's") at concentrations in excess of
50 parts per million, (b) any chemicals or other materials or substances that
are now or hereafter become defined as "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and (c) any
other chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"Indebtedness" shall mean, for any Person: (a) obligations created, issued,
assumed or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person, and including, without limitation, all
obligations evidenced by a note, bond, debenture or other similar instrument);
(b) obligations of such Person to pay the deferred purchase or acquisition price
of Property or services, other than trade accounts payable (other than for
borrowed money) arising, and accrued expenses incurred, in the ordinary course
of business; (c) Indebtedness of others secured by a Lien on the Property of
such Person, whether or not the respective indebtedness so secured has been
assumed by such Person; (d) obligations of such Person in respect of letters of
credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; (f) Indebtedness of others Guaranteed by such Person; and (g) Redeemable
Stock.
"Interest Expense" shall mean, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) all interest and fees paid in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations, but excluding all fees
payable on the Closing Date in connection with the execution and delivery of
this Agreement and the other Basic Documents) accrued or capitalized during such
period (whether or not actually paid during such period) plus (b) the net amount
payable (or minus the net amount receivable) under any Interest Rate Protection
Agreement during such period (whether or not actually paid or received during
such period).
"Interest Period" shall mean, with respect to any Eurodollar Loan, each
period commencing on the date such Eurodollar Loan is made or Converted from a
Loan of another Type or the last day of the next preceding Interest Period for
such Loan and ending on the numerically corresponding day in the first, second,
third, sixth, or, subject to availability, twelfth calendar month thereafter, as
the Company may select as provided in Section 4.05 hereof, except that each
Interest Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (a) no
Interest Period for any Loan may commence before and end after the Principal
Payment Date; (b) each Interest Period that would otherwise end on a day that is
not a Business Day shall end on the next preceding Business Day; and (c)
notwithstanding paragraphs (a) and (b) above, no Interest Period for any Loan
shall have a duration of less than one month and, if the Interest Period for any
Eurodollar Loan would otherwise be a shorter period, such Loan shall not be
available hereunder for such period.
"Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
<PAGE> 14
10
"Investment" shall mean, for any Person: (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person (including, without limitation, any "short sale" or any sale
of any securities at a time when such securities are not owned by the Person
entering into such sale); (b) the making of any deposit with, or advance, loan
or other extension of credit to, any other Person (including the purchase of
Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person), but excluding
(x) any such advance, loan or extension of credit having a term not exceeding 90
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business and (y) payment terms granted to
customers of, and in connection with, List Brokerage Services not exceeding 140
days); (c) the entering into of any Guarantee of, or other contingent obligation
with respect to, Indebtedness or other liability of any other Person and
(without duplication) any amount committed to be advanced, lent or extended to
such Person; (d) the acquisition by such Person of all or substantially all of
the Property of another Person, or of a line of business of another Person; or
(e) the entering into of any Interest Rate Protection Agreement.
"Issuer" shall mean TD, as the issuer of Letters of Credit under Section
2.08 hereof, together with its successors and assigns in such capacity.
"LCS" shall mean LCS Industries, Inc., a Delaware corporation.
"Lenders" shall have the meaning given to that term in the preamble to this
Agreement.
"Letters of Credit" shall mean the letters of credit provided for in
Section 2.08 hereof.
"Letter of Credit Documents" shall mean, collectively, any application for
any Letter of Credit and any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for the rights and obligations of the parties
concerned or at risk with respect to such Letter of Credit, as the same may be
modified and supplemented and in effect from time to time.
"Letter of Credit Interest" shall mean, for each Tranche 2 Lender, such
Tranche 2 Lender's participation interest (or, in the case of the Issuer, the
Issuer's retained interest) in the Issuer's liability under each Letter of
Credit and such Tranche 2 Lender's rights and interests in Reimbursement
Obligations and fees, interest and other amounts payable in connection with the
Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without duplication, at any time,
the sum of (a) the undrawn face amount of the Letters of Credit plus (b) the
aggregate unpaid principal amount of all Reimbursement Obligations of the
Company at such time due and payable in respect of all drawings made under the
Letters of Credit. For purposes of this Agreement, a Tranche 2 Lender (other
than the Issuer) shall be deemed to hold a Letter of Credit Liability in an
amount equal to its participation interest in the Letters of Credit under
Section 2.08 hereof, and the Issuer shall be deemed to hold a Letter of Credit
Liability in an amount equal to its retained interest in the related Letter of
Credit after giving effect to the acquisition by the Tranche 2 Lenders other
than the Issuer of their participation interest under said Section 2.08.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Basic Documents, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"List Brokerage Services" shall mean the business of selling lists prepared
by third parties for a commission.
<PAGE> 15
11
"Loans" shall mean, collectively, the Tranche 1 Loans and the Tranche 2
Loans.
"Majority Lenders" shall mean Lenders holding at least more than 50% of the
aggregate amount of the Commitments or, if all of the Commitments shall have
terminated, Lenders holding more than 50% of the sum of (a) the aggregate unpaid
principal amount of the Loans plus (b) the aggregate amount of all Letter of
Credit Liabilities.
"Management Fee" shall mean any management or similar fee paid directly or
indirectly by the Company or any of its Subsidiaries to any Affiliate.
"Margin Change Date" shall mean, for any Applicable Margin Testing Date or
any Commitment Fee Testing Date, the earlier of (a) the second Business Day
after the date the Agent receives the Company's consolidated financial
statements pursuant to Section 9.01 hereof for such Applicable Margin Testing
Date or such Commitment Fee Testing Date (except that for any Applicable Margin
Testing Date or Commitment Fee Testing Date that is a fiscal year end (and prior
to the delivery of the audited financial statements for such fiscal year
pursuant to Section 9.01(b) hereof), the Total Debt to Cash Flow Ratio may be
determined on the basis of a statement delivered by the Company setting forth a
calculation of the Total Debt to Cash Flow Ratio for such fiscal year, certified
by a Responsible Officer of the Company (and the Applicable Margin and the
Applicable Commitment Fee Rate shall be adjusted accordingly in the event that
the Total Debt to Cash Flow Ratio as set forth in any such statement differs
from the Total Debt to Cash Flow Ratio calculated based on such audited
financial statements for such fiscal year)) and (b) the second Business Day
after the date on which such financial statements are required to be delivered
pursuant to said Section 9.01.
"Margin Stock" shall mean "margin stock" within the meaning of Regulations
U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition or prospects of the Company
and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform
its obligations under any of the Basic Documents to which it is a party, and (c)
the validity or enforceability of any of the provisions of the Basic Documents
(including the rights and remedies of the Lenders and the Agent thereunder).
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and that is covered by Title IV of ERISA.
"Net Cash Payments" shall mean the aggregate amount of all cash payments
received by the Company and its Subsidiaries directly or indirectly in
connection with a Disposition of Property; provided that (a) Net Cash Payments
shall be net of (i) the amount of any legal, title and recording tax expenses,
commissions and other fees and expenses paid by the Company and its Subsidiaries
in connection with such Disposition and (ii) any federal, state and local income
or other taxes estimated to be payable by the Company and its Subsidiaries as a
result of such Disposition (but only to the extent that such estimated taxes are
in fact paid to the relevant federal, state or local governmental authority
within the time permitted by law) and (b) Net Cash Payments shall be net of any
repayments by the Company or any of its Subsidiaries of Indebtedness to the
extent that such Indebtedness is secured by a Lien on the Property that is the
subject of such Disposition.
"Non-consenting Lender" shall have the meaning given to that term in
Section 5.07 hereof.
"Non-funding Lender" shall have the meaning given to that term in Section
5.07 hereof.
"Notes" shall mean, collectively, the Tranche 1 Notes and the Tranche 2
Notes.
<PAGE> 16
12
"Obligors" shall have the meaning given to that term in the preamble to
this Agreement.
"Onex" shall mean Onex Corporation, a Canadian corporation.
"Onex Finance Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of May 25, 1999 between the Obligors, Onex CustomerONE
Finance LLC, as lender and TD, as agent for the lender, as modified and
supplemented and in effect from time to time.
"Participant" shall have the meaning given to such term in Section 12.06(c)
hereof.
"Payor" shall have the meaning given to that term in Section 4.06 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisitions" shall mean acquisitions of all or substantially
all of the capital stock or other equity interests of a Person, or all or
substantially all of the assets of, or of a line of business of, a Person, so
long as (a) after giving effect thereto, no Default or Event of Default shall be
continuing and (b) the aggregate consideration for such acquisitions (including
the amount of any Indebtedness assumed but excluding any consideration the
ultimate source of which is an equity contribution made by any Person other than
an Obligor) shall not exceed $15,000,000.
"Permitted Investments" shall mean: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than one year from the date of
acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than one year from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Corporation or Moody's Investors Services, Inc., respectively, maturing not more
than one year from the date of acquisition thereof; (d) with respect to
Subsidiaries of the Company that are organized under the laws of England and
Wales, direct obligations of the United Kingdom of Great Britain and Northern
Ireland, or any agency thereof, or obligations guaranteed as to principal and
interest by the United Kingdom, or of any agency thereof, in either case
maturing not more than one year from the date of acquisition thereof; (e) with
respect to Subsidiaries of the Company that are organized under the laws of the
Republic of Ireland, direct obligations of the Republic of Ireland, or any
agency thereof, or obligations guaranteed as to principal and interest by the
Republic of Ireland, or of any agency thereof, in either case maturing not more
than one year from the date of acquisition thereof and (f) with respect to
Subsidiaries of the Company that are organized under the laws of Canada or any
Province thereof, direct obligations of the federal government of Canada, or any
agency thereof, or obligations guaranteed as to principal and interest by the
federal government of Canada, or of any agency thereof, in either case maturing
not more than one year from the date of acquisition thereof.
"Person" shall mean any individual, corporation, company, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
<PAGE> 17
13
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
any other amount under this Agreement, any Note or any other Basic Document that
is not paid when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), a rate per annum equal to 2% plus the Base Rate as in
effect from time to time plus the Applicable Margin for Base Rate Loans
(provided that, if the amount so in default is principal of a Eurodollar Loan
and the due date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the period
from and including such due date to but excluding the last day of such Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02
hereof and, thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time to time announced by
TD, New York Branch, as its prime commercial lending rate for loans to made in
the United States of America and denominated in Dollars.
"Principal Office" shall mean the principal office of TD, currently located
at 909 Fannin, Suite 1700, Houston, Texas 77010.
"Principal Payment Date" shall mean the seventh-year anniversary of the
Closing Date.
"Property" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Pro Rata Share" shall have the meaning given to that term in Section 6.07
hereof.
"Prospective Debt Service" shall mean, as at any date of the calculation
thereof, the sum, for the Company and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP), of the
following:
(a) the sum of all Interest Expense for the period of four consecutive
fiscal quarters ending on such date, plus
(b) all payments of principal of Debt for Borrowed Money (including,
without limitation, the principal component of any payments in respect of
Capital Lease Obligations but excluding any mandatory prepayments made
pursuant to Section 2.10 hereof) scheduled to be made during the period of
four consecutive fiscal quarters commencing on the day next following such
date.
"Quarterly Dates" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date of this Agreement.
"Receivables" shall mean, as at any date, the unpaid portion of the
obligation, as stated on the respective invoice, of a customer of the Company or
any Subsidiary Guarantor, net of any credits, rebates or offsets owed to such
customer and also net of any commission payable to third parties.
"Redeemable Stock" shall mean, for any Person, any capital stock of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (including upon the
occurrence of an event) matures or is required to be redeemed (pursuant to any
sinking fund obligation or otherwise) or is convertible into or exchangeable for
Indebtedness or is redeemable at the option of the holder thereof, in whole or
in part, at any time on or prior to the Principal Payment Date.
"Regulations A, D, U and X" shall mean, respectively, Regulations A, D, U
and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
<PAGE> 18
14
"Regulatory Change" shall mean, with respect to any Lender, any change
after the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time, the obligations of the
Company then outstanding to reimburse amounts paid by the Issuer in respect of
any drawings under the Letters of Credit.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata.
"Relevant Parties" shall have the meaning given to that term in Section
10(b) hereof.
"Required Payment" shall have the meaning given to that term in Section
4.06 hereof.
"Reserve Requirement" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as that term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Rate is to be
determined as provided in the definition of "Eurodollar Rate" in this Section
1.01 or (ii) any category of extensions of credit or other assets that includes
Eurodollar Loans. "Responsible Officer" shall mean, with respect to any Person,
the Chief Executive Officer, the Chief Financial Officer, the Treasurer, the
Controller, the Chief Operating Officer or any Vice President, of such Person.
"Retrospective Debt Service" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) all Interest Expense for such period plus
(b) all payments of principal of Debt for Borrowed Money (including,
without limitation, the principal component of any payments in respect of
Capital Lease Obligations but excluding any mandatory prepayments made
pursuant to Section 2.10 hereof) scheduled to be made during such period.
"Security Agreement" shall mean a Security Agreement substantially in the
form of Exhibit B hereto between the Obligors and the Agent, as the same shall
be modified and supplemented and in effect from time to time.
"Security Documents" shall mean, collectively, the Security Agreement and
all Uniform Commercial Code financing statements required by this Agreement or
the Security Agreement to be filed with respect to the security interests in
personal Property and fixtures created pursuant to the Security Agreement.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
<PAGE> 19
15
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"Subsidiary Dividend Payment" shall mean, with respect to any Subsidiary of
the Company, dividends (in cash, Property or obligations) on, or other payments
or distributions on account of, or the setting apart of money for a sinking or
other analogous fund for, or the purchase, redemption, retirement or other
acquisition of, any shares of any class of stock of such Subsidiary, or any
other equity or ownership interest in such Subsidiary, or of any warrants,
options or other rights to acquire the same (or to make any payments to any
Person, such as "phantom stock" payments, where the amount thereof is calculated
with reference to the fair market or equity value of the Company or any of its
Subsidiaries).
"Subsidiary Guarantor" shall have the meaning given to that term in the
preamble to this Agreement.
"TD" shall mean Toronto Dominion (Texas), Inc.
"Total Debt to Cash Flow Ratio" shall mean, as at any date of the
calculation thereof, the ratio of:
(a) the excess of the following:
(i) all Indebtedness of the Company and its Subsidiaries on such
date (including, solely for purposes of the definition of "Applicable
Margin" in this Section 1.01 and for purposes of Section 2.09 hereof,
the outstanding amount of the CRI Earn-out), over
(ii) the lesser of (x) $1,000,000 and (y) the aggregate amount of
cash on hand and in bank accounts of the Company and its Subsidiaries
on such date; to
(b) for any date occurring:
(i) on and after the Closing Date but prior to June 30, 1999, the
product of (A) Adjusted Cash Flow for the period of two consecutive
fiscal quarters ending March 31, 1999 multiplied by (B) 2;
(ii) on and after June 30, 1999 but prior to September 30, 1999,
the product of (A) Adjusted Cash Flow for the period of three
consecutive fiscal quarters ending June 30, 1999 multiplied by (B)
4/3; and
(iii) for any period thereafter, Adjusted Cash Flow for the
period of four consecutive fiscal quarters ending on, or most recently
ended prior to, such date.
"Tranche 1 Commitment" shall mean, for each Tranche 1 Lender, the
obligation of such Lender to make one or more Tranche 1 Loans in an aggregate
amount at any one time outstanding up to but not exceeding the amount set
opposite the name of such Lender on the signature pages hereof under the caption
"Tranche 1 Commitment". The aggregate amount of the Tranche 1 Commitments on the
Closing Date is $15,000,000.
"Tranche 1 Commitment Termination Date" shall mean the seventh-year
anniversary of the Closing Date.
<PAGE> 20
16
"Tranche 1 Lenders" shall mean (a) on the date hereof, the Lenders having
Tranche 1 Commitments on the signature pages hereof and (b) thereafter, the
Lenders from time to time holding Tranche 1 Loans and Tranche 1 Commitments
after giving effect to any assignments thereof permitted by Section 12.06(b)
hereof.
"Tranche 1 Loans" shall mean each of the loans provided for in Section
2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"Tranche 1 Notes" shall mean the promissory notes provided for by Section
2.06(a) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Tranche 2 Commitment" shall mean, for each Tranche 2 Lender, the
obligation of such Lender to make one or more Tranche 2 Loans in an aggregate
principal amount up to but not exceeding the amount set opposite the name of
such Lender on the signature pages hereof under the caption "Tranche 2
Commitment". The Tranche 2 Commitments shall be reduced pursuant to Section
2.03(b) hereof. The aggregate amount of the Tranche 2 Commitments on the Closing
Date is $25,000,000.
"Tranche 2 Commitment Termination Date" shall mean the seventh-year
anniversary of the Closing Date.
"Tranche 2 Commitment Reduction Dates" shall mean each of the third and
fourth anniversary of the Closing Date.
"Tranche 2 Lenders" shall mean (a) on the date hereof, the Lenders having
Tranche 2 Commitments on the signature pages hereof and (b) thereafter, the
Lenders from time to time holding Tranche 2 Loans and Tranche 2 Commitments
after giving effect to any assignments thereof permitted by Section 12.06(b)
hereof.
"Tranche 2 Loans" shall mean each of the loans provided for in Section
2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"Tranche 2 Notes" shall mean the promissory notes provided for by Section
2.06(b) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Type" shall have the meaning given to that term in Section 1.03 hereof.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any other
Person of which all of the equity securities or other ownership interests (other
than directors' qualifying or nominee shares) are directly or indirectly owned
or controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.2. Accounting Terms and Determinations. For purposes of Sections 9.14,
9.15 and 9.16 hereof (and the related definitions used in those Sections), all
accounting terms shall be interpreted, and all calculations made for the purpose
of determining compliance with such Sections shall be made, in accordance with
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the December 31, 1998 financial statements
referred to in Section 8.02 hereof.
1.3. Classes and Types of Loans. Loans hereunder are distinguished by
"Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan)
refers to whether such Loan is a Tranche 1 Loan or a Tranche 2 Loan, each of
which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a
Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may
be identified by both Class and Type.
<PAGE> 21
17
Section 2. Commitments, Loans, Notes and Prepayments.
2.1. Loans.
2.1.1. Tranche 1 Loans. Each Tranche 1 Lender severally agrees, on the
terms and conditions of this Agreement, to make one or more Tranche 1 Loans
to the Company in Dollars during the period from and including the date
hereof to but not including the Tranche 1 Commitment Termination Date in an
aggregate principal amount at any one time outstanding not to exceed the
Tranche 1 Commitment of such Lender as in effect from time to time. During
such period the Company may borrow, repay and reborrow the amount of the
Tranche 1 Commitments and may Convert Tranche 1 Loans of one Type into
Tranche 1 Loans of another Type (as provided in Section 2.07 hereof) or
Continue Tranche 1 Loans of one Type as Tranche 1 Loans of the same Type
(as provided in Section 2.07 hereof).
2.1.2. Tranche 2 Loans. Each Tranche 2 Lender severally agrees, on the
terms and conditions of this Agreement, to make one or more Tranche 2 Loans
to the Company in Dollars during the period from and including the date
hereof to but not including the Tranche 2 Commitment Termination Date in an
aggregate principal amount not to exceed the Tranche 2 Commitment of such
Lender as in effect from time to time, provided that in no event shall the
aggregate principal amount of all Tranche 2 Loans, together with the
aggregate amount of all Letter of Credit Liabilities, exceed the aggregate
amount of the Tranche 2 Commitments as in effect from time to time. During
such period the Company may borrow, repay and reborrow the amount of the
Tranche 2 Commitments and may Convert Tranche 2 Loans of one Type into
Tranche 2 Loans of another Type (as provided in Section 2.07 hereof) or
Continue Tranche 2 Loans of one Type as Tranche 2 Loans of the same Type
(as provided in Section 2.07 hereof).
2.1.3. Limit on Eurodollar Loans. No more than eight separate Interest
Periods in respect of Eurodollar Loans may be outstanding at any one time.
2.2. Borrowings of Loans. The Company shall give the Agent notice of each
borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m.
New York time on the date specified for each borrowing of Loans hereunder, each
Lender shall make available the amount of the Loan or Loans to be made by it on
such date to the Agent, at an account (designated by the Agent) maintained by
the Agent with TD at the Principal Office, in immediately available funds, for
account of the Company. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Company by
depositing the same, in immediately available funds, in an account of the
Company maintained with TD at the Principal Office designated by the Company.
2.3. Changes of Commitments.
2.3.1. The aggregate amount of the Tranche 1 Commitments shall be
automatically reduced to zero on the Tranche 1 Commitment Termination Date.
2.3.2. The aggregate amount of the Tranche 2 Commitments shall be
automatically reduced to zero on the Tranche 2 Commitment Termination Date.
In addition, the aggregate amount of the Tranche 2 Commitments shall be
automatically reduced on each Tranche 2 Commitment Reduction Date set forth
below to the amount indicated opposite such Tranche 2 Commitment Reduction
Date:
<TABLE>
<CAPTION>
Tranche 2 Commitment Reduction Dates Tranche 2 Commitment
- ------------------------------------ --------------------
<S> <C>
May 25, 2002 12,250,000
May 25, 2003 zero
</TABLE>
<PAGE> 22
18
2.3.3. The Company shall have the right at any time or from time to
time to terminate or reduce the aggregate unused amount of the Commitments
of any Class (for which purpose use of the Tranche 2 Commitment shall be
deemed to include the aggregate amount of Letter of Credit Liabilities);
provided that (i) the Company shall give notice of each such termination or
reduction as provided in Section 4.05 hereof, (ii) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000 (or a larger
multiple of $500,000), and (iii) the Company may terminate the Tranche 2
Commitments notwithstanding that a Letter of Credit is outstanding so long
as such Letter of Credit is fully collateralized by cash in the possession
of, and subject to a first priority perfected Lien (to the extent
obtainable under applicable law) for the benefit of, the Issuer (whereupon
such Letter of Credit shall cease to be a Letter of Credit hereunder, and
the Company shall enter into appropriate documentation with the Issuer
setting forth the Company's obligations with respect to such Letter of
Credit).
2.3.4. Each reduction in the aggregate amount of the Tranche 2
Commitments pursuant to paragraph (c) above on any date or pursuant to
Section 2.10 hereof on any date shall result in an automatic and
simultaneous reduction (but not below zero) in the aggregate amount of the
Tranche 2 Commitments for each Tranche 2 Commitment Reduction Date (as
reflected under the "Tranche 2 Commitment" column at the end of paragraph
(b) above) after such date in an amount equal to the amount of such
reduction.
2.3.5. The Commitments once terminated or reduced may not be
reinstated.
2.4. Lending Offices. The Loans of each Type made by each Lender shall be
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
2.5. Several Obligations; Remedies Independent. The failure of any Lender
to make any Loan to be made by it on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan on such date, but
neither any Lender nor the Agent shall be responsible for the failure of any
other Lender to make a Loan to be made by such other Lender, and no Lender shall
have any obligation to the Agent or any other Lender for the failure by such
Lender to make any Loan required to be made by such Lender. The amounts payable
by the Company at any time hereunder and under the Notes to each Lender shall be
a separate and independent debt and, subject to the condition that any
realization with respect to the Collateral shall require the approval of the
Majority Lenders, each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Lender or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.5.1. Notes.
2.5.1. The Tranche 1 Loans made by each Tranche 1 Lender shall, if
such Lender shall have requested the same, be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A-1
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Tranche 1 Commitment as originally in effect and
otherwise duly completed.
2.5.2. The Tranche 2 Loans made by each Tranche 2 Lender shall, if
such Lender shall have requested the same, be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Tranche 2 Commitment as originally in effect and
otherwise duly completed.
2.5.3. The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to
the Company, and each payment made on account of the
<PAGE> 23
19
principal thereof, shall be recorded by such Lender on its books and, prior
to any transfer of the Note evidencing the Loans of such Class held by it,
endorsed by such Lender on the schedule attached to such Note or any
continuation thereof; provided that the failure of such Lender to make any
such recordation or endorsement shall not affect the obligations of the
Company to make a payment when due of any amount owing hereunder or under
such Note in respect of the Loans to be evidenced by such Note.
2.5.4. No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except
in connection with a permitted assignment of all or any portion of such
Lender's relevant Commitment, Loans and Notes pursuant to Section 12.06(b)
hereof.
2.6. Optional Prepayments and Conversions or Continuations of Loans.
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
provided that the Company shall give the Agent notice of each such prepayment,
Conversion or Continuation as provided in Section 4.05 hereof.
2.7. Letters of Credit. Subject to the terms and conditions of this
Agreement, the Tranche 2 Commitments may be utilized, upon the request of the
Company, in addition to the Tranche 2 Loans provided for in Section 2.01(b)
hereof, by the issuance by the Issuer, on or after the Closing Date, of one or
more standby letters of credit for account of the Company in an aggregate face
amount not to exceed $3,000,000, provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the Tranche 2 Loans, exceed the aggregate amount
of the Tranche 2 Commitments as in effect from time to time, and (ii) the
expiration date of any Letter of Credit extend beyond the Tranche 2 Commitment
Termination Date (unless the Issuer and each Tranche 2 Lender otherwise agree).
The following additional provisions shall apply to the Letters of Credit:
2.7.1. The Company shall give the Agent at least three Business Days'
irrevocable prior notice (effective upon receipt) specifying the Business
Day each Letter of Credit is to be issued and describing in reasonable
detail the proposed terms of such Letter of Credit and the nature of the
transactions or obligations proposed to be supported thereby and the
proposed beneficiary thereof. Upon receipt of any such notice, the Agent
shall advise the Issuer of the contents thereof.
2.7.2. On each day during the period commencing with the issuance by
the Issuer of each Letter of Credit and until such Letter of Credit shall
have expired or been terminated, the Tranche 2 Commitment of each Tranche 2
Lender shall be deemed to be utilized for all purposes of this Agreement in
an amount equal to such Lender's Commitment Percentage of the then undrawn
face amount of such Letter of Credit. Each Tranche 2 Lender (other than the
Issuer) agrees that, upon the issuance of each Letter of Credit hereunder,
it shall automatically acquire a participation in the Issuer's liability
under such Letter of Credit in an amount equal to such Lender's Commitment
Percentage of such liability, and each Tranche 2 Lender (other than the
Issuer) thereby shall absolutely, unconditionally and irrevocably assume,
as primary obligor and not as surety, and shall be unconditionally
obligated to the Issuer to pay and discharge when due, its Commitment
Percentage of the Issuer's liability under such Letter of Credit.
2.7.3. Upon receipt from the beneficiary of any Letter of Credit of
any demand for payment under such Letter of Credit, the Issuer shall
promptly notify the Company (through the Agent) of the amount to be paid by
the Issuer as a result of such demand and the date on which payment is to
be made by the Issuer to such beneficiary in respect of such demand. The
Company hereby unconditionally agrees to pay and reimburse the Agent for
account of the Issuer for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which payment is to be made by
the Issuer to the beneficiary thereunder, without presentment, demand,
protest or other formalities of any kind.
<PAGE> 24
20
2.7.4. In the event that the Company fails to reimburse the Issuer for
a payment under any Letter of Credit by the date of such payment, the
Company shall (notwithstanding anything in Section 4.04 or 4.05 hereof to
the contrary) be deemed to have borrowed a Tranche 2 Loan hereunder in an
amount equal to the amount of such payment.
2.7.5. Each Tranche 2 Lender (other than the Issuer) shall pay to the
Agent for account of the Issuer at the Principal Office in Dollars and in
immediately available funds, the amount of such Lender's Commitment
Percentage of any payment under any Letter of Credit upon notice by the
Issuer (through the Agent) to such Tranche 2 Lender requesting such payment
and specifying such amount. Each such Tranche 2 Lender's obligation to make
such payment to the Agent for account of the Issuer under this paragraph
(e), and the Issuer's right to receive the same, shall be absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the failure of any other Tranche 2 Lender to
make its payment under this paragraph (e), the financial condition of the
Company, the existence of any Default or the termination of the
Commitments. Each such payment to the Issuer shall be made without any
offset, abatement, withholding or reduction whatsoever. If any Tranche 2
Lender shall default in its obligation to make any such payment to the
Agent for account of the Issuer, for so long as such default shall continue
the Agent may at the request of the Issuer withhold from any payments
received by the Agent under this Agreement or any Note for account of such
Tranche 2 Lender the amount so in default and, to the extent so withheld,
pay the same to the Issuer in satisfaction of such defaulted obligation.
2.7.6. Upon the making of each payment by a Tranche 2 Lender to the
Issuer pursuant to paragraph (e) above in respect of any Letter of Credit,
such Lender shall, automatically and without any further action on the part
of the Agent, the Issuer or such Lender, acquire (i) a participation in an
amount equal to such payment in the Reimbursement Obligation owing to the
Issuer by the Company hereunder and under the Letter of Credit Documents
relating to such Letter of Credit and (ii) a participation in a percentage
equal to such Lender's Commitment Percentage in any interest or other
amounts payable by the Company hereunder and under the Letter of Credit
Documents in respect of such Reimbursement Obligation (other than the
commissions, charges, costs and expenses payable to the Issuer pursuant to
paragraph (g) of this Section 2.08). Upon receipt by the Issuer from or for
account of the Company of any payment in respect of any Reimbursement
Obligation or any such interest or other amount (including by way of setoff
or application of proceeds of any collateral security) the Issuer shall
promptly pay to the Agent for account of each Tranche 2 Lender entitled
thereto, such Tranche 2 Lender's Commitment Percentage of such payment,
each such payment by the Issuer to be made in the same money and funds in
which received by the Issuer. In the event any payment received by the
Issuer and so paid to the Tranche 2 Lenders hereunder is rescinded or must
otherwise be returned by the Issuer, each Tranche 2 Lender shall, upon the
request of the Issuer (through the Agent), repay to the Issuer (through the
Agent) the amount of such payment paid to such Lender, with interest at the
rate specified in paragraph (j) of this Section 2.08.
2.7.6.1. The Company shall pay to the Agent for account of each Tranche 2
Lender (ratably in accordance with their respective Commitment Percentages) a
letter of credit fee in respect of each Letter of Credit at a rate per annum
equal to the Applicable Margin for Eurodollar Loans of the daily average undrawn
face amount of such Letter of Credit for the period from and including the date
of issuance of such Letter of Credit (i) in the case that such Letter of Credit
expires in accordance with its terms, to and including such expiration date and
(ii) in the case that such Letter of Credit is drawn in full or is otherwise
terminated other than on the stated expiration date of such Letter of Credit, to
but excluding the date such Letter of Credit is drawn in full or is terminated
(such fee to be non-refundable, to be paid in arrears on each Quarterly Date and
on the Principal Payment Date and to be calculated for any day after giving
effect to any payments made under such Letter of Credit on such day). In
addition, the Company shall pay to the Agent for account of the Issuer a
fronting fee in respect of each Letter of Credit in an amount equal to 1/4 of 1%
per annum of the daily average undrawn face amount of such Letter of Credit for
the
<PAGE> 25
21
period from and including the date of issuance of such Letter of Credit (i) in
the case that such Letter of Credit that expires in accordance with its terms,
to and including such expiration date and (ii) in the case that such Letter of
Credit is drawn in full or is otherwise terminated other than on the stated
expiration date of such Letter of Credit, to but excluding the date such Letter
of Credit is drawn in full or is terminated (such fee to be non-refundable, to
be paid in arrears on each Quarterly Date and on the Principal Payment Date and
to be calculated for any day after giving effect to any payments made under the
Letter of Credit on such day) plus all commissions, charges, costs and expenses
in the amounts customarily charged by the Issuer from time to time in like
circumstances with respect to the issuance of such Letter of Credit and drawings
and other transactions relating thereto.
2.7.7. Upon the request of any Tranche 2 Lender from time to time, the
Issuer shall deliver any other information reasonably requested by such
Lender with respect to any Letter of Credit then outstanding.
2.7.8. The issuance by the Issuer of each Letter of Credit shall, in
addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that (i) such Letter of Credit shall be
in such form, contain such terms and support such transactions as shall be
reasonably satisfactory to the Issuer consistent with its then current
practices and procedures with respect to letters of credit of the same type
and (ii) the Company shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of Credit as the
Issuer shall have reasonably requested consistent with its then current
practices and procedures with respect to letters of credit of the same
type, provided that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this
Agreement or any Security Document, the provisions of this Agreement and
the Security Documents shall control.
2.7.9. To the extent that any Lender shall fail to pay any amount
required to be paid pursuant to paragraph (e) or (f) of this Section 2.08
on the due date therefor, such Lender shall pay interest at the Federal
Funds Rate to the Issuer (through the Agent) on such amount from and
including such due date to but excluding the date such payment is made,
provided that if such Lender shall fail to make such payment to the Issuer
within three Business Days of such due date, then, retroactively to the due
date, such Lender shall be obligated to pay interest on such amount at the
Post-Default Rate.
2.7.10. The issuance by the Issuer of any modification or supplement
to any Letter of Credit hereunder shall be subject to the same conditions
applicable under this Section 2.08 to the original issuance of a Letter of
Credit, and no such modification or supplement shall be issued hereunder
unless either (i) such Letter of Credit affected thereby would have
complied with such conditions had it originally been issued hereunder in
such modified or supplemented form or (ii) each Tranche 2 Lender shall have
consented thereto.
The Company hereby indemnifies and holds harmless each Tranche 2 Lender and the
Agent from and against any and all claims, damages, losses, liabilities, costs
or expenses that such Lender or the Agent may incur (or that may be claimed
against such Lender or the Agent by any Person whatsoever) by reason of or in
connection with the execution and delivery or transfer of or payment or refusal
to pay by the Issuer under any Letter of Credit; provided that the Company shall
not be required to indemnify any Lender or the Agent for any claims, damages,
losses, liabilities, costs or expenses to the extent, but only to the extent,
caused by (x) the willful misconduct or gross negligence of the Issuer in
determining whether a request presented under such Letter of Credit complied
with the terms of such Letter of Credit or (y) the Issuer's failure to pay under
such Letter of Credit after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit. Nothing in
this Section 2.08 is intended to limit the other obligations of the Company, any
Lender or the Agent under this Agreement.
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2.8. Commitment Fee . The Company shall pay to the Agent for account of
each Lender a commitment fee on the daily average unused amount (a) of such
Lender's Tranche 1 Commitment and (b) of such Lender's Tranche 2 Commitment (for
which purpose the aggregate amount of any Letter of Credit Liabilities shall be
deemed to be a pro rata (based on the Tranche 2 Commitments) use of each
Lender's Tranche 2 Commitment), in either case for the period from and including
the date of this Agreement to but not including the earlier of (i) the date such
Tranche 1 Commitment or Tranche 2 Commitment, as applicable, is terminated and
(ii) the Tranche 1 Commitment Termination Date or the Tranche 2 Commitment
Termination Date, as applicable, at the Applicable Commitment Fee Rate.
"Applicable Commitment Fee Rate" shall mean the rate calculated by reference to
the Total Debt to Cash Flow Ratio as at the last day of the most recently ended
fiscal quarter of the Company (a "Commitment Fee Testing Date"), which if such
Total Debt to Cash Flow Ratio shall fall within any of the ranges set forth in
the table below, then, the "Applicable Commitment Fee Rate" shall be the
respective percentage per annum set forth opposite such range in said table, in
either case during the period commencing on the Margin Change Date for such
Commitment Testing Date to but not including the Margin Change Date for the next
succeeding Commitment Fee Testing Date (except that notwithstanding the
foregoing, the Applicable Commitment Fee Rate shall not be reduced for any
period during which an Event of Default shall have occurred and be continuing):
<TABLE>
<CAPTION>
Total Debt to Cash Flow Ratio Commitment Fee Rate
- ----------------------------- -------------------
<S> <C>
3.00 to 1 0.25%
4.00 to 1 0.375%
5.00 to 1 0.50%
> 5.00 to 1 0.75%
</TABLE>
Accrued commitment fees shall be payable on each Quarterly Date and on the
earlier of (i) the date the Tranche 1 Commitments or the Tranche 2 Commitments,
as applicable, are terminated and (ii) the Tranche 1 Commitment Termination Date
or the Tranche 2 Commitment Termination Date, as applicable.
2.9. Mandatory Prepayments and Reductions of Commitments.
(a) Borrowing Base. The Company shall from time to time prepay Tranche
1 Loans in such amounts as shall be necessary so that at all times the
aggregate outstanding amount of Tranche 1 Loans shall not exceed the
Borrowing Base.
(b) Excess Cash Flow. Not later than the date which is 90 days after
the end of each fiscal year of the Company, the Company shall prepay the
Loans (and, to the extent provided in clause (e) below, provide cover for
Letter of Credit Liabilities), and the Commitments shall be subject to
automatic reduction, in an aggregate amount equal to 50% of the Excess Cash
Flow for such fiscal year, such prepayment and reduction to be effected in
each case in the manner and to the extent specified in paragraph (d) of
this Section 2.10.
(c) Sale of Assets. Without limiting the obligation of the Company to
obtain the consent of the Agent pursuant to Section 9.05 hereof to any
Disposition not otherwise permitted hereunder, in the event that the Net
Cash Payments of any Disposition (other than a Disposition permitted under
clauses (i) through (ix) of Section 9.05(b) hereof) are not reinvested in
the business operations of the Company within six months of such
Disposition, then on the Business Day immediately subsequent to the last
day of such six-month period, the Company shall deliver to the Agent a
statement, certified by a Responsible Officer of the Company, in form and
detail reasonably satisfactory to the Agent, of the amount of such Net Cash
Payments, and three Business Days after delivering such statement to the
Agent, shall prepay the Loans, and, to the extent provided in clause (e)
below, provide cover for Letter of Credit Liabilities, and the
<PAGE> 27
23
Commitments shall be subject to automatic reduction, in an aggregate amount
equal to 100% of the Net Cash Payments, such prepayment and reduction to be
effected in each case in the manner and to the extent specified in
paragraph (d) of this Section 2.10.
(d) Application. Prepayments and reductions of Commitments described
in paragraphs (b) and (c) above shall be effected as follows:
(i) first, the Tranche 2 Commitments shall be automatically
reduced in an amount equal to the required prepayment (and to the
extent that, after giving effect to such reduction, the aggregate
principal amount of Tranche 2 Loans, together with the aggregate
amount of all Letter of Credit Liabilities, would exceed the Tranche 2
Commitments, the Company shall, first, prepay Tranche 2 Loans and,
second, provide cover for Letter of Credit Liabilities as specified in
paragraph (e) below, in an aggregate amount equal to such excess); and
(ii) second, after the payment in full of the outstanding loans
under the Onex Finance Credit Agreement, the Tranche 1 Commitments
shall be automatically reduced by an amount equal to any excess over
the amount referred to in the foregoing clause (i) (and to the extent
that, after giving effect to such reduction, the aggregate principal
amount of Tranche 1 Loans would exceed the Tranche 1 Commitments, the
Company shall prepay Tranche 1 Loans in an aggregate amount equal to
such excess).
(e) Cover for Letter of Credit Liabilities. In the event that the
Company shall be required pursuant to this Section 2.10 to provide cover
for Letter of Credit Liabilities, the Company shall effect the same by
paying to the Agent immediately available funds in an amount equal to the
amount of cover so required (but in no event an amount greater than the
then outstanding amount of Letter of Credit Liabilities), which funds shall
be retained by the Agent in the Collateral Account (as provided therein as
collateral security in the first instance for the Letter of Credit
Liabilities) until such time as the Letters of Credit shall have been
terminated and all of the Letter of Credit Liabilities paid in full. To the
extent that the aggregate amount of Letter of Credit Liabilities are
reduced from time to time, the Agent shall remit to the Company any such
funds in excess of the then outstanding amount of Letter of Credit
Liabilities.
(f) Avoidance of Broken-funding Costs. If the prepayment of any Loan
would result in an obligation of the Company to pay compensation pursuant
to Section 5.05 hereof, instead of making such prepayment, the Company may
cash collateralize Loans in an account maintained with the Agent until the
last day(s) of the Interest Period(s) to end soonest thereafter and then to
be used to prepay Loans.
Section 3. Payments of Principal and Interest.
3.1. Repayment of Loans.
(a) The Company hereby promises to pay to the Agent for account of
each Lender the outstanding principal amount of the Tranche 1 Loans on the
Principal Payment Date.
(b) The Company hereby promises to pay to the Agent for account of
each Lender the outstanding principal amount of the Tranche 2 Loans on the
Principal Payment Date. In addition, if following a Tranche 2 Reduction
Commitment Date, the aggregate amount of Tranche 2 Loans outstanding,
together with the outstanding amount of Letter of Credit Liabilities, shall
exceed the Tranche 2 Commitments (after the reduction referred to in
Section 2.03(b) hereof), the Company hereby promises to pay to the Agent
for account of each Lender, on the Business Day immediately subsequent to
the Tranche 2 Reduction Commitment Date, an amount in aggregate equal to
such excess.
<PAGE> 28
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3.2. Interest. The Company hereby promises to pay to the Agent for account
of each Lender interest on the unpaid principal amount of each Loan made by such
Lender for the period from and including the date of such Loan to but excluding
the date such Loan shall be paid in full, at the following rates per annum:
3.2.1. during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable Margin; and
3.2.2. during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender and on any other amount payable by the
Company hereunder or under the Notes held by such Lender to or for account of
such Lender, that shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and including the
due date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable (i) in the case of a Base Rate Loan,
quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan on the
last day of each Interest Period therefor, (and, if such Interest Period has a
duration longer than three months, at three-month intervals following the first
day of such Interest Period) and (iii) in the case of any Loan, upon the payment
or prepayment thereof or the Conversion of such Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall give notice thereof to the Lenders
to which such interest is payable and to the Company.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.1. Payments.
4.1.1. Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made
by the Company under this Agreement and the Notes, and, except to the
extent otherwise provided therein, all payments to be made by the Obligors
under any other Basic Document, shall be made in Dollars, in immediately
available funds, without deduction (other than any deduction for
withholding taxes required by applicable law, provided that such
withholding arises from a Lender's failure or inability to comply with the
requirements of Section 5.08 hereof), set-off or counterclaim, to the Agent
at an account (designated by the Agent) maintained by the Agent with TD at
the Principal Office, not later than 1:00 p.m. New York time on the date on
which such payment shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding
Business Day).
4.1.2. Any Lender for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that
is not made by such time to any ordinary deposit account of the Company
with such Lender (with notice to the Company and the Agent).
4.1.3. The Company shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the Agent
(which shall so notify the intended recipient(s) thereof) the Loans,
Reimbursement Obligations or other amounts payable by the Company hereunder
to which such payment is to be applied (and in the event that the Company
fails to so specify, or if an Event of Default has occurred and is
continuing, the Agent shall distribute such payment to the Lenders for
application, in
<PAGE> 29
25
accordance with Section 4.02 hereof, first to the payment of fees,
expenses, indemnities and other amounts (other than principal and interest)
then due and payable hereunder and under the other Basic Documents, then to
interest on the Loans and Reimbursement Obligations then due and payable,
ratably in accordance with the unpaid amounts thereof, and finally to
principal of the Loans and Reimbursement Obligations then due and payable,
first to Tranche 1 Loans and then ratably in accordance with the unpaid
amounts of the other Loans and Reimbursement Obligations.
4.1.4. Each payment received by the Agent under this Agreement or any
Note for account of any Lender shall be paid by the Agent promptly to such
Lender, in immediately available funds, for account of such Lender's
Applicable Lending Office for the Loan or other obligation in respect of
which such payment is made.
4.1.5. If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.
4.2. Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing of Loans of a particular Class from the Lenders under Section
2.01 hereof shall be made from the relevant Lenders, each payment of the
commitment fee under Section 2.09 hereof shall be made for account of the
applicable Lenders, and each termination or reduction of the amount of the
Commitments of a particular Class under Section 2.03 hereof shall be applied to
the respective Commitments of such Class of the relevant Lenders, pro rata
according to the amounts of their respective Commitments of such Class; (b) the
making, Conversion and Continuation of Loans of a particular Class and a
particular Type (other than Conversions provided for by Section 5.04 hereof)
shall be made pro rata among the relevant Lenders according to the amounts of
their respective Commitments of such Class (in the case of making of Loans) or
their respective Loans of such Class (in the case of Conversions and
Continuations of Loans) and the then current Interest Period for each Loan of
such Class and Type shall be coterminous; (c) each payment or prepayment of
principal of Loans of a particular Class by the Company shall be made for
account of the relevant Lenders pro rata in accordance with the respective
unpaid principal amounts of the Loans of such Class held by them; and (d) each
payment of interest on Loans of a particular Class by the Company shall be made
for account of the relevant Lenders pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Lenders.
4.3. Computations. Interest on Eurodollar Loans and letter of credit fees
shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable. Interest on Base Rate Loans shall be computed on the basis of a
year of 365 days or 366 days (as the case may be) and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
4.4. Minimum Amounts. Except for Conversions or prepayments made pursuant
to Section 5.04 hereof, and except for prepayments made pursuant Section
2.08(d), 2.10, 9.05(b)(viii) or 9.05(b)(x) hereof, each borrowing, Conversion
and partial prepayment of principal of Loans shall be in an aggregate amount at
least equal to $1,000,000 (or in the case of Tranche 1 Loans that are Base Rate
Loans, $500,000) or a larger multiple of $500,000 (or in the case of Tranche 1
Loans that are Base Rate Loans, $100,000); borrowings, Conversions or
prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder to be deemed
separate borrowings, Conversions and prepayments for purposes of the foregoing,
one for each Type or Interest Period; provided that the aggregate principal
amount of Eurodollar Loans of each Type having the same Interest Period shall be
in an amount at least equal to $1,000,000 or a larger multiple of $500,000 and,
if any Eurodollar Loans would otherwise be in a lesser principal amount for any
period, such Loans shall be Base Rate Loans during such period.
<PAGE> 30
26
4.5. Certain Notices. Notices by the Company to the Agent of terminations
or reductions of the Commitments, of borrowings, Conversions, Continuations and
optional prepayments of Loans and of Classes of Loans, of Types of Loans and of
the duration of Interest Periods shall be irrevocable and shall be effective
only if received by the Agent not later than 10:00 a.m. New York time on the
number of Business Days prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
<TABLE>
<CAPTION>
Notice Number of Business
------ Days Prior
-------------------
<S> <C>
Termination or reduction of Commitments three
Borrowing or prepayment of Base Rate Loans one
Borrowing or prepayment of, Conversions into, three
Continuations as, or duration of Interest Period for,
Eurodollar Loans
Conversions into Base Rate Loans three
</TABLE>
Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify the
Class of Loans to be borrowed, Converted, Continued or prepaid and the amount
(subject to Section 4.04 hereof) and Type of each Loan to be borrowed,
Converted, Continued or prepaid (and, in the case of a Conversion, the Type of
Loan to result from such Conversion) and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business Day). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Agent shall promptly notify the Lenders
of the contents of each such notice. In the event that the Company fails to
select the Type of Loan, or the duration of any Interest Period for any
Eurodollar Loan, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
4.6. Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Lender or the Company (the "Payor") prior to the date on which the
Payor is to make payment to the Agent of (in the case of a Lender) the proceeds
of a Loan to be made by such Lender hereunder or (in the case of the Company) a
payment to the Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient(s) on such date;
and, if the Payor has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date (the "Advance Date") such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to the Federal Funds Rate for such day and, if such recipient(s)
shall fail promptly to make such payment, the Agent shall be entitled to recover
such amount, on demand, from the Payor, together with interest as aforesaid,
provided that if neither the recipient(s) nor the Payor shall return the
Required Payment to the Agent within three Business Days of the Advance Date,
then, retroactively to the Advance Date, the Payor and the recipient(s) shall
each be obligated to pay interest on the Required Payment as follows:
<PAGE> 31
27
4.6.0.0.0.1. if the Required Payment shall represent a payment to be
made by the Company to the Lenders, the Company and the recipient(s) shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
4.6.0.0.0.2. if the Required Payment shall represent proceeds of a
Loan to be made by the Lenders to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay interest
in respect of the Required Payment at the rate of interest provided for
such Required Payment pursuant to Section 3.02 hereof (and, in case the
Company shall return the Required Payment to the Agent, without limiting
any claim the Company may have against the Payor in respect of the Required
Payment).
4.7. Sharing of Payments, Etc.
4.7.1. The Company agrees that, in addition to (and without limitation
of) any right of set-off, Lender's's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option, to offset
balances held by it for account of the Company at any of its offices, in
Dollars or in any other currency, against any principal of or interest on
any of such Lender's Loans, Reimbursement Obligations or any other amount
payable to such Lender hereunder, that is not paid when due (regardless of
whether such balances are then due to the Company), in which case it shall
promptly notify the Company and the Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity thereof.
4.7.2. If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan of any Class or Letter of Credit
Liability owing to it or payment of any other amount under this Agreement
or any other Basic Document through the exercise of any right of set-off,
Lender's lien or counterclaim or similar right or otherwise (other than
from the Agent as provided herein), and, as a result of such payment, such
Lender shall have received a greater percentage of the principal of or
interest on the Loans of such Class or Letter of Credit Liabilities or such
other amounts then due hereunder or thereunder by such Obligor to such
Lender than the percentage received by any other Lender, it shall promptly
purchase from such other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans of such
Class or Letter of Credit Liabilities or such other amounts, respectively,
owing to such other Lenders (or in interest due thereon, as the case may
be) in such amounts, and make such other adjustments from time to time as
shall be equitable, to the end that all the Lenders shall share the benefit
of such excess payment (net of any reasonable expenses that may be incurred
by such Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal of and/or interest on the Loans of
such Class or Letter of Credit Liabilities or such other amounts,
respectively, owing to each of the Lenders. To such end all the Lenders
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
4.7.3. The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans or
other amounts (as the case may be) owing to such Lender in the amount of
such participation.
4.7.4. Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable
bankruptcy, insolvency or other
<PAGE> 32
28
similar law, any Lender receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section 4.07 to share in the benefits of any recovery on such secured
claim.
Section 4.7.4.1. Yield Protection, Etc.
