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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CLIENTLOGIC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 541990 16-1556476
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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TWO AMERICAN CENTER
3102 WEST END AVENUE, SUITE 1000
NASHVILLE, TENNESSEE 37203
(615) 301-7100
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
GENE S. MORPHIS
CHIEF FINANCIAL OFFICER
CLIENTLOGIC CORPORATION
TWO AMERICAN CENTER
3102 WEST END AVENUE, SUITE 1000
NASHVILLE, TENNESSEE 37203
(615) 301-7100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
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MARY R. KORBY, ESQ. MARC S. ROSENBERG, ESQ.
WEIL, GOTSHAL & MANGES LLP CRAVATH, SWAINE & MOORE
100 CRESCENT COURT WORLDWIDE PLAZA
SUITE 1300 825 EIGHTH AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10019
(214) 746-7700 (212) 474-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Class A Common Stock, $0.01 par value per share........... $230,000,000 $60,720
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
'CLIENTLOGIC LOGO'
SHARES
CLASS A COMMON STOCK
$ PER SHARE
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We are selling shares of our Class A common stock. The underwriters
named in this prospectus may purchase up to 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 $ and
$ per share. We have applied to have our Class A common stock included for
quotation on the Nasdaq National Market under the symbol "CLGC".
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INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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
DONALDSON, LUFKIN &
JENRETTE THOMAS WEISEL PARTNERS LLC
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The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
, 2000
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DESCRIPTION OF INSIDE FRONT COVER ART
On the left side of the page halfway down the page is the ClientLogic logo.
The ClientLogic logo consists of the name ClientLogic with a globe as the letter
"o" and has the phrase "The service engine of the new economy(sm)" beneath it.
The "e" in economy is surrounded by a red circle.
On the right side of the page, listed from the top of the page to the
bottom are the following phrases, each having a representative icon to its
right:
-- "CUSTOMER RELATIONSHIP MANAGEMENT"
-- "MARKETING SERVICES"
-- "CUSTOMER CONTACT MANAGEMENT"
-- "eFULFILLMENT"
-- "eBUSINESS"
-- "LIST SERVICES"
-- "LOYALTY PROGRAMS"
-- "CUSTOMIZED PROGRAM DEVELOPMENT"
DESCRIPTION OF GATEWAY ART
On the far left, halfway down the page is the ClientLogic logo.
To the right of the ClientLogic logo are some streaming lines which extend
to the middle of the page. Contained within these lines are the following four
pictures: a customer service representative speaking on the telephone, a
forklift operator, a marketing technician and customer service representatives
typing on a computer.
In the center of the page is a globe.
To the right of the globe, extending to the end of the page is the
following:
"ClientLogic is an international provider of integrated customer
relationship management services to technology and Internet 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................................................ 5
Special Note About Forward-Looking Statements............... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Dilution.................................................... 19
Capitalization.............................................. 20
Unaudited Pro Forma Consolidated Statement of Operations.... 22
Selected Historical Financial Data.......................... 25
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 26
Business.................................................... 34
Management.................................................. 44
Security Ownership of Certain Beneficial Owners............. 54
Certain Relationships and Related Party Transactions........ 57
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 65
Certain United States Federal Tax Considerations for
Non-United States Holders................................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 72
Additional Information...................................... 72
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 integrated customer
relationship management services to electronic commerce and technology
companies. We offer a range of services to assist our clients in acquiring and
retaining customers and in maximizing the profitability of customer
relationships. We have designed our services to be provided as fully integrated
customer relationship management solutions. Our services include:
- Marketing services. We create customized marketing programs which help
our Internet-based clients profile and target new customers and increase
the loyalty of existing customers. Our marketing services include
developing, maintaining and providing access to customer information
databases and analyzing this information to identify and address specific
needs of our clients' customers.
- Customer contact management services. We provide customer service and
technical support to our clients' customers 24 hours a day, seven days a
week through e-mail, online chat, fax, phone and mail. Our ability to
communicate with our clients' customers through multiple channels enables
us to more effectively respond to their inquiries and needs.
- Fulfillment services. We conduct our clients' order and payment
processing, warehousing, inventory management, picking, packing, shipping
and returns processing activities. Through these services we distribute
our clients' products to their customers efficiently and cost
effectively.
We believe we are unique both in the breadth of our services and in our
ability to combine these services into integrated solutions for our clients. 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 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
solution. 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.
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Faced with the growing costs and operational complexities of developing a
comprehensive customer relationship management solution, many e-commerce
companies are seeking to outsource 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 our marketing,
customer contact management and fulfillment services into customized
solutions for our clients, allowing them to manage the interaction with
their customers through a single service provider. By taking advantage of
our integrated solutions, 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 solutions 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 facilities located in the United
States, Canada, Austria, France, Germany, Ireland, the Netherlands,
Norway, Switzerland and the United Kingdom, which make it possible for us
to serve clients efficiently in both North America and Europe.
OUR STRATEGY
Our objective is to be the leading global provider of integrated customer
relationship management services. To achieve this objective we plan to:
- Capitalize on the rapid growth of the Internet;
- Extend our global presence;
- Expand our relationships with existing clients;
- Attract new e-commerce clients; and
- Enhance our service offerings.
OUR 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........ shares
Common stock to be outstanding after
the offering:
Class A........................... shares
Class B........................... shares
Total..................... shares
Recapitalization.................... Prior to the completion of this
offering, we intend to amend 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 new class of
common stock designated Class B common
stock. For a period of 45 days after the
conversion of common stock into Class A
common stock, holders of our Class A
common stock will have the option to
convert each share of their Class A
common stock into one share of our Class
B common stock.
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 other than those
described above in "Recapitalization."
Holders of shares of Class B common
stock may convert some or all of their
shares into shares of Class A common
stock at any time. 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 an affiliate of Onex
Corporation, our principal stockholder.
Shares of Class B common stock also will
convert automatically to Class A common
stock on the occurrence of other events
specified in our certificate of
incorporation.
Controlling stockholder............. Onex Corporation, which we refer to as
Onex, indirectly owns 103,368,588
shares, or approximately 90.6%, of our
Class A common stock. After this
offering, Onex will control
approximately % of our outstanding
Class A common stock and will be able to
control the vote on any matter we submit
to our stockholders. Assuming that Onex
converts its shares of Class A common
stock into shares of Class B common
stock after our recapitalization and
that no other Class A stockholder
chooses to convert, Onex would control
approximately % of the combined voting
power of our Class A and Class B common
stock outstanding after this offering.
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
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Unless we indicate otherwise, all information contained in this prospectus:
- is based on 114,065,332 shares of our common stock outstanding as of
December 31, 1999, which includes 111,011,277 shares of our common stock
issued and outstanding as of December 31, 1999, and 3,054,055 shares of
stock of one of our subsidiaries outstanding as of December 31, 1999
which are exchangeable at the option of the holders into shares of our
common stock;
- gives effect to the conversion of each share of our common stock into one
share of Class A common stock pursuant to our planned recapitalization as
if the conversion had occurred as of December 31, 1999, but does not give
effect to any conversion of shares of our Class A common stock into
shares of Class B common stock after the recapitalization;
- excludes 10,191,162 shares of Class A common stock subject to options and
warrants and 235,000 shares of Class A common stock subject to our
deferred compensation plan, in each case outstanding as of December 31,
1999; the weighted average exercise price of the options and warrants as
of December 31, 1999 is $1.65 per share;
- assumes no exercise of the underwriters' option to purchase up to
shares of Class A common stock to cover over-allotments; and
- assumes an initial offering price of $ per Class A common share, the
midpoint of the initial public offering price range.
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RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before you decide whether to purchase
our Class A common stock. Investing in our Class A common stock is speculative
and involves significant risk. Any of the following risks, as well as other
risks and uncertainties that we have not yet identified or that we currently
believe are immaterial, could impair our business, financial condition and
operating results, could cause the trading price of our Class A common stock to
decline and could result in a partial or total loss of your investment.
RISKS RELATING TO OUR BUSINESS
OPERATING RISKS
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES IN THE FUTURE AND WE CANNOT
ASSURE YOU THAT WE WILL BECOME PROFITABLE.
We had net losses of $2.7 million in 1998 and $42.9 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 $50.9 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 $189.7 million for goodwill and
other intangible assets in 1998 and 1999 in connection with acquisitions. We
expect to amortize this goodwill over 15 years from the date of each
acquisition, which will adversely affect our results of operations for such
periods. If we record additional goodwill or other intangible assets, the amount
of our annual amortization charges could increase. If we incur significant
losses, we may not be able to demonstrate an ability to recover the amount of
our goodwill and other intangible assets. If this occurs, we may have to write
off our goodwill in a one-time noncash charge, which could be significant and
would likely harm our operating results.
We expect to incur significant operating expenses and capital expenditures
during the next several years to implement our growth strategies. We expect to
incur losses for the next several years as we continue to incur these expenses,
and these losses may increase from current levels. If our revenues do not
increase substantially or if our expenses exceed our expectations, we may never
become profitable. Even if we do achieve profitability, we may not sustain
profitability on a quarterly or annual basis in the future.
OUR EXPERIENCE TO DATE HAS CONSISTED PRIMARILY OF OFFERING CUSTOMER CONTACT
MANAGEMENT AND FULFILLMENT SERVICES, AND WE MAY NOT SUCCEED IN OUR EFFORTS TO
OFFER INTEGRATED MARKETING AND OTHER SERVICES PRINCIPALLY TO E-COMMERCE
COMPANIES OVER A VARIETY OF COMMUNICATIONS CHANNELS.
In 1999, a majority of our revenues were derived from companies that either
did not sell goods or services over the Internet or that retained us to provide
services unrelated to their e-commerce activities. Because we do not have a
longer history of working with companies focusing on the Internet, we cannot
assure you that we will be able to meet the needs of these types of businesses.
In addition, we have only recently begun to offer the advanced relational
database and other advanced marketing services that we believe are critical to
our efforts to increase our revenues. These advanced marketing services, which
we acquired as part of our December 1999 acquisition of MarketVision, Inc., did
not generate significant revenues for us in 1999. Similarly, during 1999
approximately 86% of our customer contact was conducted by the telephone. If we
are not able to efficiently handle increased customer demand for other means of
communication, such as e-mail and online chat, we may not be successful in
growing our business.
OUR LIMITED HISTORY OF COMBINED OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND
FINANCIAL FORECASTING DIFFICULT.
We have acquired six businesses, including our predecessor, since April
1998. We completed the most recent acquisition in December 1999. Our limited
history of combined operations makes it difficult to evaluate our business and
our prospects. 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. Because of our limited
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operating history and the emerging nature of the e-commerce industry, securities
analysts may have difficulty in accurately forecasting 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.
The following are among the factors that could cause significant
fluctuations in our operating results:
- changes in demand for our services, including rapid fluctuations in
demand;
- the mix of our services used by our clients;
- timing of orders for our clients' products or services;
- increases in operating, administrative or other expenses;
- changes in the rapidly evolving market for outsourced customer
relationship management services;
- the mix of our domestic and international sales;
- costs related to potential acquisitions or alliances to expand our
services, technology or business;
- system outages, delays in obtaining new technology or equipment or
problems with upgrades of existing technology or equipment;
- disruption or impairment of the Internet;
- increased competition or the introduction of new or enhanced services by
our competitors;
- changes in governmental regulations that apply to the Internet; and
- general economic and market conditions.
The sales cycle for our services is variable and several months may elapse
from the time we contact a potential client to the time we sign a client
contract. To successfully market our services, we typically must educate our
potential clients on the types and benefits of our services, which can require
significant time and resources. In addition, our clients often must complete
thorough internal and external pricing analyses and operating comparisons,
competitive evaluations and internal approval processes before purchasing our
services. Once a client contracts to purchase our services, the time required to
implement the customized services and integrate the client with our systems may
take longer than we plan. Delays in executing client contracts or implementing
services for our clients may adversely affect our revenues and reputation and
cause our operating results to fluctuate.
In addition, we may have to make contingent payments in connection with our
recent acquisitions or future acquisitions based upon whether the acquired
company achieves target levels of revenues or earnings. These payments may cause
our operating results to fluctuate.
THE DEMAND FOR SOME OF OUR SERVICES IS SEASONAL, WHICH MAY ALSO CAUSE OUR
QUARTERLY OPERATING RESULTS TO FLUCTUATE.
We expect to experience seasonal fluctuations of revenues and expenses
which may contribute to fluctuations in our quarterly operating results. Our
clients include technology companies whose computer hardware and software sales
traditionally peak in the fourth quarter. Also, our catalog and e-commerce
fulfillment activities increase during the Christmas season. As a result, we
typically generate higher revenues and expenses in the last three months of the
year. If we are unable to process large volumes of transactions in periods of
higher demand or are unable to process large volumes in a cost-effective manner,
we could lose revenue opportunities that we may not recover in periods of lower
demand.
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IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, OUR BUSINESS MAY
BE HARMED.
We are continuing to work to integrate the six businesses we have acquired
since April 1998. Integrating the different services, facilities, management,
personnel, technology and cultures of these acquired businesses represents a
significant challenge and diverts our management's attention and our resources
from other business concerns. In addition, we are currently in the process of
integrating our technology infrastructure to include all of our European
facilities. We have incurred significant costs to integrate our acquired
businesses and expect to incur significant costs to complete this integration
and to integrate any future acquisitions. If we are unsuccessful in integrating
these acquired companies or our technology, our business and financial results
could be materially adversely affected.
To implement our growth strategies, we may seek to enter into alliances
with other companies or to acquire complementary businesses, facilities or
services. Some of these alliances or acquisitions may be significant. Such
alliances and acquisitions also will require significant management attention
and other resources to complete and to integrate. We do not know if we will be
able to complete or successfully integrate future alliances or acquisitions.
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 solutions 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 solutions, 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 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.
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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 solutions. 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.
A substantial number of our client agreements, including contracts with
some of our largest clients, are terminable upon short notice. These clients may
choose to discontinue our services at any time and for any reason. Termination
of our services by one or more large clients or by a significant number of
smaller clients could materially adversely affect our business, results of
operations and prospects.
THE LOSS OF ONE OR MORE OF OUR TOP CLIENTS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
In 1999, our largest client accounted for approximately 9.9% of our
revenues and our ten largest clients accounted for approximately 44.1% of our
revenues. We cannot be certain that our current clients will continue to do
business with us, that business from existing clients will continue at the same
levels as previous periods or that we will be able to do significant amounts of
business with other new or existing clients. If we lose one or more of our top
clients, our revenues may decrease significantly and quickly.
WE MAY NOT BE ABLE TO SATISFY THE REQUIREMENTS OF OUR CLIENTS AND OUR BUSINESS
AND REPUTATION MAY SUFFER AS A RESULT.
We target e-commerce and technology companies as our potential clients.
Most e-commerce companies have unique and sophisticated requirements for their
customer relationship management operations and many e-commerce companies are
growing, or expect to grow, rapidly. In addition, some of these companies have
existing technology infrastructures and business processes which we must
integrate with our service offerings, business processes and technology to
provide our customized services. If we 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 grew rapidly. We went from processing and shipping
approximately 15,000 items a day
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during November to processing and shipping approximately 20,000 items a day in
December. In order to meet this increased demand, we had to to expend
considerable time and effort, including overtime and reallocating personnel. 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 solutions 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. Many third party providers offer one or more of the
same services we do, and we face competition from many different sources
depending upon the type and range of services needed by a potential client. Our
competitors include companies that offer a single service, such as call centers,
public warehouses, database management and marketing campaign management, as
well as companies that offer multiple services. Some of these competitors have
greater capabilities and more experience than we do with respect to the service
or services that they provide. Our competitors also may develop and promote
their services more effectively than we do.
Many of our competitors have greater financial, personnel, capacity and
other resources than we have. As a result, our competitors may be in a stronger
position to respond quickly to potential acquisitions and other market
opportunities, new or emerging technologies, and changes in client requirements.
Competitors with greater financial resources may be able to offer lower prices,
additional services or other incentives that we cannot match or do not offer.
For example, some of our distribution and fulfillment competitors purchase and
retain title to their clients' inventories while we generally do not. Therefore,
we may be at a competitive disadvantage with respect to existing and potential
clients who desire a third party to assume their inventory risks. We cannot be
certain that we will be able to compete successfully against existing or other
competitors in the future.
