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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000
REGISTRATION NO. 333-95951
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
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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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 MARCH 27, 2000
PROSPECTUS
'CLIENTLOGIC LOGO'
13,300,000 SHARES
CLASS A COMMON STOCK
$ PER SHARE
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We are selling 13,300,000 shares of our Class A common stock. The
underwriters named in this prospectus may purchase up to 1,995,000 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 $14.00 and
$16.00 per share. We have applied to have our Class A common stock included for
quotation on the Nasdaq National Market under the symbol "CLGC".
Following this offering, Onex Corporation, our principal stockholder, will
control approximately 98.9% of the combined voting power of our outstanding
Class A and Class B common stock.
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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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DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC. TD SECURITIES
, 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
Selected Historical Financial Data.......................... 25
Unaudited Pro Forma Consolidated Balance Sheet and Statement
of Operations............................................. 26
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 30
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 COMPANY
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. For the year ended December 31, 1999, we
derived approximately 6.9% of our revenues from marketing services.
- 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. 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. For the year ended December 31, 1999, we derived
approximately 73.7% of our revenues from customer contact management
services.
- 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. For the year ended December 31, 1999, we derived
approximately 19.4% of our revenues from fulfillment services.
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 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 $5.3 million in 1998 and approximately $60.6 million in 1999 and
we had an accumulated deficit of approximately $66.0 million 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.
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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 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.
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OUR STRATEGY
Our objective is to be the leading global provider of integrated customer
relationship management services to e-commerce and technology companies. 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.
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.
In 1999, our ten largest clients accounted for approximately 44.1% of our
revenues.
OUR PRINCIPAL STOCKHOLDER
Onex Corporation is our principal stockholder and, following this offering,
will control approximately 98.9% 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.
OUR PRINCIPAL EXECUTIVE OFFICES
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.
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THE OFFERING
Class A common stock offered........ 13,300,000 shares
Common stock to be outstanding after
the offering:
Class A........................... 19,251,285 shares
Class B........................... 66,451,221 shares
Total..................... 85,702,506 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. Only Onex 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 affiliate will automatically
convert into shares of Class A common
stock;
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- 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:
- gives effect to a .642857-to-1 reverse split of our common stock which
occurred on March 27, 2000;
- is based on 5,951,285 shares of our Class A common stock outstanding as
of March 23, 2000;
- is based on 66,451,221 shares of our Class B common stock outstanding as
of March 23, 2000;
- excludes 5,831,121 shares of Class A common stock subject to options and
warrants and 167,146 shares of Class A common stock subject to our
deferred compensation plan, in each case outstanding as of March 23,
2000; the weighted average exercise price of the options and warrants as
of March 23, 2000 is $3.15 per share;
- excludes 1,963,321 shares of Class A common stock issuable in exchange
for shares of exchangeable preferred stock of one of our subsidiaries at
our option or the option of the holders;
- excludes 70,000 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
1,995,000 shares of Class A common stock to cover over-allotments;
- assumes an initial public offering price of $15.00 per 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 $5.3 million in 1998 and $60.6 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 $73.6 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 $186.2 million for goodwill and
other intangible assets in 1998 and 1999 in connection with acquisitions. We are
amortizing this goodwill over five 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 September
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 September 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 cannot
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, Microsoft, accounted for approximately 9.9% of
our revenues and our ten largest clients accounted for approximately 44.1% of
our revenues. We provide marketing services to two of our ten largest clients,
fulfillment services to six of these clients and customer contact management
services to nine of these clients. 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
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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 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
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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 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, 66,451,221 shares of our outstanding Class B common stock,
representing approximately 77.5% 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 98.9% 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 66,451,221 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 23, 2000, our Class A
stockholders owned 5,951,285 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 19,251,285 outstanding shares of Class A
common stock, assuming no exercise of the underwriters' over-allotment option,
and 66,451,221 outstanding shares of Class B common stock. Up to 5,831,121
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 $3.15. In addition, up to 1,963,321 shares of
our Class A common stock may be issued upon conversion of shares of exchangeable
preferred stock of one of our subsidiaries which are exchangeable at our option
or the option of the holder into our common stock. 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 59,820,750 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 13,300,000 shares of Class A common stock in this
offering at an assumed initial public offering price of $15.00 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 $143,515,000, or $1.70 per share of Class A
common stock. This represents an immediate dilution of $13.30 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 $183.8 million after deducting estimated
underwriting discounts and our estimated offering expenses, based on an assumed
initial public offering price of $15.00, 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 $211.7 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 INTEREST RATE
OUTSTANDING ESTIMATED AS OF
AS OF AMOUNT TO ORIGINAL USE INTEREST RATE MARCH 24, MATURITY OR
TYPE OF FACILITY FEBRUARY 29, 2000 BE REPAID(1) OF PROCEEDS CALCULATION 2000 EXPIRATION
-------------------- ----------------- ------------ --------------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Bank indebtedness $ 3,064 $ 3,064 Working capital LIBOR + 1.50% 7.63% 2000
Revolving credit $38,900 $39,700 Capital expenditures, Prime + 0.00% 9.46% 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% 9.75% 2007
facility(2) to 2.25% or
LIBOR + 1.75%
to 3.25%
Subordinated -- $ 3,500 Working capital Prime + 3.50% 12.50% 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% 8.01% 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 $27.9 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
$(40,285,000), or $(0.56) 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 and subsidiary
exchangeable 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 13,300,000 shares of Class A common stock offered in this offering
at an assumed initial public offering price of $15.00 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 $143,515,000, or $1.70 per share of common
stock. This represents an immediate increase in net tangible book value of $2.26
per share to existing stockholders and an immediate dilution of $13.30 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Net tangible book value per share at December 31, 1999.... $(0.56)
Increase in net tangible book value per share attributable
to new investors....................................... 2.26
------
Net tangible book value per share after the offering...... 1.70
------
Dilution per share to new investors....................... $13.30
======
</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 $15.00 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............ 71,364,400 84.3% $151,019,000 43.1% $ 2.12
New investors.................... 13,300,000 15.7% 199,500,000 56.9% $ 15.00
----------- ------- ------------ ------
Total.................. 84,664,400 100.0% $350,519,000 100.0%
=========== ======= ============ ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to 82.4%
of the total number of shares of common stock outstanding after this offering
and the number of shares of Class A common stock held by new investors will be
increased to 15,295,000, or 17.6% of the total number of shares of common stock
outstanding after this offering.
To the extent any options, warrants and other rights to acquire our 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 $ 97,288
======== ========
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
Subsidiary exchangeable preferred stock..................... 3,054 3,054
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;
71,364,400 issued and outstanding on an actual
basis; none issued and outstanding on an as
adjusted basis.................................... 714 --
Class A: 225,000,000 shares authorized; none issued
or outstanding on an actual basis; 18,213,179
issued and outstanding on as adjusted basis....... -- 182
Class B: 130,000,000 shares authorized; none issued
and outstanding on an actual basis; 66,451,221
issued and outstanding on an as adjusted basis.... -- 665
Common stock issuable.................................. 5,000 5,000
Additional paid-in capital............................. 150,305 349,672
Accumulated deficit.................................... (65,990) (67,390)
Accumulated other comprehensive loss................... (666) (666)
Less: unearned compensation............................ (263) (263)
-------- --------
Total stockholders' equity........................ 89,100 287,200
-------- --------
Total capitalization.............................. $210,187 $311,685
======== ========
</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
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............................ 75,688 9,452 786 1,451 29
Depreciation expense.................. 11,063 1,900 145 329 2
Amortization expense.................. 23,559 3,937 2 4 --
Impairment of intangible assets....... 22,273 -- -- -- --
Loss on write-off of capital assets... 2,968 -- -- -- --
Gain on sale of investment.............. (3,395) -- -- -- --
-------- -------- ------- ------ ------
Operating loss.......................... (53,843) (4,359) (262) (593) (31)
Interest expense, net................... 6,480 921 68 142 1
-------- -------- ------- ------ ------
Loss before income taxes................ (60,323) (5,280) (330) (735) (32)
Income taxes............................ 322 65 -- -- --
-------- -------- ------- ------ ------
Net loss................................ $(60,645) $ (5,345) $ (330) $ (735) $ (32)
======== ======== ======= ====== ======
Basic loss per share.................... $ (1.01) $ (0.28) $ (0.03) $(0.08) $(0.00)
======== ======== ======= ====== ======
Weighted average number of shares
outstanding (in thousands)............ 60,040 19,330 10,309 9,372 7,114
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital......................... $ (4,846) $ 4,948 $ 589 $ 880 $ 361
Total assets............................ 285,883 111,185 3,645 3,966 370
Long-term debt, including current
portion............................... 101,655 31,925 1,748 895 --
Stockholders' equity.................... 89,100 56,085 538 1,607 402
</TABLE>
25
<PAGE> 31
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 $25.5 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. This distribution will be at
historical cost, thereby creating no gain or loss.
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 Groupe Adverbe
International S.A. in October 1999 because this acquisition did not have 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
this company are included from the date 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.
26
<PAGE> 32
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
Accounts receivable and other current assets -- related
party................................................. 1,237 -- 1,237
Prepaids and other current assets........................ 16,649 (96)(1) 16,553
-------- ------- --------
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................................................... 137,497 -- 137,497
Debt issue costs........................................... 1,479 -- 1,479
-------- ------- --------
Total assets..................................... $285,883 $(6,829) $279,054
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness........................................ $ 3,324 $ -- $ 3,324
Accounts payable......................................... 36,013 (88)(1) 35,925
Accrued liabilities and other............................ 38,170 (58)(1) 38,112
Current installments of long term debt................... 9,954 -- 9,954
Current installments of long-term debt to related
party................................................. 2,063 -- 2,063
Current portion of capital lease obligations............. 2,726 -- 2,726
-------- ------- --------
Total current liabilities........................ 92,250 (146) 92,104
Long-term debt............................................. 23,579 -- 23,579
Long-term debt to related party............................ 66,059 -- 66,059
Capital lease obligations.................................. 5,270 -- 5,270
Other noncurrent liabilities............................... 1,513 -- 1,513
-------- ------- --------
Total liabilities................................ 188,671 (146) 188,525
-------- ------- --------
Subsidiary preferred stock................................. 5,058 (5,058)(1) --
Subsidiary exchangeable preferred stock.................... 3,054 -- 3,054
Stockholders' equity:
Common stock............................................. 714 -- 714
Common stock issuable.................................... 5,000 -- 5,000
Additional paid-in-capital............................... 150,305 (1,625)(1) 148,680
Accumulated deficit...................................... (65,990) -- (65,990)
Accumulated other comprehensive loss..................... (666) -- (666)
Unearned compensation.................................... (263) -- (263)
-------- ------- --------
Stockholders' equity................................ 89,100 (1,625) 87,475
-------- ------- --------
Total liabilities and stockholders' equity....... $285,883 $(6,829) $279,054
======== ======= ========
</TABLE>
27
<PAGE> 33
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(2) 1,253 -- 124,806
Selling, general and
administrative
expenses................ 75,688 2,008 11,038 1,641 (906)(1) 89,469
Depreciation expense....... 11,063 189 1,161 183 (107)(1) 12,489
Amortization expense....... 23,559 24 4,060 226 (12)(1) 32,641
5,078(3)
(294)(4)
Impairment of intangible
assets.................. 22,273 -- -- -- -- 22,273
Loss on write-off of
capital assets.......... 2,968 -- -- -- -- 2,968
Gain on sale of investment... (3,395) -- -- -- -- (3,395)
-------- ------- ------- ------ ------- --------
Operating gain (loss)........ (53,843) 460 (6,816) 49 (3,759) (63,909)
Interest expense, net........ 6,480 19 859 80 49(1) 7,487
Transaction expenses(5)...... -- 2,052 -- -- -- 2,052
Other, net................... -- (124) -- (4) -- (128)
-------- ------- ------- ------ ------- --------
Loss before income taxes..... (60,323) (1,487) (7,675) (27) (3,808) (73,320)
Income taxes................. 322 138 46 -- (184)(6) 322
-------- ------- ------- ------ ------- --------
Net loss..................... $(60,645) $(1,625) $(7,721) $ (27) $(3,624) $(73,642)
======== ======= ======= ====== ======= ========
Basic loss per share......... $ (1.01) $ (1.08)
======== ========
Weighted average number of
shares used in computing
basic loss per share (in
thousands)................. 60,040 68,250
======== ========
</TABLE>
Dilutive earnings per share has not been presented as all potentially
convertible shares are antidilutive.
28
<PAGE> 34
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 and statement of operations for
the year ended December 31, 1999. The distribution of all of the stock as a
dividend has been recorded to additional paid-in-capital as we have an
accumulated deficit at December 31, 1999.
(2) Certain amounts have been reclassified for consistency with the ClientLogic
basis of presentation.
(3) 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)............... $ 6,567 $(6,019) $(24) $ -- $ -- $ 524
Cordena(b)........... 7,810 (1,952) -- (4,060) -- 1,798
MarketVision(c)...... 3,253 (271) -- -- (226) 2,756
------- ------- ---- ------- ----- -------
$17,630 $(8,242) $(24) $(4,060) $(226) $ 5,078
======= ======= ==== ======= ===== =======
</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 five years and resulted in monthly amortization of
$547 per month.
(b) Goodwill relating to our acquisition of Cordena is amortized over
five years. The goodwill amount of $39,050 results in monthly
amortization of $651 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 five years, resulting in monthly amortization of $271.
(4) 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 elimination of
amortization expense from the beginning of the year through the effective
date of the acquisition.
(5) LCS incurred nonrecurring transaction expenses of $2,052 during January 1999
in connection with the sale of LCS to us.
(6) 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.
29
<PAGE> 35
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> 36
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
five 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 $36.3 million in cash and stock, including the assumption
of approximately $31.2 million of existing indebtedness. In addition, we
contributed $6.3 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 $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
$3.1 million of options and warrants to the shareholders of the acquired
companies. These acquisitions created approximately $48.9 million of
goodwill. In addition, some of the sellers may receive a contingent
payment of approximately $1.8 million in cash.
- 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> 37
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.... 42.6 34.6 48.1 55.4
Depreciation expense.......... 6.2 7.0 8.9 12.6
Amortization expense.......... 13.3 14.5 0.1 0.2
Impairment of intangible
assets..................... 12.5 -- -- --
Loss on write-off of capital
assets..................... 1.6 -- -- --
Gain on sale of investment...... (1.9) -- -- --
----- ----- ----- -----
Operating loss.................. (30.3)% (16.0)% (16.0)% (22.7)%
Interest expense, net........... 3.6 3.4 4.2 5.4
Loss before income taxes........ (33.9) (19.4) (20.2) (28.1)
Income taxes.................... 0.2 0.2 -- --
----- ----- ----- -----
Net loss........................ (34.1)% (19.6)% (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.
32
<PAGE> 38
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 of approximately $75.7 million are comprised of $41.9
million of labor and employee related expenses, $14.4 million of facility
expenses, $6.7 million of office and computer expenses, $3.1 million of
professional service expenses and $9.6 million of other selling, general and
administrative expenses. This represents an increase over the results for the
period April 28, 1998 to December 31, 1998 of $36.4 million in labor and
employee related expense, $9.8 million in facility expenses, $5.7 million in
office and computer expenses, $2.9 million in professional service expenses and
$11.4 million in other selling, general and administrative expenses, for a total
increase of $66.2 million. These increases are primarily due to the following:
- selling, general and administrative expenses of approximately $43.6
million for a full year of operations of SOFTBANK Services Group as
compared to approximately $6.9 million for the period from April 28, 1998
to December 31, 1998. This increase is comprised of increases of $21.6
million in labor and employee related expenses, $4.1 million in facility
expenses, $3.2 million in office and computer expenses, $2.3 million in
professional service expenses and $5.5 million in other selling, general
and administrative expenses.
- selling, general and administrative expenses of approximately $26.9
million attributable to the acquisitions of LCS, Cordena, Adverbe and
MarketVision included in our consolidated results since each of their
acquisition dates. This increase is comprised of $13.6 million in labor
and employee related expenses, $5.6 million in facility expenses, $2.5
million in office and computer expenses, $0.6 million in professional
service expenses and $4.6 million in other selling, general and
administrative expenses.
As a percentage of revenue, selling, general and administrative expenses
increased approximately 8.0% 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.
33
<PAGE> 39
Amortization Expense. Our amortization expense was approximately $23.6
million for the year ended December 31, 1999, an increase of approximately $19.6
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 $11.5 million due to the inclusion
of goodwill amortization relating to our acquisition of SOFTBANK Services
Group for a full year as compared to approximately $2.9 million for the
period from April 28, 1998 to December 31, 1998; and
- amortization expense of approximately $9.8 million from the goodwill and
other intangible asset amortization relating to our acquisitions of LCS,
Cordena, Adverbe and MarketVision.
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.
Loss on write-off of capital assets. We recorded a loss on the write-off of
capital assets of approximately $3.0 million during the year ended December 31,
1999.
Gain on sale of investment. We recorded a gain on sale of investment of
approximately $3.4 million during the year ended December 31, 1999. This gain
was realized on the sale of an equity interest received from a service provided
to one of our customers.
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.
34
<PAGE> 40
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.
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 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. Our revolving credit facility is secured by:
- substantially all of our North American assets;
- 100% of the capital stock that we own in each of our domestic
subsidiaries; and
- 65% of the capital stock that we own in each of our foreign subsidiaries.
We believe that our cash and cash equivalents, in addition to the funds
available under our revolving credit facility will be sufficient to fund our
operations and various repayment obligations under debt and lease agreements for
at least 12 months without our using proceeds from this offering for those
purposes.
CLIENTLOGIC CORPORATION
During the year ended December 31, 1999, net cash used in our operating
activities of $3.3 million was a result of a net loss of $60.6 million, a $3.4
million gain on the sale of an investment and an increase of $5.0 million in
working capital, offset by depreciation and amortization of $34.6 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
35
<PAGE> 41
activities of $4.3 million was a result of a net loss of $5.3 million, an
increase of $5.3 million in working capital including foreign currency
adjustments, offset by depreciation and amortization expense of $5.8 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 $115.3 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 and the successor company 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 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,
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<PAGE> 42
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.
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.
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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 3,054,055 exchangeable preferred shares of the subsidiary. The
exchangeable preferred shares are exchangeable into 1,963,321 shares of our
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.
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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 e-commerce and technology companies. 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, Microsoft, 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 three 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 three independent directors. 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 Mr. Mersky and two of our independent directors.
The functions of the compensation committee include:
- reviewing our general compensation strategy;
- reviewing and approving compensation for our executive officers;
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<PAGE> 58
- 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.
In addition, our compensation committee will have a sub-committee composed of
two of our independent directors. The function of this sub-committee will be to
review and approve incentive compensation for our executive officers in
accordance with Section 162(m) of the Internal Revenue Code.
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) 643,683(6) 68,014(7)
President, Chief Executive Officer and
Chief Operating Officer
Gene S. Morphis......................... 242,307(9) 100,000 -- 42,919(10) 66,304(11)
Chief Financial Officer and
Secretary(8)
Joanne G. Biltekoff..................... 160,000 -- -- 25,715 677(12)
Chief Administrative Officer
Lee O. Waters........................... 207,077 -- -- 25,715 65,000(13)
Chief Solution Delivery Officer
</TABLE>
- ---------------
(1) Bonuses earned in 1999 will be paid in 2000.
(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
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<PAGE> 59
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 $1.56 per unit. Therefore, Mr. Briggs acquired
64,103 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
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....... 375,000(3) 14.94 1.87 January 27, 2009 441,012 1,117,612
1,844(3) 0.07 2.33 March 19, 2009 2,702 6,848
223,124(3) 8.89 3.50 October 7, 2009 491,125 1,244,608
43,715(3) 1.74 7.78 December 6, 2009 213,889 542,036
Gene S. Morphis...... 42,919(4) 1.71 2.33 June 1, 2000 62,890 159,376
Joanne G.
Biltekoff.......... 25,715 1.02 5.44 November 22, 2009 87,976 222,948
Lee O. Waters........ 25,715 1.02 5.44 November 22, 2009 87,976 222,948
</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
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<PAGE> 60
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 643,683 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 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>
Thomas O. Harbison......................... -- -- -- --
Mark R. Briggs(2).......................... -- 1,479,398 -- $19,060,671
Gene S. Morphis(3)......................... -- 42,919 -- $ 543,784
Joanne G. Biltekoff........................ 28,929 112,501 $366,530 $ 1,345,414
Lee O. Waters.............................. 28,929 112,501 $366,530 $ 1,345,414
</TABLE>
- ---------------
(1) Based upon an assumed value of $15.00 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.
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<PAGE> 61
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.
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.
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<PAGE> 62
Mark R. Briggs Employment Agreement
On September 30, 1998, we entered into an employment agreement with Mr.
Briggs. This agreement provides that Mr. Briggs will serve as our President
through December 31, 2001, unless terminated earlier as provided in his
employment agreement.
The compensation provided to Mr. Briggs under his employment agreement
includes an annual base salary of $300,000, subject to upward adjustment at the
sole discretion of our board of directors. Mr. Briggs' current base salary is
$350,000. 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 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 $1.56 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 in connection with the acquisition of an
unaffiliated company or business over which Mr. Briggs will have direct control,
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. These options vest 25% on the second anniversary of the date of grant
and 75% on the third anniversary of the date of grant and 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 these 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
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<PAGE> 63
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 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 $2.33 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 $2.33. The maximum number of
shares which Mr. Morphis may purchase pursuant to the option is limited to
150,000 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 42,919.
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
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<PAGE> 64
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 10,197,000
shares of Class A common stock have been reserved for issuance under the stock
option plan. As of March 23, 2000, options to purchase up to an aggregate of
4,696,749 shares of Class A common stock are outstanding. The plan provides that
we may grant a maximum of 5,142,850 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 3,214,285 shares of Class A common stock may be
subject to phantom stock units under the plan. As of March 23, 2000, 167,146
shares of Class A common stock were subject to phantom stock units under the
plan representing compensation deferrals totaling $260,000.
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<PAGE> 65
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 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 23, 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
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. Only Onex Corporation elected to
convert its shares of Class A common stock into 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 23, 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)....................... 66,451,221 91.78% 77.54% 98.85%
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, Ontario MSJ 2S1
Onex Corporation(2)......................... 66,451,221 91.78 77.54 98.85
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, Ontario MSJ 2S1
Onex Holding Property Management Ltd.(2).... 66,451,221 91.78 77.54 98.85
c/o Nachurs Alpine Solutions
421 Leader Street
Marion, Ohio 43302
Edward Schwartz(3).......................... 3,019,540 46.82 15.29 *
18 Banigan Drive
Toronto, Ontario M4H IE9
Peter A. Berczi(4).......................... 1,217,184 17.39 6.00 *
350 Burnham Thorpe Road West
Suite 603
Mississauga, Ontario L5B 3JI
</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>
Bruce Simpson(5)............................ 653,571 9.90% 3.28% *
350 Burnham Thorpe Road West
Suite 603
Mississauga, Ontario L5B 3JI
William Rella(6)............................ 376,221 6.25 1.95 *
120 Brighton Road
Clifton, New Jersey 07012
Joseph L. Temple(7)......................... 356,429 5.95 1.85 *
40 Clientlogic Corporation
10065 East Harvard, Suite 750
Denver, Colorado 80231
S. Dianne Thompson(7)....................... 356,429 5.95 1.85 *
c/o Clientlogic Corporation
10065 East Harvard, Suite 750
Denver, Colorado 80231
OFFICERS AND DIRECTORS:
Thomas O. Harbison(8)....................... -- -- -- --
Mark R. Briggs(9)........................... 128,572 2.16 * *
Gene S. Morphis(10)......................... 42,919 *
Jules T. Kortenhorst(11).................... 1,234,703 18.44 6.18 *
Joanne G. Biltekoff(12)..................... 40,358 * * *
Lee O. Waters(13)........................... 32,739 * * *
Thomas P. Dea(14)........................... -- -- -- --
Seth M. Mersky(15).......................... -- -- -- --
All executive officers and directors as a
group (12 persons)(16).................... 1,625,707 23.97 8.10 *
</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 23, 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.
(2) Represents 66,451,221 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 Holding Property Management Ltd., 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 Holding Property Management Ltd. Mr. Schwartz disclaims beneficial
ownership of the Class A Common Stock not owned of record by him.
(3) Includes 498,355 shares of our common stock issuable in exchange for
exchangeable preferred stock of one of our subsidiaries.
(4) Includes 175,007 shares of Class A common stock that Mr. Berczi may acquire
upon exercise of options and 875,034 shares of our common stock issuable in
exchange for exchangeable preferred stock of one of our subsidiaries.
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<PAGE> 68
(5) Includes 63,639 shares of Class A common stock that Mr. Simpson may acquire
upon exercise of options and 589,932 shares of our common stock issuable in
exchange for exchangeable preferred stock of one of our subsidiaries.
(6) Includes 71,070 options to purchase shares of Class A common stock granted
under Mr. Rella's employment agreement.
(7) Includes 35,000 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
$15.00 per share.
(8) Excludes 235,332 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
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.
(9) These figures do not include 1,479,398 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 96,429 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.
(10) Includes 42,919 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 14,243 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.
(11) Includes 393,041 shares of Class A common stock held of record by Mr.
Kortenhorst and 737,176 options and warrants to acquire shares of Class A
common stock. Also includes 98,416 shares of Class A common stock and 6,070
options and warrants to acquire shares of Class A common stock held of
record by affiliates of Mr. Kortenhorst.
(12) Excludes 35,358 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 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
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<PAGE> 69
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.
(13) Includes 28,929 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.
(14) Excludes 144,113 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.
(15) Excludes 188,150 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.
(16) Includes 829,559 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.
The share numbers and per share purchase prices in the preceding three
paragraphs do not give effect to our reverse stock split on March 27, 2000
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
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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 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
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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 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. This dividend will be paid prior to this offering.
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.
In addition, we have granted to the Chief Executive Officer of InsLogic,
Peter A. Berczi, who was also a director of our company in 1999, the right to
demand registration of his 167,143 shares of Class A common stock, 154,642
shares of Class A common stock issuable upon the exercise of options and 875,034
shares of Class A common stock issuable upon the conversion of his exchangeable
preferred shares in one of our subsidiaries. Mr. Berczi may make a demand upon
our company to register his shares of Class A common stock following the
completion of a registered secondary offering of shares of our Class A common
stock which includes shares held by Onex, and contingent on our eligibility to
file a registration statement on Form S-3.
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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.
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 23, 2000, we had 5,951,285 shares of Class A common stock
outstanding held of record by 201 stockholders and 66,451,221 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
13,300,000 shares of Class A common stock in this offering, there will be
19,251,285 shares of Class A common stock and 66,451,221 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
have no rights to convert into Class B common stock. 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 stock will
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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. To be timely, a stockholder 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; provided that if the date of the annual meeting is more than 30
days before or more than 60 days after the first anniversary of the prior year's
annual meeting, a stockholder notice must be delivered not earlier than 90 days
prior to the annual meeting and not later than the later of the 60th day prior
to the annual meeting or the 10th day following the day on which we first
publicly announce the date of the annual meeting. In addition, if our board of
directors determines that directors will be elected at a special meeting, a
stockholder must give written notice of any nominations to be brought before the
special meeting no earlier than the 90th day prior to the special meeting and
not later than the later of the 60th day prior to the special meeting or the
10th day following the day on which we first publicly announce the date of the
special 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 19,251,285 shares of Class A
common stock issued and outstanding, assuming no exercise of the underwriters'
over-allotment option, and 66,451,221 shares of Class B common stock issued and
outstanding. Of these shares, the 13,300,000 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 holders of substantially
all 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 59,820,750 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,
one of our subsidiaries issued exchangeable preferred shares in exchange for
minority shares of an affiliate of North Direct Response. These exchangeable
preferred shares may be converted at our option or the option of the holders
into 1,963,321 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.
In addition, we have granted to Peter A. Berczi, the Chief Executive
Officer of InsLogic, the right to demand registration of his 167,143 shares of
Class A common stock, 154,642 shares of Class A common stock issuable upon the
exercise of options and 875,034 shares of Class A common stock issuable upon
conversion of his exchangeable preferred shares in one of our subsidiaries. Mr.
Berczi may make a demand after the completion of a registered secondary offering
of shares of our Class A common stock which includes shares held by Onex, and
contingent on our eligibility to file registration statements on Form S-3.
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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<PAGE> 83
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.
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<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. ........................
Deutsche Bank Securities Inc. ..............................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
DLJdirect Inc. .............................................
TD Securities (USA) Inc. ...................................
E*OFFERING Corp.............................................
----------
Total............................................. 13,300,000
==========
</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., Deutsche Bank Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Thomas Weisel Partners LLC and TD Securities (USA) Inc.
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 1,995,000 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 10.0% 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
79
<PAGE> 85
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.
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 Web sites maintained by
DLJdirect Inc., E*OFFERING Corp. and E*TRADE Securities, Inc. Other than the
prospectus in electronic format, any information on these Web sites 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.
80
<PAGE> 86
These account holders will have access to the preliminary prospectus by links on
the DLJdirect Web site. 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.
E*OFFERING Corp. will allocate for distribution by E*TRADE Securities, Inc.
a portion of the shares that E*OFFERING Corp. receives in this offering. Copies
of the prospectus in electronic format will be made available on Internet
websites maintained by E*OFFERING Corp. and E*TRADE Securities, Inc. Customers
of E*TRADE Securities, Inc. who complete and pass an online eligibility profile
may place conditional offers to purchase shares in this offering through E*TRADE
Securities, Inc.'s Internet website.
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 $103.2 million of the proceeds of this offering
to repay our senior credit facilities and our subordinated revolving credit
facility, 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.
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<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CLIENTLOGIC CORPORATION
Report of Independent Accountants........................... 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
Report of Independent Accountants........................... 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 Sheet as at September 30, 1998 and
1997...................................................... F-52
Consolidated Statements of Income for the years ended
September 30, 1998, 1997 and 1996......................... F-53
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1998, 1997 and 1996..... F-54
Consolidated Statements 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 Statements 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 Statements 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
Statements 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
Statements 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 27, 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
Accounts receivable and other current assets -- related
party.................................................. 1,237 -- --
Prepaids and other current assets......................... 16,649 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.................................................... 137,497 64,166 --
Debt issue costs............................................ 1,479 -- --
-------- -------- ------
Total assets...................................... $285,883 $111,185 $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............................. 38,170 6,905 100
Current installments of long-term debt.................... 9,954 71 --
Current installments of long-term debt to related party... 2,063 -- --
Current portion of capital lease obligations.............. 2,726 1,115 133
-------- -------- ------
Total current liabilities......................... 92,250 18,041 821
Long-term debt.............................................. 23,579 1,854 --
Long-term debt to related party............................. 66,059 30,000 1,748
Capital lease obligations................................... 5,270 1,588 363
Other noncurrent liabilities................................ 1,513 563 175
-------- -------- ------
Total liabilities................................. 188,671 52,046 3,107
-------- -------- ------
Subsidiary preferred stock.................................. 5,058 -- --
Subsidiary exchangeable preferred stock..................... 3,054 3,054 --
Stockholders' equity:
Common stock.............................................. 714 395 --
Common stock issuable..................................... 5,000 -- --
Additional paid-in capital................................ 150,305 61,897 1,666
Accumulated deficit....................................... (65,990) (5,345) (1,095)
Accumulated other comprehensive loss...................... (666) (862) (33)
Unearned compensation..................................... (263) -- --
-------- -------- ------
Total stockholders' equity........................ 89,100 56,085 538
-------- -------- ------
Total liabilities and stockholders' equity........ $285,883 $111,185 $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................. 75,688 9,452 786 1,451
Depreciation expense........ 11,063 1,900 145 329
Amortization expense........ 23,559 3,937 2 4
Impairment of intangible
assets................... 22,273 -- -- --
Loss on write-off of capital
assets................... 2,968 -- -- --
Gain on sale of investment.... (3,395) -- -- --
-------- ------- ------- ------
Operating loss................ (53,843) (4,359) (262) (593)
Interest expense, net......... 6,480 921 68 142
-------- ------- ------- ------
Loss before income taxes...... (60,323) (5,280) (330) (735)
Income taxes.................. 322 65 -- --
-------- ------- ------- ------
Net loss...................... $(60,645) $(5,345) $ (330) $ (735)
======== ======= ======= ======
Other comprehensive income
(loss), net of tax:
Foreign currency transaction
adjustment............... 196 (862) 2 (35)
-------- ------- ------- ------
Comprehensive loss............ $(60,449) $(6,207) $ (328) $ (770)
======== ======= ======= ======
Basic loss per share.......... $ (1.01) $ (0.28) $ (0.03) $(0.08)
======== ======= ======= ======
Weighted average number of
shares outstanding (in
thousands).................. 60,040 19,330 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 OTHER
NUMBER OF PAR COMMON STOCK PAID-IN ACCUMULATED COMPREHENSIVE
SHARES VALUE ISSUABLE CAPITAL DEFICIT INCOME (LOSS)
----------- ------ ------------ ---------- ----------- -------------
<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.... -- -- -- -- -- (35)
----------- ------ ------ -------- -------- -----
BALANCE DECEMBER 31, 1997.................. 10,309,300 -- -- 1,666 (765) (35)
=========== ====== ====== ======== ======== =====
Net loss for the period.................. -- -- -- -- (330) --
Other comprehensive income for the
period................................. -- -- -- -- -- 2
----------- ------ ------ -------- -------- -----
BALANCE APRIL 27, 1998..................... 10,309,300 $ -- $ -- $ 1,666 $ (1,095) $ (33)
=========== ====== ====== ======== ======== =====
- ---------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998..................... -- $ -- $ -- $ -- $ -- $ --
----------- ------ ------ -------- -------- -----
Issued for cash.......................... 7,409,606 -- 12,142 -- --
Net loss for the period..................
April 28, 1998 - December 17, 1998..... -- -- -- -- (1,831) --
Other comprehensive loss for the period
April 28, 1998 - December 17, 1998..... -- -- -- -- -- (721)
Conversion of shares and transfer to
ClientLogic Corporation on December 17,
1998................................... (7,409,606) -- (12,142) 1,831 721
----------- ------ ------ -------- -------- -----
BALANCE DECEMBER 17, 1998.................. -- $ -- $ -- $ -- $ -- $ --
=========== ====== ====== ======== ======== =====
CLIENTLOGIC CORPORATION
BALANCE SEPTEMBER 25, 1998................. -- $ -- $ -- $ -- $ -- $ --
----------- ------ ------ -------- -------- -----
Issued for cash in financing of SSG
acquisition............................ 32,142,851 321 -- 49,679 -- --
Conversion of shares of Successor Company
and transfer to ClientLogic Corporation
on December 17, 1998................... 7,335,045 74 -- 12,068 (1,831) (721)
Net loss for the period
September 25, 1998 - December 31,
1998................................... -- -- -- -- (3,514) --
Other comprehensive loss for the period
September 25, 1998 - December 31,
1998................................... -- -- -- -- -- (141)
Stock option grants...................... -- -- -- 150 -- --
----------- ------ ------ -------- -------- -----
BALANCE DECEMBER 31, 1998.................. 39,477,896 $ 395 $ -- $ 61,897 $ (5,345) $(862)
----------- ------ ------ -------- -------- -----
......................................... -- -- --
Issued for cash in financing of LCS
acquisition............................ 18,749,997 187 -- 34,813 -- --
Issued for cash.......................... 358,151 4 -- 678 -- --
Issued for cash and as purchase
consideration in financing of
Cordena/Adverbe acquisitions........... 11,219,102 112 -- 39,155 -- --
Issued for cash in financing of
MarketVision acquisition............... 1,542,858 15 -- 11,985 -- --
Purchase consideration relating to
MarketVision acquisition to be
issued................................. -- -- 5,000 -- -- --
Stock option exercises................... 16,396 1 -- 36 -- --
Stock option grants...................... -- -- -- 1,741 -- --
Net loss for the year.................... -- -- -- -- (60,645) --
Other comprehensive income for the
year................................... -- -- -- -- -- 196
Unearned compensation on stock option
grants................................. -- -- -- -- -- --
----------- ------ ------ -------- -------- -----
BALANCE DECEMBER 31, 1999.................. 71,364,400 $ 714 $5,000 $150,305 $(65,990) $(666)
=========== ====== ====== ======== ======== =====
<CAPTION>
UNEARNED
COMPENSATION TOTAL
------------- --------
<S> <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)
----- --------
BALANCE DECEMBER 31, 1997.................. -- 866
===== ========
Net loss for the period.................. -- (330)
Other comprehensive income for the
period................................. -- 2
----- --------
BALANCE APRIL 27, 1998..................... $ -- $ 538
===== ========
- -------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998..................... $ -- $ --
----- --------
Issued for cash.......................... -- 12,142
Net loss for the period.................. --
April 28, 1998 - December 17, 1998..... -- (1,831)
Other comprehensive loss for the period
April 28, 1998 - December 17, 1998..... -- (721)
Conversion of shares and transfer to
ClientLogic Corporation on December 17,
1998................................... -- (9,590)
----- --------
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................... -- 9,590
Net loss for the period
September 25, 1998 - December 31,
1998................................... -- (3,514)
Other comprehensive loss for the period
September 25, 1998 - December 31,
1998................................... -- (141)
Stock option grants...................... -- 150
----- --------
BALANCE DECEMBER 31, 1998.................. $ -- $ 56,085
----- --------
......................................... --
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.................... -- (60,645)
Other comprehensive income for the
year................................... -- 196
Unearned compensation on stock option
grants................................. (263) (263)
----- --------
BALANCE DECEMBER 31, 1999.................. $(263) $ 89,100
===== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 95
CLIENTLOGIC CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C> <C> <C> <C>
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.............................. $ (60,645) $ (5,345) $(330) $ (735)
Adjustments to reconcile net loss to
net cash relating to operating
activities:
Depreciation expense................ 11,063 1,900 145 329
Amortization expense................ 23,559 3,937 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 capital
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............... (13,104) (4,123) 231 (1,578)
Accounts receivable and other
current assets-related party.... (1,237) -- -- --
Prepaids and other current
assets.......................... (7,778) (150) 4 92
Accounts payable.................. 2,285 863 30 545
Accrued liabilities and other..... 14,791 (685) 22 100
Other............................. -- (347) -- --
--------- -------- ----- -------
Net cash relating to operating
activities.................... (3,330) (4,321) 106 (1,278)
--------- -------- ----- -------
Net cash relating to investing
activities:
Acquisition of operating companies,
net of cash acquired................ (115,340) (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.................... (138,557) (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............ (71,437) (34,541) (30) --
Repayment of long-term debt and
capital lease obligations-related
party............................... (30,000) (1,748) -- --
Issuance of long-term debt............ 90,208 14,185 -- 174
Issuance of long-term debt-related
party............................... 68,122 30,000 -- 1,748
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, 7,409,606 outstanding shares of the Successor
Company owned by Onex were exchanged for 7,335,045 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 3,054,055 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 1,963,321 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 mezzanine equity at the fair value of the exchangeable preferred
shares of approximately $1.56. 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 1,774,285
newly issued ClientLogic common stock for cash at approximately $1.56 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 five 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. If the
projected future cash flows the long-lived asset is expected to generate,
undiscounted and without interest charges, is less than the carrying amount
of the long-lived asset, the Company recognizes an impairment loss for an
amount equal to the excess of the carrying amount over the fair value of
the long-lived asset.
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 the software. Revenue from the sale of a
software license is recognized upon acceptance of the software by the
customer. 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 recognized to revenue based on time and material
costs incurred. If an 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. Software maintenance is optional for the
customer and entitles the customer to upgrades and repairs. Maintenance fee
revenue is recognized over the term of the maintenance agreements. The
Company provides post-contract customer support on a limited basis.
Post-contract customer support revenue is recognized based on time and
material costs incurred.
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.............. 1,788,942 90,100 97,236 --
Convertible securities..... -- -- -- --
Phantom stock units...... 151,072 86,786 -- --
Convertible debt......... 392,377 -- -- --
Subsidiary exchangeable
preferred shares...... 1,963,321 1,963,321 -- --
</TABLE>
F-12
<PAGE> 100
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Convertible securities include phantom stock units provided under the
Company's deferred compensation plan, convertible debt to the former
shareholders of MarketVision, and subsidiary exchangeable preferred shares.
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.
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 144,643 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 $25,479 was financed with cash of $19,722, the issuance to
F-13
<PAGE> 101
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cordena management and shareholders of 753,757 shares of the Company's
common stock with a fair value of $2,638, and $3,119 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
$30,696. 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 1,146,353 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 which ranged
from $1.48 to $3.44. The holders of these 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. The holders of these
options and warrants are fully vested and have an exercise period of five
years. The Company has recorded a liability to these holders for $3,119,
which represents the fair 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 $1,448 was recorded to accrued liabilities
at the date of acquisition. This reserve relates to the closings of five
acquired locations. As a result of these closings, the Company estimates
that it will incur lease termination and exit costs of $428, severance
costs of $925 and related legal costs of $95. The Company's plans are near
finalization and it is expected that the plan will be fully executed by
December 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 511,865 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 46,533 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 642,858 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 39,050 9,833 16,264
Intangible assets.................... 23,309 -- -- --
-------- -------- ------- -------
Total identifiable assets............ 97,812 53,562 13,898 23,829
Liabilities assumed.................. (28,512) (28,083) (3,121) (1,234)
-------- -------- ------- -------
Net assets acquired.................. $ 69,300 $ 25,479 $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.............................. -- 3,119 -- --
-------- -------- ------- -------
$ 69,300 $ 25,479 $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 of the
subsidiary 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 acquisitions of the Company assuming the
acquisitions had occurred at the beginning of each year and the impact of
material 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
dates indicated. 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.................................................... $(73,642) $(19,154)
Basic loss per share........................................ $ (1.08) $ (0.33)
</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............................................ $12,563 $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................................... 13,728 2,380 --
------- ------ ----
$38,170 $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 TO RELATED PARTIES AND OTHER UNRELATED THIRD PARTIES
<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(f) --
Term Loans................................................ 9,878(c) -- --
*5,250(d)
Other..................................................... *2,872(e) 1,925(g) *1,748(h)
255
-------- ------- ------
101,655 31,925 1,748
Less: Long-term debt maturing within one year............. 12,017 71 --
-------- ------- ------
$ 89,638 $31,854 $1,748
======== ======= ======
</TABLE>
* debt with related party
F-18
<PAGE> 106
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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)
d) 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.
e) 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.
f) 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.
g) 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.
h) 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........................................... 71,364,400 39,477,896 10,309,300
</TABLE>
Common Stock Issuable
At December 6, 1999, the Company's Board of Directors had approved the
issuance of 642,858 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 10,197,000 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.................................... 1,850,833 $1.65
--------- -----
Balance at December 31, 1998................. 1,850,833 1.65 159,097 $0.64
--------- ----- ------- -----
Granted.................................... 1,038,565 3.17
Forfeited.................................. (82,021) 2.30
Exercised.................................. (1,061) 1.28
--------- -----
Balance at December 31, 1999................. 2,806,316 $2.19 263,037 $1.28
========= ===== ======= =====
</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.................................... 1,213,661 2.33
Forfeited.................................. (129) 2.33
--------- -----
Balance at December 31, 1998................. 1,213,532 2.33 -- $ --
--------- ----- ------- -----
Granted.................................... 1,429,314 4.11
Forfeited.................................. (413,049) 2.49
Exercised.................................. (15,333) 2.33
--------- -----
Balance at December 31, 1999................. 2,214,464 $3.45 222,315 $2.33
========= ===== ======= =====
</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>
$0.64 - $1.63.............................. 1,464,242 4.5 years $1.46 165,463
$1.87 - $2.72.............................. 2,549,066 9.2 years $2.38 319,889
$3.50 - $5.44.............................. 761,241 9.9 years $4.60 --
$7.78 - $11.67............................. 246,231 9.9 years $8.34 --
</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)... $1.3392 $0.5089 $0.2671 $0.1504
Weighted-average fmv
greater(2).................... -- $0.9532 -- --
Weighted-average fmv less(3).... $1.0075 $0.0412 -- --
</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.............................. $61,342 $(1.02)
Combined period from April 28, 1998 to December 31,
1998................................................... $ 5,543 $(0.29)
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........................ $(52,028) $(3,426) $ -- $ --
Foreign......................... (8,295) (1,854) (330) (735)
-------- ------- ----- -----
Total................. $(60,323) $(5,280) $(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...................... $(21,113) $(1,848) $(115) $(257)
State and local taxes, less
federal effect............ 164 33 -- --
Amortization of goodwill.... 7,185 1,199 -- --
Write-down of goodwill...... 8,212 -- -- --
Unremitted earnings and tax
rate differences of
foreign subsidiaries...... 153 13 (32) (71)
Valuation allowance......... 5,649 668 147 328
Other....................... 72 -- -- --
-------- ------- ----- -----
$ 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>
The current portion of the net deferred tax asset is $3,153 and is recorded
in prepaids and other current assets in the accompanying consolidated balance
sheet. The noncurrent portion of the net deferred tax asset is $1,681 and is
recorded in other noncurrent assets in the accompanying consolidated balance
sheet.
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.
F-24
<PAGE> 112
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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,
F-25
<PAGE> 113
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-26
<PAGE> 114
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense on related party debt amounted to the following:
<TABLE>
<S> <C>
CLIENTLOGIC CORPORATION
Year ended December 31, 1999.............................. $4,969
Combined period from April 28 to December 31, 1998........ $ 715
PREDECESSOR COMPANY
Period from January 1 to April 27, 1998................... $ 68
Year ended December 31, 1997.............................. $ 142
</TABLE>
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.
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>
F-27
<PAGE> 115
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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..................................... $196,193 $14,907 $74,783 $285,883
For the combined period April 28, 1998 through
December 31, 1998
Revenue.......................................... $ 17,440 $ 6,910 $ 2,933 $ 27,283
Total assets..................................... $ 88,877 $15,925 $ 6,383 $111,185
</TABLE>
F-28
<PAGE> 116
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $2.33. This resulted
in a non-cash stock compensation charge of $567 that was recorded in the
December 31, 1999 financial records.
On March 27, 2000, the Company approved a reverse stock split of 1.0 common
shares to approximately 0.64 common shares. All share and per share amounts for
the year ended December 31, 1999 and the combined period from April 28, 1998 to
December 31, 1998 have been restated to retroactively reflect the reverse stock
split.
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.
F-29
<PAGE> 117
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.......................... 2,924 1,013 3,937
------- ------- -------
Operating loss.................................. (2,636) (1,723) (4,359)
Interest expense, net........................... 813 108 921
------- ------- -------
Loss before income taxes........................ (3,449) (1,831) (5,280)
Income taxes.................................... 65 -- 65
------- ------- -------
Net loss........................................ $(3,514) $(1,831) $(5,345)
======= ======= =======
</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 STATEMENT 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
COMBINED STATEMENT 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 AUDITOR'S 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 AUDITOR'S 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 AUDITOR'S 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13,300,000 SHARES
CLIENTLOGIC CORPORATION
CLASS A COMMON STOCK
'CLIENTLOGIC LOGO'
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
ROBERTSON STEPHENS
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
TD SECURITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
Please note that all share numbers in this Item 15 do not reflect the
effect of our .642857-to-1 for one reverse stock split which occurred on March
27, 2000.