4.8. Additional Costs.
4.8.1. The Company shall pay directly to each Lender from time to time
such amounts as such Lender may reasonably determine to be necessary to
compensate such Lender for any costs that such Lender determines are
attributable to its making or maintaining of any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such Loans
or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), solely to the extent
resulting from any Regulatory Change that:
4.8.1.1. shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Notes or changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Notes
in respect of any of such Loans (excluding changes in the rate of tax
on the overall net income of such Lender or of such Applicable Lending
Office by the jurisdiction in which such Lender has its principal
office, such Applicable Lending Office or is otherwise doing
business); provided, however, that the Company shall be entitled to
deduct and withhold taxes on interest payments to any Lender
hereunder, and shall not be required to pay any Additional Costs to
any Lender in respect thereof, to the extent such Additional Costs
arise from such Lender's failure or inability to comply with the
requirements of Section 5.08 hereof; or
4.8.1.2. imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Lender (including, without limitation, any
of such Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.01 hereof), or any commitment of such
Lender (including, without limitation, the Commitments of such Lender
hereunder); or
4.8.1.3. imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Agent), suspend
the obligation of such Lender thereafter to make or Continue Loans of the Type
with respect to which such compensation is requested, or to Convert Loans of any
other Type into Loans of such Type, until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of Section
5.04 hereof shall be applicable), provided that such suspension shall not affect
the right of such Lender to receive the compensation so requested.
4.8.2. Without limiting the effect of the provisions of paragraph (a)
of this Section 5.01, in the event that, by reason of any Regulatory
Change, any Lender either (i) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Lender that includes deposits by
reference to which the interest rate on Eurodollar Loans is
<PAGE> 33
29
determined as provided in this Agreement or a category of extensions of
credit or other assets of such Lender that includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Lender so elects by
notice to the Company (with a copy to the Agent), the obligation of such
Lender to make or Continue, or to Convert Loans of any other Type into,
Loans of such Type hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section 5.04
hereof shall be applicable).
4.8.2.1. Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Lender from time to time on request such amounts as such Lender may determine to
be reasonably necessary to compensate such Lender (or, without duplication, the
bank holding company of which such Lender is a subsidiary) for any costs that it
determines are attributable to the maintenance by such Lender (or its Applicable
Lending Office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) of any
court or governmental or monetary authority (i) following any Regulatory Change
or (ii) implementing any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the failure to comply
therewith would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national level the
Basle Accord of capital in respect of its Commitments or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such Lender (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request). For
purposes of this Section 5.01(c) and Section 5.06 hereof, "Basle Accord" shall
mean the proposals for risk-based capital framework described by the Basle
Committee on Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
4.8.3. Each Lender shall notify the Company of any event occurring
after the date of this Agreement entitling such Lender to compensation
under paragraph (a) or (c) of this Section 5.01 as promptly as practicable,
but in any event within 30 days, after such Lender obtains actual knowledge
thereof; provided that (i) if any Lender fails to give such notice within
30 days after it obtains actual knowledge of such an event, such Lender
shall, with respect to compensation payable pursuant to this Section 5.01
in respect of any costs resulting from such event, only be entitled to
payment under this Section 5.01 for costs incurred from and after the date
30 days prior to the date that such Lender does give such notice and (ii)
each Lender will designate a different Applicable Lending Office for the
Loans of such Lender affected by such event if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Lender (exercised reasonably), be disadvantageous
to such Lender, except that such Lender shall have no obligation to
designate an Applicable Lending Office located in the United States of
America. Each Lender will furnish to the Company a certificate setting
forth the basis and amount of each request by such Lender for compensation
under paragraph (a) or (c) of this Section 5.01. Determinations and
allocations by any Lender for purposes of this Section 5.01 of the effect
of any Regulatory Change pursuant to paragraph (a) or (b) of this Section
5.01, or of the effect of capital maintained pursuant to paragraph (c) of
this Section 5.01, on its costs or rate of return of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect of
Loans, and of the amounts required to compensate such Lender under this
Section 5.01, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis. The notice sent by a Lender to
the Company pursuant to this paragraph (d) shall set forth the amount of
requested Additional Costs and shall include in reasonable detail the
calculation of such Additional Costs.
4.9. Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
<PAGE> 34
30
4.9.1. the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for any Eurodollar Loans as
provided herein; or
4.9.2. the Majority Lenders determine, which determination shall be
conclusive, and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof
upon the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined do not adequately cover the cost to
such Lenders (or to such quoting Lender) of making or maintaining such Type
of Loans for such Interest Period;
then the Agent shall give the Company and each Lender prompt notice thereof and,
so long as such condition remains in effect, the Lenders (or such quoting
Lender) shall be under no obligation to make additional Eurodollar Loans, to
Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans,
and the Company shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Loans, either prepay such Loans or Convert such Loans into
Base Loans in accordance with Section 2.07 hereof.
4.10. Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to honor its obligation to make or maintain Eurodollar Loans hereunder,
then such Lender shall promptly notify the Company thereof (with a copy to the
Agent) and such Lender's obligation to make or Continue, or to Convert Base Rate
Loans into, Eurodollar Loans shall be suspended until such time as such Lender
may again make and maintain Eurodollar Loans (in which case the provisions of
Section 5.04 hereof shall be applicable).
4.11. Treatment of Affected Loans. If the obligation of any Lender to make
Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar
Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 5.01(b) or 5.03 hereof, on such
earlier date as such Lender may specify to the Company with a copy to the Agent)
and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such
Conversion no longer exist:
4.11.1. to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
4.11.2. all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base Rate
Loans, and all Loans of such Lender that would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as) Base
Rate Loans;
If such Lender gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto
and after giving effect to any Conversion or Continuation request by the Company
pursuant to Section 2.07 hereof, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
<PAGE> 35
31
4.12. Compensation. The Company shall pay to the Agent for account of each
Lender, promptly after the request of such Lender through the Agent, such amount
or amounts as shall be sufficient (in the reasonable opinion of such Lender) to
compensate it for any loss, cost or reasonable out-of-pocket expense that such
Lender determines in good faith is attributable to:
4.12.1. any payment, mandatory or optional prepayment or Conversion of
a Eurodollar Loan made by such Lender for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof) on
a date other than the last day of the Interest Period for such Loan; or
4.12.2. any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Lender on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the difference, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein minus (ii) the amount of interest that otherwise would have accrued
on such principal amount at a rate per annum equal to the interest component of
the amount such Lender would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Lender). Upon the request of the Company, any Lender requesting compensation
under this Section 5.05 shall furnish to the Company a certificate setting forth
the amount of such compensation and the calculation thereof.
4.13. Additional Costs in Respect of Letters of Credit. Without limiting
the obligations of the Company under Section 5.01 hereof (but without
duplication), if as a result of any Regulatory Change or any risk-based capital
guideline there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, capital adequacy or similar requirement against or
with respect to or measured by reference to the Letters of Credit and the result
shall be to increase the cost to any Lender or Lenders of issuing (or purchasing
participations in) or maintaining its obligation hereunder to issue (or purchase
participations in) any Letter of Credit hereunder or reduce any amount
receivable by any Lender hereunder in respect of any Letter of Credit (which
increases in cost, or reductions in amount receivable, shall be the result of
such Lenders' reasonable allocation of the aggregate of such increases or
reductions resulting from such event), then, upon demand by such Lender or
Lender (through the Agent), the Company shall pay immediately to the Agent for
account of such Lender or Lenders, from time to time as specified by such Lender
or Lenders (through the Agent), such additional amounts as shall be sufficient
to compensate such Lender or Lenders (through the Agent) for such increased
costs or reductions in amount. A statement as to such increased costs or
reductions in amount incurred by any such Lender or Lenders, submitted by such
Lender or Lenders to the Company shall be conclusive in the absence of manifest
error as to the amount thereof.
4.14. Replacement Lenders under Certain Circumstances. If at any time (a)
the Company becomes obligated to pay Additional Costs pursuant to Section 5.01
hereof or any Lender ceases to make Eurodollar Loans pursuant to Section 5.03
hereof, (b) any Lender becomes insolvent or its assets become subject to a
receiver, liquidator, trustee, custodian or other Person having similar powers,
(c) any Lender becomes a "Non-consenting Lender" (as defined below in this
Section 5.07) or (d) any Lender becomes a "Non-funding Lender" (as defined below
in this Section 5.07), then the Company may, on ten Business Days' prior written
notice to the Agent and such Lender, replace such Lender by causing such Lender
to (and such Lender shall be obligated to) assign, pursuant to Section 12.06
hereof, all of its rights and obligations under this Agreement to a Lender or
other entity selected by
<PAGE> 36
32
the Company and reasonably acceptable to the Issuer and the Agent for a purchase
price equal to the outstanding principal amount of such Lender's Loans and all
accrued interest and fees and other amounts payable hereunder (including amounts
payable under Section 5.05 hereof as though such Loan was being prepaid instead
of being purchased), provided that (i) neither the Agent nor any Lender shall
have any obligation to the Company to find a replacement Lender or other such
entity, and (ii) in no event shall the Lender hereby replaced be required to pay
or surrender to such replacement Lender or other entity any of the fees received
by such Lender hereby replaced pursuant to this Agreement. In the case of a
replacement of a Lender to which the Company becomes obligated to pay Additional
Costs, prior to such Lender being replaced, the payment of such additional
amounts shall be a condition to the replacement of such Lender. In the event
that (x) the Company or the Agent has requested that the Lenders consent to a
departure or waiver of any of the provisions of the Basic Documents or to agree
to any amendment thereto, (y) the consent, waiver or amendment in question
requires the agreement of all Lenders in accordance with the terms of Section
12.04 hereof and (z) the Majority Lenders have agreed to such consent, waiver or
amendment, then any Lender that does not agree to such consent, waiver or
amendment shall be deemed a "Non-consenting Lender." Any Lender that has (x)
failed to make a Loan required to be made by it hereunder, or (y) has given
notice to the Company or the Agent that it will not make, or that it has
disaffirmed or repudiated any obligation make any Loan, is a "Non-funding
Lender." The Company's right to replace a Non-funding Lender pursuant to this
Section 5.07 is, and shall be, in addition to, and not instead of, all other
rights and remedies available to the Company against such Non-funding Lender
under this Agreement, at law, in equity or by statute.
4.15. Foreign Lenders. Each Lender that is organized under the laws of a
jurisdiction outside of the United States of America shall, on or prior to the
date of its execution and delivery of this Agreement (in the case of a Lender
listed on the signature pages hereto) or on or prior to the date on which it
becomes a Lender hereunder (in the case of any other Lender) and from time to
time thereafter if requested in writing by the Company or the Agent (but only so
long as such Lender is lawfully able to do so), provide to the Company and the
Agent (a) Internal Revenue Service Form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Lender is entitled to benefits under an income tax treaty to which the United
States of America is a party that reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States of America, (b) Internal Revenue Service W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
and (c) any other form or certificate required by any taxing authority
(including any certificate required by Sections 871(h) and 881(c) of the Code),
certifying that such Lender is entitled to an exemption from or a reduced rate
of tax on payments pursuant to this Agreement or any of the other Basic
Documents.
Section 5. Guarantee.
5.1. The Guarantee. The Subsidiary Guarantors hereby jointly and severally
guarantee to each Lender and the Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Lenders to, and the Notes held by each Lender of, the Company, and all other
amounts (including, without limitation, all Reimbursement Obligations) from time
to time owing to the Lenders or the Agent by the Company under this Agreement
and under the Notes and by any Obligor under any of the other Basic Documents,
in each case strictly in accordance with the terms thereof (such obligations
being herein collectively called the "Guaranteed Obligations"). The Subsidiary
Guarantors hereby further jointly and severally agree that if the Company shall
fail to pay in full when due (whether at stated maturity, by acceleration or
otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will
promptly pay the same, and that in the case of any extension of time of payment
or renewal of any of the Guaranteed Obligations, the same will be promptly paid
in full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
<PAGE> 37
33
5.2. Obligations Unconditional. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor (other than the defense of payment in full of all of the Guaranteed
Obligations), it being the intent of this Section 6.02 that the obligations of
the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint
and several, under any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Subsidiary Guarantors
hereunder which shall remain absolute and unconditional as described above:
5.2.1. at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
5.2.0.0.0.1. any of the acts mentioned in any of the provisions of
this Agreement or the Notes or any other agreement or instrument referred
to herein or therein shall be done or omitted;
5.2.0.0.0.2. the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
5.2.0.0.0.3. any lien or security interest granted to, or in favor of,
the Agent or any Lender or Lenders as security for any of the Guaranteed
Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Agent or any Lender exhaust any right, power or remedy or proceed against the
Company under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
5.3. Reinstatement. The obligations of the Subsidiary Guarantors under
this Section 6 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Lender on demand
for all reasonable costs and expenses (including, without limitation, reasonable
fees of counsel in accordance with Section 12.03(a) hereof) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
5.4. Subrogation. The Subsidiary Guarantors hereby jointly and severally
agree that until the payment and satisfaction in full of all Guaranteed
Obligations and the expiration and termination of the Commitments of the Lenders
under this Agreement they shall not exercise any right or remedy arising by
reason of any performance by them of their guarantee in Section 6.01 hereof,
whether by subrogation or otherwise, against the Company or any other guarantor
of any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.
<PAGE> 38
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5.5. Remedies. The Subsidiary Guarantors jointly and severally agree that,
as between the Subsidiary Guarantors and the Lenders, the obligations of the
Company under this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section
10(f) hereof or Section 10(g) hereof) for purposes of Section 6.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against the Company and that, in the event of such declaration (or such
obligations being deemed to have become automatically due and payable), such
obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by the Subsidiary Guarantors for purposes of said Section
6.01.
5.6. Continuing Guarantee. The guarantee in this Section 6 is a continuing
guarantee, and shall apply to all Guaranteed Obligations whenever arising.
5.6.1. Rights of Contribution. The Subsidiary Guarantors hereby agree, as
between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Subsidiary Guarantor (as defined below) by reason of the payment by such
Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary
Guarantor shall, on demand of such Excess Funding Subsidiary Guarantor (but
subject to the next sentence), pay to such Excess Funding Subsidiary Guarantor
an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Subsidiary Guarantor) of the Excess Payment
(as defined below) in respect of such Guaranteed Obligations. The payment
obligation of a Subsidiary Guarantor to any Excess Funding Subsidiary Guarantor
under this Section 6.07 shall be subordinate and subject in right of payment to
the prior payment in full of the obligations of such Subsidiary Guarantor under
the other provisions of this Section 6 and such Excess Funding Subsidiary
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
of this Section 6.07, (a) "Excess Funding Subsidiary Guarantor" shall mean, in
respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an
amount in excess of its Pro Rata Share of such Guaranteed Obligations, (b)
"Excess Payment" shall mean, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Subsidiary Guarantor in excess of its Pro Rata
Share of such Guaranteed Obligations and (c) "Pro Rata Share" shall mean, for
any Subsidiary Guarantor, the ratio (expressed as a percentage) of (i) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (ii) the amount by which
the aggregate fair saleable value of all Properties of the Company and all of
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Company and the Subsidiary Guarantors
hereunder) of the Company and all of the Subsidiary Guarantors, all as of the
Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder
subsequent to the Closing Date, then for purposes of this Section 6.07 such
subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary
Guarantor as of the Closing Date and the aggregate present fair saleable value
of the Properties, and the amount of the debts and liabilities, of such
Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such
value and amount on the date such Subsidiary Guarantor becomes a Subsidiary
Guarantor hereunder.
5.7. General Limitation on Guarantee Obligations. In any action or
proceeding involving any state corporate law, or any state or federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.07 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Lender, the Agent or any
other Person, be automatically limited
<PAGE> 39
35
and reduced to the highest amount that is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.
Section 6. Conditions Precedent.
6.1. Conditions for the Initial Loans. The obligation of any Lender to
make the initial Loan hereunder is subject to the conditions precedent that (i)
such Loan shall be made on or before May 28, 1999, and (ii) the Agent shall have
received the following documents, each of which shall be reasonably satisfactory
to the Agent in form and substance:
6.1.1. Corporate Documents. Certified copies of the charter and
by-laws (or equivalent documents) of each Obligor and of all corporate
authority for each Obligor (including, without limitation, board of
director resolutions and evidence of the incumbency of officers) with
respect to the execution, delivery and performance of such of the Basic
Documents to which such Obligor is intended to be a party and each other
document to be delivered by such Obligor from time to time in connection
herewith and the extensions of credit hereunder (and the Agent and each
Lender may conclusively rely on such certificate until the Agent or such
Lender receives notice from such Obligor to the contrary).
6.1.2. Officer's Certificates. The following:
(i) A certificate of a Responsible Officer of the Company, dated
the Closing Date, to the effect set forth in the first sentence of
Section 7.02 hereof;
(ii) A certificate of a Responsible Officer of the Company, dated
the Closing Date, (A) to the effect that no Event of Default has
occurred and is continuing (or, if any Event of Default has occurred
and is continuing, describing the same in reasonable detail and
describing the action that the Company has taken or proposes to take
with respect thereto) and (B) setting forth in reasonable detail the
computations necessary to determine whether the Company is in
compliance with Sections 9.10, 9.14, 9.15 and 9.16 hereof as of the
end of the respective quarterly fiscal period or fiscal year; and
(iii) A Borrowing Base Certificate as of the last day of the most
recently ended monthly accounting period.
6.1.3. Opinion of Counsel to the Obligors. An opinion, dated the
Closing Date, of Weil, Gotshal & Manges LLP, counsel to the Obligors,
substantially in the form of Exhibit C hereto and covering such other
matters as the Agent or any Lender may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinion to the Lenders and
the Agent).
6.1.4. Opinion of Special New York Counsel to TD. An opinion, dated
the Closing Date, of Mayer, Brown & Platt, special New York counsel to TD,
substantially in the form of Exhibit D hereto (and TD hereby instructs such
counsel to deliver such opinion to the Lenders).
6.1.5. Notes. The Notes requested by the Lenders, duly completed and
executed.
6.1.6. Security Agreement. The Security Agreement, duly executed and
delivered by each Obligor as of the Closing Date, together with:
<PAGE> 40
36
(i) except to the extent already in the possession of the Agent,
the certificates representing the capital stock of each Subsidiary
Guarantor (and of each other Issuer referred to in the Security
Agreement, to the extent such capital stock is required to be
delivered in pledge thereunder), accompanied by undated stock powers
executed in blank; and
(iii) appropriately completed and duly executed Uniform
Commercial Code Financing Statements with respect to each Obligor.
6.1.7. Other Documents. Such other documents as the Agent or any
Lender or special New York counsel to TD may reasonably request.
The obligation of any Lender to make the Loans is also subject to the payment by
the Company of such fees as the Company shall have agreed in writing to pay or
deliver to any Lender or the Agent in connection herewith.
6.2. Conditions for all Extensions of Credit. The obligation of any Lender
to make any Loan or extend any credit hereunder on the occasion of each
borrowing or of the issuance of each Letter of Credit is subject to the further
conditions precedent that, both immediately prior to the making of such Loan or
extension of credit and also after giving effect thereto: (a) no Default shall
have occurred and be continuing; and (b) the representations and warranties made
by the Company in Section 8 hereof, and by each Obligor in each of the other
Basic Documents to which such Obligor is a party, shall be true and complete on
and as of the date of the making of such extension of credit with the same force
and effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date). Each notice of borrowing or request for the issuance of a Letter
of Credit shall constitute a certification by the Company to the effect set
forth in the preceding sentence as of the date of such borrowing or such
issuance.
Section 7. Representations and Warranties. The Company represents and
warrants to the Agent and the Lenders that:
7.1. Corporate Existence. Each of the Company and its Subsidiaries: (a) is
a corporation or other entity duly incorporated or formed and validly existing
under the laws of the jurisdiction of its organization or formation; (b) is in
good standing under the laws of the jurisdiction of its organization or
formation , except to the extent that the failure to be in good standing could
not reasonably be expected to have a Material Adverse Effect; (c) has all
requisite corporate power or other requisite power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted, other than those governmental licenses, authorizations, consents and
approvals the failure of which to obtain could not reasonably be expected to
have a Material Adverse Effect; and (d) is qualified to do business and is in
good standing in all jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect.
7.2. Financial Condition. The Company has heretofore furnished to the each
of the Lenders a consolidated balance sheet of the Company and its Subsidiaries
as at December 31, 1998 and the related consolidated statements of income,
retained earnings and cash flow of the Company and its Subsidiaries for the
fiscal year ended on said date, with the opinion thereon of
PricewaterhouseCoopers. All such financial statements are complete and correct
in all material respects and fairly present the consolidated financial condition
of the Company and its Subsidiaries as at said date and the consolidated results
of their operations for the fiscal year ended on said date, all in accordance
with generally accepted accounting principles and practices applied on a
consistent basis (except to the extent disclosed therein). Neither the Company
nor any of its Subsidiaries has on the date hereof any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or
<PAGE> 41
37
anticipated losses from any unfavorable commitments (in each case, as determined
in accordance with GAAP), except as referred to or reflected or provided for in
said balance sheet as at December 31, 1998 or except as set forth on Schedule
8.02 hereto. Since December 31, 1998 there has been no material adverse change
in the consolidated financial condition, operations, business or prospects taken
as a whole of the Company and its Subsidiaries from that set forth in said
financial statements as at said date.
7.3. Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of any Obligor) threatened against the Company or
any of its Subsidiaries that, if adversely determined, could reasonably be
expected (either individually or in the aggregate) to have a Material Adverse
Effect.
7.4. No Breach. None of the execution and delivery of this Agreement, the
Notes, and the other Basic Documents, the consummation of the transactions
herein and therein contemplated or compliance with the terms and provisions
hereof and thereof, will:
(a) conflict with or result in a breach of, or (except as set forth in
Schedule 8.04 hereto) require any consent (except to the extent such
consent is immaterial or has already been obtained) under (i) the charter
or by-laws of any Obligor, (ii) any material applicable law or regulation,
or any order, writ, injunction or decree of any court or governmental
authority or agency, or (iii) any material agreement or instrument to which
the Company and any of its Subsidiaries is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or
(b) except for the Liens created pursuant to the Security Documents or
Liens permitted by Section 9.06 hereof, result in the creation or
imposition of any Lien upon any material Property of the Company and any of
its Subsidiaries pursuant to the terms of any such agreement or instrument.
7.5. Action. Each Obligor has all necessary corporate or other requisite
power and authority to execute, deliver and perform its obligations under each
of the Basic Documents to which it is a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to which it is a
party have been duly authorized by all necessary corporate or other requisite
action on its part (including, without limitation, any required shareholder
approvals); and this Agreement has been duly and validly executed and delivered
by each Obligor and constitutes, and each of the Notes and the other Basic
Documents to which each Obligor is a party when executed and delivered by such
Obligor (in the case of the Notes, for value) will constitute, its legal, valid
and binding obligation, enforceable against such Obligor and in accordance with
its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights; and (b) the application of
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
7.6. Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for (a)
filings and recordings in respect of the Liens created pursuant to the Security
Documents and (b) authorizations, approvals, consents, filings and registrations
that have already been obtained or completed.
7.7. Use of Credit. Neither the Company nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock. None of
the proceeds of any Loan will be used for the purpose of (or be made available
by the Company in any
<PAGE> 42
38
manner to any other Person to enable or assist such Person in), directly or
indirectly, purchasing or carrying Margin Stock.
7.8. ERISA. Each Plan, and, to the knowledge of the Obligors, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other federal or state law, other than
such non-compliance as could not reasonably be expected to have a Material
Adverse Effect.
7.9. Taxes. Except as set forth in Schedule 8.09 hereto, the Company and
its Subsidiaries have filed all federal income tax returns and all other
material tax returns that are required to be filed by them and have paid all
taxes that are due and payable pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries (other than any
immaterial taxes), unless the same are being contested in good faith, with
adequate reserves established therefor. The charges, accruals and reserves on
the books of the Company and its Subsidiaries in respect of taxes and other
governmental charges are in accordance with GAAP.
7.10. Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11. Public Utility Holding Company Act. Neither the Company nor any of
its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
7.12. Environmental Matters. Each of the Company and its Subsidiaries has
obtained all permits, licenses and other authorizations required under all
Environmental Laws to carry on its business as now being or as proposed to be
conducted, except to the extent the failure to have any such permit, license or
authorization could not reasonably be expected to (either individually or in the
aggregate) have a Material Adverse Effect. Each of such permits, licenses and
authorizations is in full force and effect and each of the Company and its
Subsidiaries is in compliance with the terms and conditions thereof, and is also
in compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law, except to the extent failure to
comply therewith could not reasonably be expected to (either individually or in
the aggregate) have a Material Adverse Effect.
7.13. Capitalization.
7.13.1. Schedule 8.13 hereto sets forth a list, that is complete and
correct in all material respects, as of the date hereof, of all of the
holders of record of the capital stock of the Company, the class of stock
held by such holders, the numbers of shares held by such holder and the
percentage of Company's voting stock held by such holder.
7.13.2. Except as set forth on Schedule 8.13 hereto, as of the date
hereof, there are no outstanding material Equity Rights with respect to the
Company or any of its Subsidiaries, and there are no outstanding material
obligations of the Company or any of its Subsidiaries to repurchase,
redeem, or otherwise acquire any shares of its capital stock.
7.14. True and Complete Disclosure. The written factual information,
reports, financial statements, exhibits and schedules furnished in writing by or
on behalf of the Obligors to the Agent or any of the Lenders in connection with
the negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not, in any material respect, contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written
<PAGE> 43
39
factual information furnished after the date hereof by the Obligors to the Agent
and the Lenders in connection with this Agreement and the other Basic Documents
and the transactions contemplated hereby and thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, assumptions or projections, on the date as of which such
information is stated or certified. There is no fact known to the Company that
could have a Material Adverse Effect that has not been disclosed herein, in the
other Basic Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Lenders for use in
connection with the transactions contemplated hereby or thereby.
7.15. Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (a) the computer systems of the
Company and its Subsidiaries and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the systems of
the Company and its Subsidiaries interface) and the testing of all such systems
and equipment, as so reprogrammed, will be completed by December 31, 1999,
except to the extent such reprogramming and testing could not be reasonably
expected to have a Material Adverse Effect. Except as otherwise disclosed on
Schedule 8.15 hereto, the cost to the Company and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequence of year
2000 compliance to the Company and its Subsidiaries could not reasonably be
expected to have a Material Adverse Effect.
Section 8. Covenants of the Company. The Company covenants and agrees with
the Lenders and the Agent that, so long as any Commitment, Loan or Letter of
Credit Liability is outstanding and until payment in full of all non-contingent
amounts payable by the Company hereunder:
8.1. Financial Statements, Etc. The Company shall deliver to each of the
Lenders:
8.0.1. As soon as available and in any event within 60 days after the
end of each of the first three fiscal quarters of the Company's fiscal
year, unaudited consolidated and consolidating statements of income,
retained earnings and cash flow of the Company and its Subsidiaries for
such period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the
end of such period, setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the corresponding
periods in the preceding fiscal year (such consolidating statements to be
in a schedule to the consolidated statements). The financial information to
be provided under this paragraph (a) shall be accompanied by a certificate
of a Responsible Officer of the Company, which certificate shall (i) state
that said consolidated financial statements fairly present in all material
respects the consolidated financial condition and results of operations of
the Company and its Subsidiaries, and said consolidating financial
statements fairly present the respective individual unconsolidated
financial condition and result of operations of the Company and each of its
Subsidiaries, in each case in accordance with GAAP (unless otherwise noted
therein), consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments), (ii) state that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the
action that the Company has taken or proposes to take with respect
thereto), and (iii) set forth in reasonable detail the computations
necessary to determine whether the Company is in compliance with Sections
9.10, 9.14, 9.15 or 9.16 hereof and information necessary to determine
whether the Company is in compliance with Sections 9.07, 9.08 or 9.09
hereof;
8.0.2. As soon as available and in any event within 120 days after the
end of each fiscal year of the Company, audited consolidated and unaudited
consolidating statements of income, retained earnings and cash flow of the
Company and its Subsidiaries for such fiscal year and the related audited
consolidated and unaudited consolidating balance sheet of the Company and
its Subsidiaries as at the end of such fiscal
<PAGE> 44
40
year, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year (such
consolidating statements to be in a schedule to the consolidated
statements). The consolidated financial information to be provided under
this paragraph (b) shall be accompanied by (i) an opinion thereon of
independent certified public accountants of recognized national standing,
which opinion shall state that said consolidated financial statements
fairly present in all material respects the consolidated financial
condition and results of operations of the Company and its Subsidiaries as
at the end of, and for, such fiscal year in accordance with GAAP (unless
otherwise noted therein), and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they obtained
no knowledge, except as specifically stated, of any Event of Default under
Section 9.07, 9.08, 9.09, 9.10, 9.14, 9.15 or 9.16 hereof, (ii) a
certificate of a Responsible Officer of the Company, which certificate
shall (x) state that said consolidating financial statements fairly present
in all material respects the consolidating financial condition and results
of operations of the Company and its Subsidiaries, in accordance with GAAP
(unless otherwise noted therein), consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments), (y)
state that no Default has occurred and is continuing (or, if any Default
has occurred and is continuing, describing the same in reasonable detail
and describing the action that the Company has taken or proposes to take
with respect thereto), and (z) set forth in reasonable detail the
computations necessary to determine whether the Company is in compliance
with Sections 9.07, 9.08, 9.09, 9.10, 9.14, 9.15 or 9.16 hereof;
8.0.3. As soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a Responsible Officer of the Company
stating that such an event or condition exists and, as soon as possible
thereafter, a statement signed by a Responsible Officer of the Company
setting forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
8.0.3.1. any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a Plan,
as to which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the Code
for any Plan;
8.0.3.2. the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan that has unfunded accrued pension
liabilities or any action taken by the Company or an ERISA Affiliate
to terminate any Plan that has unfunded accrued pension liabilities;
8.0.3.3. the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
8.0.3.4. the complete or partial withdrawal from a Multiemployer
Plan by the Company or any ERISA Affiliate that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or the
receipt by the
<PAGE> 45
41
Company or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
8.0.3.5. the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
8.0.3.6. the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of tax-exempt status of the trust of which such
Plan is a part if the Company or an ERISA Affiliate fails to timely
provide security to the Plan in accordance with the provisions of said
Sections;
8.0.4. Promptly after the Company knows or has reason to believe that
any Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Company, as the case may be,
has taken or proposes to take with respect thereto;
8.0.5. As soon as available and in any event within 15 Business Days
after the end of each monthly accounting period (ending on the last day of
each calendar month), a Borrowing Base Certificate as at the last day of
such accounting period;
(f) Upon the acquisition after the date hereof by the Company and its
Subsidiaries of any Equipment, if such Equipment's purchase price exceeds
$75,000 and such Equipment is covered by a certificate of title or
ownership, cause the Agent to be listed as the lienholder on such
certificate of title and within 120 days of the acquisition thereof deliver
evidence of the same to the Agent; and
(g) From time to time such other information regarding the financial
condition, operations, business or prospects of the Company or any of its
Subsidiaries as any Lender or the Agent may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Responsible Officer of the Company to the effect that no Default has occurred
and is continuing (or, if any Default has occurred and is continuing, describing
the same in reasonable detail and describing the action that the Company has
taken or proposes to take with respect thereto).
8.1. Litigation. The Company will promptly give to each Lender notice of
all legal or binding arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that, if adversely determined, could not
reasonably be expected (either individually or in the aggregate) to have a
Material Adverse Effect.
8.2. Existence, Etc. The Company will, and will cause each of its
Subsidiaries to:
8.2.1. except to the extent permitted by Section 9.05 hereof, preserve
and maintain (i) its legal existence and (ii) except to the extent that
failure to maintain the same could not reasonably be expected to have a
Material Adverse Effect, all of its rights, privileges, licenses and
franchises;
<PAGE> 46
42
8.2.2. comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could not reasonably be expected to
(either individually or in the aggregate) have a Material Adverse Effect;
8.2.3. pay and discharge all federal and all other material taxes,
assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its Property prior to the date on which
penalties (other than interest at an increased rate) attach thereto, except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
8.2.4. maintain all of its material Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
8.2.5. keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
8.2.6. permit representatives of any Lender or the Agent, during
normal business hours (and upon reasonable advance notice), to examine,
copy and make extracts from its books and records, to inspect any of its
Properties, and to discuss its business and affairs with its officers, all
to the extent reasonably requested by such Lender or the Agent (as the case
may be).
To enable the ready and consistent determination of compliance with the
covenants set forth in this Section 9, the Company will not change the last day
of its fiscal year from December 31 of each year, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.
8.3. Insurance. The Company will, and will cause each of its Subsidiaries
to, maintain insurance with financially sound and reputable insurance companies,
and with respect to Property and risks of a character usually maintained by
Persons engaged in the same or similar business in the locales where the Company
or such Subsidiary conducts business, against loss, damage and liability of the
kinds and in the amounts customarily maintained by such Persons.
8.3.1. Prohibition of Fundamental Changes.
8.3.1. The Company will not, nor will it permit any of its
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), provided that the Company and its Subsidiaries
may (x) effect a Global Tax Restructuring and (y) enter into the following
transactions so long as, both immediately prior to such transaction and
after giving effect thereto, no Event of Default shall be continuing:
(i) any Subsidiary of the Company may be merged with or into:
(A) the Company if the Company shall be the continuing or
surviving corporation, or
(B) any other such Subsidiary provided that (1) if any such
transaction shall be between a Subsidiary that is not a Wholly
Owned Subsidiary and a Wholly Owned Subsidiary, the continuing or
surviving Person shall be a Wholly Owned Subsidiary, and (2) if
any such transaction shall be between a Subsidiary Guarantor and
a Subsidiary not a Subsidiary Guarantor, the continuing or
surviving Person shall be or shall become a Subsidiary Guarantor
hereunder,
<PAGE> 47
43
(ii) any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its Property (upon voluntary
liquidation or otherwise) to the Company or any Wholly Owned
Subsidiary of the Company; provided that if any such sale is by a
Subsidiary Guarantor to a Subsidiary that is not a Subsidiary
Guarantor, then such Subsidiary shall become a Subsidiary Guarantor,
and
(iii) in connection with any Permitted Acquisition the Company or
any Subsidiary of the Company may merge or consolidate with any other
Person if, in the case of a merger or consolidation of the Company,
the surviving Person assumes all of the Company's obligations
hereunder and under the other Basic Documents.
8.3.2. The Company will not, nor will it permit any of its
Subsidiaries to, effect any Disposition, other than the following:
(i) obsolete or worn-out Property, tools or equipment no longer
used or useful in its business;
(ii) any inventory or other Property sold or disposed of in the
ordinary course of business and on then customary terms;
(iii) transfers resulting from any casualty or condemnation of
Property (so long as the proceeds are used to repair or replace the
respective Property);
(iv) transfers among the Company and the Subsidiary Guarantors;
(v) transfers by (x) the Company or any Subsidiary Guarantor to
any other Subsidiary of the Company, so long as the aggregate book
value of the Property so transferred, together with the aggregate
amount of Investments made pursuant to Section 9.08(f) hereof, does
not exceed $5,000,000, and (y) any Subsidiary of the Company not a
Subsidiary Guarantor to any other Subsidiary;
(vi) licenses or sublicenses of intellectual property and general
intangibles and licenses, and leases or subleases of other Property in
the ordinary course of business, to the extent such license,
sublicense, lease or sublease does not materially and adversely affect
the business of the Company and its Subsidiaries (taken as a whole);
(vii) any consignment arrangement or similarly arrangement for
the sale of Property in the ordinary course of business;
(viii) the sale or discount of overdue accounts receivable
arising in the ordinary course of business, but only in connection
with the compromise or collection thereof and only so long as the Net
Cash Payments thereof are used to prepay Tranche 2 Loans (without any
requirement for any reduction of the Tranche 2 Commitments);
(ix) Dispositions permitted by Section 9.05(a) hereof; and
(x) Dispositions of fixed assets (for a consideration of which at
least 75% thereof consists of cash) to the extent that:
<PAGE> 48
44
(A) the net book value of the Property disposed of in any
such Disposition made in any fiscal year (together with the net
book value of all Property theretofore or concurrently disposed
of in such fiscal year, such net book value determined as of the
time of the relevant Disposition), does not exceed 5% of the
aggregate net book value of all of the fixed assets of the
Obligors at the time of such Disposition, and
(B) the aggregate net book value of the Property disposed of
in all Dispositions (such net book value determined as of the
time of the relevant Disposition) made during the period
commencing on the Closing Date does not exceed 20% of the
aggregate net book value of the fixed assets of the Obligors at
the time of the most recent such Disposition.
8.4. Limitation on Liens. The Company will not, nor will it permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any
of its Property, whether now owned or hereafter acquired, except:
8.4.1. Liens created pursuant to the Basic Documents (as defined
herein and in the Onex Finance Credit Agreement);
8.4.2. Liens in existence on the date hereof and listed in Schedule
9.06(c) hereto, and extensions, renewals and refinancings thereof so long
as such Lien is not spread to cover any additional Property and the
principal amount of Indebtedness secured thereby is not increased;
8.4.3. Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or the affected
Subsidiaries, as the case may be, in accordance with GAAP;
8.4.4. carriers', landlords', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens (including Liens in favor of
landlords securing subleases or leases permitted hereunder) arising in the
ordinary course of business and for amounts that are not overdue for a
period of more than 60 days or that are being contested in good faith and
by appropriate proceedings;
(e) Liens securing judgments but only to the extent, for an amount and
for a period not resulting in an Event of Default under Section 10(h)
hereof;
(f) Liens consisting of licenses, leases and subleases permitted
hereunder granted to others and not interfering in any material respect in
the business of the Company and its Subsidiaries;
(g) Liens consisting of precautionary Uniform Commercial Code
financing statements filed with respect to operating leases or consignment
arrangements entered into by the Company and its Subsidiaries in the
ordinary course of business;
(h) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(i) deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(j) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
<PAGE> 49
45
the use of Property or minor imperfections in title thereto that, in the
aggregate, are not material in amount, and that do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(k) Liens in favor of banking institutions arising by operation of law
(including rights of set-off) encumbering deposits held by such banking
institutions incurred in the ordinary course of business, within the
general parameters customary in the banking industry and not securing
Indebtedness;
(l) Liens upon Property acquired after the date hereof (by purchase,
construction or otherwise) by the Company or any of its Subsidiaries, each
of which Liens either (i) existed on such Property before the time of its
acquisition and was not created in anticipation thereof or (ii) was created
solely for the purpose of securing Indebtedness representing, or incurred
to finance, refinance or refund, the cost (including the cost of
construction) of such Property; provided that no such Lien shall extend to
or cover any Property of the Company or such Subsidiary other than the
Property so acquired and improvements thereon and the principal amount of
Indebtedness secured by any such Lien shall not exceed the purchase price
of such Property; and
(m) additional Liens on Property created after the date hereof,
provided that the aggregate Indebtedness secured thereby and incurred on
and after the date hereof shall not exceed $15,000,000 in the aggregate at
any one time outstanding.
8.5. Indebtedness. The Company will not, nor will it permit any of its
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
8.5.1. Indebtedness to the Lenders hereunder and under the other Basic
Documents (as defined herein and in the Onex Finance Credit Agreement);
8.5.2. Indebtedness outstanding on the date hereof and listed in
Schedule 9.07(b) hereto and extensions, renewals and refinancings thereof
so long as the principal amount thereof at the time of such extension,
renewal or refinancing is not increased;
8.5.3. Indebtedness consisting of (i) Interest Rate Protection
Agreements, (ii) the endorsement of negotiable instruments in the ordinary
course of business, (iii) indemnities and performance guarantees (not
constituting guarantees of Indebtedness) made in the ordinary course of
business that could not individually or in the aggregate reasonably be
expected to have a Material Adverse Effect, and (iv) obligations with
respect to surety bonds permitted pursuant to Section 9.06(f) hereof;
8.5.3.1. Guarantees of Indebtedness otherwise permitted by this
Section 9.07 hereof;
8.5.4. Indebtedness among the Company and the Subsidiary Guarantors
arising in the ordinary course of business, so long as such Indebtedness is
subordinated to the prior payment in full of the Obligors' obligations
hereunder and such Indebtedness is subject to the Lien of the Security
Agreement (without any requirement that such Indebtedness be evidenced by
any instrument);
(f) Indebtedness of Subsidiaries of the Company that are not
Subsidiary Guarantors representing Investments made pursuant to Section
9.08(f) hereof;
(g) additional Indebtedness of the Company and its Subsidiaries
(including, without limitation, Capital Lease Obligations and other
Indebtedness secured by Liens permitted under Sections 9.06(l) or 9.06(m)
hereof) up to but not exceeding $15,000,000 at any one time outstanding;
<PAGE> 50
46
(h) additional Indebtedness in an aggregate amount not to exceed
$7,500,000 consisting of (i) unsecured Indebtedness of Subsidiaries of the
Company to the seller in any Permitted Acquisition, or (ii) Indebtedness
assumed by any Subsidiary of the Company in connection with any Permitted
Acquisition;
(i) Indebtedness of any Subsidiary organized under the laws of a
jurisdiction outside of the United States of America for working capital
purposes in an aggregate amount not to exceed $5,000,000 (or the equivalent
in other currencies) at any one time outstanding, so long as either (i)
each such working capital facility is supported by a Letter of Credit or
(ii) the Tranche 2 Commitments shall be reduced by the amount of each such
working capital facility;
(j) Indebtedness of any Subsidiary organized under the laws of a
jurisdiction outside of the United States of America under unsecured
overdraft facilities incurred in the ordinary course of business in an
aggregate amount not to exceed $250,000 (or the equivalent in other
currencies) at any one time outstanding; and
(k) subject to the prior consent of the Majority Lenders, unsecured
Indebtedness of any Obligor that is subordinated to the prior payment in
full of the obligations of the Obligors hereunder and under the other Basic
Documents.
8.6. Investments. The Company will not, nor will it permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:
8.6.1. Investments outstanding on the date hereof and identified in
Schedule 9.08 hereto, and extensions and renewals thereof that do not
require the Company or any of its Subsidiaries to make additional
Investments;
8.6.2. operating deposit accounts with banks;
8.6.3. Permitted Investments and Investments permitted by Section
9.05, 9.06, 9.07, 9.09 or 9.10 hereof;
8.6.4. Permitted Acquisitions, provided that prior to any Permitted
Acquisition a Responsible Officer of the Company shall deliver to the Agent
a certificate containing financial projections evidencing pro forma
compliance with Sections 9.14, 9.15 and 9.16 hereof;
8.6.5. Investments by the Company and its Subsidiaries in Subsidiary
Guarantors in the ordinary course of business;
8.6.6. (x) Investments by the Company and/or the Subsidiary Guarantors
in Subsidiaries of the Company that are not Subsidiary Guarantors, so long
as the aggregate amount of such Investments, together with the aggregate
book value all Property transferred to such Subsidiaries pursuant to
Section 9.05(b)(v) hereof, does not exceed $5,000,000 and (y) Investments
by any Subsidiary of the Company which is not a Subsidiary Guarantor in any
other Subsidiary of the Company;
8.6.7. (x) loans and advances made by the Company and its Subsidiaries
to their respective directors, officers and employees in an aggregate
principal amount not to exceed $2,000,000 at any one time outstanding, and
(y) advances for business expenses made in the ordinary course of business;
8.6.8. Interest Rate Protection Agreements;
<PAGE> 51
47
(i) promissory notes and other similar non-cash consideration received
by the Company and its Subsidiaries in connection with Dispositions
permitted by Section 9.05 hereof;
(j) Investments (including debt obligations and capital stock)
received in connection with the bankruptcy or reorganization of suppliers
and customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course of
business;
(k) Guarantees (other than Guarantees of Indebtedness) entered into in
the ordinary course of business, and Guarantees of Indebtedness permitted
under Section 9.07 hereof;
(l) Investments consisting of the granting of trade terms in
connection with the List Brokerage Services in the ordinary course of
business and in accordance with past practice; and
(m) additional Investments (or Subsidiary Dividend Payments) in an
aggregate amount not to exceed $2,000,000.
In addition to the Investments permitted pursuant to clauses (a) through (m) of
this Section 9.08, the Company and its Subsidiaries may make Investments (to the
extent not used to finance Capital Expenditures pursuant to the last sentence of
Section 9.10) and Subsidiary Dividend Payments: (x) with the proceeds of
Dispositions to the extent not required to be used to make prepayments of Loans
pursuant to Section 2.10 (c) hereof, (y) with the proceeds of insurance and
condemnation awards, and (z) in an aggregate amount not to exceed the sum of (1)
the aggregate amount of Excess Cash Flow for any fiscal year (commencing with
the fiscal year ending December 31, 1999) theretofore ended minus (2) the
aggregate amount of prepayments required to be made pursuant to Section 2.10(b)
hereof with respect to Excess Cash Flow for each such fiscal year.
8.7. Dividend Payments.
(a) The Company will not, nor will it permit any of its Subsidiaries to,
declare or make any Dividend Payment at any time, provided that the Company and
its Subsidiaries may make Dividend Payments so long as:
(i) both immediately prior to making such Dividend Payment and after
giving effect thereto, no Default or Event of Default shall be continuing;
and
(ii) such Dividend Payment consists of the repurchase capital stock or
other securities of the Company (A) from outside directors, employees or
members of the management of the Company or any of the Company's
Subsidiaries, or (B) to fulfill obligations of the Company or any of the
Company's Subsidiaries under employee stock purchase or similar plans
covering employees from time to time, so long as the aggregate amount used
for such repurchases under this Section 9.09(a)(ii) does not exceed
$1,000,000 (net of the proceeds received by the Company or any of its
Subsidiaries as a result of the resale of such capital stock or other
security).
(b) The Company will not, nor will it permit any of its Subsidiaries
to, declare or make any Subsidiary Dividend Payment with respect to any
Subsidiary at any time, provided that:
<PAGE> 52
48
(i) each Wholly Owned Subsidiary may make Subsidiary Dividend Payments
with respect to itself;
(ii) each of The SpeciaLISTS Ltd. and Computer Marketing Systems, Inc.
may make Subsidiary Dividend Payments with respect to itself so long as
both immediately prior to making such Subsidiary Dividend Payment and after
giving effect thereto, no Default or Event of Default shall be continuing;
(iii) each other Subsidiary may make Subsidiary Dividend Payments so
long as:
(x) both immediately prior to making such Subsidiary Dividend
Payment and after giving effect thereto, no Default or Event of
Default shall be continuing; and
(y) the aggregate amount of Subsidiary Dividend Payments made
with respect to any such Subsidiary during the period commencing on
January 1, 1999 through and including the last day of the fiscal
quarter most recently ended prior to the date of such Subsidiary
Dividend Payment shall not exceed an amount equal to 50% of the
consolidated net income of such Subsidiary and its Subsidiaries for
such period (treated for these purposes as a single accounting
period); and
(iv) Subsidiary Dividend Payments may be made to the extend permitted
by Section 9.08 hereof.
8.8. Capital Expenditures. The Company will not, nor will it permit any of
its Subsidiaries to, make Capital Expenditures, provided, however, that:
(a) (i) in the fiscal year ending December 31, 1999, the Company and
its Subsidiaries may make Capital Expenditures in an aggregate amount not
to exceed $20,000,000 and (ii) during each fiscal year thereafter the
Company and its Subsidiaries may make Capital Expenditures in an aggregate
amount not to exceed the sum of (x) $15,000,000 plus (y) an amount, not to
exceed the lesser of $6,000,000 and the amount of Capital Expenditures
permitted to be made by the Company and its Subsidiaries in the immediately
prior fiscal year pursuant to Section 9.10(a)(i) hereof or Section
9.10(a)(ii)(x) hereof, as the case may be, but not so made;
(b) in addition, the Company and its Subsidiaries may make Capital
Expenditures in any amount to the extent that the ultimate source of the
funding for any such Capital Expenditure is an equity contribution made by
any Person other than an Obligor;
(c) in addition, the Company and its Subsidiaries may consummate
Permitted Acquisitions (and any capital assets acquired in any such
Permitted Acquisition are not subject to the restrictions set forth in
Section 9.10(a) hereof); and
(d) in addition, the Company and its Subsidiaries may make Capital
Expenditures (to the extent not used to finance Investments pursuant to the
last sentence of Section 9.08 hereof: (x) with the proceeds of Dispositions
to the extent not required to be used to make prepayments of Loans pursuant
to Section 2.10(c) hereof, (y) with the proceeds of insurance and
condemnation awards, and (z) in an aggregate amount not to exceed the
aggregate amount of prepayments made pursuant to Section 2.10(b) hereof.
Prior to the making by the Company or any Subsidiary of a Capital Expenditure in
an amount in excess of $10,000,000, a Responsible Officer of the Company shall
deliver to the Agent a certificate containing financial projections evidencing
pro forma compliance with Sections 9.14, 9.15 and 9.16 hereof.
<PAGE> 53
49
8.8.1. Lines of Business. Neither the Company nor any of its Subsidiaries
will engage to any substantial extent in any line or lines of business activity
other than the businesses engaged in by them on the Closing Date and business
activities ancillary to any of the foregoing.
8.9. Transactions with Affiliates. Except as expressly permitted by this
Agreement, the Company will not, nor will it permit any of its Subsidiaries to,
directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer,
sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c)
merge into or consolidate with or purchase or acquire Property from an
Affiliate; or (d) enter into any other transaction directly or indirectly with
or for the benefit of an Affiliate (including, without limitation, Guarantees
and assumptions of obligations of an Affiliate); unless such transaction is (x)
otherwise expressly permitted under this Agreement or any other Basic Document,
or (y) is upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than it would obtain in a comparable arm's-length transaction
with a Person that is not an Affiliate. Notwithstanding the foregoing, the
Company and its Subsidiaries shall be entitled to make the following payments
and/or enter into the following transactions: (i) the payment of reasonable and
customary fees and reimbursement of expenses payable to directors of the
Company, (ii) the payment of Management Fees permitted under Section 9.17
hereof, and the reimbursement of reasonable expenses under the management
agreements relating thereto, and (iii) the employment arrangements with respect
to the procurement of services of directors, officers and employees in the
ordinary course of business and the payment of reasonable fees in connection
therewith.