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES, WHICH MAY HARM OUR
BUSINESS.
Our business and financial results depend in part on our ability to attract
and retain highly skilled technical, managerial and other employees. Our
industry is very labor-intensive and has experienced high personnel turnover. If
our employee turnover rate increases significantly, our recruiting and training
costs could rise and our operating efficiency and productivity could decline.
Individuals with the experience and technical qualifications that we generally
require are in short supply. As a result, competition to hire qualified
employees is intense. To attract and retain qualified employees, we may need to
pay higher compensation than we currently pay or expect to pay. We have from
time to time experienced, and we 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
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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. A significant
component of our business strategy is to further grow our existing international
operations, as well as to expand into new international markets. We cannot
assure you that we will be successful in maintaining our revenues from
international operations or expanding into additional international markets. In
addition, doing business internationally has inherent risks, including:
- changing and inconsistent regulatory requirements;
- legal uncertainty regarding foreign laws, tariffs and other trade
barriers;
- reduced protection for intellectual property and proprietary rights;
- potential problems enforcing or collecting contract obligations in some
countries;
- political and economic instability;
- potentially adverse tax consequences;
- barriers to the development of the Internet and electronic commerce such
as taxes, telecommunications charges, differing technology standards and
limited access;
- difficulties of staffing and maintaining international operations with
skilled multilingual personnel;
- uncertainties in estimating the actual costs to operate in new
international locations; and
- cultural differences.
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.
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.
IF WE NEED ADDITIONAL CAPITAL TO MAINTAIN OR GROW OUR BUSINESS AND CANNOT OBTAIN
IT ON ACCEPTABLE TERMS, OUR BUSINESS MAY SUFFER.
We expect to incur losses for the next several years. We may need
additional capital to expand our business or to meet our operating needs. In
addition, 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 debt, including the new credit facility we expect to
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enter into concurrently with this offering, may limit our ability to obtain
additional financing. 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.
Our existing stockholders have registration rights that could interfere
with our ability to issue more common stock to raise needed capital.
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.
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
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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 agreement 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 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
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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.
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.
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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.
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 approximately % of our outstanding shares of Class A
common stock. Assuming that Onex converts its shares of Class A common stock
into our Class B common stock after our recapitalization and that no other Class
A stockholder chooses to convert, Onex would control approximately % 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 or without 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.
The price of our Class A common stock could be depressed as a result of Onex's
control.
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, which is an
affiliate of both Onex and Thomas O. Harbison, the chairman of our board of
directors. Under these contracts we pay Onex
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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.
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. 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. Mr. Harbison's
relationship with Onex may conflict with the interests of our stockholders.
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. These sales, 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.
After this offering, we will have outstanding shares of Class A common
stock, assuming no exercise of the underwriters' over-allotment option. Up to
10,191,162 additional shares of our Class A common stock may be issued upon the
exercise of outstanding options and warrants to acquire our Class A common stock
at an average weighted exercise price of $1.65. All of the shares of Class A
common stock sold in this offering will be freely tradable immediately after
this offering. Holders of our currently outstanding Class A common stock may
sell their shares after this offering subject to the expiration of lock-up
periods and holding periods required under Rule 144 under the Securities Act of
1933. Approximately shares of our outstanding Class A 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. The remaining shares of our outstanding
Class A 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.
Onex has the right to require us to file registration statements covering
its shares of Class A common stock and all of our existing stockholders have
rights to include their shares in registration statements that we may file for
our company or for other stockholders. By exercising their registration rights
and selling a large number of shares, these stockholders could cause the price
of our Class A common stock to fall.
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 the expectations of securities analysts and investors. If this were to
occur, the market price of our Class A common stock could decrease, perhaps
significantly.
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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 CERTIFICATE OF INCORPORATION, OUR 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 certificate of incorporation, our
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 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 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 new credit
facility likely will restrict 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.
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. To the
extent that outstanding options, warrants and other rights to acquire our common
stock are exercised, further dilution will occur.
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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. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.
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USE OF PROCEEDS
We expect that the net proceeds from our sale of Class A common stock in
this offering will be approximately $ million after deducting estimated
underwriting discounts and our estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ million. We intend to use the net proceeds of this
offering:
- to repay our existing indebtedness, as follows:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING ESTIMATED
AS OF AMOUNT TO ORIGINAL USE MATURITY OR
TYPE OF FACILITY DECEMBER 31, 1999 BE REPAID(1) OF PROCEEDS INTEREST RATE EXPIRATION
-------------------- ----------------- ------------ --------------------- ------------------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bank indebtedness $ 3,324 Working capital Prime + 1.50% 2000
Revolving credit $23,400 Capital expenditures, Prime + 0.00% to 2.00% 2003-2006
facility acquisitions and or Libor + 1.00% to 3.00%
working capital
Term credit facility $60,000 Refinance debt Prime + 0.75% to 2.25% or 2007
Libor + 1.75% to 3.25%
Subsidiary term loan $ 9,878 Working capital Libor + 1.88% 2000
</TABLE>
----------------------
(1) The estimated amount to be repaid is based on our estimate of
outstanding indebtedness on March 31, 2000. We intend to amend and
restate our $40 million revolving credit facility to increase its
capacity to $100 million concurrently with the completion of this
offering.
- to expand our business both domestically and internationally; and
- for general corporate purposes.
Although we do not currently have any commitments to enter into strategic
alliances or make acquisitions, we may use a portion of the proceeds of this
offering to do so.
DIVIDEND POLICY
We do not currently 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 amended 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 limited by
law or contract, including our amended revolving credit facility, from paying
any dividends to us.
18
<PAGE> 23
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
$(38,853,000), or $(0.35) per share of our common stock. Net tangible book value
per share is determined by dividing the amount of our total tangible assets less
total liabilities, excluding subsidiary preferred stock, by the number of shares
of our common stock outstanding as of December 31, 1999. Prior to the completion
of this offering, we intend to recapitalize our company by converting each
outstanding share of common stock into one share of Class A common stock.
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 Class A common stock,
immediately after this offering. Assuming our sale of the shares of Class A
common stock offered in this offering at an assumed initial public offering
price of $ per share, the deduction of underwriting discounts and
commissions and estimated offering expenses, the application of the estimated
net proceeds, and that we had previously completed our recapitalization, our net
tangible book value as of December 31, 1999 would have been $ , or $ per
share of Class A common stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1999.... $ (0.35)
Increase in net tangible book value per share attributable
to new investors.......................................
-------
Net tangible book value per share after the offering
--------
Dilution per share to new investors....................... $
========
</TABLE>
The following table summarizes, on an as adjusted basis as of December 31,
1999, the total number of shares of Class A 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
$ per share.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
---------------------------------------------------------------
TOTAL CONSIDERATION
SHARES PURCHASED ----------------------------------
-------------------------- AVERAGE PRICE
NUMBER OF SHARES PERCENT AMOUNT PERCENT PER SHARE
---------------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ %
New investors......................... % %
-------- ---- -------- ---- --------
Total....................... % %
-------- ---- -------- ---- --------
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of Class A common stock held by existing stockholders will be reduced
to % of the total number of shares of Class A common stock outstanding after
this offering and the number of shares of Class A common stock held by new
investors will be increased to , or % of the total number of shares of
Class A common stock outstanding after this offering.
To the extent any options, warrants and other rights to acquire our Class A
common stock are exercised, your stock will be further diluted.
19
<PAGE> 24
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 net proceeds of this
offering;
- the conversion of our existing common stock into Class A common stock in
connection with our planned 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 $
======== ========
Bank indebtedness........................................... $ 3,324 $ --
Long-term debt, including current portion:
Revolving credit facility.............................. 23,400 --
Term credit facility................................... 60,000 --
Term loans............................................. 15,128 5,250
Other.................................................. 3,127 3,127
-------- --------
Total long-term debt, including current portion... 101,655 8,377
Capital lease obligations, including current portion........ 7,996 7,996
Subsidiary preferred stock.................................. 5,058 5,058
Stockholder's equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued or outstanding on an actual
or as adjusted basis................................. -- --
Common stock, $.01 par value:
Common stock: 150,000,000 shares authorized;
111,011,277 issued and outstanding on an actual
basis; none issued and outstanding on an as
adjusted basis.................................... 1,110 --
Class A: 150,000,000 shares authorized; none issued
or outstanding on an actual basis;
issued and outstanding on as adjusted
basis............................................. --
Class B: 150,000,000 shares authorized; none issued
and outstanding on an actual basis;
issued and outstanding on an as adjusted basis.... --
Common stock issuable.................................. 5,000 5,000
Exchangeable shares.................................... 3,054 3,054
Additional paid-in capital............................. 149,076
Accumulated deficit.................................... (45,678)
Accumulated other comprehensive loss................... (666) (666)
-------- --------
Total stockholders' equity........................ 111,896
-------- --------
Total capitalization.............................. $229,929 $
======== ========
</TABLE>
20
<PAGE> 25
Our accumulated deficit on an as adjusted basis reflects a charge of
approximately $ million from termination fees and the write-off of
unamortized deferred financing costs associated with the repayment of our debt.
We intend to amend and restate our $40 million revolving credit facility to
increase its capacity to $100 million concurrently with the completion of this
offering.
21
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statement of operations is
based on our audited consolidated statement of operations for the year ended
December 31, 1999 and gives effect to:
- our acquisition of LCS Industries, Inc. completed on January 27, 1999 for
an aggregate purchase price of approximately $69.3 million;
- our acquisition of Cordena Call Management B.V. completed on October 7,
1999 for an aggregate purchase price of approximately $24.1 million; and
- our acquisition of MarketVision, Inc. completed on December 6, 1999 for
an aggregate purchase price of approximately $22.6 million.
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.
We have not given pro forma effect to our acquisition of a portion of the
assets of Canadian Access Insurance Services Inc. in March 1999 or our
acquisition of Groupe Adverbe International S.A. in October 1999 because neither
of these acquisitions had a material effect on our results of operations as
determined by criteria set by the Securities and Exchange Commission. However,
the results of operations of each of these companies are included from the dates
of their acquisition in our audited consolidated financial statements for the
year ended December 31, 1999. In addition, we plan to distribute 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 prior to the completion of this offering. We have not given pro
forma effect to this distribution because we do not believe it will have a
material effect on our results of operations.
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 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 results of operations for any future period. You should
read this unaudited pro forma statement of operations together with the other
financial statements and related notes and the risk factors included in this
prospectus.
22
<PAGE> 27
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(1) 1,253 -- 124,806
Selling, general and
administrative
expenses................ 72,761 2,008 11,038 1,641 -- 87,448
Depreciation expense....... 11,063 189 1,161 183 -- 12,596
Amortization expense....... 8,347 24 4,060 226 (1,184)(2)(3) 11,473
Impairment of intangible
assets.................. 22,273 -- -- -- -- 22,273
-------- ------- ------- ------ ------- --------
Operating gain (loss)........ (36,131) 460 (6,816) 49 1,184 (41,254)
Interest expense, net........ 6,480 19 859 80 -- 7,438
Transaction expenses(4)...... -- 2,052 -- -- -- 2,052
Other, net................... -- (124) -- (4) -- (128)
-------- ------- ------- ------ ------- --------
Loss before income taxes..... (42,611) (1,487) (7,675) (27) 1,184 (50,616)
Income taxes................. 322 138 46 -- (184)(5) 322
-------- ------- ------- ------ ------- --------
Net loss..................... $(42,933) $(1,625) $(7,721) $ (27) $ 1,368 $(50,938)
======== ======= ======= ====== ======= ========
Basic loss per share......... $ (0.45) $ (0.47)
======== ========
Weighted average number of
shares used in computing
basic loss per share....... 96,450 109,204
======== ========
</TABLE>
Dilutive earnings per share has not been presented as all potentially
convertible shares are antidilutive.
23
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(IN THOUSANDS)
(1) Certain amounts have been reclassified for consistency with the ClientLogic
basis of presentation.
(2) The pro forma adjustment to amortization expense reflects a full year of pro
forma amortization of our goodwill related to each of the acquisitions, net
of:
- amortization expense related to the acquisition of the acquired companies
included in our consolidated financial statements for the year ended
December 31, 1999; and
- amortization expense included in each of the acquired companies'
financial statements from January 1, 1999 through the relevant date of
acquisition.
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
----------------------------------------------------------------------------------------
RELATED TO
RELEVANT ACQUISITION
-------------------------------------
INCLUDED IN PERIOD FROM JANUARY 1, 1999 UNTIL
PRO FORMA CLIENTLOGIC RELEVANT ACQUISITION DATE
YEAR ENDED 1999 CONSOLIDATED ----------------------------------- PRO FORMA
DECEMBER 31, 1999 FINANCIALS LCS CORDENA MARKETVISION ADJUSTMENT
----------------- ----------------- ------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
LCS(a)................ $2,258 $(2,719) $(24) $ -- $ -- $ (485)
Cordena(b)............ 2,562 (641) -- (4,060) -- (2,139)
MarketVision(c)....... 2,078 (118) -- -- (226) 1,734
------ ------- ---- ------- ----- -------
$6,898 $(3,478) $(24) $(4,060) $(226) $ (890)
====== ======= ==== ======= ===== =======
</TABLE>
-----------------------
(a) The excess of purchase price over the fair value of net assets
acquired in the LCS acquisition was $56,145. Of this amount, $1,650
was allocated to the value of a contract with a key customer,
$21,659 was allocated to business process methodologies and $32,836
was allocated to goodwill. Goodwill relating to our acquisition of
LCS is amortized over fifteen years and resulted in monthly
amortization of $188 per month. The LCS amortization for the year
ended December 31, 1999 includes approximately $1,036 of
amortization expense relating to intangible assets, other than
goodwill, in the amount of $22,273, which were deemed impaired and
written off. This amortization expense was incurred from the time of
our acquisition through the time of the impairment.
(b) Goodwill relating to our acquisition of Cordena is amortized over
fifteen years. The goodwill amount of $38,433 results in monthly
amortization of $214 per month.
(c) The excess of purchase price over the fair value of the net assets
acquired in the MarketVision acquisition was $21,239. Of this
amount, $4,975 was allocated to software development cost and is
amortized over five years resulting in monthly amortization of $83.
The balance of $16,264 was attributed to goodwill and is amortized
over fifteen years, resulting in monthly amortization of $90.
(3) 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.
(4) LCS incurred nonrecurring transaction expenses of $2,052 during January 1999
in connection with the sale of LCS to us.
(5) 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.
24
<PAGE> 29
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............................ 72,761 9,452 786 1,451 29
Depreciation expense.................. 11,063 1,900 145 329 2
Amortization expense.................. 8,347 1,337 2 4 --
Impairment of intangible assets....... 22,273 -- -- -- --
-------- ------- ------- ------ ------
Operating loss.......................... (36,131) (1,759) (262) (593) (31)
Interest expense, net................... 6,480 921 68 142 1
-------- ------- ------- ------ ------
Loss before income taxes................ (42,611) (2,680) (330) (735) (32)
Income tax.............................. 322 65 -- -- --
-------- ------- ------- ------ ------
Net loss................................ $(42,933) $(2,745) $ (330) $ (735) $ (32)
======== ======= ======= ====== ======
Basic loss per share.................... $ (0.45) $ (0.09) $ (0.03) $(0.08) $(0.00)
======== ======= ======= ====== ======
Weighted average number of shares
outstanding........................... 96,450 29,992 10,309 9,372 7,113
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital......................... $ (1,935) $ 4,948 $ 589 $ 880 $ 361
Total assets............................ 304,164 113,785 3,645 3,966 370
Long-term debt, including current
portion............................... 101,655 31,925 1,748 895 --
Stockholders' equity.................... 111,896 61,739 538 1,607 402
</TABLE>
25
<PAGE> 30
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 integrated customer relationship
management services to electronic commerce and technology companies. We offer a
range of services to assist our clients in acquiring and retaining customers and
in maximizing the profitability of customer relationships. We have designed our
marketing, customer contact management and fulfillment services to be provided
as fully integrated customer relationship management solutions.
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 acquired North Direct
Response. For financial reporting purposes, we treat North Direct Response as
our predecessor. 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 North Direct Response to our company. We
accounted for the consolidation of North Direct Response into our company at
historical cost without revaluing either entity since both our company and North
Direct Response 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.