Issuances of Stock
In September 1998, we issued 35,000,000 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate cash purchase price of $35,000,000 in
connection with our acquisition of SOFTBANK Services Group in September 1998.
The shares were sold at $1.00 per share. 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 in connection with our acquisition of SOFTBANK Services Group in
September 1998. The shares were sold at $1.00 per share. 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 cash purchase price of $200,000. The shares were sold at
$1.00 per share. 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 cash purchase price of $2,760,000.
The shares were sold at $1.00 per share. 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 price attributed to our common stock was
$1.00. 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 cash purchase price of $307,050.
These share were sold at $1.00 per share. 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 cash purchase price of $215,109. The shares were sold at $1.50 per
share. 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 cash 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 cash purchase price of $159,999. The shares were sold at $1.50
per share. 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 cash purchase price of $25,000,000 in
connection with our acquisition of
II-2
<PAGE> 204
LCS Industries in January 1999. The shares were sold at $1.20 per share. 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 a partial repayment in the amount of $7,588,748 of a
promissory note in the amount of $10,000,000 in connection with our acquisition
of LCS Industries in January 1999. We repaid the remaining $2,411,252 of the
promissory note in cash. The shares were sold at $1.20 per share. 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 cash purchase price of $705,039 in connection with our acquisition of
LCS Industries in January 1999. The shares were sold at $1.20 per share. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we issued 1,421,844 shares of our common stock to Edward
Schwartz for an aggregate cash purchase price of $1,706,212.80 in connection
with our acquisition of LCS Industries in January 1999. The shares were sold at
$1.20 per share. 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, Alesandra 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 price attributed to our shares of common stock was $2.25 per
share. 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 price
attributed to our shares of common stock was $2.25 per share. 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 price attributed to our
shares of common stock was $2.25 per share. 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 cash 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 cash 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 cash 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 cash
purchase price of $360,983.25 in connection with the acquisition of Cordena in
October 1999. The shares were sold at $2.25 per share. 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 cash purchase price of $44,457.75 in connection with the
acquisition of Cordena in October 1999. The
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<PAGE> 205
shares were sold at $2.25 per share. 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 cash 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 cash purchase price of $34,594,560 in
connection with the acquisition of Cordena in October 1999. The shares were sold
at $2.25 per share. 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 cash purchase price of $11,929,335 in
connection with the acquisition of MarketVision in December 1999. The shares
were sold at $5.00 per share. 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 cash
purchase price of $70,665 in connection with the acquisition of MarketVision in
December 1999. The shares were sold at $5.00 per share. The securities were
issued in a private placement in reliance on Section 4(2) of the Securities Act.
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. The price attributed to the shares issued was
$5.00 per share. 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 cash 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. The price attributed to the shares was $5.00 per share. 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 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 cash 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 261,893 shares of our Class A common stock to 134
employees and 5 holders of options to purchase our Class A common stock upon the
cash exercise of stock options. These securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act and in transactions
exempt from Section 5 of the Securities Act pursuant to Regulation S and Rule
701 under the Securities Act.
Issuances of Rights to Purchase Common Stock
In October 1998, we granted 1,610,486 options under the 1998 Stock Option
Plan to Mark R. Briggs, Jordan Levy and Ronald Schreiber in connection with Mr.
Briggs' employment and Messrs. Levy and Schreiber's consulting agreements at an
exercise price of $1.00 per share. The securities were issued in a transaction
exempt from Section 5 of the Securities Act pursuant to Rule 701 under the
Securities Act.
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<PAGE> 206
In October 1998, we granted 2,484,010 options under the 1998 Stock Option
Plan to 368 employees at an exercise price of $1.50 per share. 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 1998, we granted 10 former employees of North Direct Response
257,381 options at an exercise price $0.41, 39,593 options at an exercise price
of $0.82 and 390,036 options at an exercise price of $1.045 under the 1998 Stock
Option Plan in exchange for 260,000 options at an exercise price of CDN$0.625,
40,000 options at an exercise price of CDN$1.25 and 364,000 options at an
exercise price of $1.60 to purchase shares of North Direct Response. The
securities were issued in a private placement in reliance on Regulation S of the
Securities Act.
In January 1999, we granted 583,333 options under the 1998 Stock Option
Plan to Mark R. Briggs at an exercise price of $1.20 per share. 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 1999, we granted 691,290 options under the 1998 Stock Option
Plan to 139 employees at an exercise price of $1.75 per share. The securities
were issued in a transaction exempt from Section 5 of the Securities Act
pursuant to Rule 701 under the Securities Act.
In March 1999, we granted 2,868 options under the 1998 Stock Option Plan to
Mark R. Briggs at an exercise price of $1.50 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In March 1999, we granted 270,000 options under the 1998 Stock Option Plan
to Paul Ford and Greg Zehr in connection with their employment and to John
Jancaitis and Lawrence Trudeau in connection with their consulting agreements at
an exercise price of $1.50 per share. The securities were issued Messrs. Ford
and Zehr in a private placement in reliance on Regulation S of the Securities
Act. The securities were issued to Messrs. Jancaitis and Trudeau in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In March 1999, we granted 505,760 stock subscription rights to Messrs.
Ford, Zehr, Jancaitis and Trudeau at an exercise price of $1.50 per share as
partial consideration for the assets of Canadian Access Insurance Services Inc.
The securities were issued Messrs. Ford and Zehr in a private placement in
reliance on Regulation S of the Securities Act. The securities were issued to
Messrs. Jancaitis and Trudeau in a private placement in reliance on Section 4(2)
of the Securities Act.
In May 1999, we granted 280,000 options under the 1998 Stock Option Plan to
two employees at an exercise price of $1.75 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In July 1999, we granted 204,100 options under the 1998 Stock Option Plan
to 10 employees at an exercise price of $1.75 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In July 1999, we granted 220,000 options under the 1998 Stock Option Plan
to an employee at an exercise price of $1.75 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In October 1999, we granted 23,800 options under the 1998 Stock Option Plan
to an employee at an exercise price of $2.25 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In October 1999, we granted to Alesandra M. Kortenhorst, Carien C. van der
Laan, Caroline J.G. Smits, Jan L. Baurdoux, Jereon J. Smits, Jules K.
Kortenhorst, Jules T. Kortenhorst, Peter E. Dekker, Ranier G. Kortenhorst, Sytze
Koopmans and Winston P. Kortenhorst an aggregate of 58,057 warrants with an
exercise price of $2.73 per share in exchange for their 37,658 warrants for the
purchase depository receipts of Cordena at an exercise price of NLG 7.00 per
depository receipt in connection with the
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<PAGE> 207
acquisition of Cordena. The securities were issued in a private placement in
reliance on Regulation S of the Securities Act.
In October 1999, we granted to the Kortenhorst Vetter Family Trust 4,846
warrants with an exercise price of $2.73 per share in exchange for 3,143
warrants for the purchase depository receipts of Cordena at an exercise price of
NLG 7.00 per depository receipt in connection with the acquisition of Cordena.
The securities were issued in a private placement in reliance on Section 4(2) of
the Securities Act.
In October 1999, we granted to Alesandra M. Kortenhorst, Carien C. van der
Laan, Caroline J.G. Smits, Jan L. Baurdoux, Jereon J. Smits, Jules K.
Kortenhorst, Jules T. Kortenhorst, Peter E. Dekker, Ranier G. Kortenhorst, Sytze
Koopmans and Winston P. Kortenhorst an aggregate of 1,250,549, 212,928 and
195,146 options with exercise prices of $1.46, $2.92 and $2.73 per share,
respectively, in exchange for their 811,148, 138,112 and 126,578 options to
purchase depository receipts of Cordena with exercise prices of NLG 3.00, NLG
6.00, and NLG 7.00 per depository receipt, respectively, in connection with the
acquisition of Cordena. The securities were issued in a private placement in
reliance on Regulation S of the Securities Act.
In October 1999, we granted to the Kortenhorst Vetter Family Trust 61,668
options with an exercise prices of $2.92 per share in exchange for 40,000
options to purchase depository receipts of Cordena with an exercise price of NLG
6.00 per depository receipt in connection with the acquisition of Cordena. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we granted 347,081 options under our 1998 Stock Option
Plan to Mark R. Briggs at an exercise price of $2.25 per share. 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 granted 141,188 options under our 1998 Stock Option
Plan to 38 employees at an exercise price of $2.25 per share. 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 granted 677,000 options under our 1998 Stock Option
Plan to 50 employees at an exercise price of $3.50 per share. 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 granted 308,000 options under our 1998 Stock Option
Plan to 24 employees at an exercise price of $5.00 per share. 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 granted 5,000 options under our 1998 Stock Option Plan
to an employee at an exercise price of $7.50 per share. 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 granted 50,000 options under our 1998 Stock Option
Plan to an employee at an exercise price of $7.50 per share. 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 granted 25,000 options under our 1998 Stock Option
Plan to an employee at an exercise price of $5.00 per share. 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 granted 5,000 options under our 1998 Stock Option Plan
an employee at an exercise price of $8.60 per share. 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 granted 294,500 options under our 1998 Stock Option
Plan to 21 employees at an exercise price of $8.60 per share. The securities
were issued in a transaction exempt from Section 5 of the Securities Act
pursuant to Rule 701 under the Securities Act.
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<PAGE> 208
In January 2000, we granted 50,000 options under our 1998 Stock Option Plan
to an employee at an exercise price of $8.60 per share. 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 granted 25,000 options under our 1998 Stock Option Plan
to an employee at an exercise price of $8.60 per share. 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 granted 20,000 options under our 1998 Stock Option Plan
to an employee at an exercise price of $8.60 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In February 2000, we granted 20,000 options under our 1998 Stock Option
Plan to an employee at an exercise price of $8.60 per share. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In March 2000, we granted 110,553 options under our 1998 Stock Option Plan
to William Rella at an exercise price of $1.75 as payment of his bonus for 1999.
The securities were issued in a transaction 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.(3)
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.(1)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(3)
3.3 -- Certificate of Amendment of Amended and Restated
Certificate of Incorporation of ClientLogic Corporation,
dated March 27, 2000.(2)
</TABLE>
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<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
4.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
4.3 -- Amended and Restated Stockholders Agreement regarding
Registration Rights, dated , 2000, between
ClientLogic Corporation, Onex Holding Property Management
Ltd. and the security holders listed on the signature
pages thereof.(3)
4.4 -- Special Registration Rights Agreement, dated
, 2000, between ClientLogic Corporation, 1293219
Ontario, Inc., 1293220 Ontario, Inc., and Peter A.
Berczi.(2)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
Onex CustomerOne Finance LLC, as lender, and Toronto
Dominion (Texas), Inc. as agent. (3)
10.2 -- 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.(1)
10.3 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.4 -- 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. (1)
10.5 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.6 -- 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. (1)
10.7 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.8 -- 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. (1)
10.9 -- Credit Agreement, dated March 10, 2000, between
ClientLogic Corporation and Toronto Dominion (Texas),
Inc. (1)
</TABLE>
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<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10 -- Subordination Agreement, dated as of March 10, 2000,
among ClientLogic Corporation, the subsidiary guarantors
party thereto and Toronto Dominion (Texas), Inc. (1)
10.11 -- Letter Agreement, dated February 28, 2000, between
Toronto Dominion (Texas), Inc. and ClientLogic
Corporation.(3)
10.12 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
10.13 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.14 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.15 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.16 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.17 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
10.18 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.19 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.20 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.21 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.22 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.23 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
10.24 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.25 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.26 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(3)
10.27 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.28 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.29 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.30 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(3)
10.31 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
</TABLE>
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<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.32 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 17, 1998.(3)
10.33 -- Employment Agreement, dated September 30, 1998, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(3)
10.34 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
10.35 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.36 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.37 -- Employment Agreement, dated January 31, 2000, between
Cordena Call Management B.V. and Jules T. Kortenhorst.(3)
10.38 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
10.39 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(3)
10.40 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.41 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.42 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.43 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.44 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.45 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.46 -- Promissory Note, dated December 6, 1999 between
MarketVision, Inc. and Joseph L. Temple.(1)
10.47 -- Promissory Note, dated December 6, 1999, between
MarketVision, Inc. and S. Dianne Thompson.(1)
10.48 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and Joseph L. Temple.(1)
10.49 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and S. Dianne Thompson.(1)
10.50 -- Third Amendment to the Client Logic Holding Corporation
Stock Option Plan, effective as of March 1, 2000.(1)
10.51 -- Letter Agreement, dated February 23, 1999, between
William R. Rella and ClientLogic Corporation.(3)
10.52 -- ECM Partners II, L.P. Agreement of Limited Partnership,
dated 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)
</TABLE>
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<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
(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-11
<PAGE> 213
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 27, 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 27, 2000
- ----------------------------------------------------- (Principal Executive
Thomas O. Harbison Officer)
* President, Chief Executive March 27, 2000
- ----------------------------------------------------- Officer and Chief Operating
Mark R. Briggs Officer and Director
/s/ GENE S. MORPHIS Chief Financial Officer March 27, 2000
- ----------------------------------------------------- (Principal Financial and
Gene S. Morphis Accounting Officer)
* Chief of International March 27, 2000
- ----------------------------------------------------- Operations and Director
Jules T. Kortenhorst
* Director March 27, 2000
- -----------------------------------------------------
Thomas P. Dea
* Director March 27, 2000
- -----------------------------------------------------
Seth M. Mersky
*By: /s/ GENE S. MORPHIS
------------------------------------------------
Gene S. Morphis, Attorney-in-Fact
</TABLE>
II-12
<PAGE> 214
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 27, 2000
S-1
<PAGE> 215
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> 216
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> 217
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> 218
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(3)
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.(1)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(3)
3.3 -- Certificate of Amendment of Amended and Restated
Certificate of Incorporation of ClientLogic Corporation,
dated March 27, 2000.(2)
4.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
4.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
4.3 -- Amended and Restated Stockholders Agreement regarding
Registration Rights, dated , 2000, between
ClientLogic Corporation, Onex Holding Property Management
Ltd. and the security holders listed on the signature
pages thereof.(3)
4.4 -- Special Registration Rights Agreement, dated
, 2000, between ClientLogic Corporation, 1293219
Ontario, Inc., 1293220 Ontario, Inc., and Peter A.
Berczi.(2)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Credit Agreement, dated May 25, 1999, among ClientLogic
Corporation, each of the subsidiaries of ClientLogic
Corporation identified on the signature pages thereto,
Onex CustomerOne Finance LLC, as lender, and Toronto
Dominion (Texas), Inc. as agent. (3)
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2 -- 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.(1)
10.3 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.4 -- 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. (1)
10.5 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.6 -- 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. (1)
10.7 -- 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, Onex CustomerOne Finance LLC, as
lender, and Toronto Dominion (Texas), Inc. as agent. (1)
10.8 -- 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. (1)
10.9 -- Credit Agreement, dated March 10, 2000, between
ClientLogic Corporation and Toronto Dominion (Texas),
Inc. (1)
10.10 -- Subordination Agreement, dated as of March 10, 2000,
among ClientLogic Corporation, the subsidiary guarantors
party thereto and Toronto Dominion (Texas), Inc. (1)
10.11 -- Letter Agreement, dated February 28, 2000, between
Toronto Dominion (Texas), Inc. and ClientLogic
Corporation.(3)
10.12 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
10.13 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.14 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.15 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.16 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.17 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
</TABLE>
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.19 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.20 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.21 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.22 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.23 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
10.24 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.25 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.26 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(3)
10.27 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.28 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.29 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.30 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(3)
10.31 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
10.32 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 17, 1998.(3)
10.33 -- Employment Agreement, dated September 30, 1998, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(3)
10.34 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
10.35 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.36 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.37 -- Employment Agreement, dated January 31, 2000, between
Cordena Call Management B.V. and Jules T. Kortenhorst.(3)
10.38 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
</TABLE>
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(3)
10.40 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.41 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.42 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.43 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.44 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.45 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.46 -- Promissory Note, dated December 6, 1999 between
MarketVision, Inc. and Joseph L. Temple.(1)
10.47 -- Promissory Note, dated December 6, 1999, between
MarketVision, Inc. and S. Dianne Thompson.(1)
10.48 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and Joseph L. Temple.(1)
10.49 -- Contingent Promissory Note, dated December 6, 1999,
between MarketVision, Inc. and S. Dianne Thompson.(1)
10.50 -- Third Amendment to the Client Logic Holding Corporation
Stock Option Plan, effective as of March 1, 2000.(1)
10.51 -- Letter Agreement, dated February 23, 1999, between
William R. Rella and ClientLogic Corporation.(3)
10.52 -- ECM Partners II, L.P. Agreement of Limited Partnership,
dated 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
[Draft--03/23/00]
EXHIBIT 1.1
ClientLogic Corporation
Shares a/
Class A Common Stock
($0.01 par value)
Underwriting Agreement
New York, New York
April , 2000
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
TD Securities (USA) Inc.
Thomas Weisel Partners LLC
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
ClientLogic Corporation, a corporation organized under the laws of
Delaware (the "Company"), proposes to sell to the several underwriters named in
Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are
acting as representatives, shares of Class A Common Stock, $0.01 par
value ("Common Stock") of the Company (said shares to be issued and sold by the
Company being hereinafter called the "Underwritten Securities"). The Company
also proposes to grant to the Underwriters an option to purchase up to
additional shares of Common Stock to cover over-allotments (the "Option
Securities"; the Option Securities, together with the Underwritten Securities,
being hereinafter called the "Securities"). To the extent there are no
additional Underwriters listed on Schedule I other than you, the term
Representatives as used herein shall mean you, as Underwriters, and the terms
Representatives and Underwriters shall mean either the singular or plural as the
context requires. Certain terms used herein are defined in Section 17 hereof.
- --------
a/ Plus an option to purchase from the Company, up to additional
U.S. Securities to cover over-allotments.
<PAGE> 2
2
As part of the offering contemplated by this Agreement, Salomon Smith
Barney Inc. has agreed to reserve out of the Securities set forth opposite its
name on the Schedule II to this Agreement, up to shares, for sale to the
Company's employees, officers, and directors and other parties associated with
the Company (collectively, "Participants"), as set forth in the Prospectus under
the heading "Underwriting" (the "Directed Share Program"). The Securities to be
sold by Salomon Smith Barney Inc. pursuant to the Directed Share Program (the
"Directed Shares") will be sold by Salomon Smith Barney Inc. or by TD Securities
Inc. (solely with respect to shares sold to Canadian residents) pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the business day on which this
Agreement is executed will be offered to the public by Salomon Smith Barney Inc.
as set forth in the Prospectus.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-95951) on Form S-1, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or more
amendments thereto, including a related preliminary prospectus, each of
which has previously been furnished to you. The Company will next file with
the Commission either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement (including
the form of final prospectus) or (2) after the Effective Date of such
registration statement, a final prospectus in accordance with Rules 430A
and 424(b). In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules
thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with
all other such required information, and, except to the extent the
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date (as defined herein) and on any date on which
Option Securities are purchased, if such date is not the Closing Date (a
"settlement date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the rules thereunder; on the Effective Date and at the
<PAGE> 3
3
Execution Time, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date, the Prospectus, if not
filed pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date and any settlement date,
the Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement, or the
Prospectus (or any supplement thereto) in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion in the
Registration Statement or the Prospectus (or any supplement thereto).
(c) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the jurisdiction in which it is chartered or organized with full corporate
power and authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole.
(d) All the outstanding shares of capital stock of each subsidiary have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise set forth in the Prospectus, all
outstanding shares of capital stock of the subsidiaries are owned by the
Company either directly or through wholly owned subsidiaries free and clear
of any perfected security interest or any other security interests, claims,
liens or encumbrances.
(e) The Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock have been duly and validly authorized
and issued and are fully paid and nonassessable; the Securities have been
duly and validly authorized, and, when issued and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Securities are duly listed, and admitted and authorized
for trading, subject to official notice of issuance and evidence of
<PAGE> 4
4
satisfactory distribution, on the Nasdaq National Market; the certificates
for the Securities are in valid and sufficient form; the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities; and, except as
set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert
any obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding.
(f) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed as
required; and the statements in the Prospectus under the headings
"Business-Government Regulation and Legal Environment" and "-Legal
Matters", "Risk Factors-Risks Related to the Internet-Government regulation
and legal uncertainties could adversely affect our business and could limit
the growth of the Internet" and "-If Internet Sales become subject to sales
and other taxes, purchasing on the Internet may decrease and our business
may be harmed", "Description of Capital Stock-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" and "-Limitations on Director Liability", "Shares Eligible for
Future Sale" and "United States Federal Tax Considerations for Non-United
States Holders", insofar as such statements summarize legal matters,
agreements, documents, or proceedings discussed therein, are accurate and
fair summaries of such legal matters, agreements, documents or proceedings.
(g) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under
the Act and such as may be required under the blue sky laws of any
jurisdiction and the securities laws of any jurisdiction outside the United
States in connection with the purchase and distribution of the Securities
by the Underwriters in the manner contemplated herein and in the
Prospectus.
<PAGE> 5
5
(j) Neither the issue and sale of the Securities nor the consummation
of any other of the transactions herein contemplated nor the fulfillment of
the terms hereof will conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to, (i) the charter or
by-laws of the Company or any of its subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which the Company or any of its subsidiaries is a party or bound or to
which its or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or any of its subsidiaries or any of its or their properties,
which violation or default would, in the case of clauses (ii) and (iii)
above, either individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business.
(k) Except as disclosed in the Registration Statement, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement.
(l) The consolidated historical financial statements and schedules of
the Company and its consolidated subsidiaries included in the Prospectus
and the Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the Company as
of the dates and for the periods indicated, comply as to form with the
applicable accounting requirements of the Act and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein). The selected financial data set forth under the caption "Selected
Historical Financial Information" in the Prospectus and Registration
Statement fairly present, on the basis stated in the Prospectus and the
Registration Statement, the information included therein. The pro forma
financial statements included in the Prospectus and the Registration
Statement include assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions and events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
adjustments reflect the proper application of those adjustments to the
historical financial statement amounts in the pro forma financial
statements included in the Prospectus and the Registration Statement. The
pro forma financial statements included in the Prospectus and the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of Regulation S-X under the Act and the
<PAGE> 6
6
pro forma adjustments have been properly applied to the historical amounts
in the compilation of those statements.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business.
(n) Each of the Company and each of its subsidiaries owns or leases all
such properties as are necessary to the conduct of its operations as
presently conducted.
(o) Neither the Company nor any subsidiary is in violation or default
of (i) any provision of its charter or bylaws, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which it is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or such
subsidiary or any of its properties, as applicable, which violation or
default would, in the case of clauses (ii) and (iii) above, either
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business.
(p) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered
their report with respect to the audited consolidated financial statements
and schedules included in the Prospectus, are independent public
accountants with respect to the Company within the meaning of the Act and
the applicable published rules and regulations thereunder.
(q) There are no transfer taxes or other similar fees or charges under
Federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
(r) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in
<PAGE> 7
7
which the failure so to file would not have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business) and
has paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is
due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as would not have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course
of business.
(s) No labor problem or dispute with the employees of the Company or
any of its subsidiaries exists or, to the Company's knowledge, is
threatened or imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or its
subsidiaries' principal suppliers, contractors or customers, that, in
either case, could have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business.
(t) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds
insuring the Company or any of its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and its subsidiaries are in compliance with the terms
of such policies and instruments in all material respects; and there are no
claims by the Company or any of its subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(u) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of
<PAGE> 8
8
such subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as described in or contemplated by the Prospectus.
(v) The Company and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(x) The Company has not taken, directly or indirectly, any action that
has constituted or that was designed to or might reasonably be expected to
cause or result in, under the Exchange Act or otherwise, the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(y) The Company and its subsidiaries are (i) in compliance with any and
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received and are in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) have
not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required
permits, licenses or other approvals, or liability would not, individually
or in the aggregate, have a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business. Neither the Company
nor
<PAGE> 9
9
any of the subsidiaries has been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended.
(z) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws on the business, operations and
properties of the Company and its subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis of
such review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business.
(aa) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974 ("ERISA")
and the regulations and published interpretations thereunder with respect
to each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company and its
subsidiaries are eligible to participate and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations. The
Company and its subsidiaries have not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of
premiums in the ordinary course) or to any such plan under Title IV of
ERISA.
(bb) The subsidiaries listed on Annex A attached hereto include all of
the subsidiaries of the Company.
(cc) The Company and its subsidiaries own, possess, license or have
other rights to use, on reasonable terms, all patents, patent applications,
trade and service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, know-how and
other intellectual property (collectively, the "Intellectual Property")
necessary for the conduct of the Company's business as now conducted or as
proposed in the Prospectus to be conducted. To the Company's knowledge,
there are no rights of third parties to any such Intellectual Property; to
the Company's knowledge, there is no material infringement by third parties
of any such Intellectual Property; there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any such Intellectual Property,
and the Company is unaware
<PAGE> 10
10
of any facts which would form a reasonable basis for any such claim; to the
Company's knowledge, there is no pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of any such
Intellectual Property, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the
Company is unaware of any other fact which would form a reasonable basis
for any such claim; to the Company's knowledge, there is no U.S. patent or
published U.S. patent application which contains claims that dominate or
may dominate any Intellectual Property described in the Prospectus as being
owned by or licensed to the Company or that interferes with the issued or
pending claims of any such Intellectual Property; and there is no prior art
of which the Company is aware that may render any U.S. patent held by the
Company invalid or any U.S. patent application held by the Company
unpatentable which has not been disclosed to the U.S. Patent and Trademark
Office.
(dd) The statements contained in the Prospectus under the captions
"Risk Factors-If we are unable to protect our proprietary rights, our
business may be harmed" and "Risk Factors-If others claim that we are
infringing on their intellectual property, we could incur significant
expenses or be prevented from providing our services", insofar as such
statements summarize legal matters, agreements, documents, or proceedings
discussed therein, are accurate and fair summaries of such legal matters,
agreements, documents or proceedings.
(ee) The Company and its subsidiaries have implemented a comprehensive,
detailed program to analyze and address the risk that their computer
hardware and software may be unable to recognize and properly execute
date-sensitive functions involving any dates after December 31, 1999 (the
"Year 2000 Problem") and have determined that their computer hardware and
software are, and will continue to be, able to process all date information
without any errors, aborts, delays or other interruptions in operations
associated with the Year 2000 Problem; and the Company believes, after due
inquiry, that each supplier, vendor, customer or financial service
organization used or serviced by the Company and its subsidiaries has
remedied the Year 2000 Problem, except to the extent that a failure to
remedy by any such supplier, vendor, customer or financial service
organization would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.
<PAGE> 11
11
Furthermore, the Company represents and warrants to Salomon Smith
Barney Inc. that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
The Company has not offered, or caused the Underwriters to offer,
Securities to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $ per
share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
number of Option Securities to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be
<PAGE> 12
12
made at 10:00 AM, New York City time, on April , 2000, or at such time on such
later date not more than three Business Days after the foregoing date as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Company or as provided in Section
9 hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representatives for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representatives of the
purchase price thereof to or upon the order of the Company by wire transfer
payable in same-day funds to an account specified by the Company. Delivery of
the Underwritten Securities and the Option Securities shall be made through the
facilities of The Depository Trust Company unless the Representatives shall
otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with
<PAGE> 13
13
the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory to
the Representatives of such timely filing. The Company will promptly advise
the Representatives (1) when the Registration Statement, if not effective
at the Execution Time, shall have become effective, (2) when the
Prospectus, and any supplement thereto, shall have been filed (if required)
with the Commission pursuant to Rule 424(b) or when any Rule 462(b)
Registration Statement shall have been filed with the Commission, (3) when,
prior to termination of the offering of the Securities, any amendment to
the Registration Statement shall have been filed or become effective, (4)
of any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or for
any supplement to the Prospectus or for any additional information, (5) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
the suspension of any such qualification and, if issued, to obtain as soon
as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the rules thereunder, the Company promptly will (1) notify the
Representatives of any such event, (2) prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section
5, an amendment or supplement which will correct such statement or omission
or effect such compliance; and (3) supply any supplemented Prospectus to
you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the
Underwriters signed copies of the Registration Statement (including
exhibits thereto) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus
<PAGE> 14
14
and any supplement thereto as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for the distribution of the Securities; provided
that in no event shall the Company be obligated to qualify to do business
in any jurisdiction where it is not now so qualified or to take any action
that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any jurisdiction
where it is not now so subject or take any action which would subject the
Company to taxation in any jurisdiction where it is not already subject to
taxation.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise
dispose of, (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, including the filing (or participation in the filing) of a
registration statement with the Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Exchange Act,
any other shares of Common Stock or any securities convertible into, or
exercisable, or exchangeable for, shares of Common Stock; or publicly
announce an intention to effect any such transaction, for a period of 180
days after the date of the Underwriting Agreement, provided, however, that
the Company may (i) grant options to purchase Common Stock and issue and
sell Common Stock pursuant to any employee stock option plan, stock
ownership plan or dividend reinvestment plan of the Company in effect at
the Execution Time, (ii) issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Execution Time
and (iii) issue Common Stock in connection with acquisitions, the
consideration for which includes the issuance of Common Stock; provided
that the party or parties receiving the Common Stock in any acquisition,
agree to be bound by the foregoing restrictions.
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and each amendment or
<PAGE> 15
15
supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting
and packaging) of such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, and all amendments or supplements
to any of them, as may, in each case, be reasonably requested for use in
connection with the offering and sale of the Securities; (iii) the
preparation, printing, authentication, issuance and delivery of
certificates for the Securities, including any stamp or transfer taxes in
connection with the original issuance and sale of the Securities; (iv) the
printing (or reproduction) and delivery of this Agreement, any blue sky
memorandum and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Securities; (v) the
registration of the Securities under the Exchange Act and the listing of
the Securities on the Nasdaq National Market; (vi) any registration or
qualification of the Securities for offer and sale under the securities or
blue sky laws of the several states (including filing fees and the
reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification); (vii) any filings required to be made
with the National Association of Securities Dealers, Inc. (including filing
fees and the reasonable fees and expenses of counsel for the Underwriters
relating to such filings); (viii) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities; (ix) the fees
and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company; and (x) all
other costs and expenses incident to the performance by the Company of its
obligations hereunder.
(i) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Salomon Smith Barney Inc. will notify the Company
as to which Participants will need to be so restricted. The Company will
direct the removal of such transfer restrictions upon the expiration of
such period of time.
(j) The Company will pay all fees and disbursements of counsel incurred
by the Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with Salomon Smith Barney Inc. that
the Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
<PAGE> 16
16
6. Conditions to the Obligations of the Underwriters. The obligations
of the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectus, and any such supplement, will be filed in
the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have requested and caused Weil, Gotshal & Manges
LLP, counsel for the Company, to have furnished to the Representatives
their opinion, dated the Closing Date and addressed to the Representatives,
to the effect that:
(i) each of the Company and its subsidiaries (individually a
"Subsidiary" and collectively the "Subsidiaries") is validly existing
as a corporation in good standing under the laws of the jurisdiction in
which it is chartered or organized, with full corporate power and
authority to own or lease, as the case may be, and to operate its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its Subsidiaries, taken as a whole;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear
<PAGE> 17
17
of any perfected security interest and, to the knowledge of such
counsel, after due inquiry, any other security interest, claim, lien or
encumbrance;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are
duly listed, and admitted and authorized for trading, subject to
official notice of issuance and evidence of satisfactory distribution,
on the Nasdaq National Market; the certificates for the Securities are
in valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities; and, except as set forth in the
Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any
obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed
as an exhibit thereto, which is not described or filed as required; and
the statements included in the Prospectus under the headings
"Description of Capital Stock - 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" and "- Limitations on Director Liability", "Shares Eligible
for Future Sale" and "United States Federal Tax Considerations for
Non-United States Holders", insofar as such statements summarize legal
matters, agreements, documents, or proceedings discussed therein, are
accurate and fair summaries of such legal matters, agreements,
documents or proceedings;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); to the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued, no
<PAGE> 18
18
proceedings for that purpose have been instituted or threatened and the
Registration Statement and the Prospectus (other than the financial
statements and other financial information contained therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
rules thereunder; and such counsel has no reason to believe that on the
Effective Date or the date the Registration Statement was last deemed
amended the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date and on the Closing
Date included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the financial
statements and other financial information contained therein, as to
which such counsel need express no opinion);
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or
order of any court or governmental agency or body is required in
connection with the transactions contemplated herein, except such as
have been obtained under the Act and such as may be required under the
blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such other
approvals (specified in such opinion) as have been obtained;
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or its
subsidiaries is a party or bound or to which its or their property is
subject, or (iii) any statute, law, rule, regulation, judgment, order
or decree applicable to
<PAGE> 19
19
the Company or its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or its subsidiaries or any of its
or their properties; and
(x) except as disclosed in the Registration Statement, no
holders of securities of the Company have rights to the registration of
such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the States
of Delaware, New York and Texas or the Federal laws of the United States,
to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the Underwriters and (B) as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. References to the
Prospectus in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Company shall have requested and caused Steven Kawalick,
general counsel of the Company, to have furnished to the Representatives,
his opinion, dated the Closing Date and addressed to the Representatives,
to the effect that:
(i) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed
as an exhibit thereto, which is not described or filed as required;
(ii) that such counsel has no reason to believe that on the
Effective Date or the date the Registration Statement was last deemed
amended the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date and on the Closing
Date included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (in each case, other than the financial
statements and other financial information contained therein, as to
which such counsel need express no opinion).
<PAGE> 20
20
(d) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectus, any
supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date with the
same effect as if made on the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(f) The Company shall have requested and caused PricewaterhouseCoopers
LLP to have furnished to the Representatives, at the Execution Time and at
the Closing Date, letters, dated respectively as of the Execution Time and
as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the applicable rules and regulations adopted by
the Commission thereunder, stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included in the
<PAGE> 21
21
Registration Statement and the Prospectus and reported on by them
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related rules and
regulations adopted by the Commission
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with respect
to the comments set forth in such letter; a reading of the minutes of
the meetings of the directors, compensation and audit committees of the
Company and the Subsidiaries; and inquiries of certain officials of the
Company who have responsibility for financial and accounting matters of
the Company and its subsidiaries as to transactions and events
subsequent to December 31, 1999, nothing came to their attention which
caused them to believe that:
(1) with respect to the period subsequent to December
31, 1999, there were any changes, at a specified date not more
than five days prior to the date of the letter, in the total
current liabilities and long-term debt of the Company and its
subsidiaries or subsidiary preferred stock, common stock,
common stock issuable and exchangeable shares of the Company
or decreases in the total stockholders' equity of the Company
as compared with the amounts shown on the December 31, 1999,
consolidated balance sheet included in the Registration
Statement and the Prospectus, or for the period from, January
1, 2000, to such specified date there were any decreases, as
compared with the corresponding period in the preceding
quarter in pro forma revenue, or increases, as compared with
the corresponding period in the preceding quarter in pro forma
operating loss, pro forma loss before income taxes, pro forma
net loss or pro forma basic loss per share for the Company and
its subsidiaries, except in all instances for changes or
decreases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to
the significance thereof unless said explanation is not deemed
necessary by the Representatives; and
(2) the information included in the Registration
Statement and Prospectus in response to Regulation S-K, Item
301 (Selected Financial Data), Item 302 (Supplementary
Financial Information) and Item 402 (Executive Compensation)
is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
<PAGE> 22
22
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus, including the
information set forth under the captions "Prospectus Summary", "Risk
Factors", "Dilution", "Selected Consolidated Financial Data",
"Capitalization", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business" and "Management" in
the Prospectus, agrees with the accounting records of the Company and
its subsidiaries, excluding any questions of legal interpretation.
(iv) on the basis of a reading of the unaudited pro forma
financial statements (the "pro forma financial statements") included in
the Final Memorandum; carrying out certain specified procedures;
inquiries of certain officials of the Company, LCS Industries. Inc.,
Cordena Call Management B.V. and MarketVision, Inc., who have
responsibility for financial and accounting matters; and proving the
arithmetic accuracy of the application of the pro forma adjustments to
the historical amounts in the pro forma financial statements, nothing
came to their attention which caused them to believe that the pro forma
financial statements do not comply in form in all material respects
with the applicable accounting requirements of Rule 11-02 of Regulation
S-X or that the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of such statements.
References to the Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
(g) The Company shall have requested and caused Deloitte & Touche, LLP
to have furnished to the Representatives, at the Execution Time and at the
Closing Date, letters, dated respectively as of the Execution Time and as
of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the applicable rules and regulations adopted by
the Commission thereunder, stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules for the fiscal years ended September 30,
1997 and 1998, included in the Registration Statement and the
Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related rules and regulations adopted by the Commission.
<PAGE> 23
23
References to the Prospectus in this paragraph (g) include any
supplement thereto at the date of the letter.
(h) The Company shall have requested and caused PricewaterhouseCoopers
N.V. to have furnished to the Representatives, at the Execution Time and at
the Closing Date, letters, dated respectively as of the Execution Time and
as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the applicable rules and regulations adopted by
the Commission thereunder, stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules for the fiscal years ended December 31,
1997 and 1998, included in the Registration Statement and the
Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related rules and regulations adopted by the Commission.
References to the Prospectus in this paragraph (h) include any
supplement thereto at the date of the letter.
(i) The Company shall have requested and caused Terry & Stephenson,
P.C. to have furnished to the Representatives, at the Execution Time and at
the Closing Date, letters, dated respectively as of the Execution Time and
as of the Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Act and the applicable rules and regulations adopted by
the Commission thereunder, stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules for the fiscal years ended December 31,
1998, included in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the Act and the related rules and
regulations adopted by the Commission.
References to the Prospectus in this paragraph (i) include any
supplement thereto at the date of the letter.
(j) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraphs (f), (g), (h) and (i) of
this Section 6 or (ii) any change, or any development
<PAGE> 24
24
involving a prospective change, in or affecting the condition (financial
or otherwise), earnings, business or properties of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto) the effect of which,
in any case referred to in clause (i) or (ii) above, is, in the sole
judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(k) The Securities shall have been listed and admitted and authorized
for trading on the Nasdaq National Market, and satisfactory evidence of
such actions shall have been provided to the Representatives.
(l) At the Execution Time, the Company shall have furnished to the
Representatives a "lock-up" letter substantially in the form of Exhibit A
hereto from each officer and director of the Company and from such other
stockholders of the Company as the Representatives may request addressed to
the Representatives.
(m) Prior to the Closing Date, the Company shall have furnished to the
Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019,
on the Closing Date
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including
<PAGE> 25
25
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein; provided further, that with respect to any
untrue statement or omission of material fact made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 8(a) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
loss, claim, damage or liability purchased the Securities concerned, to the
extent that any such loss, claim, damage or liability of such Underwriter occurs
under the circumstance where it shall have been determined by a court of
competent jurisdiction by final judgment that (w) the Company had previously
furnished copies of the Prospectus to the Representatives, (x) delivery of the
Prospectus was required by the Act to be made to such person, (y) the untrue
statement or omission of a material fact contained in the Preliminary Prospectus
was corrected in the Prospectus and (z) there was not sent or given to such
person, at or prior to the written confirmation of the sale of such securities
to such person, a copy of the Prospectus. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
The Company agrees to indemnify and hold harmless Salomon Smith Barney
Inc., the directors, officers, employees and agents of Salomon Smith Barney Inc.
and each person, who controls Salomon Smith Barney Inc. within the meaning of
either the Act or the Exchange Act ("Salomon Smith Barney Inc. Entities"), and
TD Securities (USA) Inc, the directors, officers, employees and agents of TD
Securities (USA) Inc. and each person, who controls TD Securities (USA) Inc.
within the meaning of either the Act or the Exchange Act
<PAGE> 26
26
("TD Securities (USA) Inc. Entities"), from and against any and all losses,
claims, damages and liabilities to which they may become subject under the Act,
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim), insofar as such losses, claims damages or liabilities (or
actions in respect thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
prospectus wrapper material prepared by or with the consent of the Company for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any preliminary prospectus, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein, when considered in conjunction with the Prospectus or any applicable
preliminary prospectus, not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of the securities which immediately
following the Effective Date of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of Salomon Smith Barney Inc. or TD Securities (USA) Inc.
specifically for inclusion therein.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the statements
set forth in the last paragraph of the cover page regarding delivery of the
Securities and, under the heading "Underwriting", (i) the list of Underwriters
and their respective participation in the sale of the Securities, (ii) the
sentences related to concessions and reallowances and (iii) the paragraphs
related to stabilization, syndicate covering transactions and penalty bids in
any Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless
<PAGE> 27
27
and to the extent the indemnifying party is prejudiced by such failure and (ii)
will not, in any event, relieve the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be responsible
for the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties (which shall not be unreasonably withheld or delayed),
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding. Notwithstanding anything contained herein to the contrary,
if indemnity may be sought by any of the Salomon Smith Barney Entities or by any
of the TD Securities (USA) Inc. Entities pursuant to the second paragraph of
Section 8(a) hereof in respect of such action or proceeding, then in addition to
such separate firm for the indemnified parties, the indemnifying party shall be
liable for the reasonable fees and expenses of not more than one separate firm
(in addition to any local counsel) for each of the Salomon Smith Barney Inc.
Entities or the TD Securities (USA) Inc. Entities for the defense of any losses,
claims, damages and liabilities arising out of the Directed Share Program.
(d) In the event that the indemnity provided in paragraph (a), (b) or
(e) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate
<PAGE> 28
28
to reflect the relative benefits received by the Company on the one hand and by
the Underwriters on the other from the offering of the Securities; provided,
however, that in no case shall (i) any Underwriter (except as may be provided in
any agreement among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Securities purchased by such Underwriter hereunder or (ii)
Salomon Smith Barney Inc. (the "Independent Underwriter") in its capacity as
"qualified independent underwriter" (within the meaning of National Association
of Securities Dealers, Inc. Conduct Rule 2720) be responsible for any amount in
excess of the compensation received by the Independent Underwriter for acting in
such capacity. If the allocation provided by the immediately preceding sentence
is unavailable for any reason, the Company and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses) received by
it, and benefits received by the Underwriters shall be deemed to be equal to the
total underwriting discounts and commissions, in each case as set forth on the
cover page of the Prospectus. Benefits received by the Independent Underwriter
in its capacity as "qualified independent underwriter" shall be deemed to be
equal to the compensation received by the Independent Underwriter for acting in
such capacity. Relative fault shall be determined by reference to, among other
things, whether any untrue or any alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information
provided by the Company on the one hand or the Underwriters on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) Without limitation of and in addition to its obligations under the
other paragraphs of this Section 8, the Company agrees to indemnify and hold
harmless the Independent Underwriter, its directors, officers, employees and
agents and each person who controls Independent Underwriter within the meaning
of either the Act or the
<PAGE> 29
29
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject, insofar as such
losses, claims, damages or liabilities (or action in respect thereof) arise out
of or are based upon Independent Underwriter's acting as a "qualified
independent underwriter" (within the meaning of National Association of
Securities Dealers, Inc. Conduct Rule 2720) in connection with the offering
contemplated by this Agreement, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of the Independent
Underwriter.
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or the Nasdaq National Market, (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities or (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a
<PAGE> 30
30
national emergency or war, or other calamity or crisis the effect of which on
financial markets is such as to make it, in the sole judgment of the
Representatives, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney
Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
General Counsel. (fax no.: (615) 301-7150), and confirmed to the General
Counsel, ClientLogic Corporation, at Two American Center, 3102 West End Avenue,
Suite 1000, Nashville, Tennessee 37203, Attention: Steven Kawalick.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience only
and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
shall have the meanings indicated.
<PAGE> 31
31
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus referred
to in paragraph 1(a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A
Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred
to in paragraph 1(a) above, including exhibits and financial statements, as
amended at the Execution Time (or, if not effective at the Execution Time,
in the form in which it shall become effective) and, in the event any
post-effective amendment thereto or any Rule 462(b) Registration Statement
becomes effective prior to the Closing Date, shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
<PAGE> 32
32
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
ClientLogic Corporation
By:
-------------------------------
Name:
Title:
<PAGE> 33
33
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
TD Securities (USA) Inc.
Thomas Weisel Partners LLC
By: Salomon Smith Barney Inc.
By:
--------------------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF UNDERWRITTEN
SECURITIES TO BE
UNDERWRITERS PURCHASED
- ------------ ----------------------
<S> <C>
Salomon Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . .
FleetBoston Robertson Stephens Inc. . . . . . . . . . . . . . . . .
Deutsche Bank Securities Inc. . . . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . .
TD Securities (USA) Inc. . . . . . . . . . . . . . . . . . . . . .
Thomas Weisel Partners LLC . . . . . . . . . . . . . . . . . . . .
DLJdirect Inc . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------------------
Total . . . . . . . . . . . . . . . . . . . . . .
======================
</TABLE>
<PAGE> 35
[FORM OF LOCK-UP AGREEMENT] EXHIBIT A
[LETTERHEAD OF OFFICER, DIRECTOR OR OTHER STOCKHOLDERS OF
CLIENTLOGIC CORPORATION]
ClientLogic Corporation
Public Offering of Common Stock
, 2000
Salomon Smith Barney Inc.
FleetBoston Robertson Stephens Inc.
Deutsche Bank Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
TD Securities (USA) Inc.
Thomas Weisel Partners LLC
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between ClientLogic
Corporation, a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Class A Common Stock, $0.01 par value (the
"Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise)) directly or indirectly, including the filing (or participation in
the filing of) a registration statement with the Securities and Exchange
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
with respect to, any shares of capital stock of the Company or any securities
convertible into, or exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction, for a period of
180 days after the date
<PAGE> 36
2
of the Underwriting Agreement, other than shares of Common Stock disposed of as
bona fide gifts approved by Salomon Smith Barney Inc.