8.10. Use of Proceeds. The Company will:
(a) use the proceeds of the Tranche 1 Loans solely for the Obligors'
working capital purposes; and
(b) use the proceeds of the Tranche 2 Loans for refinancing the
Obligors' existing Indebtedness and for general corporate purposes;
in each case in compliance with all applicable legal and regulatory
requirements, provided that neither the Agent nor any Lender shall have any
responsibility as to the use of any of such proceeds.
8.11. Total Debt to Cash Flow Ratio. The Company will not permit the Total
Debt to Cash Flow Ratio as at the last day of any fiscal quarter of the Company
occurring during any of the periods set forth below to exceed the ratio set
forth below opposite such period:
<TABLE>
<CAPTION>
Period Total Debt to Cash Flow Ratio
------ -----------------------------
<S> <C>
March 31, 1999 to September 30, 1999 6.50 to 1
October 1, 1999 to March 31, 2000 6.00 to 1
April 1, 2000 to December 31, 2001 5.00 to 1
January 1, 2002 and thereafter 4.00 to 1
</TABLE>
8.12. Cash Flow to Debt Service Ratio. The Company will not permit the
Cash Flow to Debt Service Ratio as at the last day of any fiscal quarter of the
Company, beginning with the fiscal quarter ending on March 31, 1999, to be less
than 1.25 to 1.
8.13. Cash Flow to Interest Expense Ratio. The Company will not permit the
Cash Flow to Interest Expense Ratio as at the last day of any fiscal quarter of
the Company, beginning with the fiscal quarter ending on March 31, 1999, to be
less than 2.50 to 1.
<PAGE> 54
50
8.13.1. Management Fee Payments. The Company will not, nor will it permit
any of its Subsidiaries to, pay any Management Fee except for the following:
(a) a payment to ECM Partners, L.P. not to exceed $1,000,000 to be
made on the Closing Date, and
(b) additional payments to the extent that:
(i) such payment (x) is made on or after December 31, 1999, (ii)
is made only once a year, and (iii) the amount of each such annual
payment does not exceed $600,000; and
(ii) both immediately prior to making such payment and after
giving effect thereto, no Event of Default shall have occurred and be
continuing.
8.14. Holding Company; Subsidiaries; Etc.
(a) The Company will not at any time own at material Property other than
the capital stock of its Subsidiaries. The Company will not at any time conduct
any business other than acting as a holding company and other activities
ancillary thereto.
(b) The Company will take such action, and will cause each of its
Subsidiaries to take such action, from time to time as shall be necessary to
ensure that all Subsidiaries of the Company (other than Subsidiaries that are
organized under the laws of a jurisdiction outside of the United States of
America (each, a "Foreign Subsidiary")) are "Subsidiary Guarantors" and
"Obligors" hereunder and under the other Basic Documents. Without limiting the
generality of the foregoing, in the event that the Company or any of its
Subsidiaries shall form or acquire any such new Subsidiary, the Company or the
respective Subsidiary will (i) cause such new Subsidiary to become a "Subsidiary
Guarantor" hereunder and under the other Basic Documents pursuant to a written
instrument in form and substance reasonably satisfactory to the Agent, (ii)
cause the capital stock of, or other equity interests in, such new Subsidiary to
be subject to the Lien of the Security Agreement, (iii) cause such new
Subsidiary to take the actions specified in the Security Agreement to perfect
the Lien of the Collateral Agent (as that term is defined in the Security
Agreement) on the Property of such new Subsidiary, and (iv) cause such new
Subsidiary to deliver such proof of corporate action, incumbency of officers,
opinions of counsel and other documents as is reasonably requested by the Agent.
Section 9. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
9.0.1. The Company shall: (i) default in the payment of any principal
of any Loan or any Reimbursement Obligation when due (whether at stated
maturity or at mandatory or optional prepayment); or (ii) default in the
payment of any interest on any Loan, any fee or any other amount payable by
it hereunder or under any other Basic Document when due and such default
shall continue unremedied for more than three Business Days; or
9.0.2. The Company or any of its Subsidiaries (the Company and such
Subsidiaries herein collectively called the "Relevant Parties") shall
default in the payment when due of any principal of or interest on any of
its other Indebtedness aggregating $2,500,000 or more, or in the payment
when due of any amount under any Interest Rate Protection Agreement for a
notional principal amount exceeding $2,500,000; or any event specified in
any note, agreement, indenture or other document evidencing or relating to
any such Indebtedness or any event specified in any Interest Rate
Protection Agreement shall occur if the effect of such event is to cause,
or (with the giving of any notice or the lapse of time or both)
<PAGE> 55
51
to permit the holder or holders of such Indebtedness (or a trustee or agent
on behalf of such holder or holders) to cause, such Indebtedness to become
due, or to be prepaid in full (whether by redemption, purchase, offer to
purchase or otherwise), prior to its stated maturity or, in the case of an
Interest Rate Protection Agreement, to permit the payments owing under such
Interest Rate Protection Agreement to be liquidated; or
9.0.3. Any representation, warranty or certification made or deemed
made herein or in any other Basic Document (or in any modification or
supplement hereto or thereto) by any Obligor, or any certificate furnished
to any Lender or the Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
9.0.4. Any Obligor, as applicable, shall default in the performance of
any of its obligations under any of Sections 9.01(d), 9.05, 9.06, 9.07,
9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16 or 9.17 hereof; or any
Obligor shall default in the performance of any of its other obligations in
this Agreement or any other Basic Document and such default shall continue
unremedied for a period of more than 30 days after written notice thereof
to the Company by the Agent or any Lender (through the Agent); or
9.0.5. Any Relevant Party shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become due; or
9.0.6. Any Relevant Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial part
of its Property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Bankruptcy Code, (vi) take any similar action under the Canadian Bankruptcy
and Insolvency Act or the Canadian Companies Creditors Arrangements Act, or
(vii) take any corporate action to effect of the foregoing; or
9.0.7. A proceeding or case shall be commenced, without the
application or consent of the affected Relevant Party, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of such Relevant Party or of all or any
substantial part of its Property, or (iii) similar relief in respect of
such Relevant Party under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts
(including, without limitation, the Canadian Bankruptcy and Insolvency Act
or the Canadian Companies Creditors Arrangements Act), and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of more than 60 days; or an order for
relief against any Relevant Party shall be entered in an involuntary case
under the Bankruptcy Code; or
9.0.8. A final judgment or judgments (exclusive of judgment amounts to
the extent covered by insurance where the insurer has not denied liability
in respect of such judgment) for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Relevant Party and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and such Relevant
Party shall not, within said period of 60 days, or such longer period
during which execution of the same shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
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9.0.9. An event or condition specified in Section 9.01(c) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) that could reasonably be expected (either
individually or in the aggregate) to have a Material Adverse Effect; or
9.0.10. A reasonable basis shall exist for the assertion against the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries or Affiliates for which the Company or
any of its Subsidiaries is liable, of (or there shall have been asserted
against the Company or any of its Subsidiaries) an Environmental Claim that
is reasonably likely to be determined adversely to the Company or any of
its Subsidiaries, and the amount thereof (either individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect
(insofar as such amount is payable by the Company or any of its
Subsidiaries but after deducting any portion thereof that is reasonably
expected to be paid by other creditworthy Persons jointly and severally
liable therefor); or
9.0.11. Onex shall cease to have the right (by virtue of its
ownership, directly or indirectly, of voting shares of the capital stock of
the Company and unfettered (in respect of its control of the board of
directors of the Company) by any contractual arrangements) to appoint a
majority of the members of the board of directors of the Company and
otherwise maintain control of the Company; or
9.0.12. The Liens created by the Security Documents shall at any time
not constitute a valid and perfected Lien on the Collateral intended to be
covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Agent, free and clear of all other Liens, other than Liens permitted under
Section 9.06 hereof (and, if such invalidity is amenable to cure without,
in the sole opinion of the Agent (exercised reasonably), materially
disadvantaging the position of the Agent and the Lenders, the Obligors
shall have failed to cure such invalidity within 60 days after notice from
the Agent to the Company, or such shorter period as shall be prudent under
the circumstances) or, except for expiration in accordance with its terms,
any of the Security Documents shall for whatever reason be terminated or
cease to be in full force and effect (except with respect to any Property
that is disposed of by any Obligor in compliance with this Agreement), or
the enforceability thereof shall be contested by any Obligor;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
paragraph (f) or (g) of this Section 10 with respect to any Obligor, the Agent
may and, upon request of the Majority Lenders shall, by notice to the Company
declare the principal amount then outstanding of, and the accrued interest on,
the Loans, the Reimbursement Obligations and all other amounts payable by the
Obligors hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.05 hereof) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by each Obligor; and (2) in the case of the occurrence of an
Event of Default referred to in paragraph (f) or (g) of this Section 10 with
respect to any Obligor, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the
Loans, the Reimbursement Obligations and all other amounts payable by the
Obligors hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.05 hereof) shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor.
In addition, upon the occurrence and during the continuance of any Event of
Default (if the Agent has declared the principal amount then outstanding of, and
accrued interest on, the Loans and all other amounts payable by the Obligors
hereunder and under the Notes to be due and payable), the Obligors agree that
they shall, if
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53
requested by the Agent or the Majority Lenders through the Agent (and, in the
case of any Event of Default referred to in paragraph (f) or (g) of this Section
10 with respect to the Obligors, forthwith, without any demand or the taking of
any other action by the Agent or such Lenders) provide cover for the Letter of
Credit Liabilities by paying to the Agent immediately available funds in an
amount equal to the then aggregate undrawn face amount of all Letters of Credit,
which funds shall be held by the Agent in the Collateral Account as collateral
security in the first instance for the Letter of Credit Liabilities and be
subject to withdrawal only as provided in the Security Agreement.
Section 10. The Agent.
10.1. Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder and under the
other Basic Documents with such powers as are specifically delegated to the
Agent by the terms of this Agreement and of the other Basic Documents, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 11.05 and the first sentence of
Section 11.06 hereof shall include reference to its affiliates and its own and
its affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Lender; (b) shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent.
10.2. Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders or, if provided herein, in accordance with the
instructions given by the Majority Lenders or all of the Lenders as is required
in such circumstance, and such instructions of such Lenders and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders.
10.3. Defaults. The Agent shall not be deemed to have knowledge or notice
of the occurrence of a Default unless the Agent has received notice from a
Lender or the Company specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall (subject to Section 11.07 hereof) take such action with
respect to such Default as shall be directed by the Majority Lenders or all of
the Lenders provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders except to the extent that this
Agreement expressly requires that such
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54
action be taken, or not be taken, only with the consent or upon the
authorization of the Majority Lenders or all of the Lenders.
10.4. Rights as a Lender. With respect to its Commitments and the Loans
made by it, TD (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lenders" shall, unless the context otherwise indicates, include the Agent
in its individual capacity. TD (and any successor acting as Agent) and its
affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and TD and
its affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
10.5. Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 12.03 hereof, but without limiting the
obligations of the Company under said Section 12.03) ratably in accordance with
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Lender) arising out of or by reason
of any investigation in or in any way relating to or arising out of this
Agreement or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that the Company is
obligated to pay under Section 12.03 hereof, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Company and its Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or under any other
Basic Document. The Agent shall not be required to keep itself informed as to
the performance or observance by any Obligor of this Agreement or any of the
other Basic Documents or any other document referred to or provided for herein
or therein or to inspect the Properties or books of the Company or any of its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Agent hereunder or
under the Security Documents, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Company or any of
its Subsidiaries (or any of their affiliates) that may come into the possession
of the Agent or any of its affiliates.
10.7. Failure to Act. Except for action expressly required of the Agent
hereunder and under the other Basic Documents, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from the Lenders of their
indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
10.8. Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders. The Agent may be removed at any
time with or without cause by the Majority Lenders, subject to the approval of
the Company. Upon any such resignation or removal, the Majority Lenders shall
(subject to the approval of the Company, such approval
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not to be unreasonably withheld or delayed), have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Lenders (with the Company's consent) and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, that
shall be a bank that has an office in New York, New York. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 11
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
10.8.1. Consents under Other Basic Documents. Except as otherwise provided
in Section 12.04 hereof with respect to this Agreement, the Agent may, with the
prior consent of the Majority Lenders (but not otherwise), consent to any
modification, supplement or waiver under any of the Basic Documents, provided
that, without the prior consent of each Lender, the Agent shall not (except as
provided herein or in the Security Documents, and without limiting the right of
the Majority Lenders to modify the provisions of Section 9.05 hereof) release
any Collateral or otherwise terminate any Lien under any Basic Document
providing for collateral security, or agree to additional obligations being
secured by such collateral security (unless the Lien for such additional
obligations shall be junior to the Lien in favor of the other obligations
secured by such Basic Document), except that no such consent shall be required,
and the Agent is hereby authorized, to release any Lien covering Property that
is the subject of a disposition of Property permitted hereunder or to which the
Majority Lenders have consented.
Section 11. Miscellaneous.
11.1. Waiver. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
11.2. Notices. All notices, requests and other communications provided for
herein and under the Security Documents (including, without limitation, any
modifications of, or waivers, requests or consents under, this Agreement) shall
be given or made in writing (including, without limitation, by telex or
telecopy), delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof (below the name of the
Company, in the case of any Subsidiary Guarantor); or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party. Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when transmitted by telex or telecopier
(with confirmation of receipt) or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
11.3. Expenses, Etc. The Company agrees to pay or reimburse each of the
Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses
of the Agent (including, without limitation, the reasonable fees and expenses of
Mayer, Brown & Platt, special New York counsel to TD) in connection with (i) the
negotiation, preparation, execution and delivery of this Agreement and the other
Basic Documents and the Loans hereunder and (ii) the negotiation or preparation
of any modification, supplement or waiver of any of the terms of this Agreement
or any of the other Basic Documents (whether or not consummated); (b) all
reasonable out-of-pocket costs and expenses of the Lenders and the Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel to the Agent and one additional counsel to the Lenders) in connection
with (i) any Default and any enforcement or collection proceedings resulting
therefrom, including, without limitation, all manner of participation
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in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 12.03; (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Basic Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by any Basic Document or any other document
referred to therein; and (d) all reasonable out-of-pocket costs and expenses
incurred by the Agent in connection with the syndication of the Loans and the
Commitments.
The Company hereby agrees to indemnify the Agent and each Lender and their
respective directors, officers, employees, attorneys and agents from, and hold
each of them harmless against, any and all losses, liabilities, claims, damages
or expenses incurred by any of them (including, without limitation, any and all
losses, liabilities, claims, damages or expenses incurred by the Agent to any
Lender, whether or not the Agent or any Lender is a party thereto, but subject
(in the case of fees and expenses of counsel) to the limitations set forth in
the immediately preceding paragraph) arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to the Loans
hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.4. Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Company, the Agent and the Majority
Lenders, or by the Company and the Agent acting with the consent of the Majority
Lenders, and any provision of this Agreement may be waived by the Majority
Lenders or by the Agent acting with the consent of the Majority Lenders;
provided that: (a) no modification, supplement or waiver shall, unless by an
instrument signed by each Lender, or by the Agent acting with the consent of
such Lenders: (i) increase, or extend the term of any of the Commitments, or
extend the time or waive any requirement for the scheduled termination of the
Commitments, (ii) extend any date fixed for any regularly scheduled payment of
principal of the Loan or any date fixed for any payment of interest on any Loan,
any Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of
any such regularly scheduled payment of principal, (iv) reduce the rate at which
interest is payable thereon or any fee is payable hereunder, (v) alter the terms
of this Section 12.04, or (vi) modify the definition of the term "Majority
Lenders"; (b) any modification or supplement of Section 11 hereof shall require
the consent of the Agent; (c) any modification or supplement of Section 6 hereof
shall require the consent of each Subsidiary Guarantor; and (d) any modification
or supplement of Section 2.08 hereof shall require the consent of the Issuer.
11.5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.6. Assignments and Participations.
11.6.1. No Obligor may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of all of the
Lenders and the Agent.
11.6.2. Each Lender may assign any of its Loans, its Notes, its
Commitments and its Letter of Credit Interest (but only with the consent of
the Agent, the Issuer and, so long as no Event of Default is continuing,
the Company (such consent of the Company not to be unreasonably withheld or
delayed)); provided that (i) no such consent by the Agent shall be required
in the case of any assignment to another
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Lender; and (ii) any such partial assignment shall be in an amount at least
equal to $10,000,000. Upon execution and delivery by the assignee to the
Company and the Agent of an instrument in writing pursuant to which such
assignee agrees to become a "Lender" hereunder (if not already a Lender)
having the Commitment(s), Loans, and Letters of Credit Interest specified
in such instrument, and upon consent thereto by the Agent and (to the
extent required above) the Company, the assignee shall have, to the extent
of such assignment (unless otherwise provided in such assignment with the
consent of the Agent), the obligations, rights and benefits of a Lender
hereunder holding the Commitment(s), Loans and Letter of Credit Interest
assigned to it (in addition to the Commitment(s), Loans and Letter of
Credit Interest, if any, theretofore held by such assignee) and the
assigning Lender shall, to the extent of such assignment, be released from
the Commitment(s) (or portion(s) thereof) so assigned. Upon each such
assignment the assigning Lender shall pay the Agent an assignment fee of
$3,500.
11.6.3. A Lender may sell or agree to sell to one or more other
Persons a participation in all or any part of any Loans or Letter of Credit
Interest held by it, or in its Commitments, in which event each purchaser
of a participation (a "Participant") shall be entitled to the rights and
benefits of the provisions of Section 9.01(g) hereof with respect to its
participation in such Loans, Commitments and Letter of Credit Interest as
if (and the Company shall be directly obligated to such Participant under
such provisions as if) such Participant were a "Lender" for purposes of
said Section 9.01(g), but, except as otherwise provided in Section 4.07(c)
hereof, shall not have any other rights or benefits under this Agreement or
any Note or any other Basic Document (the Participant's rights against such
Lender in respect of such participation to be those set forth in the
agreements executed by such Lender in favor of the Participant). All
amounts payable by the Company to any Lender under Section 5 hereof in
respect of Loans, Commitments and Letter of Credit Interest, shall be
determined as if such Lender had not sold or agreed to sell any
participations in such Loans, Commitments and Letter of Credit Interest and
as if such Lender were funding each of such Loan, Commitments, and Letter
of Credit Interest in the same way that it is funding the portion of such
Loan, Commitments and Letter of Credit Interest in which no participations
have been sold. In no event shall a Lender that sells a participation agree
with the Participant to take or refrain from taking any action hereunder or
under any other Basic Document except that such Lender may agree with the
Participant that it will not, without the consent of the Participant, agree
to (i) increase or extend the term, or extend the time or waive any
requirement for the scheduled termination, of such Lender's related
Commitment, (ii) extend any date fixed for any regularly scheduled payment
of principal of or interest on the related Loan or Loans, Reimbursement
Obligations or any portion of any fee hereunder payable to the Participant,
(iii) reduce the amount of any such payment of principal, (iv) reduce the
rate at which interest is payable thereon, or any fee hereunder payable to
the Participant, to a level below the rate at which the Participant is
entitled to receive such interest or fee, (v) consent to any modification,
supplement or waiver hereof or of any of the other Basic Documents to the
extent that the same, under Section 11.09 or 12.04 hereof, requires the
consent of each Lender.
11.6.4. In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Lender may
(without notice to the Company, the Agent or any other Lender and without
payment of any fee) (i) assign and pledge all or any portion of its Loans
and its Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal Reserve
Bank and (ii) assign all or any portion of its rights under this Agreement
and its Loans and its Notes to an affiliate. No such assignment shall
release the assigning Lender from its obligations hereunder.
11.6.5. A Lender may furnish any information concerning the Company or
any of its Subsidiaries in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to such assignee or participant agreeing in writing
to be bound by the provisions of Section 12.12 hereof.
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11.6.6. Anything in this Section 12.06 to the contrary
notwithstanding, no Lender may assign or participate any interest in any
Loan held by it hereunder to the Company or any of its Affiliates or
Subsidiaries without the prior consent of each Lender.
11.6.7. In connection with any Conversion, a Lender may (at its sole
discretion, but subject to giving prior notice thereof to the Agent)
transfer a Loan from one Applicable Lending Office to another.
11.7. Survival. The obligations of the Company under Sections 5.01, 5.05
and 12.03 hereof, the obligations of each Subsidiary Guarantor under Section
6.03 hereof, and the obligations of the Lenders under Section 11.05 hereof,
shall survive for one year after the repayment of the Loans and Reimbursement
Obligations and the termination of the Commitments.
11.8. Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
11.8.1. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.9. Governing Law; Submission to Jurisdiction. This Agreement and the
Notes shall be governed by, and construed in accordance with, the law of the
State of New York without regard to New York conflicts of laws principles. Each
Obligor hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York state
court sitting in New York City for the purposes of all legal proceedings arising
out of or relating to this Agreement or the transactions contemplated hereby.
Each Obligor irrevocably waives, to the fullest extent permitted by applicable
law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
11.10. Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11. Confidentiality. Each Lender and the Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by any Obligor pursuant to this Agreement
that is identified by such Person as being confidential at the time the same is
delivered to each Lender or the Agent, provided that nothing herein shall limit
the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for any Lender or the
Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or
any Lender, (v) in connection with any litigation to which any one or more of
the Lenders or the Agent is a party or (v) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first agrees in writing to be bound by this
Section 12.12.
[The remainder of this page has been left blank intentionally]
<PAGE> 63
59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
Company
CLIENTLOGIC HOLDING
CORPORATION
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Secretary
Address for Notices:
699 Hertel Avenue
Buffalo, New York 14207
Attention: Gary Crosby
Telecopier No.: 716-871-6404
Telephone No.: 716-871-6400
Subsidiary Guarantors
LCS INDUSTRIES, INC.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Vice President
Assistant Treasurer
Assistant Secretary
CATALOG LIQUIDATORS, INC.
By /s/ THOMAS P. DEA
-------------------------------------
Title: Assistant Treasurer
Assistant Secretary
LCS CANADA, INC.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Assistant Treasurer
Assistant Secretary
<PAGE> 64
60
CATALOG RESOURCES, INC.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Vice President
Assistant Treasurer
Assistant Secretary
SPEC HOLDINGS, INC.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Vice President
Assistant Treasurer
Assistant Secretary
THE SPECIALISTS LTD.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Vice President
Assistant Treasurer
Assistant Secretary
COMPUTER MARKETING
SYSTEMS INC.
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Vice President
Assistant Treasurer
Assistant Secretary
<PAGE> 65
61
CLIENTLOGIC CORPORATION
By /s/ THOMAS P. DEA
-------------------------------------
Name: Thomas P. Dea
Title: Secretary
<PAGE> 66
62
Agent
TORONTO DOMINION (TEXAS), INC.
By /s/ DIANE BAILEY
-------------------------------------
Name: Diane Bailey
Title: Vice President
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8241
<PAGE> 67
63
Lenders
Tranche 1 Commitment TORONTO DOMINION (TEXAS), INC.
- --------------------
$7,500,000
Tranche 2 Commitment By /s/ DIANE BAILEY
- -------------------- -------------------------------------
$12,500,000 Name: Diane Bailey
Title: Vice President
Lending
Office for all Loans:
909 Fannin, Suite 1700
Houston, Texas 77010
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8241
With a copy to:
Toronto Dominion Bank
Toronto Dominion Centre
Toronto, Ontario M5K 1A2
CANADA
Attention: Michael Collins
Christian McMillan
Telecopier No.: (416) 944-5164
Telephone No.: (416) 982-2118
(416) 308-2099
<PAGE> 68
64
Tranche 1 Commitment THE BANK OF NOVA SCOTIA
$7,500,000
Tranche 2 Commitment By /s/ ERIC M. KNIGHT
- -------------------- -------------------------------------
$12,500,000 Name: Eric M. Knight
Title: Authorized Signatory
Lending
Office for all Loans:
1 Liberty Plaza,
26th Floor,
New York, New York 10006
Address for Notices:
1 Liberty Plaza,
26th Floor,
New York, New York 10006
Attention: Eric Knight
Telecopier No.: 212-225-5270
Telephone No.: 212-225-5229
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of October 4, 1999, among CLIENTLOGIC HOLDING
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of Delaware (the "Company"); each of the Subsidiaries of the Company
identified under the caption "Subsidiary Guarantors" on the signature pages
hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, collectively with the Company, the "Obligors"); the
lender that is a signatory hereto (the "Lender"); and TORONTO DOMINION (TEXAS),
INC., a Delaware corporation, as agent for the Lender (in such capacity,
together with its successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lender and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for the making of loans
by said Lender to the Company in an aggregate principal not exceeding
$60,000,000. The Company, the Subsidiary Guarantors, the Lender and the Agent
wish to amend the Credit Agreement in certain respects and, accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment No.
1, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
2.01. Definitions - Section 1.01 of the Credit Agreement (Definitions)
shall be amended by adding the following new definitions (to the extent not
currently included in the Credit Agreement) and inserting the same in the
appropriate alphabetical locations, and by amending the following definitions
(to the extent currently included in the Credit Agreement) as follows:
"Adverbe" shall mean Groupe Adverbe International S.A., a French
corporation.
"Bank of Scotland Debt" shall mean Indebtedness of the Cordena Group
held by Bank of Scotland in an aggregate principal amount not to exceed
29,000,000 Dutch guilders.
"Cordena" shall mean Cordena Call Management B.V., a Netherlands
Antilles corporation.
"Cordena Acquisitions" shall mean, collectively, (a) the acquisition
by Foreign Holding Company of all of the capital stock of Cordena for an
aggregate consideration (including the amount of any Indebtedness assumed)
not to exceed 45,200,000 Dutch guilders, and (b) the acquisition by Foreign
Holding Company
1
<PAGE> 2
of all of the capital stock of Adverbe, for an aggregate consideration
(including Indebtedness assumed) not to exceed 61,000,000 French francs.
"Cordena Group" shall mean Cordena, Adverbe and their respective
Subsidiaries.
"Foreign Holding Company" shall mean ClientLogic International
Holding, Inc., a Delaware corporation and a wholly-owned Subsidiary of the
Company.
"ING Debt" shall mean Indebtedness of the Cordena Group held by ING
Bank N.V. in an aggregate principal amount not to exceed 10,000,000 Dutch
guilders.
2.02. Cordena Acquisitions - Section 9.08(d) of the Credit Agreement
(Investments Consisting of Permitted Acquisitions) shall be amended by adding
the following at the end thereof:
", and the Cordena Acquisitions;"
2.03. Investments in the Cordena Group Financed by Equity - Section 9.08(f)
of the Credit Agreement (Investments in Subsidiaries that are not Subsidiary
Guarantors) shall be amended by adding the following clause (z) at the end
thereof:
"and (z) Investments consisting of advances to members of the Cordena Group
(which advances may be subordinated to the prior payment in full of the
Bank of Scotland Debt) to the extent that (A) each such advance is financed
solely with the proceeds of contributions to the common equity capital of
the Company made concurrently with such Investment and (B) such advance is
evidenced by a promissory note that is endorsed in blank and delivered in
pledge to the Agent under the Security Agreement."
2.04. Bank of Scotland Debt - Section 9.07 of the Credit Agreement
(Indebtedness) shall be amended as follows:
(a) Clause (d) thereof shall be amended in its entirety to read as follows:
"(d) Guarantees of Indebtedness otherwise permitted by this Section
9.07 (except that no Obligor may Guarantee or incur any of the Bank of
Scotland Debt or the ING Debt);"
(b) The word "and" at the end of clause (j) thereof shall be deleted, the
period at the end of clause (k) shall be replaced with "; and" and following new
clause (1) shall be added:
"(l) Indebtedness of the Cordena Group consisting of the Bank of Scotland
Debt and the ING Debt."
2
<PAGE> 3
2.05. Bank of Scotland Liens - Section 9.06 of the Credit Agreement (Liens)
shall be amended by deleting the word "and" at the end of clause (1) thereof,
replacing the period at the end of clause (m) with "; and" and by adding the
following new clause (n):
"(n) Liens on Property of the Cordena Group securing the Bank of
Scotland Debt and the ING Debt."
2.06. Capital Expenditures by the Cordena Group - Section 9.10(c) of the
Credit Agreement (Capital Expenditures in Connection with Permitted
Acquisitions) shall be amended in its entirety to read as follows:
"(c) in addition, the Company and its Subsidiaries may consummated
Permitted Acquisitions and the Cordena Acquisitions (and any capital assets
acquired in any such Permitted Acquisition or in the Cordena Acquisitions
are not subject to the restrictions set forth in Section 9.10(a) hereof);
and"
2.07. Treatment of Cash Flow and Indebtedness of the Cordena Group -
(a) The definition of "Gross Cash Flow" in Section 1.01 of the Credit
Agreement shall be amended by adding the following immediately following the
first parenthetical phrase therein:
", other than, solely for purposes of the definition of "Adjusted Cash
Flow" in this Section 1.01, the Cordena Group,"
(b) The reference to "Indebtedness of the Company and its Subsidiaries" in
clause (a)(i) of the definition of "Total Debt to Cash Flow Ratio" in Section
1.01 of the Credit Agreement shall be replaced with a reference to the
following:
"Indebtedness of the Company and its Subsidiaries (other than the Bank of
Scotland Debt and the ING Debt)"
(c) Clause (b) of the definition of "Cash Flow to Debt Service Ratio" in
Section 1.01 of the Credit Agreement shall be amended in its entirety to read as
follows:
"(b) Prospective Debt Service (other than any Prospective Debt Service
in respect of the Bank of Scotland Debt or the ING Debt) for such
calculation date."
(d) Clause (b) of the definition of "Cash Flow to Interest Expense Ratio"
in Section 1.01 of the Credit Agreement shall be amended in its entirety to read
as follows:
"(b) Interest Expense (other than any Interest Expense in respect of
the Bank of Scotland Debt or the ING Debt) for the period of four
consecutive fiscal quarters ending on, or most recently ended prior to,
such calculation date."
Section 3. Representations and Warranties. Each of the Obligors represents
and warrants to the Lender that (a) the representations and warranties set forth
in Section 8 of the Credit Agreement are true and complete on the date hereof as
if made on and as of the
3
<PAGE> 4
date hereof and as if each reference in said Section 8 to "this Agreement"
included reference to this Amendment No. 1 and (b) as of the date hereof, no
Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
4.01. Execution by All Parties. This Amendment No. 1 shall have been
executed and delivered by each of the parties hereto.
Section 5. Joinder by Foreign Holding Company. By its signature below,
ClientLogic International Holding, Inc. hereby assumes all of the obligations of
a "Subsidiary Guarantor" and an "Obligor" under the Credit Agreement and the
other Basic Documents and agrees that it is, for all purposes of the Credit
Agreement and the other Basic Documents, a Subsidiary Guarantor and an Obligor.
Section 6. Miscellaneous. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 1 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 1 by signing any such counterpart. This Amendment
No. 1 shall be governed by, and construed in accordance with, the law of the
State of New York.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CATALOG LIQUIDATORS, INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
LCS CANADA, INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CATALOG RESOURCES, INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
5
<PAGE> 6
SPEC HOLDINGS, INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
THE SPECIALIST LTD.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
COMPUTER MARKETING SYSTEMS INC.
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CLIENTLOGIC CORPORATION
By: /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, C.F.O., Senior Vice
President and Secretary
6
<PAGE> 7
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By: /s/ STEVEN M. KAWALICK
-------------------------------------------
Title: Steven M. Kawalick, President
7
<PAGE> 8
LENDER
ONEX CLIENTLOGIC FINANCE LLC
By: /s/ DONALD F. WEST
-------------------------------------------
Title: Donald F. West, Director
AGENT
TORONTO-DOMINION (TEXAS), INC.,
as Agent
By:
-------------------------------------------
Title:
8
<PAGE> 9
LENDER
ONEX CLIENTLOGIC FINANCE LLC
By:
-------------------------------------------
Title:
AGENT
TORONTO-DOMINION (TEXAS), INC.,
as Agent
By: /s/ KIMBERLY BURLESON
-------------------------------------------
Title: Kimberly Burleson, Vice President
9
<PAGE> 1
EXHIBIT 4.4
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of October 4, 1999, among CLIENTLOGIC HOLDING
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of Delaware (the "Company"); each of the Subsidiaries of the Company
identified under the caption "Subsidiary Guarantors" on the signature pages
hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, collectively with the Company, the "Obligors");
each of the lenders that is a signatory hereto (individually, a "Lender" and,
collectively, the "Lenders"); and TORONTO DOMINION (TEXAS), INC., a Delaware
corporation, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lenders and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of credit
(by making loans and issuing letters of credit) to be made by said Lenders to
the Company in an aggregate principal or face amount not exceeding $40,000,000.
The Company, the Subsidiary Guarantors, the Lenders and the Agent wish to amend
the Credit Agreement in certain respects and, accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 1, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
Section 2.01. Definitions. Section 1.01 of the Credit Agreement
(Definitions) shall be amended by adding the following new definitions (to the
extent not currently included in the Credit Agreement) and inserting the same in
the appropriate alphabetical locations, and by amending the following
definitions (to the extent currently included in the Credit Agreement) as
follows:
"Adverbe" shall mean Groupe Adverbe International
S.A., a French corporation.
"Bank of Scotland Debt" shall mean Indebtedness of
the Cordena Group held by Bank of Scotland in an aggregate
principal amount not to exceed 29,000,000 Dutch guilders.
"Cordena" shall mean Cordena Call Management B.V., a
Netherlands Antilles corporation.
"Cordena Acquisitions" shall mean, collectively, (a)
the acquisition by Foreign Holding Company of all of the
capital stock of
<PAGE> 2
Cordena for an aggregate consideration (including the amount
of any Indebtedness assumed) not to exceed 45,200,000 Dutch
guilders, and (b) the acquisition by Foreign Holding Company
of all of the capital stock of Adverbe, for an aggregate
consideration (including Indebtedness assumed) not to exceed
61,000,000 French francs.
"Cordena Group" shall mean Cordena, Adverbe and their
respective Subsidiaries.
"Foreign Holding Company" shall mean ClientLogic
International Holding, Inc., a Delaware corporation and a
wholly-owned Subsidiary of the Company.
"ING Debt" shall mean Indebtedness of the Cordena
Group held by ING Bank N.V. in an aggregate principal amount
not to exceed 10,000,000 Dutch guilders.
"Tranche 2 Commitment Termination Date" shall mean
the fourth anniversary of the Closing Date.
Section 2.02. Cordena Acquisitions. Section 9.08(d) of the Credit
Agreement (Investments Consisting of Permitted Acquisitions) shall be amended by
adding the following at the end thereof:
", and the Cordena Acquisitions;"
Section 2.03. Investments in the Cordena Group Financed by Equity.
Section 9.08(f) of the Credit Agreement (Investments in Subsidiaries that are
not Subsidiary Guarantors) shall be amended by adding the following clause (z)
at the end thereof
"and (z) Investments consisting of advances to members of the
Cordena Group (which advances may be subordinated to the prior
payment in full of the Bank of Scotland Debt) to the extent
that (A) each such advance is financed solely with the
proceeds of contributions to the common equity capital of the
Company made concurrently with such Investment and (B) such
advance is evidenced by a promissory note that is endorsed in
blank and delivered in pledge to the Agent under the Security
Agreement."
Section 2.04. Bank of Scotland Debt. Section 9.07 of the Credit
Agreement (Indebtedness) shall be amended as follows:
(a) Clause (d) thereof shall be amended in its entirety to read as
follows:
"(d) Guarantees of Indebtedness otherwise permitted
by this Section 9.07 (except that no Obligor may Guarantee or
incur any of the Bank of Scotland Debt or the ING Debt);"
2
<PAGE> 3
(b) The word "and" at the end of clause (j) thereof shall be deleted,
the period at the end of clause (k) shall be replaced with "; and" and following
new clause (1) shall be added:
"(1) Indebtedness of the Cordena Group consisting of
the Bank of Scotland Debt and the ING Debt".
Section 2.05. Bank of Scotland Liens. Section 9.06 of the Credit
Agreement (Liens) shall be amended by deleting the word "and" at the end of
clause (1) thereof, replacing the period at the end of clause (m) with "; and"
and by adding the following new clause (n):
"(n) Liens on Property of the Cordena Group securing
the Bank of Scotland Debt and the ING Debt."
Section 2.06. Capital Expenditures by the Cordena Group. Section
9.10(c) of the Credit Agreement (Capital Expenditures in Connection with
Permitted Acquisitions) shall be amended in its entirety to read as follows:
"(c) in addition, the Company and its Subsidiaries
may consummated Permitted Acquisitions and the Cordena
Acquisitions (and any capital assets acquired in any such
Permitted Acquisition or in the Cordena Acquisitions are not
subject to the restrictions set forth in Section 9.10(a)
hereof); and"
Section 2.07. Treatment of Cash Flow and Indebtedness of the Cordena
Group.
(a) The definition of "Gross Cash Flow" in Section 1.01 of the Credit
Agreement shall be amended by adding the following immediately following the
first parenthetical phrase therein:
", other than, solely for purposes of the definition of
"Adjusted Cash Flow" in this Section 1.01, the Cordena Group,"
(b) The reference to "Indebtedness of the Company and its Subsidiaries"
in clause (a)(i) of the definition of "Total Debt to Cash Flow Ratio" in Section
1.01 of the Credit Agreement shall be replaced with a reference to the
following:
"Indebtedness of the Company and its Subsidiaries (other than
the Bank of Scotland Debt and the ING Debt)"
(c) Clause (b) of the definition of "Cash Flow to Debt Service Ratio"
in Section 1.01 of the Credit Agreement shall be amended in its entirety to read
as follows:
"(b) Prospective Debt Service (other than any
Prospective Debt Service in respect of the Bank of Scotland
Debt or the ING Debt) for such calculation date."
3
<PAGE> 4
(d) Clause (b) of the definition of "Cash Flow to Interest Expense
Ratio" in Section 1.01 of the Credit Agreement shall be amended in its entirety
to read as follows:
"(b) Interest Expense (other than any Interest
Expense in respect of the Bank of Scotland Debt or the ING
Debt) for the period of four consecutive fiscal quarters
ending on, or most recently ended prior to, such calculation
date."
Section 3. Representations and Warranties. Each of the Obligors
represents and warrants to the Lenders that (a) the representations and
warranties set forth in Section 8 of the Credit Agreement are true and complete
on the date hereof as if made on and as of the date hereof and as if each
reference in said Section 8 to "this Agreement" included reference to this
Amendment No. 1 and (b) as of the date hereof, no Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
Section 4.01. Execution by All Parties. This Amendment No. 1 shall have
been executed and delivered by each of the parties hereto.
Section 4.02. Documents. The Agent shall have received the following
documents, each of which shall be satisfactory to the Agent in form and
substance:
(1) Pledge of Intercompany Note. Each promissory note
evidencing advances made by any of the Obligors to members of the
Cordena Group (if any), duly endorsed in blank.
(2) Pledge of Cordena and Adverbe. Certificates representing
shares of capital stock of each of Cordena and Adverbe (but only to the
extent that the capital stock of such corporation is represented by
certificates), representing at least 65% of the total capital stock of
each such corporation, together with stock powers duly executed in
blank.
(3) Bank of Scotland Documents and ING Documents. Copies of
each of the documents or other instruments evidencing or governing the
Bank of Scotland Debt and the ING Debt.
(4) Foreign Holding Corporation as a Subsidiary Guarantor. The
Company shall have complied with its obligations under Section 9.18(b)
of the Credit Agreement with respect to Foreign Holding Company.
Section 5. Joinder by Foreign Holding Company. By its signature below,
ClientLogic International Holding, Inc. hereby assumes all of the obligations of
a "Subsidiary Guarantor" and an "Obligor" under the Credit Agreement and the
other Basic
4
<PAGE> 5
Documents and agrees that it is, for all purposes of the Credit Agreement and
the other Basic Documents, a Subsidiary Guarantor and an Obligor.
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 1 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 1 by signing any such counterpart. This
Amendment No. 1 shall be governed by, and construed in accordance with, the law
of the State of New York.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC HOLDING CORPORATION
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CATALOG LIQUIDATORS, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
LCS CANADA, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CATALOG RESOURCES, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
<PAGE> 7
SPEC HOLDINGS, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
THE SPECIALIST, LTD.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
COMPUTER MARKETING SYSTEMS INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CLIENTLOGIC CORPORATION
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis, Senior Vice President
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By /s/ STEVEN M. KAWALICK
-------------------------------------------
Title: Steven M. Kawalick, President
<PAGE> 8
LENDERS
TORONTO DOMINION (TEXAS), INC.
By /s/ KIMBERLY BURLESON
-------------------------------------------
Title: Kimberly Burleson, Vice President
THE BANK OF NOVA SCOTIA
By /s/ ERIC M. KNIGHT
-------------------------------------------
Title: Eric M. Knight, Authorized
Signatory
AGENT
TORONTO DOMINION (TEXAS), INC.,
as Agent
By /s/ KIMBERLY BURLESON
-------------------------------------------
Title: Kimberly Burleson, Vice President
<PAGE> 1
EXHIBIT 4.5
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of September 1, 1999, among CLIENTLOGIC
HOLDING CORPORATION, a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the Subsidiaries of the
Company identified under the caption "Subsidiary Guarantors" on the signature
pages hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, collectively with the Company, the "Obligors"); the
lender that is a signatory hereto (the "Lender"); and TORONTO DOMINION (TEXAS),
INC., a Delaware corporation, as agent for the Lender (in such capacity,
together with its successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lender and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for loans to be made by
said Lender to the Company in an aggregate principal amount not exceeding
$60,000,000. The Company, the Subsidiary Guarantors, the Lender and the Agent
wish to amend the Credit Agreement in certain respects, and, accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 2, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
2.01. Definitions -- Section 1.01 of the Credit Agreement (Definitions)
shall be amended by adding the following new definitions (to the extent not
currently included in the Credit Agreement) and inserting the same in the
appropriate alphabetical locations, and by amending the following definitions
(to the extent currently included in the Credit Agreement) as follows:
"InsLogic Holding" shall mean InsLogic.com Holding
Corporation, a Delaware corporation.
"InsLogic Asset Transfer" shall mean, collectively, the
following transactions: (a) the transfer by ClientLogic Corporation to
InsLogic Holding of the property described on Schedule A hereto, so
long as the net book value of all such property does not exceed
$3,000,000, (b) ClientLogic Corporation making a dividend payment to
the Company consisting of all of the shares of capital stock of
InsLogic Holding, (c) the Company making a dividend payment to its
shareholders consisting of a portion of the shares of capital stock of
InsLogic Holding, (d) the Company making a capital contribution to its
Subsidiary 1293219 Ontario Inc. consisting of the balance of such
shares of capital stock of InsLogic Holding (the "Remaining Shares"),
(e) 1293219 Ontario Inc. making a capital contribution to its
Subsidiary 1293220 Ontario Inc. consisting of the
<PAGE> 2
Remaining Shares, and (f) 1293220 Ontario Inc. making a dividend
payment to is preferred shareholders consisting of the Remaining
Shares.
"Total Revenue" shall mean, for any period, the net fee
revenue of the Company and the Subsidiary Guarantors for such period.
Except for the exclusion of net fee revenue of Subsidiaries of the
Company that are not Subsidiary Guarantors, "net fee revenue" shall be
calculated in the same manner as the net fee revenue set forth on the
financial statements of the Company as at September 30, 1999 heretofore
furnished to the Lender.
2.02. Treatment of InsLogic Holding -- The following sentence shall be
added to the definition of "Subsidiary" in Section 1.01 of the Credit Agreement:
"The foregoing provisions of this definition notwithstanding, none of
InsLogic Holding and its Subsidiaries shall be deemed to be
Subsidiaries of the Company for any purpose of this Agreement (except
that the capital stock of InsLogic Holding shall be subject to the Lien
of the Security Agreement) and, accordingly, shall not be, or be
required to be, Subsidiary Guarantors or Obligors."
2.03. InsLogic Asset Transfer--
(a) The parenthetical clause in Section 2.10(c) of the Credit Agreement
(Mandatory Prepayment Upon Sale of Assets) shall be amended in its entirety to
read as follows:
"(other than a Disposition permitted under clauses (i) through (ix), or
clause (xi), of Section 9.05(b) hereof)"
(b) Section 9.05 of the Credit Agreement (Prohibition of Fundamental
Changes) shall be amended by deleting the word "and" at the end of clause
(b)(ix) thereof, replacing the period at the end of clause (x) thereof with ";
and" and by adding the following new clause (xi):
"(xi) the InsLogic Asset Transfer."
(c) Section 9.09(a) shall be amended (prior to clause (i) thereof)
shall be amended in its entirety to read as follows:
"(a) The Company will not, and will not permit any of its
Subsidiaries to, declare or make any Dividend Payment at any time,
provided that (x) the Company may make the Dividend Payments
contemplated by the InsLogic Asset Transfer and (y) the Company and its
Subsidiaries may make additional Dividend Payments so long as:"
(d) Section 9.09(b)(iv) of the Credit Agreement shall be amended by
adding the following at the end thereof:
", and to the extent contemplated by the InsLogic Asset Transfer."
2
<PAGE> 3
2.04. Amendment to Limitation on 1999 Capital Expenditures -- Section
9.10(a)(i) of the Credit Agreement shall be amended by replacing the figure
"$20,000,000" therein with the figure "$25,000,000."
2.05. Amendment to Total Debt to Cash Flow Ratio Covenant -- The table
in Section 9.14 of the Credit Agreement shall be amended in its entirety to read
as follows:
<TABLE>
<CAPTION>
"Period Total Debt to Cash Flow Ratio
------- -----------------------------
<S> <C>
March 31, 1999 to September 30, 1999 6.50 to 1
January 1, 2001 to December 31, 2001 5.00 to 1
January 1, 2002 and thereafter 4.00 to 1"
</TABLE>
2.06. Amendment to Cash Flow to Debt Service Ratio Covenant -- Section
9.15 of the Credit Agreement shall be amended in its entirety to read as
follows:
"9.15 Cash Flow to Debt Service Ratio. The Company will not
permit the Cash Flow to Debt Service Ratio as at the last day of any
fiscal quarter of the Company occurring during any of the periods set
forth below to be less than the ratio set forth below opposite such
period:
<TABLE>
<CAPTION>
"Period Cash Flow to Debt Service Ratio
------- -------------------------------
<S> <C>
March 31, 1999 to September 30, 1999 1.25 to 1
January 1, 2001 and thereafter 1.25 to 1"
</TABLE>
2.07. Amendment to Cash Flow to Interest Expense Ratio Covenant --
Section 9.16 of the Credit Agreement shall be amended in its entirety to read as
follows:
"9.16 Cash Flow to Interest Expense Ratio. The Company will
not permit the Cash Flow to Interest Expense Ratio as at the last day
of any fiscal quarter of the Company occurring during any of the
periods set forth below to be less than the ratio set forth below
opposite such period:
<TABLE>
<CAPTION>
"Period Cash Flow to Interest Expense Ratio
------- -----------------------------------
<S> <C>
March 31, 1999 to September 30, 1999 2.50 to 1
October 1, 1999 to December 31, 2000 1.00 to 1
January 1, 2001 and thereafter 2.50 to 1"
</TABLE>
3
<PAGE> 4
2.08. Treatment of Arrangements between InsLogic and the Company -- The
following sentence shall be added to the end of Section 9.12 of the Credit
Agreement (Transactions with Affiliates):
"For all purposes of this Section 9.12, each of InsLogic Holding and
its Subsidiaries shall be deemed to be an Affiliate of the Company and,
accordingly, transactions between InsLogic Holding or any of its
Subsidiaries and the Company or any of its Subsidiaries shall be
subject to the, provisions of this Section 9.12."
2.09. New Total Revenue Covenant -- A new Section 9.19 shall be added
to the Credit Agreement to read as follows:
"9.19 Minimum Total Revenue. The Company will rot permit Total
Revenue to be less than the following respective amounts for the
following respective periods:
<TABLE>
<CAPTION>
"Period Minimum Amount
------- --------------
<S> <C>
January 1, 1999 through December 31, 1999 $ 142,500,000
January 1, 2000 through March 31, 2000 $ 40,200,000
January 1, 2000 through June 30, 2000 $ 84,600,060
January 1, 2000 through September 30, 2000 $ 131,500,000
January 1, 2000 through December 31, 2000 $ 188,600,000"
</TABLE>
2.10. New Cash Flow Covenant -- A new Section 9.20 shall be added to
the Credit Agreement to read as follows:
"9.20 Minimum Cash Flow. The Company will not permit Adjusted
Cash Flow to be less than the following respective amounts for the
following respective periods:
<TABLE>
<CAPTION>
"Period Minimum Amount
------- --------------
<S> <C>
January 1, 1999 through December 31, 1999 $ 10,000,000
January 1, 2000 through March 31, 2000 $ 850,000
January 1, 2000 through June 30, 2000 $ 3,700,060
January 1, 2000 through September 30, 2000 $ 6,850,000
January 1, 2000 through December 31, 2000 $ 15,250,000"
</TABLE>
4
<PAGE> 5
2.11. New Covenants as Events of Default -- Section 10(d) of the Credit
Agreement shall be amended by replacing the reference to "9.16 or 9.17 hereof"
with a reference to "9.16, 9.17, 9.19 or 9.20 hereof".
Section 3. Representations and Warranties. Each of the Obligors
represents and warrants to the Lender that (a) the representations and
warranties set forth in Section 8 of the Credit Agreement are true and complete
on the date hereof as if made on and as of the date hereof and as if each
reference in said Section 8 to "this Agreement" included reference to this
Amendment No. 2 and (b) as of the date hereof, no Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
4.01. Execution by All Parties. This Amendment No. 2 shall have been
executed and delivered by each of the parties hereto.
4.02 InsLogic Documents. The Agent shall have received copies of each
agreement or other instrument evidencing or governing the InsLogic Asset
Transfer.
Section 5. Pledge of Stock of InsLogic Holdings. The Lender and the
Agent agree that the capital stock of InsLogic Holding shall not be required to
be pledged to the Agent under the Security Agreement, provided that if the
transactions contemplated by clauses (b) through (f) of the definition of
"InsLogic Asset Transfer" (the "Distributions") do not occur on or prior to
March 31, 2000, such capital stock shall be subject to the Lien of the Security
Agreement and the Company shall furnish to the Agent each of the certificates
representing the shares of capital stock of InsLogic Holdings held by the
Company or any of its Subsidiaries, together with stock powers duly executed in
blank. In the event that the Distributions occur after March 31, 2000, the Agent
shall release such capital stock from the Lien of the Security Agreement to
enable the Distributions to occur.