Prior to the completion of this offering, we intend to amend 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 new class of common stock designated Class B common
stock. For a period of 45 days after the conversion of common stock into Class A
common stock, holders of our Class A common stock will have the option to
convert each share of their Class A common stock into one share of our Class B
common stock.
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.
26
<PAGE> 31
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 accounted for approximately 9.9% of our
revenues and our ten largest clients 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.
Cost of Services. Our cost of services consist primarily of salaries and
benefits for personnel directly associated with delivering or managing our
marketing, customer contact management or fulfillment operations. Additional
items include costs of materials used in fulfillment, such as packaging
materials.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses are comprised primarily of expenses related to
facilities, information technology and professional services; compensation and
related expenses for sales and marketing, finance, human resources and
information technology personnel; and provision for bad debt.
Depreciation and Amortization Expense. We calculate and record depreciation
for capital assets over lives ranging from three to fifteen years and for
software development costs over three to five years. We amortize goodwill over
fifteen years.
Income Taxes. We record income tax expense in accordance with local
requirements in countries where we have taxable earnings. At December 31, 1999,
we had approximately $20.8 million of U.S. federal net operating loss tax
carryforwards which will begin to expire in 2006. We have additional loss
carryforwards for our European operations. We have recorded a substantial
valuation allowance against our deferred tax asset.
ACQUISITIONS
We made several acquisitions during 1998 and 1999. These acquisitions are
summarized as follows:
- In October 1998, we acquired SOFTBANK Services Group for approximately
$73.3 million in cash, including the assumption of approximately $17.9
million of existing indebtedness. In addition, we contributed $6.7
million in cash to provide for working capital needs. We financed the
cash component of the consideration and the working capital contribution
by selling approximately $50.0 million of our capital stock principally
to Onex and by incurring approximately $30.0 million of term debt. This
acquisition created approximately $57.5 million of goodwill.
- In January 1999, we acquired LCS for approximately $69.3 million in cash,
including the assumption of approximately $28.5 million of existing
indebtedness. We financed the cash component of the consideration by
selling approximately $35.0 million of our capital stock principally to
Onex and by incurring approximately $34.3 million of term debt. This
acquisition created approximately $32.8 million of goodwill and
approximately $23.3 million of other intangible assets. In 1999, as a
result of the loss of a significant customer of LCS, we wrote down the
remaining balance of approximately $22.3 million relating to other
intangible assets.
- In October 1999, we acquired Cordena and Adverbe for an aggregate of
approximately $34.9 million in cash and stock, including the assumption
of approximately $32.0 million of existing indebtedness. In addition, we
contributed $6.3 million in cash to provide for working capital needs and
transaction expenses. We financed the cash component of the consideration
and the working capital contribution by selling approximately $35.0
million of our capital stock principally to Onex and the stock component
of the consideration by issuing approximately $4.5 million of our capital
stock and approximately $1.7 million of in-the-money options and warrants
to the shareholders of the acquired companies. These acquisitions created
approximately $48.3 million of goodwill. In addition, some of the sellers
may receive a contingent payment of approximately $3.4 million in cash
and approximately $0.2 million of our existing common stock.
27
<PAGE> 32
- 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.
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 North Direct Response from its date of acquisition 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 APRIL THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 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..... 40.9 34.6 48.1 55.4
Depreciation expense........ 6.2 7.0 8.9 12.6
Amortization expense........ 4.7 4.9 0.1 0.2
Impairment of intangible
assets................... 12.5 -- -- --
----- ----- ----- -----
Operating loss................ (20.3)% (6.4)% (16.0)% (22.7)%
Interest expense, net......... 3.6 3.4 4.2 5.4
Loss before income taxes...... (23.9) (9.8) (20.2) (28.1)
Income taxes.................. 0.2 0.2 -- --
----- ----- ----- -----
Net loss...................... (24.1)% (10.0)% (20.2)% (28.1)%
===== ===== ===== =====
</TABLE>
IN LIGHT OF THE EVOLVING NATURE OF OUR BUSINESS, OUR LIMITED OPERATING
HISTORY AND OUR MATERIAL ACQUISITION HISTORY, WE BELIEVE THAT PERIOD-TO-PERIOD
COMPARISONS OF OUR RESULTS ARE NOT MEANINGFUL AND SHOULD NOT BE RELIED UPON AS
INDICATIONS OF FUTURE PERFORMANCE.
CLIENTLOGIC CORPORATION
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE PERIOD FROM APRIL 28, 1998 TO
DECEMBER 31, 1998
Revenues. Our revenues were approximately $177.8 million for the year ended
December 31, 1999, an increase of approximately $150.5 million over our revenues
for the period from April 28, 1998 to December 31, 1998, as a result of:
- the LCS acquisition in January 1999 which contributed approximately $51.5
million;
- the acquisitions of Cordena and Adverbe in October 1999 which together
contributed approximately $11.0 million;
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- 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.
Cost of Services. Our cost of services was approximately $99.5 million for
the year ended December 31, 1999, an increase of approximately $83.1 million
over our cost of services for the period from April 28, 1998 to December 31,
1998. This increase resulted primarily from:
- the LCS acquisition in January 1999 which contributed approximately $24.2
million;
- the acquisitions of Cordena and Adverbe in October 1999 which together
contributed approximately $7.0 million; and
- cost of services of approximately $61.4 million for a full year of
operations of SOFTBANK Services Group as compared to approximately $11.7
million for the period from April 28, 1998 to December 31, 1998.
As a percentage of revenues, cost of services decreased approximately 3.9%,
primarily due to the effect of the acquisition of LCS, which had a relatively
lower cost of service associated with marketing and fulfillment services.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $72.8 million for the year ended
December 31, 1999, an increase of approximately $63.3 million over the period
from April 28, 1998 to December 31, 1998. This increase resulted primarily from
the following:
- selling, general and administrative expenses of approximately $39.9
million for a full year of operations of SOFTBANK Services Group as
compared to approximately $7.7 million for the period from April 28, 1998
to December 31, 1998; and
- selling, general and administrative expenses of approximately $25.9
million attributable to the operations of LCS, Cordena, Adverbe and
MarketVision included in our consolidated results since each of their
acquisition dates.
As a percentage of revenue, selling general and administrative expenses
increased approximately 6.3% 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.
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Amortization Expense. Our amortization expense was approximately $8.3
million for the year ended December 31, 1999, an increase of approximately $7.0
million over our amortization expense for the period from April 28, 1998 to
December 31, 1998. This increase resulted primarily from the following:
- amortization expense of approximately $3.9 million due to the inclusion
of goodwill amortization relating to our acquisition of SOFTBANK Services
Group for a full year as compared to approximately $1.0 million for the
period from April 28, 1998 to December 31, 1998; and
- amortization expense of approximately $4.0 million from the goodwill
amortization relating to our acquisitions of LCS, Cordena, Adverbe and
MarketVision.
Impairment of Intangible Assets. We recorded a nonrecurring noncash charge
of approximately $22.3 million for the year ended December 31, 1999. This charge
reflects the writedown of other intangibles associated with our acquisition of
LCS due to the loss in August 1999 of a significant customer.
Interest Expense, net. Our net interest expense was approximately $6.5
million for the year ended December 31, 1999, an increase of approximately $5.6
million over our net interest expense for the period from April 28, 1998 to
December 31, 1998. This increase was a result of an increase in our debt and
capital leases.
Income Taxes. Our income taxes of $0.3 million represented current state,
local and foreign taxes of approximately $1.4 million and a deferred tax benefit
of approximately $1.1 million relating to the reduction of the valuation
allowance on deferred tax assets for certain U.S. operating loss carryforwards.
PREDECESSOR COMPANY
PERIOD FROM JANUARY 1, 1998 TO APRIL 27, 1998 COMPARED TO YEAR ENDED DECEMBER
31, 1997
Revenues. Our revenues were approximately $1.6 million for the period from
January 1, 1998 to April 27, 1998, a decrease of approximately $1.0 million from
our revenues for the year ended December 31, 1997. This decrease primarily
results from comparing a full year of revenues to a partial year of revenues.
Cost of Services. Our cost of services was approximately $1.0 million for
the period from January 1, 1998 to April 27, 1998, a decrease of approximately
$0.5 million from our cost of services from the year ended December 31, 1997.
This decrease is the result of comparing a full year of cost of services to a
partial year of cost of services. As a percentage of revenues, costs of services
increased to approximately 58.9% for the period ending April 27, 1998 from
approximately 54.5% for the year ended December 31, 1999. This increase
primarily results from initial expenses incurred in connection with providing
services to a new customer.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses were approximately $0.8 million for the period from
January 1, 1998 to April 27, 1998, a decrease of approximately $0.7 million from
our selling, general and administrative expenses for the year ended December 31,
1997. This decrease primarily results from comparing a full year of selling,
general and administrative expense to a partial year. As a percentage of
revenues, selling, general and administrative expenses decreased to
approximately 48.1% for the period ending April 27, 1998 from approximately
55.4% for the period ending December 31, 1997. This decrease was a result of our
revenues growing faster than our selling, general and administrative expense.
Depreciation Expense. Our depreciation expense was approximately $0.1
million for the period from January 1, 1998 to April 27, 1998, a decrease of
approximately $0.2 million from our depreciation expense for the year ended
December 31, 1997. This decrease is the result of comparing a full year of
depreciation expense to a partial year of depreciation expense.
Amortization Expense. Amortization expense was not material in either
period.
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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, operating cash flows,
borrowings under our revolving credit facility and term loans and capital lease
arrangements.
Concurrently with the completion of this offering, we intend to amend and
restate our existing $40 million revolving credit facility to increase the
amount of this facility to $100 million. Our revolving credit facility will be
secured by substantially all of our North American assets and will be available
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.
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 believe our current cash and cash equivalents, in addition to the
remaining net proceeds from this offering, anticipated cash flows from future
operations and funds available under our amended revolving credit facility will
be sufficient to support our operations, capital expenditures and various
repayment obligations under debt and lease agreements for at least the next 12
months. However, if funds generated from these sources are insufficient to
satisfy our liquidity requirements, we will be required to raise additional
funds. In addition, if we enter into commitments for acquisitions or other
strategic alliances, we will need to raise additional funds. Such financing may
not be available in amounts or on terms acceptable to us, if at all.
CLIENTLOGIC CORPORATION
During the year ended December 31, 1999, net cash used in our operating
activities of $4.3 million was a result of a net loss of $42.9 million, a $3.4
million gain on the sale of an investment and an increase of $5.2 million in
working capital, offset by depreciation and amortization of $19.4 million, a
$3.0 million loss on write-off of assets and noncash charges of $22.3 million
relating to the write-down of intangible assets. During the period from April
28, 1998 to December 31, 1998, net cash used in our operating activities of $4.3
million was a result of a net loss of $2.7 million, an increase of $4.8 million
in working capital including foreign currency adjustments, offset by a
depreciation and amortization expense of $3.2 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 $115.4 million. Our capital expenditures consisted
primarily of building and upgrading customer contact management centers. From
April 28, 1998 to December 31, 1998 we incurred capital expenditures of $2.8
million, net of lease financing arrangements, and acquired SOFTBANK Services
Group for $57.2 million.
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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. 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
We are exposed to the impact of interest rate changes and to foreign
currency fluctuations. We enter into interest rate and foreign currency
transactions to fix the cost of an individual transaction or to reduce financial
statement volatility. We have not entered into interest rate or foreign currency
transactions for speculative purposes, and we do not use derivatives with a
level of complexity or with a risk higher than the exposures to be hedged.
We face foreign currency exposure with respect to several currencies,
principally the UK pound, Irish punt, Dutch guilder, German mark, Canadian
dollar, French franc and the euro. For 1998 and 1999, none of these would have
been classified as hyper-inflationary environments. Where practical, we purchase
goods and services in local currencies, creating natural hedges. We also use
local currency borrowings to create an economic hedge.
The majority of our debt has floating interest rates tied to the U.S. prime
rate and the London Interbank Offered Rate, or LIBOR. At year end 1999, we had
adjustable rate debt totalling $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.
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
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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
month-end, 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.
EXCHANGEABLE SHARES
As part of the combination of North Direct Response with our company, we
converted the North Direct Response minority stockholders interests into
3,085,099 shares in one of our subsidiaries. These shares in our subsidiary are
exchangeable into 3,054,055 shares of our existing common stock. The shares are
exchangeable at the option of the holder or of our subsidiary at any time. At
December 31, 1999, no exchanges had occurred. These shares are considered common
stock equivalents for determination of earnings per share and are included in
stockholders equity.
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BUSINESS
OUR COMPANY
We are an international provider of integrated customer relationship
management services to e-commerce and technology companies. We offer a range of
services to assist our clients in acquiring and retaining customers and in
maximizing the profitability of customer relationships. We have designed our
services to be provided as fully integrated customer relationship management
solutions. Our 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 we are unique both in the breadth of our services and in our
ability to combine these services into integrated solutions for our clients.
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 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 2003.
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
solution. 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 a
comprehensive customer relationship management solution, many e-commerce
companies are seeking to outsource 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
solutions position us to take advantage of this opportunity:
Integrated Service Offerings. We are able to integrate our marketing,
customer contact management and fulfillment services into customized
solutions 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 solution. 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 solutions, 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 facilities located in the U.S.,
Canada and eight countries throughout Europe that allow us to offer our
services internationally. Our U.S. and Canadian facilities share a common
technology infrastructure and customer information database. We are in the
process of converting our international facilities to share these common
systems and database. We have the ability to communicate with our clients'
customers in 11 languages. We believe our geographic presence positions us
to service companies that desire consistent, high quality customer
relationship management services in North America and Europe.
OUR STRATEGY
Our objective is to be the leading global provider of integrated customer
relationship management services. To achieve this objective, we plan to:
Capitalize on the Rapid Growth of the Internet. We have designed our
business processes, systems and infrastructure to expand and adapt with the
rapid growth of Internet access, usage and commerce. We will continue to
invest in the expansion of our operations in order to profitably manage
anticipated demand while maintaining our high quality services.
Extend Our Global Presence. The U.S. has been a leader in Internet
usage; however, according to IDC, Europe, Asia, and Latin America are
projected to have higher user growth rates over the next three years. We
plan to position our company to serve clients across these regions. In
particular, we will continue to assist U.S. companies to expand their
e-commerce operations abroad and 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 these clients grow in size and expand to new geographic regions, we
expect them to require us to similarly expand the current services we
provide them. We also intend to cross-sell a broader range of services to
our existing clients.
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 solutions so they can increase
speed to market, reduce capital outlays and improve the quality of services
delivered to their customers.
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.
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OUR SERVICES
Marketing Services
Our marketing services are part of our complete customer relationship
management solutions 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 unique 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 contact management
solutions.
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 provide significant benefits to our
clients as they develop or expand their Internet-based operations.
We design our marketing solutions 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.
For the year ended December 31, 1999, we derived approximately 6.9% of our
revenues from marketing services.
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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 give us an 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
minimum operational requirements in 32 critical functional areas. The 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. In 1999, COPC recertified our facilities in Buffalo,
New York, Columbus, Ohio and Las Vegas, Nevada and granted initial certification
to our facility in Dublin, Ireland.
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<PAGE> 43
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 desire a long-term strategic partnership with us. Our clients
include leading software providers, Internet service providers, Internet-based
retailers, computer and peripheral original equipment manufacturers and online
investment brokerages. A majority of our 1999 revenues were derived from
e-commerce and technology companies. For the year ended December 31, 1999 our
ten largest clients contributed approximately 44.1% of our revenue and our
largest client contributed approximately 9.9% of our revenue.
SALES AND MARKETING
We use a variety of sales channels to market our services to companies
pursuing Internet-based strategies. We currently employ a direct sales force of
32 sales representatives who cover individual clients in North America and
Europe. We maintain close contact with our clients through 17 regional sales
offices across North America and eight countries in Europe. In addition to our
direct sales effort, we also promote our company through relationships with web
developers, systems integrators and other business process outsourcing
companies.