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
[SIGNATURE OF OFFICER, DIRECTOR OR OTHER
STOCKHOLDER]
[NAME AND ADDRESS OF OFFICER, DIRECTOR OR
OTHER STOCKHOLDER]
<PAGE> 1
EXHIBIT 3.2
SECOND
AMENDED AND RESTATED BYLAWS
OF
CLIENTLOGIC CORPORATION
A Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article One: OFFICES...............................................................................1
1.1 Registered Office and Agent...........................................................1
1.2 Other Offices.........................................................................1
Article Two: MEETINGS OF STOCKHOLDERS..............................................................1
2.1 Annual Meeting........................................................................1
2.2 Special Meeting.......................................................................1
2.3 Place of Meetings.....................................................................2
2.4 Notice................................................................................2
2.5 Voting List...........................................................................2
2.6 Quorum................................................................................2
2.7 Required Vote; Withdrawal of Quorum...................................................3
2.8 Method of Voting; Proxies.............................................................3
2.9 Record Date...........................................................................3
2.10 Conduct of Meeting....................................................................4
2.11 Inspectors............................................................................5
2.12 Notice Of Stockholder Business And Nominations........................................5
Article Three: DIRECTORS.............................................................................8
3.1 Management............................................................................8
3.2 Number; Qualification; Election; Term.................................................8
3.3 Change in Number......................................................................8
3.4 Removal...............................................................................9
3.5 Vacancies.............................................................................9
3.6 Meetings of Directors.................................................................9
3.7 First Meeting.........................................................................9
3.8 Election of Officers..................................................................9
3.9 Regular Meetings......................................................................9
3.10 Special Meetings.....................................................................10
3.11 Notice...............................................................................10
3.12 Quorum; Majority Vote................................................................10
3.13 Procedure............................................................................10
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
3.14 Presumption of Assent................................................................10
3.15 Compensation.........................................................................11
Article Four: COMMITTEES...........................................................................11
4.1 Designation..........................................................................11
4.2 Number; Qualification; Term..........................................................11
4.3 Authority............................................................................11
4.4 Committee Changes....................................................................11
4.5 Alternate Members of Committees......................................................11
4.6 Regular Meetings.....................................................................11
4.7 Special Meetings.....................................................................11
4.8 Quorum; Majority Vote................................................................12
4.9 Minutes..............................................................................12
4.10 Compensation.........................................................................12
4.11 Responsibility.......................................................................12
Article Five: NOTICE...............................................................................12
5.1 Method...............................................................................12
5.2 Waiver...............................................................................13
Article Six: OFFICERS.............................................................................13
6.1 Number; Titles; Term of Office.......................................................13
6.2 Removal..............................................................................13
6.3 Vacancies............................................................................13
6.4 Authority............................................................................13
6.5 Compensation.........................................................................13
6.6 Chairman of the Board................................................................13
6.7 Chief Executive Officer..............................................................14
6.8 President............................................................................14
6.9 Vice Presidents......................................................................14
6.10 Treasurer............................................................................14
6.11 Assistant Treasurers.................................................................14
6.12 Secretary............................................................................15
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.13 Assistant Secretaries................................................................15
Article Seven: CERTIFICATES AND STOCKHOLDERS........................................................15
7.1 Certificates for Shares..............................................................15
7.2 Replacement of Lost, Stolen, or Destroyed Certificates...............................15
7.3 Transfer of Shares...................................................................16
7.4 Regulation S Shares..................................................................16
7.5 Registered Stockholders..............................................................16
7.6 Regulations..........................................................................16
7.7 Legends..............................................................................16
Article Eight: MISCELLANEOUS PROVISIONS.............................................................17
8.1 Dividends............................................................................17
8.2 Reserves.............................................................................17
8.3 Books and Records....................................................................17
8.4 Fiscal Year..........................................................................17
8.5 Seal.................................................................................17
8.6 Resignations.........................................................................17
8.7 Securities of Other Corporations.....................................................17
8.8 Telephone Meetings...................................................................18
8.9 Action Without a Meeting.............................................................18
8.10 Invalid Provisions...................................................................19
8.11 Mortgages, etc.......................................................................19
8.12 Headings.............................................................................19
8.13 References...........................................................................19
8.14 Amendments...........................................................................19
</TABLE>
iii
<PAGE> 5
SECOND
AMENDED AND RESTATED BYLAWS
OF
CLIENTLOGIC CORPORATION
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of ClientLogic Corporation, formerly known as
ClientLogic Holding Corporation, a Delaware corporation (the "Corporation"). In
the event of a direct conflict between the provisions of these bylaws and the
mandatory provisions of the Delaware General Corporation Law or the provisions
of the certificate of incorporation of the Corporation, such provisions of the
Delaware General Corporation Law or the certificate of incorporation of the
Corporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered agent
of the Corporation shall be as designated from time to time by the appropriate
filing by the Corporation in the office of the Secretary of State of the State
of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting. At such meeting, the stockholders shall elect directors and
transact such other business as may properly be brought before the meeting in
accordance with Section 2.12.
2.2 Special Meeting. A special meeting of the stockholders may be called at
any time by a majority of the board of directors. Further, a special meeting of
the stockholders shall be called by the Chief Executive Officer or the Secretary
at the request in writing of any holder or holders of record of at least 50% of
the total voting power of the Class A Common Stock, par value $0.01 per share,
of the Corporation ("Class A Common Stock") and the Class B Common Stock, par
value $0.01 per share, of the Corporation ("Class B Common Stock"), or as
otherwise provided by the
<PAGE> 6
certificate of incorporation of the Corporation. A special meeting shall be held
on such date and at such time as shall be designated by the person(s) calling
the meeting and stated in the notice of the meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting, in each case, in accordance with Section 2.12.
2.3 Place of Meetings. An annual meeting of stockholders may be held at any
place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting. Meetings
of stockholders shall be held at the principal office of the Corporation unless
another place is designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman of the Board, the Chief Executive
Officer, the Secretary, or the officer or person(s) calling the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is to be
sent by mail, notice is given when deposited in the United States mail, postage
prepaid, directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address. Notice
of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy.
2.5 Voting List. At least ten days before each meeting of stockholders, the
Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare and make a complete list of stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. For a period of
at least ten days prior to such meeting, such list shall be kept on file at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting or, if not so specified, at the place where
the meeting is to be held and shall be open to examination by any stockholder,
for any purpose germane to the meeting, during ordinary business hours. Such
list shall also be produced at such meeting and kept at the meeting at all times
during such meeting and may be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the votes entitled to be cast on a
matter, present in person or by proxy, shall constitute a quorum at any meeting
of
2
<PAGE> 7
stockholders, except as otherwise provided by law, the certificate of
incorporation of the Corporation, or these bylaws. If a quorum shall not be
present, in person or by proxy, at any meeting of stockholders, the stockholders
entitled to vote thereat who are present, in person or by proxy, or, if no
stockholder entitled to vote is present, any officer of the Corporation may
adjourn the meeting from time to time, without notice other than announcement at
the meeting (unless the board of directors, after such adjournment, fixes a new
record date for the adjourned meeting), until a quorum shall be present, in
person or by proxy. At any adjourned meeting at which a quorum shall be present,
in person or by proxy, any business may be transacted which may have been
transacted at the original meeting had a quorum been present; provided that, if
the adjournment is for more than 30 days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the votes entitled to
be cast who are present, in person or by proxy, shall decide any question
brought before such meeting, unless the question is one on which, by express
provision of statute, the certificate of incorporation of the Corporation or any
amendment(s) thereto, or these bylaws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the prior withdrawal of
enough stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share of Class A Common Stock, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders and each outstanding share of
Class B Common Stock shall be entitled to 25 votes on each matter submitted to a
vote at a meeting of stockholders. Elections of directors need not be by written
ballot. At any meeting of stockholders, every stockholder having the right to
vote may vote either in person or by a proxy executed in writing by the
stockholder or by another person or persons duly authorized under ss. 212 of the
Delaware General Corporation Law to act for him as proxy. Each such proxy shall
be filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors
3
<PAGE> 8
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than 60 days and not less than ten days
prior to such meeting or other action. If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law or these bylaws, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
in the State of Delaware, principal place of business, or such officer or agent
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has been
filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the Chief Executive Officer shall preside at all meetings of
stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer
4
<PAGE> 9
given the authority to act for such absent or non-acting officer under these
bylaws or by some person appointed by the meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and ballots and shall receive votes, ballots, or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots, or consents, determine the
results, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by them, certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. The inspector(s) shall
perform his duties in accordance with ss. 231 of the Delaware General
Corporation Laws. On request of the chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request, or matter determined
by them and shall execute a certificate of any fact found by them. No director
or candidate for the office of director shall act as an inspector of an election
of directors. Inspectors need not be stockholders.
2.12 Notice Of Stockholder Business And Nominations.
(a) Annual Meetings Of Stockholders.
(i) Nominations of persons for election to the board of directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (A) pursuant
to the Corporation's notice of meeting, (B) by or at the direction of the
board of directors of the Corporation or (C) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this Section 2.12 who is entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 2.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 2.12, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation, and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the
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Secretary at the principal executive offices of the Corporation not later
than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the preceding
year's annual meeting, provided, however, that in the event that the date
of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 90th day prior
to such annual meeting and not later than the close of business on the
later of (a) the 60th day prior to such annual meeting, or (b) the 10th day
following the day on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (A) as to each person whom the stockholder proposes
to nominate for election or re-election as a director all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if
elected); (B) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (C)
as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (1) the name and address
of such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 2.12 to the contrary, in the event that the number
of directors to be elected to the board of directors of the Corporation is
increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board
of directors at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this
Section 2.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
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(b) Special Meetings Of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the board of directors of the Corporation may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the Corporation's notice of meeting (i) by or at the direction of the board of
directors of the Corporation or (ii) provided that the board of directors of the
Corporation has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 2.12, who shall be entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Section 2.12. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the board of
directors of the Corporation, any such stockholder may nominate a person or
persons (as the case may be), for election to such position(s) as specified in
the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (a)(ii) of this Section 2.12 shall be delivered to the Secretary at
the principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the board of
directors of the Corporation to be elected at such meeting. In no event shall
the public announcement of an adjournment of a special meeting commence a new
time period for the giving of a stockholder's notice as described above.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 2.12. Except as otherwise
provided by law, the chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in accordance
with the procedures set forth in this Section 2.12 and, if any proposed
nomination or business is not in compliance with this Section 2.12, to
declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 2.12, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news-service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
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(iii) Notwithstanding the foregoing provisions of this Section 2.12, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 2.12. Nothing in this Section 2.12 shall
be deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (B) of the holders of any series of preferred stock of
the Corporation to elect directors under specified circumstances.
ARTICLE THREE: DIRECTORS
3.1 Management. The business, property and affairs of the Corporation shall
be managed by the board of directors. Subject to the restrictions imposed by
law, the certificate of incorporation of the Corporation, or these bylaws, the
board of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The board of directors shall
consist of no less than four and no more than twelve members. Within the limits
above described, the number of directors which shall constitute the entire board
of directors shall be determined by resolution of the board of directors or by
resolution of the stockholders at the annual meeting thereof or at a special
meeting thereof called for that purpose. The directors of the Corporation shall
be divided into three classes (with the first class ("Class I"), the second
class ("Class II") and the third class ("Class III") to consist of an equal
number of directors, or if such equal number is not possible due to the total
number of directors then serving, as close to equal numbers in each class as is
then possible). The term of office of the Class I directors shall expire at the
2001 annual meeting of stockholders, the term of office of the Class II
directors shall expire at the 2002 annual meeting of stockholders and the term
of office of the Class III directors shall expire at the 2003 annual meeting of
stockholders, 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 2001 annual meeting, 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 or, if earlier, until his death,
resignation or removal from office. Directors shall be elected by a plurality of
the votes present in person or represented by proxy and entitled to vote on the
election of directors. None of the directors need be a stockholder of the
Corporation or a resident of the State of Delaware. Each director must have
attained the age of majority.
3.3 Change in Number. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
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3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these bylaws, at any meeting of stockholders
called expressly for that purpose, any director or the entire board of directors
may be removed for cause by a vote of a majority of the votes then entitled to
be cast for the election of directors; provided, however, that in the event
stockholders have the right to cumulate votes in the election of directors
pursuant to the certificate of incorporation of the Corporation, if less than
the entire board of directors is to be removed, no one of the directors may be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an election of the entire board of directors.
3.5 Vacancies. Newly-created directorships resulting from any increase in
the authorized number of directors constituting the entire board of directors of
the Corporation and any vacancies occurring in the board of directors caused by
death, resignation, retirement, disqualification or removal from office of any
directors or otherwise, may be filled by the vote of a majority of the directors
then in office, although less than a quorum, or by the sole remaining director,
and each director so chosen shall hold office until the next election of the
class for which such directors shall have been chosen and until their successors
shall have been elected and qualified or, if earlier, until his death,
resignation, or removal from office. Except as otherwise provided in these
bylaws, when one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these bylaws with respect to the filling of other
vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its first
meeting for the purpose of organization and the transaction of business, if a
quorum is present, immediately after and at the same place as the annual meeting
of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
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3.10 Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board, the Chief Executive Officer,
a majority of directors then in office.
3.11 Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or these bylaws, the act of
a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
Chief Executive Officer shall preside at all meetings of the board of directors.
In the absence or inability to act of either such officer, a chairman shall be
chosen by the board of directors from among the directors present. The Secretary
of the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is present at the
meeting of the board of directors at which action on any corporate matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail to the Secretary of the Corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
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3.15 Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
powers and authority of the board of directors in the management of the
business, property and affairs of the Corporation except to the extent expressly
restricted by law, the certificate of incorporation of the Corporation, or these
bylaws.
4.4 Committee Changes. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held without
notice at such time and place as may be designated from time to time by the
committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special
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meeting shall cause notice of such special meeting, including therein the time
and place of such special meeting, to be given to each committee member at least
two days before such special meeting. Neither the business to be transacted at,
nor the purpose of, any special meeting of any committee need be specified in
the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation of
authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation, or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be given
by telegram, telex, or telefax shall be deemed to be delivered and given at the
time transmitted with all charges prepaid and addressed as aforesaid.
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5.2 Waiver. Whenever any notice is required to be given to any stockholder,
director, or committee member of the Corporation by statute, the certificate of
incorporation of the Corporation, or these bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a stockholder, director, or committee member at a meeting shall
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
be a Chief Executive Officer, a President, a Secretary, and such other officers
as the board of directors may from time to time elect or appoint, including,
without limitation, a Chairman of the Board, one or more Vice Presidents (with
each Vice President to have such descriptive title, if any, as the board of
directors shall determine), and a Treasurer. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified, until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided. Any two or more offices may be held by the same person.
None of the officers need be a stockholder or a director of the Corporation or a
resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall be
fixed from time to time by the board of directors; provided, however, that the
board of directors may delegate the power to determine the compensation of any
officer and agent (other than the officer to whom such power is delegated) to
the Chairman of the Board or the Chief Executive Officer.
6.6 Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of
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the board of directors. Such officer may sign all certificates for shares of
stock of the Corporation.
6.7 Chief Executive Officer. The Chief Executive Officer shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as may be reasonably incident to
such responsibilities. If the board of directors has not elected a Chairman of
the Board or in the absence or inability to act of the Chairman of the Board,
the Chief Executive Officer shall exercise all of the powers and discharge all
of the duties of the Chairman of the Board. As between the Corporation and third
parties, any action taken by the Chief Executive Officer in the performance of
the duties of the Chairman of the Board shall be conclusive evidence that there
is no Chairman of the Board or that the Chairman of the Board is absent or
unable to act.
6.8 President. The President shall have such powers and duties as may be
assigned to him by the board of directors, the Chairman of the Board or the
Chief Executive Officer. In the absence or inability to act of the Chief
Executive Officer, the President shall exercise all of the powers and discharge
all of the duties of the Chief Executive Officer. As between the Corporation and
third parties, any action taken by the President in the performance of the
duties of the Chief Executive Officer shall be conclusive evidence that there is
no Chief Executive Officer or that the Chief Executive Officer is absent or
unable to act.
6.9 Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned to him by the board of directors, the Chairman of the Board,
the Chief Executive Officer, or the President and (in order of their seniority
as determined by the board of directors or, in the absence of such
determination, as determined by the length of time they have held the office of
Vice President) shall exercise the powers of the President during that officer's
absence or inability to act. As between the Corporation and third parties, any
action taken by a Vice President in the performance of the duties of the
President shall be conclusive evidence of the absence or inability to act of the
President at the time such action was taken.
6.10 Treasurer. The Treasurer shall have custody of the Corporation's funds
and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the Chief
Executive Officer.
6.11 Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the Chief Executive Officer. The Assistant Treasurers (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant
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Treasurer) shall exercise the powers of the Treasurer during that officer's
absence or inability to act.
6.12 Secretary. Except as otherwise provided in these bylaws, the Secretary
shall keep the minutes of all meetings of the board of directors and of the
stockholders in books provided for that purpose, and he shall attend to the
giving and service of all notices. He may sign with the Chairman of the Board,
the Chief Executive Officer, the President or any Vice President, in the name of
the Corporation, all contracts of the Corporation and affix the seal of the
Corporation thereto. He may sign with the Chairman of the Board, the Chief
Executive Officer, the President or any Vice President all certificates for
shares of stock of the Corporation, and he shall have charge of the certificate
books, transfer books, and stock papers as the board of directors may direct,
all of which shall at all reasonable times be open to inspection by any director
upon application at the office of the Corporation during business hours. He
shall in general perform all duties incident to the office of the Secretary,
subject to the control of the board of directors, the Chairman of the Board, and
the Chief Executive Officer.
6.13 Assistant Secretaries. Each Assistant Secretary shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the Chief Executive Officer. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of directors
or any exchange on which such shares are listed. The certificates shall be
signed by the Chairman of the Board, the Chief Executive Officer, the President
or a Vice President and also by the Secretary or an Assistant Secretary or by
the Treasurer or an Assistant Treasurer. Any and all signatures on the
certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 Replacement of Lost, Stolen, or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate or certificates representing shares
to be lost, stolen, or destroyed.
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When authorizing such issue of a new certificate or certificates the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond with a surety or
sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost, stolen, or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Regulation S Shares. The Corporation shall refuse to register any
transfer of shares of stock of the Corporation issued pursuant to Regulation S
("Regulation S") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), not made in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration.
7.5 Registered Stockholders. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by law.
7.6 Regulations. The board of directors shall have the power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer, and registration or the replacement of certificates for shares
of stock of the Corporation.
7.7 Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
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ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the selection of the fiscal year is not expressly deferred by
the board of directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may resign by
so stating at any meeting of the board of directors or by giving written notice
to the board of directors, the Chairman of the Board, the Chief Executive
Officer, or the Secretary. Such resignation shall take effect at the time
specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the Chief
Executive Officer, the President or any Vice President of the Corporation shall
have the power and authority to transfer, endorse for transfer, vote, consent,
or take any other action with respect to any securities of another issuer which
may be held or owned by the Corporation and to make, execute, and deliver any
waiver, proxy, or consent with respect to any such securities.
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8.8 Telephone Meetings. Stockholders (acting for themselves or through a
proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section 8.9(a) to the Corporation, written consents
signed by holders with a sufficient number of votes to take action are delivered
to the Corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office,
principal place of business, or such officer or agent shall be by hand or by
certified or registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of the
Corporation or by these bylaws, any action required or permitted to be taken at
a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a vote of such directors or committee members, as the case may be, and may be
stated as such in any certificate or document filed with the Secretary of State
of the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the board
or committee, as the case may be.
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8.10 Invalid Provisions. If any part of these bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the board of directors at any
regular meeting of the stockholders or the board of directors or at any special
meeting of the stockholders or the board of directors; provided, that in the
case of a special meeting of stockholders, notice of such alteration, amendment,
repeal, or adoption of new bylaws be contained in the notice of such special
meeting.
The undersigned Secretary of the Corporation hereby certifies that the
foregoing Second Amended and Restated Bylaws were adopted by unanimous written
consent of the directors of the Corporation as of March 27, 2000.
/s/ GENE S. MORPHIS
-----------------------------------------
Gene S. Morphis
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<PAGE> 1
EXHIBIT 4.3
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
REGARDING REGISTRATION RIGHTS
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT REGARDING REGISTRATION
RIGHTS (this "Stockholders Agreement"), dated as of _____________, 2000, is
entered into by and among ClientLogic Corporation, a Delaware corporation
(including its successors, the "Company"), Onex Holding Property Management Ltd.
("Onex") and the securityholders listed on the signature pages hereof.
WHEREAS, the Company and the Holders (as defined) have previously
entered into that certain Stockholders Agreement (the "Original Stockholders
Agreement"), dated as of October 8, 1998, as amended; and
WHEREAS, the Company has filed a registration statement for the public
sale of shares of its Class A Common Stock, par value $0.01 per share (the
"IPO"); and
WHEREAS, upon the consummation of the IPO, the Original Stockholders
Agreement will terminate, other than certain provisions thereof; and
WHEREAS, the parties hereto wish to amend and restate the Original
Stockholders Agreement in order to provide for expanded registration rights for
the Company's stockholders following the consummation of the IPO; and
WHEREAS, Onex has delivered a written consent to the amendment and
restated of the Original Stockholders Agreement in accordance with Section
8.9(b) of the Original Stockholders Agreement, and such written consent
constitutes approval by the Required Stockholders, as defined in the Original
Stockholders Agreement; and
WHEREAS, it is intended that this Stockholders Agreement be contingent
upon, and effective only upon and simultaneously with the consummation of, the
IPO.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions.
"ADVICE" shall have the meaning provided in Section 2.5 hereof.
"AFFILIATE" means, with respect to any Person, any Person who,
directly or indirectly, controls, is controlled by or is under common
control with that Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the
<PAGE> 2
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"CLASS A COMMON STOCK" means shares of the Class A Common Stock,
$0.01 par value per share, of the Company, and any capital stock into
which such Class A Common Stock thereafter may be changed, exchanged,
recapitalized or converted.
"CLASS A COMMON STOCK EQUIVALENTS" shall mean, without
duplication with any other Class A Common Stock or Class A Common Stock
Equivalents, any rights, warrants, options, convertible securities or
indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or
indirectly, Class A Common Stock of the Company and securities
convertible or exchangeable into Class A Common Stock of the Company,
whether at the time of issuance or upon the passage of time or the
occurrence of some future event.
"CLASS B COMMON STOCK" means Class B Common Stock, par value
$0.01 per share, of the Company.
"COMPANY" shall have the meaning set forth in the introductory
paragraph hereof.
"DEMAND REGISTRATION" shall have the meaning set forth in Section
2.1.1 hereof.
"DEMAND REQUEST" shall have the meaning set forth in Section
2.1.1 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC
thereunder.
"EXCLUDED REGISTRATION" means a registration under the Securities
Act of (i) securities pursuant to one or more Demand Registrations
pursuant to Section 2 hereof, (ii) securities registered on Form S-8 or
any similar or successor form and (iii) securities registered to effect
the acquisition of or combination with another Person.
"HOLDER" means (i) Onex, (ii) a securityholder who is listed on
the signature pages hereof and owns Securities or Class A Common Stock
Equivalents and (iii) any direct or indirect transferee of any such
securityholder who shall become a party to this Stockholders Agreement
by means of a Joinder Agreement in form and substance reasonably
satisfactory to the Company.
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"MATERIAL ADVERSE EFFECT" shall have the meaning provided in
Section 2.1.4 hereof.
"NASD" shall have the meaning provided in Section 2.6 hereof.
"ORIGINAL STOCKHOLDERS AGREEMENT" shall have the meaning set
forth in the Recitals.
"PERSON" or "PERSON" means any individual, corporation,
partnership, limited partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated
organization or entity or government or other agency or political
subdivision thereof.
"REGISTRABLE SHARES" shall mean, at any time, the Class A Common
Stock of the Company owned by or the readily issuable to the Holders,
whether owned on the date hereof or acquired hereafter; provided,
however, that Registrable Shares shall not include any shares (i) the
sale of which has been registered pursuant to the Securities Act and
which shares have been sold pursuant to such registration or (ii) which
have been sold pursuant to Rule 144 or Regulation S of the SEC under
the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning provided in
Section 2.6 hereof.
"REQUIRED FILING DATE" shall have the meaning provided in Section
2.1.1(c) hereof.
"REQUIRED HOLDERS" means Holders who at the time of determination
own beneficially more than 66-2/3% of the aggregate number of
Registrable Shares subject to this Stockholders Agreement, assuming all
shares of Class B Common Stock are converted into Class A Common Stock.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Class A Common Stock and the Class B
Common Stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"SELLER AFFILIATES" shall have the meaning provided in Section
2.7.1 hereof.
"STOCKHOLDERS AGREEMENT" means this Stockholders Agreement, as
such from time to time may be amended.
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"SUBSIDIARY" of any Person means (i) a corporation a majority of
whose outstanding shares of capital stock or other equity interests
with voting power, under ordinary circumstances, to elect directors, is
at the time, directly or indirectly, owned by such Person, by one or
more subsidiaries of such Person or by such Person and one or more
subsidiaries of such Person, and (ii) any other Person (other than a
corporation) in which such Person, a subsidiary of such Person or such
Person and one or more subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has (x) at least a
majority ownership interest or (y) the power to elect or direct the
election of a majority of the directors or other governing body of such
Person.
"SUSPENSION NOTICE" shall have the meaning provided in Section
2.5 hereof.
"TRANSFER" means any disposition of any Security or any interest
therein that would constitute a "sale" thereof within the meaning of
the Securities Act.
1.2 Rules of Construction. Unless the context otherwise requires
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and words in the
plural include the singular;
(4) provisions apply to successive events and transactions; and
(5) "herein," "hereof" and other words of similar import refer to
this Stockholders Agreement as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Demand Registration.
2.1.1 Request for Registration.
(a) At any time after one hundred eighty (180) days after the
date hereof (subject to Section 2.1.1(b) below), any Holder or Holders
may request the Company, in writing (a "Demand Request"), to effect the
registration under the Securities Act of all or part of its or their
Registrable Shares (a "Demand Registration"). Notwithstanding the
foregoing, no Demand Request will be effective hereunder unless the
Holders requesting
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<PAGE> 5
the Demand Registration (the "Requesting Holders," which term shall
include parties deemed "Requesting Holders" pursuant to Section 2.1.5
hereof) represent, in the aggregate, a majority in interest of
the Registrable Shares at such time, assuming all of the shares of
Class B Common Stock are converted into Class A Common Stock.
(b) The Holders shall have the right to make a total of three
Demand Requests on Form S-1; provided, that if the Company is eligible
to register shares of Class A Common Stock on Form S-3, such Form shall
be utilized in lieu of Form S-1 for such Demand Requests unless in the
opinion of the managing underwriter the use of Form S-3 would
materially and negatively affect the marketing of the shares. Upon the
Company's eligibility to register shares of Class A Common Stock on
Form S-3, the Holders shall have unlimited Demand Requests; provided,
(i) that no more than three Demand Requests for registration can be
made in any consecutive twelve-month period and (ii) the fair market
value of the shares proposed to be registered shall be at least
(determined in good faith by the Company's Board of Directors), at the
time of the Company's receipt of the Demand Request, Ten Million
Dollars ($10,000,000). No Demand Request can be exercised under this
provision within 120 days after the effectiveness of a Company
registration if the Holder declined an offer under Section 2.2 to
register Class A Common Stock in such registration.
(c) Each Demand Request shall specify the number of Registrable
Shares proposed to be sold. Subject to Section 2.1.6, the Company shall
file the Demand Registration within ninety (90) days after receiving a
Demand Request (the "Required Filing Date") and shall use all
commercially reasonable efforts to cause the same to be declared
effective by the SEC as promptly as practicable after such filing.
2.1.2 Effective Registration and Expenses. A registration will not
count as a Demand Registration until it has become effective (unless the
Requesting Holders withdraw all their Registrable Shares and the Company has
performed its obligations hereunder in all material respects, in which case such
demand will count as a Demand Registration unless the Requesting Holders pay all
Registration Expenses, as hereinafter defined, in connection with such withdrawn
registration); provided, that if, after it has become effective, an offering of
Registrable Shares pursuant to a registration is interfered with by any stop
order, injunction, or other order or requirement of the SEC or other
governmental agency or court, such registration will be deemed not to have been
effected and will not count as a Demand Registration.
2.1.3 Selection of Underwriters. The offering of Registrable Shares
pursuant to a Demand Registration shall be in the form of a "firm commitment"
underwritten offering. The Requesting Holders of a majority of the Registrable
Shares to be registered in a Demand Registration shall select the investment
banking firm or firms
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<PAGE> 6
to manage the underwritten offering; provided that such selection shall be
subject to the consent of the Company, which consent shall not be unreasonably
withheld.
2.1.4 Priority on Demand Registrations. No securities to be sold for
the account of any Person (including the Company) other than a Requesting Holder
shall be included in a Demand Registration unless the managing underwriter or
underwriters shall advise the Company or the Requesting Holders in writing that
the inclusion of such securities will not materially and adversely affect the
price or success of the offering (a "Material Adverse Effect"). Furthermore, in
the event the managing underwriter or underwriters shall advise the Company or
the Requesting Holders that even after exclusion of all securities of other
Persons pursuant to the immediately preceding sentence, the amount of
Registrable Shares proposed to be included in such Demand Registration by
Requesting Holders is sufficiently large to cause a Material Adverse Effect, the
Registrable Shares of the Requesting Holders to be included in such Demand
Registration shall equal the number of shares which the Company is so advised
can be sold in such offering without a Material Adverse Effect and such shares
shall be allocated pro rata among the Requesting Holders on the basis of the
number of Registrable Shares owned by each such Requesting Holder.
2.1.5 Rights of Nonrequesting Holders. Upon receipt of any Demand
Request, the Company shall promptly (but in any event within ten (10) days) give
written notice of such proposed Demand Registration to all other Holders, who
shall have the right, exercisable by written notice to the Company within twenty
(20) days of their receipt of the Company's notice, to elect to include in such
Demand Registration such portion of their Registrable Securities as they may
request. All Holders requesting to have their Registrable Shares included in a
Demand Registration in accordance with the preceding sentence shall be deemed to
be "Requesting Holders" for purposes of this Section 2.1.
2.1.6 Deferral of Filing. The Company may defer the filing of a
registration statement required by Section 2.1 until a date not later than one
hundred eighty (180) days after the Required Filing Date (or, if longer, one
hundred eighty (180) days after the effective date of the registration statement
contemplated by clause (ii) below) if (i) at the time the Company receives the
Demand Request, the Company or any of its Subsidiaries is engaged in
confidential negotiations or other confidential business activities, disclosure
of which would be required in such registration statement (but would not be
required if such registration statement were not filed), and the Board of
Directors of the Company determines in good faith that such disclosure would be
materially detrimental to the Company and its stockholders, or (ii) prior to
receiving the Demand Request, the Board of Directors had determined to effect a
registered underwritten public offering of the Company's securities for the
Company's account and the Company had taken substantial steps (including, but
not limited to, selecting a managing underwriter for such offering) and is
proceeding with reasonable diligence to effect such offering. A deferral of the
filing of a registration statement pursuant to this Section 2.1.6 shall be
lifted, and the requested registration statement shall be filed forthwith, if,
in the case of a deferral pursuant to clause (i) of the preceding sentence, the
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<PAGE> 7
negotiations or other activities are disclosed or terminated, or, in the case of
a deferral pursuant to clause (ii) of the preceding sentence, the proposed
registration for the Company's account is abandoned. In order to defer the
filing of a registration statement pursuant to this Section 2.1.6, the Company
shall promptly (but in any event within ten (10) days), upon determining to seek
such deferral, deliver to each Requesting Holder a certificate signed by an
executive officer of the Company stating that the Company is deferring such
filing pursuant to this Section 2.1.6 and a general statement of the reason for
such deferral and an approximation of the anticipated delay. Within twenty (20)
days after receiving such certificate, the holders of a majority of the
Registrable Shares held by the Requesting Holders and for which registration was
previously requested may withdraw such Demand Request by giving notice to the
Company; if withdrawn, the Demand Request shall be deemed not to have been made
for all purposes of this Agreement. The Company may defer the filing of a
particular registration statement pursuant to this Section 2.1.6 only once,
unless it has the written consent of Holders of a majority in interest of the
Registrable Shares to further defer such filing.
2.2 Piggyback Registrations.
2.2.1 Right to Piggyback. Each time the Company proposes to register
any of its equity securities (other than pursuant to an Excluded Registration)
under the Securities Act for sale to the public (whether for the account of the
Company or the account of any securityholder of the Company) and the form of
registration statement to be used permits the registration of Registrable
Shares, the Company shall give prompt written notice to each Holder of
Registrable Shares (which notice shall be given not less than thirty (30) days
prior to the effective date of the Company's registration statement), which
notice shall offer each such Holder the opportunity to include any or all of its
or his Registrable Shares in such registration statement, subject to the
limitations contained in Section 2.2.2 hereof. Each Holder who desires to have
its or his Registrable Shares included in such registration statement shall so
advise the Company in writing (stating the number of shares desired to be
registered) within twenty (20) days after the date of such notice from the
Company. Any Holder shall have the right to withdraw such Holder's request for
inclusion of such Holder's Registrable Shares in any registration statement
pursuant to this Section 2.2.1 by giving written notice to the Company of such
withdrawal. Subject to Section 2.2.2 below, the Company shall include in such
registration statement all such Registrable Shares so requested to be included
therein; provided, however, that the Company may at any time withdraw or cease
proceeding with any such registration if it shall at the same time withdraw or
cease proceeding with the registration of all other equity securities originally
proposed to be registered.
2.2.2 Priority on Registrations. If the Registrable Shares requested to
be included in the registration statement by any Holder differ from the type of
securities proposed to be registered by the Company and the managing underwriter
advises the Company that due to such differences the inclusion of such
Registrable Shares would cause a Material Adverse Effect, then (i) the number of
such Holder's or Holders' Registrable Shares to be included in the registration
statement shall be reduced to an amount which, in the judgment of the managing
underwriter, would eliminate such
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<PAGE> 8
Material Adverse Effect or (ii) if no such reduction would, in the judgment of
the managing underwriter, eliminate such Material Adverse Effect, then the
Company shall have the right to exclude all such Registrable Shares from such
registration statement provided no other securities of such type are included
and offered for the account of any other Person in such registration statement.
Any partial reduction in number of Registrable Shares to be included in the
registration statement pursuant to clause (i) of the immediately preceding
sentence shall be effected pro rata based on the ratio which such Holder's
requested shares bears to the total number of shares requested to be included in
such registration statement by all Persons (including Requesting Holders) who
have requested (pursuant to contractual registration rights) that their shares
be included in such registration statement. If the Registrable Shares requested
to be included in the registration statement are of the same type as the
securities being registered by the Company and the managing underwriter advises
the Company that the inclusion of such Registrable Shares would cause a Material
Adverse Effect, the Company will be obligated to include in such registration
statement, as to each Requesting Holder, only a portion of the shares such
Holder has requested be registered equal to the ratio which such Holder's
requested shares bears to the total number of shares requested to be included in
such registration statement by all Persons (including Requesting Holders) who
have requested (pursuant to contractual registration rights) that their shares
be included in such registration statement. If as a result of the provisions of
this Section 2.2.2 any Holder shall not be entitled to include all Registrable
Securities in a registration that such Holder has requested to be so included,
such Holder may withdraw such Holder's request to include Registrable Shares in
such registration statement. No Person may participate in any registration
statement hereunder unless such Person (x) agrees to sell such person's
Registrable Shares on the basis provided in any underwriting arrangements
approved by the Company and (y) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, and other documents,
each in customary form, reasonably required under the terms of such underwriting
arrangements; provided, however, that no such Person shall be required to make
any representations or warranties in connection with any such registration other
than representations and warranties as to (i) such Person's ownership of his or
its Registrable Shares to be sold or transferred free and clear of all liens,
claims, and encumbrances, (ii) such Person's power and authority to effect such
transfer, and (iii) such matters pertaining to compliance with securities laws
as may be reasonably requested; provided further, however, that the obligation
of such Person to indemnify pursuant to any such underwriting arrangements shall
be several, not joint and several, among such Persons selling Registrable
Shares, and the liability of each such Person will be in proportion to, and
provided further that such liability will be limited to, the net amount received
by such Person from the sale of his or its Registrable Shares pursuant to such
registration.
2.3 Holdback Agreement. Unless the managing underwriter otherwise agrees,
each of the Company and the Holders agrees (and the Company agrees, in
connection with any underwritten registration, to use its reasonable efforts to
cause its Affiliates to agree) not to effect any public sale or private offer or
distribution of any Class A
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Common Stock or Class A Common Stock Equivalents during the ten business days
prior to the effectiveness under the Securities Act of any underwritten
registration and during such time period after the effectiveness under the
Securities Act of any underwritten registration (not to exceed one hundred
eighty (180) days) (except, if applicable, as part of such underwritten
registration) as the Company and the managing underwriter may agree.
2.4 Registration Procedures. Whenever any Holder has requested that any
Registrable Shares be registered pursuant to this Stockholders Agreement, the
Company will use its commercially reasonable efforts to effect the registration
and the sale of such Registrable Shares in accordance with the intended method
of disposition thereof, and pursuant thereto the Company will as expeditiously
as possible:
(i) prepare and file with the SEC a registration statement on any
appropriate form under the Securities Act with respect to such
Registrable Shares and use its commercially reasonable efforts to cause
such registration statement to become effective;
(ii) prepare and file with the SEC such amendments,
post-effective amendments, and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of
not less than one hundred eighty (180) days (or such lesser period as
is necessary for the underwriters in an underwritten offering to sell
unsold allotments) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such registration statement;
(iii) furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), any documents incorporated by reference
therein and such other documents as such seller or underwriters may
reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such seller or the sale of such securities
by such underwriters (it being understood that, subject to Section 2.5
and the requirements of the Securities Act and applicable state
securities laws, the Company consents to the use of the prospectus and
any amendment or supplement thereto by each seller and the underwriters
in connection with the offering and sale of the Registrable Shares
covered by the registration statement of which such prospectus,
amendment or supplement is a part);
(iv) use its commercially reasonable efforts to register or
qualify such Registrable Shares under such other securities or blue sky
laws of
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such jurisdictions as the managing underwriter reasonably requests (or,
in the event the registration statement does not relate to an
underwritten offering, as the holders of a majority of such Registrable
Shares may reasonably request); use its commercially reasonable efforts
to keep each such registration or qualification (or exemption
therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other
acts and things which may be reasonably necessary or advisable to
enable each seller to consummate the disposition of the Registrable
Shares owned by such seller in such jurisdictions (provided, however,
that the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this subparagraph, (B) consent to general service of
process in any such jurisdiction) or (C) qualify in any jurisdiction
where such qualification would subject it to taxation unless the
Company is already subject to taxation in such jurisdiction;
(v) promptly notify each seller and each underwriter and (if
requested by any such Person) confirm such notice in writing (A) when a
prospectus or any prospectus supplement or post-effective amendment has
been filed and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (B) of
the issuance by any state securities or other regulatory authority of
any order suspending the qualification or exemption from qualification
of any of the Registrable Shares under state securities or "blue sky"
laws or the initiation of any proceedings for that purpose, and (C) of
the happening of any event which makes any statement made in a
registration statement or related prospectus untrue or which requires
the making of any changes in such registration statement, prospectus or
documents so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
and, as promptly as practicable thereafter, prepare and file with the
SEC and furnish a supplement or amendment to such prospectus so that,
as thereafter deliverable to the purchasers of such Registrable Shares,
such prospectus will not contain any untrue statement of a material
fact or omit a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading;
(vi) make generally available to the Company's securityholders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than thirty (30) days after the end of the
twelve (12) month period beginning with the first day of the Company's
first fiscal quarter commencing after the effective date of a
registration statement, which earnings statement shall cover said
twelve (12) month period, and which requirement will be deemed to be
satisfied if the Company timely files complete and accurate information
on Forms 10-Q, 10-K and 8-K
10
<PAGE> 11
under the Exchange Act and otherwise complies with Rule 158 under the
Securities Act;
(vii) if requested by the managing underwriter or any seller
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or any seller
reasonably requests to be included therein, including, without
limitation, with respect to the Registrable Shares being sold by such
seller, the purchase price being paid therefor by the underwriters and
with respect to any other terms of the underwritten offering of the
Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective
amendment;
(viii) as promptly as practicable after filing with the SEC of
any document which is incorporated by reference into a registration
statement (in the form in which it was incorporated), deliver a copy of
each such document to each seller;
(ix) cooperate with the sellers and the managing underwriter to
facilitate the timely preparation and delivery of certificates (which
shall not bear any restrictive legends unless required under applicable
law) representing securities sold under any registration statement, and
enable such securities to be in such denominations and registered in
such names as the managing underwriter or such sellers may request and
keep available and make available to the Company's transfer agent prior
to the effectiveness of such registration statement a supply of such
certificates;
(x) promptly make available for inspection by any seller, any
underwriter participating in any disposition pursuant to any
registration statement, and any attorney, accountant or other agent or
representative retained by any such seller or underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause
the Company's officers, directors and employees to supply all
information requested by any such Inspector in connection with such
registration statement; provided, that, unless the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in
the registration statement or the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, the Company shall not be required to provide any
information under this subparagraph (x) if (A) the Company believes,
after consultation with counsel for the Company, that to do so would
cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (B) if either (1) the Company has
requested and been granted from the SEC confidential treatment of such
information
11
<PAGE> 12
contained in any filing with the SEC or documents provided
supplementally or otherwise or (2) the Company reasonably determines in
good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information
with respect to (A) or (B) such seller or underwriter participating in
such disposition requesting such information agrees to enter into a
confidentiality agreement in customary form and subject to customary
exceptions and agrees to inform his or its attorneys, accountants,
agents and representatives of such agreement; and provided, further
that each Holder of Registrable Securities agrees that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company, at its expense, to undertake appropriate action and to prevent
disclosure of the Records deemed confidential;
(xi) furnish to each seller and underwriter a signed counterpart
of (A) an opinion or opinions of counsel to the Company, and (B) a
comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the
type customarily covered by opinions or comfort letters, as the case
may be, as the sellers or managing underwriter reasonably requests;
(xii) cause the Registrable Shares included in any registration
statement to be (A) listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed, or (B)
authorized to be quoted and/or listed (to the extent applicable) on the
National Association of Securities Dealers, Inc. Automated Quotation
System or the Nasdaq National Market if the Registrable Shares so
qualify;
(xiii) provide a CUSIP number for the Registrable Shares included
in any registration statement not later than the effective date of such
registration statement;
(xiv) cooperate with each seller and each underwriter
participating in the disposition of such Registrable Shares and their
respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc.;
(xv) during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents
required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act;
(xvi) notify each seller of Registrable Shares promptly of any
request by the SEC for the amending or supplementing of such
registration statement or prospectus or for additional information;
12
<PAGE> 13
(xvii) prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the
opinion of counsel for the Company or the managing underwriter, is
required in connection with the distribution of the Registrable Shares;
(xviii) enter into such agreements (including underwriting
agreements in the managing underwriter's customary form) as are
customary in connection with an underwritten registration; and
(xix) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the SEC suspending the effectiveness of
such registration statement or the initiation or threatening of any
proceeding for such purpose and promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
2.5 Suspension of Dispositions. Each Holder agrees by acquisition of any
Registrable Shares that, upon receipt of any notice (a "Suspension Notice") from
the Company of the happening of any event of the kind described in Section
2.4(v)(C) such Holder will forthwith discontinue disposition of Registrable
Shares until such Holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by the Company that
the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of registration statements
set forth in Section 2.4(ii) hereof shall be extended by the number of days
during the period from and including the date of the giving of the Suspension
Notice to and including the date when each seller of Registrable Shares covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus or the Advice. The Company shall use its
commercially reasonable efforts and take such actions as are reasonably
necessary to render the Advice as promptly as practicable.
2.6 Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Article 2 including, without limitation,
all registration and filing fees, all fees and expenses associated with filings
required to be made with the National Association of Securities Dealers, Inc.
("NASD") (including, if applicable, the fees and expenses of any "qualified
independent underwriter" as such term is defined in Schedule E of the By-Laws of
the NASD, and of its counsel), as may be required by the rules and regulations
of the NASD, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications of the Registrable Shares), rating agency fees, printing
expenses (including expenses of printing certificates for the
13
<PAGE> 14
Registrable Shares in a form eligible for deposit with Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by a
holder of Registrable Shares), messenger and delivery expenses, the Company's
internal expenses (including without limitation all salaries and expenses of its
officers and employees performing legal or accounting duties), the fees and
expenses incurred in connection with any listing of the Registrable Shares, fees
and expenses of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance), securities acts liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any special experts retained by the Company in connection with such
registration, and the fees and expenses of other persons retained by the Company
and reasonable fees and expenses of one firm of counsel for the sellers (which
shall be selected by the holders of a majority of the Registrable Shares being
included in any particular registration statement) (all such expenses being
herein called "Registration Expenses") will be borne by the Company whether or
not any registration statement becomes effective; provided that in no event
shall Registration Expenses include any underwriting discounts, commissions, or
fees attributable to the sale of the Registrable Shares or any counsel (except
as provided above), accountants, or other persons retained or employed by the
Holders.
2.7 Indemnification.
2.7.1 The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, each seller of Registrable Shares, and each of its
employees, advisors, agents, representatives, partners, officers, and directors
and each Person who controls such seller (within the meaning of the Securities
Act or the Exchange Act) and any agent or investment advisor thereof
(collectively, the "Seller Affiliates") (A) against any and all losses, claims,
damages, liabilities, and expenses, joint or several (including, without
limitation, attorneys' fees, costs and disbursements except as limited by
Section 2.7.3) (collectively, "Expenses") based upon, arising out of, related to
or resulting from any untrue or alleged untrue statement of a material fact
contained in any registration statement, prospectus, or preliminary prospectus
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, (B) against any and all Expenses, as
incurred, to the extent of the aggregate amount paid in connection with a
settlement (including any settlement amounts) of any litigation or investigation
or proceeding by any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon, arising out of, related to or resulting from
any such untrue statement or omission or alleged untrue statement or omission,
(C) against any and all Expenses arising from (i) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Class A Common Stock under
the securities laws thereof, (ii) any violation by the Company or its agents of
any rule or regulation promulgated under the Securities Act applicable to the
Company or its agents and relating to action or inaction required of the Company
in connection with such registration, or (iii) any failure to register or
qualify the Class A Common Stock in any state where the Company or its agents
have
14
<PAGE> 15
affirmatively undertaken or agreed in writing that the Company (the
undertaking of any underwriter chose by the Company being attributed to the
Company) will undertake such registration or qualification on the Holder's
behalf (provided that in such instance the Company shall not be so liable if it
has undertaken its best efforts to so register or qualify the Class A Common
Stock) and (D) any and all Expenses as may be reasonably incurred in
investigating, preparing, or defending against any litigation, or investigation
or proceeding by any governmental agency or body or any third party, commenced
or threatened, or any claim whatsoever based upon, arising out of, related to or
resulting from or in connection with any of subparagraph (A), (B), (C) or (D)
above; except insofar as any untrue statement or omission to state a material
fact is made in reliance upon and in strict conformity with information
furnished in writing to the Company by such seller or any Seller Affiliate for
use therein or arise from such seller's or any Seller Affiliate's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such seller or Seller
Affiliate with a sufficient number of copies of the same. The reimbursements
required by this Section 2.7.1 will be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
2.7.2 In connection with any registration statement in which a seller
of Registrable Shares is participating, each such seller will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, each such seller will
indemnify the Company and its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or the Exchange
Act) against any and all losses, claims, damages, liabilities, and expenses
(including, without limitation, reasonable attorneys' fees, costs and
disbursements except as limited by Section 2.7.3) resulting from any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, prospectus, or any preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission is contained in any
information or affidavit so furnished in writing by such seller or any of its
Seller Affiliates specifically for inclusion in the registration statement;
provided that the obligation to indemnify will be several, not joint and
several, among such sellers of Registrable Shares, and the liability of each
such seller of Registrable Shares will be in proportion to, and provided further
that such liability will be limited to, the net amount received by such seller
from the sale of Registrable Shares pursuant to such registration statement;
provided, however, that such seller of Registrable Shares shall not be liable in
any such case to the extent that prior to the filing of any such registration
statement or prospectus or amendment thereof or supplement thereto, such seller
has furnished in writing to the Company information expressly for use in such
registration statement or prospectus or any amendment thereof or supplement
thereto which corrected or made not misleading information previously furnished
to the Company.