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 2 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 2 by signing any such counterpart. This
Amendment No. 2 shall be governed by, and construed in accordance with, the law
of the State of New York.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CATALOG LIQUIDATORS, INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
LCS CANADA, INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CATALOG RESOURCES, INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
SPEC HOLDINGS, INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
<PAGE> 7
THE SPECIALISTS LTD.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
COMPUTER MARKETING SYSTEM INC.
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CLIENTLOGIC CORPORATION
By: /s/ GENE MORPHIS
------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By: /s/ STEVEN M. KAWALICK
------------------------------------
Title: Steven M. Kawalick
<PAGE> 8
LENDER
ONEX CLIENTLOGIC FINANCE LLC
By: /s/ DONALD F. WEST
------------------------------------
Title: Donald F. West,
Director
AGENT
TORONTO DOMINION (TEXAS), INC., as Agent
By: /s/ KIMBERLY BURLESON
------------------------------------
Title: Kimberly Burleson
Vice President
<PAGE> 9
SCHEDULE A
Description of Property Being Transferred
Contract Rights
Asset Purchase Agreement, dated as of March 19, 1999, among Canadian Access
Insurance Services Inc., an Ontario corporation ("Seller"), the stockholders of
Seller listed on Annex A thereto, and CustomerOne Corporation, a Delaware
corporation (now known as ClientLogic Corporation).
Computer Program End-User License Agreement, dated as of March 17, 1999, between
AXINT Technologies Corporation, a Massachusetts corporation and CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation).
Custom Modification Agreement, dated as of March 19, 1999, between AXINT
Technologies Corporation, a Massachusetts corporation, and CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation).
Shared Services Agreement dated as of March 19, 1999, between CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation), and
North Direct Response, Inc., an Ontario corporation.
Commission Agreement, dated as of March 19, 1999, among CustomerOne Corporation,
a Delaware corporation (now known as ClientLogic Corporation), Paul J. Ford,
Gregory L. Zehr, and AXINT Technologies Inc., a Massachusetts corporation.
Agreement, dated as of March 19, 1999, between AXINT Technologies Inc., a
Massachusetts corporation, and CustomerOne Corporation, a Delaware corporation
(now known as ClientLogic Corporation).
Consulting, Confidentiality and Noncompetition Agreement, dated as of March 19,
1999, between CustomerOne Corporation, a Delaware corporation (now known as
ClientLogic Corporation), and John E. Jancaitis.
Consulting, Confidentiality and Noncompetition Agreement, dated as of March 19,
1999, between CustomerOne Corporation, a Delaware corporation (now known as
ClientLogic Corporation), and Lawrence Trudeau.
License Agreement, dated March 16, 1999, between Nova Data Systems, a
corporation organized under the laws of Canada, and ClientLogic Corporation, a
corporation organized under the laws of Delaware.
License Agreement, dated April 30, 1999, between Pivotal Software, Inc., a
corporation organized under the laws of Canada, and CustomerOne Corporation, a
Delaware corporation (now known as ClientLogic Corporation).
Tangible Personal Property
Miscellaneous Assets
<PAGE> 1
EXHIBIT 4.6
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of September 1, 1999, among CLIENTLOGIC
HOLDING CORPORATION, a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the Subsidiaries of the
Company identified under the caption "Subsidiary Guarantors" on the signature
pages hereto (individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, collectively with the Company, the "Obligors");
each of the lenders that is a signatory hereto (individually, a "Lender" and,
collectively, the "Lenders"); and TORONTO DOMINION (TEXAS), INC., a Delaware
corporation, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lenders and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of credit
(by making loans and issuing letters of credit) to be made by said Lenders to
the Company in an aggregate principal or face amount not exceeding $40,000,000.
The Company, the Subsidiary Guarantors, the Lender, and the Agent wish to amend
the Credit Agreement in certain respects and, accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 2, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
2.01. Definitions. Section 1.01 of the Credit Agreement (Definitions)
shall be amended by adding the following new definitions (to the extent not
currently included in the Credit Agreement) and inserting the same in the
appropriate alphabetical locations, and by amending the following definitions
(to the extent currently included in the Credit Agreement) as follows:
"InsLogic Holding" shall mean InsLogic.com Holding
Corporation, a Delaware corporation.
"InsLogic Asset Transfer" shall mean, collectively, the
following transactions: (a) the transfer by ClientLogic Corporation to
InsLogic Holding of the property described on Schedule A hereto, so
long as the net book value of all such property does not exceed
$3,000,000, (b) ClientLogic Corporation making a dividend payment to
the Company consisting of all of the shares of capital stock of
InsLogic Holding, (c) the Company making a dividend payment to its
shareholders consisting of a portion of the shares of capital stock of
InsLogic Holding, (d) the Company making a capital contribution to its
Subsidiary 1293219 Ontario Inc. consisting of the balance of such
shares of capital stock of
<PAGE> 2
InsLogic Holding (the "Remaining Shares"), (e) 1293219 Ontario Inc.
making a capital contribution to its Subsidiary 1293220 Ontario Inc.
consisting of the Remaining Shares, and (f) 1293220 Ontario Inc.
making a dividend payment to is preferred shareholders consisting of
the Remaining Shares.
"Total Revenue" shall mean, for any period, the net fee
revenue of the Company and the Subsidiary Guarantors for such period.
Except for the exclusion of net fee revenue of Subsidiaries of the
Company that are not Subsidiary Guarantors, "net fee revenue" shall be
calculated in the same manner as the net fee revenue set forth on the
financial statements of the Company as at September 30, 1999 heretofore
furnished to the Lenders.
2.02. Treatment of InsLogic Holding. The following sentence shall be
added to the definition of "Subsidiary" in Section 1.01 of the Credit Agreement:
"The foregoing provisions of this definition notwithstanding, none of
InsLogic Holding and its Subsidiaries shall be deemed to be
Subsidiaries of the Company for any purpose of this Agreement (except
that the capital stock of InsLogic Holding shall be subject to the Lien
of the Security Agreement) and, accordingly, shall not be, or be
required to be, Subsidiary Guarantors or Obligors."
2.03. InsLogic Asset Transfer.
(a) The parenthetical clause in Section 2.10(c) of the Credit Agreement
(Mandatory Prepayment Upon Sale of Assets) shall be amended in its entirety to
read as follows:
"(other than a Disposition permitted under clauses (i) through (ix), or
clause (xi), of Section 9.05(b) hereof)"
(b) Section 9.05 of the Credit Agreement (Prohibition of Fundamental
Changes) shall be amended by deleting the word "and" at the end of clause
(b)(ix) thereof, replacing the period at the end of clause (x) thereof with
"; and" and by adding the following new clause (xi):
"(xi) the InsLogic Asset Transfer."
(c) Section 9.09(a) shall be amended (prior to clause (i) thereof)
shall be amended in its entirety to read as follows:
"(a) The Company will not, and will not permit any of its
Subsidiaries to, declare or make any Dividend Payment at any time,
provided that (x) the Company may make the Dividend Payments
contemplated by the InsLogic Asset Transfer and (y) the Company and its
Subsidiaries may make additional Dividend Payments so long as:"
2
<PAGE> 3
(d) Section 9.09(b)(iv) of the Credit Agreement shall be amended by
adding the following at the end thereof:
"; and to the extent contemplated by the InsLogic Asset Transfer."
2.04. Amendment to Limitation on 1999 Capital Expenditures. Section
9.10(a)(i) of the Credit Agreement shall be amended by replacing the figure
"$20,000,000" therein with the figure "$25,000,000."
2.05. Amendment to Total Debt to Cash Flow Ratio Covenant. The table in
Section 9.14 of the Credit Agreement shall be amended in its entirety to read as
follows:
<TABLE>
<CAPTION>
"Period Total Debt to Cash Flow Ratio
------- -----------------------------
<S> <C>
March 31, 1999 to September 30, 1999 6.50 to 1
January 1, 2001 to December 31, 2001 5.00 to 1
January 1, 2002 and thereafter 4.00 to 1"
</TABLE>
2.06. Amendment to Cash Flow to Debt Service Ratio Covenant. Section
9.15 of the Credit Agreement shall be amended in its entirety to read as
follows:
"9.15 Cash Flow to Debt Service Ratio. The Company will not
permit the Cash Flow to Debt Service Ratio as at the last day of any
fiscal quarter of the Company occurring during any of the periods set
forth below to be less than the ratio set forth below opposite such
period:
<TABLE>
<CAPTION>
"Period Cash Flow to Debt Service Ratio
------- -------------------------------
<S> <C>
March 31, 1999 to September 30, 1999 1.25 to 1
January 1, 2001 and thereafter 1.25 to 1"
</TABLE>
2.07. Amendment to Cash Flow to Interest Expense Ratio Covenant.
Section 9.16 of the Credit Agreement shall be amended in its entirety to read as
follows:
"9.16 Cash Flow to Interest Expense Ratio. The Company will
not permit the Cash Flow to Interest Expense Ratio as at the last day
of any fiscal quarter of the Company occurring during any of the
periods set forth below to be less than the ratio set forth below
opposite such period:
3
<PAGE> 4
<TABLE>
<CAPTION>
"Period Cash Flow to Interest Expense Ratio
------- -----------------------------------
<S> <C>
March 31, 1999 to September 30, 1999 2.50 to 1
October 1, 1999 to December 31, 2000 1.00 to 1
January 1, 2002 and thereafter 2.50 to 1"
</TABLE>
2.08. Treatment of Arrangements between InsLogic and the Company. The
following sentence shall be added to the end of Section 9.12 of the Credit
Agreement (Transactions with Affiliates):
"For all purposes of this Section 9.12, each of InsLogic Holding and
its Subsidiaries shall be deemed to be an Affiliate of the Company and,
accordingly, transactions between InsLogic Holding or any of its
Subsidiaries and the Company or any of its Subsidiaries shall be
subject to the provisions of this Section 9.12."
2.09. New Total Revenue Covenant. A new Section 9.19 shall be added to
the Credit Agreement to read as follows:
"9.19 Minimum Total Revenue. The Company will not permit Total
Revenue to be less than the following respective amounts for the
following respective periods:
<TABLE>
<CAPTION>
Period Minimum Amount
------ --------------
<S> <C>
January 1, 1999 through December 31, 1999 $142,500,000
January 1, 2000 through March 31, 2000 40,200,00
January 1, 2000 through June 30, 2000 84,600,000
January 1, 2000 through September 30, 2000 131,500,000
January 1, 2000 through December 31, 2000 188,600,000"
</TABLE>
2.10. New Cash Flow Covenant. A new Section 9.20 shall be added to the
Credit Agreement to read as follows:
"9.20 Minimum Cash Flow. The Company will not permit Adjusted
Cash Flow to be less than the following respective amounts for the
following respective periods:
4
<PAGE> 5
<TABLE>
<CAPTION>
Period Minimum Amount
------ --------------
<S> <C>
January 1, 1999 through December 31, 1999 $10,000,000
January 1, 2000 through March 31, 2000 850,000
January 1, 2000 through June 30, 2000 3,700,000
January 1, 2000 through September 30, 2000 6,850,000
January 1, 2000 through December 31, 2000 15,250,000"
</TABLE>
2.11. New Covenants as Events of Default. Section 10(d) of the Credit
Agreement shall be amended by replacing the reference to "9.16 or 9.17 hereof"
with a reference to "9.16, 9.17, 9.19 or 9.20 hereof".
Section 3. Representations and Warranties. Each of the Obligors
represents and warrants to the Lenders that (a) the representations and
warranties set forth in Section 8 of the Credit Agreement are true and complete
on the date hereof as if made on and as of the date hereof and as if each
reference in said Section 8 to "this Agreement" included reference to this
Amendment No. 2 and (b) as of the date hereof, no Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
4.01. Execution by All Parties. This Amendment No. 2 shall have been
executed and delivered by each of the parties hereto.
4.02. InsLogic Documents. The Agent shall have received copies of each
agreement or other instrument evidencing or governing the InsLogic Asset
Transfer.
Section 5. Pledge of Stock of InsLogic Holdings. The Lenders and the
Agent agree that the capital stock of InsLogic Holding shall not be required to
be pledged to the Agent under the Security Agreement, provided that if the
transactions contemplated by clauses (b) through (f) of the definition of
"InsLogic Asset Transfer" (the "Distributions") do not occur on or prior to
March 31, 2000, such capital stock shall be subject to the Lien of the Security
Agreement and the Company shall furnish to the Agent each of the certificates
representing the shares of capital stock of InsLogic Holdings held by the
Company or any of its Subsidiaries, together with stock powers duly executed in
blank. In the event that the Distributions occur after March 31, 2000, the Agent
shall release such capital stock from the Lien of the Security Agreement to
enable the Distributions to occur.
5
<PAGE> 6
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 2 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 2 by signing any such counterpart. This
Amendment No. 2 shall be governed by, and construed in accordance with, the law
of the State of New York.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC HOLDING CORPORATION
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CATALOG LIQUIDATORS, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
LCS CANADA, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
<PAGE> 8
CATALOG RESOURCES, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
SPEC HOLDINGS, INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
THE SPECIALISTS LTD.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
COMPUTER MARKETING SYSTEMS INC.
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
CLIENTLOGIC CORPORATION
By /s/ GENE MORPHIS
-------------------------------------------
Title: Gene Morphis,
Chief Financial Officer
<PAGE> 9
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By /s/ STEVEN M. KAWALICK
-------------------------------------------
Title: Steven M. Kawalick,
President
LENDERS
TORONTO DOMINION (TEXAS), INC.
By /s/ DIANE BAILEY
-------------------------------------------
Title: Diane Bailey,
Vice President
THE BANK OF NOVA SCOTIA
By /s/ ERIC M. KNIGHT
-------------------------------------------
Title: Eric M. Knight,
Authorized Signatory
AGENT
TORONTO DOMINION (TEXAS), INC.,
as Agent
By /s/ KIMBERLY BURLESON
-------------------------------------------
Title: Kimberly Burleson,
Vice President
<PAGE> 10
SCHEDULE A
Description of Property Being Transferred
Contract Rights
Asset Purchase Agreement, dated as of March 19, 1999, among Canadian Access
Insurance Services Inc., an Ontario corporation ("Seller"), the stockholders of
Seller listed on Annex A thereto, and CustomerOne Corporation, a Delaware
corporation (now known as ClientLogic Corporation).
Computer Program End-User License Agreement, dated as of March 17, 1999, between
AXINT Technologies Corporation, a Massachusetts corporation and CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation).
Custom Modification Agreement, dated as of March 19, 1999, between AXINT
Technologies Corporation, a Massachusetts corporation, and CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation).
Shared Services Agreement dated as of March 19, 1999, between CustomerOne
Corporation, a Delaware corporation (now known as ClientLogic Corporation), and
North Direct Response, Inc., an Ontario corporation.
Commission Agreement, dated as of March 19, 1999, among CustomerOne Corporation,
a Delaware corporation (now known as ClientLogic Corporation), Paul J. Ford,
Gregory L. Zehr, and AXINT Technologies Inc., a Massachusetts corporation.
Agreement, dated as of March 19, 1999, between AXINT Technologies Inc., a
Massachusetts corporation, and CustomerOne Corporation, a Delaware corporation
(now known as ClientLogic Corporation).
Consulting, Confidentiality and Noncompetition Agreement, dated as of March 19,
1999, between CustomerOne Corporation, a Delaware corporation (now known as
ClientLogic Corporation), and John E. Jancaitis.
Consulting, Confidentiality and Noncompetition Agreement, dated as of March 19,
1999, between CustomerOne Corporation, a Delaware corporation (now known as
ClientLogic Corporation), and Lawrence Trudeau.
License Agreement, dated March 16, 1999, between Nova Data Systems, a
corporation organized under the laws of Canada, and ClientLogic Corporation, a
corporation organized under the laws of Delaware.
License Agreement, dated April 30, 1999, between Pivotal Software, Inc., a
corporation organized under the laws of Canada, and CustomerOne Corporation, a
Delaware corporation (now known as ClientLogic Corporation).
Tangible Personal Property
Miscellaneous Assets
<PAGE> 1
EXHIBIT 4.7
AMENDMENT NO. 3
AMENDMENT NO. 3 dated as of March 10, 2000, among CLIENTLOGIC
CORPORATION, a corporation duly organized and validly existing under the laws
of the State of Delaware (f/k/a ClientLogic Holding Corporation) (the
"Company"); each of the Subsidiaries of the Company identified under the
caption "Subsidiary Guarantors" on the signature pages hereto (individually, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and,
collectively with the Company, the "Obligors"); the lender that is a signatory
hereto (the "Lender"); and TORONTO DOMINION (TEXAS), INC., a Delaware
corporation, as agent for the Lender (in such capacity, together with its
successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lender and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of
credit (by making loans) to be made by said Lender to the Company in an
aggregate principal or face amount not exceeding $60,000,000. The Company, the
Subsidiary Guarantors, the Lender and the Agent wish to amend the Credit
Agreement in certain respects and, accordingly, the parties hereto hereby agree
as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 3, terms defined in the Credit Agreement are used herein as defined
therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof,
the Credit Agreement shall be amended as follows:
2.01. Definitions -- Section 1.01 of the Credit Agreement shall be
amended by adding the following new definitions (to the extent not currently
included in the Credit Agreement) and inserting the same in the appropriate
alphabetical locations, and by amending the following definitions (to the
extent currently included in the Credit Agreement) as follows:
"Basic Documents" shall mean, collectively, this Agreement,
the Notes, the Security Documents and the Subordination Agreement.
"Equity Issuance" shall mean (a) any issuance or sale by the
Company or any of its Subsidiaries after the Closing Date of (i) any
capital stock, (ii) any Equity Rights (other than Equity Rights issued
to directors, officers or employees of the Company or any of its
Subsidiaries pursuant to employee benefit plans established in the
ordinary course of business and any capital stock of the Company
issued upon the exercise of such Equity Rights) or (iii) any other
security or instrument representing an equity interest (or the right
to obtain any equity interest) in the Company or any of its
Subsidiaries or (b) the
<PAGE> 2
receipt by the Company or any of its Subsidiaries after the Closing
Date of any capital contribution (whether or not evidenced by any
equity security issued by the recipient of such contribution);
provided that an Equity Issuance shall not include (v) any such
issuance or sale by any Subsidiary of the Company to the Company or
any Wholly Owned Subsidiary of the Company, (w) any capital
contribution by the Company or any Wholly Owned Subsidiary of the
Company to any Subsidiary of the Company, (x) any capital contribution
to the Company or any of its Subsidiaries made for the purpose of
effecting a Permitted Acquisition, (y) any such issuance or sale in
respect of Equity Rights listed on Schedule 8.13, and (z) cash
payments in lieu of issuing fractional shares in an aggregate of
amount not to exceed $25,000.
"Net Available Proceeds" shall mean, with respect to any
Equity Issuance, the aggregate amount of all cash received by the
Company and its Subsidiaries in respect of such Equity Issuance, net
of reasonable expenses incurred by the Company and its Subsidiaries in
connection therewith.
"Subordination Agreement" shall mean a Subordination
Agreement among the holders of the Subordinated Bridge Debt, the
Obligors, the Agent and the agent under the Onex Finance Credit
Agreement, in substantially the form of Exhibit A hereto, as the same
shall be modified and supplemented and in effect from time to time.
"Subordinated Bridge Debt" shall mean Indebtedness in an
aggregate principal amount not to exceed $25,000,000 at any one time
outstanding, with a scheduled maturity no earlier than May 26, 2006.
2.02. Additional Mandatory Prepayment Event -- Section 2.05(a) of the
Credit Agreement shall be amended by retitling the caption to read "(b) Excess
Cash Flow and Equity Issuances."; a "(i)" shall be inserted immediately prior
to the first sentence thereof; and the following new clause (a)(ii) shall be
added thereto:
(ii) On the date that any Equity Issuance shall occur, the
Company shall prepay Loans in an aggregate amount equal to 100% of the
Net Available Proceeds thereof, such prepayment to be applied to the
installments of the Loans in the inverse order of the maturity
thereof."
2.03. Amendment to Negative Pledge -- Section 9.06 of the Credit
Agreement shall be amended by deleting the word "and" at the end of clause (m)
thereof, replacing the period at the end of clause (n) thereof with "; and" and
by adding the following new clause (o):
"(o) Liens securing the Subordinated Bridge Debt, so long as
(a) such Liens are created no earlier than six months after the
incurrence of any Subordinated Bridge Debt, and (b) such Liens are
junior and subordinate to the Liens created pursuant to the Security
Documents."
<PAGE> 3
2.04. Amendment to Indebtedness Covenant -- Section 9.07 of the Credit
Agreement shall be amended by deleting the word "and" at the end of clause (k)
thereof, replacing the period at the end of clause (l) thereof with a
semi-colon and by adding the following new clauses (m) and (n):
"(m) Subordinated Bridge Debt; and
(n) Indebtedness in an aggregate principal amount not to
exceed Cdn$4,000,000 representing advances made to ClientLogic Canada
Corporation by the Province of New Brunswick (or any agency or
instrumentality of the Province of New Brunswick)."
2.05. Amendment to Minimum Cash Flow Covenant -- Section 9.20 of the
Credit Agreement shall be amended by (a) replacing the figure "$10,000,000"
therein with the figure "$8,000,000" and (b) replacing the figure "$850,000"
therein with the figure "$0."
2.06. Amendment to Schedule 8.13 -- Schedule 8.13 of the Credit
Agreement shall be amended by deleting it in its entirety and replacing same
with Schedule 8.13 hereto.
Section 3. Representations and Warranties. Each of the Obligors
represents and warrants to the Lender that (a) the representations and
warranties set forth in Section 8 of the Credit Agreement are true and complete
on the date hereof as if made on and as of the date hereof and as if each
reference in said Section 8 to "this Agreement" included reference to this
Amendment No. 3 and (b) as of the date hereof, no Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
4.01. Execution by All Parties. This Amendment No. 3 shall have been
executed and delivered by each of the parties hereto.
4.02. Subordination Agreement. The Agent and each Lender shall have
received copies of the Subordination Agreement, duly executed and delivered by
the parties thereto.
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 3 may be executed in any number of counterparts, all of which taken
together shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment No. 3 by signing any such
<PAGE> 4
counterpart. This Amendment No. 3 shall be governed by, and construed in
accordance with, the law of the State of New York.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
3 to be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC CORPORATION
By /s/ MARK R. BRIGGS
-----------------------
Title:
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By /s/ MARK R. BRIGGS
-----------------------
Title:
CATALOG LIQUIDATORS, INC.
By /s/ MARK R. BRIGGS
-----------------------
Title:
LCS CANADA, INC.
By /s/ MARK R. BRIGGS
-----------------------
Title:
CATALOG RESOURCES, INC.
By /s/ MARK R. BRIGGS
-----------------------
Title:
SPEC HOLDINGS, INC.
By /s/ MARK R. BRIGGS
-----------------------
Title:
<PAGE> 6
THE SPECIALISTS LTD.
By /s/ MARK R. BRIGGS
------------------------------
Title:
COMPUTER MARKETING SYSTEMS INC.
By /s/ MARK R. BRIGGS
--------------------------------------
Title:
CLIENTLOGIC OPERATING CORPORATION
By /s/ MARK R. BRIGGS
--------------------------------------
Title:
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By /s/ STEVEN M. KAWALICK
--------------------------------------
Title:
MARKETVISION, INC.
By /s/ MARK R. BRIGGS
--------------------------------------
Title:
<PAGE> 7
Lender
ONEX CLIENTLOGIC FINANCE LLC
By /s/ DONALD P. WEISS
-------------------------------------
Title:
AGENT
TORONTO DOMINION (TEXAS), INC.,
as Agent
By /s/ DIANE BAILEY
-------------------------------------
Title:
<PAGE> 8
EXHIBIT A
Form of Subordination Agreement
<PAGE> 1
EXHIBIT 4.8
[EXECUTION COPY]
AMENDMENT NO. 3
AMENDMENT NO. 3 dated as of March 10, 2000, among CLIENTLOGIC CORPORATION, a
corporation duly organized and validly existing under the laws of the State of
Delaware (f/k/a ClientLogic Holding Corporation) (the "Company"); each of the
Subsidiaries of the Company identified under the caption "Subsidiary Guarantors"
on the signature pages hereto (individually, a "Subsidiary Guarantor" and,
collectively, the "Subsidiary Guarantors" and, collectively with the Company,
the "Obligors"); each of the lenders that is a signatory hereto (individually, a
"Lender" and, collectively, the "Lenders"); and TORONTO DOMINION (TEXAS), INC.,
a Delaware corporation, as agent for the Lenders (in such capacity, together
with its successors in such capacity, the "Agent").
The Company, the Subsidiary Guarantors, the Lenders and the Agent are
parties to a Credit Agreement dated as of May 25, 1999 (as heretofore modified
and supplemented and in effect on the date hereof, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of credit
(by making loans and issuing letters of credit) to be made by said Lenders to
the Company in an aggregate principal or face amount not exceeding $40,000,000.
The Company, the Subsidiary Guarantors, the Lenders and the Agent wish to amend
the Credit Agreement in certain respects and, accordingly, the parties hereto
hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment No. 3,
terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, but effective as of the date hereof, the
Credit Agreement shall be amended as follows:
2.01. Definitions -- Section 1.01 of the Credit Agreement shall be amended
by adding the following new definitions (to the extent not currently included in
the Credit Agreement) and inserting the same in the appropriate alphabetical
locations, and by amending the following definitions (to the extent currently
included in the Credit Agreement) as follows:
"Basic Documents" shall mean, collectively, this Agreement, the Notes,
the Letter of Credit Documents, the Security Documents and the Subordination
Agreement.
"Equity Issuance" shall mean (a) any issuance or sale by the Company or
any of its Subsidiaries after the Closing Date of (i) any capital stock,
(ii) any Equity Rights (other than Equity Rights issued to directors,
officers or employees of the Company or any of its Subsidiaries pursuant to
employee benefit plans established in the ordinary course of business and
any capital stock of the Company issued upon the exercise of such Equity
Rights) or (iii) any other security or instrument representing an equity
interest (or
<PAGE> 2
the right to obtain any equity interest) in the Company or any of its
Subsidiaries or (b) the receipt by the Company or any of its Subsidiaries
after the Closing Date of any capital contribution (whether or not evidenced
by any equity security issued by the recipient of such contribution);
provided that an Equity Issuance shall not include (v) any such issuance or
sale by any Subsidiary of the Company to the Company or any Wholly Owned
Subsidiary of the Company, (w) any capital contribution by the Company or
any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company,
(x) any capital contribution to the Company or any of its Subsidiaries made
for the purpose of effecting a Permitted Acquisition, (y) any such issuance
or sale in respect of Equity Rights listed on Schedule 8.13, and (z) cash
payments in lieu of issuing fractional shares in an aggregate of amount not
to exceed $25,000.
"Net Available Proceeds" shall mean, with respect to any Equity
Issuance, the aggregate amount of all cash received by the Company and its
Subsidiaries in respect of such Equity Issuance, net of reasonable expenses
incurred by the Company and its Subsidiaries in connection therewith and net
of any payments required to be made in connection with such Equity Issuance
in respect of the Onex Finance Credit Agreement.
"Subordination Agreement" shall mean a Subordination Agreement among the
holders of the Subordinated Bridge Debt, the Obligors, the Agent and the
agent under the Onex Finance Credit Agreement, in substantially the form of
Exhibit A hereto, as the same shall be modified and supplemented and in
effect from time to time.
"Subordinated Bridge Debt" shall mean Indebtedness in an aggregate
principal amount not to exceed $25,000,000 at any one time outstanding, with
a scheduled maturity no earlier than May 26, 2006.
2.02. Additional Mandatory Prepayment Event -- Section 2.10(b) of the
Credit Agreement shall be amended by retitling the caption to read "(b) Excess
Cash Flow and Equity Issuances."; a "(i)" shall be inserted immediately prior to
the first sentence thereof; and the following new clause (b)(ii) shall be added
thereto:
(ii) On the date that any Equity Issuance shall occur, the Company shall
prepay Loans (and, to the extent provided in clause (e) below, provide cover
for Letter of Credit Liabilities), (but the Commitments shall not be subject
to automatic reduction), in an aggregate amount equal to 100% of the Net
Available Proceeds thereof, such prepayment to be effected in each case in
the manner and to the extent specified in paragraph (d) of this Section
2.10."
2.03. Amendment to Negative Pledge -- Section 9.06 of the Credit Agreement
shall be amended by deleting the word "and" at the end of clause (m) thereof,
replacing the period at the end of clause (n) thereof with "; and" and by adding
the following new clause (o):
<PAGE> 3
"(o) Liens securing the Subordinated Bridge Debt, so long as (a) such
Liens are created no earlier than six months after the incurrence of any
Subordinated Bridge Debt, and (b) such Liens are junior and subordinate to
the Liens created pursuant to the Security Documents."
2.04. Amendment to Indebtedness Covenant -- Section 9.07 of the Credit
Agreement shall be amended by deleting the word "and" at the end of clause (k)
thereof, replacing the period at the end of clause (l) thereof with a semi-colon
and by adding the following new clauses (m) and (n):
"(m) Subordinated Bridge Debt; and
(n) Indebtedness in an aggregate principal amount not to exceed
Cdn$4,000,000 representing advances made to ClientLogic Canada Corporation
by the Province of New Brunswick (or any agency or instrumentality of the
Province of New Brunswick)."
2.05. Amendment to Minimum Cash Flow Covenant -- Section 9.20 of the Credit
Agreement shall be amended by (a) replacing the figure "$10,000,000" therein
with the figure "$8,000,000" and (b) replacing the figure "$850,000" therein
with the figure "$0."
2.06. Amendment to Schedule 8.13 -- Schedule 8.13 of the Credit Agreement
shall be amended by deleting it in its entirety and replacing same with Schedule
8.13 hereto.
Section 3. Representations and Warranties. Each of the Obligors represents
and warrants to the Lenders that (a) the representations and warranties set
forth in Section 8 of the Credit Agreement are true and complete on the date
hereof as if made on and as of the date hereof and as if each reference in said
Section 8 to "this Agreement" included reference to this Amendment No. 3 and (b)
as of the date hereof, no Default is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Credit Agreement set forth in said Section 2 shall become
effective, as of the date hereof, upon the satisfaction of the following
conditions precedent:
4.01. Execution by All Parties. This Amendment No. 3 shall have been
executed and delivered by each of the parties hereto.
4.02. Subordination Agreement. The Agent and each Lender shall have received
copies of the Subordination Agreement, duly executed and delivered by the
parties thereto.
<PAGE> 4
Section 5. Miscellaneous. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 3 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 3 by signing any such counterpart. This Amendment
No. 3 shall be governed by, and construed in accordance with, the law of the
State of New York.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be duly executed and delivered as of the day and year first above written.
CLIENTLOGIC CORPORATION
By /s/ MARK R. BRIGGS
------------------------------------
Title:
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
CATALOG LIQUIDATORS, INC.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
LCS CANADA, INC.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
CATALOG RESOURCES, INC.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
SPEC HOLDINGS, INC.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
<PAGE> 6
THE SPECIALISTS LTD.
By /s/ MARK R. BRIGGS
------------------------------------
Title:
COMPUTER MARKETING SYSTEMS INC.
By /s/ MARK R. BRIGGS
-------------------------------------
Title:
CLIENTLOGIC OPERATING CORPORATION
By /s/ MARK R. BRIGGS
------------------------------------
Title:
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By /s/ STEVEN M. KAWALICK
--------------------------------------
Title:
MARKETVISION, INC.
By /s/ MARK R. BRIGGS
-------------------------------------
Title:
<PAGE> 7
LENDERS
TORONTO DOMINION (TEXAS), INC.
By /s/ DIANE BAILEY
--------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By /s/ [ILLEGIBLE]
--------------------------------------
Title:
AGENT
TORONTO DOMINION (TEXAS), INC.,
as Agent
By /s/ DIANE BAILEY
-------------------------------------
Title:
<PAGE> 1
EXHIBIT 4.9
[EXECUTION COPY]
************************************************************
CLIENTLOGIC CORPORATION
(f/k/a ClientLogic Holding Corporation)
-----------------------------
CREDIT AGREEMENT
Dated as of March 10, 2000
------------------------------
TORONTO DOMINION (TEXAS), INC.
as Agent and Bookrunner
************************************************************
<PAGE> 2
i
Page
----
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions and Accounting Matters 1
1.1 Certain Defined Terms 1
1.1.3.1 Accounting Terms and Determinations 14
1.2 Classes and Types of Loans 14
Section 2. Commitments, Loans, Notes and Prepayments 15
2.1 Loans 15
2.2 Borrowings of Loans 15
2.3 Changes of Commitments 15
2.4 Lending Offices 16
2.5 Several Obligations; Remedies Independent 16
2.6 Notes 16
2.7 Optional Prepayments and Conversions or Continuations of Loans 17
2.8 Certain Fees 17
2.9 Commitment Fee 17
2.10 Mandatory Prepayments and Reductions of Commitments 17
Section 3. Payments of Principal and Interest 18
3.1 Repayment of Loans 18
3.2 Interest 18
Section 3.2.2.1 Payments; Pro Rata Treatment; Computations; Etc. 19
3.3 Payments 19
3.4 Pro Rata Treatment 19
3.5 Computations 20
3.6 Minimum Amounts 20
3.7 Certain Notices 20
3.8 Non-Receipt of Funds by the Agent 21
3.8.0.0.0.2.1 Sharing of Payments, Etc. 22
Section 3.8.4.1 Yield Protection, Etc. 23
3.9 Additional Costs 23
3.10 Limitation on Types of Loans 25
3.11 Illegality 25
3.12 Treatment of Affected Loans 25
3.13 Compensation 26
3.14 Replacement Lenders under Certain Circumstances 27
3.15 Foreign Lenders 27
Section 4. Guarantee 28
4.1 The Guarantee 28
4.2 Obligations Unconditional 28
4.3 Reinstatement 29
4.4 Subrogation 29
4.5 Remedies 29
4.6 Continuing Guarantee 29
4.7 Rights of Contribution 30
4.8 General Limitation on Guarantee Obligations 30
Section 5. Conditions Precedent 31
5.1 Conditions for the Initial Loans 31
5.2 Conditions for all Extensions of Credit 32
</TABLE>
<PAGE> 3
ii
<TABLE>
<S> <C> <C>
Section 5.2.1 Representations and Warranties 32
5.3 Corporate Existence 32
5.4 Financial Condition 32
5.5 Litigation 33
5.6 No Breach 33
5.7 Action 33
5.8 Approvals 34
5.9 Use of Credit 34
5.10 ERISA 34
5.11 Taxes 34
5.12 Investment Company Act 34
5.12.1 Public Utility Holding Company Act 34
5.13 Environmental Matters 34
5.14 Capitalization 35
5.15 True and Complete Disclosure 35
5.16 Year 2000 35
Section 6. Covenants of the Company 35
6.1 Financial Statements, Etc. 35
6.2 Litigation 38
6.3 Existence, Etc. 38
6.4 Insurance 39
6.5 Prohibition of Fundamental Changes 39
6.6 [Reserved] 39
6.7 [Reserved] 39
6.8 [Reserved] 39
6.9 [Reserved] 39
6.10 [Reserved] 39
6.11 Lines of Business 39
6.12 Transactions with Affiliates 39
6.13 Use of Proceeds 39
6.13.1 Total Debt to Cash Flow Ratio 40
6.14 Cash Flow to Debt Service Ratio 40
6.15 Cash Flow to Interest Expense Ratio 40
6.16 Management Fee Payments 40
6.17 Holding Company; Subsidiaries; Etc 40
6.18 Minimum Total Revenue 41
6.19 Minimum Cash Flow 41
6.20 Post-closing Liens 41
Section 6.20.1 Events of Default 42
Section 7. The Agent 44
7.1 Appointment, Powers and Immunities 44
7.2 Reliance by Agent 44
7.3 Defaults 45
7.4 Rights as a Lender 45
7.5 Indemnification 45
7.6 Non-Reliance on Agent and Other Lenders 45
7.7 Failure to Act 46
7.8 Resignation or Removal of Agent 46
7.9 Consents under Other Basic Documents 46
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C> <C>
Section 8. Miscellaneous 47
8.1 Waiver 47
8.2 Notices 47
8.3 Expenses, Etc. 47
8.4 Amendments, Etc. 48
8.5 Successors and Assigns 48
8.6 Assignments and Participations 48
8.7 Survival 50
8.8 Captions 50
8.9 Counterparts 50
8.10 Governing Law; Submission to Jurisdiction 50
8.11 Waiver of Jury Trial 50
8.12 Confidentiality 50
8.13 Senior Credit Agreement Terms 51
SCHEDULE 8.02 - Matters Not Disclosed in December 31, 1998 Financials
SCHEDULE 8.04 - Required Consents
SCHEDULE 8.09 - Certain Tax Matters
SCHEDULE 8.13 - Capitalization
SCHEDULE 8.15 - Year 2000 Compliance Costs
EXHIBIT A-1 - Form of Tranche 1 Note
EXHIBIT A-2 - Form of Tranche 2 Note
EXHIBIT B - Form of Opinion of Counsel to the Obligors
EXHIBIT C - Form of Opinion of Special Counsel to TD
EXHIBIT D - Form of Assignment Agreement
</TABLE>
<PAGE> 5
1
CREDIT AGREEMENT dated as of March 10, 2000 among:
(a) CLIENTLOGIC CORPORATION, a corporation duly organized and validly
existing under the laws of the State of Delaware (f/k/a ClientLogic Holding
Corporation) (the "Company");
(b) Each of the Subsidiaries of the Company identified under the
caption "Subsidiary Guarantors" on the signature pages hereto (together with
each Subsidiary of the Company that becomes a Subsidiary Guarantor pursuant to
Section 9.18(b) hereof, individually, a "Subsidiary Guarantor" and,
collectively, the "Subsidiary Guarantors", and the Subsidiary Guarantors
collectively with the Company, the "Obligors");
(c) Each of the lenders that is a signatory hereto identified under
the caption "Lenders" on the signature pages hereto or that, pursuant to Section
12.06(b) hereof, shall become a "Lender" hereunder (individually, a "Lender"
and, collectively, the "Lenders"); and
(d) TORONTO DOMINION (TEXAS), INC., as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent").
The Obligors have requested that the Lenders make extensions of credit to
the Company and, to induce the Lenders to make such extensions of credit, the
Obligors propose to enter into this Agreement pursuant to which the Lenders will
make extensions of credit to the Company, and each Subsidiary Guarantor will
guarantee the extensions of credit so made to the Company hereunder.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.1. Certain Defined Terms. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Additional Costs" shall have the meaning set forth in Section 5.01(a)
hereof.
"Adjusted Cash Flow" shall mean, for any period, Gross Cash Flow for such
period, reduced by the excess (if any) of:
(a) the aggregate amount of Gross Cash Flow generated by all Foreign
Subsidiaries of the Company for such period, over
(b) an amount equal to 20% of Gross Cash Flow for such period.
"Advance Date" shall have the meaning set forth in Section 4.06 hereof.
"Adverbe" shall mean Groupe Adverbe International S.A., a French
corporation.
<PAGE> 6
2
"Affiliate" shall mean any Person that directly or indirectly controls, or
is under common control with, or is controlled by, the Company and, if such
Person is an individual, any member of the immediate family (including parents,
spouse, children and siblings) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise). Notwithstanding the foregoing, (a) no individual shall
be an Affiliate solely by reason of his or her being a director, officer or
employee of the Company or any of its Subsidiaries; (b) none of the Subsidiaries
of the Company shall be Affiliates; and (c) neither the Agent nor any Lender
shall be an Affiliate.
"Agent" shall have the meaning given to that term in the preamble to this
Agreement.
"Agreement" shall mean this Credit Agreement as amended, modified and
supplemented and in effect from time to time.
"Applicable Lending Office" shall mean, for each Lender and for each Type
of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
office of such Lender (or of an affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Company as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, for any date occurring:
1.1.1. on and after the Closing Date through and including July 9,
2000, (i) in the case of any Eurodollar Loan, 4.50% per annum, and (ii) in
the case of any Base Rate Loan, 3.50% per annum;
1.1.2. on and after July 10, 2000 through and including September 9,
2000, (i) in the case of any Eurodollar Loan, 5.50% per annum, and (ii) in
the case of any Base Rate Loan, 4.50% per annum; and
1.1.3. on September 10, 2000 and thereafter, (i) in the case of any
Eurodollar Loan, 7.50% per annum, and (ii) in the case of any Base Rate
Loan, 6.50% per annum.
"Bank of Scotland Debt" shall mean Indebtedness of the Cordena Group held
by Bank of Scotland in an aggregate principal amount not to exceed 29,000,000
Dutch guilders.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate
for such day. Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take effect as of
the opening of business on the date on which such change in the Base Rate became
effective.
<PAGE> 7
3
"Base Rate Loans" shall mean Loans that bear interest at rates based upon
the Base Rate.
"Basic Documents" shall mean, collectively, this Agreement and the Notes.
"Basle Accord" shall have the meaning given to such term in Section 5.01(c)
hereof.
"Business Day" shall mean (a) any day on which commercial banks are not
authorized or required to close in New York City and (b) if such day relates to
the giving of notices in connection with a borrowing of, a payment or prepayment
of principal of or interest on, a Conversion of or into, or an Interest Period
for, a Eurodollar Loan or a notice by the Company with respect to any such
borrowing, payment, prepayment, Conversion or Interest Period, any day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Company or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals and
improvements, but excluding replacements and repairs to the extent expensed in
accordance with GAAP) during such period computed in accordance with GAAP.
"Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Cash Flow to Interest Expense Ratio" shall mean, as at any date for the
calculation thereof, the ratio of:
(a) Adjusted Cash Flow for the period of four consecutive fiscal
quarters ending on, or most recently ended prior to, such date; to
(b) Interest Expense (other than any Interest Expense in respect of
the Bank of Scotland Debt or the ING Debt) for the period of four
consecutive fiscal quarters ending on, or most recently ended prior to,
such calculation date.
"Cash Flow to Debt Service Ratio" shall mean, as at any date of the
calculation thereof, the ratio of:
(a) Adjusted Cash Flow for the four consecutive fiscal quarters
ending on, or most recently ended prior to, such date; to
(b) Prospective Debt Service (other than any Prospective Debt Service
in respect of the Bank of Scotland Debt or the ING Debt) for such
calculation date.
"Class" shall have the meaning given to that term in Section 1.03 hereof.
<PAGE> 8
4
"Closing Date" shall mean the date upon which the initial Loans hereunder
are made.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment Percentage" shall mean, with respect to any Tranche 2 Lender,
the ratio of (a) the amount of the Tranche 2 Commitment of such Lender to (b)
the aggregate amount of the Tranche 2 Commitments of all of the Tranche 2
Lenders.
"Commitments" shall mean the Tranche 1 Commitments and the Tranche 2
Commitments.
"Company" shall have the meaning given to that term in the preamble to this
Agreement.
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.07 hereof of a Eurodollar Loan as a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.07 hereof of one Type of Loans into another Type of Loans.
"Cordena" shall mean Cordena Call Management B.V., a Netherlands Antilles
corporation.
"Cordena Group" shall mean Cordena, Adverbe and their respective
Subsidiaries.
"Debt for Borrowed Money" shall mean, for any Person: (a) obligations
created, issued, assumed or incurred by such Person for borrowed money (whether
by loan, the issuance and sale of debt securities or the sale of Property to
another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such Property from such Person, and including, without
limitation, all obligations evidenced by a note, bond, debenture or other
similar instrument); and (b) Capital Lease Obligations of such Person.
"Debt Issuance" shall mean an issuance by the Company or any of its
Subsidiaries after the Closing Date of any Debt for Borrowed Money, other than
Debt for Borrowed Money hereunder and under the Senior Credit Agreement and the
Onex Credit Agreement.
"Default" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Environmental Claim" shall mean, with respect to any Person, any written
notice, claim, demand or other communication (collectively, a "claim") by any
other Person alleging or asserting such Person's liability for investigatory
costs, cleanup costs, governmental response costs, damages to natural resources
or other Property, personal injuries, fines or penalties arising out of, based
on or resulting from (i) the presence, or Release into the environment, of any
Hazardous Material at any location, whether or not owned by such Person, or (ii)
circumstances forming the basis of
<PAGE> 9
5
any violation, or alleged violation, of any Environmental Law. The term
"Environmental Claim" shall include, without limitation, any claim by any
governmental authority for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Laws" shall mean, to the extent applicable, any and all
present and future federal, state, local and foreign laws, rules or regulations,
and any orders or decrees, in each case as now or hereafter in effect, relating
to the regulation or protection of the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes into the environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
"Equity Issuance" shall mean (a) any issuance or sale by the Company or any
of its Subsidiaries after the Closing Date of (i) any capital stock, (ii) any
Equity Rights (other than Equity Rights issued to directors, officers or
employees of the Company or any of its Subsidiaries pursuant to employee benefit
plans established in the ordinary course of business and any capital stock of
the Company issued upon the exercise of such Equity Rights) or (iii) any other
security or instrument representing an equity interest (or the right to obtain
any equity interest) in the Company or any of its Subsidiaries or (b) the
receipt by the Company or any of its Subsidiaries after the Closing Date of any
capital contribution (whether or not evidenced by any equity security issued by
the recipient of such contribution); provided that an Equity Issuance shall not
include (v) any such issuance or sale by any Subsidiary of the Company to the
Company or any Wholly Owned Subsidiary of the Company, (w) any capital
contribution by the Company or any Wholly Owned Subsidiary of the Company to any
Subsidiary of the Company, (x) any capital contribution to the Company or any of
its Subsidiaries made for the purpose of effecting a "Permitted Acquisition" as
such term is defined in the Senior Credit Agreement, (y) any such issuance or
sale in respect of Equity Rights listed on Schedule 8.13 to the Senior Credit
Agreement, and (z) cash payments in lieu of issuing fractional shares in an
aggregate of amount not to exceed $25,000.
"Equity Rights" shall mean, with respect to any Person, any subscriptions,
options, warrants, commitments, preemptive rights or agreements of any kind
(including, without limitation, any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or securities convertible
into, any additional shares of capital stock of any class, or partnership or
other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
<PAGE> 10
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"Eurodollar Loans" shall mean Loans that bear interest at rates based on
the Eurodollar Rate.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any
Interest Period therefor, a rate per annum determined by the Agent to be equal
to:
(a) the rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) on the date two Business Days prior to the first
day of such Interest Period on Dow Jones Telerate Service Page 3750 as the
London interbank offered rate for Dollar deposits having a term comparable
to such Interest Period and in an amount equal to or greater than
$1,000,000, divided by
(b) 1 minus the Reserve Requirement (if any) for such Eurodollar Loan
for such Interest Period.
"Event of Default" shall have the meaning given to that term in Section 10
hereof.
"Excess Cash Flow" shall mean, for any period, the sum of the following for
the Company and its Subsidiaries:
(a) the sum of (i) Gross Cash Flow for such period plus (ii)
decreases in working capital for such period, minus
(b) the sum of the following:
(i) Capital Expenditures made during such period, plus
(ii) Retrospective Debt Service for such period, plus
(iii) Management Fees paid during such period, plus
(iv) taxes paid in cash during such period, plus
(v) increases in working capital during such period.
For purposes of this definition, "working capital" shall have the meaning given
to that term by GAAP, but shall not include (x) any of the Loans, (y) any
current maturities of long-term debt or (z) any cash balances.
"Excess Funding Subsidiary Guarantor" shall have the meaning given to that
term in Section 6.07 hereof.
"Excess Payment" shall have the meaning given to that term in Section 6.07
hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day,
<PAGE> 11
7
as published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average of the rates quoted to the Agent by three federal funds
brokers of recognized standing selected by it.
"Fee Letter" shall mean the confidential fee letter dated as of March 10,
2000 between the Company and TD.
"Foreign Subsidiary" shall have the meaning given to that term in Section
9.18(b) hereof.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Gross Cash Flow" shall mean, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP, and adjusted on a pro form basis as if the Company had
acquired LCS and its Subsidiaries on October 1, 1998), other than, solely for
purposes of the definition of "Adjusted Cash Flow" in this Section 1.01, the
Cordena Group, of the following:
(a) net operating income (calculated before taxes, Interest Expense,
extraordinary and unusual items and income or loss attributable to equity
in Affiliates) for such period plus
(b) depreciation and amortization (to the extent deducted in
determining net operating income) for such period.
"Guarantee" shall mean a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.
"Guaranteed Obligations" shall have the meaning given to that term in
Section 6.01 hereof.
"Hazardous Material" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB's") at concentrations in excess of
50 parts per million, (b) any chemicals or other materials or substances that
are now or hereafter become defined as "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and (c) any
other chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
<PAGE> 12
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"Indebtedness" shall mean, for any Person: (a) obligations created, issued,
assumed or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person, and including, without limitation, all
obligations evidenced by a note, bond, debenture or other similar instrument);
(b) obligations of such Person to pay the deferred purchase or acquisition price
of Property or services, other than trade accounts payable (other than for
borrowed money) arising, and accrued expenses incurred, in the ordinary course
of business; (c) Indebtedness of others secured by a Lien on the Property of
such Person, whether or not the respective indebtedness so secured has been
assumed by such Person; (d) obligations of such Person in respect of letters of
credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; (f) Indebtedness of others Guaranteed by such Person; and (g) Redeemable
Stock.
"ING Debt" shall mean Indebtedness of the Cordena Group held by ING Bank
N.V. in an aggregate principal amount not to exceed 10,000,000 Dutch guilders.
"InsLogic Holding" shall mean InsLogic.com Holding Corporation, a Delaware
corporation.
"Interest Expense" shall mean, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) all interest and fees paid in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations, but excluding all fees
payable on the Closing Date in connection with the execution and delivery of
this Agreement and the other Basic Documents) accrued or capitalized during such
period (whether or not actually paid during such period) plus (b) the net amount
payable (or minus the net amount receivable) under any Interest Rate Protection
Agreement during such period (whether or not actually paid or received during
such period).