We conduct a comprehensive marketing program to support our sales efforts
and to actively promote the ClientLogic brand. We participate in a variety of
Internet, marketing, customer relationship management and financial industry
conferences and encourage our officers and employees to pursue speaking
engagements at these conferences. In addition, we host an annual customer
relationship management conference for current and prospective clients.
TECHNOLOGY
Our information technology systems are an important part of our ability to
provide high quality customer relationship management services. We have designed
our systems to improve our clients' speed to market, the consistency of our
services and the reliability of our systems and to scale cost effectively, as
follows:
- Speed to market. We use common business applications, meaning that
computer code written once can be used repeatedly for multiple
applications and across multiple communications channels. This improves
our clients' speed to market by reducing the time we spend in designing
new and adjusting our existing customer relationship management
solutions.
- 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 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.
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<PAGE> 44
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
believe we are the only company to provide comprehensive integrated customer
relationship management solutions 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.
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. We also believe that we are in a leading competitive position in Europe
as a result of our geographic presence and language capabilities. 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.
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<PAGE> 45
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.
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
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<PAGE> 46
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 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.
These regulations may also include enforcement and redress provisions.
Moreover, 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 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 these
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 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.
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<PAGE> 47
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> 48
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> 49
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> 50
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. We anticipate that our board of directors will elect two independent
directors prior to or concurrently with the completion of this offering. The
independent directors will serve as a Class I directors. Thomas O. Harbison, our
Chairman of the Board, Mark R. Briggs and Jules T. Kortenhorst serve as our
Class II directors. Thomas P. Dea and Seth M. Mersky serve as our Class III
directors.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our board of directors has appointed an audit committee and a compensation
committee.
Audit Committee. The members of our audit committee are Messrs. Harbison,
Dea and Mersky. After this offering, the members of our audit committee will be
our two independent directors and . The functions of the audit
committee include:
- reviewing the adequacy of our system of internal accounting controls;
- reviewing the results of our independent accountant's annual audit;
- determining the duties and responsibilities of the internal audit staff;
- reviewing the scope and results of our internal auditing procedures;
- reviewing the audit reports submitted by both our independent accountants
and our internal audit staff; and
- annually recommending independent accountants.
Compensation Committee. The members of our compensation committee are
Messrs. Briggs, Harbison and Mersky. After this offering, the members of our
compensation committee will be our two independent directors and . The
functions of the compensation committee include:
- reviewing our general compensation strategy;
- reviewing and approving compensation for our executive officers;
- reviewing the terms of employment agreements for our executive officers;
and
- administering our compensation and benefit plans, including our stock
option plan and deferred compensation plan.
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-
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<PAGE> 51
pocket expenses in connection with their travel to and attendance at the
meetings of the board of directors or board committees.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table provides information
regarding the compensation paid in 1999 to our Chief Executive Officer and each
of our four other most highly compensated executive officers serving in that
capacity on December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------------
SECURITIES
BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) $(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($)
- --------------------------- --------- ------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas O. Harbison....................... 360,000 -- -- 50,753(4)
Chairman of the Board of Directors and
former Chief Executive
Officer(3)
Mark R. Briggs........................... 250,004 100,000(5) 1,001,282(6) 68,014(7)
President, Chief Executive Officer and
Chief Operating Officer
Gene S. Morphis.......................... 242,307(9) -- 233,333(10) 66,304(11)
Chief Financial Officer and
Secretary(8)
Joanne G. Biltekoff...................... 160,000 -- 40,000 677(12)
Chief Administrative Officer
Lee O. Waters............................ 207,077 -- 40,000 65,000(13)
Chief Solution Delivery Officer
</TABLE>
- ---------------
(1) Bonuses earned in 1999 will be paid in 2000. We have not yet determined the
amount of 1999 bonuses for our executive officers.
(2) Unless otherwise indicated, these figures reflect the number of shares of
Class A common stock that each named executive may acquire upon the
exercise of options granted under our stock option plan. See "-- Benefit
Plans -- Stock Option Plan."
(3) Mr. Harbison's salary for 1999 was paid by Onex Service Partners, an
affiliate of Onex, pursuant to his employment agreement with that
partnership. The employment agreement provides that Mr. Harbison will
receive an annual salary of $360,000 for his services to Onex Service
Partners, including serving as the Chief Executive Officer and as a
director or other executive officer of ClientLogic on behalf of Onex
Service Partners. Mr. Harbison served as our Chief Executive Officer from
September 1998 through June 1999 and has served as our Chairman of the
Board since June 1999.
(4) Represents a car allowance of $18,785 and life insurance premiums in the
amount of $31,968 paid by Onex Service Partners during 1999.
(5) Represents $100,000 of Mr. Briggs' base salary for 1999 which Mr. Briggs
elected to defer in accordance with our deferred compensation plan. Mr.
Briggs' employment agreement provides that Mr. Briggs may defer up to
$100,000 of his salary during each of the first two years of his employment
to purchase phantom stock units under our deferred compensation plan at a
price of $1.00 per unit. Therefore, Mr. Briggs acquired 100,000 phantom
stock units in 1999. Under our deferred compensation plan, each phantom
stock unit will become available for distribution upon the occurrence of
events specified in the deferred compensation plan. Upon distribution, each
phantom stock unit will be converted into cash in an amount equal to the
market value of one share of our Class A common stock at the time of
conversion or one share of Class A common stock, as 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.
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<PAGE> 52
(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 maximum number of shares of Class A common stock that Mr.
Morphis may acquire upon the exercise of an option granted under a
contingent securities purchase agreement between Mr. Morphis and
ClientLogic. See "-- Employment Agreements -- Gene S. Morphis Employment
Agreement".
(11) Represents reimbursement for expenses in connection with Mr. Morphis'
relocation to Nashville, Tennessee.
(12) Represents $677 of matching amounts we contributed to our 401(k) plan.
(13) Represents reimbursement for expenses in connection with Mr. Waters'
relocation to Nashville, Tennessee.
OPTION GRANTS DURING 1999. The following table summarizes option grants
made with respect to our common stock during 1999 to the executive officers
named in the summary compensation table above:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
% OF ASSUMED ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(2)
UNDERLYING EMPLOYEES IN PRICE ------------------------------
OPTIONS(1) 1999 ($/SHARE) EXPIRATION DATE 5%($) 10%($)
------------- --------------- --------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas O. Harbison... -- -- -- -- -- --
Mark R. Briggs....... 583,333(3) 14.33 1.20 January 27, 2009 440,226 1,115,619
2,868(3) 0.07 1.50 March 19, 2009 2,706 6,856
347,081(3) 8.52 2.25 October 7, 2009 491,124 1,244,605
68,000(3) 1.67 5.00 December 6, 2009 213,824 541,872
Gene S. Morphis...... 233,333(4) 5.73 1.50 June 1, 2000 220,113 557,809
Joanne G.
Biltekoff.......... 40,000 0.98 3.50 November 22, 2009 88,045 223,124
Lee O. Waters........ 40,000 0.98 3.50 November 22, 2009 88,045 223,124
</TABLE>
- ---------------
(1) Unless otherwise indicated, these figures reflect the number of shares of
Class A common stock that each named executive may acquire upon the exercise
of options granted under our stock option plan. See " -- Benefit
Plans -- Stock Option Plan." Unless otherwise indicated, options granted
under our stock option plan vest at a rate of 25% over 4 years.
(2) Amounts represent hypothetical gains that could be achieved for the listed
options if exercised immediately prior to the expiration date. The 5% and
10% assumed annual rates of compounded stock price appreciation are required
by rules of the Commission and do not represent our estimates or projections
of the future prices of our Class A common stock. These amounts represent
assumed rates of appreciation in the value of our Class A common stock from
the deemed fair market value for accounting purposes on the date of grant.
Actual gains, if any, over stock option exercise prices are dependent on the
future performance of our Class A common stock and overall stock market
conditions. The potential values reflected in this table may not be
achieved. All amounts have been rounded to the nearest whole dollar.
(3) Represents an aggregate of 1,001,282 shares of Class A common stock that Mr.
Briggs may acquire upon the exercise of options granted under our stock
option plan. These options vest 25% on the 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
48
<PAGE> 53
options are not exercisable until Onex realizes specified performance targets on
its equity investment in our company.
(4) Represents the maximum 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. The actual
number of shares subject to this option will be determined based upon the
amount of Mr. Morphis' 1999 bonus. These options will vest and become
exercisable upon payment of Mr. Morphis' 1999 bonus. We have not yet
determined the bonus payable to Mr. Morphis for 1999. 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
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark R. Briggs(1)........................... -- 2,301,282 -- 16,665,791
Thomas O. Harbison.......................... -- -- -- --
Gene S. Morphis(2).......................... -- 233,333 -- 1,656,664
Joanne G. Biltekoff......................... 45,000 175,000 319,500 1,162,500
Lee O. Waters............................... 45,000 175,000 319,500 1,162,500
</TABLE>
- ---------------
(1) These options will vest upon the completion of this offering but are not
exercisable until Onex realizes specified performance targets on its equity
investment in our company.
(2) Represents the maximum number of shares of Class A common stock that Mr.
Morphis may acquire upon the exercise of options granted by ClientLogic
under Mr. Morphis' contingent securities purchase agreement. The actual
number of shares subject to this option will be determined based upon the
amount of Mr. Morphis' 1999 bonus. These options will vest and become
exercisable upon payment of Mr. Morphis' 1999 bonus. We have not yet
determined the bonus payable to Mr. Morphis for 1999. See "-- Employment
Agreements -- Gene S. Morphis Employment Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our compensation committee are Messrs. Briggs, Harbison and
Mersky. After this offering the members of our compensation committee will be
our two independent directors and . Mr. Harbison is our Chairman of
the Board and Mr. Briggs is our Chief Executive Officer. Mr. Mersky is not an
executive officer. Our board of directors created the 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. 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. This 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
49
<PAGE> 54
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. Mr. Harbison is also entitled to a car allowance of $1,500 a
month, payment of life insurance premiums of $30,000 a year and to benefits
typically provided to senior executives in our industry.
The employment agreement also provides that if Mr. Harbison's employment is
terminated for cause or due to his disability, Mr. Harbison will receive his
base salary through the date of termination. The employment agreement terminates
on Mr. Harbison's death and his legal representatives shall be entitled to
receive Mr. Harbison's base salary for 45 days after his death. If he is
terminated for any reason other than for cause or disability, Mr. Harbison will
be entitled to receive his base salary for the remaining term of the agreement.
Mark R. Briggs Employment Agreement
We have entered into an employment agreement with Mr. Briggs which we have
agreed to amend and restate prior to completion of this offering. This agreement
will provide that Mr. Briggs will serve as our President and Chief Executive
Officer through December 31, 2001, unless terminated earlier as provided in his
employment agreement. The amended and restated agreement will also include the
provisions described below.
The compensation provided to Mr. Briggs under his employment agreement
includes an annual base salary of $350,000, subject to upward adjustment at the
sole discretion of our board of directors. In addition, Mr. Briggs is entitled
to the same benefits as are generally provided to our senior executives as long
as Mr. Briggs' employment agreement is in force. The employment agreement
provides that the board of directors will determine Mr. Briggs' bonus for the
year ended December 31, 1999 based upon whether we achieve specific levels of
earnings before interest, income taxes, depreciation and amortization. For
periods after 1999, the board of directors is required to establish bonus
targets for Mr. Briggs consistent with industry practices for similarly situated
executives.
Mr. Briggs is entitled to the following additional benefits under his
employment agreement:
- deferral of up to $100,000 of Mr. Briggs' compensation in each of the
first two years following September 30, 1998 through the purchase of
phantom stock units, at a price of $1.00 per unit, in accordance with our
deferred compensation plan;
- payment of up to $60,000 in annual premiums, from September 1998 through
September 2001, to maintain Mr. Briggs' $1 million split-dollar life
insurance policy; and
- reimbursement for Mr. Briggs' reasonable business expenses, in accordance
with our then-existing policies.
Mr. Briggs' employment agreement provides that, in the event that we issue
to Onex any number of shares of Class A or Class B common stock during the term
of Mr. Briggs' employment agreement, we must grant to Mr. Briggs options to
purchase shares of Class A common stock equal to two percent (2%) of the
aggregate number of additional shares of Class A or Class B common stock so
issued. The options will have an exercise price equal to the price per share of
Class A or Class B common stock paid for the additional shares to which the
options relate, as determined by the board of directors. The options are not
50
<PAGE> 55
exercisable unless and until Onex realizes specified performance targets on its
equity investment in our company. If Mr. Briggs' employment is terminated for
cause, he forfeits the options, whether or not the options have vested at the
time of his termination.
Mr. Briggs' employment agreement also provides that if Mr. Briggs'
employment is terminated without cause or Mr. Briggs resigns for good reason,
Mr. Briggs will continue to receive his then-current base salary and benefits,
including the premium payments on his split-dollar life insurance policy, for a
period of one year following termination, as well as any accrued but unpaid base
salary and any additional payments to which he is entitled under the terms of
the benefit plans or programs in which he participates at the time. We may
terminate Mr. Briggs' employment upon his death or permanent disability and no
further compensation will be payable, except that he or his estate, heirs or
beneficiaries, as applicable, will receive any accrued but unpaid base salary
and any additional payments to which he is entitled under the terms of the
benefit plans or programs in which he participated at the time of termination.
Mr. Briggs' employment agreement also provides that he will not compete with or
solicit employees from our company for a period of one year from the date of his
termination or three years from the date of termination if he has vested options
to purchase our common stock.
Gene S. Morphis Employment Agreement
We have entered into an employment agreement with Mr. Morphis, effective as
of April 1, 1999. Mr. Morphis' employment agreement provides that Mr. Morphis
will serve as our Chief Financial Officer through April 1, 2001, unless earlier
terminated. The term of Mr. Morphis' employment agreement will be automatically
extended for 12 additional months unless we or Mr. Morphis give the other party
written notice of termination at least 12 months prior to the end of the initial
term of the agreement.
The compensation provided to Mr. Morphis under his employment agreement
includes an annual base salary of $250,000, subject to upward adjustment at the
sole discretion of board of directors. Mr. Morphis is entitled to receive
benefits as are generally provided to our senior executives as long as Mr.
Morphis' employment agreement is in force. The employment agreement provides
that our board of directors will determine Mr. Morphis' 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. 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 $1.50 per share. The number of shares that Mr.
Morphis can purchase will be determined based upon Mr. Morphis' 1999 bonus and
will be equal
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<PAGE> 56
to the amount of Mr. Morphis' 1999 bonus divided by $1.50. The maximum number of
shares which Mr. Morphis may purchase pursuant to the option is limited to
233,333 shares.
The contingent securities purchase agreement provides that the option shall
expire on June 1, 2000. The option shall be exercisable only to the extent that
Mr. Morphis receives an annual bonus under his employment agreement for our 1999
fiscal year and shall immediately expire if our board of directors determines
that no annual bonus for our 1999 fiscal year is payable to Mr. Morphis under
the terms of his employment agreement.
Lee O. Waters Employment Agreement
On August 25, 1997, SOFTBANK Services Group entered into an employment
agreement with Mr. Waters, effective as of September 1, 1997. We acquired
SOFTBANK in September 1998 and assumed this agreement. Mr. Waters' employment
agreement provides that his employment is an "at will" arrangement without a
specific term. Pursuant to his employment agreement, we may change Mr. Waters'
position responsibilities, title, position location, compensation and benefits
from time to time. Mr. Waters currently serves as our Chief Solution Delivery
Officer.
Mr. Waters' current annual base salary is $250,000, which may adjusted at
the sole discretion of our board of directors, and benefits as are generally
provided to our executive officers. In addition, Mr. Waters is entitled to bonus
in 1999 up to $40,000. Mr. Waters' employment agreement also provides that he
will not compete with our company for one year following the termination of his
employment.
BENEFIT PLANS
Stock Option Plan
We adopted the ClientLogic 1998 Stock Option Plan in September 1998 which
we subsequently amended on June 21 and December 21, 1999. The plan provides that
we may issue incentive, non-qualified and performance-based stock options to any
of our key employees, key employees of our affiliates and persons that provide
bona fide consulting, advisory or other services for our company. A total of
15,862,000 shares of Class A common stock have been reserved for issuance under
the stock option plan. As of December 31, 1999, options to purchase up to an
aggregate of 7,809,635 shares of Class A common stock are outstanding. The plan
provides that we may grant a maximum of 8,000,000 options to any key employee or
eligible non employee.