15
<PAGE> 16
2.7.3 Any Person entitled to indemnification hereunder will (A) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give such notice
shall not limit the rights of such Person unless such failure has materially and
adversely prejudiced the indemnifying party) and (B) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (X) the
indemnifying party has agreed to pay such fees or expenses, or (Y) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person. If such defense is not
assumed by the indemnifying party as permitted hereunder, the indemnifying party
will not be subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably withheld).
If such defense is assumed by the indemnifying party pursuant to the provisions
hereof, such indemnifying party shall not settle or otherwise compromise the
applicable claim unless (1) such settlement or compromise contains a full and
unconditional release of the indemnified party or (2) the indemnified party
otherwise consents in writing. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the
reasonable fees and disbursements of such additional counsel or counsels.
2.7.4 Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 2.7.1 or Section 2.7.2 are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, liabilities, or expenses (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the actions which resulted in
the losses, claims, damages, liabilities or expenses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 2.7.4 were
16
<PAGE> 17
determined by pro rata allocation (even if the Holders or any underwriters or
all of them were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section 2.7.4. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other costs, fees or expenses reasonably incurred by such indemnified
party in connection with investigating or, except as provided in Section 2.7.3,
defending any such action or claim. Notwithstanding the provisions of this
Section 2.7.4, no Holder shall be required to contribute an amount greater than
the dollar amount by which the net proceeds received by such Holder with respect
to the sale of any Registrable Shares exceeds the amount of damages which such
Holder has otherwise been required to pay by reason of any and all untrue or
alleged untrue statements of material fact or omissions or alleged omissions of
material fact made in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto related to such sale
of Registrable Securities. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations in this Section 2.7.4 to contribute
shall be several in proportion to the amount of Registrable Shares registered by
them and not joint.
If indemnification is available under this Section 2.7, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 2.7.1 and Section 2.7.2 without regard to the relative fault
of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 2.7.4 subject, in the case of the
Holders, to the limited dollar amounts set forth in Section 2.7.2.
2.7.5 The indemnification and contribution provided for under this
Stockholders Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director, or controlling Person of such indemnified party and will survive the
transfer of securities.
ARTICLE 3
EFFECTIVE DATE; TERMINATION
3.1 Effective Date. This Stockholders Agreement shall be effective and the
Original Stockholders Agreement shall terminate upon the consummation of the
IPO.
3.2 Termination. This Stockholders Agreement shall terminate ten years from
the date of the consummation of a Qualified IPO.
17
<PAGE> 18
ARTICLE 4
MISCELLANEOUS
4.1 Notices. Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows (or at such other
address as may be substituted by notice given as herein provided):
If to the Company:
Two American Center
3201 West End Avenue, Suite 1000
Nashville, Tennessee 37203
Attention: General Counsel
With copies to (which shall not constitute notice):
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
If to any Holder, at its address listed on the signature pages
hereof.
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five (5)
calendar days after mailing if sent by registered or certified mail (except that
a notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
4.2 Governing Law. THIS STOCKHOLDERS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
4.3 Successors and Assigns. The provisions of this Stockholders Agreement that
are for the Holders' benefit as the holders of any Securities are also for the
benefit of, and enforceable by, all subsequent holders of Securities, except to
the extent that such Securities are sold or otherwise transferred (i) pursuant
to an effective registration statement filed under the Securities Act or (ii)
pursuant to Rule 144 under the Securities Act (or any similar or successor
rule); provided, that no transferee shall have any rights under this
Stockholders Agreement until such transferee has executed and delivered to the
Company a Joinder Agreement hereto in form and substance reasonably satisfactory
18
<PAGE> 19
to the Company. This Stockholders Agreement shall be binding upon the Company,
each Holder, and their respective successors and assigns.
4.4 Duplicate Originals. All parties may sign any number of copies of this
Stockholders Agreement. Each signed copy shall be an original, but all of them
together shall represent the same agreement.
4.5 Severability. In case any provision in this Stockholders Agreement
shall be held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provision in every other
respect and the remaining provisions shall not in any way be affected or
impaired thereby
4.6 No Waivers; Amendments.
4.6.1 No failure or delay on the part of the Company or any Holder in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy; provided, that the parties hereto agree that time
is of the essence with respect to Holders exercising their rights to participate
in a registration pursuant to Sections 2.1.5 or 2.2.1. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or any Holder at law or in equity or otherwise.
4.6.2 Any provision of this Stockholders Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and the Required Holders.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed as of the date first written above.
CLIENTLOGIC CORPORATION
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
NAME OF HOLDER:
ONEX HOLDING PROPERTY MANAGEMENT LTD.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Address:
c/o:
-----------------------------------------
---------------------------------------------
---------------------------------------------
Attention: Donald F. West
Copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
LIST OF OTHER HOLDERS:
20
<PAGE> 1
EXHIBIT 10.1
************************************************************
CLIENTLOGIC HOLDING CORPORATION
-----------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 25, 1999
------------------------------
ONEX CUSTOMERONE FINANCE LLC
as Lender
TORONTO DOMINION (TEXAS), INC.
as Agent
************************************************************
<PAGE> 2
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
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<S> <C>
Section 1. Definitions and Accounting Matters.................................2
1.01. Certain Defined Terms...........................................2
1.02. Tunes of Loans.................................................17
Section 2. Commitments, Loans, Note and Prepayments..........................17
2.01. Term Loans.....................................................17
2.02. Borrowing the Loan.............................................18
2.03. Note...........................................................18
2.04. Optional Prepayments and Conversions or Continuations of
Loans..........................................................18
2.05. Mandatory Prepayments and Reductions of Commitments............19
2.06. Limited Partnership Credit Agreement...........................19
Section 3. Payments of Principal and Interest................................20
3.01. Repayment of Loans.............................................20
3.02. Interest.......................................................20
Section 4. Payments; Computations; Etc.......................................21
4.01. Payments.......................................................21
4.02. Computations...................................................21
4.03. Minimum Amounts................................................22
4.04. Certain Notices................................................22
4.05. Non-Receipt of Funds by the Agent..............................23
4.06. Set-off, Etc...................................................23
Section 5. Yield Protection, Etc.............................................24
5.01. Additional Costs...............................................24
5.02. Limitation on Types of Loans...................................24
5.03. Compensation...................................................25
Section 6. Guarantee.........................................................25
6.01. The Guarantee..................................................25
6.02. Obligations Unconditional......................................25
6.03. Reinstatement..................................................26
6.04. Subrogation....................................................26
6.05. Remedies.......................................................26
6.06. Continuing Guarantee...........................................27
6.07. Rights of Contribution.........................................27
6.08. General Limitation on Guarantee Obligations....................28
Section 7. Conditions Precedent..............................................28
7.01. Documentary Conditions Precedent...............................28
7.02. Non-documentary Conditions Precedent...........................29
Section 8. Representations and Warranties....................................29
</TABLE>
-i- U.S./Onex Finance Credit Agreement
<PAGE> 3
<TABLE>
<S> <C>
8.01. Corporate Existence............................................29
8.02. Financial Condition............................................30
8.03. Litigation.....................................................30
8.04. No Breach......................................................30
8.05. Action.........................................................31
8.06. Approvals......................................................31
8.07. Use of Credit..................................................31
8.08. ERISA..........................................................31
8.09. Taxes..........................................................31
8.10. Investment Company Act.........................................32
8.11. Public Utility Holding Company Act.............................32
8.12. Environmental Matters..........................................32
8.13. Capitalization.................................................32
8.14. True and Complete Disclosure...................................32
8.15. Year 2000......................................................33
Section 9. Covenants of the Company..........................................33
9.01. Financial Statements, Etc......................................33
9.02. Litigation.....................................................35
9.03. Existence, Etc.................................................35
9.04. Insurance......................................................36
9.05. Prohibition of Fundamental Chances.............................36
9.06. Limitation on Liens............................................38
9.07. Indebtedness...................................................39
9.08. Investments....................................................41
9.09. Dividend Payments..............................................42
9.10. Capital Expenditures...........................................43
9.11. Lines of Business..............................................44
9.12. Transactions with Affiliates...................................44
9.13. Use of Proceeds................................................44
9.14. Holding Company; Subsidiaries; Etc.............................45
9.15. Total Debt to Cash Flow Ratio..................................45
9.16. Cash Flow to Debt Service Ratio................................46
9.17. Cash Flow to Interest Expense Ratio............................46
9.18. Management Fee Payments........................................46
9.19. Holding Company; Subsidiaries; Etc.............................46
Section 10. Events of Default................................................47
Section 11. The Agent........................................................50
11.01. Appointment, Powers and Immunities............................50
11.02. Reliance by Agent.............................................50
11.03. Defaults......................................................50
11.04. Indemnification...............................................51
11.05. Non-Reliance on Agent.........................................51
11.06. Failure to Act................................................51
11.07. Resignation or Removal of Agent...............................52
11.08. Consents under Other Basic Documents..........................52
Section 12. Miscellaneous....................................................52
12.01. Waiver........................................................52
</TABLE>
-ii- U.S./Onex Finance Credit Agreement
<PAGE> 4
<TABLE>
<S> <C>
12.02. Notices.......................................................52
12.03. Expenses, Etc.................................................53
12.04. Amendments, Etc...............................................53
12.05. Successors and Assigns........................................54
12.06. Assignments and Participations................................54
12.07. Survival......................................................54
12.08. Captions......................................................54
12.09. Counterparts..................................................54
12.10. Governing Law; Submission to Jurisdiction.....................54
12.11. Waiver of Jury Trial..........................................55
12.12. Confidentiality...............................................55
12.13. Release.......................................................55
</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 Opinion of Counsel to the Obligors
EXHIBIT C - Form of Opinion of Special Counsel to TD
EXHIBIT D - Form of Assignment Agreement
-iii- U.S./Onex Finance Credit Agreement
<PAGE> 5
AMENDED AND RESTATED 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) ONEX CUSTOMERONE FINANCE LLC, a limited liability company
duly organized and validly existing under the laws of the State of
Wyoming (the "Lender"); and
(d) TORONTO DOMINION (TEXAS), INC., as agent for the Lender
(in such capacity, together with its successors in such capacity, the
"Agent").
WHEREAS, ClientLogic Corporation ("ClientLogic") and the Lender entered
into a Credit Agreement dated as of December 31, 1998 (the "Existing Credit
Agreement") pursuant to which the Lender made a 530,000,000 term loan to
ClientLogic (the "Existing Term Loan");
WHEREAS, ClientLogic is a wholly-owned subsidiary of the Company;
WHEREAS, the Company desires to refinance certain indebtedness of its
Subsidiaries (as that term is hereinafter defined), including ClientLogic;
WHEREAS, in consideration for a 530,000,000 promissory note executed by
ClientLogic in favor of the Company, and pursuant to that certain Assignment and
Assumption Agreement dated as of the date hereof, ClientLogic assigned, and the
Company assumed, all of ClientLogic's rights, duties and obligations under the
Existing Credit Agreement;
WHEREAS, the Obligors have requested that the Lender make an additional
loan of $30,000,000 to the Company (the "New Term Loan");
WHEREAS, to induce the Lender to make the New Term Loan to the Company,
the Obligors desire to amend and restate the Existing Credit Agreement, to
guarantee the New Term Loan and to affirm their respective obligations with
respect to the Existing Term Loan, and 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 Lender to the Lender and the
Agent hereunder;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants therein contained, the parties hereto hereby agree that, effective on
the Closing Date, the Existing Credit Agreement shall be and hereby is amended
and restated in its entirety to read as follows:
Section 1. Definitions and Accounting Matters.
1.01 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.
<PAGE> 6
"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 4.05 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 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) the Agent shall not be an Affiliate.
"Agent" shall have the meaning given to that term in the preamble to
this Agreement.
"Agreement" shall mean this Amended and Restated Credit Agreement as
amended, modified and supplemented and in effect from time to time.
"Applicable Margin" shall mean, for each Type of 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 (a "Testing Date"),
which if such Total Debt to Cash Flow Ratio shall fall within any of the ranges
set forth in the Schedule below, then, the "Applicable Margin" for such Type of
Loan shall be the respective percentage per annum set forth opposite such range
in such Schedule during the period commencing on the Margin Change Date for such
Testing Date to but not including the Margin Change Date for the next succeeding
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):
Schedule
--------
<TABLE>
<CAPTION>
Total Debt to Cash Flow Ratio Eurodollar Loans Base Rate Loans
----------------------------- ---------------- ---------------
<S> <C> <C>
<= 3.00 to 1 1.75% 0.75%
<= 4.00 to 1 2.25% 1.25%
<= 5.00 to 1 2.75% 1.75%
<= 5.00 to 1 3.25% 2.25%
</TABLE>
For purposes of this definition, "Margin Change Date" shall mean, for any
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 Testing Date (except that for any 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
-2- U.S./Onex Finance Credit Agreement
<PAGE> 7
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 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.
"Bank Group Credit Agreement" shall mean the Credit Agreement, dated as
of May 25, 1999 among the Company, the Subsidiary Guarantors, the Lenders
referred to therein, and Toronto Dominion (Texas), Inc., as agent for said
Lenders, as the same shall be modified and supplemented and in effect from time
to time.
"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
and the Security Documents.
"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
(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
-3- U.S./Onex Finance Credit Agreement
<PAGE> 8
(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.
"Closing Date" shall mean the date upon which the 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" shall mean the obligation of the Lender to (i) make the
New Term Loan and (ii) maintain its Existing Term Loan.
"Commitment Termination Date" shall mean May 28, 1999.
"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 2.04 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 2.04 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
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.
"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.
-4- U.S./Onex Finance Credit Agreement
<PAGE> 9
"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.
"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.
"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.
-5- U.S./Onex Finance Credit Agreement
<PAGE> 10
"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 S 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 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.
"Existing Term Loan" shall have the meaning given to that term in the
recitals to this Agreement.
"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 9.17(b) hereof.
-6- U.S./Onex Finance Credit Agreement
<PAGE> 11
"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
"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
-7- U.S./Onex Finance Credit Agreement
<PAGE> 12
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 4.04 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 any Principal
Payment Date if the aggregate principal amount of the Loans having Interest
Periods ending after such Principal Payment Date would be greater than the
principal amount of the Loans scheduled to be outstanding on such date after
giving effect to the principal payment scheduled to be made on such 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.
"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.
"LCS" shall mean LCS Industries, Inc., a Delaware corporation.
"Lender" shall have the meaning given to that term in the preamble to
this Agreement.
-8- U.S./Onex Finance Credit Agreement
<PAGE> 13
"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 (hat 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.
"Limited Partnership Agent" shall mean Toronto Dominion (Texas), Inc.,
as agent under the Limited Partnership Credit Agreement, and its successors in
such capacity.
"Limited Partnership Borrower" shall mean Onex CustomerONE Limited
Partnership, a Nevada limited partnership.
"Limited Partnership Interest Period" shall mean an "Interest Period"
under the Limited Partnership Credit Agreement.
"Limited Partnership Loan" shall mean a "Loan" under the Limited
Partnership Credit Agreement.
"Limited Partnership Credit Agreement" shall mean the Credit Agreement
dated as of May 25, 1999 among Onex CustomerONE Limited Partnership, the
Guarantors referred to therein, the Lenders referred to therein and Toronto
Dominion (Texas), Inc., as agent for said Lenders, as the same shall be modified
and supplemented and in effect from time to time.
"Limited Partnership Obligations" shall mean all of the obligations of
the Limited Partnership Borrower and its affiliates under the Limited
Partnership Credit Agreement.
"List Brokerage Services" shall mean the business of selling lists
prepared by third parties for a commission.
"Loans" shall mean, collectively, the Existing Term Loan and the New
Term Loan provided for in Section 2.01 hereof, which may be Base Rate Loans
and/or Eurodollar Loans.
"Management Fee" shall mean any management or similar fee paid directly
or indirectly by the Company or any of its Subsidiaries.
"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 Lender 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,
-9- U.S./Onex Finance Credit Agreement
<PAGE> 14
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.
"New Term Loan" shall have the meaning given to that term in the
recitals to this Agreement.
"Note" shall mean the amended and restated promissory note provided for
by Section 2.03 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.
"Obligors" shall have the meaning given to that term in the preamble to
this Agreement.
"Onex" shall mean Onex Corporation, a Canadian corporation.
"Payor" shall have the meaning given to that term in Section 4.05
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- I or better or P- I 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).
-10- U.S./Onex Finance Credit Agreement
<PAGE> 15
"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 The Toronto-Dominion Bank, 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 Dates" shall mean each of the fourth, fifth, sixth
and seventh 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 2.05 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.
"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.
-11- U.S./Onex Finance Credit Agreement
<PAGE> 16
"Regulatory Change" shall mean 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 the
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
4.05 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 2.05 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
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
-12- U.S./Onex Finance Credit Agreement
<PAGE> 17
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,
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.
"Type" shall have the meaning given to that term in Section 1.02
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.
1.02 Tunes of Loans. Loans hereunder are distinguished by "Type". 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.
-13- U.S./Onex Finance Credit Agreement
<PAGE> 18
Section 2. Commitments, Loans, Note and Prepayments.
2.01 Term Loans. (a) Company's Confirmation. The Company acknowledges
and confirms that the Lender has previously made the Existing Term Loan to, or
which has been assumed by, it in an aggregate principal amount of $30,000,000.
The Company hereby represents, warrants, agrees, covenants and reaffirms that:
(i) it has no (and it permanently and irrevocably waives, and releases the
Lender from, any, to the extent arising on or prior to the Closing Date)
defense, setoff, claim or counterclaim against the Lender in regard to its
Obligations in respect of the Existing Term Loan and (ii) reaffirms its
obligation to pay the Existing Term Loan in accordance with the terms and
provisions of this Agreement and the other Basic Documents.
(b) Lender's Commitments. Subject to the terms and conditions of this
Agreement, the Lender agrees to (i) maintain its Existing Term Loan and (ii)
make the New Term Loan to the Company in Dollars during the period from and
including the date hereof to but not including the Commitment Termination Date
in a principal amount not to exceed the Commitment. The Company may Convert
Loans of one Type into Loans of another Type (as provided in Section 2.04
hereof) or Continue Loans of one Type as Loans of the same Type (as provided in
Section 2.04 hereof). No more than eight separate Interest Periods in respect of
Eurodollar Loans may be outstanding at any one time.
2.02 Borrowing the Loan. The Company shall give the Agent notice of the
borrowing hereunder as provided in Section 4.04 hereof. Not later than 1:00 p.m.
New York time on the date specified for the borrowing of the New Term Loan
hereunder, the Lender shall make available the amount of the New Term Loan 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.
2.03 Note.
(a) The Loans made by the Lender may be evidenced by a single
amended and restated promissory note of the Company substantially in
the form of Exhibit A hereto, dated the date hereof, payable to the
Lender in a principal amount equal to the amount of its Commitment and
otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan, and each payment made on
account of the principal thereof, shall be recorded by the Lender on
its books and, prior to any transfer of the Note, endorsed by the
Lender on the Schedule attached to the Note or any continuation
thereof; provided that the failure of the 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 the Note in respect of the Loans to be evidenced by the Note.
2.04 Optional Prepayments and Conversions or Continuations of Loans.
Subject to Section 4.03 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 4.04 hereof.
2.05 Mandatory Prepayments and Reductions of Commitments.
(a) 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 in an aggregate amount equal to 50% of the Excess
-14- U.S./Onex Finance Credit Agreement
<PAGE> 19
Cash Flow for such fiscal year (less any portion of such Excess Cash
Flow required to be used to prepay outstanding "Tranche 2 Loans" under
the Bank Group Credit Agreement), such prepayment to be applied to the
installments of the Loans in the inverse order of the maturity thereof.
(b) Sale of Assets. Without limiting the obligation of the
Company to obtain the consent of the Agent pursuant to Section 9.05 of
the Bank Group Credit Agreement (as incorporated in this Agreement by
reference) 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)
of the Bank Group Credit Agreement) 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 (or cash collateralize Loans in an
account maintained with the Agent until the last day(s) of the Interest
Periods to end soonest thereafter and then to be used to prepay Loans),
in an aggregate amount equal to 100(degree)/0 of the Net Cash Payments
(less any portion of such Net Cash Payments required to be used to
prepay outstanding "Tranche 2 Loans" under the Bank Group Credit
Agreement), such prepayment to be applied to the installments of the
Loans in the inverse order of the maturity thereof.
(c) Avoidance of Broken-funding Costs. If the prepayment of
any Loan pursuant to this Section 2.05 would result in an obligation of
the Company to pay compensation pursuant to Section 5.03 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.
2.06 Limited Partnership Credit Agreement. If, as a result any Limited
Partnership Loan not corresponding with a Loan hereunder and the duration of the
Limited Partnership Interest Period for such Limited Partnership Loan not being
identical to the Interest Period for the corresponding Loan hereunder, the rate
of interest on the Limited Partnership Loan is greater than the rate of interest
on the corresponding Loan hereunder (or if there is not corresponding Loan
hereunder), the Company shall pay to the Agent, on each day on which interest on
such Limited Partnership Loan is payable under the Limited Partnership Credit
Agreement, an amount equal to the difference between the amount of interest
payable on such in respect of such Limited Partnership Loan and the amount of
interest payable on such day hereunder.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company hereby promises to pay to the
Agent for account of the Lender the principal amount of the Loans in five
installments on the Principal Payment Dates, in the following respective
amounts:
<TABLE>
<CAPTION>
Principal Payment Date Amount of Installment
---------------------- ---------------------
<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>
-15- U.S./Onex Finance Credit Agreement
<PAGE> 20
3.02 Interest. The Company hereby promises to pay to the Agent for
account of the Lender interest on the unpaid principal amount of each Loan made
by the 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:
(a) 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
(b) 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 the Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by the Lender and on any other amount payable by the
Company hereunder or under the Notes held by the Lender to or for account of the
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 of 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 Lender
to which such interest is payable and to the Company.
Section 4. Payments; Computations; Etc.
4.01 Payments.
(a) 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 Note, 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).
(b) The Lender 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 the Lender (with notice to
the Company and the Agent).
(c) The Company shall, at the time of making each payment
under this Agreement or any Note for account of the 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 Lender for application,
first to the payment of fees, expenses, indemnities and other amounts
(other than principal and interest) then due and payable hereunder and
-16- U.S./Onex Finance Credit Agreement
<PAGE> 21
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.
(d) Each payment received by the Agent under this Agreement or
any Note for account of the Lender shall be paid by the Agent promptly
to the Lender, in immediately available funds, for account of the
Lender.
(e) 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.
4.02 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.
4.03 Minimum Amounts. Except for Conversions or prepayments made
pursuant to Section 5.03 hereof, and except for prepayments made pursuant
Section 2.05, 9.05(b)(viii) or 9.05(b)(x) hereof, the borrowing, and each
Conversion and partial prepayment of principal of Loans shall be in an aggregate
amount at least equal to $1,000,000 or a larger multiple of $500,000:
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 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.
4.04 Certain Notices. Notices by the Company to the Agent of the
borrowing, Conversions, Continuations and optional prepayments of Loans and 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 borrowing or
the relevant Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
<TABLE>
<CAPTION>
Number of Business
Notice Days Prior
------ -------------------
<S> <C>
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 borrowing, Conversion, Continuation or optional prepayment
shall specify the amount (subject to Section 4.03 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 Lender of the contents of each such notice. In the event
that the Company fails to select the Type of Loan, or
-17- U.S./Onex Finance Credit Agreement
<PAGE> 22
the duration of any Interest Period for any Eurodollar Loan, within the time
period and otherwise as provided in this Section 4.04, 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.
4.05 Non-Receipt of Funds by the Agent. Unless the Agent shall have
been notified by the 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 the Lender)
the proceeds of a Loan to be made by the Lender hereunder or (in the case of the
Company) a payment to the Agent for account of the Lender 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:
(a) if the Required Payment shall represent a payment to be
made by the Company to the Lender, the Company and the recipients)
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
(b) if the Required Payment shall represent proceeds of a Loan
to be made by the Lender 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).
4.06 Set-off, Etc. The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim the Lender
may otherwise have, the 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 the
Lender's Loans or any other amount payable to the 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 the Lender's failure to give such notice shall not affect the
validity thereof.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Company shall pay directly to the Agent (for account
of the Lender) from time to time an amount equal to all "Additional
Costs" (as such term is defined in the Limited Partnership Credit
Agreement), and an amount equal to all other amounts that are payable
to the holders of the Limited Partnership Obligations under Section 5
of the Limited Partnership Credit Agreement, as the Limited
-18- U.S./Onex Finance Credit Agreement
<PAGE> 23
Partnership Borrower may be obligated to pay to the holders of the
Limited Partnership Obligations under the Limited Partnership Credit
Agreement.
(b) In the event that the obligation of the holders of the
Limited Partnership Obligations under the Limited Partnership Credit
Agreement to make or continue Eurodollar Loans, or to convert Base Rate
Loans into Eurodollar Loans is suspended, the obligation of the Lender
to make or Continue Eurodollar Loans, or to Convert Base Rate Loans
into Eurodollar Loans, shall be suspended for the duration of such
suspension under the Limited Partnership Credit Agreement.
5.02 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:
(a) 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
(b) the "Majority Lenders" under the Limited Partnership
Credit Agreement 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 of making or maintaining such Type of Loans for such
Interest Period;
then the Agent shall give the Company and the Lender prompt notice thereof and,
so long as such condition remains in effect, the 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 2.04 hereof.
5.03 Compensation. The Company shall pay to the Agent for account of
the Lender, promptly after the request of the Lender through the Agent, an
amount equal to the amounts payable by the Limited Partnership Borrower under
Section 5.05 of the Limited Partnership Credit Agreement.
Section 6. Guarantee.
6.01 The Guarantee. The Subsidiary Guarantors hereby jointly and
severally guarantee to the 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 Lender to, and the Note held by the Lender of, the Company, and all other
amounts from time to time owing to the Lender or the Agent by the Company under
this Agreement and under the Note 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.
6.02 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
-19- U.S./Onex Finance Credit Agreement
<PAGE> 24
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 ail 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:
(a) 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;
(b) 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;
(c) 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
(d) any lien or security interest granted to, or in favor of,
the Agent or the Lender 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 the Lender exhaust any right, power or remedy or proceed against the
Company under this Agreement or the Note 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.
6.03 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 the 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 the 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.
6.04 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 Lender 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.
6.05 Remedies. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Lender, 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
-20- U.S./Onex Finance Credit Agreement
<PAGE> 25
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.
6.06 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.07 Rights of Contribution. The Subsidiary Guarantors hereby agree, as
between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding 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 Guarantor (but subject to the next sentence),
pay to such Excess Funding 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 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 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 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 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 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.
6.08 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, the 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.
-21- U.S./Onex Finance Credit Agreement
<PAGE> 26
Section 7. Conditions Precedent.
7.01 Documentary Conditions Precedent. The obligation of the Lender to
make the Loans hereunder is subject to the conditions precedent that the Agent
shall have received the following documents, each of which shall be reasonably
satisfactory to the Agent in form and substance:
(a) 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 the Lender may conclusively rely on such certificate until
the Agent or the Lender receives notice from such Obligor to the
contrary).
(b) 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, 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).
(c) 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 the Lender may reasonably request (and each
Obligor hereby instructs such counsel to deliver such opinion to the
Lender and the Agent).
(d) 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 Lender).
(e) Notes. The Notes requested by the Lender, duly completed
and executed.
(f) Security Agreement. The Security Agreement, and other
documents required to be delivered pursuant to Section 7.01(f) of the
Bank Group Credit Agreement.
(g) Other Documents. Such other documents as the Agent or the
Lender or special New York counsel to TD may reasonably request.
The obligation of the 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 the Lender or the Agent in connection herewith.
7.02 Non-documentary Conditions Precedent. The obligation of the 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
-22- U.S./Onex Finance Credit Agreement
<PAGE> 27
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).
Section 8. Representations and Warranties. The Company represents and
warrants to the Agent and the Lender that:
8.01 Corporate Existence. Each of the Company and its Subsidiaries: (a)
is a corporation duly incorporated or formed and validly existing under the laws
of the jurisdiction of its organization; (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.
8.02 Financial Condition. The Company has heretofore furnished to the
Lender 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
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.
8.03 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.
8.04 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
-23- U.S./Onex Finance Credit Agreement
<PAGE> 28
(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.
8.05 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).
8.06 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.
8.07 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.
8.08 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.
8.09 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.
8.10 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.
8.11 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.
-24- U.S./Onex Finance Credit Agreement
<PAGE> 29
8.12 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 failure to have any such permit, license or
authorization could not (either individually or in the aggregate) reasonably be
expected to 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 (either individually or in the aggregate) reasonably
be expected to have a Material Adverse Effect.
8.13 Capitalization.
(a) 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.
(b) 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.
8.14 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 the Lender 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 Lender 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 Lender for use in connection with the transactions contemplated
hereby or thereby.
8.15 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 9. Covenants of the Company. The Company covenants and agrees
with the Lender 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:
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<PAGE> 30
9.01 Financial Statements, Etc. The Company shall deliver to the
Lender:
(a) 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 9.07, 9.08, 9.09, 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.
(b) 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 Section 9.07, 9.08, 9.09, 9.10, 9.14, 9.15
or 9.16 of this Agreement, (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 of this Agreement;
(c) 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;
-26- U.S./Onex Finance Credit Agreement
<PAGE> 31
(d) 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
(e) From time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries as the Lender or the Agent may reasonably
request.
The Company will furnish to the 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).
9.02 Litigation. The Company will promptly give to the 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.
9.03 Existence, Etc. The Company will, and will cause each of its
Subsidiaries to:
(a) 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;
(b) 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;
(c) 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;
(d) maintain all of its material Properties used or useful in
its business in good working order and condition, ordinary wear and
tear excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of the 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 the 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.
-27- U.S./Onex Finance Credit Agreement
<PAGE> 32
9.04 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.
9.05 Prohibition of Fundamental Chances.
(a) 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,
(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.
(b) 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;
-28- U.S./Onex Finance Credit Agreement
<PAGE> 33
(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 trade
pursuant to Section 9.08(f) hereof, does not exceed
55,000,000, 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:
(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.
9.06 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:
(a) Liens created pursuant to the Basic Documents (as defined
herein and in the Bank Group Credit Agreement);
(b) Liens in existence on the date hereof and listed in
Schedule 9.06(b) 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;
(c) 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;
-29- U.S./Onex Finance Credit Agreement
<PAGE> 34
(d) 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 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.
9.07 Indebtedness. The Company will not, nor will it permit any of its
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
(a) Indebtedness to the Lender hereunder and under the other
Basic Documents (as defined herein and in the Bank Group Credit
Agreement);
-30- U.S./Onex Finance Credit Agreement
<PAGE> 35
(b) 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;
(c) 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 be reasonably expected to have a Material Adverse Effect, and
(iv) obligations with respect to surety bonds permitted pursuant to
Section 9.06(f) hereof;
(d) Guarantees of Indebtedness otherwise permitted by this
Section 9.07 hereof;
(e) 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(1) or 9.06(m) hereof) up to but not exceeding 515,000,000 at any
one time outstanding;
(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 55,000,000 (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 5250,000 (or the equivalent in other
currencies) at any one time outstanding; and
(k) subject to the prior consent of the Lender, 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.
9.08 Investments. The Company will not, nor will it permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:
(a) 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 made additional
Investments;
(b) operating deposit accounts with banks;
-31- U.S./Onex Finance Credit Agreement
<PAGE> 36
(c) Permitted Investments and Investments permitted by Section
9.05, 9.06, 9.07, 9.09 or 9.10 hereof;
(d) 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;
(e) Investments by the Company and its Subsidiaries in
Subsidiary Guarantors in the ordinary course of business;
(f) 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;
(g) 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;
(h) Interest Rate Protection Agreements;
(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.
9.09 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:
-32- U.S./Onex Finance Credit Agreement
<PAGE> 37
(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:
(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 extent
permitted by Section 9.08 hereof.
9.10 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;
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<PAGE> 38
(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 S 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 9.15, 9.16 and 9.17 hereof.
9.11 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.
9.12 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 9.16 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.
9.13 Use of Proceeds. The Company will use the proceeds of the Loans
solely to refinance existing Indebtedness and for the Obligors' working capital
purposes; in each case in compliance with all applicable legal and regulatory
requirements, provided that neither the Agent nor the Lender shall have any
responsibility as to the use of any of such proceeds.
9.14 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
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<PAGE> 39
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 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.
9.15 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>
9.16 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.
9.17 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.
9.18 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.
9.19 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.
(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 and whose principal place of
business is outside of the United States of America (each, a "Foreign
Subsidiary")) are "Subsidiary Guarantors" and
-35- U.S./Onex Finance Credit Agreement
<PAGE> 40
"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 Agent's Lien 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 satisfactory to the Agent.
Section 10. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) 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
(b) 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 52,500,000 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) 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
(c) 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 the 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
(d) Any Obligor, as applicable, shall default in the
performance of any of its obligations under any of Sections 9.01(c),
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 of this Agreement; 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 the Lender (through the Agent); or any "Event of
Default" shall be continuing under the Bank Group Credit Agreement; or
(e) Any Relevant Party shall admit in writing its inability
to, or be generally unable to, pay its debts as such debts become due;
or
(f) 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
-36- U.S./Onex Finance Credit Agreement
<PAGE> 41
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 any of the foregoing; or
(g) 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
(h) 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 56,000,000 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
(i) An event or condition specified in Section 9.01(c) of the
Bank Group Credit Agreement 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
(j) 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
(k) 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
(l) 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 of the Bank Group Credit Agreement
(and,
-37- U.S./Onex Finance Credit Agreement
<PAGE> 42
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 Lender, 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 Lender 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 5.03 of this
Agreement) 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 and all other amounts
payable by the Obligors hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.03 of this Credit Agreement)
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 11. The Agent.
11.01 Appointment, Powers and Immunities. The 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 11.04 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 the Lender; (b) shall not be responsible to the Lender 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.
11.02 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
-38- U.S./Onex Finance Credit Agreement
<PAGE> 43
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 Lender or, if provided herein, in accordance with the instructions
given by the Lender as is required in such circumstance, and such instructions
of the Lender and any action taken or failure to act pursuant thereto shall be
binding on the Lender.
11.03 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
Lender. The Agent shall (subject to Section 11.06 hereof) take such action with
respect to such Default as shall be directed by the Lender 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 Lender 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 Lender.
11.04 Indemnification. The Lender agrees 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) 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 the 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 the Lender shall not 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.
11.05 Non-Reliance on Agent. The Lender agrees that it has,
independently and without reliance on the Agent, 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, 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 Lender by
the Agent hereunder or under the Security Documents, the Agent shall not have
any duty or responsibility to provide the 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.
11.06 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 Lender of its
indemnification obligations under Section 11.04 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.
11.07 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 Lender. The Agent may be
-39- U.S./Onex Finance Credit Agreement
<PAGE> 44
removed at any time with or without cause by the Lender, subject to the approval
of the Company and the "Agent" under the Bank Group Credit Agreement. Upon any
such resignation or removal, the Lender shall (subject to the approval of the
Company, such approval not to be unreasonably withheld or delayed, and the
approval of the "Agent" under the Bank Group Credit Agreement), have the right
to appoint a successor Agent. If no successor Agent shall have been so appointed
by the Lender (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 Lender's removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lender, 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.
11.08 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 Lender and the Lenders under the Limited
Partnership Credit Agreement (but not otherwise), consent to any modification,
supplement or waiver under any of the Basic Documents.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or the 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.
12.02 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.
12.03 Expenses, Etc.. The Company agrees to pay or reimburse the Lender
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 the Agent) 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 Lender and the Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel to the Agent and one additional counsel to the Lender) 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
-40- U.S./Onex Finance Credit Agreement
<PAGE> 45
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 the 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 the Lender, whether or not the Agent or the 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).
12.04 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 Lender, or
by the Company and the Agent acting with the consent of the Lender, and any
provision of this Agreement may be waived by the Lender or by the Agent acting
with the consent of the Lender; provided that: (a) at all times prior to the
payment in full of the Limited Partnership Obligations, no such modification,
supplement or waiver may be entered into without the consent of the Limited
Partnership Agent; (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.
12.05 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.
12.06 Assignments and Participations.
(a) No Obligor may assign any of its rights or obligations
hereunder or under the Notes without the prior consent of the Lender
and the Agent.
(b) The Lender may not assign any of its Loans, the Notes or
the Commitment; provided that the Lender may assign all of its right,
title and interest hereunder and under the other Basic Documents to the
Limited Partnership Agent as collateral security for the Limited
Partnership Obligations, and the parties hereto agree that, until the
payment in full of the Limited Partnership Obligations, all rights,
remedies and powers of the Lender hereunder shall be exercised
exclusively by the Limited Partnership Agent for the benefit of the
holders of the Limited Partnership Obligations.
12.07 Survival. The obligations of the Company under Sections 5.01,
5.05 and 12.03 hereof, the obligations of each Guarantor under Section 6.03
hereof, and the obligations of the Lender under Section 11.05 hereof, shall
survive for one year after the repayment of the Loans and the termination of the
Commitments.
12.08 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.
-41- U.S./Onex Finance Credit Agreement
<PAGE> 46
12.09 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.
12.10 Governing Law; Submission to Jurisdiction. This Agreement and the
Note 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.
12.11 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE
LENDER 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.
12.12 Confidentiality. Each of the 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 the 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 the Lender or the
Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or
the Lender, (v) in connection with any litigation to which the Lender 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.
12.13 Release. The Lender acknowledges and agrees that, effective on
the Closing Date, the Company is released from its obligations under the
Existing Credit Agreement.
[The remainder of this page has been left blank intentionally]
-42- U.S./Onex Finance Credit Agreement
<PAGE> 47
Lender
ONEX CUSTOMERONE FINANCE LLC
By: /s/ ERIC J. ROSEN
--------------------------------
Name: Eric J. Rosen
Title: Managing Director
Lending Office for all Loans:
[Address]
Address for Notices:
[Address]
Attention: [o]
Telecopier No.: [o]
Telephone No.: [o]
-43- U.S./Onex Finance Credit Agreement
<PAGE> 48
CLIENTLOGIC CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
Title: Secretary
-44- U.S./Onex Finance Credit Agreement
<PAGE> 49
Agent
TORONTO DOMINION (TEXAS), INC.
By: /s/ DIANE BAILEY
--------------------------------
Name: Diane Bailey
Title: Vice President
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
-45- U.S./Onex Finance Credit Agreement
<PAGE> 50
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) 871-6406
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
--------------------------------
Name: Thomas P. Dea
Title: Vice President, Assistant
Treasurer & Assistant
Secretary
-46- U.S./Onex Finance Credit Agreement
<PAGE> 51
LCS CANADA, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
Title: Vice President, Assistant
Treasurer & Assistant
Secretary
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
-47- U.S./Onex Finance Credit Agreement
<PAGE> 1
EXHIBIT 10.11
(TORONTO DOMINION (TEXAS), INC. LETTERHEAD)
February 28, 2000
Client Logic Holding Corporation
One American Center
3100 West End Avenue
Nashville, Tennessee 37203
Attention: Mr. Mark R. Briggs
President, Chief Executive Officer
and Chief Operating Officer
Re: Pledge of Shares of InsLogic Holding
Ladies and Gentlemen:
We refer to (a) the Credit Agreement dated as of May 25, 1999 (as
heretofore amended and in effect on the date hereof, the "Credit Agreement")
among ClientLogic Holding Corporation, certain of its subsidiaries, certain
lenders, and Toronto Dominion (Texas), Inc., as agent for said lenders (the
"Agent"), (b) Amendment No. 2 to the Credit Agreement dated as of September 1,
1999 ("amendment No. 2"), and (c) the Security Agreement referred to in the
Credit Agreement (the "Security Agreement"). Terms used but no defined herein
have the respective meanings given to them in the Credit Agreement, Amendment
No. 2 and the Security Agreement.
By our respective signatures below, you and we hereby agree as follows:
Pledge of InsLogic Stock
You hereby confirm that the shares of capital stock of InsLogic
Holding described on Schedule X hereto (the "InsLogic Stock") are included in
the Pledged Stock (and, consequently, the Collateral) and Annex 1-A to the
Security Agreement shall be deemed to be amended to add Schedule X thereto.
Obligations Secured by InsLogic Stock
Notwithstanding anything to the contrary in Security Agreement, each
share of the InsLogic Stock shall secure solely its pro rata portion of the
Applicable Amount of principal of the Loans. The "Applicable Amount" shall mean
$25,000,000 minus the aggregate amount of payments of principal of the Loans
made after the date hereof. Except as provided below in "Failure to Distribute
by April 30," the Lien on the InsLogic Stock shall terminate from and after the
date that the Applicable Amount is zero.
Effect of Distribution
Notwithstanding the Lien on the InsLogic Shares created pursuant to
the Security Agreement, the Distribution may be consummated as provided for in
Amendment No. 2; provided that the Lien on the InsLogic Stock created pursuant
to the Security Agreement shall not terminate or be released upon the
consummation of the Distribution (and the certificates representing the
InsLogic Stock will be appropriately
<PAGE> 2
legended to reflect the continuance of such Lien). In addition, the company of
ClientLogic Holding Corporation shall physically deliver to the Agent the
certificates representing the InsLogic Stock received by it as a result of the
Distribution in order to maintain the Agent's perfected Lien on such InsLogic
Stock.
Failure to Distribute by April 30
If the Distribution does not occur on or prior to April 30, 2000, the
letter shall terminate and be void ab initio, and the provisions of Section 5 of
Amendment No. 2 shall apply.
Governing Law
This letter shall be governed by, and construed in accordance with, the law
of the State of New York.
Very truly yours,
TORONTO DOMINION (TEXAS), INC.,
as Agent
By /s/ KIMBERLY BURLESON
-----------------------
Name: Kimberly Burleson
Title: Vice President
AGREED TO:
CLIENTLOGIC HOLDING CORPORATION
By /s/ MARK R. BRIGGS
----------------------------------
Mark R. Briggs
President, Chief Executive Officer
and Chief Operating Officer
2
<PAGE> 3
SCHEDULE X
Pledged Stock
<TABLE>
<S> <C> <C> <C>
Issuer Certificate No. Registered Owner No. of Shares
InsLogic.com Holding Corporation No. CSB-1 ClientLogic Corporation 50,001,000
</TABLE>
3
<PAGE> 1
EXHIBIT 10.26
CONTINGENT SECURITIES PURCHASE AGREEMENT
THIS CONTINGENT SECURITIES PURCHASE AGREEMENT (this "Agreement"),
entered into this 20th day of March, 2000, and effective as of April 1, 1999, is
entered into by and between ClientLogic Corporation, formerly known as
ClientLogic Holding Corporation, a Delaware corporation (the "Company"), and
Gene S. Morphis ("Purchaser").
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF SECURITIES
1.1 Commitments to Purchase. The Company grants to Purchaser, subject
to the terms and conditions set forth herein and in reliance on the
representations and warranties of Purchaser contained herein, the right and
option (the "Option") to purchase from the Company at a purchase price of $1.50
per share ("Purchase Price") such number of shares of Class A common stock, par
value $0.01 per share ("Class A Common Stock" or the "Securities"), of the
Company as determined by dividing (i) the total amount (or any portion thereof
as determined by Purchaser) of Purchaser's annual bonus if and when earned by
Purchaser for the year ended December 31, 1999 ("1999 Annual Bonus") as
determined in accordance with Section 3(b) of that certain Employment Agreement,
by and between Purchaser and ClientLogic Operating Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company ("Operating"), dated
effective as of April 1, 1999 (a copy of which is attached hereto as Exhibit A)
by (ii) the Purchase Price.
1.2 Expiration; Relationship to Annual Bonus. The Option shall expire
at 12:00 midnight Pacific Coast time on June 1, 2000. The parties agree that the
Option shall be exercisable by Purchaser only to the extent Purchaser receives a
payment under the 1999 Annual Bonus. In the event no amount is payable to
Purchaser under the 1999 Annual Bonus, the Option shall immediately expire.
1.3 Closing. The purchases and sales of the Securities will take place
at a closing (the "Closing") which shall occur on such date as is specified by
the Company to the Purchaser in writing. At the Closing, the Company shall
deliver to Purchaser, against payment of the aggregate Purchase Price therefor,
certificates for the shares of Class A Common Stock purchased by Purchaser. Each
Security shall be registered in the name of Purchaser.
<PAGE> 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Purchaser to purchase the Securities as herein provided,
the Company makes the following representations and warranties to the Purchaser,
each and all of which shall be true and correct as of the date of execution and
delivery of this Agreement and shall survive until the Closing.
2.1 Corporate Existence. The Company: (a) is duly organized and validly
existing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate 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 and to consummate the
transactions contemplated by this Agreement; and (c) is qualified to do business
in all jurisdictions in which the nature of the business conducted by it makes
such qualification necessary and where failure so to qualify would have a
material adverse effect on the results of operations, business or financial
condition of the Company and its subsidiaries taken as a whole.
2.2 Authorization. The Company has all requisite corporate power and
authority to enter into this Agreement to issue the Securities and to perform
its obligations hereunder. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action on the part
of the Company, and this Agreement has been duly executed and delivered by the
Company. This Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms subject,
as to enforceability, to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws of general applicability affecting the
rights of creditors and to general principles of equity.
2.3 No Conflict. The execution, delivery and performance by the Company
of this Agreement does not and will not (a) violate or contravene or be in
conflict with (i) any provision of the Certificate of Incorporation or By-Laws
of the Company, (ii) any provision of any law, rule or regulation applicable to
the Company, (iii) any order, judgment or decree of any court or other agency,
(b) violate, result in a breach of or constitute a default under any term of any
mortgage, indenture, contract or agreement to which the Company is a party or by
which the Company or any property of the Company is bound; or (c) result in the
creation of any tax, charge, claim, lien, security interest or other encumbrance
of any kind whatsoever on any of the properties or assets of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Private Placement.
(a) Purchaser acknowledges and agrees with the Company on the date
of this Agreement and at the date of the Closing that:
2
<PAGE> 3
(i) the offering and sale of the Securities is intended
to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of the provisions of either
Section 4(2) of the Securities Act or Rule 506 of Regulation D
("Regulation D") promulgated under the Securities Act by the Securities
and Exchange Commission (the "SEC");
(ii) the offering itself will be reported by the Company
to the SEC to the extent required by Regulation D and to various state
securities or blue sky commissioners to the extent required by
applicable state law;
(iii) there is no existing public or other market for the
Securities and there can be no assurance that any Purchaser will be
able to sell or dispose of such Purchaser's Securities; and
(iv) the shares of Class A Common Stock acquired hereby
are subject to the terms of the Stockholders Agreement of the Company,
dated as of October 1, 1998 between the Company and certain of its
stockholders and, if requested by the Company, Purchaser will become a
party to the Stockholders Agreement and that the certificates
representing the Securities will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY
OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THIS SECURITY IS
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
CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICES.