"Interest Period" shall mean, with respect to any Eurodollar Loan, each
period commencing on the date such Eurodollar Loan is made or Converted from a
Loan of another Type or the last day of the next preceding Interest Period for
such Loan and ending on the numerically corresponding day in the first, second,
third, sixth, or, subject to availability, twelfth calendar month thereafter, as
the Company may select as provided in Section 4.05 hereof, except that each
Interest Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (a) no
Interest Period for any Loan may commence before and end after the Principal
Payment Date; (b) each Interest Period that would otherwise end on a day that is
not a Business Day shall end on the next preceding Business Day; and (c)
notwithstanding paragraphs (a) and (b) above, no Interest Period for any Loan
shall have a duration of less than one month and, if the Interest Period for any
Eurodollar Loan would otherwise be a shorter period, such Loan shall not be
available hereunder for such period.
<PAGE> 13
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"Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"LCS" shall mean LCS Industries, Inc., a Delaware corporation.
"Lenders" shall have the meaning given to that term in the preamble to this
Agreement.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Basic Documents, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"Loans" shall mean, collectively, the Tranche 1 Loans and the Tranche 2
Loans.
"Majority Lenders" shall mean Lenders holding at least more than 50% of the
aggregate amount of the Commitments or, if all of the Commitments shall have
terminated, Lenders holding more than 50% of the sum of the aggregate unpaid
principal amount of the Loans.
"Management Fee" shall mean any management or similar fee paid directly or
indirectly by the Company or any of its Subsidiaries to any Affiliate.
"Margin Stock" shall mean "margin stock" within the meaning of Regulations
U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition or prospects of the Company
and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform
its obligations under any of the Basic Documents to which it is a party, and (c)
the validity or enforceability of any of the provisions of the Basic Documents
(including the rights and remedies of the Lenders and the Agent thereunder).
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and that is covered by Title IV of ERISA.
"Net Available Proceeds" shall mean, in the case of any Equity Issuance or
Debt Issuance, the aggregate amount of all cash received by the Company and its
Subsidiaries in respect of such Equity Issuance or Debt Issuance, as the case
may be, net of (a) reasonable expenses incurred by the Company and its
Subsidiaries in connection therewith, and (b) any payments required to be made
by the Company under Section 2.10 of the Senior Credit Agreement and Section
2.05 of the Onex Finance Credit Agreement in connection with such Equity
Issuance or Debt Issuance.
"Non-consenting Lender" shall have the meaning given to that term in
Section 5.06 hereof.
"Non-funding Lender" shall have the meaning given to that term in Section
5.06 hereof.
<PAGE> 14
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"Notes" shall mean, collectively, the Tranche 1 Notes and the Tranche 2
Notes.
"Obligors" shall have the meaning given to that term in the preamble to
this Agreement.
"Onex" shall mean Onex Corporation, a Canadian corporation.
"Onex Finance Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of May 25, 1999 between the Obligors, Onex CustomerONE
Finance LLC, as lender and TD, as agent for the lender, as modified and
supplemented and in effect from time to time.
"Participant" shall have the meaning given to such term in Section 12.06(c)
hereof.
"Payor" shall have the meaning given to that term in Section 4.06 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
any other amount under this Agreement, any Note or any other Basic Document that
is not paid when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), a rate per annum equal to 2% plus the Base Rate as in
effect from time to time plus the Applicable Margin for Base Rate Loans
(provided that, if the amount so in default is principal of a Eurodollar Loan
and the due date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the period
from and including such due date to but excluding the last day of such Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02
hereof and, thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time to time announced by
TD, New York Branch, as its prime commercial lending rate for loans to made in
the United States of America and denominated in Dollars.
"Principal Office" shall mean the principal office of TD, currently located
at 909 Fannin, Suite 1700, Houston, Texas 77010.
"Principal Payment Date" shall mean May 26, 2006.
"Property" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
<PAGE> 15
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"Pro Rata Share" shall have the meaning given to that term in Section 6.07
hereof.
"Prospective Debt Service" shall mean, as at any date of the calculation
thereof, the sum, for the Company and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP), of the
following:
(a) the sum of all Interest Expense for the period of four
consecutive fiscal quarters ending on such date, plus
(b) all payments of principal of Debt for Borrowed Money (including,
without limitation, the principal component of any payments in respect of
Capital Lease Obligations but excluding any mandatory prepayments made
pursuant to Section 2.10 hereof and pursuant to Section 2.10 of each of the
Senior Credit Agreement and Section 2.05 of the Onex Finance Credit
Agreement) scheduled to be made during the period of four consecutive
fiscal quarters commencing on the day next following such date.
"Quarterly Dates" shall mean the first Business Day of April, July, October
and January in each year, the first of which shall be July 1, 2000.
"Redeemable Stock" shall mean, for any Person, any capital stock of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (including upon the
occurrence of an event) matures or is required to be redeemed (pursuant to any
sinking fund obligation or otherwise) or is convertible into or exchangeable for
Indebtedness or is redeemable at the option of the holder thereof, in whole or
in part, at any time on or prior to the Principal Payment Date.
"Regulations A, D, U and X" shall mean, respectively, Regulations A, D, U
and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the date of this Agreement in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment, including, without limitation, the movement of Hazardous
Materials through ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata.
"Relevant Parties" shall have the meaning given to that term in Section
10(b) hereof.
"Required Payment" shall have the meaning given to that term in Section
4.06 hereof.
<PAGE> 16
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"Reserve Requirement" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as that term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Rate is to be
determined as provided in the definition of "Eurodollar Rate" in this Section
1.01 or (ii) any category of extensions of credit or other assets that includes
Eurodollar Loans.
"Responsible Officer" shall mean, with respect to any Person, the Chief
Executive Officer, the Chief Financial Officer, the Treasurer, the Controller,
the Chief Operating Officer or any Vice President, of such Person.
"Retrospective Debt Service" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) all Interest Expense for such period plus
(b) all payments of principal of Debt for Borrowed Money (including,
without limitation, the principal component of any payments in respect of
Capital Lease Obligations but excluding any mandatory prepayments made
pursuant to Section 2.10 hereof and pursuant to Section 2.10 of each of the
Senior Credit Agreement and Section 2.05 of the Onex Finance Credit
Agreement) scheduled to be made during such period.
"Senior Credit Agreement" shall mean the Credit Agreement dated as of May
25, 1999 between the Obligors, the lenders signatory thereto, and TD as agent
for such lenders, as modified and supplemented and in effect from time to time.
"Subordination Agreement" shall mean the Subordination Agreement dated as
of March 10, 2000 between the Obligors, TD as Agent hereunder, TD as agent for
the lenders or other financial institutions or entities party, as lenders, to
the Senior Credit Agreement, and TD as agent for the lenders or other financial
institutions or entities party, as lenders, to the Onex Finance Credit
Agreement.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. The foregoing provisions of this definition notwithstanding, none
of InsLogic Holding and its Subsidiaries shall be deemed to be
<PAGE> 17
13
Subsidiaries of the Company for any purpose of this Agreement and, accordingly,
shall not be, or be required to be, Subsidiary Guarantors or Obligors.
"Subsidiary Guarantor" shall have the meaning given to that term in the
preamble to this Agreement.
"TD" shall mean Toronto Dominion (Texas), Inc.
"Total Debt to Cash Flow Ratio" shall mean, as at any date of the
calculation thereof, the ratio of:
(a) the excess of the following:
(i) all Indebtedness of the Company and its Subsidiaries (other
than the Bank of Scotland Debt and the ING Debt) on such date, over
(ii) the lesser of (x) $1,000,000 and (y) the aggregate amount of
cash on hand and in bank accounts of the Company and its Subsidiaries
on such date; to
(b) Adjusted Cash Flow for the period of four consecutive fiscal
quarters ending on, or most recently ended prior to, such date.
"Total Revenue" shall mean, for any period, the net fee revenue of the
Company and the Subsidiary Guarantors for such period. Except for the exclusion
of net fee revenue of Subsidiaries of the Company that are not Subsidiary
Guarantors, "net fee revenue" shall be calculated in the same manner as the net
fee revenue set forth on the financial statements of the Company as at September
30, 1999 heretofore furnished to the Lenders.
"Tranche 1 Commitment" shall mean, for each Tranche 1 Lender, the
obligation of such Lender to make one or more Tranche 1 Loans in an aggregate
amount at any one time outstanding up to but not exceeding the amount set
opposite the name of such Lender on the signature pages hereof under the caption
"Tranche 1 Commitment". The aggregate amount of the Tranche 1 Commitments on the
Closing Date is $15,000,000.
"Tranche 1 Commitment Termination Date" shall mean the day occurring four
calendar months to the day following the Closing Date.
"Tranche 1 Lenders" shall mean (a) on the date hereof, the Lenders having
Tranche 1 Commitments on the signature pages hereof and (b) thereafter, the
Lenders from time to time holding Tranche 1 Loans and Tranche 1 Commitments
after giving effect to any assignments thereof permitted by Section 12.06(b)
hereof.
"Tranche 1 Loans" shall mean each of the loans provided for in Section
2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
<PAGE> 18
14
"Tranche 1 Notes" shall mean the promissory notes provided for by Section
2.06(a) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Tranche 2 Commitment" shall mean, for each Tranche 2 Lender, the
obligation of such Lender to make one or more Tranche 2 Loans in an aggregate
principal amount up to but not exceeding the amount set opposite the name of
such Lender on the signature pages hereof under the caption "Tranche 2
Commitment". The Tranche 2 Commitments shall be reduced pursuant to Section
2.03(b) hereof. The aggregate amount of the Tranche 2 Commitments on the Closing
Date is $10,000,000.
"Tranche 2 Commitment Termination Date" shall mean the day occurring four
calendar months to the day following the Closing Date.
"Tranche 2 Lenders" shall mean (a) on the date hereof, the Lenders having
Tranche 2 Commitments on the signature pages hereof and (b) thereafter, the
Lenders from time to time holding Tranche 2 Loans and Tranche 2 Commitments
after giving effect to any assignments thereof permitted by Section 12.06(b)
hereof.
"Tranche 2 Loans" shall mean each of the loans provided for in Section
2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"Tranche 2 Notes" shall mean the promissory notes provided for by Section
2.06(b) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Type" shall have the meaning given to that term in Section 1.03 hereof.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any other
Person of which all of the equity securities or other ownership interests (other
than directors' qualifying or nominee shares) are directly or indirectly owned
or controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.1.3.1. Accounting Terms and Determinations. For purposes of Sections
9.14, 9.15 and 9.16 hereof (and the related definitions used in those Sections),
all accounting terms shall be interpreted, and all calculations made for the
purpose of determining compliance with such Sections shall be made, in
accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the December 31, 1998 financial
statements referred to in Section 8.02 hereof.
1.2. Classes and Types of Loans. Loans hereunder are distinguished by
"Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan)
refers to whether such Loan is a Tranche 1 Loan or a Tranche 2 Loan, each of
which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a
Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may
be identified by both Class and Type.
<PAGE> 19
15
Section 2. Commitments, Loans, Notes and Prepayments.
2.1. Loans.
2.1.1. Tranche 1 Loans. Each Tranche 1 Lender severally agrees, on the
terms and conditions of this Agreement, to make one or more Tranche 1 Loans
to the Company in Dollars during the period from and including the date
hereof to but not including the Tranche 1 Commitment Termination Date in an
aggregate principal amount at any one time outstanding not to exceed the
Tranche 1 Commitment of such Lender as in effect from time to time. During
such period the Company may borrow, repay and reborrow the amount of the
Tranche 1 Commitments and may Convert Tranche 1 Loans of one Type into
Tranche 1 Loans of another Type (as provided in Section 2.07 hereof) or
Continue Tranche 1 Loans of one Type as Tranche 1 Loans of the same Type
(as provided in Section 2.07 hereof).
2.1.2. Tranche 2 Loans. Each Tranche 2 Lender severally agrees, on the
terms and conditions of this Agreement, to make one or more Tranche 2 Loans
to the Company in Dollars during the period from and including the date
hereof to but not including the Tranche 2 Commitment Termination Date in an
aggregate principal amount not to exceed the Tranche 2 Commitment of such
Lender as in effect from time to time. During such period the Company may
borrow, repay and reborrow the amount of the Tranche 2 Commitments and may
Convert Tranche 2 Loans of one Type into Tranche 2 Loans of another Type
(as provided in Section 2.07 hereof) or Continue Tranche 2 Loans of one
Type as Tranche 2 Loans of the same Type (as provided in Section 2.07
hereof).
2.1.3. Limit on Eurodollar Loans. No more than five separate Interest
Periods in respect of Eurodollar Loans may be outstanding at any one time.
2.2. Borrowings of Loans. The Company shall give the Agent notice of each
borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m.
New York time on the date specified for each borrowing of Loans hereunder, each
Lender shall make available the amount of the Loan or Loans to be made by it on
such date to the Agent, at an account (designated by the Agent) maintained by
the Agent with TD at the Principal Office, in immediately available funds, for
account of the Company. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Company by
depositing the same, in immediately available funds, in an account of the
Company maintained with TD at the Principal Office designated by the Company.
2.3. Changes of Commitments.
2.3.1. The aggregate amount of the Tranche 1 Commitments shall be
automatically reduced to zero on the Tranche 1 Commitment Termination Date.
2.3.2. The aggregate amount of the Tranche 2 Commitments shall be
automatically reduced to zero on the Tranche 2 Commitment Termination Date.
2.3.3. The Company shall have the right at any time or from time to
time to terminate or reduce the aggregate unused amount of the Commitments
of any Class; provided that (i) the
<PAGE> 20
16
Company shall give notice of each such termination or reduction as provided
in Section 4.05 hereof and (ii) each partial reduction shall be in an
aggregate amount at least equal to $1,000,000 (or a larger multiple of
$500,000).
2.3.4. The Commitments once terminated or reduced may not be
reinstated.
2.4. Lending Offices. The Loans of each Type made by each Lender shall be
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
2.5. Several Obligations; Remedies Independent. The failure of any Lender
to make any Loan to be made by it on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan on such date, but
neither any Lender nor the Agent shall be responsible for the failure of any
other Lender to make a Loan to be made by such other Lender, and no Lender shall
have any obligation to the Agent or any other Lender for the failure by such
Lender to make any Loan required to be made by such Lender. The amounts payable
by the Company at any time hereunder and under the Notes to each Lender shall be
a separate and independent debt and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes, and it shall not
be necessary for any other Lender or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.6. Notes.
2.6.1. The Tranche 1 Loans made by each Tranche 1 Lender shall, if
such Lender shall have requested the same, be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A-1
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Tranche 1 Commitment as originally in effect and
otherwise duly completed.
2.6.2. The Tranche 2 Loans made by each Tranche 2 Lender shall, if
such Lender shall have requested the same, be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Tranche 2 Commitment as originally in effect and
otherwise duly completed.
2.6.3. The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to
the Company, and each payment made on account of the principal thereof,
shall be recorded by such Lender on its books and, prior to any transfer of
the Note evidencing the Loans of such Class held by it, endorsed by such
Lender on the schedule attached to such Note or any continuation thereof;
provided that the failure of such Lender to make any such recordation or
endorsement shall not affect the obligations of the Company to make a
payment when due of any amount owing hereunder or under such Note in
respect of the Loans to be evidenced by such Note.
2.6.4. No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except
in connection with a permitted assignment of all or any portion of such
Lender's relevant Commitment, Loans and Notes pursuant to Section 12.06(b)
hereof.
<PAGE> 21
17
2.7. Optional Prepayments and Conversions or Continuations of Loans.
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
provided that the Company shall give the Agent notice of each such prepayment,
Conversion or Continuation as provided in Section 4.05 hereof.
2.8. Certain Fees. The Company shall pay the fees set forth in the Fee
Letter, in accordance with the terms thereof. All such fees shall be
non-refundable.
2.9. Commitment Fee. The Company shall pay to the Agent for account of
each Lender a commitment fee on the daily average unused amount (a) of such
Lender's Tranche 1 Commitment and (b) of such Lender's Tranche 2 Commitment, in
either case for the period from and including the date of this Agreement to but
not including the earlier of (i) the date such Tranche 1 Commitment or Tranche 2
Commitment, as applicable, is terminated and (ii) the Tranche 1 Commitment
Termination Date or the Tranche 2 Commitment Termination Date, as applicable, at
a rate per annum equal to 1.25%; provided, however, that no such fee shall
accrue or be payable in respect of such Lender's Tranche 2 Commitment unless and
until the Company has made its initial Borrowing of Tranche 2 Loans. Accrued but
unpaid commitment fees shall be payable on each Quarterly Date and on the
earlier of (i) the date the Tranche 1 Commitments or the Tranche 2 Commitments,
as applicable, are terminated and (ii) the Tranche 1 Commitment Termination Date
or the Tranche 2 Commitment Termination Date, as applicable.
2.10. Mandatory Prepayments and Reductions of Commitments.
2.10.1. Certain Proceeds. The Company shall prepay the Loans, and the
Commitments shall be subject to automatic reduction, in an aggregate amount
equal to 100% of the Net Available Proceeds of any Equity Issuance or Debt
Issuance, such prepayment and reduction to be effected in each case in the
manner and to the extent specified in paragraph (b) of this Section 2.10.
2.10.2. Application. Prepayments and reductions of Commitments
described in paragraph (a) above shall be effected as follows:
(i) first, the Tranche 2 Commitments shall be automatically
reduced in an amount equal to the required prepayment (and to the
extent that, after giving effect to such reduction, the aggregate
principal amount of Tranche 2 Loans would exceed the Tranche 2
Commitments, the Company shall prepay Tranche 2 Loans in an aggregate
amount equal to such excess); and
(ii) second, the Tranche 1 Commitments shall be automatically
reduced by an amount equal to any excess over the amount referred to
in the foregoing clause (i) (and to the extent that, after giving
effect to such reduction, the aggregate principal amount of Tranche 1
Loans would exceed the Tranche 1 Commitments, the Company shall prepay
Tranche 1 Loans in an aggregate amount equal to such excess).
<PAGE> 22
18
2.10.3. Avoidance of Broken-funding Costs. If the prepayment of any
Loan would result in an obligation of the Company to pay compensation
pursuant to Section 5.05 hereof, instead of making such prepayment, the
Company may cash collateralize Loans in an account maintained with the
Agent until the last day(s) of the Interest Period(s) to end soonest
thereafter and then to be used to prepay Loans.
Section 3. Payments of Principal and Interest.
3.1. Repayment of Loans.
(a) The Company hereby promises to pay to the Agent for account
of each Lender the outstanding principal amount of the Tranche 1 Loans on
the Principal Payment Date.
(b) The Company hereby promises to pay to the Agent for account
of each Lender the outstanding principal amount of the Tranche 2 Loans on
the Principal Payment Date.
3.2. Interest. The Company hereby promises to pay to the Agent for account
of each Lender interest on the unpaid principal amount of each Loan made by such
Lender for the period from and including the date of such Loan to but excluding
the date such Loan shall be paid in full, at the following rates per annum:
3.2.1. during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable Margin; and
3.2.2. during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender and on any other amount payable by the
Company hereunder or under the Notes held by such Lender to or for account of
such Lender, that shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and including the
due date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable (i) in the case of a Base Rate Loan,
quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan on the
last day of each Interest Period therefor, (and, if such Interest Period has a
duration longer than three months, at three-month intervals following the first
day of such Interest Period) and (iii) in the case of any Loan, upon the payment
or prepayment thereof or the Conversion of such Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall give notice thereof to the Lenders
to which such interest is payable and to the Company.
<PAGE> 23
19
Section 3.2.2.1. Payments; Pro Rata Treatment; Computations; Etc.
3.3. Payments.
3.3.1. Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement and the Notes, and, except to the extent otherwise provided
therein, all payments to be made by the Obligors under any other Basic
Document, shall be made in Dollars, in immediately available funds, without
deduction (other than any deduction for withholding taxes required by
applicable law, provided that such withholding arises from a Lender's
failure or inability to comply with the requirements of Section 5.07
hereof), set-off or counterclaim, to the Agent at an account (designated by
the Agent) maintained by the Agent with TD at the Principal Office, not
later than 1:00 p.m. New York time on the date on which such payment shall
become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
3.3.2. Any Lender for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that
is not made by such time to any ordinary deposit account of the Company
with such Lender (with notice to the Company and the Agent).
3.3.3. The Company shall, at the time of making each payment under
this Agreement or any Note for account of any Lender, specify to the Agent
(which shall so notify the intended recipient(s) thereof) the Loans or
other amounts payable by the Company hereunder to which such payment is to
be applied (and in the event that the Company fails to so specify, or if an
Event of Default has occurred and is continuing, the Agent shall distribute
such payment to the Lenders for application, in accordance with Section
4.02 hereof, first to the payment of fees, expenses, indemnities and other
amounts (other than principal and interest) then due and payable hereunder
and under the other Basic Documents, then to interest on the Loans then due
and payable, ratably in accordance with the unpaid amounts thereof, and
finally to principal of the Loans then due and payable, first to Tranche 1
Loans and then ratably in accordance with the unpaid amounts of the other
Loans.
3.3.4. Each payment received by the Agent under this Agreement or any
Note for account of any Lender shall be paid by the Agent promptly to such
Lender, in immediately available funds, for account of such Lender's
Applicable Lending Office for the Loan or other obligation in respect of
which such payment is made.
3.3.5. If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.
3.4. Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing of Loans of a particular Class from the Lenders under Section
2.01 hereof shall be made from the relevant Lenders, each payment of the
commitment fee under Section 2.09 hereof shall be made for account of the
<PAGE> 24
20
applicable Lenders, and each termination or reduction of the amount of the
Commitments of a particular Class under Section 2.03 hereof shall be applied to
the respective Commitments of such Class of the relevant Lenders, pro rata
according to the amounts of their respective Commitments of such Class; (b) the
making, Conversion and Continuation of Loans of a particular Class and a
particular Type (other than Conversions provided for by Section 5.04 hereof)
shall be made pro rata among the relevant Lenders according to the amounts of
their respective Commitments of such Class (in the case of making of Loans) or
their respective Loans of such Class (in the case of Conversions and
Continuations of Loans) and the then current Interest Period for each Loan of
such Class and Type shall be coterminous; (c) each payment or prepayment of
principal of Loans of a particular Class by the Company shall be made for
account of the relevant Lenders pro rata in accordance with the respective
unpaid principal amounts of the Loans of such Class held by them; and (d) each
payment of interest on Loans of a particular Class by the Company shall be made
for account of the relevant Lenders pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Lenders.
3.5. Computations. Interest on Eurodollar Loans shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable. Interest on
Base Rate Loans shall be computed on the basis of a year of 365 days or 366 days
(as the case may be) and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.6. Minimum Amounts. Except for Conversions or prepayments made pursuant
to Section 5.04 hereof, and except for prepayments made pursuant to Section 2.10
hereof, each borrowing, Conversion and partial prepayment of principal of Loans
shall be in an aggregate amount at least equal to $1,000,000 (or in the case of
Tranche 1 Loans that are Base Rate Loans, $500,000) or a larger multiple of
$500,000 (or in the case of Tranche 1 Loans that are Base Rate Loans, $100,000);
borrowings, Conversions or prepayments of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period; provided that
the aggregate principal amount of Eurodollar Loans of each Type having the same
Interest Period shall be in an amount at least equal to $1,000,000 or a larger
multiple of $500,000 and, if any Eurodollar Loans would otherwise be in a lesser
principal amount for any period, such Loans shall be Base Rate Loans during such
period.
3.7. Certain Notices. Notices by the Company to the Agent of terminations
or reductions of the Commitments, of borrowings, Conversions, Continuations and
optional prepayments of Loans and of Classes of Loans, of Types of Loans and of
the duration of Interest Periods shall be irrevocable and shall be effective
only if received by the Agent not later than 10:00 a.m. New York time on the
number of Business Days prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
<PAGE> 25
21
<TABLE>
<CAPTION>
Notice Number of
------ Business Days
Prior
<S> <C>
Termination or reduction of Commitments three
Borrowing or prepayment of Base Rate Loans one
Borrowing or prepayment of, Conversions into, three
Continuations as, or duration of Interest Period for,
Eurodollar Loans
Conversions into Base Rate Loans three
</TABLE>
Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify the
Class of Loans to be borrowed, Converted, Continued or prepaid and the amount
(subject to Section 4.04 hereof) and Type of each Loan to be borrowed,
Converted, Continued or prepaid (and, in the case of a Conversion, the Type of
Loan to result from such Conversion) and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business Day). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Agent shall promptly notify the Lenders
of the contents of each such notice. In the event that the Company fails to
select the Type of Loan, or the duration of any Interest Period for any
Eurodollar Loan, within the time period and otherwise as provided in this
Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
3.8. Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Lender or the Company (the "Payor") prior to the date on which the
Payor is to make payment to the Agent of (in the case of a Lender) the proceeds
of a Loan to be made by such Lender hereunder or (in the case of the Company) a
payment to the Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient(s) on such date;
and, if the Payor has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date (the "Advance Date") such amount was so made
available by the Agent until the date the Agent recovers such amount at a rate
per annum equal to the Federal Funds Rate for such day and, if such recipient(s)
shall fail promptly to make such payment, the Agent shall be entitled to recover
such amount, on demand, from the Payor, together with interest as aforesaid,
provided that if neither the recipient(s) nor the Payor shall return the
Required Payment to the Agent within three Business Days of the Advance Date,
then, retroactively to the Advance Date, the Payor and the recipient(s) shall
each be obligated to pay interest on the Required Payment as follows:
3.8.0.0.0.1. if the Required Payment shall represent a payment to be
made by the Company to the Lenders, the Company and the recipient(s) shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the
<PAGE> 26
22
obligation of the Company under Section 3.02 hereof to pay interest to such
recipient(s) at the Post-Default Rate in respect of the Required Payment)
and
3.8.0.0.0.2. if the Required Payment shall represent proceeds of a
Loan to be made by the Lenders to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay interest
in respect of the Required Payment at the rate of interest provided for
such Required Payment pursuant to Section 3.02 hereof (and, in case the
Company shall return the Required Payment to the Agent, without limiting
any claim the Company may have against the Payor in respect of the Required
Payment).
3.8.0.0.0.2.1. Sharing of Payments, Etc.
3.8.1. The Company agrees that, in addition to (and without limitation
of) any right of set-off, Lender's's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option, to offset
balances held by it for account of the Company at any of its offices, in
Dollars or in any other currency, against any principal of or interest on
any of such Lender's Loans or any other amount payable to such Lender
hereunder, that is not paid when due (regardless of whether such balances
are then due to the Company), in which case it shall promptly notify the
Company and the Agent thereof, provided that such Lender's failure to give
such notice shall not affect the validity thereof.
3.8.2. If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan of any Class owing to it or payment of
any other amount under this Agreement or any other Basic Document through
the exercise of any right of set-off, Lender's lien or counterclaim or
similar right or otherwise (other than from the Agent as provided herein),
and, as a result of such payment, such Lender shall have received a greater
percentage of the principal of or interest on the Loans of such Class or
such other amounts then due hereunder or thereunder by such Obligor to such
Lender than the percentage received by any other Lender, it shall promptly
purchase from such other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans of such
Class or such other amounts, respectively, owing to such other Lenders (or
in interest due thereon, as the case may be) in such amounts, and make such
other adjustments from time to time as shall be equitable, to the end that
all the Lenders shall share the benefit of such excess payment (net of any
reasonable expenses that may be incurred by such Lender in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid
principal of and/or interest on the Loans of such Class or such other
amounts, respectively, owing to each of the Lenders. To such end all the
Lenders shall make appropriate adjustments among themselves (by the resale
of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
3.8.3. The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans or
other amounts (as the case may be) owing to such Lender in the amount of
such participation.
3.8.4. Nothing contained herein shall require any Lender to exercise
any such
<PAGE> 27
23
right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a set-off to which this Section 4.07 applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders
entitled under this Section 4.07 to share in the benefits of any recovery
on such secured claim.
Section 3.8.4.1. Yield Protection, Etc.
3.9. Additional Costs.
3.9.1. The Company shall pay directly to each Lender from time to time
such amounts as such Lender may reasonably determine to be necessary to
compensate such Lender for any costs that such Lender determines are
attributable to its making or maintaining of any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such Loans
or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), solely to the extent
resulting from any Regulatory Change that:
3.9.1.1. shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Notes or changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Notes
in respect of any of such Loans (excluding changes in the rate of tax
on the overall net income of such Lender or of such Applicable Lending
Office by the jurisdiction in which such Lender has its principal
office, such Applicable Lending Office or is otherwise doing
business); provided, however, that the Company shall be entitled to
deduct and withhold taxes on interest payments to any Lender
hereunder, and shall not be required to pay any Additional Costs to
any Lender in respect thereof, to the extent such Additional Costs
arise from such Lender's failure or inability to comply with the
requirements of Section 5.07 hereof; or
3.9.1.2. imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Lender (including, without limitation, any
of such Loans or any deposits referred to in the definition of
"Eurodollar Rate" in Section 1.01 hereof), or any commitment of such
Lender (including, without limitation, the Commitments of such Lender
hereunder); or
3.9.1.3. imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Lender requests compensation from the Company under this Section
5.01(a), the Company may, by notice to such Lender (with a copy to the
Agent), suspend the obligation of such Lender thereafter to make or
Continue Loans of the Type with respect to which such compensation is
requested, or to Convert Loans of any other Type into Loans of such Type,
until the Regulatory Change giving rise to such request ceases to be in
effect (in which case the provisions of
<PAGE> 28
24
Section 5.04 hereof shall be applicable), provided that such suspension
shall not affect the right of such Lender to receive the compensation so
requested.
3.9.2. Without limiting the effect of the provisions of paragraph (a)
of this Section 5.01, in the event that, by reason of any Regulatory
Change, any Lender either (i) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Lender that includes deposits by
reference to which the interest rate on Eurodollar Loans is determined as
provided in this Agreement or a category of extensions of credit or other
assets of such Lender that includes Eurodollar Loans or (ii) becomes
subject to restrictions on the amount of such a category of liabilities or
assets that it may hold, then, if such Lender so elects by notice to the
Company (with a copy to the Agent), the obligation of such Lender to make
or Continue, or to Convert Loans of any other Type into, Loans of such Type
hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in which case the provisions of Section 5.04 hereof shall be
applicable).
3.9.3. Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to
each Lender from time to time on request such amounts as such Lender may
determine to be reasonably necessary to compensate such Lender (or, without
duplication, the bank holding company of which such Lender is a subsidiary)
for any costs that it determines are attributable to the maintenance by
such Lender (or its Applicable Lending Office or such bank holding
company), pursuant to any law or regulation or any interpretation,
directive or request (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or
(ii) implementing any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the failure to
comply therewith would be unlawful) heretofore or hereafter issued by any
government or governmental or supervisory authority implementing at the
national level the Basle Accord of capital in respect of its Commitments or
Loans (such compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of such Lender (or
any Applicable Lending Office or such bank holding company) to a level
below that which such Lender (or any Applicable Lending Office or such bank
holding company) could have achieved but for such law, regulation,
interpretation, directive or request). For purposes of this Section 5.01(c)
and Section 5.06 hereof, "Basle Accord" shall mean the proposals for
risk-based capital framework described by the Basle Committee on Banking
Regulations and Supervisory Practices in its paper entitled "International
Convergence of Capital Measurement and Capital Standards" dated July 1988,
as amended, modified and supplemented and in effect from time to time or
any replacement thereof.
3.9.4. Each Lender shall notify the Company of any event occurring
after the date of this Agreement entitling such Lender to compensation
under paragraph (a) or (c) of this Section 5.01 as promptly as practicable,
but in any event within 30 days, after such Lender obtains actual knowledge
thereof; provided that (i) if any Lender fails to give such notice within
30 days after it obtains actual knowledge of such an event, such Lender
shall, with respect to compensation payable pursuant to this Section 5.01
in respect of any costs resulting from such event, only be entitled to
payment under this Section 5.01 for costs incurred from and after the date
30 days prior to the date that such Lender does give such notice and (ii)
each Lender will designate a
<PAGE> 29
25
different Applicable Lending Office for the Loans of such Lender affected
by such event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Lender (exercised reasonably), be disadvantageous to such Lender, except
that such Lender shall have no obligation to designate an Applicable
Lending Office located in the United States of America. Each Lender will
furnish to the Company a certificate setting forth the basis and amount of
each request by such Lender for compensation under paragraph (a) or (c) of
this Section 5.01. Determinations and allocations by any Lender for
purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of
capital maintained pursuant to paragraph (c) of this Section 5.01, on its
costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the
amounts required to compensate such Lender under this Section 5.01, shall
be conclusive, provided that such determinations and allocations are made
on a reasonable basis. The notice sent by a Lender to the Company pursuant
to this paragraph (d) shall set forth the amount of requested Additional
Costs and shall include in reasonable detail the calculation of such
Additional Costs.
3.10. Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
3.10.1. the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for any Eurodollar Loans as
provided herein; or
3.10.2. the Majority Lenders determine, which determination shall be
conclusive, and notify the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof
upon the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined do not adequately cover the cost to
such Lenders (or to such quoting Lender) of making or maintaining such Type
of Loans for such Interest Period;
then the Agent shall give the Company and each Lender prompt notice thereof and,
so long as such condition remains in effect, the Lenders (or such quoting
Lender) shall be under no obligation to make additional Eurodollar Loans, to
Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans,
and the Company shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Loans, either prepay such Loans or Convert such Loans into
Base Rate Loans in accordance with Section 2.07 hereof.
3.11. Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to honor its obligation to make or maintain Eurodollar Loans hereunder,
then such Lender shall promptly notify the Company thereof (with a copy to the
Agent) and such Lender's obligation to make or Continue, or to Convert Base Rate
Loans into, Eurodollar Loans shall be suspended until such time as such Lender
may again make and maintain Eurodollar Loans (in which case the provisions of
Section 5.04 hereof shall be applicable).
3.12. Treatment of Affected Loans. If the obligation of any Lender to make
Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar
Loans shall be suspended pursuant to
<PAGE> 30
26
Section 5.01 or 5.03 hereof, such Lender's Eurodollar Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for the Eurodollar Loans (or, in the case of a
Conversion required by Section 5.01(b) or 5.03 hereof, on such earlier date as
such Lender may specify to the Company with a copy to the Agent) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no
longer exist:
3.12.1. to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
3.12.2. all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base Rate
Loans, and all Loans of such Lender that would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as) Base
Rate Loans;
If such Lender gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto
and after giving effect to any Conversion or Continuation request by the Company
pursuant to Section 2.07 hereof, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
3.13. Compensation. The Company shall pay to the Agent for account of
each Lender, promptly after the request of such Lender through the Agent,
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Lender) to compensate it for any loss, cost or reasonable
out-of-pocket expense that such Lender determines in good faith is
attributable to:
3.13.1. any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Lender for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 10 hereof) on a date other than the last day of the
Interest Period for such Loan; or
3.13.2. any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 7 hereof to be satisfied) to borrow a Eurodollar
Loan from such Lender on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the difference, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced
<PAGE> 31
27
on the date specified for such borrowing) at the applicable rate of interest for
such Loan provided for herein minus (ii) the amount of interest that otherwise
would have accrued on such principal amount at a rate per annum equal to the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender). Upon the request of the Company, any
Lender requesting compensation under this Section 5.05 shall furnish to the
Company a certificate setting forth the amount of such compensation and the
calculation thereof.
3.14. Replacement Lenders under Certain Circumstances. If at any time (a)
the Company becomes obligated to pay Additional Costs pursuant to Section 5.01
hereof or any Lender ceases to make Eurodollar Loans pursuant to Section 5.03
hereof, (b) any Lender becomes insolvent or its assets become subject to a
receiver, liquidator, trustee, custodian or other Person having similar powers,
(c) any Lender becomes a "Non-consenting Lender" (as defined below in this
Section 5.06) or (d) any Lender becomes a "Non-funding Lender" (as defined below
in this Section 5.06), then the Company may, on ten Business Days' prior written
notice to the Agent and such Lender, replace such Lender by causing such Lender
to (and such Lender shall be obligated to) assign, pursuant to Section 12.06
hereof, all of its rights and obligations under this Agreement to a Lender or
other entity selected by the Company and reasonably acceptable to the Agent for
a purchase price equal to the outstanding principal amount of such Lender's
Loans and all accrued interest and fees and other amounts payable hereunder
(including amounts payable under Section 5.05 hereof as though such Loan was
being prepaid instead of being purchased), provided that (i) neither the Agent
nor any Lender shall have any obligation to the Company to find a replacement
Lender or other such entity, and (ii) in no event shall the Lender hereby
replaced be required to pay or surrender to such replacement Lender or other
entity any of the fees received by such Lender hereby replaced pursuant to this
Agreement. In the case of a replacement of a Lender to which the Company becomes
obligated to pay Additional Costs, prior to such Lender being replaced, the
payment of such additional amounts shall be a condition to the replacement of
such Lender. In the event that (x) the Company or the Agent has requested that
the Lenders consent to a departure or waiver of any of the provisions of the
Basic Documents or to agree to any amendment thereto, (y) the consent, waiver or
amendment in question requires the agreement of all Lenders in accordance with
the terms of Section 12.04 hereof and (z) the Majority Lenders have agreed to
such consent, waiver or amendment, then any Lender that does not agree to such
consent, waiver or amendment shall be deemed a "Non-consenting Lender." Any
Lender that has (x) failed to make a Loan required to be made by it hereunder,
or (y) has given notice to the Company or the Agent that it will not make, or
that it has disaffirmed or repudiated any obligation make any Loan, is a
"Non-funding Lender." The Company's right to replace a Non-funding Lender
pursuant to this Section 5.06 is, and shall be, in addition to, and not instead
of, all other rights and remedies available to the Company against such
Non-funding Lender under this Agreement, at law, in equity or by statute.
3.15. Foreign Lenders. Each Lender that is organized under the laws of a
jurisdiction outside of the United States of America shall, on or prior to the
date of its execution and delivery of this Agreement (in the case of a Lender
listed on the signature pages hereto) or on or prior to the date on which it
becomes a Lender hereunder (in the case of any other Lender) and from time to
time thereafter if requested in writing by the Company or the Agent (but only so
long as such Lender is lawfully able to do so), provide to the Company and the
Agent (a) Internal Revenue Service Form W-8ECI or W-8BEN, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Lender is entitled to benefits under an income tax treaty to which the United
States of America is a party
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that reduces the rate of withholding tax on payments of interest or certifying
that the income receivable pursuant to this Agreement is effectively connected
with the conduct of a trade or business in the United States of America, and (b)
any other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Code), certifying that
such Lender is entitled to an exemption from or a reduced rate of tax on
payments pursuant to this Agreement or any of the other Basic Documents.
Section 4. Guarantee.
4.1. The Guarantee. The Subsidiary Guarantors hereby jointly and severally
guarantee to each Lender and the Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Lenders to, and the Notes held by each Lender of, the Company, and all other
amounts from time to time owing to the Lenders or the Agent by the Company under
this Agreement and under the Notes and by any Obligor under any of the other
Basic Documents, in each case strictly in accordance with the terms thereof
(such obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
by acceleration or otherwise) in accordance with the terms of such extension or
renewal.
4.2. Obligations Unconditional. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor (other than the defense of payment in full of all of the Guaranteed
Obligations), it being the intent of this Section 6.02 that the obligations of
the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint
and several, under any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Subsidiary Guarantors
hereunder which shall remain absolute and unconditional as described above:
4.2.0.0.0.1. at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
4.2.0.0.0.2. any of the acts mentioned in any of the provisions of
this Agreement or the Notes or any other agreement or instrument referred
to herein or therein shall be done or omitted;
4.2.0.0.0.3. the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or
<PAGE> 33
29
any right under this Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be waived or any other
guarantee of any of the Guaranteed Obligations or any security therefor
shall be released or exchanged in whole or in part or otherwise dealt with;
or
4.2.0.0.0.4. any lien or security interest granted to, or in favor of,
the Agent or any Lender or Lenders as security for any of the Guaranteed
Obligations, if any, shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Agent or any Lender exhaust any right, power or remedy or proceed against the
Company under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
4.3. Reinstatement. The obligations of the Subsidiary Guarantors under
this Section 6 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Lender on demand
for all reasonable costs and expenses (including, without limitation, reasonable
fees of counsel in accordance with Section 12.03(a) hereof) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4. Subrogation. The Subsidiary Guarantors hereby jointly and severally
agree that until the payment and satisfaction in full of all Guaranteed
Obligations and the expiration and termination of the Commitments of the Lenders
under this Agreement they shall not exercise any right or remedy arising by
reason of any performance by them of their guarantee in Section 6.01 hereof,
whether by subrogation or otherwise, against the Company or any other guarantor
of any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.
4.5. Remedies. The Subsidiary Guarantors jointly and severally agree that,
as between the Subsidiary Guarantors and the Lenders, the obligations of the
Company under this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section
10(f) hereof or Section 10(g) hereof) for purposes of Section 6.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against the Company and that, in the event of such declaration (or such
obligations being deemed to have become automatically due and payable), such
obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by the Subsidiary Guarantors for purposes of said Section
6.01.
4.6. Continuing Guarantee. The guarantee in this Section 6 is a continuing
guarantee, and shall apply to all Guaranteed Obligations whenever arising.
<PAGE> 34
30
4.7. Rights of Contribution. The Subsidiary Guarantors hereby agree, as
between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Subsidiary Guarantor (as defined below) by reason of the payment by such
Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary
Guarantor shall, on demand of such Excess Funding Subsidiary Guarantor (but
subject to the next sentence), pay to such Excess Funding Subsidiary Guarantor
an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the Properties, debts and
liabilities of such Excess Funding Subsidiary Guarantor) of the Excess Payment
(as defined below) in respect of such Guaranteed Obligations. The payment
obligation of a Subsidiary Guarantor to any Excess Funding Subsidiary Guarantor
under this Section 6.07 shall be subordinate and subject in right of payment to
the prior payment in full of the obligations of such Subsidiary Guarantor under
the other provisions of this Section 6 and such Excess Funding Subsidiary
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
of this Section 6.07, (a) "Excess Funding Subsidiary Guarantor" shall mean, in
respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an
amount in excess of its Pro Rata Share of such Guaranteed Obligations, (b)
"Excess Payment" shall mean, in respect of any Guaranteed Obligations, the
amount paid by an Excess Funding Subsidiary Guarantor in excess of its Pro Rata
Share of such Guaranteed Obligations and (c) "Pro Rata Share" shall mean, for
any Subsidiary Guarantor, the ratio (expressed as a percentage) of (i) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (ii) the amount by which
the aggregate fair saleable value of all Properties of the Company and all of
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Company and the Subsidiary Guarantors
hereunder) of the Company and all of the Subsidiary Guarantors, all as of the
Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder
subsequent to the Closing Date, then for purposes of this Section 6.07 such
subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary
Guarantor as of the Closing Date and the aggregate present fair saleable value
of the Properties, and the amount of the debts and liabilities, of such
Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such
value and amount on the date such Subsidiary Guarantor becomes a Subsidiary
Guarantor hereunder.
4.8. General Limitation on Guarantee Obligations. In any action or
proceeding involving any state corporate law, or any state or federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.07 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Lender, the Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
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Section 5. Conditions Precedent.
5.1. Conditions for the Initial Loans. The obligation of any Lender to
make the initial Loan hereunder is subject to the conditions precedent that (i)
such Loan shall be made on or before March 31, 2000, and (ii) the Agent shall
have received the following documents, each of which shall be reasonably
satisfactory to the Agent in form and substance:
5.1.1. Corporate Documents. Certified copies of the charter and, to
the extent amended since May 25, 1999, by-laws (or equivalent documents) of
each Obligor and of all corporate authority for each Obligor (including,
without limitation, board of director resolutions and evidence of the
incumbency of officers) with respect to the execution, delivery and
performance of such of the Basic Documents to which such Obligor is
intended to be a party and each other document to be delivered by such
Obligor from time to time in connection herewith and the extensions of
credit hereunder (and the Agent and each Lender may conclusively rely on
such certificate until the Agent or such Lender receives notice from such
Obligor to the contrary).
5.1.2. Officer's Certificates. The following:
(i) A certificate of a Responsible Officer of the Company, dated
the Closing Date, to the effect set forth in the first sentence of
Section 7.02 hereof; and
(ii) A certificate of a Responsible Officer of the Company, dated
the Closing Date, (A) to the effect that no Event of Default has
occurred and is continuing (or, if any Event of Default has occurred
and is continuing, describing the same in reasonable detail and
describing the action that the Company has taken or proposes to take
with respect thereto) and (B) setting forth in reasonable detail the
computations necessary to determine whether the Company is in
compliance with Sections 9.16, 9.19 and 9.20 hereof as of the end of
the respective quarterly fiscal period or fiscal year.
5.1.3. Opinion of Counsel to the Obligors. An opinion, dated the
Closing Date, of Weil, Gotshal & Manges LLP, counsel to the Obligors,
substantially in the form of Exhibit B hereto and covering such other
matters as the Agent or any Lender may reasonably request (and each Obligor
hereby instructs such counsel to deliver such opinion to the Lenders and
the Agent).
5.1.4. Opinion of Special New York Counsel to TD. An opinion, dated
the Closing Date, of Mayer, Brown & Platt, special New York counsel to TD,
substantially in the form of Exhibit C hereto (and TD hereby instructs such
counsel to deliver such opinion to the Lenders).
5.1.5. Notes. The Notes requested by the Lenders, duly completed and
executed.
5.1.6. Subordination Agreement. The Subordination Agreement, duly
executed and delivered by each party thereto.
5.1.7. Amendment to Senior Credit Agreement. An amendment to the
Senior Credit Agreement, dated the Closing Date, duly executed and
delivered by the Persons party to the Senior Credit Agreement and
evidencing such Persons' consent to, and authorization of, the
<PAGE> 36
32
execution and delivery by the Company and each Subsidiary signatory hereto
of this Agreement and the incurrence of Indebtedness hereunder.
5.1.8. Amendment to Onex Finance Credit Agreement. An amendment to the
Onex Finance Credit Agreement, dated the Closing Date, duly executed and
delivered by the Persons party to the Onex Finance Credit Agreement and
evidencing such Persons' consent to, and authorization of, the execution
and delivery by the Company and each Subsidiary signatory hereto of this
Agreement and the incurrence of Indebtedness hereunder.
5.1.9. Other Documents. Such other documents as the Agent or any
Lender or special New York counsel to TD may reasonably request.
The obligation of any Lender to make the Loans is also subject to the payment by
the Company of such fees as the Company shall have agreed in writing to pay or
deliver to any Lender or the Agent in connection herewith, including (but not
limited to) pursuant to Section 2.08.
5.2. Conditions for all Extensions of Credit. The obligation of any Lender
to make any Loan or extend any credit hereunder on the occasion of each
borrowing is subject to the further conditions precedent that, both immediately
prior to the making of such Loan or extension of credit and also after giving
effect thereto: (a) no Default shall have occurred and be continuing; and (b)
the representations and warranties made by the Company in Section 8 hereof, and
by each Obligor in each of the other Basic Documents to which such Obligor is a
party, shall be true and complete on and as of the date of the making of such
extension of credit with the same force and effect as if made on and as of such
date (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date). Each notice of
borrowing shall constitute a certification by the Company to the effect set
forth in the preceding sentence as of the date of such borrowing or such
issuance.
Section 5.2.1. Representations and Warranties. The Company represents and
warrants to the Agent and the Lenders that:
5.3. Corporate Existence. Each of the Company and its Subsidiaries: (a) is
a corporation or other entity duly incorporated or formed and validly existing
under the laws of the jurisdiction of its organization or formation; (b) is in
good standing under the laws of the jurisdiction of its organization or
formation , except to the extent that the failure to be in good standing could
not reasonably be expected to have a Material Adverse Effect; (c) has all
requisite corporate power or other requisite power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted, other than those governmental licenses, authorizations, consents and
approvals the failure of which to obtain could not reasonably be expected to
have a Material Adverse Effect; and (d) is qualified to do business and is in
good standing in all jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect.
5.4. Financial Condition. The Company has heretofore furnished to the each
of the Lenders a consolidated balance sheet of the Company and its Subsidiaries
as at December 31, 1998 and the related consolidated statements of income,
retained earnings and cash flow of the Company and its Subsidiaries
<PAGE> 37
33
for the fiscal year ended on said date, with the opinion thereon of
PricewaterhouseCoopers. All such financial statements are complete and correct
in all material respects and fairly present the consolidated financial condition
of the Company and its Subsidiaries as at said date and the consolidated results
of their operations for the fiscal year ended on said date, all in accordance
with generally accepted accounting principles and practices applied on a
consistent basis (except to the extent disclosed therein). Neither the Company
nor any of its Subsidiaries has on the date hereof any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments (in each case,
as determined in accordance with GAAP), except as referred to or reflected or
provided for in said balance sheet as at December 31, 1998 or except as set
forth on Schedule 8.02 hereto. Since December 31, 1998 there has been no
material adverse change in the consolidated financial condition, operations,
business or prospects taken as a whole of the Company and its Subsidiaries from
that set forth in said financial statements as at said date.
5.5. Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of any Obligor) threatened against the Company or
any of its Subsidiaries that, if adversely determined, could reasonably be
expected (either individually or in the aggregate) to have a Material Adverse
Effect.
5.6. No Breach. None of the execution and delivery of this Agreement, the
Notes, and the other Basic Documents, the consummation of the transactions
herein and therein contemplated or compliance with the terms and provisions
hereof and thereof, will:
(a) conflict with or result in a breach of, or (except as set
forth in Schedule 8.04 hereto) require any consent (except to the extent
such consent is immaterial or has already been obtained) under (i) the
charter or by-laws of any Obligor, (ii) any material applicable law or
regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency, or (iii) any material agreement or
instrument to which the Company and any of its Subsidiaries is a party or
by which any of them or any of their Property is bound or to which any of
them is subject, or constitute a default under any such agreement or
instrument, or
(b) except for Liens permitted by Section 9.06 of the Senior
Credit Agreement, result in the creation or imposition of
any Lien upon any material Property of the Company and any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
5.7. Action. Each Obligor has all necessary corporate or other requisite
power and authority to execute, deliver and perform its obligations under each
of the Basic Documents to which it is a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to which it is a
party have been duly authorized by all necessary corporate or other requisite
action on its part (including, without limitation, any required shareholder
approvals); and this Agreement has been duly and validly executed and delivered
by each Obligor and constitutes, and each of the Notes and the other Basic
Documents to which each Obligor is a party when executed and delivered by such
Obligor (in the case of the Notes, for value) will constitute, its legal, valid
and binding obligation, enforceable against such Obligor and in accordance with
its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights; and (b) the application of
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
<PAGE> 38
34
5.8. Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for
authorizations, approvals, consents, filings and registrations that have already
been obtained or completed.