The stock option plan provides that it is to be administered by a committee
of our board of directors. Our entire board of directors may act as the
committee if it chooses to do so. The committee has the authority to grant any
participant one or more stock options and to establish the terms and conditions
of his or her options, with limitations specified in the stock option plan. For
example, the per-share exercise price of each incentive option granted under the
plan must not be less than 100% of the fair market value of the Class A common
stock on the date the option is granted, and no incentive stock option may be
exercisable after ten years from the date of grant. If a change of control
occurs, the committee, in its discretion, may take the actions it deems
appropriate regarding outstanding awards, including, without limitation,
accelerating the exercisability or vesting of the awards. The stock option plan
will terminate on September 30, 2008, unless terminated earlier by our board of
directors.
Deferred Compensation Plan
We adopted the ClientLogic deferred compensation plan in October 1998. The
plan provides that participants may elect to defer all or part of their
compensation in amounts and for periods approved by the compensation committee
of our board of directors. Plan participants must be officers, directors, other
management employees, or other highly compensated employees or consultants of
our company or a parent or subsidiary company.
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<PAGE> 57
The compensation committee may in its sole discretion designate the persons
who are eligible to participate in the plan and to establish the terms,
conditions, restrictions and limitations of each participant's elective
deferrals under the plan, with limitations specified in the deferred
compensation plan.
We maintain a separate deferral account for each plan participant
reflecting:
- the amounts of compensation deferred by the participant;
- the hypothetical investment gains or losses on these amounts; and
- any expenses attributable to such amounts.
Unless otherwise provided in the plan or agreed in writing by the
compensation committee and a participant, all compensation deferred by a
participant under the plan, and all other amounts credited to a deferral
account, are converted into and deemed to be invested in phantom stock units on
the day compensation or any other amount would have otherwise been paid. The
value of the phantom stock units is based on the fair market value of a share of
Class A common stock, as determined in accordance with the terms of the deferred
compensation plan. A total of 5,000,000 shares of Class A common stock may be
subject to phantom stock units under the plan. As of December 31, 1999, 235,000
shares of Class A common stock were subject to phantom stock units under the
plan representing compensation deferrals totaling $235,000.
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> 58
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 December 31, 1999 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.
We intend to recapitalize our company prior to completion of this offering
to convert each share of our outstanding common stock into one share of a new
class of common stock designated Class A common stock and to create a new class
of common stock designated Class B common stock. For a period of 45 days after
this conversion, holders of Class A common stock will have the option to
exchange each share of their Class A common stock into one share of Class B
common stock. Each share of our Class B common stock will be convertible into
one share of our Class A common stock. However, each share of our Class B common
stock will be entitled to 25 votes per share while each share of our Class A
common stock is entitled to one vote per share. For purposes of this prospectus,
we have given effect to the conversion of our common stock into Class A common
stock as of December 31, 1999. Unless otherwise indicated, we have assumed no
conversion of shares of Class A common stock into shares of Class B common
stock. For a description of the rights of our Class B common stock compared to
our Class A common stock, see "Description of Capital Stock -- 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:
Onex Corporation(2)........................... 103,368,588 90.62 (3)
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, Ontario MSJ 2S1
Onex ClientLogic Holdings LLC(2).............. 103,368,588 90.62 (3)
c/o Nachurs Alpine Solutions
421 Leader Street
Marion, Ohio 43302
OFFICERS AND DIRECTORS:
Thomas O. Harbison(4)......................... -- --
Mark R. Briggs(5)............................. 200,000 *
Gene S. Morphis(6)............................ -- --
Jules T. Kortenhorst(7)....................... 1,920,629 1.67
Joanne G. Biltekoff(8)........................ 62,779 *
Thomas P. Dea(9).............................. -- --
Seth M. Mersky(10)............................ -- --
Lee O. Waters(11)............................. 50,926 *
All executive officers and directors as a
group (12 persons)(12)...................... 2,462,090 2.13
</TABLE>
- ---------------
* Represents less than 1%.
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<PAGE> 59
(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 December 31, 1999 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 103,368,588 shares of Class A common stock held of record by
Onex ClientLogic Holdings LLC, which may be attributed to Onex, its
indirect parent, and Gerald W. Schwartz. Mr. Schwartz is the controlling
stockholder of Onex and serves as its Chairman of the Board, President and
Chief Executive Officer. Accordingly, Mr. Schwartz may be deemed to be the
beneficial owner of Class A common stock beneficially held by Onex and Onex
ClientLogic Holdings LLC. Mr. Schwartz disclaims beneficial ownership of
the Class A Common Stock not owned of record by him.
(3) Assuming that Onex converts its shares of Class A common stock into shares
of Class B common stock after our recapitalization and that no other Class
A stockholder chooses to convert, Onex would control approximately %
of the total voting power of our Class A and Class B common stock
outstanding after this offering.
(4) Excludes 366,072 shares of Class A common stock in which Mr. Harbison has
an indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holdings LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Harbison disclaims beneficial ownership of these shares.
In addition, Mr. Harbison is eligible to receive additional cash or Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes specified performance targets on its equity investment in our
company.
(5) These figures do not include 2,301,282 shares of Class A common stock that
Mr. Briggs may acquire upon the exercise of options granted under the stock
option plan. These options will vest upon the completion of this offering
but are not exercisable until Onex realizes specified performance targets
on its equity investment in our company. These figures do not include
125,000 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's equity investment in
our company exceeds specified performance targets.
(6) Excludes 233,333 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. The number of shares Mr. Morphis
may acquire under this option depends on the amount of his bonus for 1999.
Also, this option may not be exercised until his bonus is paid. We have not
yet determined the amount of his bonus. Also excludes 22,155 shares of
Class A common stock through which Mr. Morphis has an indirect interest
through an interest in Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holding LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Morphis disclaims beneficial ownership of these shares.
In addition, Mr. Morphis is eligible to receive additional cash or stock,
determinable in the sole discretion of Onex, in the event Onex's equity
investment in our company exceeds specified performance targets.
(7) Includes 611,395 shares of Class A common stock held of record by Mr.
Kortenhorst and 1,146,715 options and warrants to acquire shares of Class A
common stock. Also includes 67,691 shares of Class A common stock and
94,828 options and warrants to acquire shares of Class A common stock held
of record by affiliates of Mr. Kortenhorst.
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<PAGE> 60
(8) Includes 45,000 shares of Class A common stock that Ms. Biltekoff may
acquire upon the exercise of options granted under our stock option plan
and do not include 55,000 shares of Class A common stock that Ms. Biltekoff
is eligible to receive upon a distribution under our deferred compensation
plan. We expect that the 55,000 phantom stock units held by Ms. Biltekoff
will become available for distribution upon completion of this offering.
The deferred compensation plan provides that, upon a distribution, Ms.
Biltekoff will receive cash, Class A common stock or a combination of cash
and Class A common stock as determined by the compensation committee of the
board of directors. See "Management -- Benefit Plans -- Deferred
Compensation Plan". In addition, Ms. Biltekoff is eligible to receive
additional cash or shares of Class A common stock, determinable in the sole
discretion of Onex, in the event Onex realizes specified performance
targets on its equity investment in our company.
(9) Excludes 224,175 shares of Class A common stock in which Mr. Dea has an
indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holding LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Dea disclaims beneficial ownership of these shares. In
addition, Mr. Dea is eligible to receive additional cash or Class A common
stock, determinable in the sole discretion of Onex, in the event Onex
realizes specified performance targets on its equity investment in our
company.
(10) Excludes 292,677 shares of Class A common stock in which Mr. Mersky has an
indirect interest through Onex ClientLogic Holdings LLC. Onex, Onex
ClientLogic Holdings LLC and Mr. Schwartz share beneficial ownership of
these shares. Mr. Mersky disclaims beneficial ownership of these shares. In
addition, Mr. Mersky is eligible to receive additional cash or Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes specified performance targets on its equity investment in our
company.
(11) Includes 45,000 shares of Class A common stock that Mr. Waters may acquire
upon the exercise of options granted under our stock option plan. In
addition, Mr. Waters is eligible to receive additional cash or Class A
common stock, determinable in the sole discretion of Onex, in the event
Onex realizes specified performance targets on its equity investment in our
company.
(12) Includes 1,376,543 shares which may be acquired upon the exercise of
options, warrants and other rights to acquire our Class A common stock.
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<PAGE> 61
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. This
description of the credit agreement is not complete and is subject to, and
qualified in its entirety by reference to, the full text of the credit
agreement.
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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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. During
the year ended December 31, 1999, we paid $92,000 in interest under our
credit agreement.
Our domestic subsidiaries guarantee our obligations under the credit
agreement and secure the guarantee by granting Toronto Dominion a first-priority
perfected security interest to substantially all of their assets. Additionally,
we have granted Toronto Dominion a first-priority perfected security interest in
substantially all of our assets and have pledged the capital stock of our
domestic subsidiaries. Each of our domestic subsidiaries other than ClientLogic
International, Inc. has pledged the capital stock of its subsidiaries to Toronto
Dominion. However, not more than 65% of the capital stock of any of our indirect
subsidiaries that are not organized under the laws of the United States has been
pledged to secure our obligations under the credit agreement.
The credit agreement contains customary restrictive covenants, which, among
other things and with some exceptions, limit our ability to incur additional
indebtedness, enter into transactions with affiliates, pay dividends,
consolidate, merge or sell assets, issue additional stock, make capital
expenditures or enter new lines of business. The credit agreement also limits
our ability to make additional acquisitions in excess of $15.0 million on an
individual basis. We are also required to maintain specified financial ratios
and to comply with financial tests, such as maximum total debt to cash flow,
minimum cash flow to debt service and minimum cash flow to interest expense
ratios. Additionally, we are restricted in the amount of capital expenditures we
may make on an annual basis. We are also required to make mandatory prepayments
on the loans on the occurrence of specified events, including the generation of
excess cash flow and the sale of material assets.
The credit agreement contains customary events of default, including
defaults in the payment of principal or interest when due and in the performance
of covenants and other specified defaults, including payment defaults under
other debt agreements, bankruptcy or similar proceedings. We intend to repay all
of the borrowings under this credit agreement with the proceeds of this
offering.
Funding of Acquisitions. In January 1999, Onex ClientLogic Holdings LLC
funded our acquisition of LCS by providing cash in the amount of $25,000,000 for
20,833,333 shares of common stock and an unsecured promissory note for
$10,000,000. We repaid the promissory note in October 1999 by issuing to Onex
6,323,957 shares of common stock and paying to Onex $2,411,252. The purchase
price per share of common stock was $1.20, which our board of directors
determined to be the fair market value.
In October 1999, Onex ClientLogic Holdings LLC funded our acquisition of
Cordena and Adverbe by providing us with cash in the amount of $34,594,559 for
15,375,360 shares of common stock. The purchase price per share was $2.25, which
the board of directors determined to be fair market value.
In December 1999, Onex ClientLogic Holdings LLC funded our acquisition of
MarketVision by providing us with cash in the amount of $11,929,335 for
2,385,867 shares of common stock. The purchase price per share was $5.00, which
the board of directors determined to be fair market value.
Loans for Relocation. In October 1999, we made two loans to Lee O. Waters
in connection with his relocation to Nashville, Tennessee. The first loan has a
principal amount of $65,000.00, an annual interest rate of 8% and is payable
upon the sale of Mr. Waters' residence in Williamsville, New York, or April 11,
2000, whichever occurs first. The second loan has a principal amount of
$374,270.57, an annual interest
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rate of 8% and is payable on or before February 28, 2000. Both loans are secured
by the shares of Class A common stock owned or acquired by Mr. Waters.
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, 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
Holding Corporation, to serve as the holding company of a new subsidiary,
InsLogic.com Corporation, to hold the acquired assets of Canadian Access. We
transferred the assets of Canadian
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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, our
subsidiary, entered into a contribution agreement with InsLogic and
InsLogic.com Corporation. Under the contribution agreement, we
contributed the acquired assets and liabilities 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 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 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 Corporation at
cost plus specified percentages depending on the services provided. As of
January 31, 2000, we have not received any fees under this agreement, but
we have received approximately $1.6 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
Corporation. Under the master service agreement, ClientLogic Operating
agreed to provide call center and related services to InsLogic
Corporation for three years. We provide these services at cost plus
specified percentages based upon the services provided. As of January 31,
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 Corporation. Under
the noncompetition agreement, we agreed not to compete with InsLogic or
InsLogic Corporation in the insurance services business and InsLogic and
InsLogic 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 intend to distribute all of
the common stock of InsLogic to our existing stockholders. We expect to complete
this distribution prior to completion of this offering. We will effect this
distribution by causing our wholly owned subsidiary, ClientLogic Operating,
which owns all of the outstanding common stock of InsLogic, to pay a dividend to
us consisting of all of the shares of InsLogic. Immediately after we receive
this dividend, we will pay a dividend to our existing stockholders, pro rata
based on the number of shares held by each stockholder, consisting of all of the
shares of common stock of InsLogic. After we pay 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 after the
distribution.
We have estimated the fair market value of InsLogic to be approximately
$28,500,000 based on information InsLogic has provided to us. Based on this
estimate, we expect to realize a gain of approximately $25,700,000 as a result
of the distribution, but we expect this gain to be fully offset by operating
losses and loss carryforwards.
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DESCRIPTION OF CAPITAL STOCK
The following description of our common stock, preferred stock, amended and
restated certificate of incorporation as will be in effect upon the closing of
this offering and amended and restated bylaws as will be in effect upon the
closing of this offering 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. The descriptions of our common stock and preferred
stock reflect changes to our capital structure that will occur prior to the
closing of this offering in accordance with the terms of our amended and
restated certificate of incorporation. We have described our planned
recapitalization under "Security Ownership of Certain Beneficial Owners."
We are authorized to issue up to 150,000,000 shares of Class A common
stock, par value $.01 per share, 150,000,000 shares of Class B common stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
As of December 31, 1999, we had 114,065,332 shares of Class A common stock
outstanding held of record by 42 stockholders and no shares of Class B common
stock outstanding. Based upon the number of shares outstanding as of that date
and giving effect to the issuance of an aggregate shares of Class A common
stock in this offering there will be approximately shares of Class A common
stock and no shares of Class B common stock outstanding upon the closing of this
offering.
All of the issued and outstanding shares of Class A common stock and the
shares of Class A common stock to be issued in this offering are or will be
fully paid and nonassessable. Except as described below, shares of Class A
common stock and Class B common stock will generally have identical rights. In
addition, under our amended and restated certificate of incorporation, holders
of Class A common stock have no preemptive or other subscription rights to
purchase shares of our stock, nor are they entitled to the benefits of any
redemption or sinking fund provisions.
Voting Rights. The holders of Class A common stock and Class B common stock
are entitled to notice of and to attend all meetings of our stockholders and to
vote at all meetings together as a single class, except on matters where the
holders of a class are entitled to vote separately under law or pursuant to our
amended and restated certificate of incorporation. The holders of Class A common
stock are entitled to one vote per share on all matters to be voted on by
stockholders generally, including the election of directors. The holders of
Class B common stock is entitled to 25 votes per share on all matters to be
voted on by stockholders generally, including the election of directors. The
holders of Class B common stock are entitled to one vote per share when voting
on a matter for which they are entitled to vote as a separate class. There are
no cumulative voting rights. Accordingly, holders of a majority of the total
votes entitled to vote in an election of directors will be able to elect all of
the directors standing for election. See "Risk Factors -- Onex Corporation will
be able to control our management and corporate affairs and other stockholders
will be unable to affect the outcome of corporate matters."
Liquidation Preferences. If we are liquidated, dissolved or wound up, the
holders of Class A common stock and Class B common stock will be entitled to
receive distributions only after satisfaction of all of our liabilities and the
prior rights of any outstanding class of our preferred stock. If we are
liquidated, dissolved or wound up, our assets legally available after
satisfaction of all of our liabilities and the prior rights of our preferred
stock shall be distributed to the holders of Class A common stock and Class B
common stock pro rata on a per share basis.