(b) Purchaser represents and warrants to the Company on the date
of this Agreement and at the date of the Closing that:
(i) the Securities to be acquired by it pursuant to this
Agreement are being acquired for his own account, not as a nominee or
agent for any other person and without a view to the distribution of
such Securities or any interest therein in violation of the Securities
Act; and
(ii) Purchaser is an "accredited investor" within the
meaning of Rule 501(a) under Regulation D, and has such knowledge and
experience in
3
<PAGE> 4
financial and business matters so as to be capable of evaluating the
merits and risks of its investment in the Securities, and Purchaser is
capable of bearing the economic risks of such investment and is able to
bear the complete loss of its investment in the Securities.
(c) Purchaser acknowledges that the Securities have not
been registered under the Securities Act and understands that the Securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or such sale is permitted pursuant to an available exemption from
such registration requirement.
ARTICLE 4
EXERCISE OF OPTION
4.1 Procedures for Exercise.
In order to exercise the Option in whole or in part, Purchaser shall
complete a subscription form (which form shall be obtained from the Company) and
deliver to the Company at its offices such subscription form and the aggregate
Purchase Price of the shares of Class A Common Stock being acquired.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows (or at such other address as may be
substituted by notice given as herein provided):
If to the Company:
ClientLogic Corporation
2 American Center
3102 West End Avenue
Suite 1000
Nashville, Tennessee 37203
Attn: Mark R. Briggs
Facsimile: (615) 301-7196
With a copy to:
ClientLogic Corporation
2 American Center
3102 West End Avenue
Suite 1000
Nashville, Tennessee 37203
Attn: General Counsel
Facsimile: (615) 301-7196
4
<PAGE> 5
If to Purchaser, at its address listed on the signature pages hereof or
such other address as Purchaser may provide by notice to the Company.
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when receipt
is acknowledged, if telecopied; and three business days after mailing if sent by
registered or certified mail (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
5.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
5.3 Successors and Assigns. This Agreement shall be binding upon the
Company, Purchaser, and their respective successors and assigns.
5.4 Duplicate Originals. All parties may sign any number of copies of
this Agreement. Each signed copy shall be an original, but all of them together
shall represent the same agreement.
5.5 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and the
remaining provisions shall not in any way be affected or impaired thereby.
5.6 No Waivers; Amendments.
(a) No failure or delay on the part of the Company or
Purchaser in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy at law or in equity or otherwise.
(b) Any provision of this Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company or the party against whom such amendment is operative.
[The remainder of this page is intentionally left blank.]
5
<PAGE> 6
SIGNATURES TO AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first written above.
CLIENTLOGIC CORPORATION
By: /s/ MARK R. BRIGGS
-----------------------------------------
Name: Mark R. Briggs
Title: President and Chief Executive Officer
/s/ GENE S. MORPHIS
--------------------------------------------
GENE S. MORPHIS
Address of Purchaser:
193 Carronbridge Way
Franklin, TN 37067
<PAGE> 7
EXHIBIT A
A-1
<PAGE> 1
EXHIBIT 10.30
THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION TO
REPURCHASE PROVIDED UNDER THE PROVISIONS OF THIS AGREEMENT. A COPY OF THIS
AGREEMENT IS AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES.
CUSTOMERONE HOLDING CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Option Agreement") is
made and entered into as of December 21, 1999, by and between CustomerONE
Holding Corporation, a Delaware corporation (the "Company"), and Mark R. Briggs
("Employee").
1. Certain Definitions.
In addition to the terms specifically defined elsewhere herein, as
used herein, the following terms will have the meanings indicated:
"Adjustment Event" shall have the meaning set forth in Section 6
hereof.
"Affiliate" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"Board of Directors" shall mean the board of directors of the Company.
"Cause" shall have the meaning set forth in Section 8(d) of the
Employment Agreement.
"Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company to any Person or group of related
Persons as determined pursuant to Section 13(d) of the Exchange Act
and the regulations and interpretations thereunder (a "Group") other
than one or more members of the Onex Group, (ii) a majority of the
Board of Directors shall consist of Persons who are not Continuing
Directors; or (iii) the acquisition by any Person or Group other than
one or more members of the Onex Group of the power, directly or
indirectly, to vote or to direct the voting of securities having more
than 50% of the ordinary voting power for the election of directors of
the Company.
<PAGE> 2
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Committee" shall have the meaning set forth in Section 4 hereof.
"Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors on the First
Option Grant Date (as defined in Section 2(a) hereof), (ii) was
nominated for election or elected to the Board of Directors of the
Company with the affirmative vote of a majority of the Continuing
Directors who were members of the Board of Directors at the time of
such nomination or election, or (iii) is a member of the Onex Group or
an appointee of the Onex Group.
"Permanent Disability" shall have the meaning set forth in Section
8(b) of the Employment Agreement.
"Employment Agreement" shall mean that certain Employment Agreement,
dated as of September 30, 1998, by and between CustomerONE
Corporation, a Delaware Corporation and wholly-owned subsidiary of the
Company, and Employee.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall, as it relates to the Common Stock, mean the
average of the high and low prices of such Common Stock as reported on
the principal national securities exchange on which the shares of
Common Stock are then listed or the NASDAQ National Market, as
applicable, on the date specified herein for such a determination; or
if there were no sales on such date, on the next preceding day on
which there were sales; or, if such Common Stock is not listed on a
national securities exchange or quoted on the NASDAQ National Market,
the last reported bid price in the over-the-counter market; or, if
such shares are not traded in the over-the-counter market, the per
share cash price for which all of the outstanding Common Stock could
be sold to a willing purchaser in an arm's-length transaction (without
regard to minority discount, absence of liquidity, or transfer
restrictions imposed by any applicable law or agreement) at the date
of the event giving rise to a need for a determination. Fair Market
Value shall be determined in good faith by the Board of Directors or a
duly appointed committee thereof.
"First Option" shall have the meaning set forth in Section 2(a)
hereof.
2
<PAGE> 3
"First Option Exercise Price" shall mean a price equal to US$1.20 per
share, subject to the adjustments and limitations set forth herein.
"First Option Grant Date" shall have the meaning set forth in Section
2(a) hereof.
"First Option Shares" shall have the meaning set forth in Section 2(a)
hereof.
"Grantor" shall have the meaning set forth in Section 11 hereof.
The term "including" when used herein shall mean "including, but not
limited to".
"IRR" shall mean, as of any date, the compounded annual pre-tax rate
of return earned by LLC2 on its direct and indirect investment in the
Portfolio Company for the period from the date of investment to such
date; provided that, for the purposes of determining the IRR, the
return earned by LLC2 shall take into account the net proceeds of any
disposition of the investment (in whole or in part), dividends,
returns of capital and other distributions, whether received directly
or indirectly by LLC2, but shall specifically exclude any management
fees or remuneration payments.
"Liquidity Event" shall mean the first to occur of any of the
following:
(i) any sale of all or substantially all of the assets of the
Portfolio Company in an arm's-length transaction;
(ii) the liquidation or winding up of the Portfolio Company;
(iii) an initial public offering of the common shares or other
equity securities of the Portfolio Company by way of prospectus,
registration statement or similar document where, or in connection
with which, such shares or securities are to become listed and posted
for trading or quoted on at least one of (1) the Toronto Stock
Exchange, (2) the Montreal Exchange, (3) the New York Stock Exchange,
(4) the American Stock Exchange or (5) the National Market of the
National Association of Securities Dealers Automated Quotation System,
together with any such other stock exchange or exchanges as may be
approved by the Board of Directors; or
(iv) a sale of all or substantially all of the shares of the
Portfolio Company owned, directly or indirectly, by LLC2 (including
any Affiliate of LLC2) in an arm's-length transaction.
"LLC2" shall mean Onex CustomerONE Holdings LLC, a Delaware limited
liability company.
3
<PAGE> 4
"Non-Qualified Options" shall mean those Options which do not qualify
for the tax treatment described under Sections 421 and 422 of the
Code.
"Option" shall mean either of the First Option or the Second Option.
"Options" shall mean, collectively, the First Option and the Second
Option.
"Option Shares" shall mean the First Option Shares and/or the Second
Option Shares.
"Onex Group" shall mean LLC2, its Affiliates, and their respective
employees, officers, members, partners and directors (and members of
their respective families and trusts for the primary benefit of such
family members), including, without limitation, Onex Corporation, a
corporation organized under the laws of the Province of Ontario,
Canada.
"Person" shall mean any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a
corporation, a partnership, a trust or other entity.
"Portfolio Company" shall mean the Company or its operating
subsidiaries taken as a whole.
"Purchase Option" shall have the meaning set forth in Section 11
hereof.
"Qualifying Public Offering" shall mean the completion of a firm
commitment underwritten public offering of Common Stock the result of
which is that the Onex Group shall own less than 10% of the fully
diluted Common Stock of the Company.
"Related Entity" shall mean any direct or indirect subsidiary or
parent of the Company now existing or hereafter formed or acquired.
"Second Option" shall have the meaning set forth in Section 2(b)
hereof.
"Second Option Exercise Price" shall mean a price equal to US$1.50 per
share, subject to the adjustments and limitations set forth herein.
"Second Option Grant Date" shall have the meaning set forth in Section
2(b) hereof.
"Second Option Shares" shall have the meaning set forth in Section
2(b) hereof.
"Securities Act" shall mean the U.S. Securities Act of 1933, as
amended.
4
<PAGE> 5
2. The Grants.
(a) Subject to the conditions set forth herein, the Company hereby
grants to Employee, effective as of January 27, 1999 (the "First Option Grant
Date"), as a matter of separate inducement and not in lieu of any salary or
other compensation for Employee's services, the right and option to purchase
(the "First Option"), in accordance with the terms and conditions set forth
herein, an aggregate of 583,333 shares of Common Stock (the "First Option
Shares"), at the First Option Exercise Price. The First Option is intended to
constitute a Non-Qualified Stock Option; however, Employee should consult with
Employee's tax advisor concerning the proper reporting of any federal, state or
foreign tax liability that may arise as a result of the grant or exercise of the
First Option.
(b) Subject to the conditions set forth herein, the Company hereby
grants to Employee, effective as of March 19, 1999 (the "Second Option Grant
Date"), as a matter of separate inducement and not in lieu of any salary or
other compensation for Employee's services, the right and option to purchase
(the "Second Option"), in accordance with the terms and conditions set forth
herein, an aggregate of 2,868 shares of Common Stock (the "Second Option
Shares"), at the Second Option Exercise Price. The Second Option is intended to
constitute a Non-Qualified Stock Option; however, Employee should consult with
Employee's tax advisor concerning the proper reporting of any federal, state or
foreign tax liability that may arise as a result of the grant or exercise of the
Second Option.
3. Exercise.
(a) For purposes of this Option Agreement, the First Option Shares
shall be deemed "Nonvested Shares" unless and until they have become "Vested
Shares" as described in this subsection. Twenty-five percent (25%) of the First
Option Shares shall become "Vested Shares" on the second anniversary of the
First Option Grant Date and seventy-five percent (75%) of the First Option
Shares shall become "Vested Shares" on the third anniversary of the First Option
Grant Date in accordance with the terms of this Option Agreement. Only upon the
occurrence of a Liquidity Event that results in LLC2 achieving an overall
compounded IRR of 15% on its investment in the Portfolio Company as at such
time, will any such "Vested Shares" become "Exercisable Shares." Until such
time, Employee will not have the right to exercise all or any portion of the
First Option, whether or not vested.
(b) For purposes of this Option Agreement, the Second Option Shares
shall be deemed "Nonvested Shares" unless and until they have become "Vested
Shares" as described in this subsection. Twenty-five percent (25%) of the Second
Option Shares shall become "Vested Shares" on the second anniversary of the
Second Option Grant Date and seventy-five percent (75%) of the Second Option
Shares shall become "Vested Shares" on the third anniversary of the Second
Option Grant Date in accordance with the terms of this Option Agreement. Only
upon the occurrence of a Liquidity Event that results in LLC2 achieving an
overall compounded IRR of 15% on its investment in the Portfolio Company as at
such time, will any such "Vested Shares" become "Exercisable
5
<PAGE> 6
Shares." Until such time, Employee will not have the right to exercise all or
any portion of the Second Option, whether or not vested.
(c) Subject to the relevant provisions and limitations contained
herein, Employee may exercise an Option to purchase all or a portion of the
applicable number of Exercisable Shares underlying such Option at any time prior
to the termination of such Option pursuant to this Option Agreement. In no event
shall Employee be entitled to exercise an Option for any Nonvested Shares,
Vested Shares that are not Exercisable Shares or for a fraction of an
Exercisable Share.
(d) The unexercised portion of the First Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the First Option Grant Date.
(e) The unexercised portion of the Second Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the Second Option Grant Date.
(f) Any exercise by Employee of an Option must be in writing addressed
to the Treasurer of the Company at its principal place of business (a copy of
the form of exercise to be used will be available upon written request to the
Treasurer), and must be accompanied by a certified or bank check payable to the
order of the Company in the full amount of the relevant exercise price of the
shares so purchased, or in such other manner as approved by the Board of
Directors or a committee thereof.
4. Administration.
This Option Agreement shall be administered by the Board of Directors,
or by any committee appointed by the Board of Directors to administer this
Option Agreement (the "Committee"); provided, however, that the entire Board of
Directors may act as the Committee if it chooses to do so.
5. Termination of Employment.
In the case of termination of Employee's employment with the Company
or any Related Entity for Cause pursuant to Section 8(d) of the Employment
Agreement, Employee shall immediately forfeit Employee's rights under the
Options, including rights in any Vested Shares and/or Exercisable Shares, except
as to those Option Shares already purchased.
6. Adjustment of Shares.
In the event that, by reason of any merger, consolidation,
combination, liquidation, stock dividend, stock split, split-up, split-off,
spin-off, combination of shares, exchange of shares or other like change in
capital structure of the Company (collectively, an "Adjustment Event"), the
Common Stock is substituted, combined, or changed into any cash, property, or
other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares
6
<PAGE> 7
and/or interests subject to this Option Agreement and the per share price or
value thereof shall be appropriately and equitably adjusted by the Committee to
give appropriate effect to such Adjustment Event. Any fractional shares or
interests resulting from such adjustment shall be eliminated. Notwithstanding
the foregoing, no adjustment shall be made under this Section 6 as a result of
the issuance of shares of Common Stock for consideration in cash or in property.
In the event the Company is not the surviving entity of an Adjustment
Event and, following such Adjustment Event, Employee will continue to hold an
Option (or Options) which has (or have) not theretofore been fully exercised,
cancelled, or terminated in connection therewith, the Company shall cause such
Option (or Options) to be assumed (or cancelled and a replacement Option or
Options issued) by the surviving entity or a Related Entity. In the event of any
perceived conflict between the provisions of Section 10 and this Section 6, the
Committee's determinations under Section 10 shall control.
7. Transferability.
Except as provided in Section 11 hereof, the Options and any rights or
interests therein are not assignable or transferable by Employee except by will
or the laws of descent and distribution, and during Employee's lifetime, each
Option shall be exercisable only by Employee or, in the event that a legal
representative has been appointed in connection with Employee's Permanent
Disability, such legal representative.
8. Registration.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable securities
laws of any other jurisdiction to permit exercise of either Option or to issue
any Common Stock in violation of the Securities Act or any applicable securities
laws of any other jurisdiction. Employee (or in the event of Employee's death
or, in the event a legal representative has been appointed in connection with
Employee's Permanent Disability, the Person exercising an Option) must, as a
condition to Employee's right to exercise an Option, deliver to the Company an
agreement or certificate containing such representations, warranties and
covenants as the Company may deem necessary or appropriate to ensure that the
issuance of the Option Shares pursuant to such exercise is not required to be
registered under the Securities Act or any applicable securities laws of any
other jurisdiction.
Certificates for Option Shares, when issued, will have substantially
the following legend, or statements of other applicable restrictions, endorsed
thereon (or any other legend that may be required for issuance to a Person
outside the United States), and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE
7
<PAGE> 8
SECURITIES ACT OF 1933, AS AMENDED, OR ANY SECURITIES LAWS OF ANY
OTHER JURISDICTION. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF
PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION
OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION
WILL NOT VIOLATE APPLICABLE FEDERAL, STATE OR OTHER LAWS.
The foregoing legend will not be required for Option Shares issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
9. Withholding Taxes.
By acceptance hereof, Employee hereby (i) agrees to reimburse the
Company or any Related Entity by which Employee is employed for any Canadian or
U.S. federal, provincial, state, local or foreign taxes required by any
government to be withheld or otherwise deducted by such corporation in respect
of Employee's exercise of all or a portion of an Option; (ii) authorizes the
Company or any Related Entity by which Employee is employed to withhold from any
cash compensation paid to Employee or on Employee's behalf, an amount sufficient
to discharge any Canadian or U.S. federal, provincial, state, local or foreign
taxes imposed on the Company, or the Related Entity by which Employee is
employed, and which otherwise has not been reimbursed by Employee, in respect of
Employee's exercise of all or a portion of an Option; and (iii) agrees that the
Company may, in its discretion, hold the stock certificate to which Employee is
entitled upon exercise of an Option as security for the payment of the
aforementioned withholding tax liability, until cash sufficient to pay that
liability has been accumulated, and may, in its discretion, effect such
withholding by retaining shares issuable upon the exercise of such Option having
a Fair Market Value on the date of exercise which is equal to the amount to be
withheld.
10. Change of Control.
If (i) a Change of Control shall occur, (ii) the Company shall enter
into an agreement providing for a Change of Control, or (iii) any member of the
Onex Group shall enter into an agreement providing for a Change of Control, then
the Committee may, but shall not be obligated to, declare either Option or both
Options to be exercisable in full at such time or times as the Committee shall
determine, and under such conditions as the Committee shall determine,
notwithstanding the express provisions of this Option Agreement. In the event
that either Option is (or both Options are) accelerated by the Committee
pursuant to the preceding sentence, such Option (or Options) shall terminate,
notwithstanding any express provision hereof, on such date (not later than the
stated exercise date) as the Committee shall determine.
8
<PAGE> 9
11. Purchase Option.
(a) If (i) Employee's employment with the Company or a Related Entity
terminates for any reason at any time or (ii) a Change of Control occurs, the
Company and/or its designee(s) shall have the option (the "Purchase Option") to
purchase, and if the Purchase Option is exercised, Employee (or Employee's
executor or the administrator of Employee's estate or the Person who acquired
the right to exercise an Option by bequest or inheritance in the event of
Employee's death, or Employee's legal representative in the event of Employee's
incapacity (hereinafter, collectively with such optionee, the "Grantor")) shall
sell to the Company and/or its assignee(s), all or any portion (at the Company's
option) of the Option Shares and/or the Option or Options held by the Grantor
(such Option Shares and Option or Options collectively being referred to as the
"Purchasable Shares").
(b) The Company shall give notice in writing to the Grantor of the
exercise of the Purchase Option within one (1) year from the date of the
termination of Employee's employment or engagement or such Change of Control.
Such notice shall state the number of Purchasable Shares to be purchased and the
determination of the Board of Directors of the Fair Market Value per share of
such Purchasable Shares. If no notice is given within the time limit specified
above, the Purchase Option shall terminate.
(c) The purchase price to be paid for the Purchasable Shares purchased
pursuant to the Purchase Option shall be, in the case of any Option Shares, the
Fair Market Value per share as of the date of notice of exercise of the Purchase
Option times the number of shares being purchased, in the case of the First
Option, the Fair Market Value per share less the applicable per share First
Option Exercise Price, times the number of Exercisable Shares subject to such
First Option which are being purchased, and in the case of the Second Option,
the Fair Market Value per share less the applicable per share Second Option
Exercise Price, times the number of Exercisable Shares subject to such Second
Option which are being purchased. The purchase price shall be paid in cash. The
closing of such purchase shall take place at the Company's principal executive
offices within ten (10) days after the purchase price has been determined. At
such closing, the Grantor shall deliver to the purchaser(s) the certificates or
instruments evidencing the Purchasable Shares being purchased, duly endorsed (or
accompanied by duly executed stock powers) and otherwise in good form for
delivery, against payment of the purchase price by check of the purchaser(s). In
the event that, notwithstanding the foregoing, the Grantor shall have failed to
obtain the release of any pledge or other encumbrance on any Purchasable Shares
by the scheduled closing date, at the option of the purchaser(s) the closing
shall nevertheless occur on such scheduled closing date, with the cash purchase
price being reduced to the extent of all unpaid indebtedness for which such
Purchasable Shares are then pledged or encumbered.
(d) To assure the enforceability of the Company's rights under this
Section 11, each certificate or instrument representing Option Shares subject to
this Option Agreement shall bear a conspicuous legend in substantially the
following form:
9
<PAGE> 10
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION TO
REPURCHASE PROVIDED UNDER THE PROVISIONS OF A STOCK OPTION AGREEMENT
ENTERED INTO BY AND BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THIS
CERTIFICATE. A COPY OF SUCH OPTION AGREEMENT IS AVAILABLE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
12. Stockholders Agreement.
Employee acknowledges and agrees that upon exercise of an Option,
Employee will enter into and become bound by the Stockholders Agreement among
the Company and the other parties thereto, substantially in the form made
available to Employee concurrently herewith, as such Stockholders Agreement may
be subsequently modified or amended.
To the extent required by the Stockholders Agreement, certificates for
Option Shares, when issued, will have substantially the following legend:
THIS SECURITY IS 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 CUSTOMERONE
HOLDING CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICES.
13. Multiple Classes and Series of Stock.
Certificates for Option Shares, when issued, will have substantially
the following legend:
THE ISSUER IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONE CLASS AND TO
ISSUE SHARES 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.
10
<PAGE> 11
14. Effect on Employment.
This Option Agreement is not a contract of employment and the terms of
Employee's employment shall not be affected by, or construed to be affected by,
this Option Agreement, except to the extent specifically provided herein.
Nothing herein shall impose, or be construed as imposing, any obligation (i) on
the part of the Company or any Related Entity to continue Employee's employment,
or (ii) on the part of Employee to remain in the employ of the Company or any
Related Entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Option Agreement to
be executed as of the date first set forth above.
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
---------------------------------
Its: CFO
--------------------------------
/s/ MARK R. BRIGGS
-----------------------------------
Mark R. Briggs
<PAGE> 1
EXHIBIT 10.32
[CARON & STEVENS/BAKER & MCKENZIE LETTERHEAD]
CORDENA CALL MANAGEMENT B.V.
established at Amsterdam
Deed of share issue
Certified copy of the deed of share issue, executed before H. van Wilsum, Esq.,
a civil-law notary residing in Amsterdam, on September 17, 1998.
<PAGE> 2
CARON & STEVENS/BAKER & MCKENZIE
1
SHARE ISSUE
This day, the seventeenth day of September nineteen hundred and ninety-eight,
there appeared before me, Hendrik van Wilsum, Esq., a civil-law notary in
Amsterdam:
Catharina Martina Johanna Tielemans, Esq., deputy civil-law notary, unmarried,
residing at 1053 HB Amsterdam, Jacob van Lennepstraat 21/1A, born at Eindhoven
on the twenty-first day of March nineteen hundred and seventy-two, passport
number N69662327, acting for the purpose hereof as attorney in fact of:
1. Cordena Call Management B.V., a private company with limited liability,
having its corporate seat in Amsterdam, and with address: 1017 PS Amsterdam.
Leidseplein 29, hereinafter referred to as the "Company"; and
2. a. Global Private Equity III Limited Partnership, a limited partnership
formed and entered into under the laws of the state of Delaware,
United States of America, having its registered office at Corporation
Trust center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, United States of America, hereinafter referred to as
"GPE III LP";
b. Global Private Equity III - A Limited Partnership, a limited
partnership formed and entered into under the laws of the state of
Delaware, United States of America, having its registered office at
Corporation Trust center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, United States of America, hereinafter referred
to as "GPE III-A LP";
<PAGE> 3
CARON & STEVENS/BAKER & MCKENZIE
2
c. Global Private Equity III-B Limited Partnership, a limited
partnership formed and entered into under the laws of the state of
Delaware, United States of America, having its registered office at
Corporation Trust center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, United States of America, hereinafter referred
to as "GPE III-B LP";
d. Advent Partners (NA) GPE III Limited Partnership, a limited
partnership, formed and entered into under the laws of the state of
Delaware, United States of America, having its registered office at
Corporation Trust center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, United States of America, hereinafter referred
to as "Advent Partners(NA) GPE III LP";
e. Advent Partners GPE III Limited Partnership, a limited partnership,
formed and entered into under the laws of the state of Delaware,
United States of America, having its registered office at Corporation
Trust center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, United States of America, hereinafter referred to as
"Advent Partners GPE III LP";
f. Global Private Equity III-C Limited Partnership, a limited
partnership, formed and entered into under the laws of the state of
Delaware, United States of America, having its registered office at
Corporation Trust center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, United States of America, hereinafter referred
to as "GPE III-C LP";
g. Advent PGGM Global Limited Partnership, a limited partnership, formed
and entered into under the laws of the state of Delaware, United
States of America,
<PAGE> 4
CARON & STEVENS/BAKER & MCKENZIE
3
having its registered office at Corporation Trust center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, United States
of America, hereinafter referred to as "Advent PGGM Global LP";
h. Oakstone Ventures Limited Partnership, a limited partnership, formed
and entered into under the laws of the state of Delaware, United
States of America, having its registered office at Corporation Trust
center, 1209 Orange Street, Wilmington, New Castle County, Delaware
19801, United States of America, hereinafter referred to as "Oakstone
Ventures LP";
i. Advent Partners Limited Partnership, a limited partnership, formed and
entered into under the laws of the state of Delaware, United States of
America, having its registered office at Corporation Trust center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801,
United States of America, hereinafter referred to as "Advent Partners
LP";
j. Jules Timotheus Henricus Maria Kortenhorst, manager, married, born in
Oss, on the third day of February nineteen hundred and sixty-one,
residing at 2244 AZ Wassenaar, Helmlaan 10, hereinafter referred to
as "Kortenhorst";
k. Caroline Christine van der Laan, manager, married, born in the Hague,
on the twenty-sixth day of December nineteen hundred and forty-nine,
residing at 3645 AD Vinkeveen, Baambrugse Zuwe 125 B, American
nationality, hereinafter referred to as "Van der Laan";
l. Susan Ann Boyle, telecom employee, married, born in Jersey City, New
Jersey, United States of America, on the twenty-third day of April
nineteen hundred and fifty-six, residing at 2396 VK Koudekerk aan de
Rijn, Van Egtenplantsoen 16, American nationality, hereinafter
referred to as "Boyle";
<PAGE> 5
CARON & STEVENS/BAKER & MCKENZIE
4
m. Peter Eduard Dekker, director, married, residing at 3755 KK Bosch en
Duin, Reelaan 31, born in Voorst on the third day of May nineteen
hundred fifty-four, hereinafter referred to as "Dekker";
n. Fredericus Gerardus Maria Hulsink, director, married, born in
Ootmarsum, on the nineteenth day of July nineteen hundred and
fifty-one, residing at 7601 GH Almelo, Bornestraat 239, hereinafter
referred to as "Hulsink";
o. Breydon Limited, a company incorporated under the laws of the British
Isles, with registered office at P.O. Box 44030, 10074 Stockholm,
Sweden, hereinafter referred to as "Breydon";
p. David Theron Kumar Sarda, private equity investor, married, born in
New York, United States of America on the fourth day of June nineteen
hundred and sixty, residing at 487 Country Road, New Canaan, CT 06840
United States of America, American nationality, hereinafter referred
to as "Sarda";
q. Ronald William Butler, company director, married, residing at 38 Stoke
Farthing, Broadchalke, Salisbury SP5 5EL, United Kingdom, born in
Edinburgh, Scotland, on the eighth day of May nineteen hundred
fifty-two, hereinafter referred to as "Butler";
r. Christopher Fitzroy Robinson, company director, married, residing at
Bowbeer Farmhouse, Spreyton, Crediton, Devon EX17 5AE, United Kingdom,
born in Hove, United Kingdom, on the twenty-second day of June
nineteen hundred fifty-three, hereinafter referred to as "Robinson";
s. Sally Vanessa Robinson, housewife, married, residing at Bowbeer
Farmhouse, Spreyton, Crediton, Devon EX17 5AE, United Kingdom, born in
London, United Kingdom, on the twenty-ninth day of May nineteen
hundred fifty-four; hereinafter referred to as "Mrs. Robinson";
<PAGE> 6
CARON & STEVENS/BAKER & MCKENZIE
5
t. William Butler, no occupation, married, residing at 48 Redford Road,
Edinburgh, Scotland, EH13 0AE, born in Edinburgh, Scotland, on the
fifth day of June nineteen hundred thirteen, hereinafter referred to
as "Mr. Butler";
u. Jeroen Jules Smits, no profession, unmarried, born in Zwolle, the
Netherlands, on the twenty-eighth day of January nineteen hundred and
ninety-two, residing at 8033 DV Zwolle, Ruurlosebeek 14, hereinafter
referred to as "Jeroen";
v. Caroline Juliette Gabique Smits, no profession, unmarried, born in
Zwolle, the Netherlands, on the twenty-fourth day of April nineteen
hundred and ninety-four, residing at 8033 DV Zwolle, Ruurlosebeek 14,
hereinafter referred to as "Caroline";
w. Alessandra Mei Kortenhorst, no profession, unmarried, born in Hong
Kong, on the fourth day of April nineteen hundred and ninety-one,
residing at 2244 AZ Wassenaar, Helmlaan 10, the Netherlands,
hereinafter referred to as "Alessandra";
x. Jules Kiril Kortenhorst, no profession, unmarried, born in Arnhem,
the Netherlands, on the twenty-eighth day of April nineteen hundred
and ninety-three, residing at 2244 AZ Wassenaar, Helmlaan 10, the
Netherlands, hereinafter referred to as "Jules";
y. Winston Powell Kortenhorst, no profession, unmarried, born in St.
Petersburg, Florida,, United States of America,on the thirteenth day
of January nineteen hundred and ninety-five, residing at 2244 AZ
Wassenaar, Helmlaan 10, the Netherlands, hereinafter referred to as
"Winston";
z. Rainier George Kortenhorst, no profession, unmarried, born in the
Hague, the Netherlands, on the fourteenth day of August nineteen
hundred and ninety-seven, residing at 2244 AZ Wassenaar, Helmlaan 10,
the Netherlands, hereinafter referred to as "Rainer";
<PAGE> 7
CARON & STEVENS/BAKER & MCKENZIE
6
the parties referred to under 2.a up to and including z, hereinafter
jointly as well as individually referred to as the "Acquirer".
3. Stichting Administratiekantoor Cordena Call Management, with
registered office in Amsterdam and with address: 1017 PS Amsterdam,
Leideplein 29, hereinafter referred to as the "Stichting".
The powers of attorney granted to the deponent, the existence of which has
been sufficiently demonstrated to me, civil-law notary, are evidenced by
twenty-three (23) private deeds of attorney attached to this deed. The
identity of the deponent of this deed was established by me, a civil-law
notary, on the basis of the above-mentioned document intended for
identification purposes. The deponent, acting in her said capacity,
declared as follows:
A. PRESENT SHAREHOLDING/SHAREHOLDER'S RESOLUTION:
1. The Stichting is holder of the entire issued and outstanding share
capital of the Company, consisting of three million seven hundred
forty-six thousand three hundred and twenty-three (3,746,323) shares,
numbered 1 up to an including 3,476,323, each share having a nominal
value of four Netherlands cents (NLG 0,04); depositary receipts for
shares in the Company have not been issued with the Company's
concurrence and there are no persons to whom the law attributes the
right accruing to holders of depositary receipts issued with the
Company's concurrence;
2. The Stichting in its capacity of sole shareholder of the Company and
in conformity with article 43 of the Company's Articles of
Incorporation, hereby resolves
A. to issue to:
a: GPE III LP five hundred eighteen thousand four hundred one
(518,401) shares in the Company's capital stock, numbered
3,746,324 up to and including 4,264,724 with a par value of
four
<PAGE> 8
C. BAKER & MCKENZIE
Netherlands cents (NLG 0.04) each, _______________, hereinafter
referred to as the "GPE III LP Shares"; ______________________
b. GPE III-A LP two hundred forty-two thousand two hundred (242,200)
shares in the Company's capital stock, numbered 4,264,725 up to and
including 4,506,924, with a par value of four Netherlands cents (NLG
0.04) each, _____________, hereinafter referred to as the "GPE III-A
LP Shares"; ______________________
c. GPE III-B LP twelve thousand two hundred (12,200) shares in the
Company's capital stock, numbered 4,506,925 up to and including
4,519,124, with a par value of four Netherlands cents (NLG 0.04) each,
_____________, hereinafter referred to as the "GPE III-B LP Shares";
______________________
d. Advent Partners (NA) GPE III LP two thousand four hundred (2,400)
shares in the Company's capital stock, numbered 4,510,125 up to and
including 4,520,524, with a par value of four Netherlands cents (NLG
0.04) each, ______________________, hereinafter referred to as the
"Advent Partners (NA) GPE III LP Shares"; ______________________
e. Advent Partners GPE III LP eight thousand (8,000) shares in the
Company's capital stock, numbered 4,521,525 up to and including
4,529,524, with a par value of four Netherlands cents (NLG 0.04) each,
______________________, hereinafter referred to as the "Advent
Partners GPE III LP Shares"; ______________________
f. GPE III-C LP one hundred sixty-one thousand six hundred (161,600)
shares in the Company's capital stock, numbered 4,529,525 up to and
including 4,691,124, with a par value of four Netherlands cents (NLG
0.04) each, ______________________,
<PAGE> 9
CARON & STEVENS/BAKER & MCKENZIE
8
hereinafter referred to as the "GPE III-C LP Shares";
g. Advent PGGM Global LP eighty thousand eight hundred (80,800) shares in
the Company's capital stock, numbered 4,691,125 up to and including
4,771,924, with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Advent PGGM Global LP Shares";
h. Oakstone Ventures LP forty-four thousand eight hundred (44,800) shares
in the Company's capital stock, numbered 4,771,525 up to and including
4,816,7214, with a par value of four Netherlands cents (NLG 0,04)
each, hereinafter referred to as the "Oakstone Ventures LP Shares";
i. Advent Partners LP four thousand four hundred (4,400) shares in the
Company's capital stock, numbered 4,816,725 up to and including
4,821,124, with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Advent Partners LP Shares";
j. Kortenhorst one hundred forty-three thousand four hundred seventy-one
(143,471) shares in the Company's capital stock, numbered 4,821,125 up
to and including 4,964,595, with a par value of four Netherlands cents
(NLG 0,04) each, hereinafter referred to as the "Kortenhorst Shares";
k. Van der Laan seven thousand five hundred eighty-five (7,585) shares in
the Company's capital stock, numbered 4,964,556 up to and including
4,972,180, with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Van der Laan
<PAGE> 10
CARON & STEVENS/BAKER & MCKENZIE
9
Shares";
l. Boyle seven thousand five hundred eighty-five (7,585) shares in the
Company's capital stock, numbered 4,972,181 up to and including
4,979,765, with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Boyle Shares";
m. Dekker twenty-three thousand four hundred nine (23,409) shares in the
Company's capital stock, numbered 4,979,766 up to and including
5,003,174 with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Dekker Shares";
n. Hulsink seventy-four thousand eight hundred fifty (74,850) shares in
the Company's capital stock, numbered 5,003,175 up to and including
5,078,024, with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Hulsink Shares";
o. Breydon seventy-five thousand (75,000) shares in the Company's capital
stock, numbered 5,078,025 up to and including 5,153,024, with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Breydon Shares";
p. Sarda seventy-five thousand (75,000) shares in the Company's capital
stock, numbered 5,153,025 up to and including 5,228,024, with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Sarda Shares";
q. Butler two thousand two hundred sixty-two
<PAGE> 11
CARON & STEVENS/BAKER & MCKENZIE
10
(2,262) shares in the Company's capital stock, numbered 5,228,025 up
to and including 5,230,286, with a par value of four Netherlands cents
(NLG 0,04) each, hereinafter referred to as the "Butler Shares";
r. Robinson five hundred (500) shares in the Company's capital stock,
numbered 5,230,287 up to and including 5,230,786, with a par value of
four Netherlands cents (NLG 0,04) each, hereinafter referred to as the
"Robinson Shares";
s. Mrs. Robinson five hundred (500) shares in the Company's capital
stock, numbered 5,230,787 up to and including 5,231,286, with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Mrs. Robinson Shares";
t. Mr. Butler eight hundred four (804) shares in the Company's capital
stock, numbered 5,231,287 up to and including 5,232,090 with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Mr. Butler Shares";
u. Jeroen four hundred twenty-nine (429) shares in the Company's capital
stock, numbered 5,232,091 up to and including 5,232,515, with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Jeroen Shares";
v. Caroline four hundred twenty-nine (429) shares in the Company's
capital stock, numbered 5,232,520 up to and including 5,232,948, with
a par value of four Netherlands cents (NLG 0,04) each, hereinafter
referred to as the "Caroline
<PAGE> 12
CARON & STEVENS/BAKER & MCKENZIE
11
Shares";
w. Alessandra four hundred twenty-nine (429) shares in the
Company's capital stock, numbered 5,232,949 up to and
including 5,233,377, with a par value of four Netherlands
cents (NLG 0,04) each, hereinafter referred to as the
"Alessandra Shares";
x. Jules four hundred twenty-nine (429) shares in the Company's
capital stock numbered 5,233,378 up to and including
5,233,806, with a par value of four Netherlands cents (NLG
0,04) cents (NLG 0,04) each, hereinafter referred to as the
"Jules Shares";
y. Winston four hundred twenty-nine (429) shares in the
Company's capital stock, numbered 5,233,807 up to
and including 5,234,235, with a par value of four
Netherlands cents (NLG 0,04) each, hereinafter referred to
as the "Winston Shares";
z. Ranier four hundred twenty-nine (429) shares in the
Company's capital stock, numbered 5,234,236 up to and
including 5,234,664 with a par value of four Netherlands
cents (NLG 0,04) each, hereinafter referred to as the
"Rainier Shares";
all these shares to be issued at an issue price of seven Netherlands
Guilders (NLG 7. --) per share provided that payment is made in cash
B. to exclude the pre-emptive rights with respect to the issue referred
to above:
C. to approve that the Company grants a right to purchase the following
shares to be newly issued:
a. seventy-four thousand fifty-seven (74,057)
<PAGE> 13
CARON & STEVENS/BAKER & MCKENZIE
shares to GPE III LP, hereinafter referred to as the "GPE III LP
Option";
b. thirty-four thousand six hundred (34,600) shares to GPE III-A LP,
hereinafter referred to as the "GPE III-A LP Option";
c. one thousand seven hundred forty-three (1,743) shares to GPE
III-B LP, hereinafter referred to as the "GPE III-B LP Option";
d. three hundred forty-three (343) shares to Advent Partners (NA)
GPE III LP, hereinafter referred to as the "Advent Partners (NA)
GPE III LP Option";
e. one thousand one hundred forty-nine (1,143) shares to Advent
Partners GPE III LP, hereinafter referred to as the "Advent
Partners GPE III LP, Option";
f. twenty-three thousand eighty-six (23,086) shares to GPE III-C
LP, hereinafter referred to as the "GPE III-C LP Option";
g. eleven thousand five hundred forty-three (11,543) shares to
Advent PGGM Global LP hereinafter referred to as the "Advent
PGGM Global LP Option";
h. six thousand four hundred (6,400) shares to Oakstone Ventures LP,
hereinafter referred to as the "Oakstone Ventures LP Option";
i. six hundred twenty-nine (629) shares to Advent Partners LP,
hereinafter referred to as the "Advent Partners LP Option";
j. twenty thousand four hundred ninety-six (20,496) shares to
Kortenhorst, hereinafter referred to as the "Kortenhorst Option";
k. one thousand eighty-three (1,083) shares to Van der Laan,
hereinafter referred to as the "Van der Laan Option";
l. one thousand eighty-four (1,084) shares to
<PAGE> 14
CARON & STEVENS/BAKER & MCKENZIE
13
Boyle, hereinafter referred to as the "Boyle Option";
m. three thousand three hundred forty-four (3,344) shares to Dekker,
hereinafter referred to as the "Dekker Option";
n. ten thousand six hundred ninety-three (10,693) shares to Hulsink,
hereinafter referred to as the "Hulsink Option";
o. ten thousand seven hundred fourteen (10,714) shares to Breydon,
hereinafter referred to as the "Breydon Option";
p. ten thousand seven hundred and fourteen (10,714) shares to Sarda,
hereinafter referred to as the "Sarda Option";
q. three hundred twenty-three (323) shares to Butler, hereinafter
referred to as the "Butler Option";
r. seventy-one (71) shares to Robinson, hereinafter referred to as
the "Robinson Option";
s. seventy-one (71) shares to Mrs. Robinson, hereinafter referred to
as the "Mrs. Robinson Option";
t. one hundred fifteen (115) shares to Mr. Butler, hereinafter
referred to as the "Mr. Butler Option";
u. sixty-one (61) shares to Jeroen, hereinafter referred to as the
"Jeroen Option";
v. sixty-one (61) shares to Caroline, hereinafter referred to as the
"Caroline Option";
w. sixty-one (61) shares to Alessandra, hereinafter referred to as
the "Alessandra Option";
x. sixty-one (61) shares to Jules, hereinafter referred to as the
"Jules Option";
y. sixty-one (61) shares to Winston, hereinafter referred to as the
"Winston Option";
z. sixty-one (61) shares to Rainier, hereinafter
<PAGE> 15
[CARON & STEVENS LOGO]
14
referred to as the "Rainier Option":
the options hereinafter jointly as well as separately referred to as
the "Optioned Shares" in the Company's capital stock at n issue price
of seven Netherlands guilders (NLG 7.--) per share, hereinafter
referred to as the "Option".
D. to exclude the pre-emptive rights with respect to the issue of shares
as a result of the options granted under C. above.
SHARE ISSUE:
1. Pursuant to the shareholder's resolution to issue shares as referred to
above, the Company hereby issues:
a. the GPE III LP Shares to GPE III LP on condition that the GPE III
LP satisfies the ensuing payment obligation;
b. the GPE III-A LP Shares to GPE III-A LP on condition that GPE
III-A LP satisfies the ensuing payment obligation;
c. the GPE III-B LP Shares to GPE III-B LP on condition that GPE
III-B LP satisfies the ensuing payment obligation;
d. the Advent Partners (NA; GPE III-LP shares to Advent Partners
(NA) GPE III LP on condition that Advent Partners (NA) GPE III LP
satisfies the ensuing payment obligation;
e. the Advent Partners GPE III LP Shares to Advent Partners GPE III
LP on condition that Advent Partners GPE III LP satisfies the
ensuing payment obligation;
f. the GPE III-C LP Shares to GPE III-C LP on condition that GPE
III-C LP satisfies the ensuing payment obligation;
g. the Advent PGGM Global LP Shares to Advent PGGM Global LP on
condition that Advent PGGM Global LP satisfies the ensuing
payment obligation;
h. the Oakstone Ventures LP Shares to Oakstone Ventures
<PAGE> 16
CARON & STEVENS/BAKER & MCKENZIE
15
LP on condition that Oakstone Ventures LP satisfies the ensuing
payment obligation;
i. the Advent Partners LP Shares to Advent Partners LP on condition
that Advent Partners LP satisfies the ensuing payment obligation;
j. the Kortenhorst Shares to Kortenhorst on condition that
Kortenhorst satisfies the ensuing payment obligation;
k. the Van der Laan Shares to Van der Laan on condition that Van
der Laan satisfies the ensuing payment obligation;
l. the Boyle Shares to Boyle on condition that Boyle satisfies the
ensuing payment obligation;
m. the Dekker Shares to Dekker on condition that Dekker satisfies
the ensuing payment obligation;
n. the Hulsink Shares to Hulsink on condition that Hulsink
satisfies the ensuing payment obligation;
o. the Breydon Shares to Breydon on condition that Breydon satisfies
the ensuing payment obligation;
p. the Sarda Shares to Sarda on condition that Sarda satisfies the
ensuing payment obligation;
q. the Butler Shares to Butler on condition that Butler satisfies
the ensuing payment obligation;
r. the Robinson Shares to Robinson on condition that Robinson
satisfies the ensuing payment obligation;
s. the Mrs Robinson Shares to Mrs Robinson on condition that Mrs
Robinson satisfies the ensuing payment obligation;
t. the Mr Butler Shares to Mr Butler on condition that Mr Butler
satisfies the ensuing payment obligation;
u. the Jeroen Shares to Jeroen on condition that Jeroen satisfies
the ensuing payment obligation;
v. the Caroline Shares to Caroline on condition that Caroline
satisfies the ensuing payment obligation;
<PAGE> 17
CARON & STEVENS/BAKER & MCKENZIE
16
w. the Alessandra Shares to Alessandra on condition that Alessandra
satisfies the ensuing payment obligation;
x. the Jules shares to Jules on condition that Jules satisfies the
ensuing payment obligation;
y. the Winston shares to Winston on condition that Winston satisfies the
ensuing payment obligation;
z. the Rainier shares to Rainier on condition that Rainier satisfies the
ensuing payment obligation;
2. Acquirer accepts the shares specified in paragraph 1 subject to the
condition specified therein.
3. The Company has received payment for the shares specified in paragraph 1
and herewith discharges Acquirer of its payment obligation.
4. The costs associated with this deed shall be paid by the company.
5. The Company shall cause the notes required for the share issue to be
entered into the shareholders' register.
Granting of options:
1. Pursuant to the shareholders' resolution to grant the Option as referred to
above, the Company hereby grants under the terms and conditions as set out
in a schedule attached to this deed to:
a. GPE III LP the GPE III LP Option, who accepts the GPE III LP Option;
b. GPE III-A LP the GPE III-A LP Option, who accepts the GPE III-A LP
Option;
c. GPE III-B LP the GPE III-B LP Option, who accepts the GPE III-B LP
Option;
d. Advent Partners (NA) GPE III LP the Advent Partners (NA) GPE III LP
Option, who accepts the advent Partners (NA) GPE III LP Option;
e. Advent Partners GPE III LP the Advent Partners GPE III LP Option, who
accepts the Advent Partners GPE
<PAGE> 18
CARON & STEVENS/BAKER & MCKENZIE
III LP Option;
f. GPE III-C LP the GPE III-C LP Option, who accepts the GPE III-C LP
Option;
g. Advent PGGM Global LP the Advent PGGM Global LP Option, who accepts
the Advent PGGM Global LP Option;
h. Oakstone Ventures LP the Oakstone Ventures LP Option, who accepts the
Oakstone Ventures LP Option;
i. Advent Partners LP the Advent Partners LP Option, who accepts the
Advent Partners LP Option;
j. Kortenhorst the Kortenhorst Option, who accepts the Kortenhorst
Option;
k. Van der Laan the Van der Laan Option, who accepts the Van der Laan
Option;
l. Boyle the Boyle Option, who accepts the Boyle Option;
m. Dekker the Dekker Option, who accepts the Dekker Option;
n. Hulsink the Hulsink Option, who accepts the Hulsink Option;
o. Breydon the Breydon Option, who accepts the Breydon Option;
p. Sarda the Sarda Option, who accepts the Sarda Option;
q. Butler the Butler Option, who accepts the Butler Option;
r. Robinson the Robinson option, who accepts the Robinson Option;
s. Mrs. Robinson the Mrs. Robinson Option, who accepts the Mrs. Robinson
option;
t. Mr. Butler the Mr. Butler Option, who accepts the Mr. Butler Option;
u. Jeroen the Jeroen Option, who accepts the Jeroen Option;
v. Caroline the Caroline Option, who accepts the Caroline Option;
<PAGE> 19
18
CARON & STEVENS/BAKER & MCKENZIE
w. Alessandra the Alessandra Option, who accepts the Alessandra
Option;
x. Jules the Jules Option, who accepts the Jules Option;
y. Winston the Winston Option, who accepts the Winston Option;
z. Rainier the Rainier Option, who accepts the Rainier Option;
The deponent was known to me, a civil-law notary.