5.9. Use of Credit. Neither the Company nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock. None of
the proceeds of any Loan will be used for the purpose of (or be made available
by the Company in any manner to any other Person to enable or assist such Person
in), directly or indirectly, purchasing or carrying Margin Stock.
5.10. ERISA. Each Plan, and, to the knowledge of the Obligors, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other federal or state law, other than
such non-compliance as could not reasonably be expected to have a Material
Adverse Effect.
5.11. Taxes. Except as set forth in Schedule 8.09 hereto, the Company and
its Subsidiaries have filed all federal income tax returns and all other
material tax returns that are required to be filed by them and have paid all
taxes that are due and payable pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries (other than any
immaterial taxes), unless the same are being contested in good faith, with
adequate reserves established therefor. The charges, accruals and reserves on
the books of the Company and its Subsidiaries in respect of taxes and other
governmental charges are in accordance with GAAP.
5.12. Investment Company Act. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
5.12.1. Public Utility Holding Company Act. Neither the Company nor any of
its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
5.13. Environmental Matters. Each of the Company and its Subsidiaries has
obtained all permits, licenses and other authorizations required under all
Environmental Laws to carry on its business as now being or as proposed to be
conducted, except to the extent the failure to have any such permit, license or
authorization could not reasonably be expected to (either individually or in the
aggregate) have a Material Adverse Effect. Each of such permits, licenses and
authorizations is in full force and effect and each of the Company and its
Subsidiaries is in compliance with the terms and conditions thereof, and is also
in compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law, except to the extent failure to
comply therewith could not reasonably be expected to (either individually or in
the aggregate) have a Material Adverse Effect.
<PAGE> 39
35
5.14. Capitalization.
5.14.1. Schedule 8.13 hereto sets forth a list, that is complete and
correct in all material respects, as of the date hereof, of all of the
holders of record of the capital stock of the Company, the class of stock
held by such holders, the numbers of shares held by such holder and the
percentage of Company's voting stock held by such holder.
5.14.2. Except as set forth on Schedule 8.13 hereto, as of the date
hereof, there are no outstanding material Equity Rights with respect to the
Company or any of its Subsidiaries, and there are no outstanding material
obligations of the Company or any of its Subsidiaries to repurchase,
redeem, or otherwise acquire any shares of its capital stock.
5.15. True and Complete Disclosure. The written factual information,
reports, financial statements, exhibits and schedules furnished in writing by or
on behalf of the Obligors to the Agent or any of the Lenders in connection with
the negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not, in any material respect, contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written factual information furnished after the
date hereof by the Obligors to the Agent and the Lenders in connection with this
Agreement and the other Basic Documents and the transactions contemplated hereby
and thereby will be true, complete and accurate in every material respect, or
(in the case of projections) based on reasonable estimates, assumptions or
projections, on the date as of which such information is stated or certified.
There is no fact known to the Company that could have a Material Adverse Effect
that has not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lenders for use in connection with the transactions
contemplated hereby or thereby.
5.16. Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (a) the computer systems of the
Company and its Subsidiaries and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the systems of
the Company and its Subsidiaries interface) and the testing of all such systems
and equipment, as so reprogrammed, was completed by December 31, 1999, except to
the extent such reprogramming and testing could not be reasonably expected to
have a Material Adverse Effect. Except as otherwise disclosed on Schedule 8.15
hereto, the cost to the Company and its Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequence of year 2000 compliance to
the Company and its Subsidiaries could not reasonably be expected to have a
Material Adverse Effect.
Section 6. Covenants of the Company. The Company covenants and agrees with
the Lenders and the Agent that, so long as any Commitment or Loan is outstanding
and until payment in full of all non-contingent amounts payable by the Company
hereunder:
6.1. Financial Statements, Etc. The Company shall deliver to each of the
Lenders (provided, however, that so long as TD is "Agent" under the Senior
Credit Agreement, compliance by the Company with Sections 9.01(a), 9.01(b) and
9.01(c) of the Senior Credit Agreement shall be deemed compliance by the Company
with Sections 9.01(a), 9.01(b) and 9.01(c) hereof):
<PAGE> 40
36
6.1.1. As soon as available and in any event within 60 days after the end
of each of the first three fiscal quarters of the Company's fiscal year,
unaudited consolidated and consolidating statements of income, retained earnings
and cash flow of the Company and its Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated and consolidating balance sheets of the
Company and its Subsidiaries as at the end of such period, setting forth in each
case in comparative form the corresponding consolidated and consolidating
figures for the corresponding periods in the preceding fiscal year (such
consolidating statements to be in a schedule to the consolidated statements).
The financial information to be provided under this paragraph (a) shall be
accompanied by a certificate of a Responsible Officer of the Company, which
certificate shall (i) state that said consolidated financial statements fairly
present in all material respects the consolidated financial condition and
results of operations of the Company and its Subsidiaries, and said
consolidating financial statements fairly present the respective individual
unconsolidated financial condition and result of operations of the Company and
each of its Subsidiaries, in each case in accordance with GAAP (unless otherwise
noted therein), consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments), (ii) state that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto), and (iii) set forth
in reasonable detail the computations necessary to determine whether the Company
is in compliance with Sections 9.14, 9.15, 9.16, 9.19 and 9.20 hereof;
6.1.2. As soon as available and in any event within 120 days after the end
of each fiscal year of the Company, audited consolidated and unaudited
consolidating statements of income, retained earnings and cash flow of the
Company and its Subsidiaries for such fiscal year and the related audited
consolidated and unaudited consolidating balance sheet of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each case in
comparative form the corresponding consolidated and consolidating figures for
the preceding fiscal year (such consolidating statements to be in a schedule to
the consolidated statements). The consolidated financial information to be
provided under this paragraph (b) shall be accompanied by (i) an opinion thereon
of independent certified public accountants of recognized national standing,
which opinion shall state that said consolidated financial statements fairly
present in all material respects the consolidated financial condition and
results of operations of the Company and its Subsidiaries as at the end of, and
for, such fiscal year in accordance with GAAP (unless otherwise noted therein),
and a certificate of such accountants stating that, in making the examination
necessary for their opinion, they obtained no knowledge, except as specifically
stated, of any Event of Default under Sections 9.14, 9.15, 9.16, 9.19 and 9.20
hereof (ii) a certificate of a Responsible Officer of the Company, which
certificate shall (x) state that said consolidating financial statements fairly
present in all material respects the consolidating financial condition and
results of operations of the Company and its Subsidiaries, in accordance with
GAAP (unless otherwise noted therein), consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments), (y) state
that no Default has occurred and is continuing (or, if any Default has occurred
and is continuing, describing the same in reasonable detail and describing the
action that the Company has taken or proposes to take with respect thereto), and
<PAGE> 41
37
(z) set forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Sections 9.14, 9.15, 9.16, 9.19 and
9.20 hereof;
6.1.3. As soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan has occurred or
exists, a statement signed by a Responsible Officer of the Company stating that
such an event or condition exists and, as soon as possible thereafter, a
statement signed by a Responsible Officer of the Company setting forth details
respecting such event or condition and the action, if any, that the Company or
its ERISA Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by the Company or an
ERISA Affiliate with respect to such event or condition):
6.1.3.1. any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard of Section
412 of the Code or Section 302 of ERISA, including, without limitation, the
failure to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in accordance
with Section 412(d) of the Code); and any request for a waiver under
Section 412(d) of the Code for any Plan;
6.1.3.2. the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan that has unfunded accrued pension liabilities
or any action taken by the Company or an ERISA Affiliate to terminate any
Plan that has unfunded accrued pension liabilities;
6.1.3.3. the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;
6.1.3.4. the complete or partial withdrawal from a Multiemployer Plan
by the Company or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt by
the Company or any ERISA Affiliate of notice from a Multiemployer Plan that
it is in reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under Section 4041A
of ERISA;
6.1.3.4.1. the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days; and
6.1.3.5. the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the
loss of tax-exempt status of the trust of which such Plan is a part if the
Company or an ERISA
<PAGE> 42
38
Affiliate fails to timely provide security to the Plan in accordance with
the provisions of said Sections;
6.1.4. Promptly after the Company knows or has reason to believe that any
Default hereunder or any "Default" as defined in the Senior Credit Agreement has
occurred, a notice of such Default or "Default", as the case may be, describing
the same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company, as the
case may be, has taken or proposes to take with respect thereto; and
6.1.5. From time to time such other information regarding the financial
condition, operations, business or prospects of the Company or any of its
Subsidiaries as any Lender or the Agent may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Responsible Officer of the Company to the effect that no Default hereunder and
no "Default" as defined in the Senior Credit Agreement has occurred and is
continuing (or, if any Default or "Default", as the case may be, has occurred
and is continuing, describing the same in reasonable detail and describing the
action that the Company has taken or proposes to take with respect thereto).
6.2. Litigation. The Company will promptly give to each Lender notice of
all legal or binding arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that, if adversely determined, could not
reasonably be expected (either individually or in the aggregate) to have a
Material Adverse Effect.
6.3. Existence, Etc. The Company will, and will cause each of its
Subsidiaries to:
6.3.1. except to the extent permitted by Section 9.05 hereof, preserve
and maintain (i) its legal existence and (ii) except to the extent that
failure to maintain the same could not reasonably be expected to have a
Material Adverse Effect, all of its rights, privileges, licenses and
franchises;
6.3.2. comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could not reasonably be expected to
(either individually or in the aggregate) have a Material Adverse Effect;
6.3.3. pay and discharge all federal and all other material taxes,
assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its Property prior to the date on which
penalties (other than interest at an increased rate) attach thereto, except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
6.3.3.1. maintain all of its material Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
<PAGE> 43
39
6.3.4. keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
6.3.5. permit representatives of any Lender or the Agent, during
normal business hours (and upon reasonable advance notice), to examine,
copy and make extracts from its books and records, to inspect any of its
Properties, and to discuss its business and affairs with its officers, all
to the extent reasonably requested by such Lender or the Agent (as the case
may be).
To enable the ready and consistent determination of compliance with the
covenants set forth in this Section 9, the Company will not change the last day
of its fiscal year from December 31 of each year, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.
6.4. Insurance. The Company will, and will cause each of its Subsidiaries
to, maintain insurance with financially sound and reputable insurance companies,
and with respect to Property and risks of a character usually maintained by
Persons engaged in the same or similar business in the locales where the Company
or such Subsidiary conducts business, against loss, damage and liability of the
kinds and in the amounts customarily maintained by such Persons.
6.5. Prohibition of Fundamental Changes. Section 9.05 of the Senior Credit
Agreement is incorporated herein as if set forth fully in this Section 9.05,
mutatis mutandis.
6.6. [Reserved].
6.7. [Reserved].
6.8. [Reserved].
6.9. [Reserved].
6.10. [Reserved].
6.11. Lines of Business. Neither the Company nor any of its Subsidiaries
will engage to any substantial extent in any line or lines of business activity
other than the businesses engaged in by them on the Closing Date and business
activities ancillary to any of the foregoing.
6.12. Transactions with Affiliates. Section 9.12 of the Senior Credit
Agreement is incorporated herein as if set forth fully in this Section 9.12,
mutatis mutandis.
6.13. Use of Proceeds . The Company will use the proceeds of the Tranche 1
Loans and Tranche 2 Loans solely for the Obligors' working capital purposes, in
each case in compliance with all applicable legal and regulatory requirements,
provided that neither the Agent nor any Lender shall have any responsibility as
to the use of any of such proceeds.
<PAGE> 44
40
6.13.1. Total Debt to Cash Flow Ratio. The Company will not permit the
Total Debt to Cash Flow Ratio as at the last day of any fiscal quarter of the
Company occurring during any of the periods set forth below to exceed the ratio
set forth below opposite such period:
<TABLE>
<CAPTION>
Period Total Debt to Cash Flow Ratio
------ -----------------------------
<S> <C>
January 1, 2001 to December 31, 2001 6.00 to 1
January 1, 2002 and thereafter 4.80 to 1
</TABLE>
6.14. Cash Flow to Debt Service Ratio. The Company will not permit the
Cash Flow to Debt Service Ratio as at the last day of any fiscal quarter of the
Company occurring during any of the periods set forth below to be less than the
ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Cash Flow to Debt Service Ratio
------ -------------------------------
<S> <C>
January 1, 2001 and thereafter 1.00 to 1
</TABLE>
6.15. Cash Flow to Interest Expense Ratio. The Company will not permit the
Cash Flow to Interest Expense Ratio as at the last day of any fiscal quarter of
the Company occurring during any of the periods set forth below to be less than
the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Cash Flow to Interest Expense Ratio
------ -----------------------------------
<S> <C>
October 1, 1999 to December 31, 2000 0.80 to 1
January 1, 2001 and thereafter 2.00 to 1
</TABLE>
6.16. Management Fee Payments. Section 9.17 of the Senior Credit Agreement
is incorporated herein as if set forth fully in this Section 9.17, mutatis
mutandis.
6.17. Holding Company; Subsidiaries; Etc.
(a) The Company will not at any time own at material Property
other than the capital stock of its Subsidiaries. The Company will not at
any time conduct any business other than acting as a holding company and
other activities ancillary thereto.
(b) The Company will take such action, and will cause each of
its Subsidiaries to take such action, from time to time as shall be
necessary to ensure that all Subsidiaries of the Company (other than
Subsidiaries that are organized under the laws of a jurisdiction outside of
the United States of America (each, a "Foreign Subsidiary")) are
"Subsidiary Guarantors" and "Obligors" hereunder and under the other Basic
Documents. Without limiting the generality of the foregoing, in the event
that the Company or any of its Subsidiaries shall form or acquire any such
new Subsidiary, the Company or the respective Subsidiary will (i) cause
such new Subsidiary to become a "Subsidiary Guarantor" hereunder and under
the other Basic Documents pursuant to a written instrument in form and
substance reasonably satisfactory to the Agent and
<PAGE> 45
41
(ii) cause such new Subsidiary to deliver such proof of corporate action,
incumbency of officers, opinions of counsel and other documents as is
reasonably requested by the Agent.
6.18. Minimum Total Revenue. The Company will not permit Total Revenue to
be less than the following respective amounts for the following respective
periods:
<TABLE>
<CAPTION>
Period Minimum Amount
------ --------------
<S> <C>
January 1, 1999 through December 31, 1999 $114,000,000
January 1, 2000 through March 31, 2000 $ 32,160,000
January 1, 2000 through June 30, 2000 $ 67,680,000
January 1, 2000 through September 30, 2000 $105,200,000
January 1, 2000 through December 31, 2000 $150,880,000
</TABLE>
6.19. Minimum Cash Flow. The Company will not permit Adjusted Cash Flow to
be less than the following respective amounts for the following respective
periods:
<TABLE>
<CAPTION>
Period Minimum Amount
------ --------------
<S> <C>
January 1, 1999 through December 31, 1999 $ 6,400,000
January 1, 2000 through March 31, 2000 $ 0
January 1, 2000 through June 30, 2000 $ 2,960,000
January 1, 2000 through September 30, 2000 $ 5,480,000
January 1, 2000 through December 31, 2000 $ 12,200,000
</TABLE>
6.20. Post-closing Liens. Not later than September 10, 2000 the Company
shall (a) grant, and shall cause each of its Subsidiaries (other than Foreign
Subsidiaries) to grant to the Lenders a Lien providing such Lenders a collateral
security interest in all Property of the Company and such Subsidiaries
(including the capital stock of, or other equity interests in, all such
Subsidiaries; provided that with respect to the capital stock of any Foreign
Subsidiary, only 65% of such capital stock shall be required to be pledged) on
terms and conditions satisfactory to the Lenders in their discretion, and (b)
execute and deliver such amendments to this Agreement and deliver, and cause
each such Subsidiary to deliver, such additional documents evidencing and/or
perfecting such Lien and evidencing proof of corporate action, incumbency of
officers, opinions of counsel and other documents, in each case as is reasonably
requested by the Agent; provided, however, that the granting of such Lien shall
be conditioned upon agreement by the Lenders and Agent not to take any action to
foreclose upon the collateral subject to such Lien unless and until the lenders
or agent then signatory to the Senior Credit Agreement have acted to foreclose
upon such collateral under the terms of the Senior Credit Agreement or any other
"Basic Document" as defined therein.
<PAGE> 46
42
Section 6.20.1. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
6.20.1. The Company shall: (i) default in the payment of any principal
of any Loan when due (whether at stated maturity or at mandatory or
optional prepayment); or (ii) default in the payment of any interest on any
Loan, any fee or any other amount payable by it hereunder or under any
other Basic Document when due and such default shall continue unremedied
for more than three Business Days; or
6.20.2. (i) The Company or any of its Subsidiaries (the Company and
such Subsidiaries herein collectively called the "Relevant Parties") shall
default in the payment when due of any principal of or interest on any of
its other Indebtedness aggregating $2,500,000 or more, or in the payment
when due of any amount under any Interest Rate Protection Agreement for a
notional principal amount exceeding $2,500,000, or any event specified in
any note, agreement, indenture or other document evidencing or relating to
any such Indebtedness or any event specified in any Interest Rate
Protection Agreement shall occur, and (ii) the effect of such default or
event shall be that such Indebtedness has become due or must be prepaid
immediately in full (whether by redemption, purchase, offer to purchase or
otherwise) prior to its stated maturity or, in the case of an Interest Rate
Protection Agreement, that the payments owing under such Interest Rate
Protection Agreement shall be liquidated; or
6.20.3. Any representation, warranty or certification made or deemed
made herein or in any other Basic Document (or in any modification or
supplement hereto or thereto) by any Obligor, or any certificate furnished
to any Lender or the Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
6.20.4. Any Obligor, as applicable, shall default in the performance
of any of its obligations under any of Sections 9.01(d), 9.05, 9.11, 9.12,
9.13, 9.14, 9.15, 9.16, 9.17, 9.19 or 9.20 hereof; or any Obligor shall
default in the performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall continue
unremedied for a period of more than 30 days after written notice thereof
to the Company by the Agent or any Lender (through the Agent); or
6.20.5. Any Relevant Party shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become due; or
6.20.6. Any Relevant Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial part
of its Property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Bankruptcy Code, (vi) take any similar action under the
<PAGE> 47
43
Canadian Bankruptcy and Insolvency Act or the Canadian Companies Creditors
Arrangements Act, or (vii) take any corporate action to effect of the
foregoing; or
6.20.7. A proceeding or case shall be commenced, without the
application or consent of the affected Relevant Party, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of such Relevant Party or of all or any
substantial part of its Property, or (iii) similar relief in respect of
such Relevant Party under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts
(including, without limitation, the Canadian Bankruptcy and Insolvency Act
or the Canadian Companies Creditors Arrangements Act), and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of more than 60 days; or an order for
relief against any Relevant Party shall be entered in an involuntary case
under the Bankruptcy Code; or
6.20.8. A final judgment or judgments (exclusive of judgment amounts
to the extent covered by insurance where the insurer has not denied
liability in respect of such judgment) for the payment of money in excess
of $5,000,000 in the aggregate shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Relevant Party and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and such Relevant
Party shall not, within said period of 60 days, or such longer period
during which execution of the same shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
6.20.9. An event or condition specified in Section 9.01(c) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and, as
a result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) that could reasonably be expected (either
individually or in the aggregate) to have a Material Adverse Effect; or
6.20.10. A reasonable basis shall exist for the assertion against the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries or Affiliates for which the Company or
any of its Subsidiaries is liable, of (or there shall have been asserted
against the Company or any of its Subsidiaries) an Environmental Claim that
is reasonably likely to be determined adversely to the Company or any of
its Subsidiaries, and the amount thereof (either individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect
(insofar as such amount is payable by the Company or any of its
Subsidiaries but after deducting any portion thereof that is reasonably
expected to be paid by other creditworthy Persons jointly and severally
liable therefor); or
6.20.11. Onex shall cease to have the right (by virtue of its
ownership, directly or indirectly, of voting shares of the capital stock of
the Company and unfettered (in respect of its control of the board of
directors of the Company) by any contractual arrangements) to appoint a
majority of the members of the board of directors of the Company and
otherwise maintain control of the Company.
<PAGE> 48
44
THEREUPON: (1) in the case of an Event of Default other than one referred
to in paragraph (b), (f) or (g) of this Section 10 with respect to any Obligor,
the Agent may and, upon request of the Majority Lenders shall, by notice to the
Company declare the principal amount then outstanding of, and the accrued
interest on, the Loans and all other amounts payable by the Obligors hereunder
and under the Notes (including, without limitation, any amounts payable under
Section 5.05 hereof) to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by each
Obligor; and (2) in the case of the occurrence of an Event of Default referred
to in paragraph (b), (f) or (g) of this Section 10 with respect to any Obligor,
the Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Obligors hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) shall automatically
become immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor.
Section 7. The Agent.
7.1. Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder and under the
other Basic Documents with such powers as are specifically delegated to the
Agent by the terms of this Agreement and of the other Basic Documents, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 11.05 and the first sentence of
Section 11.06 hereof shall include reference to its affiliates and its own and
its affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Lender; (b) shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent.
7.2. Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or
<PAGE> 49
45
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Agent. As to any matters not expressly provided for by this Agreement or any
other Basic Document, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder or thereunder in accordance with
instructions given by the Majority Lenders or, if provided herein, in accordance
with the instructions given by the Majority Lenders or all of the Lenders as is
required in such circumstance, and such instructions of such Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders.
7.3. Defaults. The Agent shall not be deemed to have knowledge or notice
of the occurrence of a Default unless the Agent has received notice from a
Lender or the Company specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall (subject to Section 11.07 hereof) take such action with
respect to such Default as shall be directed by the Majority Lenders or all of
the Lenders provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Lenders or all of the
Lenders.
7.4. Rights as a Lender. With respect to its Commitments and the Loans
made by it, TD (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lenders" shall, unless the context otherwise indicates, include the Agent
in its individual capacity. TD (and any successor acting as Agent) and its
affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Agent, and TD and
its affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
7.5. Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 12.03 hereof, but without limiting the
obligations of the Company under said Section 12.03) ratably in accordance with
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Lender) arising out of or by reason
of any investigation in or in any way relating to or arising out of this
Agreement or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that the Company is
obligated to pay under Section 12.03 hereof, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
7.6. Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as
<PAGE> 50
46
it has deemed appropriate, made its own credit analysis of the Company and its
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or under any other Basic Document. The Agent shall not be
required to keep itself informed as to the performance or observance by any
Obligor of this Agreement or any of the other Basic Documents or any other
document referred to or provided for herein or therein or to inspect the
Properties or books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Company or any of its Subsidiaries (or any of their affiliates) that may come
into the possession of the Agent or any of its affiliates.
7.7. Failure to Act. Except for action expressly required of the Agent
hereunder and under the other Basic Documents, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from the Lenders of their
indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
7.8. Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders. The Agent may be removed at any
time with or without cause by the Majority Lenders, subject to the approval of
the Company. Upon any such resignation or removal, the Majority Lenders shall
(subject to the approval of the Company, such approval not to be unreasonably
withheld or delayed), have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders (with the
Company's consent) and shall have accepted such appointment within 30 days after
the retiring Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, that shall be a bank that has an office in
New York, New York. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Section 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
7.9. Consents under Other Basic Documents. Except as otherwise provided in
Section 12.04 hereof with respect to this Agreement, the Agent may, with the
prior consent of the Majority Lenders (but not otherwise), consent to any
modification, supplement or waiver under any of the Basic Documents, provided
that, without the prior consent of each Lender, the Agent shall not (without
limiting the right of the Majority Lenders to modify the provisions of Section
9.05 hereof) terminate any Lien under any Basic Document providing for
collateral security, or agree to additional obligations being secured by such
collateral security (unless the Lien for such additional obligations shall be
junior to the Lien in favor of the other obligations secured by such Basic
Document), except that no such consent shall be required, and the Agent is
hereby authorized, to release any Lien covering Property that is the subject of
a disposition of Property permitted hereunder or to which the Majority Lenders
have consented.
<PAGE> 51
47
Section 8. Miscellaneous.
8.1. Waiver. No failure on the part of the Agent or any Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or any Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
8.2. Notices. All notices, requests and other communications provided for
herein (including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telex or telecopy), delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof (below the name of the Company, in the case of any Subsidiary
Guarantor); or, as to any party, at such other address as shall be designated by
such party in a notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given when
transmitted by telex or telecopier (with confirmation of receipt) or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
8.3. Expenses, Etc. The Company agrees to pay or reimburse each of the
Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses
of the Agent (including, without limitation, the reasonable fees and expenses of
Mayer, Brown & Platt, special New York counsel to TD) in connection with (i) the
negotiation, preparation, execution and delivery of this Agreement and the other
Basic Documents and the Loans hereunder and (ii) the negotiation or preparation
of any modification, supplement or waiver of any of the terms of this Agreement
or any of the other Basic Documents (whether or not consummated); (b) all
reasonable out-of-pocket costs and expenses of the Lenders and the Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel to the Agent and one additional counsel to the Lenders) in connection
with (i) any Default and any enforcement or collection proceedings resulting
therefrom, including, without limitation, all manner of participation in or
other involvement with (x) bankruptcy, insolvency, receivership, foreclosure,
winding up or liquidation proceedings, (y) judicial or regulatory proceedings
and (z) workout, restructuring or other negotiations or proceedings (whether or
not the workout, restructuring or transaction contemplated thereby is
consummated) and (ii) the enforcement of this Section 12.03; (c) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Basic Documents or any other document referred to herein or therein and
all costs, expenses, taxes, assessments and other charges incurred in connection
with any filing, registration, recording or perfection of any security interest
contemplated by any Basic Document or any other document referred to therein;
and (d) all reasonable out-of-pocket costs and expenses incurred by the Agent in
connection with the syndication of the Loans and the Commitments.
The Company hereby agrees to indemnify the Agent and each Lender and their
respective directors, officers, employees, attorneys and agents from, and hold
each of them harmless against, any and all losses, liabilities, claims, damages
or expenses incurred by any of them (including, without limitation, any and all
losses, liabilities, claims, damages or expenses incurred by the Agent to any
Lender, whether or not the Agent or any Lender is a party thereto, but subject
(in the case of fees and
<PAGE> 52
48
expenses of counsel) to the limitations set forth in the immediately preceding
paragraph) arising out of or by reason of any investigation or litigation or
other proceedings (including any threatened investigation or litigation or other
proceedings) relating to the Loans hereunder or any actual or proposed use by
the Company or any of its Subsidiaries of the proceeds of any of the Loans
hereunder, including, without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified).
8.4. Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Company, the Agent and the Majority
Lenders, or by the Company and the Agent acting with the consent of the Majority
Lenders, and any provision of this Agreement may be waived by the Majority
Lenders or by the Agent acting with the consent of the Majority Lenders;
provided that: (a) no modification, supplement or waiver shall, unless by an
instrument signed by each Lender, or by the Agent acting with the consent of
such Lenders: (i) increase, or extend the term of any of the Commitments, or
extend the time or waive any requirement for the scheduled termination of the
Commitments, (ii) extend any date fixed for any regularly scheduled payment of
principal of the Loan or any date fixed for any payment of interest on any Loan
or any fee hereunder, (iii) reduce the amount of any such regularly scheduled
payment of principal, (iv) reduce the rate at which interest is payable thereon
or any fee is payable hereunder, (v) alter the terms of this Section 12.04, or
(vi) modify the definition of the term "Majority Lenders"; (b) any modification
or supplement of Section 11 hereof shall require the consent of the Agent; and
(c) any modification or supplement of Section 6 hereof shall require the consent
of each Subsidiary Guarantor.
8.5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
8.6. Assignments and Participations.
8.6.1. No Obligor may assign any of its rights or obligations hereunder or
under the Notes without the prior consent of all of the Lenders and the Agent.
8.6.2. Each Lender may assign any of its Loans, its Notes and its
Commitments (but only with the consent of the Agent and, so long as no Event of
Default is continuing, the Company (such consent of the Company not to be
unreasonably withheld or delayed)); provided that (i) no such consent by the
Agent shall be required in the case of any assignment to another Lender; and
(ii) any such partial assignment shall be in an amount at least equal to
$10,000,000. Upon execution and delivery by the assignee to the Company and the
Agent of an assignment agreement in the form of Exhibit D hereto pursuant to
which such assignee agrees to become a "Lender" hereunder (if not already a
Lender) having the Commitment(s) and Loans specified in such instrument, and
upon consent thereto by the Agent and (to the extent required above) the
Company, the assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment with the consent of the Agent), the
obligations, rights and benefits of a Lender hereunder holding the Commitment(s)
and Loans assigned to it (in addition to the Commitment(s) and Loans, if any,
theretofore held by such assignee) and the assigning Lender shall, to the extent
<PAGE> 53
49
of such assignment, be released from the Commitment(s) (or portion(s) thereof)
so assigned. Upon each such assignment the assigning Lender shall pay the Agent
an assignment fee of $3,500.
8.6.3. A Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans held by it, or in its Commitments,
in which event each purchaser of a participation (a "Participant") shall be
entitled to the rights and benefits of the provisions of Section 9.01(g) hereof
with respect to its participation in such Loans and Commitments as if (and the
Company shall be directly obligated to such Participant under such provisions as
if) such Participant were a "Lender" for purposes of said Section 9.01(g), but,
except as otherwise provided in Section 4.07(c) hereof, shall not have any other
rights or benefits under this Agreement or any Note or any other Basic Document
(the Participant's rights against such Lender in respect of such participation
to be those set forth in the agreements executed by such Lender in favor of the
Participant). All amounts payable by the Company to any Lender under Section 5
hereof in respect of Loans and Commitments, shall be determined as if such
Lender had not sold or agreed to sell any participations in such Loans and
Commitments and as if such Lender were funding each of such Loan and Commitments
in the same way that it is funding the portion of such Loan and Commitments in
which no participations have been sold. In no event shall a Lender that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Basic Document except that such Lender may
agree with the Participant that it will not, without the consent of the
Participant, agree to (i) increase or extend the term, or extend the time or
waive any requirement for the scheduled termination, of such Lender's related
Commitment, (ii) extend any date fixed for any regularly scheduled payment of
principal of or interest on the related Loan or Loans or any portion of any fee
hereunder payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon,
or any fee hereunder payable to the Participant, to a level below the rate at
which the Participant is entitled to receive such interest or fee, (v) consent
to any modification, supplement or waiver hereof or of any of the other Basic
Documents to the extent that the same, under Section 11.09 or 12.04 hereof,
requires the consent of each Lender.
8.6.4. In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, any Lender may (without notice
to the Company, the Agent or any other Lender and without payment of any fee)
(i) assign and pledge all or any portion of its Loans and its Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank and (ii) assign all or
any portion of its rights under this Agreement and its Loans and its Notes to an
affiliate. No such assignment shall release the assigning Lender from its
obligations hereunder.
8.6.5. A Lender may furnish any information concerning the Company or any
of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject to such assignee or participant agreeing in writing to be bound by the
provisions of Section 12.12 hereof.
8.6.6. Anything in this Section 12.06 to the contrary notwithstanding, no
Lender may assign or participate any interest in any Loan held by it hereunder
to the Company or any of its Affiliates or Subsidiaries without the prior
consent of each Lender.
<PAGE> 54
50
8.6.7. In connection with any Conversion, a Lender may (at its sole
discretion, but subject to giving prior notice thereof to the Agent) transfer a
Loan from one Applicable Lending Office to another.
8.7. Survival. The obligations of the Company under Sections 5.01, 5.05
and 12.03 hereof, the obligations of each Subsidiary Guarantor under Section
6.03 hereof, and the obligations of the Lenders under Section 11.05 hereof,
shall survive for one year after the repayment of the Loans and the termination
of the Commitments.
8.8. Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
8.9. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.10. Governing Law; Submission to Jurisdiction. This Agreement and the
Notes shall be governed by, and construed in accordance with, the law of the
State of New York without regard to New York conflicts of laws principles. Each
Obligor hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and of any New York state
court sitting in New York City for the purposes of all legal proceedings arising
out of or relating to this Agreement or the transactions contemplated hereby.
Each Obligor irrevocably waives, to the fullest extent permitted by applicable
law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
8.11. Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.12. Confidentiality. Each Lender and the Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by any Obligor pursuant to this Agreement
that is identified by such Person as being confidential at the time the same is
delivered to each Lender or the Agent, provided that nothing herein shall limit
the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for any Lender or the
Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or
any Lender, (v) in connection with any litigation to which any one or more of
the Lenders or the Agent is a party or (v) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first agrees in writing to be bound by this
Section 12.12.
<PAGE> 55
51
8.13. Senior Credit Agreement Terms. Upon termination of the Senior Credit
Agreement, (i) all Sections thereof referenced or incorporated herein and (ii)
Sections 9.06, 9.07, 9.08, 9.09 and 9.10 thereof in each case shall be
incorporated herein as if set forth herein in their entirety (including all
defined terms used in such Sections), mutatis mutandis, as such Sections and
definitions were in effect immediately prior to such termination, and such terms
and conditions thereof shall be terms and conditions hereof and shall be fully
enforceable by the Lenders against the Company.
[The remainder of this page has been left blank intentionally]
<PAGE> 56
52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
Company
CLIENTLOGIC CORPORATION
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
Address for Notices:
Two American Center
3102 West End Avenue
Suite 1000
Nashville, Tennessee 37203
Attention: Gene Morphis
Telecopier No.: 615-301-7150
Telephone No.: 615-301-7156
Subsidiary Guarantors
LCS INDUSTRIES, INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
CATALOG LIQUIDATORS, INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
<PAGE> 57
53
LCS CANADA, INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
CATALOG RESOURCES, INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
SPEC HOLDINGS, INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
THE SPECIALISTS LTD.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
COMPUTER MARKETING
SYSTEMS INC.
By /s/ MARK R. BRIGGS
----------------------------------------
Name:
Title:
<PAGE> 58
54
CLIENTLOGIC OPERATING CORPORATION
By /s/ MARK R. BRIGGS
---------------------------------------
Name:
Title:
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
By /s/ STEVEN M. KAWALICK
---------------------------------------
Name:
Title:
MARKETVISION, INC.
By /s/ MARK R. BRIGGS
---------------------------------------
Name:
Title:
<PAGE> 59
55
Agent
TORONTO DOMINION (TEXAS), INC.
By /s/ DIANE BAILEY
---------------------------------------
Name:
Title:
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8241
<PAGE> 60
56
Lenders
Tranche 1 Commitment TORONTO DOMINION (TEXAS), INC.
$15,000,000
Tranche 2 Commitment By /s/ DIANE BAILEY
----------------------------------------
$10,000,000 Name:
Title:
Lending Office for all Loans:
909 Fannin, Suite 1700
Houston, Texas 77010
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8241
With a copy to:
Toronto Dominion Bank
Toronto Dominion Centre
Toronto, Ontario M5K 1A2
CANADA
Attention: Michael Collins
Christian McMillan
Telecopier No.: (416) 944-5164
Telephone No.: (416) 982-2118
(416) 308-2099
<PAGE> 1
EXHIBIT 4.10
[EXECUTION COPY]
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of March 10, 2000 among:
(i) TORONTO DOMINION (TEXAS), INC., as agent for the lenders or
other financial institutions or entities party, as lenders, to the
Subordinated Credit Agreement referred to below (in such capacity,
together with its successors in such capacity, the "Subordinated
Agent");
(ii) CLIENTLOGIC CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware (the
"Company"); each of the Subsidiaries of the Company identified under
the caption "Subsidiary Guarantors" on the signature pages hereto
(individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and the Subsidiary Guarantors collectively with
the Company, the "Obligors");
(iii) TORONTO DOMINION (TEXAS), INC., as agent for the lenders or
other financial institutions or entities party, as lenders, to the
Right-side Credit Agreement referred to below (in such capacity,
together with its successors in such capacity, the "Right-side Agent");
and
(iv) TORONTO DOMINION (TEXAS), INC., as agent for the lenders or
other financial institutions or entities party, as lenders, to the
Left-side Credit Agreement referred to below (in such capacity,
together with its successors in such capacity, the "Left-side Agent"
and the Right-side Agent together with the Left-side Agent,
collectively, the "Senior Agents").
The Company, certain of its Subsidiaries, certain lenders and the
Right-side Agent are parties to a Credit Agreement dated as of May 25, 1999 (as
modified and supplemented and in effect from time to time, the "Right-side
Credit Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit (by making of loans and issuing letters of credit) to be
made by said lenders to the Company in an aggregate principal or face amount not
exceeding $40,000,000.
The Company, certain of its Subsidiaries, Onex ClientLogic Finance LLC
(the "Left-side Lender") and the Left-side Agent are parties to a Credit
Agreement dated as of May 25, 1999 (as modified and supplemented and in effect
from time to time, the "Left-side Credit Agreement" and, together with the
Right-side Credit Agreement, collectively, the "Senior Credit Agreements"),
providing, subject to the terms and conditions thereof, for extensions of credit
(by making of loans) to be made by the Left-side Lender to the Company in an
aggregate principal or face amount not exceeding $60,000,000.
<PAGE> 2
The Company, certain of its Subsidiaries, certain lenders and the
Subordinated Agent are parties to a Credit Agreement dated as of March 10, 2000
(as modified and supplemented and in effect from time to time, the "Subordinated
Credit Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit (by making of loans) to be made by the Subordinated Lenders
to the Company in an aggregate principal or face amount not exceeding
$25,000,000.
To induce the Right-side Lenders to amend the Right-side Credit
Agreement to permit the Company to enter into said Subordinated Credit
Agreement, and to induce the Left-side Lender to amend the Left-side Credit
Agreement to permit the Company to enter into said Subordinated Credit
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Subordinated Lenders have
agreed to subordinate the Subordinated Debt (as hereinafter defined) to the
Senior Debt (as so defined) all in the manner and to the extent hereinafter
provided. Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Right-side Credit
Agreement are used herein as defined therein. In addition, as used herein:
"Designated Senior Debt" shall mean: (a) initially, the principal of
and interest on the Indebtedness and other obligations of the Obligors under the
Senior Credit Agreements and (b) following the refinancing or repayment in full
of such Indebtedness and other obligations, any other agreement providing for
the issuance or incurrence of any Senior Debt, or pursuant to which any Senior
Debt shall be outstanding, that shall have been designated by the Company in a
notice to the Subordinated Agent as "Designated Senior Debt" for purposes
hereof.
"Permitted Refinancing" shall mean any extension, renewal, refunding or
refinancing, or any restructuring, or any other modification (collectively, a
"Refinancing") of any Senior Debt at any time outstanding under the Senior
Credit Agreements (but only to the extent that such Refinancing does not exceed
the principal amount of the Senior Debt so extended, renewed, refunded,
refinanced, restructured or modified).
"Person" shall mean any individual, corporation, company, voluntary
association, limited liability company, partnership, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Reorganization Debt Securities" shall mean, with respect to each
Obligor, debt securities of such Obligor as reorganized or readjusted or debt
securities of such Obligor or any other Person provided for by a plan of
reorganization or readjustment, or debt securities that are subordinated, to at
least the same extent as the Subordinated Debt, to the payment of all Senior
Debt that will be outstanding after giving effect to such plan of reorganization
or readjustment,
2
<PAGE> 3
so long as (a) the rate of interest on such debt securities shall not exceed the
effective rate of interest on the Subordinated Debt on the date hereof, (b) such
debt securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such debt securities than those in
effect with respect to the Subordinated Debt on the date hereof (or the Senior
Debt, after giving effect to such plan of reorganization or readjustment) and
(c) such debt securities shall not provide for amortization (including sinking
fund and mandatory prepayment provisions) commencing prior to the date three
months following the final scheduled maturity date of the Senior Debt (as
modified by such plan of reorganization or readjustment).
"Senior Debt" shall mean, collectively, the following Indebtedness and
obligations of the Obligors:
(a) all Indebtedness and other obligations of the Obligors under
the Senior Credit Agreements, including all interest, expenses,
indemnities and penalties and all commitment and agency fees (but
excluding other fees) payable from time to time under the Senior Credit
Agreements, up to but not exceeding an aggregate principal or face
amount equal to $100,000,000, less (x) in the case of any such
Indebtedness constituting term loans, the aggregate amount of payments
or prepayments of principal made in respect thereof and (y) in the case
of any such Indebtedness constituting revolving credit obligations, the
aggregate amount of payments or prepayments of principal made in
respect thereof to the extent made in connection with (or that cause)
permanent reductions of the revolving credit commitments related to
such obligations,
(b) additional Indebtedness or other obligations (which may be
incurred under the Senior Credit Agreements or under separate
arrangements) up to but not exceeding an aggregate principal or face
amount equal to $10,000,000, and
(c) any Permitted Refinancing.
The term "Senior Debt" shall include any interest accruing after the date of any
filing by any Obligor of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceedings with respect to such Obligor,
whether or not such interest is allowable as a claim in any such proceeding.
Notwithstanding the foregoing, "Senior Debt" shall not include any obligations
or other Indebtedness of any Obligor that by its terms is expressly stated not
to be superior in right of payment to the Subordinated Debt.
"Senior Lenders" shall mean the Senior Agents, the Right-side Lenders
and the Left-side Lender.
"Significant Event of Default" shall mean any Event of Default under
Section 10(c) of the Right-side Credit Agreement, Section 10(d) of the
Right-side Credit Agreement (arising out of a breach of certain sections of
Section 9 thereof), Section 10(e) of the Right-side Credit Agreement, Section
10(h) of the Right-side Credit Agreement, Section 10(i) of the Right-side
3
<PAGE> 4
Credit Agreement, Section 10(j) of the Right-side Credit Agreement, Section
10(k) of the Right-side Credit Agreement or Section 10(l) of the Right-side
Credit Agreement.
"Subordinated Debt" shall mean the principal of, and interest on, the
loans made, and any other amounts owing, under the Subordinated Debt Documents,
including, without limitation, any amounts owing in respect of a breach of the
representations, warranties or covenants thereunder by any Obligor.
"Subordinated Debt Documents" shall mean the Subordinated Credit
Agreement and any promissory notes issued thereunder.
"Subordinated Lenders" shall mean the Subordinated Agent and each
"Lender" party from time to time to the Subordinated Credit Agreement.
Section 2. Subordination.
2.01 Subordination of Subordinated Debt. Each Obligor, for itself and
its successors and assigns, covenants and agrees, and each Subordinated Lender
likewise covenants and agrees, that, to the extent and in the manner set forth
in this Agreement, the Subordinated Debt, and the payment from whatever source
of the principal of, and interest on, the Subordinated Debt, are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full in cash of all Senior Debt.
2.02 Payment of Proceeds Upon Dissolution. In the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to any Obligor or to its assets, or (b) any liquidation, dissolution or
other winding up of any Obligor, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of any Obligor, then
and in any such event:
(1) the Senior Lenders shall be entitled to receive payment in
full in cash of all amounts due or to become due on or in respect of
all Senior Debt, before any Subordinated Lender shall be entitled to
receive any payment on account of principal of, or interest or premium
(if any) on, the Subordinated Debt;
(2) any payment or distribution of assets of such Obligor of any
kind or character, whether in cash, property or securities, by set-off
or otherwise, to which any Subordinated Lender would be entitled but
for the provisions of this Agreement, including any such payment or
distribution that may be payable or deliverable by reason of the
payment of any other Indebtedness of such Obligor being subordinated to
the
4
<PAGE> 5
payment of the Subordinated Debt (other than Reorganization Debt
Securities), shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the Senior Agents, to be paid to the Senior Lenders, ratably according
to the aggregate amounts remaining unpaid on account of the principal
of, and interest and premium (if any) on, the Senior Debt held or
represented by each Senior Lender, to the extent necessary to make
payment in full in cash of all Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the Senior
Lenders;
(3) in the event that, notwithstanding the foregoing provisions of
this Section 2.02, any Subordinated Lender shall have received, before
all Senior Debt is paid in full in cash or payment thereof provided
for, any such payment or distribution of assets of such Obligor of any
kind or character, whether in cash, property or securities (other than
Reorganization Debt Securities), including any such payment or
distribution arising out of the exercise by any Subordinated Lender of
a right of set-off or counterclaim and any such payment or distribution
received by reason of any other Indebtedness of such Obligor being
subordinated to the Subordinated Debt, then, and in such event, such
payment or distribution shall be held in trust for the benefit of, and
shall be immediately paid over or delivered to, the Senior Agents, to
be paid to the Senior Lenders, ratably according to the aggregate
amounts remaining unpaid on account of the principal of, and interest
on, the Senior Debt held or represented by each Senior Lender, to the
extent necessary to make payment in full in cash of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the Senior Lenders; and
(4) if any Subordinated Lender shall have failed to file claims or
proofs of claim with respect to the Subordinated Debt earlier than 30
days prior to the deadline for any such filing, the Subordinated Lender
shall execute and deliver to the Senior Agents such powers of attorney,
assignments or other instruments as the Senior Agents may reasonably
request to file such claims or proofs of claim.
The consolidation of any Obligor with, or the merger of any Obligor
into, another Person or the liquidation or dissolution of such Obligor following
the conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Section
9.05 of the Right-side Credit Agreement shall not be deemed a dissolution,
winding up, liquidation, reorganization, assignment for the benefit of creditors
or marshaling of assets and liabilities of such Obligor for purposes of this
Agreement if the Person formed by such consolidation or into which such Obligor
is merged or the Person that acquires by conveyance or transfer such properties
and assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the conditions
set forth in said Section 9.05.
2.03 No Payment When Senior Debt in Default. In the event that (a) any
payment with respect to any principal of or interest on any Designated Senior
Debt is not made when due,
5
<PAGE> 6
whether at stated maturity, by mandatory prepayment, by acceleration, or
otherwise (each such failure, a "Senior Debt Payment Default") or (b) unless the
foregoing clause (a) shall apply, any Significant Event of Default with respect
to any Designated Senior Debt shall have occurred and be continuing, thereby
permitting the Senior Lenders to declare such Designated Senior Debt due and
payable prior to the date on which it would otherwise have become due and
payable, then no payment on account of the principal of, or interest or premium
(if any) on, the Subordinated Debt or any judgment with respect thereto (and no
payment on account of the purchase or redemption or other acquisition of the
Subordinated Debt) shall be made by or on behalf of any Obligor:
(x) in case of a Senior Debt Payment Default, unless and until
such payment shall have been made or the Senior Lenders have waived the
benefits of this Section 2.03 in respect of such Senior Debt Payment
Default, or
(y) in case of any Significant Event of Default specified in
clause (b) above, for the period (the "Blockage Period") from the date
the Obligors and the Subordinated Lenders receive written notice of
such Significant Event of Default from the Right-side Agent (a
"Blocking Notice") until the earlier of (1) the date 180 days after
such date and (2) the date, if any, on which the Senior Debt to which
such default relates is discharged or such default is waived by the
Senior Lenders or otherwise cured,
provided, that, for purposes of clause (y) above, (A) only one Blocking Notice
relating to the same or any other Significant Event of Default may be given
during any one twelve-month period, (B) only a total of three Blocking Notices
may be given, and (C) a further Blocking Notice relating to the same or any
other Significant Event of Default that existed at the time such Blockage Period
commenced (to the extent that the Senior Agents shall have had knowledge of such
Significant Event of Default at the time such Blocking Notice was given) shall
not be effective unless such Significant Event of Default shall in the interim
have been cured for a period of at least 90 consecutive days. For purposes
hereof, a Significant Event of Default based upon the breach of a covenant
testing financial condition or performance as at a particular date, or for a
particular period ending, after the expiration of a Blockage Period shall not be
treated as the continuation, uncured, of a Significant Event of Default that
existed at the commencement of such Blockage Period even though the Obligors
were also in breach of such covenant as at the commencement of such Blockage
Period.
Immediately upon the expiration of any period under this Section 2.03
during which no payment may be made on account of the Subordinated Debt, the
Obligors may resume making any and all payments of principal of, and interest
on, the Subordinated Debt (including any payment of principal or interest missed
during such period).
In the event that, notwithstanding the foregoing provisions of this
Section 2.03, any Subordinated Lender shall have received any payment prohibited
by the foregoing provisions of this Section 2.03, including, without limitation,
any such payment arising out of the exercise by any Subordinated Lender of a
right of set-off or counterclaim and any such payment received by
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<PAGE> 7
reason of other Indebtedness of such Obligor being subordinated to the
Subordinated Debt, then, and in any such event, such payment shall be held in
trust for the benefit of, and shall be immediately paid over or delivered to,
the Senior Agents, to be paid to the Senior Lenders, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, and interest
and premium (if any) on, the Senior Debt held or represented by each Senior
Lender, for application to such Senior Debt remaining unpaid, whether or not
then due and payable.
The provisions of this Section 2.03 shall not alter the rights of the
holders of Senior Debt under the provisions of Section 2.02 hereof.
2.04 Payment Permitted if No Default. Nothing contained in this
Agreement or in any of the Subordinated Debt Documents shall affect the
obligation of any Obligor to make (or prevent any Obligor from making) regularly
scheduled payments of principal of, or interest on, the Subordinated Debt or any
other amount payable by such Obligor under the Subordinated Debt Documents
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of such Obligor referred to in Section 2.02 hereof, or
under the conditions described in Section 2.03 hereof.