Conversion Rights/Mandatory Conversion. Holders of Class A common stock
will have no conversion rights following the expiration of the 45-day period
after our recapitalization. Holders of
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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
automatically convert into shares of Class A common stock:
- upon any transfer of such shares except to Onex or entities controlled by
or under control with Onex and except for a transfer of 100% of the
outstanding Class B common stock to a purchaser of all of the outstanding
Class A common stock at the same price and on the same terms as offered
for the Class B common stock;
- if the holder of such shares ceases to be an affiliate of Onex;
- if Onex and its affiliates cease to have the right to exercise the votes
attached to the Class B common stock held by them; or
- if at any time the number of outstanding shares of Class B common stock
represents less than 5% of the total outstanding shares of Class A and
Class B 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 CERTIFICATE OF INCORPORATION AND BYLAWS
AND VARIOUS PROVISIONS OF DELAWARE LAW WHICH MAY HAVE ANTI-TAKEOVER EFFECTS
Our certificate of incorporation and 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 certificate of incorporation provides that
our board of directors may authorize the issuance of up to 10,000,000 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 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 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
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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 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. The bylaws provide that special meetings of our
stockholders may be called by a majority of the board of directors, the chairman
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 bylaws establish an advance notice procedure with regard to
business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders, including the nomination of candidates for election as
directors. The procedure provides that a notice of proposed stockholder business
must be timely given in writing to the secretary of our company prior to the
meeting. In all cases, to be timely, notice relating to an annual meeting must
be received at our principal executive offices not less than 60 days nor more
than 90 days before the first anniversary of the prior year's annual meeting.
Notice to our company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
that person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act, including that person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case that
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before that
meeting in accordance with the bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
procedure will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the above-mentioned procedures.
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;
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- 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 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 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 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 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 .
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of Class A
common stock, assuming no exercise of the underwriters' over-allotment option,
and no shares of Class B common stock issued and outstanding. Of these shares,
the shares of Class A common stock sold in this offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely transferable without restriction in the public market, except to the
extent that our affiliates acquired any of these shares. Resales of shares
acquired by affiliates are subject to restrictions under Rule 144 under the
Securities Act. The shares of our outstanding Class A common stock were issued
in reliance on exemptions from the registration requirements of the Securities
Act, and these shares are "restricted" securities under Rule 144. The number of
"restricted" shares available for sale in the public market is limited by the
restrictions under Rule 144.
LOCK-UP AGREEMENTS
Our directors, members of senior management and substantially all of the
holders of our Class A common stock have agreed pursuant to lock-up agreements
not to sell or otherwise dispose of their shares of Class A common stock, for a
period of 180 days after the date of this prospectus without the prior written
consent of Salomon Smith Barney.
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 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.
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
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Class A common stock upon transfer to a person other than Onex or its
affiliates. Shares of Class B common stock will also convert to shares of Class
A common stock upon other occurrences described under "Description of Capital
Stock -- Common Stock."
EXCHANGEABLE SHARES
In connection with our acquisition of North Direct Response during 1998,
some of the holders of the common stock of one of our subsidiaries have the
right to exchange their shares for an aggregate of 3,054,055 shares of our Class
A common stock.
REGISTRATION RIGHTS
Onex has the right to require us to file registration statements covering
its shares of Class A or Class B common stock and Onex and all of our existing
holders of our Class A common stock have rights to include those shares, upon
conversion, in registration statements we may file for our company or for other
stockholders. If these holders exercise their right to have their shares
registered, they could sell their shares immediately without regard to the
holding periods or volume limitations under Rule 144.
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<PAGE> 71
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of some of the 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> 72
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> 73
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. ..................................
FleetBoston Robertson Stephens Inc. ........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Thomas Weisel Partners LLC..................................
DLJdirect Inc. .............................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of particular legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares (other than those covered
by the over-allotment option described below) if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., FleetBoston Robertson
Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Thomas
Weisel Partners LLC are acting as representatives, propose to offer some of the
shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to certain dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 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 shares of our
Class A common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to individuals associated with us.
This directed share program will be administered by Salomon Smith Barney 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 common stock have agreed that, for a
period of 180 days from the date of this prospectus, we will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge any
shares of our Class A common stock or any securities convertible into or
exchangeable for our Class A common stock. Salomon Smith Barney Inc. in its sole
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.
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
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<PAGE> 74
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 $ .
An electronic prospectus is being made available on a Web site maintained
by DLJdirect Inc. The representatives have agreed to allocate shares
to DLJdirect for sale to its brokerage account holders. Other than the
prospectus in electronic format, any information on its Web site relating to
this offering is not part of this prospectus and has not been approved or
endorsed by us or any underwriter and should not be relied upon by prospective
investors.
DLJdirect will make all allocations of securities distributed in this
offering through the use of the Internet. Approximately two to three weeks prior
to the scheduled offering date, DLJdirect will post on its Web site
(www.dljdirect.com) a brief description of the offering which contains only the
information permitted under Rule 134 of the Securities Act. At this time,
DLJdirect will also send an e-mail to all DLJdirect account holders with
$100,000 or more in assets in their accounts advising them of the offering.
These account holders will have access to the preliminary prospectus by links on
the DLJdirect Web site. 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
70
<PAGE> 75
the offering: asset level of the account, investment objectives of the account
holder, trading history of the account, tenure of the account at DLJdirect and
post-offering activity in previous offerings.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 110
filed public offerings of equity securities, of which 79 have been completed,
and has acted as a syndicate member in an additional 54 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except with respect to its contractual relationship with us pursuant to
the underwriting agreement entered into in connection with this offering.
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.
71
<PAGE> 76
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 and 1997
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> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CLIENTLOGIC CORPORATION
Independent Auditor's Reports............................... F-3
Balance Sheets as at December 31, 1999 and 1998 and
Predecessor Company Balance Sheet as at April 27, 1998.... F-5
Statement of Operations for the year ended December 31,
1999, Statement of Operations for the period April 28,
1998 through December 31, 1998 and Predecessor Company
Statement of Operations for the period January 1, 1998
through April 27, 1998 and the year ended December 31,
1997...................................................... F-6
Statement of Stockholders' Equity for the year ended
December 31, 1999, Statement of Stockholders' Equity for
the period April 28, 1998 through December 31 1998, and
Predecessor Company Statement of Stockholders' Equity for
the period January 1, 1998 through April 27, 1998 and the
year ended December 31, 1997.............................. F-7
Statement of Cash Flows for the year ended December 31,
1999, Statement of Cash Flows for the period April 28,
1998 through December 31, 1998 and Predecessor Company
Statement of Cash Flows for the period January 1, 1998
through April 27, 1998 and for the year ended December 31,
1997...................................................... F-8
Notes to Financial Statements............................... F-9
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
Independent Auditor's Report................................ F-28
Combined Balance Sheets as at December 31, 1997 and 1996.... F-29
Combined Statement of Operations for the years ended
December 31, 1997 and 1996................................ F-30
Combined Statement of Stockholders' Deficit for the years
ended December 31, 1997 and 1996.......................... F-31
Combined Statement of Cash Flows for the years ended
December 31, 1997 and 1996................................ F-32
Notes to Combined Financial Statements...................... F-33
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
Combined Balance Sheets as at September 30, 1998 (unaudited)
and December 31, 1997..................................... F-42
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-43
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-44
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-45
Notes to Combined Financial Statements (unaudited).......... F-46
LCS INDUSTRIES, INC.
Independent Auditor's Report................................ F-48
Consolidated Balance Sheets as at September 30, 1998 and
1997...................................................... F-49
Consolidated Statement of Income for the years ended
September 30, 1998, 1997 and 1996......................... F-50
Consolidated Statement of Changes in Stockholders' Equity
for the years ended September 30, 1998, 1997 and 1996..... F-51
Consolidated Statement of Cash Flows for the years ended
September 30, 1998, 1997 and 1996......................... F-52
Notes to Consolidated Financial Statements.................. F-54
</TABLE>
F-1
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
LCS INDUSTRIES, INC.
Consolidated Balance Sheets as at December 31, 1998
(unaudited) and September 30, 1998........................ F-67
Consolidated Statement of Income and Retained Earnings for
the period October 1, 1998 through December 31, 1998
(unaudited) and the period October 1, 1997 through
December 31, 1997 (unaudited)............................. F-68
Consolidated Statement of Cash Flows for the period October
1, 1998 through December 31, 1998 (unaudited) and the
period October 1, 1997 through December 31, 1997
(unaudited)............................................... F-69
Notes to Consolidated Financial Statements (unaudited)...... F-70
CORDENA CALL MANAGEMENT B.V., THE HAGUE
Independent Auditor's Report................................ F-73
Consolidated Balance Sheets as at December 31, 1998 and
1997...................................................... F-74
Consolidated Statement of Income for the years ended
December 31, 1998 and 1997................................ F-75
Consolidated Statement of Cash Flows for the years ended
December 31, 1998 and 1997................................ F-76
Notes to Consolidated Financial Statements.................. F-77
CORDENA CALL MANAGEMENT B.V., THE HAGUE
Consolidated Balance Sheets as at September 30, 1999
(unaudited) and December 31, 1998......................... F-88
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-89
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-90
Notes to Consolidated Financial Statements (unaudited)...... F-92
MARKETVISION, INC.
Independent Auditor's Report................................ F-97
Balance Sheet as at December 31, 1998....................... F-98
Statement of Income and Retained Earnings for the year ended
December 31, 1998......................................... F-99
Statement of Cash Flows for the year ended December 31,
1998...................................................... F-100
Notes to Financial Statements............................... F-101
MARKETVISION, INC.
Balance Sheets as at November 30, 1999 (unaudited) and
December 31, 1998......................................... F-106
Statement of Income and Retained Earnings for the period
January 1, 1999 through November 30, 1999 (unaudited) and
the period January 1, 1998 through November 30, 1998
(unaudited)............................................... F-107
Statement of Cash Flows for the period January 1, 1999
through November 30, 1999 (unaudited) and the period
January 1, 1998 through November 30, 1998 (unaudited)..... F-108
Notes to Financial Statements (unaudited)................... F-109
</TABLE>
F-2
<PAGE> 79
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, 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
F-3
<PAGE> 80
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, 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
their 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> 81
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 $1,028, $280 and $0, respectively................... 60,878 15,614 1,344
Prepaids and other current assets......................... 17,886 1,791 66
-------- -------- ------
Total current assets.............................. 88,854 22,989 1,410
Capital assets.............................................. 52,982 22,964 2,208
Other noncurrent assets..................................... 6,521 1,066 27
Intangible assets........................................... 155,807 66,766 --
-------- -------- ------
Total assets...................................... $304,164 $113,785 $3,645
======== ======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness......................................... $ 3,324 $ 343 $ 404
Accounts payable.......................................... 36,013 9,607 184
Accrued liabilities and other............................. 36,709 6,905 100
Current installments of long-term debt.................... 12,017 71 --
Current portion of capital lease obligations.............. 2,726 1,115 133
-------- -------- ------
Total current liabilities......................... 90,789 18,041 821
Long-term debt.............................................. 89,638 31,854 1,748
Capital lease obligations................................... 5,270 1,588 363
Other noncurrent liabilities................................ 1,513 563 175
-------- -------- ------
Total liabilities................................. 187,210 52,046 3,107
-------- -------- ------
Subsidiary preferred stock.................................. 5,058 -- --
Stockholders' equity:
Common stock.............................................. 1,110 614 --
Common stock issuable..................................... 5,000 -- --
Exchangeable shares....................................... 3,054 3,054 --
Additional paid-in capital................................ 149,076 61,678 1,666
Accumulated deficit....................................... (45,678) (2,745) (1,095)
Accumulated other comprehensive loss...................... (666) (862) (33)
-------- -------- ------
Total stockholders' equity........................ 111,896 61,739 538
-------- -------- ------
Total liabilities and stockholders' equity........ $304,164 $113,785 $3,645
======== ======== ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 82
CLIENTLOGIC CORPORATION
STATEMENTS OF OPERATIONS
(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................. 72,761 9,452 786 1,451
Depreciation expense........ 11,063 1,900 145 329
Amortization expense........ 8,347 1,337 2 4
Impairment of intangible
assets................... 22,273 -- -- --
-------- ------- ------- ------
Operating loss................ (36,131) (1,759) (262) (593)
Interest expense, net......... 6,480 921 68 142
-------- ------- ------- ------
Loss before income taxes...... (42,611) (2,680) (330) (735)
Income taxes.................. 322 65 -- --
-------- ------- ------- ------
Net loss...................... $(42,933) $(2,745) $ (330) $ (735)
======== ======= ======= ======
Basic loss per share.......... $ (0.45) $ (0.09) $ (0.03) $(0.08)
======== ======= ======= ======
Weighted average number of
shares outstanding (in
thousands).................. 96,450 29,992 10,309 9,372
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 83
CLIENTLOGIC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAR COMMON STOCK EXCHANGEABLE PAID-IN
SHARES VALUE ISSUABLE SHARES CAPITAL
----------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE DECEMBER 31, 1996............................. 7,113,396 $ -- $ -- $ -- $ 403
----------- -------- ------ ------ --------
Issued for cash...................................... 3,195,904 -- -- -- 1,263
Net loss for the year................................ -- -- -- -- --
Comprehensive loss for the year...................... -- -- -- -- --
----------- -------- ------ ------ --------
BALANCE DECEMBER 31, 1997............................. 10,309,300 -- -- -- 1,666
=========== ======== ====== ====== ========
Net loss for the period.............................. -- -- -- -- --
Comprehensive income for the period.................. -- -- -- -- --
----------- -------- ------ ------ --------
BALANCE APRIL 27, 1998................................ 10,309,300 $ -- $ -- $ -- $ 1,666
=========== ======== ====== ====== ========
- -------------------------------------------------------------------------------------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998................................ -- $ -- $ -- $ -- $ --
----------- -------- ------ ------ --------
Issued for cash...................................... 11,526,055 -- -- 12,142
Net loss for the period..............................