WITNESSED THIS DEED, the original of which was drawn up and executed in
Amsterdam at the date first noted above.
After the purport of this deed was explained to the deponent, she declared
that she had taken note of its contents and waived a full reading thereof.
After a limited reading, this deed was subsequently signed by the deponent
and me, a civil law notary.
(Signed: C.M.J. Tielemans; H. van Wilsum).
FOR TRUE COPY
[SEAL]
<PAGE> 20
1
POWER OF ATTORNEY
The undersigned:
Global Private Equity III Limited Partnership, a limited partnership formed and
entered into under the laws of the state of Delaware, United States of America,
having its registered office at Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 21
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- ---------------------------------------------
Global Private Equity III Limited Partnership
<PAGE> 22
1
POWER OF ATTORNEY
The undersigned:
Global Private Equity III-A Limited Partnership, a limited partnership formed
and entered into under the laws of the state of Delaware, United States of
America, having its registered office at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 23
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- -----------------------------------------------
Global Private Equity III-A Limited Partnership
<PAGE> 24
1
POWER OF ATTORNEY
The undersigned:
Global Private Equity III-B Limited Partnership, a limited partnership formed
and entered into under the laws of the state of Delaware, United States of
America, having its registered office at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 25
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- -----------------------------------------------
Global Private Equity III-B Limited Partnership
<PAGE> 26
1
POWER OF ATTORNEY
The undersigned:
Advent Partners (NA) GPE III Limited Partnership, a limited partnership formed
and entered into under the laws of the state of Delaware, United States of
America, having its registered office at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 27
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- ------------------------------------------------
Advent Partners (NA) GPE III Limited Partnership
<PAGE> 28
1
POWER OF ATTORNEY
The undersigned:
Advent Partners GPE III Limited Partnership, a limited partnership formed and
entered into under the laws of the state of Delaware, United States of America,
having its registered office at Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 29
1
POWER OF ATTORNEY
The undersigned:
Advent PGGM Global Limited Partnership, a limited partnership formed and
entered into under the laws of the state of Delaware, United States of America,
having its registered office at Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company, in
accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 30
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- --------------------------------------
Advent PGGM Global Limited Partnership
<PAGE> 31
1
POWER OF ATTORNEY
The undersigned:
Oakstone Ventures Limited Partnership, a limited partnership formed and entered
into under the laws of the state of Delaware, United States of America, having
its registered office at Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company, in
accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 32
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- -------------------------------------
Oakstone Ventures Limited Partnership
<PAGE> 33
1
POWER OF ATTORNEY
The undersigned:
Advent Partners Limited Partnership, a limited partnership formed and entered
into under the laws of the state of Delaware, United States of America, having
its registered office at Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, United States of America;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep
<PAGE> 34
2
the attorney indemnified and hold harmless against any losses, suits, claims,
demands, obligations, liabilities and damages which he may suffer or incur
arising out of the exercise of his powers to this instrument.
Signed at on , 1998
/s/ JANET J. HENNEY
- -----------------------------------
Advent Partners Limited Partnership
<PAGE> 35
1
POWER OF ATTORNEY
The undersigned:
Mr. J.T.H.M. Kortenhorst, a private individual,
full name : Jules T.H.M. Kortenhorst
residing at (private address) : Helmlaan 10
2244 AZ Wagsenaar
profession : Manager
place of birth : Oss
date of birth : 03-02-1961
married/unmarried : married
nationality : Dutch
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, and in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
and in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
in his capacity of managing director of Cordena Call Management B.V.:
1. to execute the notarial deed of issuance of shares in the
<PAGE> 36
2
Company, and in accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
and in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
in his capacity of board member of Stichting Administratie-kantoor Cordena
Call Management, hereinafter referred to as "Stichting":
1. to execute the notarial deed of issuance of shares in the Company, and in
accordance with the draft deed is marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company, and
in accordance with the draft deed is marked
ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at The Hague on 11/8/ , 1998
/s/ J. T. H. M. KORTENHORST
- ----------------------------
Mr. J. T. H. M. Kortenhorst
<PAGE> 37
1
POWER OF ATTORNEY
The undersigned:
Caroline Christine van der Laan, manager, married, born in the Hague, on the
twenty-sixth day of December nineteen hundred and forty-nine, residing at 3645
AD Vinkeveen, Baambrugse Zuwe 125 9, American nationality;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and
damages
<PAGE> 38
2
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at Amsterdam on Aug. 20, 1998
/s/ C. C. VAN DER LAAN
- ---------------------------------------------
C. C. van der Laan
<PAGE> 39
1
POWER OF ATTORNEY
The undersigned:
Susan Ann Boyle, telecom employee, married, born in Jersey City, New Jersey,
United States of America, on the twenty-third day of April nineteen hundred and
fifty-six, residing at 2396 VK Koudckerk aan de Rijn, Van Egtenplantsoen 16,
American nationality;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses,
<PAGE> 40
2
suits, claims, demands, obligations, liabilities and damages which he may
suffer or incur arising out of the exercise of his powers to this instrument.
Signed at on Aug. 20, 1998
/s/ S. A. BOYLE
- ---------------------------------------------
S. A. Boyle
<PAGE> 41
1
POWER OF ATTORNEY
The undersigned:
Peter Eduard Dekker, director, married, residing at 3755 KK Bosch en Duin,
Reelaan 31, born in Voorst on the third day of May nineteen hundred fifty-four;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and
damages which he may suffer or incur arising out of the exercise of his
<PAGE> 42
2
powers to this instrument.
Signed at on , 1998
/s/ P. E. DEKKER
- ---------------------------------------------
P. E. DEKKER
<PAGE> 43
POWER OF ATTORNEY
The undersigned:
Fredericus Gerardus Maria Hulsink, director, married, born in Dotmarsum, on
the nineteenth day of July nineteen hundred and fifty-one, residing at 7601 GH
Almelo, Pornestraat 239;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and
damages which he may suffer or incur arising out of the exercise of his
<PAGE> 44
2
powers to this instrument.
Signed at on [ILLEGIBLE], 1998
/s/ [ILLEGIBLE]
- ---------------------------------------------
[ILLEGIBLE]
<PAGE> 45
1
POWER OF ATTORNEY
The undersigned:
Breydon Limited, a company incorporated under the laws of the British Isles,
with registered office at P.O. Box 44030, 10374 Stockholm, Sweden;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demand, obligations, liabilities and damages
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at Munich on 3, 9, 1998
/s/ [ILLEGIBLE]
- ------------------------
Breydon Limited
<PAGE> 46
1
POWER OF ATTORNEY
The undersigned:
David Theron Kumar Sarda, private equity investor, married, born in New
York, United States of America on the fourth day of June nineteen hundred and
sixty, residing at 487 Country Road, New Canaan, CT 06840 United States of
America, American nationality;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses,
<PAGE> 47
suits, claims, demands, obligations, liabilities and damages which he may suffer
or incur arising out of the exercise of his powers to this instrument.
Signed at Tarrytown, NY on 8/14, 1998
/s/ D. T. K. SARDA
- ---------------------------------------------
D. T. K. Sarda
<PAGE> 48
1
POWER OF ATTORNEY
The undersigned:
Ronald William Butler, company director, married, residing at 38 Stoke Farthing,
Broadchalke, Salisbury SP5 5EL, United Kingdom, born in Edinburgh, Scotland, on
the eighth day of May nineteen hundred fifty-two;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
<PAGE> 49
2
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at London on 18 August, 1998
/s/ R. W. BUTLER
- ---------------------------------------------
R. W. Butler
<PAGE> 50
1
POWER OF ATTORNEY
The undersigned:
Christopher Fitzroy Robinson, company director, married, residing at Bowbeer
Farmhouse, Spreyton, Crediton, Devon EX17 5AE, United Kingdom, born in Hove,
United Kingdom, on the twenty-second day of June nineteen hundred fifty-three;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
<PAGE> 51
2
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at Spreyton on 12th August, 1998
/s/ C. F. ROBINSON
- ---------------------------------------------
C. F. Robinson
<PAGE> 52
1
POWER OF ATTORNEY
The undersigned:
Sally Vanessa Robinson, housewife, married, residing at Bowbeer Farmhouse,
Spreyton, Crediton, Devon EX17 5AE, United Kingdom, born in London, United
Kingdom, on the twenty-ninth day of May nineteen hundred fifty-four;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
<PAGE> 53
2
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at Spreyton on 12th August, 1998
/S/ SALLY V. ROBINSON
- ---------------------------------------------
S. V. Robinson
<PAGE> 54
1
POWER OF ATTORNEY
The undersigned:
William Butler, no occupation, married, residing at 48 Redford Road, Edinburgh,
Scotland, EH13 0AE, born in Edinburgh, Scotland, on the fifth day of June
nineteen hundred thirteen;
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems reasonably necessary in
connection with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney(s)
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at 48 Redford Road on 12th August, 1998
/s/ WILLIAM BUTLER
- -----------------------------------
William Butler
<PAGE> 55
1
POWER OF ATTORNEY
The undersigned:
Mr. G. J. Smits, and
Mrs. E. Kortenhorst
being the legal representatives of each of Jeroen J. Smits and Carolien J. G.
Smits, hereinafter referred to as the "Children";
hereby grant power of attorney to each of
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie
in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, and in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company, and
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
Signed at [ILLEGIBLE] on 17/8, 1998
/s/ G. J. SMITS
- -----------------------
Mr. G. J. Smits
/s/ MRS. E. KORTENHORST
- -----------------------
Mrs. E. Kortenhorst
<PAGE> 56
1
POWER OF ATTORNEY
The undersigned:
Mr. J. T. H. M. Kortenhorst, and
Mrs. L. S. Vetter
being the legal representatives of each of Alessandra Mei Kortenhorst, Jules
Kiril Kortenhorst, Winston Powell Kortenhorst and Rainier George Kortenhorst;
hereby grant power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, and in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company, and
in accordance with the draft marked ct\eng\venn\stichtin\certicor.lev;
Signed at The Hague on 12/8, 1996
/s/ J. T. H. M. KORTENHORST
- ---------------------------
Mr. J. T. H. M. Kortenhorst
/s/ L. S. VETTER
- ---------------------------
Mrs. L. S. Vetter
<PAGE> 57
1
POWER OF ATTORNEY
The undersigned:
Mr. H. W. Battcock, a private individual,
full name : Humphrey William Battcock
residing at (private address) : 20 Norham Road,
Oxford OX 2 GSF,
England
profession : _________________
place of birth : London
date of birth : 14-11-1961
married/unmarried : _________________
nationality : British
in his capacity of board member of Stichting Administratie-kantoor Cordena Call
Management, a foundation organized under the laws of the Netherlands, and with
address: 1017 PS Amsterdam, Leidseplein 29, the Netherlands, hereinafter
referred to as "Stichting",
herewith grants power of attorney to:
each lawyer, on the law firm Caron & Stevens/Baker & McKenzie in Amsterdam,
on behalf of the undersigned:
1. to execute the notarial deed of issuance of shares in the Company, and in
accordance with the draft marked ct\eng\venn\uitgifte\hdm5;
2. to execute the notarial deed of administration of shares in the Company,
and in accordance with the draft marked
<PAGE> 58
2
ct\eng\venn\stichtin\certicor.lev;
and furthermore to do anything which the attorney deems necessary in connection
with the aforementioned, all this with the power of substitution.
The undersigned, undertakes to ratify or confirm anything which the attorney
shall do or lawfully purport to do by virtue of this instrument, and shall
indemnify the attorney and keep the attorney indemnified and hold harmless
against any losses, suits, claims, demands, obligations, liabilities and damages
which he may suffer or incur arising out of the exercise of his powers to this
instrument.
Signed at on , 1998
/s/ H. W. BATTCOCK
- ------------------------
H. W. Battcock
PLEASE ATTACH COPY VALID PASSPORT OF THE UNDERSIGNED
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of September
30, 1998, by and between CustomerONE Corporation (formerly Upgrade Corporation
of America (d/b/a SOFTBANK Services Group)), a Delaware corporation (the
"Company"), and Mark R. Briggs ("Executive").
RECITALS
WHEREAS, pursuant to that certain Stock Purchase Agreement (the
"Purchase Agreement"), dated as of September 30, 1998, by and among the Company,
SOFTBANK Holdings Inc., a Delaware corporation, SB Holdings (Europe) Ltd., a
United Kingdom corporation, CustomerONE Holding Corporation, a Delaware
corporation ("Holding"), and SSG Acquisition Corp., a Delaware corporation
("Sub"), Holding is acquiring more than 90% of the outstanding capital stock of
the Company (the date of such purchase herein referred to as the "Closing
Date");
WHEREAS, Executive has served a critical role in the Company's success
and has most recently served as the Company's Chief Executive Officer;
WHEREAS, the Company desires that Executive serve as the President of
the Company following the Closing Date and, accordingly, is entering into this
Agreement with Executive on the terms and subject to the conditions set forth
herein; and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the closing of the Purchase Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
All dollar amounts contained herein are denominated in United States
dollars.
1. Employment.
(a) Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive as its President. In his capacity as the President of
the Company, Executive shall report to the Company's Chief Executive Officer and
the Board of Directors of the Company (the "Board") and shall have the executive
powers, responsibilities and authorities as are assigned by Chief Executive
Officer or the Board consistent with the Bylaws of the Company.
(b) Subject to the terms and conditions of this Agreement, Executive
hereby agrees to be employed as the President of the Company and agrees to
devote his full working time and efforts to the best of his ability, experience
and talent, to the performance of services, duties and responsibilities in
connection therewith so that such
<PAGE> 2
performance shall be his primary business activity. The Company acknowledges
that Executive serves as a director of En Pointe, Inc. and agrees that Executive
may continue to serve in such capacity and may also engage in passive investment
activity separate and apart from the Company or its affiliates for Executive's
own account; provided, however, that such service as a director or such
investment activities shall not materially interfere with Executive's
performance of the duties of President of the Company. Executive shall perform
such duties and exercise such powers with respect to the activities of the
Company, commensurate with his position as the President of the Company, as the
Board and the Chief Executive Officer shall from time to time delegate to him on
such terms and conditions and subject to such restrictions as the Board may
reasonably from time to time impose. Executive acknowledges that such duties may
from time to time include serving as officer or director of subsidiaries of the
Company and/or Holding.
(c) Nothing in this Agreement shall preclude Executive from
participating in charitable or community activities that do not interfere with
his duties and responsibilities hereunder or conflict with the interest of the
Company.
(d) The Company's interim corporate headquarters are currently located
in Buffalo, New York. The Company will endeavor to relocate its corporate
headquarters to a permanent location within three (3) years after the Closing
Date. If (i) the Company relocates Executive to any location other than Buffalo,
New York, (ii) Executive terminates Executive's employment for any Good Reason
(as hereinafter defined) or (iii) the Company terminates Executive's employment
for any reason other than as a result of Executive's gross misconduct, the
Company will purchase Executive's residence, located at 9740 Rocky Point,
Clarence, NY 14031, for $420,000, Executive's original purchase price, plus any
direct closing costs paid by Executive; provided, however, that to be eligible
to receive such benefit, Executive must have first listed his residence for sale
with a reputable licensed realtor in the Buffalo, New York area pursuant to a
standard multi-listing service agreement and endeavored in good faith for a
period of six (6) months to sell the residence. The Company will also indemnify
Executive for amounts owed for federal, state and local income taxes, including
interest but excluding any penalties thereon, to the extent that Executive
recognizes ordinary income as a result of payments made to Executive hereunder
relative to the sale of Executive's residence to the Company under the Internal
Revenue Code of 1986, as amended (the "Code") or applicable state or local tax
statutes or codes, such amounts to be paid by the Company directly to the
relevant federal, state or local tax authority. In the event the Company
relocates Executive to any location other than Buffalo, New York, the Company
will reimburse Executive for all of his reasonable relocation costs and expenses
in accordance with the then-current policies of the Company.
2. Term of Employment. Executive's term of employment under this Agreement
shall be for a period commencing on the Closing Date and ending on December 31,
2001 (the "Term"), unless Executive's employment is terminated prior to the
completion of the Term pursuant to this Agreement; provided, however, that any
termination of employment by Executive (other than for death or Permanent
Disability (as defined in Section 8(b)) may only be made upon ninety (90) days
prior written notice to the Company.
2
<PAGE> 3
3. Compensation.
(a) Salary. During the Term, the Company shall pay Executive a base
salary ("Base Salary") at the rate of Three Hundred Thousand Dollars ($300,000)
per annum. Base Salary shall be payable in accordance with the ordinary payroll
practices of the Company. Any increase in Base Salary during the Term shall be
at the sole discretion of the Chief Executive Officer of the Company as approved
by the Board and, as so denominated and increased, shall constitute "Base
Salary" hereunder.
(b) Bonus. In addition to his Base Salary, Executive shall, for the
fiscal year ended December 31, 1999 ("Fiscal 1999") be paid a cash bonus
pursuant to one (but not more than one) of the following clauses (i), (ii) or
(iii). Any bonus due pursuant to the provisions hereof will be based upon the
audited financial statements for Fiscal 1999 of Holding and its subsidiaries on
a consolidated basis (adjusted as appropriate, pursuant to the provisions of
this Section 3(b)) and will be payable within thirty (30) days after receipt of
such audited financial statements by the Company.
(i) Six Hundred Thousand Dollars ($600,000) payable to Executive only
upon the achievement of earnings before interest, income taxes, depreciation and
amortization ("EBITDA") in an amount equal to the sum of: (x) $9 million in
EBITDA relating to the Company's U.S. operations; (y) IR(pound) 1,200,000 and
UK(pound) 320,000 in EBITDA relating to the Company's European operations and
(z) an EBITDA target for North Direct Response ("NDR") based on a business plan
approved by the Board; or
(ii) One Million Dollars ($1,000,000) payable to Executive only upon
the achievement of EBITDA in an amount equal to the sum of: (x) the Company
achieves $10.5 million in EBITDA relating to the Company's U.S. Operations; (y)
the Company achieves IR(pound) 1,400,000 and UK(pound) 373,000 in EBITDA
relating to the Company's European operations and (z) NDR achieves EBITDA based
on a business plan approved by the Board; or
(iii) One Million Five Hundred Thousand Dollars ($1,500,000) payable to
Executive only upon the achievement of EBITDA in an amount equal to the sum of:
(x) the Company achieves $12.5 million in EBITDA relating to the Company's U.S.
Operations; (y) the Company achieves IR(pound) 1,750,000 and UK(pound) 466,250
in EBITDA relating to the Company's European operations and (z) NDR achieves
EBITDA based on a business plan approved by the Board.
Attainment of any target(s) contained in subclauses (x), (y) or (z) of
clauses (b)(i),(ii) and (iii) above is not a precondition to payment of a bonus
so long as the aggregate EBITDA required for such bonus level is achieved.
If, during Fiscal 1999, the Company satisfies the aggregate EBITDA
performance criteria in more than one of the foregoing clauses (b)(i), (ii) and
(iii), Executive shall only be entitled to receive the bonus amount which is
highest among the clauses satisfied and shall not be allowed to cumulate any
other bonus amounts. In addition, if the Company satisfies 80% or more, but less
than 100%, of all of the
3
<PAGE> 4
performance criteria set forth in clause (b)(i) above, the Board may at its sole
discretion, and based upon the recommendation of the Chief Executive Officer,
grant Executive a partial cash bonus. For purposes of determining achievement of
any EBITDA performance criteria, only the current operations of the Company and
NDR on the Closing Date shall be considered and the EBITDA contributions of any
entities or operations acquired by the Company, Holding, NDR, or any of their
respective subsidiaries subsequent to the Closing Date shall be specifically
excluded. To the extent that Holding or any subsidiary has after the date hereof
acquired the business or operations of any other entity through an asset
purchase, merger, consolidation or otherwise, the Company agrees to, and
Executive agrees to cause the Company to, keep such separate records as are
reasonable in order to determine whether or not any EBITDA goals relating to
this Section 3(b) have been achieved. The Board shall have the right to finally
determine in its sole discretion whether or not any goal has been achieved. The
Board, acting in good faith, will establish additional goals related to any such
acquired entities or operations.
For periods after Fiscal 1999, the Board will establish bonus targets
for Executive consistent with industry practices for similarly situated
executives, based upon the Company's consolidated business plan, as approved by
the Board, for businesses under Executive's responsibility.
(c) Deferral. To the extent permitted by law, Executive may defer up to
$100,000 of Executive's compensation in each of the first two calendar years
following the date of this Agreement pursuant to either a qualified or
non-qualified stock purchase plan or any combination thereof under the Code,
such shares of Holding's common stock, par value $.01 per share (the "Common
Stock"), to be sold to Executive under such qualified stock purchase plan at the
price per share equal to the price per share of Common Stock paid by Onex
CustomerONE LLC ("OCO") at Closing.
4. Employee Benefits.
(a) Employee Benefit Programs, Plans and Practices. During the Term,
the Company shall provide Executive with coverage under employee pension and
welfare benefit programs, plans and practices generally applicable to the
Company's U.S. employees (to the extent permitted for and generally provided to
senior executives of the Company under any employee benefit plan or underlying
insurance policy) in accordance with the terms thereof as in effect from time to
time, generally commensurate with those the Company currently provides to
Executive (other than the split-dollar life insurance policy).
(b) Vacation. During the Term, Executive shall be entitled to twenty
(20) business days paid vacation in each calendar year, which shall be taken at
such times as are consistent with Executive's responsibilities hereunder. Any
vacation days unused at the end of any calendar year shall be forfeited.
4
<PAGE> 5
(c) Life Insurance Policy. For a period of two (2) years commencing on
the Closing Date, the Company shall pay up to Sixty Thousand Dollars ($60,000)
in annual premiums to maintain Executive's $1 million split-dollar life
insurance policy.
5. Expenses. Executive is authorized to incur reasonable business
expenses in carrying out his duties and responsibilities under this Agreement
consistent with the Company's then-existing policies regarding incurrence of
business expenses. The Company will reimburse Executive for such expenses upon
presentation by Executive from time to time of appropriately itemized and
approved (in accordance with the Company's then-existing policy) accounts of
such expenditures.
6. Election to Board of Directors. Upon completion of the transactions
contemplated by the Purchase Agreement, the Company shall use it reasonable best
efforts to cause Executive to be nominated and elected as a director of Holding.
Executive agrees that he will promptly resign such position, and any similar
positions with subsidiaries of the Company and/or Holding, upon termination of
his employment by the Company for any reason.
7. Stock Options; Stock Purchase; Anti-Dilution and Stockholders
Agreement.
(a) Stock Options. (i) Holding and Executive will, concurrent with
Holding's adoption of a stock option plan, execute a Stock Option Award
Agreement (the "Stock Option Agreement"), granting Executive, subject to the
terms and conditions set forth in the Stock Option Agreement, an option (the
"Original Option") to purchase up to _________ shares of Holding's Common Stock,
at an exercise price equal to the price per share paid by OCO for its common
equity ownership in Holding on the Closing Date (the "Founder's Price"). Of the
options for the purchase of Common Stock granted in the Original Option,
twenty-five percent (25%) shall vest on the second anniversary of the Closing
Date and seventy-five percent (75%) shall vest on the third anniversary of the
Closing Date. In the event of Executive's death or Permanent Disability or if
the Company terminates Executive's employment without Cause on or after the
second anniversary of the Closing Date, options included in the Original Option
that have not vested shall accelerate and become vested at the rate of 5% of the
options granted in the Original Option per month, such amount to be in addition
to scheduled vesting under the Stock Option Agreement, beginning in the
twenty-fifth month following the date of the Original Option with the balance
vesting in full on the third anniversary of the Closing Date. Only upon the
occurrence of a Liquidity Event (as hereinafter defined) that results in OCO
achieving an overall IRR (as hereinafter defined) of 15% on its investment in
the Portfolio Company (as hereinafter defined) as at such time (a "Minimum
IRR"), vested options will become exercisable and any options included in the
Original Option that have not vested will accelerate and become immediately
vested and exercisable. Notwithstanding the foregoing, if Executive's employment
is terminated for Cause pursuant to Section 8(d), Executive shall forfeit any
and all of the options included in the Original Option, whether or not any
options have vested at the time Executive's employment is terminated.
5
<PAGE> 6
(ii) For purposes hereof, a "Liquidity Event" shall mean the first to
occur of any of the following:
(A) any sale of all or substantially all of the assets of Holding
or its operating subsidiaries taken as a whole (for purposes of this
Section 7, the "Portfolio Company") in an arm's-length transaction;
(B) the liquidation or winding up of the Portfolio Company;
(C) an initial public offering of the common shares or other
equity securities of the Portfolio Company by way of prospectus,
registration statement or similar document where, or in connection with
which, such shares or securities are to become listed and posted for
trading or quoted on at least one of (1) the Toronto Stock Exchange,
(2) the Montreal Exchange, (3) the New York Stock Exchange, (4) the
American Stock Exchange or (5) the National Market of the National
Associate on Securities Dealers Automated Quotation System, together
with any such other stock exchange or exchanges as may be approved by
the Board; or
(D) a sale of all or substantially all of the shares of the
Portfolio Company owned, directly or indirectly, by OCO (including any
affiliate of OCO) in an arm's-length transaction.
As used in this Section 7(a)(ii):
"IRR" shall mean, as of any date, the compounded annual pre-tax
rate of return earned by OCO on its direct and indirect investment in
the Portfolio Company for the period from the date of investment to
such date; provided that, for the purposes of determining the IRR, the
return earned by OCO shall take into account the net proceeds of any
disposition of the investment (in whole or in part), dividends, returns
of capital and other distributions, whether received directly or
indirectly by OCO, but shall specifically exclude any management fees
or remuneration payments.
(b) Rollover Options. Concurrent with Holding's adoption of a stock
option plan and in accordance with that certain Amendment of Option Agreement,
dated as of September 30, 1998, by and between Upgrade Corporation of America
(d/b/a SOFTBANK Services Group), Holding will acknowledge its assumption of
obligations under such Amendment of Option Agreement and will recognize
Executive's ownership of ________ options to purchase ___________ shares of
Common Stock (the "Rollover Options"), at an exercise price per share as set
forth in the Amendment to Option Agreement. Executive hereby agrees that the
Option Agreement to be entered into with the Company with respect to the
Rollover Options will have such terms and conditions as the Company shall
reasonably request and, further, Executive shall forego the exercise of such
Rollover Options until the occurrence of a Liquidity Event that results in the
realization of the Minimum IRR by OCO.
6
<PAGE> 7
(c) Anti-Dilution. The Company and Executive hereby agree that in the
event that the Company or Holding shall, during the Term, acquire an
unaffiliated call center company or business for which Executive will have
direct operating control, as determined by the Board (whether such acquisition
is accomplished by the purchase of the stock or assets of such company or
business, or otherwise), and, in connection therewith, OCO shall purchase Common
Stock, Executive will be granted options to purchase shares of Common Stock
("Additional Options") equal to two percent (2%) of the aggregate Common Stock
so issued to OCO in connection with such acquisition (the "Acquisition Shares").
The Additional Options shall have an exercise price equal to the price per share
of Common Stock, as determined by the Board, purchased by OCO. Such options
shall vest 25% on the second anniversary after the date of grant and 75% on the
third anniversary after the date of grant and shall otherwise be subject to a
Stock Option Award Agreement in substantially the form of the Stock Option
Agreement, but shall only become exercisable upon a Liquidity Event that results
in OCO achieving a Minimum IRR. If Executive's employment is terminated for
Cause pursuant to Section 8(d), Executive shall forfeit any and all of the
options included in the Original Option, whether or not such options have vested
at the time Executive's employment is terminated.
(d) Stockholders Agreement. Concurrently and contingent upon the
deliveries contemplated by Sections 7(a) and (b) hereof, Holding, Executive and
other stockholders are entering into a stockholders agreement substantially in
the form attached as Exhibit A hereto (the "Stockholders Agreement"). Holding
and Executive agree that any Common Stock or other voting securities of the
Company now or hereafter owned beneficially or of record by Executive shall be
subject to the terms and conditions of the Stockholders Agreement, as it may be
amended from time to time.
8. Termination of Employment.
(a) Termination Without Cause. The Company may terminate Executive's
employment at any time for any reason and nothing herein shall be construed as a
representation or covenant to continue Executive's employment. If Executive's
employment is terminated by the Company other than for Permanent Disability (as
defined in Section 8(b)), death or Cause (as defined in Section 8(d)) or
Executive resigns for Good Reason during the Term, Executive shall receive such
payments, if any, under plans or programs for the benefit of senior executives
of the Company, including but not limited to those referred to in Section 4(a)
hereof, to which he is entitled pursuant to the terms of such plans or programs,
and any accrued and unpaid Base Salary, accrued vacation and previously incurred
business expense to which Executive is entitled hereunder through the date of
termination. If Executive is terminated or resigns under this Section 8, except
for termination pursuant to Section 8(d), Executive shall also be entitled to
(i) receive, payable in accordance with the ordinary payroll practices of the
Company, an amount in addition to any cash compensation provided in the
immediately preceding sentence which shall be equal to twelve (12) months of
Executive's annual Base Salary and (ii) continue to receive the medical, life
insurance and dental benefits referenced in Section 4(a) and 4(c) (other than
tax-qualified retirement or disability) until the first anniversary of the date
of such termination; provided, however, that payments
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<PAGE> 8
and benefits due hereunder shall be reduced by any amounts owed by Executive to
the Company. The obligation of Company to make payments to Executive provided by
the prior sentence shall be contingent upon the receipt by the Company of a
general release, executed in accordance with applicable law by Executive,
releasing the Company and its affiliates from any liability to the Executive
except as set forth herein. "Good Reason" shall be defined as: (i) a reduction
in Executive's Base Salary or the adoption of an annual cash bonus plan that
would materially impair the ability of Executive to receive any bonus (other
than the establishment of EBITDA or other performance targets to be set in good
faith by the Board) or (ii) a substantial reduction in Executive's duties and
responsibilities.
(b) Permanent Disability. If Executive is unable to engage in the
activities required by Executive's job by reason of any medically determined
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of at least six
(6) months ("Permanent Disability"), the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall receive or
commence receiving, as soon as practicable, accrued but unpaid Base Salary and
such payments under applicable Company plans or programs, including but not
limited to those referred to in Section 4, to which he is entitled pursuant to
the terms of such plans or programs, reduced by the amounts of any disability
policy maintained by the Company for its employees.
(c) Death. In the event of Executive's death during the Term,
Executive's estate or designated beneficiaries shall receive or commence
receiving, as soon as practicable, accrued but unpaid Base Salary and such
payments under applicable plans or programs, including but not limited to those
referred to in Section 4, to which Executive's estate or designated
beneficiaries are entitled pursuant to the terms of such plans or programs.
(d) Termination for Cause; Resignation by Executive. The Company shall
have the right to terminate the employment of Executive for Cause. In the event
that Executive's employment is terminated by the Company for Cause or by
Executive for any reason (other than by Executive for Good Reason or as a result
of Executive's Permanent Disability or death) during the Term, Executive shall
not be entitled to the payment of any compensation otherwise included under this
Agreement other than accrued and unpaid Base Salary, any unpaid business
expenses incurred and submitted in accordance with then-existing Company policy
and any vested benefits under the 401(k) benefits plan adopted by the Company or
an affiliate of the Company. After the termination of Executive's employment
under this Section 8(d), the obligations of the Company under this Agreement to
make any further payments, or provide any benefits specified herein, to
Executive shall thereupon cease and terminate. In the event Executive's
employment is terminated for Cause, the Company shall use its reasonable best
efforts to convene a meeting of the Board of Directors of the Company to afford
Executive the opportunity to appeal such termination to the Board of Directors.
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<PAGE> 9
As used herein, the term "Cause" shall be limited to (i) the willful
refusal to perform in any material respect his duties or responsibilities for
the Company as assigned by the Chief Executive Officer, or willful disregard in
any material respect of any financial or other budgetary limitations established
in good faith by the Board; (ii) the willful engaging by Executive in conduct
that causes material injury, monetarily or otherwise, to the Company, including,
but not limited to, misappropriation or conversion of assets of the Company
(other than nonmaterial assets), unless such actions were approved by the Board
of Directors or the Chief Executive Officer of the Company; (iii) conviction of
or entry of a plea of nolo contendere to a felony; or (iv) a material breach of
this Agreement by engaging in violation of the restrictive covenants in this
Agreement. No act or failure to act by Executive shall be deemed "willful" if
done, or omitted to be done, by him in good faith and with the reasonable belief
that his action or omission was in the best interest of the Company.
9. Confidentiality. Executive shall not, without the prior written consent
of the Company, use, divulge, disclose or make accessible to any other person,
firm, partnership, corporation or other entity any Confidential Information (as
hereinafter defined) pertaining to the business of Holding, the Company or any
of their respective subsidiaries or affiliates, except in the business of and
for the benefit of the Company during Executive's employment by the Company. For
purposes of this Section 9, "Confidential Information" means any information or
material which Holding, the Company, their respective subsidiaries or affiliates
(the "Restricted Group") treats as proprietary or designates as "Confidential,"
which is not generally known by non-employer personnel, and to which Executive
obtains knowledge or access as a result of Executive's relationship with the
Company. Confidential Information includes, but is not limited to, discoveries,
ideas, concepts, techniques, data, documentation, research, procedures,
know-how, marketing techniques, materials, plans, names of customers and
advertisers, and information relating to past and prospective customers' and
advertisers' cost data, pricing policies and financial information, received,
originated or discovered by employees or agents. Confidential Information
includes non-public information of vendors and clients of the Company and its
affiliates. Confidential Information does not include any information (i)
ascertained or obtained other than from, or as a result of Executive's
relationship with, Holding, the Company, or any of their subsidiaries or
affiliates, or (ii) which is or becomes known to the public other than through a
breach of this Agreement. Notwithstanding the foregoing, Executive shall not be
required to maintain as confidential any information disclosed to him that is
required to be disclosed as a result of valid legal process, so long as prior
notice of, and a reasonable opportunity to prevent, such required disclosure is
given to the Company.
10. Noncompetition; Nonsolicitation. (a) During the Term and for the longer
of (i) one (1) year thereafter or one (1) year following the termination of
Executive's employment or (ii) in the event that any options are granted to
Executive by the Company or any affiliate of the Company to purchase capital
stock of such entity and such options have vested, three (3) years thereafter
(in either case, the "Noncompetition Period"), Executive agrees that, without
the prior written consent of the Company, (A) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other capacity,
carry on, be
9
<PAGE> 10
engaged in or have any financial interest in, any business in Competition (as
defined in Section 10(b)) with the business of the Restricted Group and (B) he
shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or hire for the benefit of anyone, other than
the Restricted Group, any person who is, or was at any time during the six (6)
months immediately preceding the time of the solicitation or hiring by
Executive, employed by the Restricted Group or any member thereof.
(b) For purposes of this Section 10, a business shall be deemed to be
in "Competition" with the Restricted Group if it is principally engaged in the
direct marketing outsourcing call center business within the independent
telephony or internet-based customer service communication business within North
America and any other geographic area in which any member of the Restricted
Group conducts such business during the Noncompetition Period. Nothing in this
Section 10 shall be construed so as to preclude Executive from investing in any
publicly or privately held company, provided Executive's beneficial ownership of
any class of such company's securities does not exceed 1% of the outstanding
securities of such class.
(c) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 10 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, obtain an injunction against Executive, without the
requirement of posting bond, from any court having jurisdiction over the matter
restraining any further violation or threatened violation of this Agreement by
Executive and cease making any payments otherwise required by this Agreement;
provided, however, that in the event a court of competent jurisdiction, which
recognizes the validity of the provisions of this Section 10, finds Executive
not to be in violation of the provisions of this Section 10, then the Company
shall pay to Executive, in a lump sum, within ten (10) days of such
determination, all amounts that would have been payable to Executive hereunder
through the date of such determination and continue making any other payments
due with respect to periods of time subsequent to such determination in
accordance with the provisions of this Agreement.
11. Beneficiaries. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following Executive's
death, and may change such election, in either case by giving the Company
written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative, and the Company shall pay amounts payable under this
Agreement, unless otherwise provided herein, in accordance with the terms of
this Agreement, to Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees or estate, as the case
may be.
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<PAGE> 11
12. Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
Specifically, but not exclusively, notwithstanding the expiration of the term of
this Agreement, the provisions of Sections 9 and 10 hereunder shall remain in
effect as long as is necessary to give effect thereto. The provisions of this
Section 12 are in addition to the survivorship provisions of any other section
of this Agreement.
13. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
CustomerONE Corporation
c/o ONEX Corporation
161 Bay Street, 49th Floor
P.O. Box 700 Toronto, Ontario M5J 2S1
and
699 Hertel Avenue
Buffalo, New York 14207-2398
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attn: Mary R. Korby
Facsimile No.: (214) 746-7777
and
Davies, Ward & Beck
1 First Canadian Place
Suite 4400
Toronto, Ontario M5X 1B1
Attn: William M. Ainley
Facsimile No.: (416) 863-0871
To Executive:
Mr. Mark R. Briggs
9740 Rocky Point
Clarence, NY 14031
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<PAGE> 12
with a copy to:
Robert Oliveri
Lippes, Silverstein, Mathias & Wexler
700 Guaranty Building
28 Church Street
Buffalo, NY 14202
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the date actually delivered by
hand or the third business day after the actual date of mailing shall constitute
the time at which notice was given.
14. Legal Fees. Each party shall bear the costs of any legal fees and other
fees and expenses which may be incurred in respect of enforcing his or its
respective rights under this Agreement. The Company shall reimburse Executive
for reasonable legal fees incurred in connection with negotiation of this
Agreement.
15. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
16. Amendment. This Agreement may only be amended by written agreement of
the parties hereto.
17. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the state of New York, without reference
to rules relating to conflicts of law.
18. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Buffalo, New
York, or, if the corporate headquarters has been relocated, the city to which
such relocation was made, in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction with respect to any breach or threatened breach of any
provision of Section 9 or 10 above. Any judgment may be entered on the
arbitrator's award in any court having jurisdiction.
19. Waiver. No failure on the part of any party hereto to exercise and no
delay in exercising any right, power or remedy hereunder will operate as a
waiver thereof, nor will any single or partial exercise of any right, power or
remedy.
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<PAGE> 13
20. Validity. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law or court decision, and
if the rights or obligations of the Company and Executive will not be materially
and adversely affected thereby, (a) such provision shall be fully severable from
this Agreement, (b) this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom, and (d) in lieu of such illegal,
invalid, or unenforceable provision, there shall be added automatically as a
part of this Agreement a legal, valid, and enforceable provision as similar to
the terms and intent of such illegal, invalid, or unenforceable provision as may
be possible.
21. Effect on Prior Agreements. This Agreement contains the entire
understanding between the parties hereto on the date hereof and supersedes in
all respects any prior or other current agreement or understanding between the
Company, any affiliate of the Company or any predecessor of the Company and
Executive with respect to the subject matter hereof (including, without
limitation, that certain Employment Agreement, dated as of January 1, 1997, by
and between Upgrade Corporation of America d/b/a SOFTBANK Services Group and
Executive), other than the Stockholders Agreement, the Subscription Agreement
and the Stock Option Agreement. In the event of any conflict between the terms
hereof and the terms of any of the Stockholders Agreement, the Subscription
Agreement or the Stock Option Agreement, the express terms of such other
documents shall prevail.
22. Withholding. The Company shall be entitled to withhold from payment any
amount, however characterized, required by law.
23. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
24. Headings. The headings and titles to sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed a part of or
affect the construction or interpretation of any provisions hereof.
25. References. All references to Sections shall, unless otherwise
specified, be to Sections of this Agreement.
[The remainder of this page intentionally left blank.]
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
all as of the date first written above.
CUSTOMERONE CORPORATION
By: /s/ THOMAS O. HARBISON
Name: Thomas O. Harbison
Title: CEO
EXECUTIVE
/s/ MARK R. BRIGGS
Mark R. Briggs
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<PAGE> 1
EXHIBIT 10.37
[CORDENA CALL MANAGEMENT LETTERHEAD]
January 31, 2000
Jules T. Kortenhorst, President & CEO
Cordena Call Management BV
PO Box 16037, 2500 BA Den Haag
The Netherlands
Dear Jules:
RE: AMENDMENTS TO YOUR EMPLOYMENT AGREEMENT
As part of the transaction between Cordena Call Management and Client Logic, we
have agreed that you will continue your employment with the company. We have
also discussed the terms of your employment. The following amendments will
therefore become a part of your ongoing employment agreement with the company as
originally dated November 14, 1997:
1. POSITION: Chief Executive Officer of International Operations
2. REPORTS TO: Mark Briggs, President and CEO of ClientLogic Corporation
3. EFFECTIVE DATE: These amendments are effective as of October 7, 1999
4. SALARY: $200,000.00 per year, converted to Dutch Guilders at NLG 2.056
Guilders for each US Dollar
5. BONUS: $200,000.00 2000 bonus eligibility, 75% based on meeting
EBITDA targets; 25% based on meeting Focus 2000 metrics; Customer
Satisfaction, Client Satisfaction, Associate Satisfaction and
Profitability. This bonus to be converted to Dutch Guilders at NLG
2.056 Guilders for each US Dollar.
6. TERMINATION: Either party may terminate the Agreement with observance
of a notice period of 6 (six) months on the part of the Executive and
12 (twelve) months on the part of the Company, such term of notice to
expire on the last day of any calendar month. Such notice must be
given in writing by means of a letter sent by registered delivery.
7. NON-COMPETITION: The clauses in article 12 of the original
agreement, relating to non-competition and non-solicitation, will
cover in addition to Cordena Call Management BV, ClientLogic
Corporation as well as its respective direct or indirect subsidiaries
and affiliated companies.
8. FURTHER ACTIVITIES: The company acknowledges and agrees that Mr.
Kortenhorst serves as a non-executive Director of Panta Electronics
SARL and The American University in Bulgaria. Outside activities
should not interfere with the performance of services to Cordena
and/or ClientLogic.
<PAGE> 2
The Leadership Team is looking forward to a meaningful working relationship with
you. Should you have any questions regarding this amendment letter, please feel
free to give me a call.
Sincerely,
/s/ PETER E. DEKKER
- ------------------------
Peter E. Dekker
Chief Financial Officer of International Operations
A reply to this offer must be received by ClientLogic as soon as possible.
***
I am accepting ongoing employment with Cordena Call Management BV/ClientLogic on
the basis of my existing employment agreement dated November 14th 1997 and the
amendments to the terms and conditions as outlined herein.
/s/ JULES T. KORTENHORST 31/01/2000
- ------------------------ -------------------
Jules T. Kortenhorst Date
<PAGE> 1
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
this 20th day of March, 2000, and is effective as of April 1, 1999, by and
between ClientLogic Operating Corporation, formerly known as ClientLogic
Corporation, a Delaware corporation (the "Company"), and Gene S. Morphis
("Executive").
RECITALS
WHEREAS, the Company desires that Executive serve as an
employee of the Company and the Executive desires to be so employed by the
Company, upon the terms and conditions hereof;
WHEREAS, Executive was heretofore employed by Onex Service
Partners, dba ECM Partners, a New York general partnership ("ECM"), in
connection with Executive's service as Chief Financial Officer of the Company;
and
WHEREAS, Executive, the Company and ECM desire to terminate
Executive's employment arrangement with ECM and replace such arrangement with an
employment arrangement with the Company, as set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment.
(a) Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive to render exclusive and full-time services and devote
substantially all of his business time and efforts to the Company and to serve
on its behalf as the Chief Financial Officer of the Company and, if so requested
by the Board of Directors of the Company (the "Board"), as a director or chief
financial officer of any other business in the call center, direct marketing and
enterprise customer management industry in which the Company or any affiliate of
the Company has an interest (a "Portfolio Company"), subject to the terms and
conditions hereof and to the direction and control of the Board. In his capacity
as the Chief Financial Officer of the Company, Executive shall report to the
Company's Chief Executive Officer and the Board and shall have the executive
powers, responsibilities and authorities as are assigned by Chief Executive
Officer or the Board consistent with the Bylaws of the Company.
(b) Subject to the terms and conditions of this Agreement, Executive
hereby agrees to render exclusive and full-time services and to devote
substantially all of his business time and efforts to the Company in connection
with his service as the Chief Financial Officer of the Company and, if so
requested by the Board, as a director or chief financial officer of any other
Portfolio Company, subject to the terms and conditions hereof and to the
direction and control of the Board. Executive shall perform such duties and
exercise such powers with respect to the
<PAGE> 2
activities of the Company, commensurate with his position as the Chief Financial
Officer of the Company, as the Board and the Chief Executive Officer shall from
time to time delegate to him on such terms and conditions and subject to such
restrictions as the Board may reasonably from time to time impose. Executive
acknowledges that such duties may from time to time include serving as officer
or director of subsidiaries of the Company and/or ClientLogic Corporation,
formerly known as ClientLogic Holding Corporation, a Delaware corporation and
parent of the Company ("ClientLogic").
(c) Nothing in this Agreement shall preclude Executive from
participating in charitable or community activities that do not interfere with
his duties and responsibilities hereunder or conflict with the interests of the
Company or any other Portfolio Company.
2. Term of Employment. Executive's term of employment under this
Agreement shall be for a period commencing on the effective date hereof and
ending on the second anniversary of the effective date hereof (the "Term"),
unless Executive's employment is terminated prior to the completion of the Term
pursuant to this Agreement; provided, however, that any termination of
employment by Executive (other than for death or Permanent Disability (as
defined in Section 6(b)) may only be made upon ninety (90) days prior written
notice to the Company; provided, further, that this Agreement shall be
automatically extended for one 12-month period unless one party hereto gives
written notice to the other party hereto of termination of this Agreement at
least 12 months prior to the end of the initial 2 year Term.