2.05 Subrogation. Subject to the payment in full in cash of all Senior
Debt, the Subordinated Lenders shall be subrogated (equally and ratably with the
holders of all Indebtedness of each Obligor that by its express terms is
subordinated to Senior Debt of such Obligor to the same extent as the
Subordinated Debt and that is entitled to like rights of subrogation) to the
rights of the Senior Lenders to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the principal of,
and interest and premium (if any) on, the Subordinated Debt shall be paid in
full in cash. For purposes of such subrogation, no payments or distributions to
the Senior Lenders of any cash, property or securities to which any Subordinated
Lender would be entitled except for the provisions of this Section 2, and no
payments over pursuant to the provisions of this Section 2 to the Senior Lenders
by any Subordinated Lender, shall, as between an Obligor, its creditors other
than the Senior Lenders, and the Subordinated Lenders, be deemed to be a payment
or distribution by such Obligor to or on account of the Senior Debt.
2.06 Provisions Solely to Define Relative Rights. The provisions of
this Section 2 are and are intended solely for the purpose of defining the
relative rights of the Subordinated Lenders on the one hand and the Senior
Lenders on the other hand. Nothing contained in this Section 2 or elsewhere in
this Agreement or in the Subordinated Debt Documents is intended to or shall:
(a) impair, as among any Obligor, its creditors other than the
Senior Lenders and the Subordinated Lenders, the obligation of such
Obligor, which is absolute and unconditional, to pay to the
Subordinated Lenders the principal of and interest on the
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<PAGE> 8
Subordinated Debt as and when the same shall become due and payable in
accordance with its terms;
(b) affect the relative rights against such Obligor of the
Subordinated Lenders and creditors of such Obligor other than the
Senior Lenders;
(c) vitiate the occurrence of an Event of Default under Section 10
of the Subordinated Credit Agreement to the extent that any failure to
make a payment of principal of, or interest on, any Subordinated Debt
by reason of the conditions specified in Section 2.02 or 2.03 hereof
would otherwise constitute such an Event of Default; or
(d) prevent any Subordinated Lender from exercising all remedies
otherwise permitted by applicable law upon default under this Agreement
or the Subordinated Debt Documents, subject to the rights, if any,
under this Section 2 of the Senior Lenders (i) in any case, proceeding,
dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of
such Obligor referred to in Section 2.02 hereof, to receive, pursuant
to and in accordance with said Section 2.02, cash, property and
securities otherwise payable or deliverable to the Subordinated
Lenders, or (ii) under the conditions specified in Section 2.03 hereof,
to prevent any payment prohibited by said Section 2.03.
2.07 No Waiver of Subordination Provisions. No right of the Senior
Agents or any other Senior Lender to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of any Obligor or by any act or failure to act, in good faith,
by the Senior Agents or any other Senior Lender, or by any non-compliance by any
Obligor with the terms, provisions and covenants of this Agreement, regardless
of any knowledge thereof the Senior Agents or any other Senior Lender may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the Senior Lenders may, at any time and from time to time, without the consent
of or notice to any Subordinated Lender, without incurring responsibility to any
Subordinated Lender and without impairing or releasing the subordination
provided in this Section 2 or the obligations hereunder of any Subordinated
Lender to the holders of Senior Debt, do any one or more of the following: (a)
change the time, manner or place of payment of Senior Debt, or otherwise modify
or supplement in any respect any of the provisions of the Credit Agreement or
any other instrument evidencing or relating to any of the Senior Debt; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (c) release any Person liable in any manner for
the collection of Senior Debt; and (d) exercise or refrain from exercising any
rights against any Obligor and any other Person.
2.08 Notice to Subordinated Lenders. Each Obligor shall give prompt
written notice to each Subordinated Lender of any fact known to such Obligor
that would prohibit the making of
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<PAGE> 9
any payment to it in respect of the Subordinated Debt. Notwithstanding the
provisions of this Section 2 or any other provision of this Agreement, no
Subordinated Lender shall be charged with knowledge of the existence of any
facts that would prohibit the making of any payment to it in respect of the
Subordinated Debt, unless and until such Subordinated Lender shall have received
written notice thereof from such Obligor or a Senior Agent or the Subordinated
Agent; and, prior to the receipt of any such written notice, each Subordinated
Lender shall be entitled in all respects to assume that no such facts exist.
Each Subordinated Lender shall be entitled to rely on the delivery to
it of a written notice by a Person representing itself to be a holder of Senior
Debt (or a trustee, fiduciary or agent therefor) to establish that such notice
has been given by a holder of Senior Debt (or a trustee, fiduciary or agent
therefor). In the event that such Subordinated Lender determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Debt to participate in any payment or distribution pursuant to
this Section 2, such Subordinated Lender may request such Person to furnish
evidence to the reasonable satisfaction of such Subordinated Lender as to the
amount of Senior Debt held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Section 2 and if such evidence
is not furnished, such Subordinated Lender may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
2.09 Reliance on Judicial Order or Certificate of Liquidation Agent.
Upon any payment or distribution of assets of any Obligor referred to in this
Section 2, the Subordinated Lenders shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Subordinated Lenders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Debt and other Indebtedness of such Obligor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 2.
Section 3. Representations and Warranties. Each Subordinated Lender
represents and warrants to the Senior Lenders and the Senior Agents that:
3.01 Corporate Existence. Each Subordinated Lender is a corporation
duly organized and validly existing under the laws of the jurisdiction of its
incorporation.
3.02 No Breach. None of the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated or compliance with the
terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, the
9
<PAGE> 10
charter or bylaws of any Subordinated Lender, any applicable law or regulation,
or any order, writ, injunction or decree of any court or governmental authority
or agency, or any agreement or instrument to which any Subordinated Lender is a
party or by which any Subordinated Lender is bound or to which any Subordinated
Lender is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of the
revenues or assets of any Subordinated Lender pursuant to the terms of any such
agreement or instrument.
3.03 Corporate Action; Execution and Delivery. Each Subordinated Lender
has all necessary corporate power and authority to execute, deliver and perform
its obligations under this Agreement; the execution, delivery and performance by
each Subordinated Lender of this Agreement have been duly authorized by all
necessary action on its part; and this Agreement has been duly and validly
executed and delivered by each Subordinated Lender and constitutes the legal,
valid and binding obligation of each Subordinated Lender, enforceable in
accordance with its terms.
3.04 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by any
Subordinated Lender of this Agreement or for the validity or enforceability
hereof.
Section 4. Miscellaneous.
4.01 No Waiver. No failure on the part of any Senior Lender to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by any Senior Lender of any right, power or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies herein are cumulative and are
not exclusive of any remedies provided by law.
4.02 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York.
4.03 Notices. All notices, requests, consents and demands hereunder
shall be in writing and telexed, telecopied or delivered to the intended
recipient at the "Address for Notices" specified beneath its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
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4.04 Waivers, Etc. The terms of this Agreement may be waived, altered
or amended (as to a Subordinated Lender) only by an instrument in writing duly
executed by such Subordinated Lender and (as to the Senior Lenders) by the
Senior Agents with the consent of the Senior Lenders as specified in Section
11.09 of the Right-side Credit Agreement and Section 11.08 of the Left-side
Credit Agreement. Any such amendment or waiver shall be binding upon the Senior
Lenders (and each other holder of Senior Debt) and each Subordinated Lender.
4.05 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of each
Subordinated Lender and each Senior Lender (and each other holder of Senior
Debt) and of each Obligor.
4.06 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
4.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Subordination
Agreement to be duly executed and delivered as of the day and year first above
written.
SUBORDINATED AGENT
TORONTO DOMINION (TEXAS), INC.,
as the Subordinated Agent
By /s/ DIANE BAILEY
----------------------------------
Title:
Address for Notices:
909 Fannin Street
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telephone No.: (713) 653-8241
Telecopier No.: (713) 951-9921
COMPANY
CLIENTLOGIC CORPORATION
By /s/ MARK R. BRIGGS
----------------------------------
Title:
Address for Notices:
Two American Center
3102 West End Avenue, Suite 1000
Nashville, Tennessee 37203
Telephone No.: (615) 301-7156
Telecopier No.: (615) 301-7150
12
<PAGE> 13
SUBSIDIARY GUARANTORS
LCS INDUSTRIES, INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
CATALOG LIQUIDATORS, INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
LCS CANADA, INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
CATALOG RESOURCES, INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
SPEC HOLDINGS, INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
THE SPECIALISTS LTD.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
13
<PAGE> 14
COMPUTER MARKETING SYSTEMS INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
CLIENTLOGIC OPERATING CORPORATION
By /s/ MARK R. BRIGGS
----------------------------------
Title:
14
<PAGE> 15
CLIENTLOGIC INTERNATIONAL
HOLDING, INC.
By /s/ STEVEN M. KAWALICK
----------------------------------
Title:
MARKETVISION,INC.
By /s/ MARK R. BRIGGS
----------------------------------
Title:
RIGHT-SIDE AGENT
TORONTO DOMINION (TEXAS), INC.,
as the Right-side Agent
By /s/ DIANE BAILEY
----------------------------------
Title:
Address for Notices:
909 Fannin Street
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telephone No.: (713) 653-8241
Telecopier No.: (713) 951-9921
LEFT-SIDE AGENT
TORONTO DOMINION (TEXAS), INC.,
as the Left-side Agent
15
<PAGE> 16
By /s/ DIANE BAILEY
----------------------------------
Title:
Address for Notices:
909 Fannin Street
Houston, Texas 77010
Attention: Kimberly Burleson
Diane Bailey
Telephone No.: (713) 653-8241
Telecopier No.: (713) 951-9921
16
<PAGE> 1
EXHIBIT 10.38
PROMISSORY NOTE
New York, New York
$2,625,000.00 December 6, 1999
FOR VALUE RECEIVED, Marketvision, Inc., a Colorado corporation
with its chief executive office and principal place of business at 10065 East
Harvard, Suite 750, Denver, Colorado 80231 ("Maker") promises to pay to Joseph
L. Temple, Jr., a resident of the State of Colorado, at his legal address at
10065 East Harvard, Suite 750, Denver, Colorado 80231 ("Payee") (or such other
place as Payee may hereafter designate in writing), in immediately available
funds and in lawful money of the United States of America, the aggregate
principal sum of Two Million Six Hundred Twenty-Five Thousand Dollars
($2,625,000.00) (or the unpaid balance of all principal outstanding under this
Promissory Note (this "Note") if that amount is less), together with interest
(subject to Section 5 hereof) as follows: (a) interest on the unpaid principal
balance of this Note from time to time outstanding at the Stated Rate and (b)
interest on all past due amounts, both principal and accrued interest, from the
expiration of the applicable notice or cure period until paid at the Past Due
Rate.
1. DEFINITIONS. As used in this Note, the following terms shall have the
respective meanings indicated:
"Agreement" means that certain Stock Purchase Agreement dated
as of December 6, 1999 among ClientLogic Holding Corporation, a Delaware
corporation ("Holding"), Maker, Payee and S. Dianne Thompson relating to the
purchase by Holding of all of the outstanding common stock of Maker, as the same
may be amended, modified or supplemented from time to time.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Ceiling Rate" means, on any day, the maximum non-usurious
rate of interest permitted for that day by whichever of applicable federal or
state laws permits the higher interest rate, stated as a rate per annum.
"Closing Date" shall have the meaning assigned to it in the
Agreement.
"Common Stock" means the common stock of Holding, with a par
value of $.01, together with any equity security into which such Common Stock is
subsequently converted or exchanged. In the event that Holding is a party,
directly or indirectly, to any tender offer, acquisition, sale, merger, exchange
offer, recapitalization, restructuring or any similar transaction as a result of
which either (i) Holding is not the surviving Corporation or (ii) Holding
becomes a subsidiary of any Person, Common Stock shall mean the common stock or
other equivalent equity security of such Person.
"Concurrent Promissory Note" means the promissory note between
Maker and S. Dianne Thompson entered into concurrently with this Note.
"Debt" means the aggregate outstanding principal and interest
evidenced by this Note.
"Default" shall have the meaning set forth in Section 6.
<PAGE> 2
"Fair Market Value" means, at any date of determination, the
then-current fair market value of the Common Stock, as determined in the
discretion of the Board of Directors of the issuer of the Common Stock, acting
in good faith. Fair Market Value shall be determined without regard to the
liquidity of the Common Stock and without regard to any discount for minority
positions.
"Indemnification and Escrow Agreement" means that certain
Indemnification and Escrow Agreement dated as of December 6, 1999 by and among
Holding, Payee, S. Dianne Thompson and Toronto Dominion (Texas), Inc.
"Maturity Date" means the fifth anniversary of the Closing
Date, as the same may hereafter be accelerated pursuant to the provisions of
this Note.
"Past Due Rate" means, on any day, a rate per annum equal the
Stated Rate plus two percent (2%) per annum.
"Person" means 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.
"Regulation D Reps" means those certain representations and
warranties set forth on Exhibit A, attached hereto and made a part hereof for
all purposes, to be made by Payee on the date hereof, and required to be made by
Payee each time Payee elects to receive any payments under this Note in Common
Stock.
"Representatives" means, collectively, each and every trustee,
agent or other Person acting on behalf of any Senior Creditor with respect to
any Senior Obligation or any security therefor.
"Senior Creditors" means, collectively, at any time: (a)
Toronto Dominion (Texas), Inc., (b) any member of a syndicate of commercial
banks that has outstanding loans to the Holdings or any of its direct or
indirect subsidiaries, and (c) any other then holder of a Senior Obligation
(other than a Representative).
"Senior Credit Agreement" means, collectively, (i) that
certain Credit Agreement dated as of May 25, 1999, among Holdings, certain
subsidiaries of the Holdings, including Maker, certain financial institutions
from time to time party thereto and Toronto Dominion (Texas), Inc., as Agent and
(ii) that certain Credit Agreement dated as of May 25, 1999, among the Holdings,
certain subsidiaries of the Holdings, including Maker, Onex ClientLogic Finance
LLC, as Lender and Toronto Dominion (Texas), Inc., as Agent, as each of the
foregoing may be amended, restated, supplemented, modified or waived from time
to time.
"Senior Debt Documents" means, collectively, (i) the Senior
Credit Agreement and (ii) any other document guaranteeing or securing any Senior
Obligation or pursuant to which any indebtedness, obligation or liability
constituting a Senior Obligation is made or provided for.
"Senior Notes" means the promissory notes of the Holdings
outstanding from time to time under either Senior Credit Agreement and any other
outstanding note issued from time to time by, under, with respect to, or as
evidence of any Senior Obligation.
"Senior Obligations" means, collectively: (a) all principal
of, and premium, if any, and interest on, the Senior Notes issued pursuant to
the Senior Credit Agreement and the indebtedness
2
<PAGE> 3
evidenced thereby, (b) all other indebtedness, obligations and liabilities of
Maker to any Senior Creditor or any other Representative from time to time under
or with respect to any Senior Credit Document (including, without limitation,
all fees, costs and expenses payable by the Holdings or any guarantor
thereunder), (c) all other indebtedness, obligations and liabilities, whether
now existing or hereafter incurred or created, of the Holdings or any guarantor
to any Senior Creditor or any other Representative for or with respect to
borrowed money of the Holdings, any guarantor or any other direct or indirect
subsidiary of the Holdings (including, without limitation, any fees and expenses
associated therewith), (d) any amounts payable by Maker under or in respect of
any interest rate exchange agreement, interest rate swap agreement or other
similar agreement entered into in respect of all or any portion of the Senior
Obligations referred to in clause (a) or (c) above, and (e) any refunding,
refinancing, extension or increase of any of the foregoing; including, without
limitation, in each of the foregoing cases, any interest accruing on any such
indebtedness, liability or other obligation at the legal rate after the
commencement of any bankruptcy proceeding and any additional interest that would
have accrued thereon but for the commencement of such bankruptcy proceeding,
regardless of whether such interest is collectible from the bankrupt Person.
"Specified Courts" shall have the meaning set forth in Section
10.
"Stated Rate" means 8.30%.
"Stockholders Agreement" means that certain Stockholders
Agreement among Holding and the other parties thereto dated as of October 1,
1998, as the same may be amended, modified or supplemented from time to time.
2. OBLIGATIONS. The unpaid principal balance of this Note at any time shall be
the total of the aggregate amount lent under this Note less the amount of all
payments or prepayments made on this Note by or for the account of Maker and any
amounts deducted as an offset under paragraph 20 hereof. All payments,
prepayments and offsets made hereon may be endorsed by Payee on a schedule which
may be attached hereto (and thereby made a part hereof for all purposes) or
otherwise recorded in Payee's records; provided, that any failure to make
notation of any payment or prepayment of principal or offset pursuant to
paragraph 20 hereof shall not cancel, limit or otherwise affect Maker's
entitlement to credit for that payment as of the date received by Payee or the
date of such offset.
3. COMPUTATION OF INTEREST. Interest on this Note shall be computed on the
amount of the outstanding principal lent under this Note from and including the
date such loan is made through but excluding the date of repayment of such loan,
for the actual number of days elapsed in a year consisting of 365 or 366 days,
as applicable.
4. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST.
(a) The principal amount of this Note shall be due and payable in five (5)
equal, consecutive annual installments of $525,000.00, commencing on the first
anniversary of the Closing Date. Interest shall be payable quarterly in arrears,
on the first Business Day of each quarter, commencing on April 1, 2000.
(b) (i) All principal payments made pursuant to this Section 4 shall be made at
the sole option of Payee, (x) in cash or (y) in Common Stock. In the event any
payment is made in Common Stock, Maker will deliver, or cause to be delivered,
to Payee such number of shares of Common Stock equal in value to the principal
payment then due. For the purposes of the foregoing, the Common Stock will be
valued at its Fair Market Value at the time of payment, subject to Section
4(b)(ii) hereof. All principal payments so
3
<PAGE> 4
made in Common Stock shall reduce the Debt dollar-for-dollar by the value of
such Common Stock as determined in accordance with the preceding sentence.
(ii) Payee acknowledges and agrees that any payment elected to
be received in Common Stock is subject to the restriction that the issuance of
Common Stock will be made only to "accredited investors," within the meaning of
Rule 501(a) of Regulation D ("Regulation D") promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), or any comparable successor
provision, who have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
therein and who will agree not to sell or offer to sell any of the Common Stock
for an indefinite period unless such Common Stock is registered under the
Securities Act and applicable state securities laws or exemptions from such
registration requirements are available. Maker and Holding will rely on the
Regulation D Reps. in determining, in each instance where Payee has elected to
receive payment under this Note in Common Stock, whether Payee meets such
suitability requirements. Payee agrees that he will be required to make the Reg
D Reps each time that he elects to receive Common Stock hereunder and that Maker
shall have no obligation to make payments in Common Stock to the extent that
Payee cannot make such Reg D Reps or a violation of any federal or state
securities law would result therefrom.
(iii) Payee also acknowledges and agrees that any payment elected to be
received in Common Stock will be subject to the Stockholders Agreement and that
upon delivery of such shares Payee shall immediately be deemed to be a party to
the Stockholders Agreement. Payee will, promptly upon request by Maker, execute
and deliver a Joinder Agreement in customary form acknowledging that Payee is a
party to the Stockholders Agreement with the rights and obligations appurtenant
thereto, and such other documents and instruments as are reasonably requested by
Maker and its counsel to ensure compliance with applicable law and regulation
and to otherwise effect the purposes of the Stockholders Agreement.
(c) All payments made pursuant to this Section 4 shall be applied first
to accrued and unpaid interest, and the balance to outstanding principal.
(d) If any payment provided for in this Note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest on this Note.
5. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the contrary
contained in this Note, it is expressly provided that in no case or event shall
the aggregate of (i) all interest on the unpaid balance of this Note, accrued or
paid from the date hereof and (ii) the aggregate of any other amounts accrued or
paid pursuant to this Note, which under applicable laws are or may be deemed to
constitute interest upon the Debt evidenced by this Note from the date hereof,
ever exceed the Ceiling Rate. In this connection, Maker and Payee stipulate and
agree that it is their common and overriding intent to contract in strict
compliance with applicable usury laws. In furtherance thereof, none of the terms
of this Note shall ever be construed to create a contract to pay, as
consideration for the use, forbearance or detention of money, interest at a rate
in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming
liable for payment of the Debt evidenced by this Note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this Note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this Note shall credit against the
principal of this Note (or, if such Debt shall have been paid in full, shall
refund to the payor of such interest) such portion of said interest as shall be
necessary to cause the interest paid on this Note to produce a rate equal to the
Ceiling Rate. All sums paid or agreed to be paid to the holder of this Note for
the use, forbearance or detention of the Debt evidenced hereby shall, to the
extent permitted by applicable law, be amortized,
4
<PAGE> 5
prorated, allocated and spread in equal parts throughout the full term of this
Note, so that the interest rate is uniform throughout the full term of this
Note. The provisions of this Section 5 shall control all agreements, whether now
or hereafter existing and whether written or oral, between Maker and Payee.
6. DEFAULT. The occurrence of any of the following events shall constitute
default under this Note (each, a "Default"), whereupon Payee may, at its option,
exercise (if a Default is continuing at the time of such exercise) any or all
rights, powers and remedies afforded hereunder and by law, including the right
to declare the unpaid balance of principal and accrued interest on this Note at
once mature and payable, and any amounts overdue shall bear interest at the Past
Due Rate from and after the expiration of any cure period applicable thereto
until such amount is paid:
(a) any part of the Debt is not paid when due, whether by lapse of time
or acceleration or otherwise, within five (5) calendar days after Payee has
given Maker written notice thereof; or
(b) any representation or warranty made by Maker in this Note or
Holding in the Agreement proves to have been untrue or misleading in any
material and adverse respect as of the date made; or
(c) Maker: (i) becomes insolvent or unable to pay its debts as they
mature; (ii) commences a voluntary case in bankruptcy or a voluntary petition
seeking reorganization or to effect a plan or other arrangement with creditors;
(iii) makes an assignment for the benefit of creditors; (iv) applies for or
consents to the appointment of any receiver or trustee for itself or for any
substantial portion of its property; or (v) makes an assignment to an agent
authorized to liquidate any substantial part of its assets; or
(d) in respect of Maker: (i) an involuntary case shall be commenced
with any court or other authority seeking liquidation, reorganization or a
creditor's arrangement of Maker; (ii) an order of any court or other authority
shall be entered appointing any receiver or trustee for Maker or for any
substantial portion of its property; or (iii) a writ or warrant of attachment or
any similar process shall be issued by any court or other authority against any
substantial portion of the property of Maker and such petition seeking
liquidation, reorganization or a creditor's arrangement or such order appointing
a receiver or trustee is not vacated or stayed, or such writ, warrant of
attachment or similar process is not vacated, released or bonded off within
sixty (60) days after Maker receives notice of its entry or levy.
7. NO WAIVER BY PAYEE. No delay or omission of Payee to exercise any power,
right or remedy accruing to Payee shall impair any such power, right or remedy
or shall be construed to be a waiver of the right to exercise any such power,
right or remedy. Payee's right to accelerate this Note for any late payment or
Maker's failure to timely fulfill its other obligations hereunder shall not be
waived or deemed waived by Payee by Payee's having accepted a late payment or
late payments in the past or Payee otherwise not accelerating this Note or
exercising other remedies for Maker's failure to timely perform its obligations
hereunder. Payee shall not be obligated or be deemed obligated to notify Maker
that it is requiring Maker to strictly comply with the terms and provisions of
this Note before accelerating this Note and exercising its other remedies
hereunder because of Maker's failure to timely perform its obligations under
this Note.
8. COSTS AND ATTORNEY'S FEES. If either party hereto retains an attorney in
connection with any default or the collection, enforcement or defense of this
Note in any lawsuit or in any probate, reorganization, bankruptcy or other
proceeding, the non-prevailing party agrees to pay to the prevailing party all
reasonable costs and expenses incurred by the prevailing party in such suit or
proceeding, including reasonable attorney's fees. Any amount to be paid under
this Section shall be a demand
5
<PAGE> 6
obligation owing and shall bear interest from the date of expenditure until paid
at the Past Due Rate. If any amounts shall be owing to Maker by Payee under this
Section, then Maker shall have the right, but not the obligation, to offset such
amounts against any payments made or due under this Note.
9. SECTION HEADINGS. Section headings appearing in this Note are for convenient
reference only and shall not be used to interpret or limit the meaning of any
provision of this Note.
10. VENUE; CHOICE OF LAW. THIS NOTE IS PERFORMABLE IN NEW YORK, NEW YORK, WHICH
SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT OF THIS NOTE. MAKER
AND PAYEE HEREBY IRREVOCABLY AGREE THAT ANY LEGAL PROCEEDING IN RESPECT OF THIS
NOTE SHALL BE BROUGHT IN THE STATE COURTS OF NEW YORK, NEW YORK , OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
(COLLECTIVELY, THE "SPECIFIED COURTS"). MAKER AND PAYEE HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW
YORK. MAKER AND PAYEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE
BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIMS
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH OF MAKER AND PAYEE IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN SUCH SUIT,
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, POSTAGE PREPAID, TO MAKER OR PAYEE, AS APPLICABLE. MAKER AND
PAYEE AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF NEW YORK AND
THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11. WAIVER OF JURY TRIAL. MAKER AND PAYEE EACH WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS NOTE, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY
SUCH RIGHTS OR OBLIGATIONS.
12. SUCCESSORS AND ASSIGNS. This Note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and permitted assigns of
Maker and Payee.
13. RECORDS OF PAYMENTS. The records of Payee shall be prima facie evidence of
the amounts owing on this Note.
14. SEVERABILITY. If any provision of this Note is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Note shall not be affected
thereby, and this Note shall be liberally construed so as to carry out the
intent of the parties to it.
6
<PAGE> 7
15. ASSIGNMENT. This Note shall not be assignable by Payee. Maker may assign its
obligations under this Note to any of its wholly-owned subsidiaries or to any
third party that purchases all or substantially all of the assets or capital
stock of Maker, by merger, consolidation or otherwise; provided that
simultaneously therewith, Maker shall give Payee written notice of such
assignment.
16. NOTICES. Any notice, request or other communication required or permitted to
be given hereunder shall be given in writing by delivering it against receipt
for it, by depositing it with an overnight delivery service or by depositing it
in a receptacle maintained by the United States Postal Service, postage prepaid,
registered or certified mail, return receipt requested, addressed to the
respective parties as reflected in the first paragraph to this Note. Maker's
address for notice may be changed at any time and from time to time, but only
after advance written notice to Payee and shall be the most recent such address
furnished in writing by Maker to Payee. Payee's address for notice may be
changed at any time and from time to time, but only after ten (10) calendar days
advance written notice to Maker and shall be the most recent such address
furnished in writing by Payee to Maker. Actual notice, however and from whomever
given or received, shall always be effective when received.
17. PREPAYMENT. Maker may at any time pay the full amount or any part of this
Note without the payment of any premium or fee. All prepayments hereon shall be
applied first to accrued interest and the balance to principal.
18. BUSINESS LOANS. Maker warrants and represents to Payee that all loans
evidenced by this Note are and will be for business, commercial, investment or
other similar purpose and not primarily for personal, family, household or
agricultural use.
19. SUBORDINATION. This Note is subordinate in all rights to the Senior
Obligations of Maker but no provision of this Note shall impair, as between
Maker and the holder hereof, the obligation of Maker, which is unconditional and
absolute, to pay the principal of, and accrued and unpaid interest on, this Note
in accordance with its terms, nor is any provision hereof intended to or shall
affect the relative rights of the holder of this Note to other creditors of
Maker other than the Senior Creditors, nor shall anything herein prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder in accordance with the terms hereof
subject to the rights hereunder of the Senior Creditors; provided, however, that
the principal balance due under this Note may not be accelerated if said
acceleration will cause a default under any of Maker's obligations to the
holders of any Senior Obligation.
20. OFFSET.
(a) Offset Rights. Maker shall be authorized to offset up to $1,000,000
against any principal amount (and any accrued but unpaid interest thereon) under
this Note as a result of any Damages (as defined in the Indemnification and
Escrow Agreement) for which any Buyer Indemnified Party (as defined in the
Indemnification and Escrow Agreement) is entitled to indemnification pursuant to
Article 2 of the Indemnification and Escrow Agreement.
(b) Withholding Rights. Without limiting the generality of the
foregoing paragraph 20(a), and notwithstanding the other provisions of this
Note, Maker shall be authorized to withhold principal payments in an amount
equal to any Damages in respect of which any claim for indemnification is made
under Article 2 of the Indemnification and Escrow Agreement (and any accrued but
unpaid interest thereon) until the earlier of (i) such time as the applicable
Buyer Indemnified Party and the Payee have agreed in writing on the amount of
Damages to which the Buyer Indemnified Party is entitled in respect of such
claim or (ii) until such claim has been resolved by a final judgment of a court
of competent jurisdiction or an
7
<PAGE> 8
administrative agency having the authority to determine the amount of, and
liability with respect to, the item resulting in such Damages for which
indemnification is sought and the denial of, or expiration of all rights to,
appeal related thereto; provided that such withholding right shall be limited to
$1,000,000 in principal payments in the aggregate. For the purposes of
clarification and as an example only, in the event that on the date that the
first principal payment is due the Buyer Indemnified Parties have unresolved
claims under Article 2 of the Indemnification and Escrow Agreement in an amount
equal to $100,000, then Maker shall be entitled to withhold $50,000 of the then
due principal payment on this Note and $50,000 of the then due principal payment
on the Concurrent Promissory Note (and any accrued but unpaid interest thereon)
until such claim or claims are resolved as provided for herein.
(c) Notice. Maker shall exercise its rights under this paragraph 20 by
providing written notice to the Payee setting forth (i) the amount of principal
(and any accrued but unpaid interest thereon) to be withheld and (ii) any other
information as required by Article 2 of the Indemnification and Escrow
Agreement.
(d) Limitation. Any amounts offset or withheld pursuant to this
paragraph 20 shall be offset or withheld, to the extent possible, pro rata with
any amounts so offset or withheld under the Concurrent Promissory Note as
determined by taking a fraction, the numerator of which shall be original
principal amount of this Note and the denominator of which shall be the total
original principal amount of this Note and the Concurrent Promissory Note.
Notwithstanding the prior sentence, to the extent that there is a legal
impediment to offsetting or withholding any amount under the Concurrent
Promissory Note, such amount may be offset or withheld under this Note.
21. ENTIRE AGREEMENT. THIS NOTE AND THE AGREEMENT EMBODY THE ENTIRE AGREEMENT
AND UNDERSTANDING BETWEEN PAYEE AND MAKER WITH RESPECT TO THEIR SUBJECT MATTER
AND SUPERSEDE ALL PRIOR CONFLICTING OR INCONSISTENT AGREEMENTS, CONSENTS AND
UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. EACH OF MAKER AND PAYEE
ACKNOWLEDGES AND AGREES THAT THERE IS NO ORAL AGREEMENT BETWEEN MAKER AND PAYEE
WHICH HAS NOT BEEN INCORPORATED IN THIS NOTE AND THE AGREEMENT.
22. Guarantee. For value received, Holding hereby unconditionally guarantees, to
the Payee of this Note, the due and punctual payment of the principal of and
interest on such Note when and as the same shall become due and payable. In case
of the failure of Maker punctually to make any such payment, Holding hereby
agrees to cause such payment to be made punctually when and as the same shall
become due and payable, and as if such payment were made by the Maker.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
MAKER:
MARKETVISION, INC.
By: /s/ THOMAS O. HARBISON
-----------------------------------------
Name: Thomas O. Harbison
Title: Chairman
HOLDING: (for purposes of paragraph 22 only)
CLIENTLOGIC HOLDING CORPORATION
By: /s/ THOMAS O. HARBISON
-----------------------------------------
Name: Thomas O. Harbison
Title: Chairman
SIGNATURE PAGE TO
PROMISSORY NOTE
<PAGE> 10
EXHIBIT A
REGULATION D REPS
Reference is hereby made to that certain Promissory Note dated as of
December 6, 1999 (the "Note") by Marketvision, Inc. ("Maker") in favor of Joseph
L. Temple, Jr. ("Payee"). This Exhibit A (this "Exhibit") is attached to the
Note and made a part thereof for all purposes. Terms used herein but not
otherwise defined shall have the meanings ascribed to them in the Note.
Reference is also hereby made to the private placement of Common Stock of
ClientLogic Holding Corporation, a Delaware corporation ("Holding") in
connection with the Note (the "Reg D Offering").
Payee hereby represents and warrants to, and agrees with Holding (and
acknowledges that Holding will rely thereon), as follows:
(a) Payee is acquiring the Common Stock for his, her or its own account
as principal, not as a nominee or agent, and no other person has a direct or
indirect beneficial interest in such Common Stock. Further, Payee does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Common Stock. Payee is acquiring the Common Stock for
investment purposes only, and not with a view to, or for resale or distribution
thereof in whole or in part.
(b) Payee acknowledges his, her or its understanding that the issuance
of the Common Stock pursuant to the Reg D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and/or the provisions of Regulation D. In furtherance thereof,
Payee represents and warrants to and agrees with Holding as follows:
(i) Payee has the financial ability to bear the economic risk
of an investment in the Common Stock, has adequate means for providing
for his, her or its current needs and personal contingencies and has no
need for liquidity with respect to his, her or its investment in the
Common Stock;
(ii) Payee has not relied upon a Purchaser Representative (as
defined in Rule 501(h) promulgated under Regulation D) in connection
with evaluating the purchase of the Common Stock; and
(iii) Payee acknowledges that he, she or it has prior
investment experience, including investment in non-listed and
non-registered securities, or has employed the services of an
investment advisor, attorney or accountant to read all of the documents
furnished or made available by Holding both to Payee and to all other
prospective investors of the Common Stock and to evaluate the merits
and risks of such an investment on his, her or its behalf, and that
Payee recognizes the highly speculative nature of this investment.
(c) Payee:
(i) has been furnished with and has read all documents which
may have been made available upon request for a reasonable time prior
to the date hereof and Payee has carefully evaluated the risks involved
in purchasing the Common Stock;
<PAGE> 11
(ii) has been provided an opportunity prior to the date hereof
to obtain additional information concerning the Reg D Offering, Holding
and all other information to the extent Holding possesses such
information or can acquire it without unreasonable effort or expense;
and
(iii) has been given the opportunity to ask questions of, and
receive answers from, Holding or its representatives concerning the
terms and conditions of the Reg D Offering and other matters pertaining
to this investment, and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of any
information which was provided in order for Payee to evaluate the
merits and risk of purchase of the Common Stock to the extent Holding
possesses such information or can acquire it without unreasonable
effort or expense.
(d) Payee is not relying on Holding or its affiliates with respect to
economic considerations involved in this investment.
(e) Payee will not sell or otherwise transfer the Common Stock without
registration under the Securities Act and applicable state securities laws or an
exemption therefrom and fully understands and agrees that he, she or it must
bear the economic risk of his, her or its purchase because, among other reasons,
the Common Stock have not been registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless registered under the Securities Act and under
the applicable securities laws of such states or an exemption from such
registration is available. In particular, Payee is aware that the Common Stock
constitutes "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of such rule
are met. Payee also understands that sales or transfers of the Common Stock are
further restricted by state securities laws.
(f) No representations or warranties have been made to Payee by
Holding, or any officer, employee, agent, affiliate or subsidiary of Holding,
and in electing to receive payment of the Note in Common Stock, Payee is not
relying upon any representations other than those contained herein.
(g) Any information which Payee has heretofore furnished to Holding
with respect to Payee's financial position and business experience is correct
and complete as of the date of the Note and if there should be any material
change in such information he, she or it will immediately furnish such revised
or corrected information to Holding.
(h) Payee understands and agrees that the Common Stock are restricted
on transfer and certificates representing the Common Stock shall bear a
restrictive legend substantially as follows:
THE SECURITIES COVERED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE RESOLD WITHOUT
REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY STATE
SECURITIES LAWS.
2
<PAGE> 12
THE SECURITIES COVERED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND CONDITIONS SET
FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER 1, 1998, A
COPY OF WHICH MAY BE OBTAINED FROM CLIENTLOGIC HOLDING CORPORATION
AT ITS PRINCIPAL EXECUTIVE OFFICES.
THE ISSUER IS AUTHORIZED TO ISSUE STOCK OF MORE THAN ONE CLASS AND
TO ISSUE STOCK IN MORE THAN ONE SERIES OF AT LEAST ONE CLASS. THE
ISSUER WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH
CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
(i) Payee, if an individual, is a resident at the address set forth in
the Note, and is at least 21 years of age, or if a partnership, corporation,
trust or other entity formed for the specific purpose of investing in the Common
Stock, the members, partners, shareholders, beneficiaries or other equity owners
thereof are all citizens of the United States and each is at least 21 years of
age. The address set forth in this Note is Payee's correct home address, or if
Payee is other than an individual, Payee's correct principal office address.
(j) Payee recognizes that purchase of the Common Stock involves a high
degree of risk in that: (i) an investment in Holding is highly speculative and
only investors who can afford the loss of their entire investment should
consider investing in Holding and the Common Stock; (ii) Payee may not be able
to liquidate his, her or its investment; (iii) transferability of the Common
Stock is restricted; and (iv) in the event of a disposition, Payee could sustain
the loss of his, her or its entire investment.
(k) Payee has not retained any finder, broker, agent, financial advisor
or other intermediary in connection with the transactions contemplated by the
Note.
(l) The foregoing representations, warranties and agreements shall
survive the Closing Date.
(m) Payee shall promptly notify Holding in writing of any material
change in any of the representations or warranties set forth in this Note prior
to the issuance of any Common Stock by Holding.
Payee has made the representations, warranties, covenants and
agreements contained in this Exhibit with the expectation that they will be
relied upon by Holding in determining whether Payee is suitable as a purchaser
of the Common Stock, whether the Common Stock may be sold to Payee or without
first registering the Common Stock under the Securities Act and all applicable
state securities laws, whether the conditions to the acceptance of subscriptions
for Common Stock have been satisfied, and whether proper disclosure regarding
the Reg D Offering has been made and with respect to other matters.
[Investment Suitability Checklist and Signature Pages Follows]
3
<PAGE> 1
EXHIBIT 10.39
PROMISSORY NOTE
New York, New York
$2,625,000.00 December 6, 1999
FOR VALUE RECEIVED, Marketvision, Inc., a Colorado corporation
with its chief executive office and principal place of business at 10065 East
Harvard, Suite 750, Denver, Colorado 80231 ("Maker") promises to pay to S.
Dianne Thompson, a resident of the State of Colorado, at her legal address at
10065 East Harvard, Suite 750, Denver, Colorado 80231 ("Payee") (or such other
place as Payee may hereafter designate in writing), in immediately available
funds and in lawful money of the United States of America, the aggregate
principal sum of Two Million Six Hundred Twenty-Five Thousand Dollars
($2,625,000.00) (or the unpaid balance of all principal outstanding under this
Promissory Note (this "Note") if that amount is less), together with interest
(subject to Section 5 hereof) as follows: (a) interest on the unpaid principal
balance of this Note from time to time outstanding at the Stated Rate and (b)
interest on all past due amounts, both principal and accrued interest, from the
expiration of the applicable notice or cure period until paid at the Past Due
Rate.
1. DEFINITIONS. As used in this Note, the following terms shall have the
respective meanings indicated:
"Agreement" means that certain Stock Purchase Agreement dated
as of December 6, 1999 among ClientLogic Holding Corporation, a Delaware
corporation ("Holding"), Maker, Payee and Joseph L. Temple, Jr. relating to the
purchase by Holding of all of the outstanding common stock of Maker, as the same
may be amended, modified or supplemented from time to time.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Ceiling Rate" means, on any day, the maximum non-usurious
rate of interest permitted for that day by whichever of applicable federal or
state laws permits the higher interest rate, stated as a rate per annum.
"Closing Date" shall have the meaning assigned to it in the
Agreement.
"Common Stock" means the common stock of Holding, with a par
value of $.01, together with any equity security into which such Common Stock is
subsequently converted or exchanged. In the event that Holding is a party,
directly or indirectly, to any tender offer, acquisition, sale, merger, exchange
offer, recapitalization, restructuring or any similar transaction as a result of
which either (i) Holding is not the surviving corporation or (ii) Holding
becomes a subsidiary of any Person, Common Stock shall mean the common stock or
other equivalent equity security of such Person.
"Concurrent Promissory Note" means the promissory note between
Maker and Joseph L. Temple, Jr. entered into concurrently with this Note.
"Debt" means the aggregate outstanding principal and interest
evidenced by this Note.
"Default" shall have the meaning set forth in Section 6.
<PAGE> 2
"Fair Market Value" means, at any date of determination, the
then-current fair market value of the Common Stock, as determined in the
discretion of the Board of Directors of the issuer of the Common Stock, acting
in good faith. Fair Market Value shall be determined without regard to the
liquidity of the Common Stock and without regard to any discount for minority
positions.
"Indemnification and Escrow Agreement" means that certain
Indemnification and Escrow Agreement dated as of December 6, 1999 by and among
Holding, Payee, Joseph L. Temple, Jr. and Toronto Dominion (Texas), Inc.
"Maturity Date" means the fifth anniversary of the Closing
Date, as the same may hereafter be accelerated pursuant to the provisions of
this Note.
"Past Due Rate" means, on any day, a rate per annum equal the
Stated Rate plus two percent (2%) per annum.
"Person" means 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.
"Regulation D Reps" means those certain representations and
warranties set forth on Exhibit A, attached hereto and made a part hereof for
all purposes, to be made by Payee on the date hereof, and required to be made by
Payee each time Payee elects to receive any payments under this Note in Common
Stock.
"Representatives" means, collectively, each and every trustee,
agent or other Person acting on behalf of any Senior Creditor with respect to
any Senior Obligation or any security therefor.
"Senior Credit Agreement" means, collectively, (i) that
certain Credit Agreement dated as of May 25, 1999, among Holdings, certain
subsidiaries of the Holdings, including Maker, certain financial institutions
from time to time party thereto and Toronto Dominion (Texas), Inc., as Agent and
(ii) that certain Credit Agreement dated as of May 25, 1999, among the Holdings,
certain subsidiaries of the Holdings, including Maker, Onex ClientLogic Finance
LLC, as Lender and Toronto Dominion (Texas), Inc., as Agent, as each of the
foregoing may be amended, restated, supplemented, modified or waived from time
to time.
"Senior Creditors" means, collectively, at any time: (a)
Toronto Dominion (Texas), Inc., (b) any member of a syndicate of commercial
banks that has outstanding loans to the Holdings or any of its direct or
indirect subsidiaries, and (c) any other then holder of a Senior Obligation
(other than a Representative).
"Senior Debt Documents" means, collectively, (i) the Senior
Credit Agreement and (ii) any other document guaranteeing or securing any Senior
Obligation or pursuant to which any indebtedness, obligation or liability
constituting a Senior Obligation is made or provided for.
"Senior Notes" means the promissory notes of the Holdings
outstanding from time to time under either Senior Credit Agreement and any other
outstanding note issued from time to time by, under, with respect to, or as
evidence of any Senior Obligation.
"Senior Obligations" means, collectively: (a) all principal
of, and premium, if any, and interest on, the Senior Notes issued pursuant to
the Senior Credit Agreement and the indebtedness
2
<PAGE> 3
evidenced thereby, (b) all other indebtedness, obligations and liabilities of
Maker to any Senior Creditor or any other Representative from time to time under
or with respect to any Senior Credit Document (including, without limitation,
all fees, costs and expenses payable by the Holdings or any guarantor
thereunder), (c) all other indebtedness, obligations and liabilities, whether
now existing or hereafter incurred or created, of the Holdings or any guarantor
to any Senior Creditor or any other Representative for or with respect to
borrowed money of the Holdings, any guarantor or any other direct or indirect
subsidiary of the Holdings (including, without limitation, any fees and expenses
associated therewith), (d) any amounts payable by Maker under or in respect of
any interest rate exchange agreement, interest rate swap agreement or other
similar agreement entered into in respect of all or any portion of the Senior
Obligations referred to in clause (a) or (c) above, and (e) any refunding,
refinancing, extension or increase of any of the foregoing; including, without
limitation, in each of the foregoing cases, any interest accruing on any such
indebtedness, liability or other obligation at the legal rate after the
commencement of any bankruptcy proceeding and any additional interest that would
have accrued thereon but for the commencement of such bankruptcy proceeding,
regardless of whether such interest is collectible from the bankrupt Person.
"Specified Courts" shall have the meaning set forth in Section
10.
"Stated Rate" means 8.30%.
"Stockholders Agreement" means that certain Stockholders
Agreement among Holding and the other parties thereto dated as of October 1,
1998, as the same may be amended, modified or supplemented from time to time.
2. OBLIGATIONS. The unpaid principal balance of this Note at any time shall be
the total of the aggregate amount lent under this Note less the amount of all
payments or prepayments made on this Note by or for the account of Maker and any
amounts deducted as an offset under paragraph 20 hereof. All payments,
prepayments and offsets made hereon may be endorsed by Payee on a schedule which
may be attached hereto (and thereby made a part hereof for all purposes) or
otherwise recorded in Payee's records; provided, that any failure to make
notation of any payment or prepayment of principal or offset pursuant to
paragraph 20 hereof shall not cancel, limit or otherwise affect Maker's
entitlement to credit for that payment as of the date received by Payee or the
date of such offset.
3. COMPUTATION OF INTEREST. Interest on this Note shall be computed on the
amount of the outstanding principal lent under this Note from and including the
date such loan is made through but excluding the date of repayment of such loan,
for the actual number of days elapsed in a year consisting of 365 or 366 days,
as applicable.
4. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST.
(a) The principal amount of this Note shall be due and payable in five
(5) equal, consecutive annual installments of $525,000.00, commencing on the
first anniversary of the Closing Date. Interest shall be payable quarterly in
arrears, on the first Business Day of each quarter, commencing on April 1, 2000.
(b) (i) All principal payments made pursuant to this Section 4 shall be
made at the sole option of Payee, (x) in cash or (y) in Common Stock. In the
event any payment is made in Common Stock, Maker will deliver, or cause to be
delivered, to Payee such number of shares of Common Stock equal in value to the
principal payment then due. For purposes of the foregoing, the Common Stock will
be valued at its Fair Market Value at the time of payment and shall be subject
to Section 4(b)(ii) hereof. All principal
3
<PAGE> 4
payments so made in Common Stock shall reduce the Debt dollar-for-dollar by the
value of such Common Stock as determined in accordance with the preceding
sentence.
(ii) Payee acknowledges and agrees that any payment elected to
be received in Common Stock is subject to the restriction that the issuance of
Common Stock will be made only to "accredited investors," within the meaning of
Rule 501(a) of Regulation D ("Regulation D") promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), or any comparable successor
provision, who have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
therein and who will agree not to sell or offer to sell any of the Common Stock
for an indefinite period unless such Common Stock is registered under the
Securities Act and applicable state securities laws or exemptions from such
registration requirements are available. Maker and Holding will rely on the
Regulation D Reps in determining, in each instance where Payee has elected to
receive payment under this Note in Common Stock, whether Payee meets such
suitability requirements. Payee agrees that she will be required to make the Reg
D Reps each time that she elects to receive Common Stock hereunder and that
Maker shall have no obligation to make payments in Common Stock to the extent
that Payee cannot make such Reg D Reps or a violation of any federal or state
securities law would result therefrom.
(iii) Payee also acknowledges and agrees that any payment elected
to be received in Common Stock will be subject to the Stockholders Agreement and
that upon delivery of such shares Payee shall immediately be deemed to be a
party to the Stockholders Agreement. Payee will, promptly upon request by Maker,
execute and deliver a Joinder Agreement in customary form acknowledging that
Payee is a party to the Stockholders Agreement with the rights and obligations
appurtenant thereto, and such other documents and instruments as are reasonably
requested by Maker and its counsel to ensure compliance with applicable law and
regulation and to otherwise effect the purposes of the Stockholders Agreement.
(c) All payments made pursuant to this Section 4 shall be applied first
to accrued and unpaid interest, and the balance to outstanding principal.
(d) If any payment provided for in this Note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest on this Note.
5. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the
contrary contained in this Note, it is expressly provided that in no case or
event shall the aggregate of (i) all interest on the unpaid balance of this
Note, accrued or paid from the date hereof and (ii) the aggregate of any other
amounts accrued or paid pursuant to this Note, which under applicable laws are
or may be deemed to constitute interest upon the Debt evidenced by this Note
from the date hereof, ever exceed the Ceiling Rate. In this connection, Maker
and Payee stipulate and agree that it is their common and overriding intent to
contract in strict compliance with applicable usury laws. In furtherance
thereof, none of the terms of this Note shall ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Ceiling Rate. Maker or other parties
now or hereafter becoming liable for payment of the Debt evidenced by this Note
shall never be liable for interest in excess of the Ceiling Rate. If, for any
reason whatever, the interest paid or received on this Note during its full term
produces a rate which exceeds the Ceiling Rate, the holder of this Note shall
credit against the principal of this Note (or, if such Debt shall have been paid
in full, shall refund to the payor of such interest) such portion of said
interest as shall be necessary to cause the interest paid on this Note to
produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid to
the holder of this Note for the use, forbearance or detention of the Debt
evidenced hereby shall, to the extent permitted by applicable law, be amortized,
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<PAGE> 5
prorated, allocated and spread in equal parts throughout the full term of this
Note, so that the interest rate is uniform throughout the full term of this
Note. The provisions of this Section 5 shall control all agreements, whether now
or hereafter existing and whether written or oral, between Maker and Payee.
6. DEFAULT. The occurrence of any of the following events shall constitute
default under this Note (each, a "Default"), whereupon Payee may, at its option,
exercise (if a Default is continuing at the time of such exercise) any or all
rights, powers and remedies afforded hereunder and by law, including the right
to declare the unpaid balance of principal and accrued interest on this Note at
once mature and payable, and any amounts overdue shall bear interest at the Past
Due Rate from and after the expiration of any cure period applicable thereto
until such amount is paid:
(a) any part of the Debt is not paid when due, whether by lapse of time
or acceleration or otherwise, within five (5) calendar days after Payee has
given Maker written notice thereof; or
(b) any representation or warranty made by Maker in this Note or
Holding in the Agreement proves to have been untrue or misleading in any
material and adverse respect as of the date made; or
(c) Maker: (i) becomes insolvent or unable to pay its debts as they
mature; (ii) commences a voluntary case in bankruptcy or a voluntary petition
seeking reorganization or to effect a plan or other arrangement with creditors;
(iii) makes an assignment for the benefit of creditors; (iv) applies for or
consents to the appointment of any receiver or trustee for itself or for any
substantial portion of its property; or (v) makes an assignment to an agent
authorized to liquidate any substantial part of its assets; or
(d) in respect of Maker: (i) an involuntary case shall be commenced
with any court or other authority seeking liquidation, reorganization or a
creditor's arrangement of Maker; (ii) an order of any court or other authority
shall be entered appointing any receiver or trustee for Maker or for any
substantial portion of its property; or (iii) a writ or warrant of attachment or
any similar process shall be issued by any court or other authority against any
substantial portion of the property of Maker and such petition seeking
liquidation, reorganization or a creditor's arrangement or such order appointing
a receiver or trustee is not vacated or stayed, or such writ, warrant of
attachment or similar process is not vacated, released or bonded off within
sixty (60) days after Maker receives notice of its entry or levy.