April 28, 1998 - December 17, 1998................. -- -- -- -- --
Comprehensive loss for the period
April 28, 1998 - December 17, 1998................. -- -- -- -- --
Conversion of shares and transfer to ClientLogic
Corporation on December 17, 1998................... (11,526,055) -- -- (12,142)
----------- -------- ------ ------ --------
BALANCE DECEMBER 17, 1998............................. -- $ -- $ -- $ -- $ --
=========== ======== ====== ====== ========
CLIENTLOGIC CORPORATION
BALANCE SEPTEMBER 25, 1998............................ -- $ -- $ -- $ -- $ --
----------- -------- ------ ------ --------
Issued for cash in financing of SSG acquisition...... 50,000,000 500 -- -- 49,500
Conversion of shares of Successor Company and
transfer to ClientLogic Corporation on December 17,
1998............................................... 11,410,071 114 -- -- 12,028
Issuance of subsidiary exchangeable shares........... -- -- -- 3,054
Net loss for the period
September 25, 1998 - December 31, 1998............. -- -- -- -- --
Comprehensive loss for the period
September 25, 1998 - December 31, 1998............. -- -- -- -- --
Stock option grants.................................. -- -- -- -- 150
----------- -------- ------ ------ --------
BALANCE DECEMBER 31, 1998............................. 61,410,071 $ 614 $ -- $3,054 $ 61,678
----------- -------- ------ ------ --------
..................................................... -- --
Issued for cash in financing of LCS acquisition...... 29,166,667 292 -- -- 34,708
Issued for cash...................................... 557,112 5 -- -- 677
Issued for cash and as purchase consideration in
financing of Cordena/Adverbe acquisitions.......... 17,451,917 174 -- -- 39,093
Issued for cash in financing of MarketVision
acquisition........................................ 2,400,000 24 -- -- 11,976
Purchase consideration relating to MarketVision
acquisition to be issued........................... -- -- 5,000 -- --
Stock option exercises............................... 25,500 1 -- -- 36
Stock option grants.................................. -- -- -- -- 908
Net loss for the year................................ -- -- -- -- --
Comprehensive income for the year.................... -- -- -- -- --
----------- -------- ------ ------ --------
BALANCE DECEMBER 31, 1999............................. 111,011,277 $ 1,110 $5,000 $3,054 $149,076
=========== ======== ====== ====== ========
<CAPTION>
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME (LOSS) TOTAL
----------- ------------- --------
<S> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE DECEMBER 31, 1996............................. $ (30) $ -- $ 373
-------- ----- --------
Issued for cash...................................... -- -- 1,263
Net loss for the year................................ (735) -- (735)
Comprehensive loss for the year...................... -- (35) (35)
-------- ----- --------
BALANCE DECEMBER 31, 1997............................. (765) (35) 866
======== ===== ========
Net loss for the period.............................. (330) -- (330)
Comprehensive income for the period.................. -- 2 2
-------- ----- --------
BALANCE APRIL 27, 1998................................ $ (1,095) $ (33) $ 538
======== ===== ========
- ------------------------------------------------------
SUCCESSOR COMPANY
BALANCE APRIL 28, 1998................................ $ -- $ -- $ --
-------- ----- --------
Issued for cash...................................... -- -- 12,142
Net loss for the period.............................. --
April 28, 1998 - December 17, 1998................. (1,196) -- (1,196)
Comprehensive loss for the period
April 28, 1998 - December 17, 1998................. -- (721) (721)
Conversion of shares and transfer to ClientLogic
Corporation on December 17, 1998................... 1,196 721 (10,225)
-------- ----- --------
BALANCE DECEMBER 17, 1998............................. $ -- $ -- $ --
======== ===== ========
CLIENTLOGIC CORPORATION
BALANCE SEPTEMBER 25, 1998............................ $ -- $ -- $ --
-------- ----- --------
Issued for cash in financing of SSG acquisition...... -- -- 50,000
Conversion of shares of Successor Company and
transfer to ClientLogic Corporation on December 17,
1998............................................... (1,196) (721) 10,225
Issuance of subsidiary exchangeable shares........... 3,054
Net loss for the period
September 25, 1998 - December 31, 1998............. (1,549) -- (1,549)
Comprehensive loss for the period
September 25, 1998 - December 31, 1998............. -- (141) (141)
Stock option grants.................................. -- -- 150
-------- ----- --------
BALANCE DECEMBER 31, 1998............................. $ (2,745) $(862) $ 61,739
-------- ----- --------
..................................................... -- --
Issued for cash in financing of LCS acquisition...... -- -- 35,000
Issued for cash...................................... -- -- 682
Issued for cash and as purchase consideration in
financing of Cordena/Adverbe acquisitions.......... -- -- 39,267
Issued for cash in financing of MarketVision
acquisition........................................ -- -- 12,000
Purchase consideration relating to MarketVision
acquisition to be issued........................... -- -- 5,000
Stock option exercises............................... -- -- 37
Stock option grants.................................. -- -- 908
Net loss for the year................................ (42,933) -- (42,933)
Comprehensive income for the year.................... -- 196 196
-------- ----- --------
BALANCE DECEMBER 31, 1999............................. $(45,678) $(666) $111,896
======== ===== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 84
CLIENTLOGIC CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net cash relating to operating
activities:
Net loss............................. $ (42,933) $ (2,745) $(330) $ (735)
Adjustments to reconcile net loss to
net cash relating to operating
activities:
Depreciation expense............... 11,063 1,900 145 329
Amortization expense............... 8,347 1,337 2 4
Impairment of intangible assets.... 22,273 -- -- --
Non-cash stock compensation
expenses......................... 2,544 -- -- --
Gain on sale of investment......... (3,395) -- -- --
Loss on write-off of assets........ 2,968 -- -- --
Cumulative translation
adjustment....................... 196 (862) 2 (35)
Minority share of loss............. (205) -- -- --
Increase (decrease) in cash due to
changes in working capital:
Accounts receivable.............. (13,486) (3,917) 231 (1,578)
Prepaids and other current
assets......................... (7,778) (150) 4 92
Accounts payable................. 2,285 863 30 545
Accrued liabilities and other.... 13,810 (400) 22 100
Other............................ -- (347) -- --
--------- -------- ----- -------
Net cash relating to operating
activities................... (4,311) (4,321) 106 (1,278)
--------- -------- ----- -------
Net cash relating to investing
activities:
Acquisition of operating companies,
net of cash acquired............... (115,419) (57,246) -- --
Purchase of capital assets........... (26,055) (2,845) (76) (2,098)
Proceeds from sale of investment..... 3,395 -- -- --
Other................................ (1,077) -- -- --
--------- -------- ----- -------
Net cash relating to investing
activities................... (139,156) (60,091) (76) (2,098)
--------- -------- ----- -------
Net cash relating to financing
activities:
Proceeds from the issuance of
stock.............................. 86,987 62,142 -- 1,263
Proceeds from the issuance of
subsidiary preferred stock......... 5,263 -- -- --
Repayment of long-term debt and
capital lease obligation........... (101,437) (6,289) (30) --
Issuance of long-term debt........... 158,330 14,185 -- 1,922
Other................................ (1,170) (42) -- --
--------- -------- ----- -------
Net cash relating to financing
activities................... 147,973 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> 85
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 integrated customer relationship management solutions
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 product and 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") acquired shares of ClientLogic Canada Corporation
(formerly known as North Direct Response Inc. ("NDR" or "Predecessor Company")),
a Canadian company, on April 28, 1998. For the period April 28, 1998 through
December 17, 1998, NDR operations are referred to as Successor Company. NDR
provided customer contact management services principally in Canada to
telecommunications and technology companies. Subsequent to its acquisition of
NDR, Onex formed ClientLogic on September 25, 1998 to conduct all its business
activities associated with providing customer contact management services. Both
NDR 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 parent company of NDR was
contributed into ClientLogic. In connection, the 11,526,055 outstanding shares
of NDR's parent company owned by Onex were exchanged for 11,410,071 newly issued
shares of voting common stock, $0.01 par value, of ClientLogic. The remaining
3,085,099 shares of NDR's parent company were exchanged for shares of preferred
stock of NDR's parent company, now a subsidiary of ClientLogic. These preferred
shares of our subsidiary are referred to as the "NDR Minority Interest." Part of
this contribution included an Exchange Share Agreement ("Agreement") which
provided the NDR Minority Interest shareholders with the right to exchange their
shares for 3,054,055 ClientLogic shares, plus any dividends that may be declared
and/or paid by ClientLogic between the date of the Agreement and the date when
the exchange rights were exercised. 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 NDR's
parent to ClientLogic permanent shareholders equity at the fair value of the
exchangeable shares of $1.00. The excess of the fair value over the minority
interest liability was recorded as goodwill. In connection with the SSG
acquisition, the NDR minority interest shareholders also purchased 2,760,000
newly issued ClientLogic common shares for cash.
The consolidation of NDR into 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> 86
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.
f) Intangible assets
Intangible assets are comprised of both goodwill and other intangible
assets. Goodwill represents the excess of cost over the net book value of
assets acquired through acquisitions. Other intangible assets consist
primarily of debt issuance costs.
F-10
<PAGE> 87
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and other intangible assets are presented net of accumulated
amortization and are amortized on a straight-line basis over a period of
fifteen years for goodwill and over the remaining life of the debt
instrument for other intangibles.
In accordance with SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," the
recoverability of goodwill and other intangible assets is regularly
monitored and reviewed by the Company. Impairment in value is recorded if
estimated future cash flows are determined to be insufficient to recover
the carrying amount of goodwill.
g) Revenue recognition
Revenue in the accompanying statements of operations reflect the sum
of revenues earned by the Company net of third party charges including
freight, credit card, communications and other costs that are reimbursed by
customers. For list marketing activities, revenue reported is net of the
Company's cost of obtaining the list being sold.
Customer contact management and fulfillment services are recognized as
revenue on a per unit basis. Fulfillment services are recognized as revenue
upon shipment of the related product to the customer.
Software revenue is recognized on a percentage of completion basis for
those arrangements to deliver software or a software system that requires
significant production, modification, or customization of the package. For
those that do not require significant production, modification or
customization, revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable
and collectibility is probable.
h) 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.
i) 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, mainly in-the-money
stock options and warrants, into common shares at the beginning of the
period or date of issuance, unless the contingently issuable shares are
antidilutive. For each period end, the Company's contingently issuable
shares were antidilutive and therefore diluted loss per share is not shown
in the accompanying statements of operations.
j) Foreign currency translation
The accounts of the Company's foreign operations are translated into
U.S. dollars using the current rate method. Assets and liabilities are
translated at the year-end exchange rate and revenue and expenses are
translated at average exchange rates. Gains and losses arising from the
translation of the financial statements of foreign operations are deferred
in a "Comprehensive Income" account included as a separate component of
stockholders' equity.
F-11
<PAGE> 88
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The functional currency of the Company is the U.S. dollar although
certain subsidiaries operate under local currency and convert to U.S.
dollars for reporting purposes. These currencies include the Canadian
dollar, Euro, French franc, U.K. pounds sterling, and Irish punts.
k) 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.
l) 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 $3,170. This amount will be paid to the former
shareholders in cash and shares of the Company's common stock during 2000
and 2001. The unpaid balance as of December 31, 1999 is recorded as accrued
liabilities and other.
b) Cordena Call Management B.V.
In October 1999, the Company acquired Cordena, headquartered in The
Hague, Netherlands. Cordena provides integrated customer relationship
management services and fulfillment services in Europe. The total purchase
price of $24,099 was financed with cash of $19,722, the issuance of $2,638
in shares of common stock of the Company to Cordena management and
shareholders and $1,739 of the in-the-money value of options and warrants.
In addition, the Company contributed $5,217 in cash to provide for working
capital needs. The entire investment in Cordena amounted to $29,316. Under
the earn-out provisions of the purchase agreement, some of sellers may earn
additional cash consideration to a maximum of $1,822. The earn-out is based
on Cordena achieving certain agreed upon earning targets for the 12 months
ending December 31, 1999 or December 31, 2000. At December 31, 1999 these
targets were not met. This contingent consideration will be recorded as
compensation, if and when earned.
In addition, the Company agreed to issue its common stock to the
holders of certain options and warrants to purchase shares in Cordena. The
holders of Cordena options and warrants agreed to accept the shares of the
Company's common stock but have yet to exercise their options and warrants
F-12
<PAGE> 89
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
as of December 31, 1999. The amount assigned to the options and warrants
was equal to the in-the-money value at the date of acquisition, or $1,739.
These options and warrants are fully vested as of December 31, 1999.
A restructuring reserve of $2,211 was recorded at the date of
acquisition. This reserve principally relates to closings of certain
acquired locations, lease termination and other exit costs, severance and
other costs. The expected cost of the restructuring will be finalized
during early 2000. Should actual costs incurred differ from the recorded
reserve, there will be an adjustment to goodwill.
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
$1,792 in shares of the Company issued to Adverbe management. Under
earn-out provisions of the purchase agreement, the sellers may earn
additional consideration, consisting of $1,638 in cash and $162 in common
stock of the Company. 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 $5,000 of common stock issuable to MarketVision management.
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 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>
Identifiable assets.................. $ 64,976 $ 14,512 $ 4,065 $ 7,565
Goodwill............................. 32,836 38,433 9,833 16,264
Liabilities assumed.................. (28,512) (28,846) (3,121) (1,234)
-------- -------- ------- -------
Net assets acquired.................. $ 69,300 $ 24,099 $10,777 $22,595
======== ======== ======= =======
Financed by:
Cash............................... $ 35,000 $ 19,722 $ 8,985 $12,345
Debt............................... 34,300 -- -- 5,250
Issues of shares................... -- 2,638 1,792 5,000
Other.............................. -- 1,739 -- --
-------- -------- ------- -------
$ 69,300 $ 24,099 $10,777 $22,595
======== ======== ======= =======
</TABLE>
1998 ACQUISITIONS
a) NDR
In April 1998, Onex acquired NDR, located in Toronto, Ontario. NDR
provides customer relationship management services to Internet and high
technology companies. The total purchase price of $12,142 was financed
through the issuance of common stock of the Company.
F-13
<PAGE> 90
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
$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>
Identifiable assets......................................... $ 7,277 $ 33,603
Goodwill.................................................... 7,424 57,507
Liabilities assumed......................................... (2,559) (17,857)
------- --------
Net assets acquired......................................... $12,142 $ 73,253
======= ========
Financed by:
Cash...................................................... $ -- $ 43,253
Debt...................................................... -- 30,000
Issues of shares.......................................... 12,142 --
------- --------
$12,142 $ 73,253
======= ========
</TABLE>
The following pro forma consolidated financial information reflects
the impact of material 1999 and 1998 acquisitions of the Company assuming
the acquisitions had occurred at the beginning of 1998. This pro forma
consolidated financial information has been provided for information
purposes only and is not necessarily indicative of the results of
operations or financial condition that would have been achieved if the
acquisition had been completed on the date indicated or dates reported in
the future as of the beginning of each year. Included in the 1999 and 1998
pro-forma results is $2,763 and $9,396, respectively, of revenues from the
service contract written off in 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $217,342 $177,112
Net loss.................................................... $(50,938) $ (4,812)
Basic loss per share........................................ $ (0.47) $ (0.08)
</TABLE>
4. CAPITAL ASSETS
The composition of capital assets as of each period are as follows:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
DECEMBER 31, 1999
---------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------- ------------ --------
<S> <C> <C> <C>
Building and improvements............................. $ 6,234 $ 1,365 $ 4,869
Computer software..................................... 16,411 1,599 14,812
Property and equipment................................ 35,719 8,050 27,669
Furniture and fixtures................................ 6,550 918 5,632
------- ------- -------
$64,914 $11,932 $52,982
======= ======= =======
</TABLE>
F-14
<PAGE> 91
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>
Included in fixed 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. INTANGIBLE ASSETS AND IMPAIRMENT
The composition of intangible assets as of each period are as follows:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR
------------------------ COMPANY
DECEMBER 31, -----------
------------------------ APRIL 27,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Goodwill............................................. $154,328 $66,766 $--
Other intangible assets.............................. 1,479 0 0
-------- ------- ---
Total...................................... $155,807 $66,766 $ 0
======== ======= ===
</TABLE>
During 1999, the Company completed a review of intangible assets and
determined that an impairment of the goodwill and other intangibles associated
with the acquisition of LCS existed.
LCS has 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 assigned to the contract and all associated severance costs and other
related assets were expensed. The
F-15
<PAGE> 92
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
revenues for this service had contributed approximately $2,462 in 1999 from the
time of acquisition until the time the contract was terminated. The database
management services contributed significant revenues and operating income to LCS
prior to its acquisition by ClientLogic. This resulted in a net $22,273 non-
cash charge to reflect the write-down of intangibles attributable to the LCS
acquisition.
6. ACCRUED LIABILITIES AND OTHER
The composition of accrued liabilities and other as of each period are as
follows:
<TABLE>
<CAPTION>
CLIENTLOGIC
CORPORATION PREDECESSOR
---------------- COMPANY
DECEMBER 31, -----------
---------------- APRIL 27,
1999 1998 1998
------- ------ -----------
<S> <C> <C> <C>
Accrued expenses............................................ $13,326 $3,026 $100
Accrued salaries and benefits............................... 4,949 1,421 --
Accrued professional fees................................... 3,824 -- --
Accrued income taxes........................................ 2,626 78 --
Other current liabilities................................... 11,984 2,380 --
------- ------ ----
$36,709 $6,905 $100
======= ====== ====
</TABLE>
7. BANK INDEBTEDNESS
Cordena has available an overdraft facility up to a maximum of $4,556. The
facility bears interest at the bank's standard rate plus 1.50% (5.50% at
December 31, 1999) and is secured by shares in its subsidiary companies,
inventory and receivables. At December 31, 1999 $3,324 of the facility had been
used.