3. Compensation.
(a) Salary. During the Term, except to the extent that any such amounts
have been paid to Executive by ECM, the Company shall pay Executive a base
salary ("Base Salary") at the rate of Two Hundred Fifty Thousand Dollars
($250,000) per annum payable in 26 equal monthly installments of $9,615.38 in
accordance with the ordinary payroll practices of the Company. Any increase in
Base Salary during the Term shall be at the sole discretion of the Board and, as
so denominated and increased, shall constitute "Base Salary" hereunder.
(b) Annual Bonus. In addition to his Base Salary, Executive shall, for
the fiscal year ended December 31, 1999 ("Fiscal 1999") be paid a cash bonus
pursuant to one (but not more than one) of the following clauses (i), (ii),
(iii), (iv) or (v). Except with respect to any bonus paid pursuant to clause (v)
below, any bonus due pursuant to the provisions hereof will be based upon the
audited financial statements for Fiscal 1999 of ClientLogic and its subsidiaries
on a consolidated basis (adjusted as appropriate, pursuant to the provisions of
this Section 3(b)) and will be payable within thirty (30) days after receipt of
such audited financial statements by ClientLogic.
(i) One Hundred Twenty Five Thousand Dollars ($125,000) payable
to Executive only upon the achievement of at least ninety percent (90%) of the
Company's targeted earnings before interest, income taxes, depreciation and
amortization ("EBITDA Target") as established by the Board; or
(ii) Two Hundred Fifty Thousand Dollars ($250,000) payable to
Executive only upon the achievement of one hundred percent (100%) of the EBITDA
Target; or
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<PAGE> 3
(iii) Three Hundred Thousand Dollars ($300,000) payable to
Executive only upon the achievement of one hundred-ten percent (110%) of the
EBITDA Target; or
(iv) Three Hundred Fifty Thousand Dollars ($350,000) payable to
Executive only upon the achievement of one hundred twenty percent (120%) of the
EBITDA Target; or
(v) Notwithstanding anything to the contrary contained herein, in
the event that that Board or the Compensation Committee of the Board of
Directors of ClientLogic ("Compensation Committee") determines, in their sole
and absolute discretion, that no bonus is due pursuant any of clauses (i)
through (iv) above, the Board or the Compensation Committee may, in their sole
and absolute discretion, direct that the Company pay to Executive, and the
Company shall upon such direction pay to Executive, a bonus for Fiscal 1999 not
to exceed One Hundred Thousand Dollars ($100,000).
If, during Fiscal 1999, the Company satisfies the EBITDA
Target in more than one of the foregoing clauses (b)(i), (ii), (iii) and (iv),
Executive shall only be entitled to receive the bonus amount which is highest
among the clause satisfied and shall not be allowed to cumulate any other bonus
amounts. For purposes of determining achievement of any EBITDA Target, only the
current operations of the Company on the date hereof shall be considered and the
EBITDA Target contributions of any entities or operations acquired by the
Company or its subsidiaries subsequent to the date hereof shall be specifically
excluded. To the extent that ClientLogic or any subsidiary thereof has after the
date hereof acquired the business or operations of any other entity through an
asset purchase, merger, consolidation or otherwise, Executive agrees to cause
the Company to keep such separate records as are reasonable in order to
determine whether or not any EBITDA Targets relating to this Section 3(b) have
been achieved. The Board shall have the right to finally determine in its sole
and absolute discretion whether or not any goal has been achieved.
For periods after Fiscal 1999, the Board will establish bonus
targets for Executive consistent with industry practices for similarly situated
executives, based upon the Company's consolidated business plan, as approved by
the Board, for businesses under Executive's responsibility.
4. Employee Benefits.
(a) Employee Benefit Programs, Plans and Practices. During the Term,
except to the extent that any such coverage has been provided to Executive by
ECM, the Company shall provide Executive with coverage under employee pension
and welfare benefit programs, plans and practices generally applicable to the
Company's employees (to the extent permitted for and generally provided to
senior executives of the Company under any employee benefit plan or underlying
insurance policy) in accordance with the terms thereof as in effect from time to
time.
(b) Vacation. During the Term, Executive shall be entitled to twenty
(20) business days paid vacation in each calendar year, which shall be taken at
such times as are consistent
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<PAGE> 4
with Executive's responsibilities hereunder. Any vacation days unused at the end
of any calendar year shall be forfeited.
5. Expenses. Executive is authorized to incur reasonable business
expenses in carrying out his duties and responsibilities under this Agreement
consistent with the Company's then-existing policies regarding incurrence of
business expenses. The Company will reimburse Executive for such expenses upon
presentation by Executive from time to time of appropriately itemized and
approved (in accordance with the Company's then-existing policy) accounts of
such expenditures.
6. Termination of Employment.
(a) Termination Without Cause; Change of Control. The Company may
terminate Executive's employment at any time for any reason and nothing herein
shall be construed as a representation or covenant to continue Executive's
employment. If Executive's employment is terminated (i) by the Company (a) other
than for Permanent Disability (as defined in Section 6(b)), death or Cause (as
defined in Section 6(d)) or (b) in anticipation of a Change of Control (as
defined in this Section 6(a)) or (ii) by Executive (a) within ninety (90) days
after a Change of Control or (b) for Good Reason (as defined in this Section
6(a)) during the Term, Executive shall:
(w) receive such payments, if any, under plans or programs for the
benefit of senior executives of the Company, including but not limited to those
referred to in Section 4 hereof, to which he is entitled pursuant to the terms
of such plans or programs, and any accrued and unpaid Base Salary, accrued
vacation and previously incurred business expense to which Executive is entitled
hereunder through the date of termination;
(x) receive, payable in accordance with the ordinary payroll
practices of the Company, an amount in addition to any cash compensation
provided in the immediately preceding subsection (w) which shall be equal to
twelve (12) months of Executive's annual Base Salary;
(y) receive an amount, prorated to the date of such termination, of
the annual bonus provided for in Section 3(b); and
(z) continue to receive the medical, life insurance and dental
benefits referenced in Section 4(a) (other than tax-qualified retirement or
disability) until the first anniversary of the date of such termination;
provided, however, that payments and benefits due hereunder shall be reduced by
any amounts owed by Executive to the Company; provided; further the Executives
eligibility to receive any prorated bonus under subclause (y) above shall be
measured as of the quarter closest to Executive's termination date with the
EBITDA Target being adjusted by the Board. The obligation of the Company to make
payments to Executive provided by the prior sentence shall be contingent upon
the receipt by the Company of a general release, executed in accordance with
applicable law by Executive, releasing the Company and its affiliates from any
liability to the Executive except as set forth herein.
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A "Change of Control" shall be deemed to have occurred if,
subsequent to the date hereof, any "person" (as such term is defined in Section
13(d) of the Securities Exchange Act of 1934), other than the stockholders of
ClientLogic on the date hereof, and/or their respective affiliates, employees,
officers, directors or successors, is or becomes the beneficial owner, directly
or indirectly, of securities of ClientLogic representing a majority of the
combined voting power of ClientLogic's then outstanding voting securities. "Good
Reason" shall be defined as: (i) a reduction in Executive's Base Salary or the
adoption of an annual cash bonus plan that would materially impair the ability
of Executive to receive any bonus (other than the establishment of EBITDA or
other performance targets to be set in good faith by the Board) or (ii) a
substantial reduction in Executive's duties and responsibilities.
(b) Permanent Disability. If Executive is unable to engage in the
activities required by Executive's job by reason of any medically determined
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of at least six
(6) months ("Permanent Disability"), the Company or Executive may terminate
Executive's employment on written notice thereof, and Executive shall receive or
commence receiving, as soon as practicable, accrued but unpaid Base Salary and
such payments under applicable Company plans or programs, including but not
limited to those referred to in Section 4, to which he is entitled pursuant to
the terms of such plans or programs, reduced by the amounts of any disability
policy maintained by the Company for its employees.
(c) Death. In the event of Executive's death during the Term,
Executive's estate or designated beneficiaries shall receive or commence
receiving, as soon as practicable, accrued but unpaid Base Salary and such
payments under applicable plans or programs, including but not limited to those
referred to in Section 4, to which Executive's estate or designated
beneficiaries are entitled pursuant to the terms of such plans or programs.
(d) Termination for Cause; Resignation by Executive. The Company shall
have the right to terminate the employment of Executive for Cause. In the event
that Executive's employment is terminated by the Company for Cause or by
Executive for any reason (other than by Executive for Good Reason or as a result
of Executive's Permanent Disability or death or within ninety (90) days after a
Change of Control) during the Term, Executive shall not be entitled to the
payment of any compensation otherwise included under this Agreement other than
accrued and unpaid Base Salary, any unpaid business expenses incurred and
submitted in accordance with then-existing Company policy and any vested
benefits under the 401(k) benefits plan adopted by the Company or an affiliate
of the Company. After the termination of Executive's employment under this
Section 6(d), the obligations of the Company under this Agreement to make any
further payments, or provide any benefits specified herein, to Executive shall
thereupon cease and terminate.
As used herein, the term "Cause" shall be limited to (i) the willful
refusal by Executive to perform in any material respect his duties or
responsibilities to the Company or to any Portfolio Company with which the
Executive is serving as an executive officer or director, or willful disregard
in any material respect of any financial or other budgetary limitations
established in good faith by the Company or by any Portfolio Company with which
Executive is serving as an executive officer or director; (ii) the willful
engaging by Executive in conduct that
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<PAGE> 6
causes material injury, monetarily or otherwise, to the Company or any Portfolio
Company with which Executive is serving as an executive officer or director,
including, but not limited to, misappropriation or conversion of assets of the
Company or any Portfolio Company (other than nonmaterial assets), unless such
actions were approved by the Board or the board of directors of the Portfolio
Company involved; (iii) conviction of or entry of a plea of nolo contendere to a
felony; or (iv) a material breach of this Agreement by engaging in violation of
the restrictive covenants in this Agreement. No act or failure to act by
Executive shall be deemed "willful" if done, or omitted to be done, by him in
good faith and with the reasonable belief that his action or omission was in the
best interests of the Company.
7. Confidentiality. Executive shall not, without the prior written
consent of the Company, use, divulge, disclose or make accessible to any other
person, firm, partnership, corporation or other entity any Confidential
Information (as hereinafter defined) pertaining to the business of ClientLogic,
the Company, any other Portfolio Company or any of their respective subsidiaries
or affiliates, except for disclosures made during Executive's employment by the
Company in the business of and for the benefit of the Company. For purposes of
this Section 7, "Confidential Information" means any information or material
which ClientLogic, the Company, any other Portfolio Company or their respective
subsidiaries or affiliates (the "Restricted Group") treats as proprietary or
designates as "Confidential," which is not generally known by non-employer
personnel, and to which Executive obtains knowledge or access as a result of
Executive's relationship with the Company or any Portfolio Company. Confidential
Information includes, but is not limited to, discoveries, ideas, concepts,
techniques, data, documentation, research, procedures, know-how, marketing
techniques, materials, plans, names of customers and advertisers, and
information relating to past and prospective customers' and advertisers' cost
data, pricing policies and financial information, received, originated or
discovered by employees or agents. Confidential Information includes non-public
information of vendors and clients of the Company or any Portfolio Company and
their affiliates. Confidential Information does not include any information (i)
ascertained or obtained other than from, or as a result of Executive's
relationship with, ClientLogic, the Company, any other Portfolio Company or any
of their subsidiaries or affiliates, or (ii) which is or becomes known to the
public other than through a breach of this Agreement. Notwithstanding the
foregoing, Executive shall not be required to maintain as confidential any
information disclosed to him that is required to be disclosed as a result of
valid legal process, so long as prior notice of, and a reasonable opportunity to
prevent, such required disclosure is given to the Company.
8. Noncompetition; Nonsolicitation.
(a) During the Term and for the longer of (i) one (1) year thereafter
or one (1) year following the termination of Executive's employment or (ii) in
the event that any options are granted to Executive by ClientLogic, the Company,
any other Portfolio Company or any affiliate of the foregoing to purchase
capital stock of such entity and such options have vested and or any portion of
Executive's partnership interest in ECM Partners II, L.P., a Delaware limited
partnership has vested, three (3) years thereafter (in either case, the
"Noncompetition Period"), Executive agrees that, without the prior written
consent of the Company, (A) he will not, directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder,
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partner, investor, lender or employee or in any other capacity, carry on, be
engaged in or have any financial interest in, any business in Competition (as
defined in Section 8(b)) with the business of the Restricted Group and (B) he
shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or hire for the benefit of anyone, other than
the Restricted Group, any person who is, or was at any time during the six (6)
months immediately preceding the time of the solicitation or hiring by
Executive, employed by the Restricted Group or any member thereof.
(b) For purposes of this Section 8, a business shall be deemed to be in
"Competition" with the Restricted Group if it is principally engaged in the call
center, direct marketing, database marketing and enterprise customer management
industry within North America and any other geographic area in which any member
of the Restricted Group conducts such business during the Noncompetition Period.
Nothing in this Section 8 shall be construed so as to preclude Executive from
investing in any publicly or privately held company, provided Executive's
beneficial ownership of any class of such company's securities does not exceed
1% of the outstanding securities of such class.
(c) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of this covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 8 would irreparably injure the Company. Accordingly, Executive
agrees that the Company may, in addition to pursuing any other remedies it may
have in law or in equity, obtain an injunction against Executive, without the
requirement of posting bond, from any court having jurisdiction over the matter
restraining any further violation or threatened violation of this Agreement by
Executive and cease making any payments otherwise required by this Agreement;
provided, however, that in the event a court of competent jurisdiction, which
recognizes the validity of the provisions of this Section 8, finds Executive not
to be in violation of the provisions of this Section 8, then the Company shall
pay to Executive, in a lump sum, within ten (10) days of such determination, all
amounts that would have been payable to Executive hereunder through the date of
such determination and continue making any other payments due with respect to
periods of time subsequent to such determination in accordance with the
provisions of this Agreement.
9. Beneficiaries. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following Executive's
death, and may change such election, in either case by giving the Company
written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative, and the Company shall pay amounts payable under this
Agreement, unless otherwise provided herein, in accordance with the terms of
this Agreement, to Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees or estate, as the case
may be.
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10. Release of Claims Regarding Former Employment with ECM.
(a) Executive hereby acknowledges, agrees, represents and warrants
that, as of the date that this Agreement is executed, he is not a party to any
binding agreement relating to any employment or consulting arrangement between
Executive, on the one hand, and ECM, on the other hand.
(b) Executive hereby fully releases and forever discharges each of the
Company, ECM, their direct or indirect parents, subsidiaries and affiliates
(each a "Related Entity"), and all successors, assigns, directors, officers,
partners, employees, consultants, agents, representatives, stockholders and
affiliates of the Company, ECM or any Related Entity (collectively, the "Company
Parties") from any and all claims, liabilities or obligations, whether now
existing or hereafter arising, which relate to or arise out of any employment
arrangement between Executive, on the one hand, and ECM, on the other hand,
which may, notwithstanding anything to the contrary herein contained, be
determined by any means to be binding upon ECM, as of any relevant time.
Furthermore, Executive, on behalf of himself and Executive's spouse, their
attorneys, heirs, executors, administrators, and assigns (collectively, the
"Executive Parties"), hereby covenants forever not to assert, file, prosecute,
commence, institute (or sponsor or purposely facilitate any person in connection
with the foregoing), any complaint or lawsuit or any legal, equitable or
administrative proceeding of any nature, against any of the Company Parties in
connection with any matter released in this paragraph, and represents and
warrants that no other person or entity has initiated or, to the extent within
his or her control, will initiate any such proceeding on behalf of Executive or
any Executive Party.
(c) Executive further agrees to indemnify, defend and hold harmless all
Company Parties, including, without limitation, ECM (whom the parties
acknowledge and agree to be an intended third-party beneficiary of this
Agreement), from and against any and all Indemnifiable Losses to the extent
relating to, resulting from or arising out of any breach of the representations,
warranties or covenants contained in this Section 10. The term "Indemnifiable
Losses" means any and all damages, losses, liabilities, obligations, costs and
expenses, including, without limitation, reasonable costs and expenses of
investigation, and any and all claims, demands or suits (by any person or
entity), including, without limitation, the costs and expenses of any and all
actions, suits, proceedings, demands, assessments, judgments, settlements and
compromises relating thereto and including reasonable attorneys' fees and
expenses in connection therewith.
11. Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
Specifically, but not exclusively, notwithstanding the expiration of the term of
this Agreement, the provisions of Sections 7 and 8 hereunder shall remain in
effect as long as is necessary to give effect thereto. The provisions of this
Section 11 are in addition to the survivorship provisions of any other section
of this Agreement.
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12. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
ClientLogic Operating Corporation
2 American Center
3102 West End Avenue
Suite 1000
Nashville, Tennessee 37203
Attn: Mark R. Briggs
Facsimile No.: (615) 301-7196
with copies to:
ClientLogic Operating Corporation
2 American Center
3102 West End Avenue
Suite 1000
Nashville, Tennessee 37203
Attn: General Counsel
Facsimile No.: (615) 301-7196
To Executive:
Mr. Gene S. Morphis
193 Carronbridge Way
Franklin, TN 37067
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the date actually delivered by
hand or the third business day after the actual date of mailing shall constitute
the time at which notice was given.
13. Legal Fees. Each party shall bear the costs of any legal fees and
other fees and expenses which may be incurred in respect of enforcing his or its
respective rights under this Agreement. The Company shall reimburse Executive
for reasonable legal fees incurred in connection with negotiation of this
Agreement.
14. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
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succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the ownership interests, assets or businesses of the
Company, if such successor expressly agrees to assume the obligations of the
Company hereunder.
15. Amendment. This Agreement may only be amended by written agreement
of the parties hereto.
16. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the state of New York, without reference
to rules relating to conflicts of law.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Nashville, Tennessee, or, if the Company has been relocated, the city to which
such relocation was made, in accordance with the commercial arbitration rules of
the American Arbitration Association then in effect; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction with respect to any breach or threatened breach of any
provision of Section 7 or 8 above. Any judgment may be entered on the
arbitrator's award in any court having jurisdiction.
18. Waiver. No failure on the part of any party hereto to exercise and
no delay in exercising any right, power or remedy hereunder will operate as a
waiver thereof, nor will any single or partial exercise of any right, power or
remedy.
19. Validity. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law or court decision, and
if the rights or obligations of the Company and Executive will not be materially
and adversely affected thereby, (a) such provision shall be fully severable from
this Agreement, (b) this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom, and (d) in lieu of such illegal,
invalid, or unenforceable provision, there shall be added automatically as a
part of this Agreement a legal, valid, and enforceable provision as similar to
the terms and intent of such illegal, invalid, or unenforceable provision as may
be possible.
20. Withholding. The Company shall be entitled to withhold from payment
any amount, however characterized, required by law.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
22. Headings. The headings and titles to sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed a part
of or affect the construction or interpretation of any provisions hereof.
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23. References. All references to Sections shall, unless otherwise
specified, be to Sections of this Agreement.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed, all as of the date first written above.
CLIENTLOGIC OPERATING CORPORATION
By: /s/ MARK R. BRIGGS
-----------------------------------------
Name: Mark R. Briggs
Title: President
EXECUTIVE
/s/ GENE S. MORPHIS
--------------------------------------------
Gene S. Morphis
<PAGE> 1
EXHIBIT 10.51
[CLIENTLOGIC LOGO]
February 23, 1999
Dear Bill Rella:
On behalf of myself and the 3,500 associates at ClientLogic, I want to welcome
you to our company. It is our hope that you will find your experience with us
both professionally rewarding and personally enjoyable.
ClientLogic is the world's leading outsourcing provider of direct sales,
customer service and technical support service to the high technology industry.
Our mission is to make it easier for our clients to acquire, service, support
and retain their customers. We believe you can make a significant contribution
towards achieving our goals.
To confirm the terms of your employment, I would like to reiterate the details
of our verbal offer to you:
1. POSITION: EXECUTIVE VICE PRESIDENT, CLIENTLOGIC
2. REPORTS TO: Mark Briggs, President
3. STATUS: Full-time, Exempt
4. TERM OF AGREEMENT: 1 year
5. SALARY: $360,000 annually, paid on a bi-weekly basis
6. BONUS: 365,000 shares at a grant of $1.75 based on the
following targets and terms:
Assume Ebitda targets for the former LCS at $12M
Assume Ebitda targets for the combined ClientLogic at $22M
50% Ebitda targets of the former LCS
Schedule as follows:
At $12M Ebitda (LCS) 182,500 stock options
50% Ebitda targets of the combined ClientLogic
At $10M Ebitda (SSG/NDR) 182,500 stock options
50% pro rated threshold - nothing issued below 50%
performance
At $6M Ebitda (LCS) 91,250 stock options
At $5M Ebitda (SSG/NDR) 91,250 stock options
Up to 150% accelerator
At $18M Ebitda (LCS) 273,750
At $15M Ebitda (SSG/NDR) 273,750
Subject to shareholders policy. Options are vested when
earned.
7. STOCK
OPTIONS: This issuance of 250,000 stock options is offered at
$1.75 per share Options Committee and Board. Future
options may be offered and the price may change as granted
by ClientLogic's Options Committee and adopted by
ClientLogic's Board of Directors.
<PAGE> 2
[CLIENTLOGIC LOGO]
8. TERMINATION
Notwithstanding anything to the contrary contained in the Agreement, the
Executive's employment hereunder may be terminated as follows:
(a) Death. The Executive's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from
his duties hereunder on a full-time basis for ninety (90) consecutive
days or for a total of one hundred eighty (180) days during any twelve
(12) month period, and within thirty (30) days after written Notice of
Termination (as hereinafter defined) is given, shall not have returned
to the performance of his duties hereunder on a full-time basis,
ClientLogic may terminate the Executive's employment.
(c) Cause. ClientLogic may terminate the Executive's employment hereunder
for "cause". For purposes of this Agreement, ClientLogic shall have
"cause" to terminate the Executive's employment hereunder upon (i) the
Executive's conviction of any illegal act, or (ii) the violation by the
Executive of the provisions of Section 9 hereof. If the Executive's
employment shall be terminated for cause at any time during the Term of
this Agreement, ClientLogic shall pay to the Executive his base salary
at the rate in effect on the Termination Date through and including the
Termination Date.
(d) Without Cause. ClientLogic may terminate the Executive's employment
hereunder without "cause". If employment is terminated without cause,
the Company shall continue to pay your base salary and provide all
benefits that are being received by you at the time of your termination
for a period of six (6) months from your termination date.
(e) Notice of Termination. Any termination by ClientLogic pursuant to any
of the above Subsections (b)(Disability) and (c)(Cause), shall be
communicated by a written notice of termination (a "Notice of
Termination") specifying in reasonable detail those termination
provisions in this Agreement relied upon, the date on which the
termination shall be effective (the "Termination Date"), and, if
applicable, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
(f) No Further Compensation. Except as otherwise expressly provided above
in this section, no further compensation, wages, bonus or base salary
shall be payable by ClientLogic to the Executive following the
termination of the Executive's employment with ClientLogic.
9. NON-COMPETITION; CONFIDENTIALITY; DISCOVERIES AND INVENTIONS;
NON-INTERFERENCE:
(a) During the term of the Executive's employment under this Agreement and
for a period ending one (1) year thereafter, or, if earlier for the
period ending on the date on which the Executive no longer owns any
common stock of ClientLogic or has any right to purchase common stock of
ClientLogic in connection with the exercise any stock options, the
Executive will not directly or indirectly:
(i) as an individual, partner, shareholder, investor, creditor, director,
officer, principal, agent, employee, trustee, consultant, adviser or in
any other relationship or capacity, take any action in, or participate or
become interested in or associated with any person (other than
ClientLogic) engaged in, or permit his name or goodwill to be used in
connection with, the business of selling or distributing computer
software or related materials or any other business that competes with
any business engaged in by ClientLogic or any division, group or
subsidiary of ClientLogic at the time of such termination, in any state
of the United States or the District of Columbia and any province of
Canada (collectively, the "territory") in which (A) now or at the time of
the termination of employment, ClientLogic sells its products or services
or a customer, agent or distributor of ClientLogic sells any of
ClientLogic's
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[CLIENTLOGIC LOGO]
or received by Executive as a result of any transactions constituting a
breach of any of the Covenants, and the Executive hereby agrees to
account for and pay over such Benefits to ClientLogic.
c) The Executive acknowledges and agrees that the Covenants are reasonable
and valid in geographical and temporal scope and in all other respects. If
any court determines that any of the Covenants, or any parts thereof, are
invalid or unenforceable, the other Covenants and the remainder of any of
the Covenants so impaired shall not thereby be affected and shall be given
full effect, without regard to the invalid portions. If any court
determines that any of the Covenants, or any parts thereof, are
unenforceable because of the duration or geographic scope thereof, such
court shall have the power to reduce the duration or geographic scope, as
the case may be, or such Covenants, and, in such reduced form, such
Covenants shall then be enforceable.
d) ClientLogic and the Executive intend to and hereby do confer
jurisdiction to enforce the Covenants upon the courts of any jurisdiction
within the United States or Canada. If a court in any such jurisdiction
holds any of the Covenants unenforceable by reason of the breadth of its
geographic scope or otherwise, it is the intention of ClientLogic and the
Executive that such determination not bar or in any way affect ClientLogic's
right to the relief provided above in the courts of any other jurisdiction
within the United States or Canada as to breaches of any of the Covenants in
such other jurisdictions, each of the Covenants as they relate to each
jurisdiction being severable into diverse and independent Covenants.
10. ASSOCIATE
BENEFITS: Benefits based on terms specified in sale of LCS.
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[CLIENTLOGIC LOGO]
one (1) additional week for every year of service on or after an
associate's three year anniversary not to exceed twelve (12) weeks,
VACATIONS - SOFTBANK believes in rewarding an associate for long term
commitment and has set up a progressive vacation schedule as outlined in
our associate handbook.
All benefits outlined herein are governed by the specific plan description or
applicable program parameters.
We also offer a variety of company sponsored benefits which are described in
the Company Associate Handbook (copy enclosed). An updated version of our
Handbook is located on our Corporate Intranet.
Name, we believe this offer is comprehensive and recognizes your considerable
skills, knowledge and abilities. We are confident that you will find ClientLogic
to be a company where you can prosper, grow and make a significant contribution
to the overall success and future of the organization. The ClientLogic team is
looking forward to a meaningful working relationship with you.
Should you have any questions regarding any information contained in this offer
letter, please feel free to contact me at (716) 871-2104.
Sincerely,
/s/ MARK BRIGGS
Mark Briggs
President, ClientLogic
A reply to this offer must be received by ClientLogic no later than March 1,
1999.
I am accepting this offer of employment from ClientLogic and agree to terms and
conditions as outlined herein.
/s/ BILL RELLA FEB. 27, 1999
- -------------- -------------
Bill Rella Date
5
<PAGE> 1
EXHIBIT 10.52
ECM PARTNERS II, L.P.
(A Delaware Limited Partnership)
AGREEMENT OF LIMITED PARTNERSHIP
--------------------------------
Dated as of March 1, 2000
--------------------------------
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<PAGE> 2
ECM PARTNERS II, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership of ECM Partners II, L.P., a Delaware
limited partnership, is made effective as of the 1st day of March, 2000 by ECM
GP LLC, a Delaware limited liability company (the "General Partner"), together
with such other Persons that may hereafter become Partners as provided herein.
ARTICLE 1
DEFINITIONS
The capitalized terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article 1.
ACT: means the Delaware Revised Uniform Limited Partnership Act, 6 Del.
C. Section 17-101, et seq., as it may be amended from time to time.
AFFILIATE: means any Person directly or indirectly, through one or more
intermediaries, Controlling, Controlled by, or under common Control with a
Person. The term "CONTROL" as used in the immediately preceding sentence, means,
with respect to a corporation, the right to exercise, directly or indirectly,
more than 50% of the voting rights for the election of a majority of the board
of directors of the Controlled corporation and with respect to any other Person,
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Controlled Person.
AGREEMENT: means this Agreement of Limited Partnership, which shall constitute
the limited partnership agreement of the Partnership for purposes of the Act, as
the same may be amended, supplemented, or otherwise modified from time to time.
BUSINESS DAY: means any day other than a Saturday, Sunday and those legal public
holidays specified in 5 U.S.C. Section 6103(a), as it may be amended from time
to time.
CAPITAL ACCOUNT: means, with respect to any Partner, a separate account
established by the Partnership and maintained for each Partner in accordance
with Section 4.6 hereof.
CAPITAL CONTRIBUTION: means the total amount of cash or the agreed Fair Market
Value of property contributed to the Partnership by all the Partners or any one
Partner, as the case may be, as shown on Schedule I, as the same may be amended
from time to time.
CARRIED INTEREST: means "Carried Interest", as defined in the LLC2 Agreement.
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CERTIFICATE: means the certificate of limited partnership of the Partnership as
filed on March 3, 2000 with the Secretary of State of the State of Delaware, as
amended or restated from time to time in accordance with the Act.
CLIENTLOGIC: ClientLogic Corporation (formerly known as ClientLogic Holding
Corporation), a Delaware corporation and its successors.
CODE: means the United States Internal Revenue Code of 1986, as amended. All
reference herein to sections of the Code shall include any corresponding
provision or provisions of succeeding law.
ELIGIBLE PERSON: means a Person who has the right to inspect the Partnership's
records pursuant to Section 7.2(b) hereof.
FAIR MARKET VALUE: means with respect to any asset, an amount determined in good
faith by the General Partner representing the current market value of such
asset.
FLP: means Harbison Family, L.L.P, a Texas limited liability partnership.
GENERAL PARTNER: means ECM GP LLC, a Delaware limited liability company, and any
other Person which is admitted to the Partnership as a substituted or additional
General Partner.
GROSS ASSET VALUE: means, with respect to any asset, such asset's adjusted basis
for federal income tax purposes, except as follows:
(i) the initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the gross Fair Market Value of such asset (computed
without taking into account Section 7701(g) of the Code);
(ii) the Gross Asset Value of all Partnership assets shall be adjusted,
in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv)(f) and (g), to equal
their respective gross Fair Market Values (without reduction for liabilities) as
of the following times: (a) the acquisition of an additional Interest by any new
or existing Partner in exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership assets as consideration for an Interest; (c) a
determination by all of the Partners that the initial Gross Asset Value of any
asset contributed by a Partner to the Partnership was incorrectly determined at
the time such asset was so contributed; and (d) the liquidation of the
Partnership within the meaning of Treas. Reg. Section 1.704-1(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clause (a) and clause (b) of
this sentence shall be made only if the Partnership reasonably determines that
such adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership; and
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<PAGE> 4
(iii) the Gross Asset Value of any asset distributed to any Partner
shall be the gross Fair Market Value of such asset on the date of distribution
(computed without taking into account Section 7701(g) of the Code), without
reduction for liabilities.
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to paragraph (i) or paragraph (ii) above, such Gross Asset
Value shall thereafter be adjusted by the depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Losses.
INTEREST: means all rights and interests of a Partner in the Partnership under
this Agreement and the Act, including (i) the right of a Partner, expressed as a
percentage on Schedule I, to receive distributions of revenues, allocations of
income and loss and distributions of liquidation proceeds under this Agreement,
(ii) the right to a distributive share of the assets of the Partnership; (iii)
the right, if a Limited Partner, to consent to certain actions of the General
Partner as set forth in Section 8.2 of this Agreement, and (iv) the right, if
the General Partner, to participate in the management of the affairs of the
Partnership, together with the obligations of such Partner to comply with all of
the terms and provisions of this Agreement and under the Act.
LIMITED PARTNER: means each Person whose name is set forth on Schedule I hereto
other than the General Partner, and any other Person which is admitted to the
Partnership as a substituted or additional Limited Partner.
LIQUIDATOR: means the Person who supervises the winding up of the Partnership in
accordance with Section 11.2 hereof.
LLC2: means ONEX CLIENTLOGIC HOLDINGS LLC, a Delaware limited liability company.
LLC2 AGREEMENT: means the Amended and Restated Limited Liability Company
Agreement of LLC2 dated as of January 28, 2000, as the same may be amended,
supplemented or otherwise modified from time to time.
MAJORITY-IN-INTEREST: means Limited Partners holding more than fifty percent
(50%) of the total Interests in the Partnership of all of the Limited Partners.
"NET PROFITS" and "NET LOSSES": means, for each fiscal year or portion thereof,
an amount equal to the Partnership's taxable income or loss for such fiscal year
or portion thereof, as determined for federal income tax purposes, and computed
in accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be separately stated pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss),
provided, however, for purposes of computing such taxable income or loss: (i)
any deductions for depreciation, cost recovery or amortization attributable to
any assets of the Partnership shall be determined in accordance with the Code,
except that if the Gross Asset Value of an asset differs from its adjusted tax
basis for federal income tax purposes at any time during such fiscal year, the
deductions for
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<PAGE> 5
depreciation, cost recovery or amortization attributable to such asset from and
after the date during such fiscal year in which such difference first occurs
shall bear the same ratio to the Gross Asset Value as of such date as the
federal income tax depreciation, amortization or other cost recovery deduction
for such fiscal year from and after such date bears to the adjusted tax basis as
of such date; (ii) any gain or loss attributable to the taxable disposition of
any Partnership property shall be determined by the Partnership as if the
adjusted tax basis of such property as of the date of such disposition were such
Gross Asset Value reduced by all amortization, depreciation, and cost recovery
deductions (determined in accordance with clause (a) above) which are
attributable to the property; (iii) the computation of all items of income,
gain, loss, and deduction shall be made without regard to any basis adjustment
under Section 743 of the Code which may be made by the Partnership; (iv) any
receipts of the Partnership that are exempt from federal income tax and are not
otherwise included in taxable income or loss shall be added to such taxable
income or loss; and (v) any expenditures of the Partnership described in Section
705(a)(2)(B) of the Code or treated as expenditures described in Section
705(a)(2)(B) of the Code pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i)
shall reduce such taxable income or increase such loss. An allocation of Net
Profit or Net Loss to a Partner shall be treated as an allocation to such
Partner of the same share of each item of income, gain, loss, deduction, and
item of tax-exempt income or Section 705(a)(2)(B) expenditure (or item treated
as such expenditure pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(i)) that
is taken into account in computing Net Profit or Net Loss.
NOTIFICATION: means a writing containing any information required by this
Agreement to be communicated to any Person, which may be personally delivered,
sent by registered or certified mail, postage prepaid, or sent by facsimile
transmission promptly confirmed to such Person, at the last known address of
such Person on the Partnership records. Any such notification shall be deemed
given (i) when delivered, in the case of personal delivery, (ii) on the date on
which it is deposited in a regularly maintained receptacle for the deposit of
United States mail addressed and sent as aforesaid, in the case of mail, and
(iii) within the first business hour (being 9:00 a.m. to 5:00 p.m., local time
for the recipient, on any Business Day) after receipt by the addressee, in the
case of facsimile transmission. Any communication containing information sent to
any Person other than as required by the foregoing sentences, but which is
actually received by such Person, shall constitute Notification as of the date
of such receipt for all purposes of this Agreement.
PARTNER: means, at any time, the Persons who then own Interests in the
Partnership, both as General Partner and Limited Partners and have been admitted
as Partners of the Partnership pursuant to this Agreement. The initial Partners
are listed on Schedule I.
PARTNERSHIP: means the limited partnership formed pursuant to this Agreement.
PARTNERSHIP PROPERTY: means all interests, properties and rights of any type
owned by the Partnership, whether owned by the Partnership at the date of its
formation or thereafter acquired.
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PERCENTAGE INTEREST: of a Partner, means such Partner's aggregate Partnership
Interest in the Partnership as set forth on Schedule I hereto, as the same may
be limited pursuant to Section 4.2 hereof, or as modified from time to time as
provided herein.
PERSON: means any natural person, limited liability company, limited liability
partnership, general partnership, joint stock association, limited partnership,
corporation, joint venture, trust, business trust, estate, cooperative,
association or other entity and the heirs, executors, administrators, successors
and permitted assigns of any such Person where the context requires.
REGULATION: means any regulation, including temporary regulations, promulgated
by the United States Department of Treasury with respect to the Code, as such
regulations are amended from time to time, or corresponding provisions of future
regulations.
"SUBSTITUTED PARTNER": means a Transferee of a Partnership Interest who becomes
a Partner pursuant to the terms of Article 9 of this Agreement and succeeds, to
the extent Transferred, to the rights and powers and becomes subject to the
restrictions and liabilities of the Transferor Partner and to the terms of this
Agreement.
TAX ITEMS: means, with respect to any property, all items of profit and loss
(including tax depreciation) recognized by or allowable to the Partnership with
respect to such property, as computed for federal income tax purposes.
"TRANSFER" or "TRANSFERRED": means (a) when used as a verb, to give, sell,
exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise
dispose of or encumber, and (b) when used as a noun, the nouns corresponding to
such verbs, in either case voluntarily or involuntarily, by operation of law or
otherwise. When referring to an Interest, "Transfer" shall mean the Transfer of
such Interest whether of record, beneficially, by participation or otherwise.
VESTED PERCENTAGE: means, as to each Limited Partner other than FLP, the
percentage set forth below opposite the latest date on which such Limited
Partner is (or was) employed by ClientLogic or any Affiliate of ClientLogic,
unless such date is accelerated as provided for below:
<TABLE>
<CAPTION>
DATE VESTED PERCENTAGE
---- -----------------
LIMITED PARTNERS GENE S.
EXCEPT FLP OR GM MORPHIS ("GM")
---------------- --------------
<S> <C> <C>
OCTOBER 1, 1999 APRIL 1, 1999 0%
OCTOBER 1, 2000 APRIL 1, 2000 25%
OCTOBER 1, 2001 APRIL 1, 2001 50%
OCTOBER 1, 2002 APRIL 1, 2002 75%
OCTOBER 1, 2003 APRIL 1, 2003 100%
</TABLE>
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<PAGE> 7
Notwithstanding the foregoing vesting schedule, in the event that (i) LLC2
redeems the Carried Interest for cash or (ii) the Partnership no longer owns any
stock, directly or indirectly in ClientLogic, then on the date either such event
occurs, all of the Limited Partners except FLP shall be deemed to have a vested
Percentage of 100% from that date forward.
ARTICLE 2
ORGANIZATION
2.1 FORMATION OF PARTNERSHIP. The Partners have formed a limited partnership
pursuant to and in accordance with the provisions of the Act. The General
Partner has filed or will file, on behalf of the Partnership, the Certificate.
2.2 NAME. The name of the Partnership is ECM Partners II, L.P. The General
Partner may, in its sole discretion, change the name of the Partnership from
time to time and shall give prompt written notice thereof to the Limited
Partners; provided, however, that such name may not contain any portion of the
name or mark of any Partner without such Partner's consent. In any such event,
the General Partner shall promptly file in the office of the Secretary of State
of the State of Delaware an amendment to the Partnership's Certificate
reflecting such change of name.
2.3 CHARACTER OF BUSINESS. The purpose of the Partnership shall be to engage in
any lawful business as may be conducted by a limited partnership organized under
the laws of the State of Delaware.
2.4 DATE OF DISSOLUTION. The term of the Partnership commenced on the filing of
the Certificate and shall continue in perpetuity or until earlier dissolution
under Article 11 hereof or under the provisions of the Act. The existence of the
Partnership as a separate legal entity shall continue until cancellation of the
Certificate in the manner required by the Act.
2.5 QUALIFICATION. The General Partner of the Partnership is hereby authorized
to qualify the Partnership to do business as a foreign limited partnership in
each state and the General Partner is hereby designated as an "authorized
person" within the meaning of the Act, to execute, deliver and file any
amendments or restatements of the Certificate and any other certificates and any
amendments or restatements thereof necessary for the Partnership to so qualify
to do business in any such state.
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2.6 REGISTERED OFFICE AND AGENT. The name and address of the Partnership's
initial registered agent are Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware. The
Partnership's initial principal place of business shall be 8117 Preston Road,
Suite 205, Dallas, Texas 75225. The General Partner may change such registered
agent, registered office, or principal place of business from time to time. The
General Partner shall give prompt written notice of any such change to each
Limited Partner. The Partnership may from time to time have such other place or
places of business within or without the State of Texas as may be determined by
the General Partner.
ARTICLE 3
PARTNERS
3.1 INITIAL PARTNERS. The names and addresses of the initial Partners of the
Partnership are as set forth on Schedule I of this Agreement. At the date
hereof, the sole General Partner of the Partnership is ECM GP LLC and no other
Person has any right to take part in the management of the Partnership.
3.2 ADMISSION OF ADDITIONAL PARTNERS. Subject to the requirements of Section
4.3, additional Partners of the Partnership may be admitted as follows:
(a) If the proposed additional Partner desires to purchase an Interest
from the Partnership, such purchase may be made and the admission of the
additional Partner shall become effective only if the identity of the proposed
additional Partner and the amount of the Capital Contribution to be made by such
proposed additional Partner in exchange for such proposed additional Partner's
Interest is first approved by the General Partner.
(b) If the proposed additional Partner desires to acquire an Interest
in a Transfer from an existing Partner, such Transfer may be made and the
admission of the additional Partner shall become effective only in accordance
with Article 9. All other attempted Transfers of any interest or right, or any
part thereof, in or in respect of the Partnership shall be null and void ab
initio.
3.3 WITHDRAWAL. Except as provided in the immediately following sentence, no
Partner shall have the right to withdraw from the Partnership or to demand a
return of all or any part of its Capital Contribution or such Partner's Capital
Account during the term of the Partnership, and any return of a Partner's
Capital Contribution or Capital Account shall be made solely from the assets of
the Partnership and only in accordance with the terms of this Agreement. If a
Partner makes a Transfer in accordance with Article 9 of all of such Partner's
Partnership Interest and if each of the Transferees of such entire Interest have
been admitted to the Partnership as Substituted Partners as provided in said
Article 9, such Transferring Partner may resign or withdraw from the Partnership
following such admission.
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<PAGE> 9
3.4 REMOVAL OF GENERAL PARTNER.
(a) The General Partner may be removed by a vote of a
Majority-in-Interest of the Limited Partners (and the fact that FLP is an
Affiliate of the General Partner shall in no way impair FLP's right to vote on
any such removal or on the appointment of any successor General Partner) and
will thereafter cease to be the general partner of the Partnership only upon the
occurrence of any one or more of the following events, the General Partner:
(i) shall have all or substantially all of its assets
placed in the hands of a receiver or trustee;
(ii) makes an assignment for the benefit of creditors;
(iii) files a voluntary petition in bankruptcy;
(iv) is adjudicated a bankrupt or insolvent, or has
entered against him an order for relief in any
bankruptcy or insolvency proceeding;
(v) files a petition or answer seeking for itself any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation.
(vi) files an answer or other pleading admitting or
failing to contest the material allegations of a
petition filed against it in a proceeding of the type
described in subsection (b) of this Section 3.4;
(vii) seeks, consents to, or acquiesces in the appointment
of a trustee or receiver of it or of all or
substantially all of its assets;
(viii) dissolves and commences winding up its affairs;
(ix) resigns in violation of this Agreement;
(x) withdraws in violation of this Agreement;
(xi) is removed by an event that with the passage of the
specified period becomes an event of withdrawal under
Section 17-402(a)(4) or (5) of the Act (upon such
event the General Partner shall notify each Limited
Partner of the occurrence of the event within thirty
(30) days after the date of the occurrence of the
event of withdrawal); or
(xii) is removed by the vote of a Majority-in-Interest of
the Partnership Interests.
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(b) No removal in Section 3.4(a) shall become effective following the
occurrence of any of the events specified above until a Substituted Partner for
the General Partner has been appointed by a vote of a Majority-in-Interest of
the Limited Partners. Such removed General Partner and the Substituted Partner
for the General Partner shall execute an amendment to the Certificate to reflect
these changes.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 CAPITAL CONTRIBUTIONS TO THE PARTNERSHIP. The Partners shall contribute
capital to the Partnership in the amounts respectively set forth opposite their
names on Schedule I to this Agreement. Such initial Capital Contribution shall
be in the form of cash, property, services rendered, or a promissory note or
other obligation to pay cash or transfer property to the Partnership, as
specified on Schedule I. Schedule I may not be amended without the approval of
the General Partner.
4.2 INTERESTS. Upon making (a) the Capital Contribution specified on Schedule I
with respect to the General Partner and FLP or (b) the election available
pursuant to Section 83(b) of the Code within 30 days from the effective date
hereof with respect to each Limited Partner other than FLP, each Partner shall
own a Percentage Interest equal to the amount set forth opposite such Partner's
name on Schedule I. The Percentage Interest of each Partner may not be reduced
without such Partner's consent except as described below. Likewise, the Vested
Percentage of each Limited Partner other than FLP may not be changed without
such Limited Partners consent unless such Limited Partner ceases to be employed
by ClientLogic or any Affiliate of ClientLogic prior to the time such Limited
Partner's Vested Percentage is 100%. In the event that a Limited Partner ceases
to be employed by ClientLogic or any Affiliate of ClientLogic prior to the time
such Limited Partner's Vested Percentage is 100%, such Limited Partner's
Percentage Interest shall be reduced to an amount equal to the product of (i)
the Percentage Interest set forth opposite such Limited Partner's name on
Schedule I multiplied by (ii) such Limited Partner's Vested Percentage. Any
reduction of a Limited Partner's Percentage Interest shall increase FLP's
Percentage Interest by a like amount (and any Capital Account attributable to
such reduced Percentage Interest shall inure to the benefit of FLP).
4.3 NO FURTHER CAPITAL CONTRIBUTIONS. No Partner shall be obligated to make any
Capital Contribution other than that set forth opposite such Partner's name on
Schedule I. Without the approval of all the Partners, the General Partner shall
not permit or accept any Capital Contributions by any Partner beyond those
specified on Schedule I; provided, further, however, that the General Partner
shall not permit or accept any further Capital Contributions unless FLP shall
have received an opinion from FLP's tax advisor, in form reasonably satisfactory
to FLP, that such further Capital Contribution will not cause FLP to recognize
gain by reason of Section 721(b) of the Code.
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<PAGE> 11
4.4 LOAN.
(a) A Partner may loan funds to the Partnership, or provide guarantees
to or for the benefit of the Partnership, with the consent of, and on such terms
and conditions as may be approved by, the General Partner, and, subject to other
applicable law, have the same rights and obligations with respect thereto as a
Person who is not a Partner. The existence of such a relationship and acting in
such a capacity will not affect the limited liability of a Limited Partner.
(b) No Partner shall be required to guarantee a loan made to the
Partnership. If a Partner guarantees a loan made to the Partnership and is
required to make payment pursuant to such guarantee to the maker of the loan,
then the amounts so paid to the maker of the loan shall be treated as a loan by
such Partner to the Partnership and not as an additional Capital Contribution.
(c) No Partner shall be required to loan funds to the Partnership.
Loans by a Partner to the Partnership shall not be considered Capital
Contributions. The amount of any such loans shall be a debt of the Partnership
owed to such Partner in accordance with the terms and conditions upon which such
loans are made.
(d) If a Partner is a lender, in exercising such Partner's rights as a
lender, including making such Partner's decision whether to foreclose on
property of the Partnership, such lender will have no duty to consider (i) such
Partner's status as a Partner, (ii) the interests of the Partnership, or (iii)
any duty such Partner may have to any other Partner or the Partnership.