7. NO WAIVER BY PAYEE. No delay or omission of Payee to exercise any
power, right or remedy accruing to Payee shall impair any such power, right or
remedy or shall be construed to be a waiver of the right to exercise any such
power, right or remedy. Payee's right to accelerate this Note for any late
payment or Maker's failure to timely fulfill its other obligations hereunder
shall not be waived or deemed waived by Payee by Payee's having accepted a late
payment or late payments in the past or Payee otherwise not accelerating this
Note or exercising other remedies for Maker's failure to timely perform its
obligations hereunder. Payee shall not be obligated or be deemed obligated to
notify Maker that it is requiring Maker to strictly comply with the terms and
provisions of this Note before accelerating this Note and exercising its other
remedies hereunder because of Maker's failure to timely perform its obligations
under this Note.
8. COSTS AND ATTORNEY'S FEES. If either party hereto retains an attorney
in connection with any default or the collection, enforcement or defense of this
Note in any lawsuit or in any probate, reorganization, bankruptcy or other
proceeding, the non-prevailing party agrees to pay to the prevailing party all
reasonable costs and expenses incurred by the prevailing party in such suit or
proceeding, including reasonable attorney's fees. Any amount to be paid under
this Section shall be a demand
5
<PAGE> 6
obligation owing and shall bear interest from the date of expenditure until paid
at the Past Due Rate. If any amounts shall be owing to Maker by Payee under this
Section, then Maker shall have the right, but not the obligation, to offset such
amounts against any payments made or due under this Note.
9. SECTION HEADINGS. Section headings appearing in this Note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this Note.
10. VENUE; CHOICE OF LAW. THIS NOTE IS PERFORMABLE IN NEW YORK, NEW YORK,
WHICH SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT OF THIS NOTE.
MAKER AND PAYEE HEREBY IRREVOCABLY AGREE THAT ANY LEGAL PROCEEDING IN RESPECT OF
THIS NOTE SHALL BE BROUGHT IN THE STATE COURTS OF NEW YORK, NEW YORK, OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
(COLLECTIVELY, THE "SPECIFIED COURTS"). MAKER AND PAYEE HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF NEW
YORK. MAKER AND PAYEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE
BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIMS
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. EACH OF MAKER AND PAYEE IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN SUCH SUIT,
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, POSTAGE PREPAID, TO MAKER OR PAYEE, AS APPLICABLE. MAKER AND
PAYEE AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF NEW YORK AND
THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11. WAIVER OF JURY TRIAL. MAKER AND PAYEE EACH WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS NOTE, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.
12. SUCCESSORS AND ASSIGNS. This Note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and permitted assigns of
Maker and Payee.
13. RECORDS OF PAYMENTS. The records of Payee shall be prima facie evidence
of the amounts owing on this Note.
14. SEVERABILITY. If any provision of this Note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Note shall not be
affected thereby, and this Note shall be liberally construed so as to carry out
the intent of the parties to it.
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<PAGE> 7
15. ASSIGNMENT. This Note shall not be assignable by Payee. Maker may
assign its obligations under this Note to any of its wholly-owned subsidiaries
or to any third party that purchases all or substantially all of the assets or
capital stock of Maker, by merger, consolidation or otherwise; provided that
simultaneously therewith, Maker shall give Payee written notice of such
assignment.
16. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties as reflected in the first paragraph to this
Note. Maker's address for notice may be changed at any time and from time to
time, but only after advance written notice to Payee and shall be the most
recent such address furnished in writing by Maker to Payee. Payee's address for
notice may be changed at any time and from time to time, but only after ten (10)
calendar days advance written notice to Maker and shall be the most recent such
address furnished in writing by Payee to Maker. Actual notice, however and from
whomever given or received, shall always be effective when received.
17. PREPAYMENT. Maker may at any time pay the full amount or any part of
this Note without the payment of any premium or fee. All prepayments hereon
shall be applied first to accrued interest and the balance to principal.
18. BUSINESS LOANS. Maker warrants and represents to Payee that all loans
evidenced by this Note are and will be for business, commercial, investment or
other similar purpose and not primarily for personal, family, household or
agricultural use.
19. SUBORDINATION. This Note is subordinate in all rights to the Senior
Obligations of Maker but no provision of this Note shall impair, as between
Maker and the holder hereof, the obligation of Maker, which is unconditional and
absolute, to pay the principal of, and accrued and unpaid interest on, this Note
in accordance with its terms, nor is any provision hereof intended to or shall
affect the relative rights of the holder of this Note to other creditors of
Maker other than the Senior Creditors, nor shall anything herein prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder in accordance with the terms hereof
subject to the rights hereunder of the Senior Creditors; provided, however, that
the principal balance due under this Note may not be accelerated if said
acceleration will cause a default under any of Maker's obligations to the
holders of any Senior Obligation.
20. OFFSET.
(a) Offset Rights. Maker shall be authorized to offset up to $1,000,000
against any principal amount (and any accrued but unpaid interest thereon) under
this Note as a result of any Damages (as defined in the Indemnification and
Escrow Agreement) for which any Buyer Indemnified Party (as defined in the
Indemnification and Escrow Agreement) is entitled to indemnification pursuant to
Article 2 of the Indemnification and Escrow Agreement.
(b) Withholding Rights. Without limiting the generality of the
foregoing paragraph 20(a), and notwithstanding the other provisions of this
Note, Maker shall be authorized to withhold principal payments in an amount
equal to any Damages in respect of which any claim for indemnification is made
under Article 2 of the Indemnification and Escrow Agreement (and any accrued but
unpaid interest thereon) until the earlier of (i) such time as the applicable
Buyer Indemnified Party and the Payee have agreed in writing on the amount of
Damages to which the Buyer Indemnified Party is entitled in respect of such
claim or (ii) until such claim has been resolved by a final judgment of a court
of competent jurisdiction or an
7
<PAGE> 8
administrative agency having the authority to determine the amount of, and
liability with respect to, the item resulting in such Damages for which
indemnification is sought and the denial of, or expiration of all rights to,
appeal related thereto; provided that such withholding right shall be limited to
$1,000,000 in principal payments in the aggregate. For the purposes of
clarification and as an example only, in the event that on the date that the
first principal payment is due the Buyer Indemnified Parties have unresolved
claims under Article 2 of the Indemnification and Escrow Agreement in an amount
equal to $100,000, then Maker shall be entitled to withhold $50,000 of principal
payment on this Note and $50,000 of the then due principal payment on the
Concurrent Promissory Note (and any accrued but unpaid interest thereon) until
such claim or claims are resolved as provided for herein.
(c) Notice. Maker shall exercise its rights under this paragraph 20 by
providing written notice to the Payee setting forth (i) the amount of principal
(and any accrued but unpaid interest thereon) to be withheld and (ii) any other
information as required by Article 2 of the Indemnification and Escrow
Agreement.
(d) Limitation. Any amounts offset or withheld pursuant to this
paragraph 20 shall be offset or withheld, to the extent possible, pro rata with
any amounts so offset or withheld under the Concurrent Promissory Note as
determined by taking a fraction, the numerator of which shall be original
principal amount of this Note and the denominator of which shall be the total
original principal amount of this Note and the Concurrent Promissory Note.
Notwithstanding the prior sentence, to the extent that there is a legal
impediment to offsetting or withholding any amount under the Concurrent
Promissory Note, such amount may be offset or withheld under this Note.
21. ENTIRE AGREEMENT. THIS NOTE AND THE AGREEMENT EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN PAYEE AND MAKER WITH RESPECT TO THEIR
SUBJECT MATTER AND SUPERSEDE ALL PRIOR CONFLICTING OR INCONSISTENT AGREEMENTS,
CONSENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. EACH OF MAKER AND
PAYEE ACKNOWLEDGES AND AGREES THAT THERE IS NO ORAL AGREEMENT BETWEEN MAKER AND
PAYEE WHICH HAS NOT BEEN INCORPORATED IN THIS NOTE AND THE AGREEMENT.
22. Guarantee. For value received, Holding hereby unconditionally
guarantees, to the Payee of this Note, the due and punctual payment of the
principal of and interest on such Note when and as the same shall become due and
payable. In case of the failure of Maker punctually to make any such payment,
Holding hereby agrees to cause such payment to be made punctually when and as
the same shall become due and payable, and as if such payment were made by the
Maker.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
MAKER:
MARKETVISION, INC.
By: /s/ THOMAS O. HARBISON
------------------------------------
Name: Thomas O. Harbison
Title: Chairman
HOLDING: (for purposes of paragraph 22 only)
CLIENTLOGIC HOLDING CORPORATION
By: /s/ THOMAS O. HARBISON
------------------------------------
Name: Thomas O. Harbison
Title: Chairman
SIGNATURE PAGE TO
PROMISSORY NOTE
<PAGE> 10
EXHIBIT A
REGULATION D REPS
Reference is hereby made to that certain Promissory Note dated as of
December 6, 1999 (the "Note") by Marketvision, Inc. ("Maker") in favor of S.
Dianne Thompson ("Payee"). This Exhibit A (this "Exhibit") is attached to the
Note and made a part thereof for all purposes. Terms used herein but not
otherwise defined shall have the meanings ascribed to them in the Note.
Reference is also hereby made to the private placement of Common Stock of
ClientLogic Holding Corporation, a Delaware corporation ("Holding") in
connection with the Note (the "Reg D Offering").
Payee hereby represents and warrants to, and agrees with Holding (and
acknowledges that Holding will rely thereon), as follows:
(a) Payee is acquiring the Common Stock for his, her or its own account
as principal, not as a nominee or agent, and no other person has a direct or
indirect beneficial interest in such Common Stock. Further, Payee does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Common Stock. Payee is acquiring the Common Stock for
investment purposes only, and not with a view to, or for resale or distribution
thereof in whole or in part.
(b) Payee acknowledges his, her or its understanding that the issuance
of the Common Stock pursuant to the Reg D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and/or the provisions of Regulation D. In furtherance thereof,
Payee represents and warrants to and agrees with Holding as follows:
(i) Payee has the financial ability to bear the economic risk
of an investment in the Common Stock, has adequate means for providing
for his, her or its current needs and personal contingencies and has no
need for liquidity with respect to his, her or its investment in the
Common Stock;
(ii) Payee has not relied upon a Purchaser Representative (as
defined in Rule 501(h) promulgated under Regulation D) in connection
with evaluating the purchase of the Common Stock; and
(iii) Payee acknowledges that he, she or it has prior
investment experience, including investment in non-listed and
non-registered securities, or has employed the services of an
investment advisor, attorney or accountant to read all of the documents
furnished or made available by Holding both to Payee and to all other
prospective investors of the Common Stock and to evaluate the merits
and risks of such an investment on his, her or its behalf, and that
Payee recognizes the highly speculative nature of this investment.
(c) Payee:
(i) has been furnished with and has read all documents which
may have been made available upon request for a reasonable time prior
to the date hereof and Payee has carefully evaluated the risks involved
in purchasing the Common Stock;
<PAGE> 11
(ii) has been provided an opportunity prior to the date hereof
to obtain additional information concerning the Reg D Offering, Holding
and all other information to the extent Holding possesses such
information or can acquire it without unreasonable effort or expense;
and
(iii) has been given the opportunity to ask questions of, and
receive answers from, Holding or its representatives concerning the
terms and conditions of the Reg D Offering and other matters pertaining
to this investment, and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of any
information which was provided in order for Payee to evaluate the
merits and risk of purchase of the Common Stock to the extent Holding
possesses such information or can acquire it without unreasonable
effort or expense.
(d) Payee is not relying on Holding or its affiliates with respect to
economic considerations involved in this investment.
(e) Payee will not sell or otherwise transfer the Common Stock without
registration under the Securities Act and applicable state securities laws or an
exemption therefrom and fully understands and agrees that he, she or it must
bear the economic risk of his, her or its purchase because, among other reasons,
the Common Stock have not been registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless registered under the Securities Act and under
the applicable securities laws of such states or an exemption from such
registration is available. In particular, Payee is aware that the Common Stock
constitutes "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of such rule
are met. Payee also understands that sales or transfers of the Common Stock are
further restricted by state securities laws.
(f) No representations or warranties have been made to Payee by
Holding, or any officer, employee, agent, affiliate or subsidiary of Holding,
and in electing to receive payment of the Note in Common Stock, Payee is not
relying upon any representations other than those contained herein.
(g) Any information which Payee has heretofore furnished to Holding
with respect to Payee's financial position and business experience is correct
and complete as of the date of the Note and if there should be any material
change in such information he, she or it will immediately furnish such revised
or corrected information to Holding.
(h) Payee understands and agrees that the Common Stock are restricted
on transfer and certificates representing the Common Stock shall bear a
restrictive legend substantially as follows:
THE SECURITIES COVERED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY
NOT BE RESOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS EXCEPT PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ANY STATE SECURITIES LAWS.
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<PAGE> 12
THE SECURITIES COVERED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND
CONDITIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF
OCTOBER 1, 1998, A COPY OF WHICH MAY BE OBTAINED FROM
CLIENTLOGIC HOLDING CORPORATION AT ITS PRINCIPAL EXECUTIVE
OFFICES.
THE ISSUER IS AUTHORIZED TO ISSUE STOCK OF MORE THAN ONE CLASS
AND TO ISSUE STOCK IN MORE THAN ONE SERIES OF AT LEAST ONE
CLASS. THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
(i) Payee, if an individual, is a resident at the address set forth in
the Note, and is at least 21 years of age, or if a partnership, corporation,
trust or other entity formed for the specific purpose of investing in the Common
Stock, the members, partners, shareholders, beneficiaries or other equity owners
thereof are all citizens of the United States and each is at least 21 years of
age. The address set forth in this Note is Payee's correct home address, or if
Payee is other than an individual, Payee's correct principal office address.
(j) Payee recognizes that purchase of the Common Stock involves a high
degree of risk in that: (i) an investment in Holding is highly speculative and
only investors who can afford the loss of their entire investment should
consider investing in Holding and the Common Stock; (ii) Payee may not be able
to liquidate his, her or its investment; (iii) transferability of the Common
Stock is restricted; and (iv) in the event of a disposition, Payee could sustain
the loss of his, her or its entire investment.
(k) Payee has not retained any finder, broker, agent, financial advisor
or other intermediary in connection with the transactions contemplated by the
Note.
(l) The foregoing representations, warranties and agreements shall
survive the Closing Date.
(m) Payee shall promptly notify Holding in writing of any material
change in any of the representations or warranties set forth in this Note prior
to the issuance of any Common Stock by Holding.
Payee has made the representations, warranties, covenants and
agreements contained in this Exhibit with the expectation that they will be
relied upon by Holding in determining whether Payee is suitable as a purchaser
of the Common Stock, whether the Common Stock may be sold to Payee or without
first registering the Common Stock under the Securities Act and all applicable
state securities laws, whether the conditions to the acceptance of subscriptions
for Common Stock have been satisfied, and whether proper disclosure regarding
the Reg D Offering has been made and with respect to other matters.
[Investment Suitability Checklist and Signature Pages Follows]
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<PAGE> 13
Payee represents and warrants that he or she meets the suitability
standard(s) checked below with respect to his or her qualification as an
"accredited investor." PLEASE CHECK BELOW WHICH SUITABILITY STANDARD(S) ARE MET.
____ (a) Payee's individual net worth or the joint net worth with
Payee's spouse exceeds US$1,000,000.
____ (b) Payee has had income in excess of US$200,000 in each of the
two most recent years or joint income together with Payee's
spouse in excess of US$300,000 in each of those years and has
a reasonable expectation of reaching the same income level in
the current year.
____ (c) Payee is a director or executive officer (as determined
pursuant to Rule 501(f) of Regulation D under the Securities
Act) of Holding.
For the purposes of these Regulation D Reps, the term "Holding" shall
be deemed to refer to the Person issuing Common Stock to Payee from time to
time.
IN WITNESS WHEREOF, the undersigned has executed these Regulation D
Reps as of __________, _____.
----------------------------------
S. Dianne Thompson
4
<PAGE> 1
EXHIBIT 10.40
CONTINGENT PROMISSORY NOTE
New York, New York
$375,000.00 December 6, 1999
IN CONSIDERATION OF the profit participations granted herein,
if, and when, the Tranche A Condition and/or the Tranche B Condition (each, as
defined below) shall have been satisfied, Marketvision, Inc., a Colorado
corporation with its chief executive office and principal place of business at
10065 East Harvard, Suite 750, Denver, Colorado 80231 ("Maker") promises to pay
to Joseph L. Temple, Jr., a resident of the State of Colorado, at his legal
address at 10065 East Harvard, Suite 750, Denver, Colorado 80231 ("Payee") (or
such other place as Payee may hereafter designate in writing), in immediately
available funds and in lawful money of the United States of America, the maximum
aggregate principal sum of (i) One Hundred Eighty-Seven Thousand Five Hundred
and No/100 Dollars ($187,500.00) (the "Tranche A Payment") and/or (ii) One
Hundred Eighty-Seven Thousand Five Hundred and No/100 Dollars ($187,500.00) (the
"Tranche B Payment"), together with interest thereon as more fully set forth
herein, and subject to the terms and conditions more fully set forth herein.
1. DEFINITIONS. As used in this Note, the following terms shall have the
respective meanings indicated:
"Auditors" means Maker's regular outside independent
accounting and auditing firm.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Business Plan" means that certain business plan attached
hereto as Exhibit A.
"Ceiling Rate" means, on any day, the maximum non-usurious
rate of interest permitted for that day by whichever of applicable federal or
state laws permits the higher interest rate, stated as a rate per annum.
"Default" shall have the meaning set forth in Paragraph 6.
"Marketvision" means Marketvision, Inc., a Colorado
corporation.
"Obligations" means the obligations of Maker evidenced by this
Note.
"Past Due Rate" means, on any day, a rate per annum equal to
the Stated Rate plus two percent (2%) per annum.
"Person " means 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.
"Representatives" means, collectively, each and every trustee,
agent or other Person acting on behalf of any Senior Creditor with respect to
any Senior Obligation or any security therefor.
"Senior Creditors" means, collectively, at any time: (a)
Toronto Dominion (Texas), Inc., (b) any member of a syndicate of commercial
banks that has outstanding loans to the Holdings or any of its direct or
indirect subsidiaries, and (c) any other then holder of a Senior Obligation
(other than a Representative).
<PAGE> 2
"Senior Credit Agreement" means, collectively, (i) that
certain Credit Agreement dated as of May 25, 1999, among Holdings, certain
subsidiaries of the Holdings, including Maker, certain financial institutions
from time to time party thereto and Toronto Dominion (Texas), Inc., as Agent and
(ii) that certain Credit Agreement dated as of May 25, 1999, among the Holdings,
certain subsidiaries of the Holdings, including Maker, Onex ClientLogic Finance
LLC, as Lender and Toronto Dominion (Texas), Inc., as Agent, as each of the
foregoing may be amended, restated, supplemented, modified or waived from time
to time.
"Senior Debt Documents" means, collectively, (i) the Senior
Credit Agreement and (ii) any other document guaranteeing or securing any Senior
Obligation or pursuant to which any indebtedness, obligation or liability
constituting a Senior Obligation is made or provided for.
"Senior Notes" means the promissory notes of the Holdings
outstanding from time to time under either Senior Credit Agreement and any other
outstanding note issued from time to time by, under, with respect to, or as
evidence of any Senior Obligation.
"Senior Obligations" means, collectively: (a) all principal
of, and premium, if any, and interest on, the Senior Notes issued pursuant to
the Senior Credit Agreement and the indebtedness evidenced thereby, (b) all
other indebtedness, obligations and liabilities of Maker to any Senior Creditor
or any other Representative from time to time under or with respect to any
Senior Credit Document (including, without limitation, all fees, costs and
expenses payable by the Holdings or any guarantor thereunder), (c) all other
indebtedness, obligations and liabilities, whether now existing or hereafter
incurred or created, of the Holdings or any guarantor to any Senior Creditor or
any other Representative for or with respect to borrowed money of the Holdings,
any guarantor or any other direct or indirect subsidiary of the Holdings
(including, without limitation, any fees and expenses associated therewith), (d)
any amounts payable by Maker under or in respect of any interest rate exchange
agreement, interest rate swap agreement or other similar agreement entered into
in respect of all or any portion of the Senior Obligations referred to in clause
(a) or (c) above, and (e) any refunding, refinancing, extension or increase of
any of the foregoing; including, without limitation, in each of the foregoing
cases, any interest accruing on any such indebtedness, liability or other
obligation at the legal rate after the commencement of any bankruptcy proceeding
and any additional interest that would have accrued thereon but for the
commencement of such bankruptcy proceeding, regardless of whether such interest
is collectible from the bankrupt Person.
"Specified Courts" shall have the meaning set forth in
Paragraph 10.
"Stated Rate" means 8.30%.
"Tranche A Condition" means the confirmation to Maker by the
Auditors that Marketvision has achieved in full the revenue goals for the fiscal
year ended December 31, 2000, as more fully set forth in the Business Plan.
"Tranche A Payment" has the meaning set forth in the Preamble
of this Note.
"Tranche B Condition" means the confirmation to Maker by the
Auditors that Marketvision has achieved in full the revenue goals for the fiscal
year ended December 31, 2001, as set forth in the Business Plan.
"Tranche B Payment" has the meaning set forth in the Preamble
of this Note.
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<PAGE> 3
2. COMPUTATION OF INTEREST. Interest on the amount payable under this Note, if
any, shall be computed on such amount from and including the date such amount is
due (the date the Tranche A Condition or Tranche B Condition, as applicable, is
satisfied) through but excluding the date of payment in full of such amount. Any
such interest shall be computed for the actual number of days elapsed in a year
consisting of 365 or 366 days, as applicable.
3. TRANCHE A PAYMENT.
(a) Upon satisfaction of the Tranche A Condition, the Tranche A Payment
shall be due and payable in three (3) equal, consecutive annual installments,
commencing upon the earlier to occur of (i) the delivery by Maker to Payee of
the report prepared by the Auditors in connection with their audit of Maker's
financial statements for the fiscal year ended December 31, 2000 or (ii) April
15, 2001. Interest on the Tranche A Payment shall be due and payable (at the
Stated Rate) quarterly in arrears, on the first Business Day of such quarter,
commencing with quarter following the first payment of the Tranche A Payment
hereunder.
(b) All payments made pursuant to this Section 3 shall be made in cash.
(c) If any portion of the Tranche A Payment shall become due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest on this Note.
(d) If the Tranche A Condition is not satisfied on or before the time
period specified in Section 3(a) above, then Maker's obligation to make the
Tranche A Payment shall be null and void, Maker shall have no further obligation
in respect of the Tranche A Payment and the Tranche A Payment shall be cancelled
in full.
4. TRANCHE B PAYMENT.
(a) Upon satisfaction of the Tranche B Condition, the Tranche B Payment
shall be due and payable in full upon the earlier to occur of (i) the delivery
by Maker to Payee of the report prepared by the Auditors in connection with
their audit of Maker's financial statements for the fiscal year ended December
31, 2001 or (ii) April 15, 2002. So long as no Default has occurred and is
continuing with respect to the Tranche B Payment, such payment shall not bear
interest.
(b) All payments made pursuant to this Section 4 shall be made in cash.
(c) If any portion of the Tranche B Payment shall become due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day.
(d) If the Tranche B Condition is not satisfied on or before the time
period specified in Section 4(a) above, then Maker's obligation to make the
Tranche B Payment shall be null and void, Maker shall have no further obligation
in respect of the Tranche B Payment and the Tranche B Payment shall be cancelled
in full.
5. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the contrary
contained in this Note, it is expressly provided that in no case or event shall
the aggregate of (i) all interest on the unpaid balance of any payments made
under this Note and (ii) the aggregate of any other amounts accrued or paid
pursuant to this Note, which under applicable laws are or may be deemed to
constitute interest upon the Obligations evidenced by this Note from the date
hereof, ever exceed the Ceiling Rate. In this connection,
3
<PAGE> 4
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable usury laws. In
furtherance thereof, none of the terms of this Note shall ever be construed to
create a contract to pay, as consideration for the use, forbearance or detention
of money, interest at a rate in excess of the Ceiling Rate. Maker or other
parties now or hereafter becoming liable for payment of the Obligations
evidenced by this Note shall never be liable for interest in excess of the
Ceiling Rate. If, for any reason whatever, the interest paid or received on this
Note during its full term produces a rate which exceeds the Ceiling Rate, Payee
shall credit against the principal of this Note (or, if such Obligations shall
have been paid in full, shall refund to the payor of such interest) such portion
of said interest as shall be necessary to cause the interest paid on this Note
to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid
to Payee for the use, forbearance or detention of the Obligations evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this Note, so
that the interest rate is uniform throughout the full term of this Note. The
provisions of this Section 5 shall control all agreements, whether now or
hereafter existing and whether written or oral, between Maker and each Payee.
6. DEFAULT. If any portion of this Note is not paid when due, whether by lapse
of time or acceleration or otherwise, within five (5) calendar days after Payee
has given Maker written notice thereof (a "Default"), then Payee may, at his
option, exercise any or all rights, powers and remedies afforded hereunder and
by law, including the right to declare the unpaid balance of this Note and
accrued interest thereon, if applicable, at once mature and payable and such
overdue obligation shall bear interest at the Past Due Rate from and after the
date the cure period expires until such amount is paid.
7. NO WAIVER BY PAYEE. No delay or omission of Payee to exercise any power,
right or remedy accruing to Payee shall impair any such power, right or remedy
or shall be construed to be a waiver of the right to exercise any such power,
right or remedy. Payee's right to accelerate this Note for any late payment or
Maker's failure to timely fulfill its other obligations hereunder shall not be
waived or deemed waived by Payee by Payee's having accepted a late payment or
late payments in the past or Payee otherwise not accelerating this Note or
exercising other remedies for Maker's failure to timely perform its obligations
hereunder. Payee shall not be obligated or be deemed obligated to notify Maker
that he is requiring Maker to strictly comply with the terms and provisions of
this Note before accelerating this Note and exercising his other remedies
hereunder because of Maker's failure to timely perform its obligations under
this Note.
8. COSTS AND ATTORNEY'S FEES. If any party hereto retains an attorney in
connection with any default or the collection, enforcement or defense of this
Note in any lawsuit or in any probate, reorganization, bankruptcy or other
proceeding, then the non-prevailing party agrees to pay to the prevailing party,
all reasonable costs and expenses incurred by the prevailing party in trying to
collect this Note or in any such suit or proceeding, including reasonable
attorney's fees. Any amount to be paid under this Section by Maker to Payee
shall be a demand obligation owing by Maker to Payee and shall bear interest
from the date of expenditure until paid at the Past Due Rate. If any amounts
shall be owing to Maker by Payee under this Section, then Maker shall have the
right, but not the obligation, to offset such amounts against any payments made
or due under this Note.
9. SECTION HEADINGS. Section headings appearing in this Note are for convenient
reference only and shall not be used to interpret or limit the meaning of any
provision of this Note.
10. VENUE; CHOICE OF LAW. THIS NOTE IS PERFORMABLE IN NEW YORK, NEW YORK, WHICH
SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT OF THIS NOTE. MAKER
AND PAYEE HEREBY IRREVOCABLY AGREE THAT ANY LEGAL PROCEEDING IN RESPECT OF THIS
NOTE MAY BE BROUGHT IN THE STATE COURTS OF
4
<PAGE> 5
NEW YORK, NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK (COLLECTIVELY, THE "SPECIFIED COURTS"). MAKER AND PAYEE
HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS OF
THE STATE OF NEW YORK. MAKER AND PAYEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVE
ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF MAKER AND PAYEE IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO MAKER OR PAYEE, AS
APPLICABLE. MAKER AND PAYEE AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF
NEW YORK AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11. WAIVER OF JURY TRIAL. EACH MAKER AND PAYEE WAIVE ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS NOTE, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY
SUCH RIGHTS OR OBLIGATIONS.
12. SUCCESSORS AND ASSIGNS. This Note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and permitted assigns of
Maker and Payee.
13. SEVERABILITY. If any provision of this Note is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Note shall not be affected
thereby, and this Note shall be liberally construed so as to carry out the
intent of the parties to it.
14. ASSIGNMENT. Payee shall not have the right to assign this Note. Maker may
assign its obligations under this Note to any of its wholly-owned subsidiaries
or to any third party that purchases all or substantially all of the assets or
capital stock of Marketvision, by merger, consolidation or otherwise; provided
that simultaneously therewith, Maker shall give Payee written notice of such
assignment.
15. NOTICES. Any notice, request or other communication required or permitted to
be given hereunder shall be given in writing by delivering it against receipt
for it, by depositing it with an overnight delivery service or by depositing it
in a receptacle maintained by the United States Postal Service, postage prepaid,
registered or certified mail, return receipt requested, addressed to the
respective parties as reflected in the first paragraph to this Note. Maker's
address for notice may be changed at any time and from time to time, but only
advance written notice to Payee and shall be the most recent such address
furnished in writing by Maker to Payee. Payee's address for notice may be
changed at any time and from time to time, but only after ten (10) calendar days
advance written notice to Maker and shall be the most recent such address
furnished in writing by Payee to Maker. Actual notice, however and from whomever
given or received, shall always be effective when received.
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<PAGE> 6
16. SUBORDINATION. This Note is subordinate in all rights to the Senior
Obligations of Maker but no provision of this Note shall impair, as between
Maker and the holder hereof, the obligation of Maker, which is unconditional and
absolute, to pay the principal of, and accrued and unpaid interest on, this Note
in accordance with its terms, nor is any provision hereof intended to or shall
affect the relative rights of the holder of this Note to other creditors of
Maker other than the Senior Creditors, nor shall anything herein prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder in accordance with the terms hereof
subject to the rights hereunder of the Senior Creditors; provided, however, that
the principal balance due under this Note may not be accelerated if said
acceleration will cause a default under any of Maker's obligations to the
holders of any Senior Obligation.
17. ENTIRE AGREEMENT. THIS NOTE EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING
BETWEEN PAYEE AND MAKER WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES
ALL PRIOR CONFLICTING OR INCONSISTENT AGREEMENTS, CONSENTS AND UNDERSTANDINGS
RELATING TO SUCH SUBJECT MATTER. MAKER AND PAYEE ACKNOWLEDGE AND AGREE THAT
THERE IS NO ORAL AGREEMENT BETWEEN MAKER AND ANY PAYEE WHICH HAS NOT BEEN
INCORPORATED IN THIS NOTE.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
MAKER:
MARKETVISION, INC.
By: /s/ THOMAS O. HARBISON
------------------------
Name: Thomas O. Harbison
Title: Chairman
SIGNATURE PAGE TO
PROMISSORY NOTE
<PAGE> 1
EXHIBIT 10.41
CONTINGENT PROMISSORY NOTE
New York, New York
$375,000.00 December 6, 1999
IN CONSIDERATION OF the profit participations granted herein, if, and
when, the Tranche A Condition and/or the Tranche B Condition (each, as defined
below) shall have been satisfied, Marketvision, Inc., a Colorado corporation
with its chief executive office and principal place of business at 10065 East
Harvard, Suite 750, Denver, Colorado 80231 ("Maker") promises to pay to S.
Dianne Thompson, a resident of the State of Colorado, at her legal address at
10065 East Harvard, Suite 750, Denver, Colorado 80231 ("Payee") (or such other
place as Payee may hereafter designate in writing), in immediately available
funds and in lawful money of the United States of America, the maximum aggregate
principal sum of (i) One Hundred Eighty-Seven Thousand Five Hundred and No/100
Dollars ($187,500.00) (the "Tranche -A Payment") and/or (ii) One Hundred
Eighty-Seven Thousand Five Hundred and No/100 Dollars ($187,500.00) (the
"Tranche B Payment"), together with interest thereon as more fully set forth
herein, and subject to the terms and conditions more fully set forth herein.
1. DEFINITIONS. As used in this Note, the following terms shall have the
respective meanings indicated:
"Auditors" means Maker's regular outside independent accounting and
auditing firm.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"Business Plan" means that certain business plan attached hereto as
Exhibit A.
"Ceiling Rate" means, on any day, the maximum non-usurious rate of
interest permitted for that day by whichever of applicable federal or state laws
permits the higher interest rate, stated as a rate per annum.
"Default" shall have the meaning set forth in Paragraph 6.
"Marketvision" means Marketvision, Inc., a Colorado corporation.
"Obligations" means the obligations of Maker evidenced by this Note.
"Past Due Rate" means, on any day, a rate per annum equal to the Stated
Rate plus two percent (2%) per annum.
"Person" means 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.
"Representatives" means, collectively, each and every trustee, agent or
other Person acting on behalf of any Senior Creditor with respect to any Senior
Obligation or any security therefor.
"Senior Creditors" means, collectively, at any time: (a) Toronto
Dominion (Texas), Inc., (b) any member of a syndicate of commercial banks that
has outstanding loans to the Holdings or any of its direct or indirect
subsidiaries, and (c) any other then holder of a Senior Obligation (other than a
Representative).
<PAGE> 2
"Senior Credit Agreement" means, collectively, (i) that certain Credit
Agreement dated as of May 25, 1999, among Holdings, certain subsidiaries of the
Holdings, including Maker, certain financial institutions from time to time
party thereto and Toronto Dominion (Texas), Inc., as Agent and (ii) that certain
Credit Agreement dated as of May 25, 1999, among the Holdings, certain
subsidiaries of the Holdings, including Maker, Onex ClientLogic Finance LLC, as
Lender and Toronto Dominion (Texas), Inc., as Agent, as each of the foregoing
may be amended, restated, supplemented, modified or waived from time to time.
"Senior Debt Documents" means, collectively, (i) the Senior Credit
Agreement and (ii) any other document guaranteeing or securing any Senior
Obligation or pursuant to which any indebtedness, obligation or liability
constituting a Senior Obligation is made or provided for.
"Senior Notes" means the promissory notes of the Holdings outstanding
from time to time under either Senior Credit Agreement and any other outstanding
note issued from time to time by, under, with respect to, or as evidence of any
Senior Obligation.
"Senior Obligations" means, collectively: (a) all principal of, and
premium, if any, and interest on, the Senior Notes issued pursuant to the Senior
Credit Agreement and the indebtedness evidenced thereby, (b) all other
indebtedness, obligations and liabilities of Maker to any Senior Creditor or any
other Representative from time to time under or with respect to any Senior
Credit Document (including, without limitation, all fees, costs and expenses
payable by the Holdings or any guarantor thereunder), (c) all other
indebtedness, obligations and liabilities, whether now existing or hereafter
incurred or created, of the Holdings or any guarantor to any Senior Creditor or
any other Representative for or with respect to borrowed money of the Holdings,
any guarantor or any other direct or indirect subsidiary of the Holdings
(including, without limitation, any fees and expenses associated therewith), (d)
any amounts payable by Maker under or in respect of any interest rate exchange
agreement, interest rate swap agreement or other similar agreement entered into
in respect of all or any portion of the Senior Obligations referred to in clause
(a) or (c) above, and (e) any refunding, refinancing, extension or increase of
any of the foregoing; including, without limitation, in each of the foregoing
cases, any interest accruing on any such indebtedness, liability or other
obligation at the legal rate after the commencement of any bankruptcy proceeding
and any additional interest that would have accrued thereon but for the
commencement of such bankruptcy proceeding, regardless of whether such interest
is collectible from the bankrupt Person.
"Specified Courts" shall have the meaning set forth in Paragraph 10.
"Stated Rate" means 8.30%.
"Tranche A Condition" means the confirmation to Maker by the Auditors
that Marketvision has achieved in full the revenue goals for the fiscal year
ended December 31, 2000, as more fully set forth in the Business Plan.
"Tranche A Payment" has the meaning set forth in the Preamble of this
Note.
"Tranche B Condition" means the confirmation to Maker by the Auditors
that Marketvision has achieved in full the revenue goals for the fiscal year
ended December 31, 2001, as set forth in the Business Plan.
"Tranche B Payment" has the meaning set forth in the Preamble of this
Note.
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<PAGE> 3
2. COMPUTATION OF INTEREST. Interest on the amount payable under this Note, if
any, shall be computed on such amount from and including the date such amount is
due (the date the Tranche A Condition or Tranche B Condition, as applicable, is
satisfied) through but excluding the date of payment in full of such amount. Any
such interest shall be computed for the actual number of days elapsed in a year
consisting of 365 or 366 days, as applicable.
3. TRANCHE A PAYMENT.
(a) Upon satisfaction of the Tranche A Condition, the Tranche A Payment
shall be due and payable in three (3) equal, consecutive annual installments,
commencing upon the earlier to occur of (i) the delivery by Maker to Payee of
the report prepared by the Auditors in connection with their audit of Maker's
financial statements for the fiscal year ended December 31, 2000 or (ii) April
15, 2001. Interest on the Tranche A Payment shall be due and payable (at the
Stated Rate) quarterly in arrears, on the first Business Day of such quarter,
commencing with quarter following the first payment of the Tranche A Payment
hereunder.
(b) All payments made pursuant to this Section 3 shall be made in cash.
(c) If any portion of the Tranche A Payment shall become due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest on this Note.
(d) If the Tranche A Condition is not satisfied on or before the time
period specified in Section 3(a) above, then Maker's obligation to make the
Tranche A Payment shall be null and void, Maker shall have no further obligation
in respect of the Tranche A Payment and the Tranche A Payment shall be cancelled
in full.
4. TRANCHE B PAYMENT.
(a) Upon satisfaction of the Tranche B Condition, the Tranche B Payment
shall be due and payable in full upon the earlier to occur of (i) the delivery
by Maker to Payee of the report prepared by the Auditors in connection with
their audit of Maker's financial statements for the fiscal year ended December
31, 2001 or (ii) April 15, 2002. So long as no Default has occurred and is
continuing with respect to the Tranche B Payment, such payment shall not bear
interest.
(b) All payments made pursuant to this Section 4 shall be made in cash.
(c) If any portion of the Tranche B Payment shall become due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day.
(d) If the Tranche B Condition is not satisfied on or before the time
period specified in Section 4(a) above, then Maker's obligation to make the
Tranche B Payment shall be null and void, Maker shall have no further obligation
in respect of the Tranche B Payment and the Tranche B Payment shall be cancelled
in full.
5. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the contrary
contained in this Note, it is expressly provided that in no case or event shall
the aggregate of (i) all interest on the unpaid balance of any payments made
under this Note and (ii) the aggregate of any other amounts accrued or paid
pursuant to this Note, which under applicable laws are or may be deemed to
constitute interest upon the Obligations evidenced by this Note from the date
hereof, ever exceed the Ceiling Rate. In this connection,
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<PAGE> 4
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable usury laws. In
furtherance thereof, none of the terms of this Note shall ever be construed to
create a contract to pay, as consideration for the use, forbearance or detention
of money, interest at a rate in excess of the Ceiling Rate. Maker or other
parties now or hereafter becoming liable for payment of the Obligations
evidenced by this Note shall never be liable for interest in excess of the
Ceiling Rate. If, for any reason whatever, the interest paid or received on this
Note during its full term produces a rate which exceeds the Ceiling Rate, Payee
shall credit against the principal of this Note (or, if such Obligations shall
have been paid in full, shall refund to the payor of such interest) such portion
of said interest as shall be necessary to cause the interest paid on this Note
to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid
to Payee for the use, forbearance or detention of the Obligations evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this Note, so
that the interest rate is uniform throughout the full term of this Note. The
provisions of this Section 5 shall control all agreements, whether now or
hereafter existing and whether written or oral, between Maker and each Payee.
6. DEFAULT. If any portion of this Note is not paid when due, whether by lapse
of time or acceleration or otherwise, within five (5) calendar days after Payee
has given Maker written notice thereof (a "Default"), then Payee may, at her
option, exercise any or all rights, powers and remedies afforded hereunder and
by law, including the right to declare the unpaid balance of this Note and
accrued interest thereon, if applicable, at once mature and payable and such
overdue obligation shall bear interest at the Past Due Rate from and after the
date the cure period expires until such amount is paid.
7. NO WAIVER BY PAYEE. No delay or omission of Payee to exercise any power,
right or remedy accruing to Payee shall impair any such power, right or remedy
or shall be construed to be a waiver of the right to exercise any such power,
right or remedy. Payee's right to accelerate this Note for any late payment or
Maker's failure to timely fulfill its other obligations hereunder shall not be
waived or deemed waived by Payee by Payee's having accepted a late payment or
late payments in the past or Payee otherwise not accelerating this Note or
exercising other remedies for Maker's failure to timely perform its obligations
hereunder. Payee shall not be obligated or be deemed obligated to notify Maker
that she is requiring Maker to strictly comply with the terms and provisions of
this Note before accelerating this Note and exercising her other remedies
hereunder because of Maker's failure to timely perform its obligations under
this Note.
8. COSTS AND ATTORNEY'S FEES. If any party hereto retains an attorney in
connection with any default or the collection, enforcement or defense of this
Note in any lawsuit or in any probate, reorganization, bankruptcy or other
proceeding, then the non-prevailing party agrees to pay to the prevailing party,
all reasonable costs and expenses incurred by the prevailing party in trying to
collect this Note or in any such suit or proceeding, including reasonable
attorney's fees. Any amount to be paid under this Section by Maker to Payee
shall be a demand obligation owing by Maker to Payee and shall bear interest
from the date of expenditure until paid at the Past Due Rate. If any amounts
shall be owing to Maker by Payee under this Section, then Maker shall have the
right, but not the obligation, to offset such amounts against any payments made
or due under this Note.
9. SECTION HEADINGS. Section headings appearing in this Note are for convenient
reference only and shall not be used to interpret or limit the meaning of any
provision of this Note.
10. VENUE; CHOICE OF LAW. THIS NOTE IS PERFORMABLE IN NEW YORK, NEW YORK, WHICH
SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT OF THIS NOTE. MAKER
AND PAYEE HEREBY IRREVOCABLY AGREE THAT ANY LEGAL PROCEEDING IN RESPECT OF THIS
NOTE MAY BE BROUGHT IN THE STATE COURTS OF
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<PAGE> 5
NEW YORK, NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK (COLLECTIVELY, THE "SPECIFIED COURTS"). MAKER AND PAYEE
HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS OF
THE STATE OF NEW YORK. MAKER AND PAYEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVE
ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF MAKER AND PAYEE IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO MAKER OR PAYEE, AS
APPLICABLE. MAKER AND PAYEE AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF
NEW YORK AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11. WAIVER OF JURY TRIAL. EACH MAKER AND PAYEE WAIVE ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS NOTE, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY
SUCH RIGHTS OR OBLIGATIONS.
12. SUCCESSORS AND ASSIGNS. This Note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and permitted assigns of
Maker and Payee.
13. SEVERABILITY. If any provision of this Note is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Note shall not be affected
thereby, and this Note shall be liberally construed so as to carry out the
intent of the parties to it.
14. ASSIGNMENT. Payee shall not have the right to assign this Note. Maker may
assign its obligations under this Note to any of its wholly-owned subsidiaries
or to any third party that purchases all or substantially all of the assets or
capital stock of Marketvision, by merger, consolidation or otherwise; provided
that simultaneously therewith, Maker shall give Payee written notice of such
assignment.
15. NOTICES. Any notice, request or other communication required or permitted to
be given hereunder shall be given in writing by delivering it against receipt
for it, by depositing it with an overnight delivery service or by depositing it
in a receptacle maintained by the United States Postal Service, postage prepaid,
registered or certified mail, return receipt requested, addressed to the
respective parties as reflected in the first paragraph to this Note. Maker's
address for notice may be changed at any time and from time to time, but only
advance written notice to Payee and shall be the most recent such address
furnished in writing by Maker to Payee. Payee's address for notice may be
changed at any time and from time to time, but only after ten (10) calendar days
advance written notice to Maker and shall be the most recent such address
furnished in writing by Payee to Maker. Actual notice, however and from whomever
given or received, shall always be effective when received.
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<PAGE> 6
16. SUBORDINATION. This Note is subordinate in all rights to the Senior
Obligations of Maker but no provision of this Note shall impair, as between
Maker and the holder hereof, the obligation of Maker, which is unconditional and
absolute, to pay the principal of, and accrued and unpaid interest on, this Note
in accordance with its terms, nor is any provision hereof intended to or shall
affect the relative rights of the holder of this Note to other creditors of
Maker other than the Senior Creditors, nor shall anything herein prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default hereunder in accordance with the terms hereof
subject to the rights hereunder of the Senior Creditors; provided, however, that
the principal balance due under this Note may not be accelerated if said
acceleration will cause a default under any of Maker's obligations to the
holders of any Senior Obligation.
17. ENTIRE AGREEMENT. THIS NOTE EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING
BETWEEN PAYEE AND MAKER WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES
ALL PRIOR CONFLICTING OR INCONSISTENT AGREEMENTS, CONSENTS AND UNDERSTANDINGS
RELATING TO SUCH SUBJECT MATTER. MAKER AND PAYEE ACKNOWLEDGE AND AGREE THAT
THERE IS NO ORAL AGREEMENT BETWEEN MAKER AND ANY PAYEE WHICH HAS NOT BEEN
INCORPORATED IN THIS NOTE.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned has executed this Note as
of the date first written above.
MAKER:
MARKETVISION, INC.
By: /s/ THOMAS O. HARBISON
------------------------------------
Name: Thomas O. Harbison
Title: Chairman
SIGNATURE PAGE TO
PROMISSORY NOTE
<PAGE> 1
EXHIBIT 10.42
AMENDMENT NO. 3
TO
CLIENTLOGIC HOLDING CORPORATION
1998 STOCK OPTION PLAN
This Amendment (this "Amendment") to the ClientLogic Holding
Corporation 1998 Stock Option Plan, as amended to date (the "Plan"), is
effective as of March 1, 2000.
WHEREAS, each of the Board of Directors (the "Board of Directors) of
ClientLogic Holding Corporation (formerly CustomerONE Holding Corporation), a
Delaware corporation (the "Company"), and the stockholders (the "Stockholders")
of the Company have heretofore adopted and approved the Plan; and
WHEREAS, the Board of Directors and the Stockholders wish to amend the
Plan to provide for a greater maximum aggregate number of shares of the common
stock, par value $0.01 per share, of the Company (the "Common Stock") in respect
of which Options (as that term is defined in the Plan) may be granted for all
purposes under the Plan, and to provide for a greater maximum aggregate number
of shares of Common Stock underlying all Options that may be granted to any
single Key Employee (as such term is defined in the Plan) during the Term (as
that term is defined in the Plan);
NOW, THEREFORE, the Plan is hereby amended as follows:
1. SECTION 3.
Section 3 of the Plan is hereby amended and restated to read, in its
entirety, as follows:
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 11, the maximum
aggregate number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") in respect of which Options may be granted for
all purposes under the Plan shall be 15,862,000 shares. If, for any reason,
any shares as to which Options have been granted cease to be subject to
purchase thereunder, including the expiration of any such Option, the
termination of any such Option prior to exercise, or the forfeiture of any
such Option, such shares shall thereafter
<PAGE> 2
be available for grants under the Plan. Options granted under the Plan may
be fulfilled in accordance with the terms of the Plan with (i) authorized
and unissued shares of the Common Stock, or (ii) issued shares of such
Common Stock held in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee, including any
Options that may have been granted to such Key Employee as an Eligible
Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 8,000,000 shares, subject to the adjustments
provided in Section 11. For purposes of the preceding sentence, such
Options that are cancelled or repriced shall continue to be counted in
determining such maximum aggregate number of shares of Common Stock that
may be granted to any single Key Employee, including any Options that may
have been granted to such Key Employee as an Eligible Non-Employee, during
the Term of the Plan.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated January 29, 2000 (except as to Note 20, for which the date is March
9, 2000) relating to the financial statements and financial statement schedules
of ClientLogic Corporation, which appear in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS, LLP
PricewaterhouseCoopers, LLP
Buffalo, New York
March 9, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-95951 of ClientLogic Corporation on Form S-1 of our report dated November 3,
1998 (December 17, 1998, as to Note 18) relating to the consolidated Financial
Statements of LCS Industries, Inc. and subsidiaries, appearing in the
Prospectus, which is part of this Registration Statement, and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Parsippany, NJ
March 7, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated January 21, 2000 relating to the financial statements of Upgrade
Corporation of America and Subsidiary (d/b/a SOFTBANK Services Group) and The
Ivy Group Limited, which appear in such Registration Statement. We also consent
to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS, LLP
PricewaterhouseCoopers, LLP
Buffalo, New York
March 9, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated March 30, 1999 relating to the financial statements of Cordena
Call Management B.V., which appear in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS N.V.
PricewaterhouseCoopers N.V.
Utrecht, Netherlands
March 9, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT TO BE PLACED IN S1 DOCUMENT
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated May 11, 1999, relating to the audited financial statements of
Market Vision, Inc., which appear in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such Registration
Statement.
/s/ TERRY & STEPHENSON, P.C.
- ----------------------------
Terry & Stephenson, P.C.
March 7, 2000
Denver, Colorado
<PAGE> 1
EXHIBIT 23.7
Consent of Independent Accountants
We hereby consent to the use in the Registration Statement on Form S-1 of our
reports dated January 29, 2000 relating to the financial statements and
financial statement schedule of North Direct Response, Inc., which appear in
such Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS, LLP
PricewaterhouseCoopers, LLP
Buffalo, New York
March 9, 2000
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<FISCAL-YEAR-END> DEC-31-1999
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