4.5 CAPITAL ACCOUNTS.
(a) A Capital Account shall be established and maintained for each
Partner. Each Partner's Capital Account (i) shall be increased by (A) the amount
of money contributed by that Partner to the Partnership, (B) the Gross Asset
Value of property contributed by that Partner to the Partnership (net of
liabilities secured by the contributed property that the Partnership is
considered to assume or take subject to under Section 752 of the Code), and (C)
allocations to that Partner of Partnership income and gain (or items thereof),
including income and gain exempt from tax and income and gain described in
Treas. Reg. Section 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Treas. Reg. Section 1.704-1(b)(4)(i), and (ii) shall be decreased
by (A) the amount of money distributed to that Partner by the Partnership, (B)
the Gross Asset Value of property distributed to that Partner by the Partnership
(net of liabilities secured by the distributed property that the Partner is
considered to assume or take subject to under Section 752 of the Code), (C)
allocations to that Partner of expenditures of the Partnership described in
Section 705(a)(2)(B) of the Code, and (D) allocations of Partnership loss and
deduction (or items thereof), including loss and deduction described in Treas.
Reg. Section 1.704-1(b)(2)(iv)(g), but excluding items described in clause
(ii)(C) above and loss or deduction described in Treas. Reg. Section
1.704-1(b)(4)(i) or Section 1.704-1(b)(4)(iii). The Partners' Capital Accounts
also shall be maintained and adjusted as permitted by the provisions of Treas.
Reg.
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Section 1.704l(b)(2)(iv)(f) and as required by the other provisions of Treas.
Reg. Sections 1.704-1(b)(2)(iv) and 1.7041(b)(4), including adjustments to
reflect the allocations to the Partners of depreciation, depletion,
amortization, and gain or loss as computed for book purposes rather than the
allocation of the corresponding item as computed for tax purposes, as required
by Treas. Reg. Section 1.704-1(b)(2)(iv)(g). A Partner that has more than one
Interest shall have a single Capital Account that reflects all its Interests,
regardless of the class of Interests owned by that Partner and regardless of the
time or manner in which those Interests were acquired.
(b) On the Transfer of all or part of an Interest, the Capital Account
of the Transferor that is attributable to the transferred Interest or part
thereof shall carry over to the Transferee Partner in accordance with the
provisions of Treas. Reg. Section 1.704-1(b)(2)(iv)(1).
(c) The manner in which Capital Accounts are to be maintained pursuant
to this Section 4.6 is intended to comply with the requirements of Code Section
704(b) and the Regulations and, to the greatest extent practicable, shall be
interpreted in a manner consistent with said Code section and Regulations.
4.6 NEGATIVE CAPITAL ACCOUNTS. At no time during the term of the Partnership or
upon dissolution and liquidation thereof shall a Partner with a negative or zero
balance in such Partner's Capital Account have any obligation to the Partnership
or to the other Partners to restore such negative balance, except as may be
required by law or in respect of any negative balance resulting from a
withdrawal of capital or distribution in contravention of this Agreement.
4.7 USE OF CAPITAL CONTRIBUTIONS. All Capital Contributions shall be held or
expended by the General Partner in furtherance of the purposes of the
Partnership.
ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations of Net Profits and Net Losses.
(a) The Net Profits and Net Losses shall be allocated to the Partners
as follows:
(i) Partnership Net Profit shall be allocated first, to
the Partners to reverse any Net Losses allocated to
the Partners under Section 5.01(a)(iii) hereof;
second, to GM to the least extent necessary to cause
his positive Capital Account balance to bear the same
ratio to FLP's positive Capital Account balance as
his Percentage Interest bears to FLP's Percentage
Interest; third to the Partners to the least extent
necessary to cause the positive Capital Account
balances of all Partners to be in proportion to their
respective
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Percentage Interests; and thereafter to the Partners
pro rata in accordance with their respective
Percentage Interests;
(ii) Partnership Net Loss shall be allocated to the
Partners pro rata in accordance with their respective
Percentage Interests.
(iii) Notwithstanding anything in Section 5.1(a)(ii) hereof
to the contrary, Net Loss shall not be allocated to
any Partner to the extent such allocation would
create or increase a deficit balance in such
Partner's Capital Account. Any such Net Loss shall be
reallocated among the remaining Partners with
positive balances in their Capital Accounts pro rata
in accordance such positive Capital Account balances.
(iv) In the event any Partner unexpectedly receives any
adjustments, allocations, or distributions described
in Treas. Reg. Section 1.704-l(b)(2)(ii)(d)(4), (5),
or (6), then items of Partnership income and gain
(consisting of a pro rata portion of each item of
Partnership income, including gross income, and gain
for such year and, if necessary, for subsequent
years) shall be specially allocated to the Capital
Account of such Partner in an amount and manner
sufficient to eliminate the deficit balance
referenced in Treas. Reg. Section 1.704-1(b)(2)(ii)(d)
as quickly as possible. It is the Partners' intent
that this Section 5.01(a)(iv) constitute a "qualified
income offset" within the meaning of Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(3).
(b) All Net Profit or Net Loss allocable to any Interest that may have
been transferred shall be allocated between the Transferor and the Transferee
based on the portion of the calendar year during which each was recognized as
owning that Interest, without regard to the results of Partnership operations
during any particular portion of that calendar year and without regard to
whether cash distributions were made to the Transferor or the Transferee during
that calendar year, provided, however, that this allocation must be made in
accordance with a method permissible under Section 706 of the Code and the
Regulations.
5.2 DETERMINATION OF INCOME AND LOSS. At the end of each fiscal year of the
Partnership, Net Profits and Net Losses shall be determined for the accounting
period then ending and shall be allocated to the Partners in accordance with
Section 5.1.
5.3 ALLOCATION OF TAX ITEMS. Subject to the provisions of Section 704(c) of the
Code and the Regulations thereunder (which the Partners agree shall be applied
using the "Traditional Method"), each Tax Item shall be allocated among the
Partners in the same manner as each correlative item of profit or loss, as
calculated for book purposes, is allocated to the Partners pursuant to Section
5.1 hereof.
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5.4 DISTRIBUTIONS. From time to time, the General Partner in its sole discretion
may cause Partnership Property to be distributed to the Partners, which
distributions must be made pro rata in accordance with each Partner's respective
Percentage Interest. Immediately prior to a distribution of Partnership Property
other than cash, the Capital Accounts of the Partners shall be adjusted as
provided in Treas. Reg. Section 1.704-1(b)(2)(iv)(e). In no event shall any
such distribution be made to any Partner to the extent that such distribution
would cause such Partner to have a negative balance in such Partner's Capital
Account.
5.5 PERSONS ENTITLED TO DISTRIBUTIONS. All distributions of Partnership Property
to the Partners under this Article 5 shall be made to the Persons shown on the
records of the Partnership to be entitled thereto as of the last day of the
fiscal period for which such distribution is to be made, unless the Transferor
and Transferee of any Interest otherwise agree in writing to a different
distribution and such distribution is consented to in writing by the General
Partner.
5.6 INTENT TO COMPLY WITH ALTERNATE TEST FOR ECONOMIC EFFECT. The Partners
intend for this Agreement to comply with the requirements of Treas. Reg. Section
1.704-1(b)(2)(ii)(d)(3) and, as a result, for the allocations under Section 5.1
hereof to be considered to have economic effect within the meaning of the
Regulations under Section 704 of the Code. This Agreement shall be interpreted
in a manner consistent with that intent and may be modified by the General
Partner to the least extent necessary to cause this Agreement to comply with
such requirements.
5.7 MINIMUM GAIN CHARGEBACK. Pursuant to section Treas. Reg. Section 1.704-2(f)
(relating to minimum gain chargebacks), if there is a net decrease in
partnership minimum gain (as such term is defined in Treas. Reg. Section
1.704-2(b)(2)) for such year (or if there was a net decrease in partnership
minimum gain for a prior fiscal year and the Partnership did not have sufficient
amounts of income (including gross income) and gain during prior years to
allocate among the Partners under this Section 5.7), then items of Partnership
income (including gross income) and gain shall be allocated, before any other
allocation is made pursuant to the preceding section of this Article 5 for such
year, to each Partner in an amount equal to such Partner's share of the net
decrease in such partnership minimum gain (as determined under Treas.
Reg. Section 1.704-2(g)(2)).
5.8 PARTNER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK. Pursuant to section
1.704-2(i)(4) of the Regulations (relating to partner nonrecourse debt minimum
gain chargebacks), if there is a net decrease in partner nonrecourse debt
minimum gain (as such term is defined in section 1.704-2(i)(2) of the
Regulations) for such year (or if there was a net decrease in partner
nonrecourse debt minimum gain for a prior fiscal year and the Partnership did
not have sufficient amounts of income (including gross income) and gain during
prior years to allocate among the Partners under this Section 5.8), then items
of Partnership income (including gross income) and gain shall be allocated,
before any other allocation is made pursuant to the preceding sections of this
Article 5 for such year, to each Partner in an amount equal to such Partner's
share of the net decrease in such partner nonrecourse debt minimum gain (as
determined under Treas. Reg. Section 1.704-2(i)(5)).
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ARTICLE 6
OWNERSHIP OF PARTNERSHIP PROPERTY
6.1 TITLE; RECORDS. Partnership Property shall be deemed to be owned by the
Partnership as an entity, and no Partner, individually or collectively, shall
have any ownership interest in such Partnership Property or any portion thereof.
Title to any or all Partnership Property may be held in the name of the
Partnership or one or more nominees, as the General Partner may determine. All
Partnership Property shall be recorded as the property of the Partnership on its
books and records, irrespective of the name in which legal title to such
Partnership Property is held.
ARTICLE 7
FISCAL MATTERS; BOOKS AND RECORDS
7.1 BANK ACCOUNTS; INVESTMENTS. Capital Contributions, revenues and any other
Partnership funds shall be deposited by the General Partner in a bank account
established in the name of the Partnership, or shall be invested by the General
Partner in furtherance of the purpose of the Partnership. The General Partner
may, in its sole discretion, deposit funds of the Partnership in a central
disbursing account maintained by or in the name of one of the Partners in which
funds of other Persons are also deposited, provided that at all times books of
account are maintained which show the amount of funds of the Partnership on
deposit in such account and interest accrued with respect to such funds is
credited to the Partnership. Funds deposited in the Partnership's bank accounts
may be withdrawn only to be invested in furtherance of the Partnership purpose,
to pay Partnership debts or obligations or to be distributed to the Partners
pursuant to this Agreement.
7.2 RECORDS REQUIRED BY ACT; RIGHT OF INSPECTION.
(a) RECORDS REQUIRED. During the term of the Partnership and for a
period of four (4) years thereafter, the General Partner, at the expense of the
Partnership, shall maintain, or cause to be maintained, in the Partnership's
principal office in the United States specified in Section 2.6 hereof all
records required to be kept pursuant to the Act, including, without limitation,
(i) a current list of the names, addresses and Interests held by each of the
Partners; (ii) copies of federal, state and local information or income tax
returns for each of the Partnership's six (6) most recent tax years; (iii)
copies of this Agreement and the Certificate, including all amendments or
restatements; (iv) if such information is not otherwise set forth in the
Certificate or this Agreement, a written statement of (A) the amount of the cash
Capital Contribution and a description and statement of the agreed Fair Market
Value of any other Capital Contribution made by
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each Partner, and the amount of the cash Capital Contribution and a description
and statement of the agreed Fair Market Value of any other Capital Contribution
that the Partner has agreed to make in the future as an additional Capital
Contribution; (B) the times at which any additional Capital Contributions are to
be made or events requiring Capital Contributions to be made; (C) events
requiring the Partnership to be dissolved and its affairs wound up; and (D) the
date on which each Partner became a Partner of the Partnership; and (v) correct
and complete books and records of account of the Partnership.
(b) RIGHT OF INSPECTION. On written request stating the purpose, a
Partner or an assignee of a Partner's Interest (an "Eligible Person") may
examine and copy in person or by the Eligible Person's representative, at any
reasonable time, for any proper purpose, and at the Eligible Person's expense,
records required to be maintained under the Act and such other information
regarding the business, affairs and financial condition of the Partnership as is
just and reasonable for the Eligible Person to examine and copy. Upon written
request by any Eligible Person made to the General Partner at the address of the
Partnership's principal office in the United States specified in Section 2.6
hereof, the Partnership shall provide to the Eligible Person without charge true
copies of (i) this Agreement and the Certificate and all amendments or
restatements, and (ii) any of the tax returns of the Partnership described
above.
7.3 BOOKS AND RECORDS OF ACCOUNT. The General Partner, at the expense of the
Partnership, shall maintain, or cause to be maintained, for the Partnership
adequate books and records of account that shall be maintained on the cash or
accrual method of accounting and on a basis consistent with appropriate
provisions of the Code, containing, among other entries, a Capital Account for
each Partner.
7.4 TAX RETURNS AND INFORMATION. The Partners intend for the Partnership to be
treated as a partnership for tax purposes. The General Partner shall prepare or
cause to be prepared all federal, state and local income and other tax returns
that the Partnership is required to file. Within the shorter of (a) such period
as may be required by applicable law or regulation, or (b) one hundred twenty
(120) days after the end of each calendar year, the General Partner shall send
or deliver to each Person who was a Partner at any time during such year such
tax information as shall be reasonably necessary for the preparation by such
Person of such Person's federal income tax return and state income and other tax
returns.
7.5 DELIVERY OF FINANCIAL STATEMENTS TO PARTNERS. As to each fiscal year of the
Partnership, the General Partner shall send to each Partner a copy of (a) a
balance sheet of the Partnership as of the end of the fiscal year, (b) an income
statement of the Partnership for such year, and (c) a statement showing the
revenues distributed by the Partnership to Partners in respect of such year.
Such financial statements shall be delivered by no later than one hundred twenty
(120) days following the end of the fiscal year to which the statements apply.
Unless a Partner requests in writing prior to the end of the fiscal year to
which the financial statements apply that the financial statements
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shall be audited (in which case Section 7.6 below shall apply), such statements
need not be audited.
7.6 AUDITS AT REQUEST OF PARTNER. Any Partner shall have the right to have an
audit conducted of the Partnership books, which audit may be requested with
respect to the annual financial statements under Section 7.5 above. The cost of
the audit shall be borne by the Partner or Partners requesting that the audit be
performed or, upon the approval of the General Partner, by the Partnership. The
audit shall be performed by an accounting firm acceptable to the General Partner
and the Partner requesting the audit. Not more than one (1) audit shall be
required by any or all of the Partners for any fiscal year.
7.7 FISCAL YEAR. The Partnership's fiscal year shall end on December 31 of each
calendar year.
7.8 TAX ELECTIONS. The Partnership shall make the following elections on the
appropriate tax returns:
(a) to adopt the calendar year as the Partnership's fiscal year;
(b) to keep the Partnership's books and records on the income-tax
method; and
(c) to elect to amortize the organizational expenses of the Partnership
ratably over a period of sixty (60) months as permitted by Section 709(b) of the
Code.
None of the Partnership, the General Partner or any other Partner may make an
election for the Partnership to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar
provisions of applicable state law. If a distribution of Partnership Property as
described in Section 734 of the Code occurs or if a transfer of Interest as
described in Section 743 of the Code occurs, on written request of any Partner,
the Partnership may elect, pursuant to Section 754 of the Code, to adjust the
basis of Partnership Properties. The General Partner may also make any other
election it deems appropriate and in the best interests of the Partners.
7.9 "TAX MATTERS PARTNER". The General Partner shall be the "tax matters
partner" of the Partnership pursuant to Section 6231(a)(7) of the Code. Such
General Partner shall take such action as may be necessary to cause each other
Partner to become a "notice partner" within the meaning of Section 6223 of the
Code. Such General Partner shall inform each other Partner of all significant
matters that may come to its attention in its capacity as "tax matters partner"
by giving notice thereof. Such General Partner may exercise all rights
conferred, and perform all duties, imposed upon the "tax matters partner" under
Sections 6222 through 6232 of the Code and the Regulations.
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ARTICLE 8
MANAGEMENT OF THE PARTNERSHIP
8.1 MANAGEMENT.
(a) The powers of the Partnership shall be exercised by or under the
authority of, and the business and affairs of the Partnership shall be managed
under the direction of, the General Partner. Any Person dealing with the
Partnership, other than a Partner, may rely on the authority of the General
Partner and duly designated officers in taking any action in the name of the
Partnership without inquiry into the provisions or compliance herewith,
regardless of whether that action is actually taken in accordance with the
provisions of this Agreement.
(b) The General Partner may designate one or more individuals as
officers of the Partnership, who shall have such titles and exercise and perform
such powers and duties as shall be assigned to them from time to time by the
General Partner. Officers need not be Partners or the General Partner. Any
officer may be removed by the General Partner at any time, with or without
cause. Each officer shall hold office until his or her successor shall be duly
designated and take office or until the earlier of the officer's death,
resignation or removal. Any number of offices may be held by the same Person.
The salaries or other compensation, if any, of the officers and agents of the
Partnership shall be fixed by the General Partner.
8.2 POWERS OF GENERAL PARTNER. The General Partner shall have no power to cause
the Partnership to do any act outside the purpose of the Partnership as set
forth in Section 2.3 hereof. Subject to the foregoing limitation and all other
limitations in this Agreement, the Certificate or the Act, the General Partner
shall have full, complete and exclusive power to manage and control the
Partnership, and shall have the authority to take any action it deems to be
necessary, convenient or advisable in connection with the management of the
Partnership, including, but not limited to, the power and authority on behalf of
the Partnership:
(a) to expend the Partnership's Capital Contributions and revenues and
to execute and deliver all checks, drafts, endorsements and other orders for the
payment of Partnership funds;
(b) to employ agents, employees, accountants, lawyers, clerical help,
and such other assistance and services as may seem proper, and to pay therefor
such remuneration as the General Partner may deem reasonable and appropriate
from Partnership funds;
(c) to purchase, lease, rent, or otherwise acquire or obtain the use of
office equipment, materials, supplies, and all other lands and types of real or
personal property, and to incur expenses for travel, telephone, telegraph and
for such other things, services and facilities, as may be deemed necessary,
convenient or advisable for carrying on the business of the Partnership;
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(d) to carry, at the expense of the Partnership, insurance of the kinds
and in the amounts that the General Partner deems advisable or make other
arrangements for payment of losses or liabilities to protect the Partnership or
the Partners, General Partner, officers, agents and employees of the Partnership
against loss or liability;
(e) to borrow money from any Person for any Partnership purpose on
whatever terms and conditions the General Partner deems advisable, to enter into
any guarantees, to obligate the Partnership to repay the borrowed money, and in
connection therewith, to encumber or hypothecate Partnership Property as
security for such repayment by mortgage, deed of trust, pledge or otherwise;
(f) to sell, transfer, assign, dispose of trade, exchange, quitclaim,
surrender, release or abandon Partnership Property, or any interests therein, to
any Person, including the General Partner or its affiliates, and in connection
therewith to receive such consideration as it deems fair and in the best
interests of the Partnership;
(g) to sue and be sued, complain and defend in the name and on behalf
of the Partnership;
(h) to do all acts, take part in any proceedings, and exercise all
rights and privileges as could an absolute owner of Partnership Property,
subject to the limitations expressly stated in this Agreement and the faithful
performance of the General Partner's fiduciary obligations to the Partnership
and the Limited Partners;
(i) in the exercise of any of the foregoing powers, to negotiate,
execute and perform, on any terms deemed desirable in the General Partner's sole
discretion, such agreements, contracts, leases, instruments and other documents
as the General Partner shall from time to time approve in accordance with, and
subject to, the terms of this Agreement;
(j) in connection with certain tax matters described in that certain
letter agreement dated as of __________, 2000 from Onex ClientLogic LLC to FLP
(the "Tax Letter"), (i) to accept an assignment of FLP's rights under the Tax
Letter to the Partnership, including, without limitation, the right to receive
(A) certain nonrecourse loans from Onex ClientLogic LLC on the terms and
conditions described therein, in the event income is allocated with respect to
the Carried Interest without a corresponding distribution of cash and (B)
certain reimbursement rights for any penalties and interest incurred with
respect to ownership of the Carried Interest in the event income is allocated
with respect to the Carried Interest without a corresponding distribution of
cash and (ii) to extend the benefits of the Tax Letter to the Partners by making
pass-through nonrecourse loans to the Partners, in the event income is allocated
to the Partners without a corresponding distribution of cash on substantially
the same terms and conditions as those contained in the underlying loan(s) to
the Partnership in an amount sufficient to allow each Partner to pay such
Partner's actual tax liability; and
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(k) to take such other action and perform such other acts as the
General Partner deems necessary, convenient or advisable in carrying out the
business of the Partnership.
The enumeration of powers in this Agreement shall not limit
the general or implied powers of the General Partner or any additional powers
provided by law.
Notwithstanding the foregoing, the General Partner may not
cause the Partnership to do any of the following without the consent of a
Majority-in-Interest of the Limited Partners:
(a) Purchase any real property;
(b) Sell any real property owned by the Partnership;
(c) Merge with or into another Person, regardless of
whether the Partnership is the surviving entity of
such merger;
(d) Reorganize the Partnership;
(e) Take any action in contravention of this Agreement,
the Act or the Certificate;
(f) Make an assignment for the benefit of creditors of
the Partnership or file a voluntary petition under
the federal bankruptcy code or any state insolvency
law on behalf of the Partnership;
(g) Confess any judgment against the Partnership;
(h) Admit a Person as a substitute or additional General
Partner; or
(i) Do any act that would make it impossible to carry on
the normal and ordinary business of the Partnership.
8.3 IDENTITY OF GENERAL PARTNER. The identity of the General Partner of the
Partnership shall be as provided in this Agreement.
8.4 OTHER BUSINESS. The Partners (including the General Partner) may engage in
or possess an interest in other business ventures (unconnected with the
Partnership) of every kind and description, independently or with others,
including, without limitation, serving as general partner of other limited
partnerships and participating in businesses competitive with that of the
Partnership. Neither the Partnership nor the Partners shall have any rights in
or to such independent ventures or the income or profits therefrom.
8.5 POWER OF ATTORNEY. Each Partner hereby appoints the General Partner (and any
Liquidator) as that Partner's attorney-in-fact for the purpose of executing,
swearing to, acknowledging, and delivering all certificates, documents, and
other instruments as may be necessary, appropriate, or advisable in the judgment
of the General Partner (or the
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Liquidator) in furtherance of the business of the Partnership or complying with
applicable law. This power of attorney is irrevocable and is coupled with an
interest. On request by the General Partner (or the Liquidator), a Partner shall
confirm such Partner's grant of this power of attorney or any use thereof by the
General Partner (or the Liquidator) and shall execute, swear to, acknowledge,
and deliver any such certificate, document, or other instrument.
8.6 STATUS OF LIMITED PARTNER.
(a) The Limited Partners shall not be bound by, or personally liable
for, the expenses, liabilities or obligations of the Partnership, except as
provided in the Act. The Limited Partners shall not be required or obligated to
make contributions of any sort whatsoever to the capital of the Partnership in
excess of their initial Capital Contribution, if any; provided, however, that a
Limited Partner receiving a distribution shall be liable to the Partnership to
the extent provided by the Act.
(b) To the extent the Limited Partners exercise rights with respect to
material matters relating to the Partnership or its affairs, or otherwise
exercise rights in relation to the Partnership, such powers shall be exercised
under and in conformity with the provisions of the Act and this Agreement so as
not to constitute taking part in the control of the business of the Partnership.
8.7 EXPENSES. The General Partner shall cause the Partnership to pay all
expenses (including legal and administrative costs and expenses) of the
Partnership, including, without limitation, the reimbursement of any expenses
incurred by the General Partner in the performance of its duties hereunder.
ARTICLE 9
RIGHTS, POWERS, AND OBLIGATIONS OF PARTNERS
9.1 AUTHORITY, LIABILITY TO THIRD PARTIES. No Partner (other than the General
Partner or an officer) has the authority or power to act for or on behalf of the
Partnership, to do any act that would be binding on the Partnership, or to incur
any expenditures on behalf of the Partnership. No Partner (including the General
Partner) shall be liable in connection with this Agreement to the Partnership
for any consequential or indirect loss or damage, including loss of revenues,
cost of capital, loss of goodwill, loss of "benefit of the bargain" or any other
special or incidental damages. Neither shall any Partner (including the General
Partner) be liable for the debts, obligations or liabilities of the Partnership,
including a judgment decree or order of a court, except as set forth in the Act.
9.2 TRANSFERS OF INTERESTS. A Partner may make a Transfer of such Partner's
Interest, in whole or in part, only upon compliance with the following
procedure:
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(a) The Transferor Partner or the Transferee must file with the
Partnership a written and dated instrument of such Transfer, in form and
substance reasonably satisfactory to the General Partner, executed by both the
Transferor and the Transferee, which instrument shall (i) contain the acceptance
by the Transferee of all of the terms and provisions of this Agreement, to the
extent applicable to an assignee of an Interest; (ii) contain such
representations as the General Partner may deem necessary or advisable to assure
that such Transfer need not be registered under any applicable federal or state
securities laws; (iii) instruct the General Partner as to the Interest
transferred and to whom and at what address Partnership distributions and
Notifications in respect of such Interest should henceforth be sent; and (iv)
contain any information required under the Code that is requested by the General
Partner.
(b) Unless expressly waived by the General Partner, the Transferor or
Transferee shall deliver to the Partnership an opinion of counsel acceptable to
the General Partner that (i) such Transfer is exempt from the registration
requirements of the Securities Act of 1933, as amended, applicable state
securities laws, and any rules or regulations promulgated thereunder, and will
not otherwise cause the Partnership to be in violation of such laws and
regulations; (ii) the Transfer will not result in a termination of the
Partnership for purposes of Section 708 of the Code; (iii) the Transfer will not
result in the Partnership being taxed as an association taxable as a corporation
under Section 7701 of the Code; and (iv) the Transfer will not result in the
loss of the limited liability of a Limited Partner under the Act.
(c) The Transferor Partner and the Transferee shall have received a
written acknowledgment from the General Partner that the Transfer has been
approved by (i) the General Partner, if the Interest to be Transferred is owned
by a Limited Partner, or (ii) a Majority-in-Interest of the Limited Partners, if
the Interest to be Transferred is owned by the General Partner; provided,
however, that the Interest of any individual Partner shall be transferable
without such approval if both of the following factors apply: (x) such Transfer
occurs by reason of the death of the Partner and each Transferee is a member of
such Partner's immediate family (i.e., spouse, parent or child of such Partner),
or a trust, corporation or other entity controlled by or for the benefit of such
Partner or members of such Partner's immediate family, and (y) each Transferee
otherwise complies with the provisions of paragraphs (a) and (b) of this Section
9.2 (except that the instrument described in Section 9.2(a) need not be executed
by the Transferor Partner).
9.3 EFFECT OF TRANSFER OF INTEREST. A Transfer of an Interest pursuant to
Section 9.2 above does not entitle the Transferee to become, or to exercise
rights or powers of, a Substituted Partner. A Transfer only entitles the
Transferee to receive cash distributions and allocations of Partnership profits
and losses to the extent of the Interest to be Transferred; provided, however,
that any Transfer of an Interest that would result in the Partnership becoming a
publicly traded partnership taxable as a corporation will not be recognized by
the Partnership and the Transferee will not be entitled to any distributions
hereunder. Until the Transferee is admitted as a Substituted Partner pursuant to
Section 9.4 below, the Transferor Partner shall continue to be a Partner and to
be entitled to exercise any rights or powers of a Partner with respect to the
Interest Transferred.
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9.4 SUBSTITUTED PARTNER. No Transferee of a Partnership Interest shall become a
Substituted Partner within the meaning of the Act unless:
(a) The General Partner (or in the case of a Transfer by the General
Partner of its General Partner's Partnership Interest, a Majority-in-Interest of
the Limited Partners) gives prior express written consent; and
(b) The Transferee elects in writing to become a Substituted Partner
and executes and acknowledges such other instruments as the General Partner
deems necessary or advisable (or, in the case of a Transfer by the General
Partner of its General Partner Partnership Interest, such instruments as the
Majority-in-Interest of Limited Partners deem necessary or advisable) to effect
the admission of such Person as a Substituted Partner, including without
limitation, written acceptance and adoption by such Person of all of the
provisions of this Agreement.
9.5 Legal Counsel. Each Limited Partner hereby agrees and acknowledges that:
(a) the General Partner has retained Weil, Gotshal & Manges LLP in
connection with the formation of the Partnership and may in the future retain
Weil, Gotshal & Manges LLP in connection with the operation of the Partnership,
including making, holding and disposing of Interests.
(b) Weil, Gotshal & Manges LLP have not represented and will not
represent the Limited Partners in connection with the formation of the
Partnership, the offering of Interests, the management and operation of the
Partnership, or any dispute which may arise between the Limited Partners on one
hand and the General Partner and/or the Partnership on the other hand (the
"Partnership Legal Matters"). Each Limited Partner will, if it wishes counsel on
a Partnership Legal Matter, retain such Limited Partner's own independent
counsel with respect thereto and will pay all fees and expenses of such
independent counsel.
(c) each Limited Partner hereby agrees that Weil, Gotshal & Manges LLP
may represent the General Partner and the Partnership in connection with any and
all Partnership Legal Matters (including any dispute between the General Partner
and/or one or more Limited Partners) and waives any present or future conflict
of interest with Weil, Gotshal & Manges LLP based solely on the representation
of the General Partner and the Partnership by Weil, Gotshal & Manges LLP and
such Limited Partners' status as a Limited Partner of the Partnership.
ARTICLE 10
MEETINGS OF PARTNERS
10.1 ANNUAL MEETINGs. The General Partner shall hold a general informational
meeting for the Partners each year at such time and on such date, as it deems
appropriate. The General Partner shall provide all Partners with at least thirty
(30) days notice of each
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annual meeting. To the extent reasonably practicable, Partners may participate
in each annual meeting by telephone. At the meeting of the Partners, the General
Partner shall adopt such rules for the conduct of such meeting as it shall deem
appropriate. The expenses of any such meeting, including the cost of providing
Notification thereof, shall be borne by the Partnership.
10.2 PROXY. A Partner may authorize any Person or Persons to act for such
Partner by proxy in all matters in which a Partner is entitled to participate.
Every proxy must be signed by such Partner or such Partner's attorney-in-fact
(other than the General Partner). No proxy shall be valid after the expiration
of six (6) months from the date thereof. Every proxy shall be revocable by the
Partner executing it.
10.3 WRITTEN CONSENTS. Whenever Partners are required or permitted to take any
action by vote or at a meeting, such action may be taken without a meeting and
without a vote if a written consent setting forth the action so taken is signed
by the Partners owning not less than the minimum number of Interests that would
be necessary to authorize or take such action by vote or at a meeting.
Notification of any action to be so taken by written consent shall be given by
the General Partner to all Partners, promptly after the taking of such action.
ARTICLE 11
DISSOLUTION AND WINDING UP
11.1 EVENTS CAUSING DISSOLUTION. The Partnership shall be dissolved upon the
first of the following events to occur:
(a) the written consent of a Majority-in-Interest of the Partners at
any time to dissolve and wind up the affairs of the Partnership;
(b) the sale, Transfer or other disposition of substantially all of the
assets of the Partnership and the receipt and distribution of all the proceeds
therefrom;
(c) the withdrawal of the General Partner pursuant to Section 3.4
hereof prior to the appointment of a Substituted Partner for the General Partner
in accordance with Article 9 or Section 3.4(b) hereof; and
(d) the occurrence of any other event that causes the dissolution of a
limited partnership under the Act.
11.2 WINDING UP. If the Partnership is dissolved pursuant to Section 11.1, the
Partnership's affairs shall be wound up as soon as reasonably practicable in the
manner set forth below.
(a) The winding up of the Partnership's affairs shall be supervised by
a Liquidator. The Liquidator shall be the General Partner or, if the Partners
prefer, a
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liquidator selected by a Majority-in-Interest of the Limited Partners (each, a
"Liquidator").
(b) In winding up the affairs of the Partnership, the Liquidator shall
have full right and unlimited discretion, for and on behalf of the Partnership:
(i) to prosecute and defend civil, criminal or
administrative suits;
(ii) to collect Partnership assets, including obligations
owed to the Partnership;
(iii) to settle and close the Partnership's business;
(iv) to dispose of and convey all Partnership Property for
cash, and in connection therewith to determine the
time, manner and terms of any sale or sales of
Partnership Property, having due regard for the
activity and condition of the relevant market and
general financial and economic conditions;
(v) to pay all reasonable selling costs and other
expenses incurred in connection with the winding up
out of the proceeds of the disposition of Partnership
Property;
(vi) to discharge the Partnership's known liabilities and,
if necessary, to set up, for a period not to exceed
five (5) years after the date of dissolution, such
cash reserves as the Liquidator may deem reasonably
necessary for any contingent or unforeseen
liabilities or obligations of the Partnership;
(vii) to distribute any remaining proceeds from the sale of
Partnership Property to the Partners;
(viii) to prepare, execute, acknowledge and file a
certificate of cancellation under Section 17-203 of
the Act and any other certificates, tax returns or
instruments necessary or advisable under any
applicable law to effect the winding up and
termination of the Partnership; and
(ix) to exercise, without further authorization or consent
of any of the Partners or their legal representatives
or successors in interest, all of the powers
conferred upon the General Partner under the terms of
this Agreement to the extent necessary or desirable
in the good faith judgment of the Liquidator to
perform the Liquidator's duties and functions. The
Liquidator (if not the General Partner) shall not be
liable as a General Partner to the Partners and
shall, while acting in such capacity on behalf of the
Partnership, be entitled to the indemnification
rights set forth in the Certificate and in Article 12
hereof.
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11.3 COMPENSATION OF LIQUIDATOR. The Liquidator appointed as provided herein
shall be entitled to receive such reasonable compensation for the Liquidator's
services as shall be agreed upon by the Liquidator and a Majority-in-Interest of
the Limited Partners.
11.4 DISTRIBUTION OF PARTNERSHIP PROPERTY AND PROCEEDS OF SALE THEREOF.
(a) Upon completion of all desired sales of Partnership Property, and
after payment of all selling costs and expenses, the Liquidator shall distribute
the proceeds of such sales, and any Partnership Property that is to be
distributed in kind, to the following groups in the following order of priority:
(i) to the extent permitted by law, to satisfy
Partnership liabilities to creditors, including
Partners who are creditors (other than for past due
Partnership distributions), of the Partnership,
whether by payment or establishment of reserves; and
(ii) to the Partners, in accordance with the positive
balances in their respective Capital Accounts.
(b) The claims of each priority group specified above shall be
satisfied in full before satisfying any claims of a lower priority group. If the
assets available for disposition are insufficient to dispose of all of the
claims of a priority group, the available assets shall be distributed in
proportion to the amounts owed to each creditor or the respective Capital
Account balances or Percentage Interests of each Partner in such group.
11.5 FINAL AUDIT. Within a reasonable time following the completion of the
liquidation, the Liquidator shall supply to each of the Partners a statement
which shall set forth the assets and the liabilities of the Partnership as of
the date of complete liquidation and each Partner's pro rata portion of
distributions pursuant to Section 11.4.
11.6 DEFICIT CAPITAL ACCOUNTS. Notwithstanding anything to the contrary
contained in this Agreement, and notwithstanding any custom or rule of law to
the contrary, to the extent that the deficit, if any, in the Capital Account of
any Partner results from or is attributable to deductions and losses of the
Partnership (including non-cash items such as depreciation), or distributions of
money pursuant to this Agreement to all Partners in proportion to their
respective Percentage Interests, upon dissolution of the Partnership such
deficit shall not be an asset of the Partnership and such Partner shall not be
obligated to contribute such amount to the Partnership to bring the balance of
such Partner's Capital Account to zero.
11.7 NO ACTION FOR DISSOLUTION. The Partners acknowledge that irreparable damage
would be done to the goodwill and reputation of the Partnership if any Partner
should
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bring an action in court to dissolve the Partnership under circumstances where
dissolution is not required by Section 11.1. Accordingly, except where the
Liquidator has failed to liquidate the Partnership as required by this Article
11 and except as specifically provided in Section 17-802 and Section 17-803(a)
of the Act, each Partner hereby to the fullest extent permitted by law waives
and renounces such Partner's right to initiate legal action to seek dissolution
of the Partnership or to seek appointment of a receiver or trustee to wind up
the affairs of the Partnership, except in cases of fraud, violation of law, bad
faith, gross negligence, willful misconduct or willful violation of this
Agreement.
ARTICLE 12
INDEMNIFICATION AND INSURANCE
12.1 EXCULPATION. Neither the General Partner nor any affiliate of the General
Partner, nor any officer, director, employee, agent, stockholder, partner,
manager or member of the General Partner or any of its affiliates, shall be
liable, responsible, or accountable in damages or otherwise to the Partnership
or any Partner by reason of, or arising from, the operations, business, or
affairs of, or any action taken or failure to act on behalf of, the Partnership,
except to the extent that any of the foregoing is determined, by a final,
nonappealable order of a court of competent jurisdiction, to have been primarily
caused by the gross negligence or willful misconduct of the Person claiming
exculpation.
12.2 INDEMNIFICATION AND ADVANCE OF EXPENSES. The Partnership shall indemnify
the General Partner, each affiliate of the General Partner, and each officer,
director, stockholder, manager, member, partner, employee, or agent of the
General Partner or any of its affiliates, against any claim, loss, damage,
liability, or expense (including reasonable attorneys' fees, court costs, and
costs of investigation and appeal) suffered or incurred by any such indemnitee
by reason of, or arising from, the operations, business, or affairs of, or any
action taken of failure to act on behalf of, the Partnership, except to the
extent any of the foregoing (a) is determined by final, nonappealable order of a
court of competent jurisdiction to have been primarily caused by the gross
negligence or willful misconduct of the Person claiming indemnification or (b)
is suffered or incurred as a result of any claim (other than a claim for
indemnification under this Agreement) asserted by the indemnitee as plaintiff
against the Partnership. Unless a determination has been made (by final,
nonappealable order of a court of competent jurisdiction) that indemnification
is not required, the Partnership shall, upon the request of any indemnitee,
advance or promptly reimburse such indemnitee's reasonable costs of
investigation, litigation, or appeal, including reasonable attorneys' fees;
provided, however, that the affected indemnitee shall, as a condition of such
indemnitee's right to receive such advances and reimbursements, undertake in
writing to repay promptly the Partnership for all such advancements or
reimbursements if a court of competent jurisdiction determines that such
indemnitee is not then entitled to indemnification under this Section 12.2. No
Partner shall be required to contribute capital in respect of any
indemnification claim under this Section 12.2 unless otherwise provided in any
other written agreement to which such Partner is a party.
27
<PAGE> 28
12.3 INSURANCE. The Partnership may purchase and maintain insurance on behalf of
any Person who is or was a Partner, officer, employee or agent of the
Partnership, or is or was serving at the request of the Partnership as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
Person and incurred by such Person in any such capacity, or arising out of such
Person's status as such, whether or not the Partnership would have the power to
indemnify such Person against such liability under the provisions of Section
12.2 or otherwise.
12.4 LIMIT ON LIABILITY OF PARTNERS. The indemnification set forth in and
insurance allowed under this Article 12 shall in no event cause the Partners to
incur any personal liability beyond their total Capital Contributions, nor shall
it result in any liability of the Partners to any third party.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 ENTIRE AGREEMENT. This Agreement and the Certificate constitutes the entire
agreement among the Partners relating to the subject matter hereof and all prior
agreements relative hereto which are not contained herein are terminated.
13.2 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the local, internal laws of the State of Delaware. In
particular, this Agreement is intended to comply with the requirements of the
Act and the Certificate. In the event of a direct conflict between the
provisions of this Agreement and the mandatory provisions of the Act or any
provision of the Certificate, the Act and the Certificate, in that order of
priority, will control.
13.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the Partners and their respective heirs, legal
representatives, successors and permitted assigns.
13.4 SEVERABILITY. This Agreement is intended to be performed in accordance
with, and only to the extent permitted by, all applicable laws, ordinances,
rules and regulations. If any provision of this Agreement or the application
thereof to any Person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, but the extent of such invalidity or
unenforceability does not destroy the basis of the bargain among the Partners as
expressed herein, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
13.5 AMENDMENT. Except as expressly provided herein, this Agreement may be
amended by action of the General Partner.
28
<PAGE> 29
13.6 HEADINGS. The Article and Section headings appearing in this Agreement are
for convenience only and are not intended, to any extent or for any purpose, to
limit or define the text of any Article or Section.
13.7 CONSTRUCTION. Whenever required by the context, as used in this Agreement,
the singular number shall include the plural, and vice versa, and the gender of
all words used shall include the masculine, feminine and the neuter. Unless
expressly stated herein, all references to Articles and Sections refer to
articles and sections of this Agreement, and all references to Schedules are to
schedules attached hereto, each of which is made a part hereof for all purposes.
13.8 OFFSET. Whenever the Partnership is to pay any sum to any Partner, any
amounts that Partner owes the Partnership may be deducted from that sum before
payment.
13.9 EFFECT OF WAIVER OR CONSENT. A waiver or consent, express or implied, to or
of any breach or default by any Person in the performance by that Person of that
Person's obligations with respect to the Partnership is not a consent or waiver
to or of any other breach or default in the performance by that Person of the
same or any other obligations of that Person with respect to the Partnership.
Failure on the part of a Person to complain of any act of any Person or to
declare any Person in default with respect to the Partnership, irrespective of
how long that failure continues, does not constitute a waiver by that Person of
that Person's rights with respect to that default until the applicable
statute-of-limitations period has run.
13.10 FURTHER ASSURANCES. In connection with this Agreement and the transactions
contemplated hereby, each Partner shall execute and deliver any additional
documents and instruments and perform any additional acts that may be necessary
or appropriate to effectuate and perform the provisions of this Agreement and
those transactions.
13.11 WAIVER OF CERTAIN RIGHTS. Each Partner irrevocably waives any right such
Partner may have to maintain any action for partition of the Partnership
Property.
13.12 COUNTERPARTS AND BINDING EFFECT. This Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which taken
together shall constitute a single document. This Agreement shall be binding
upon each Partner upon adoption by the initial General Partner as evidenced by
their signatures below, regardless of whether any Partner has executed the same
or any counterpart thereof.
13.13 NO THIRD PARTY RIGHTS. Except as otherwise provided in this Agreement,
none of the provisions contained in this Agreement shall be for the benefit of
or enforceable by any third parties, including creditors of the Partnership.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE> 30
IN WITNESS WHEREOF, the undersigned have executed this
instrument effective as of March 1, 2000.
GENERAL PARTNER:
ECM GP LLC, a Delaware limited liability company
By: Harbison Family, L.L.P.,
a Texas limited liability partnership, its sole
Member
By: /s/ THOMAS O. HARBISON
------------------------------------------------
Thomas O. Harbison, Trustee under the
Thomas O. Harbison Living Trust, its
general partner
LIMITED PARTNERS:
HARBISON FAMILY, L.L.P., a Texas limited
liability partnership
By: /s/ THOMAS O. HARBISON
------------------------------------------------
Thomas O. Harbison, Trustee under the
Thomas O. Harbison Living Trust, its
general partner
/s/ GENE S. MORPHIS
---------------------------------------------------
Gene S. Morphis
/s/ LEE O. WATERS
---------------------------------------------------
Lee O. Waters
/s/ JOANNE G. BILTEKOFF
---------------------------------------------------
Joanne G. Biltekoff
/s/ ROBERT A. FETTER
---------------------------------------------------
Robert A. Fetter
/s/ JEFFREY MICHEL
---------------------------------------------------
Jeffrey Michel
30
<PAGE> 31
/s/ JULIE M. CASTEEL
---------------------------------------------------
Julie M. Casteel
/s/ SANDRA S. BUSH
---------------------------------------------------
Sandra S. Bush
/s/ MELISSA J. BAILEY
---------------------------------------------------
Melissa J. Bailey
/s/ STEVEN M. KAWALICK
---------------------------------------------------
Steven M. Kawalick
/s/ MARK R. BRIGGS
---------------------------------------------------
Mark R. Briggs
31
<PAGE> 32
SCHEDULE I
Agreement of Limited Partnership
of
ECM PARTNERS II, L.P.
<TABLE>
<CAPTION>
INITIAL CAPITAL
PARTNER AND ADDRESS CONTRIBUTIONS PERCENTAGE INTERESTS
- ------------------------------------------------ ------------------------- ----------------------
(in U.S. dollars)
<S> <C> <C>
GENERAL PARTNER 1% of Carried Interest 1.00%
ECM GP LLC with a Fair Market
8117 Preston Road Value of $729,479
Suite 205
Dallas, Texas 75225
LIMITED PARTNERS:
Harbison Family, L.L.P. 99% of Carried 64.00%
3612 Beverly Drive Interest with a Fair
Dallas, Texas 75201 Market Value of
Attn: Thomas O. Harbison, Trustee under the $72,218,421
Thomas O. Harbison Living Trust, its
general partner
Gene S. Morphis $-0- 7.50%
193 Carronbridge Way
Franklin, TN 37067
Lee O. Waters $-0- 1.00%
451 Autumn Lake Trail
Franklin, TN 37067
Joanne G. Biltekoff $-0- 1.00%
103 Nottingham Terrace
Buffalo, NY 14216
Robert A. Fetter $-0- 1.00%
269 Jackson
Denver, CO 80206
</TABLE>
i
<PAGE> 33
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Jeffrey Michel $-0- 1.00%
- ------------------
- -------------------
Julie M. Casteel $-0- 1.00%
5212 Country Club Drive
Brentwood, TN 37027
Sandra S. Bush $-0- 0.50%
444 Elmington #114
Nashville, TN 37205
Melissa J. Bailey $-0- 0.50%
6 Fawn Terrace
Orchard Park, NY 14127
Steven M. Kawalick $-0- 1.00%
1101 Bedfordshire Court
Nashville, TN 37221
Mark R. Briggs $-0- 20.50%
810 Hickorywood
Clarksville, TN 37043
TOTAL ALL PARTNERS $72,947,900 100.00%
</TABLE>
ii
<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
27, 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 27, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 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 27, 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 27, 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 27, 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 24, 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
report 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 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,090
<SECURITIES> 0
<RECEIVABLES> 61,906
<ALLOWANCES> 2,478
<INVENTORY> 0
<CURRENT-ASSETS> 87,404
<PP&E> 64,914
<DEPRECIATION> 11,932
<TOTAL-ASSETS> 285,883
<CURRENT-LIABILITIES> 92,250
<BONDS> 0
0
0
<COMMON> 714
<OTHER-SE> 88,386
<TOTAL-LIABILITY-AND-EQUITY> 285,883
<SALES> 177,791
<TOTAL-REVENUES> 177,791
<CGS> 99,478
<TOTAL-COSTS> 99,478
<OTHER-EXPENSES> 129,851
<LOSS-PROVISION> 2,305
<INTEREST-EXPENSE> 6,480
<INCOME-PRETAX> (60,323)
<INCOME-TAX> (322)
<INCOME-CONTINUING> (60,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,645)
<EPS-BASIC> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