The Successor Company and Predecessor Company utilized bank facilities and
demand lines of credit in the aggregate amounts of $3,800 and $520,
respectively, during the period from April 28, 1998 through December 31, 1998
and the period from January 1, 1998 to April 27, 1998, respectively. These lines
bore interest at prime plus 0.25% to 1.75% and were secured by a general
security agreement covering all assets and a general assignment of accounts
receivable. As of December 31, 1998 and April 27, 1998, the Successor Company
and Predecessor Company had $343 and $404, respectively, outstanding on these
facilities.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION PREDECESSOR
------------------------ COMPANY
DECEMBER 31, -----------
------------------------ APRIL 27,
1999 1998 1998
---------- --------- -----------
<S> <C> <C> <C>
Revolving Credit Facility................................. $ 23,400(a) $ -- $ --
Term Credit Facility...................................... 60,000(b) 30,000(e) --
Term Loans................................................ 15,128(c) -- --
Other..................................................... 3,127(d) 1,925(f) 1,748(g)
-------- ------- ------
101,655 31,925 1,748
Less: Long-term debt maturing within one year............. 12,017 71 --
-------- ------- ------
$ 89,638 $31,854 $1,748
======== ======= ======
</TABLE>
During May 1999, the Company refinanced and consolidated its existing term
debt from the SSG and LCS acquisitions into one $60,000 term credit facility. It
also replaced its previous $15,000 revolving credit
F-16
<PAGE> 93
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
facility with a $40,000 revolving credit facility to fund capital expenditures,
future acquisitions and working capital requirements.
a) The revolving credit facility provides for floating rate advances
and/or Eurodollar advances as selected at the time of the advance up to a
maximum $40,000. A $15,000 component of this facility, which expires on May
25, 2006, is available based on 75% of eligible receivables. At December
31, 1999 the Company had fully utilized this component of this facility.
The remaining $25,000 is reduced by outstanding letters of credit and is
not subject to any borrowing base requirements. At December 31, 1999 there
was an outstanding letter of credit for $300. This component is reduced to
$12,250 in May 2002 and will expire in May 2003. Floating rate advances
bear interest at the bank's base rate plus a premium of 0.00% to 2.00%. The
premium is based on the debt to cash flow ratio at specific times. At
December 31, 1999, the premium was 2.00% on outstanding advances.
Eurodollar advances bear interest at the LIBOR rate plus 1.00% to 3.00%,
based on the same ratios. At December 31, 1999 the premium ranged from
2.50% to 3.00% on outstanding advances. The interest rates applicable at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
ADVANCE AMOUNT INTEREST RATE
- -------------- -------------
<C> <S> <C>
$4,400 .................................................... 10.50%
4,000 .................................................... 9.50%
9,000 .................................................... 9.00%
6,000 .................................................... 8.69%
-------
$23,400
=======
</TABLE>
The 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 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.
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
F-17
<PAGE> 94
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's stock, the number of shares to be issued will be
determined by market value at the date of election.
d) The Company has an obligation of $2,872 to the former shareholders
of a subsidiary of LCS. The obligation, which is recorded at present value,
bears interest at a rate of 8.75%. Payments of $1,013, including principal
and interest, are due in annual installments commencing in January 2000.
e) The $30,000 debt facility in 1998 was with a subsidiary of the
Company's parent, Onex. The facility provided for both floating rate
advances and/or Euro dollar advances, as selected at the time of borrowing.
This facility was secured by substantially all of the Company's assets, and
was paid off in May 1999.
f) Of the other debt at December 31, 1998, $1,628 bore interest at
9.5% and was secured by the assets of the Successor Company. During 1999,
this term loan was paid in full and all security agreements were
terminated.
g) In April 1997, the Predecessor Company signed an agreement with a
minority shareholder for a term loan of $1,748 bearing interest at 9.5%.
This amount was repaid in full at the time of Onex's acquisition of the
Predecessor Company.
The Company is required under the terms of various credit facilities and
term loans to maintain certain financial ratios. The financing arrangements
contain certain restrictive covenants, including limitations or prohibitions on
additional indebtedness, payment of cash dividends, redemption of stock, capital
spending, investments, acquisitions and asset sales. At December 31, 1999 the
Company was in compliance with all the various covenants.
The annual minimum repayment requirements for the next five years are as
follows:
<TABLE>
<S> <C>
2000...................................... $12,017
2001...................................... $ 2,076
2002...................................... $ 2,042
2003...................................... $ 9,950
2004...................................... $18,050
</TABLE>
9. CAPITAL STOCK
Authorized
10,000,000 preferred shares, par value $0.01 per share issuable in series.
The Board of Directors will determine the voting rights, dividend policy and
conversion rights, when and if this class of stock is issued.
150,000,000 common shares, par value $0.01 per share entitled to one vote
per share and to receive dividends as declared.
Issued and outstanding
<TABLE>
<CAPTION>
PREDECESSOR
CLIENTLOGIC CORPORATION COMPANY
------------------------ -----------
DECEMBER 31, APRIL 27,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Preferred shares........................................ -- -- --
Common shares........................................... 111,011,277 61,410,071 10,309,300
</TABLE>
F-18
<PAGE> 95
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock Issuable
At December 6, 1999, the Company's Board of Directors had approved the
issuance of 1,000,000 common shares in connection with the acquisition of
MarketVision. These shares have been issued during January 2000.
Options
The Company applies APB No. 25, "Accounting for Stock Issued to Employees"
in accounting for its stock option plans. Accordingly, no compensation expense
is charged to earnings for options that have an exercise price at least equal to
100% of the fair market value of the stock at the date of grant.
The Company may grant non-qualified stock options to officers, employees
and advisers at an exercise price equal to 100% of market price, and incentive
stock options to officers and other key employees at an exercise price not less
than 100% of market price, up to an aggregate of 9,306,376 options. Generally,
the options may be exercised in cumulative annual increments of 25% commencing
one year from the date of grant and expire ten years from the date of grant. The
options vest over varying periods, typically four years.
The following table summarizes the option plans' activity in non-qualified
options for the periods indicated:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance at January 1, 1997................... -- $ --
--------- -----
Granted.................................... 559,953 0.45
--------- -----
Balance at December 31, 1997................. 559,953 0.45 559,953 $0.45
========= ===== ======= =====
Granted.................................... 40,000 0.87
Forfeited.................................. (37,217) 0.49
--------- -----
Balance at April 27, 1998.................... 562,736 0.46 562,736 0.46
--------- ----- ------- -----
__________________________________________________________________________________________
CLIENTLOGIC CORPORATION
Granted.................................... 2,878,924 $1.06
--------- -----
Balance at December 31, 1998................. 2,878,924 1.06 247,483 $0.41
--------- ----- ------- -----
Granted.................................... 1,615,470 2.04
Forfeited.................................. (127,574) 1.48
Exercised.................................. (1,650) 0.82
--------- -----
Balance at December 31, 1999................. 4,365,170 $1.41 409,321 $0.82
========= ===== ======= =====
</TABLE>
F-19
<PAGE> 96
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the option plans' activity in incentive
stock options for the periods indicated:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
CLIENTLOGIC CORPORATION
Balance at September 25, 1998................ -- $ --
Granted.................................... 1,887,735 1.50
Forfeited.................................. (200) 1.50
--------- -----
Balance at December 31, 1998................. 1,887,535 1.50 -- $ --
--------- ----- ------- -----
Granted.................................... 2,223,190 2.64
Forfeited.................................. (642,410) 1.60
Exercised.................................. (23,850) 1.50
--------- -----
Balance at December 31, 1999................. 3,444,465 $2.22 345,786 $1.50
========= ===== ======= =====
</TABLE>
Options outstanding at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE EXERCISABLE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE OPTIONS
- --------------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
$0.41 - $1.05.............................. 2,277,700 4.5 years $0.94 257,383
$1.20 - $1.75.............................. 3,964,866 9.2 years $1.53 497,724
$2.25 - $3.50.............................. 1,184,069 9.9 years $2.96 --
$5.00 - $7.50.............................. 383,000 9.9 years $5.36 --
</TABLE>
The fair value of the options issued was determined using the Black-Scholes
option consistency pricing model with the following assumptions:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Risk-free rate.................. 5.47% 4.41% 5.72% 6.17%
Dividend yield rate............. 0% 0% 0% 0%
Volatility factor of the
expected market price of the
Company's shares.............. 80% 80% 80% 80%
Weighted-average expected
term.......................... 9.5 years 8.67 years 4 years 4 years
Weighted-average fmv equal(1)... $0.8609 $0.3272 $0.1717 $0.0967
Weighted-average fmv
greater(2).................... -- $0.6128 -- --
Weighted-average fmv less(3).... $0.6477 $0.0265 -- --
</TABLE>
- ---------------
(1) Weighted average fair market value for options with fair market value of the
stock on the date of grant equal to the exercise price.
(2) Weighted average fair market value for options with fair market value of the
stock on the date of grant greater than the exercise price.
(3) Weighted average fair market value for options with fair market value of the
stock on the date of grant less than the exercise price.
F-20
<PAGE> 97
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.............................. $43,630 $(0.45)
Combined period from April 28, 1998 to December 31,
1998................................................... $ 2,943 $(0.10)
PREDECESSOR COMPANY
Period from January 1, 1998 to April 27, 1998............. $ 331 $(0.03)
Year ended December 31, 1997.............................. $ 781 $(0.08)
</TABLE>
10. INCOME TAXES
Loss before income taxes consisted of:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Domestic........................ $(37,363) $(1,509) $ -- $ --
Foreign......................... (5,248) (1,171) (330) (735)
-------- ------- ----- -----
Total................. $(42,611) $(2,680) $(330) $(735)
======== ======= ===== =====
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
CLIENTLOGIC CORPORATION
------------------------------------- PREDECESSOR COMPANY
COMBINED --------------------------------------
CONSOLIDATED PERIOD FROM PERIOD FROM
YEAR ENDED APRIL 28, 1998 TO JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 APRIL 27, 1998 DECEMBER 31, 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Current tax provision:
U.S. Federal.................. $ -- $-- $ -- $ --
State and local............... 182 50 -- --
Foreign....................... 1,211 15 -- --
------- --- ----- -----
Total current tax
provision........... 1,393 65 -- --
------- --- ----- -----
Deferred tax provision:
U.S. Federal.................. (1,170) -- -- --
State and local............... 71 -- -- --
Foreign....................... 28 -- -- --
------- --- ----- -----
Total deferred tax
provision........... (1,071) -- -- --
------- --- ----- -----
Total provision for
income.............. $ 322 $65 $ -- $ --
======= === ===== =====
</TABLE>
F-21
<PAGE> 98
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........................ $(14,914) $(938) $(115) $(257)
State and local taxes, less
federal effect............ 164 33 -- --
Amortization of goodwill.... 2,079 -- -- --
Write-down of goodwill...... 8,004 -- -- --
Unremitted earnings and tax
rate differences of
foreign subsidiaries...... 153 13 (32) (71)
Valuation allowance......... 4,773 957 147 328
Other....................... 63 -- -- --
-------- ----- ----- -----
$ 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................................ $ 13,946 $ 7,982 $ 298
Accrued liabilities and reserves............................ 1,873 128 --
Other....................................................... 531 495 28
-------- ------- -----
Total deferred tax assets......................... 16,350 8,605 326
-------- ------- -----
Capital assets.............................................. (1,548) -- --
Other....................................................... (323) (78) --
-------- ------- -----
Total deferred tax liabilities.................... (1,871) (78) --
-------- ------- -----
Net deferred tax assets..................................... 14,479 8,527 326
Valuation allowance......................................... (9,645) (8,527) (326)
-------- ------- -----
$ 4,834 $ -- $ --
======== ======= =====
</TABLE>
At December 31, 1999 the Company had approximately $20,754 of U.S. federal
operating loss carryforwards of which approximately $12,749 is related to SSG
and subject to certain limitations.
The carryforwards expire beginning in 2006. The Company also has foreign
operating loss carryforwards in the following jurisdictions, which begin to
expire at the dates indicted:
<TABLE>
<S> <C> <C>
United Kingdom........................................ $3,540 Indefinite carryforward
Ireland............................................... $1,809 Indefinite carryforward
Canada................................................ $2,479 2003
Germany............................................... $4,526 Indefinite carryforward
Switzerland........................................... $2,361 2001
Norway................................................ $1,327 2007
</TABLE>
F-22
<PAGE> 99
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net change in the valuation allowance from 1998 includes the effect of
operating loss carryforwards acquired in the 1999 acquisition of Cordena for
which no benefit has been recognized. The subsequent recognition of these
acquired tax benefits of approximately $2,200 will reduce any goodwill related
to this acquisition remaining at the time the losses are recognized. In
addition, the Company reduced the valuation allowance applied against U.S.
operating loss carryforwards of $10,728 based upon future taxable income
projections including the planned distribution of InsLogic. This resulted in a
reduction to goodwill recorded on the acquisition of SSG of $3,570 and a
deferred tax benefit of $1,170. The subsequent recognition of the remaining
acquired tax benefits (related to SSG's acquisition) of approximately $1,400 at
December 31, 1999 will reduce any goodwill remaining at the time the losses are
recognized. Acquired tax benefits of approximately $410 related to the Company's
1998 acquisition of NDR, when recognized, will also reduce any remaining
goodwill.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. Undistributed earnings amounted to approximately $1,468
at December 31, 1999. If earnings of such foreign subsidiaries were not
reinvested, the resulting U.S. tax would be substantially offset by the
utilization of operating loss carryforwards. In addition, foreign withholding
taxes would be imposed on actual distributions.
11. FORMATION OF INSLOGIC AND SUBSIDIARY PREFERRED STOCK
In 1999, the Company purchased certain of the assets and assumed certain of
the liabilities of Canadian Access Corporation, a provider of customer contact
management and software development for the insurance industry principally in
Canada. These purchases were the basis of the formation of InsLogic.com Holding
Corporation ("InsLogic"), a wholly-owned subsidiary of the Company.
During 1999, the subsidiary issued $5,263 in preferred stock. This
preferred stock has no dividend rate and is convertible into common stock of
InsLogic at the option of the holder.
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.
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, no formal disposition has been completed. At the time of this
distribution, the shares of InsLogic will be distributed to existing
shareholders. These shares represent the net assets, including outstanding
preferred shares, of InsLogic.
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.
F-23
<PAGE> 100
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, the Company
recorded a non-cash compensation charge of $2,544 related to the above.
13. RELATED PARTY TRANSACTIONS
The Company entered into a ten-year management and oversight agreement
effective as of January 1, 1999 and a financial services agreement as of May 1,
1999 with an affiliate of the Company's parent, Onex. Under the terms of these
agreements, the Company pays an annual management fee of $600 and a fee
associated with any acquisitions calculated at 1.5% of the transaction value. In
1999, the Company expensed management-related fees of $600 and capitalized
acquisition-related fees of $1,776 relating to the above. At December 31, 1999,
the Company had a receivable from this related party of $798. Management
believes that the fees charged were reasonable in relation to the services
provided. The Company had paid this same party $750 in 1998 for similar
services.
The Company had a secured note receivable outstanding from an executive
employee for home relocation of $439 at December 31, 1999. The majority of this
amount is due in early 2000.
14. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
The carrying amount of cash, short-term investments, accounts receivable,
accounts payable and term loans approximate fair value due to the short-term
nature of these instruments.
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
F-24
<PAGE> 101
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
minimum lease payments under non-cancelable operating leases, with initial or
remaining lease terms in excess of one year, and future minimum capital lease
payments as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
2000...................................................... $3,525 $10,589
2001...................................................... 3,089 8,505
2002...................................................... 1,633 7,264
2003...................................................... 680 7,176
2004...................................................... 371 6,590
Thereafter................................................ -- 24,780
------ -------
Total minimum lease payments...................... 9,298 $64,904
=======
Less: Amount representing interest........................ 1,302
------
Present value of net minimum capital lease payments....... 7,996
Less current installments of obligations under capital
leases................................................. 2,726
------
Long-term obligations under capital leases................ $5,270
======
</TABLE>
Rent expense under operating leases for the periods indicated amounted to
the following:
<TABLE>
<S> <C>
CLIENTLOGIC CORPORATION
Year ended December 31, 1999.............................. $8,135
Combined period from April 28 to December 31, 1998........ $1,164
PREDECESSOR COMPANY
Period from January 1 to April 27, 1998................... $ 102
Year ended December 31, 1997.............................. $ 123
</TABLE>
16. 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.
17. 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.
F-25
<PAGE> 102
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
18. 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..................................... $210,744 $17,015 $76,405 $304,164
For the combined period April 28, 1998 through
December 31, 1998
Revenue.......................................... $ 17,440 $ 6,910 $ 2,933 $ 27,283
Total assets..................................... $ 90,794 $16,608 $ 6,383 $113,785
</TABLE>
For the period January 1, 1998 through April 27, 1998 and for the year
ended December 31, 1997, most revenue and total assets of the Predecessor
Company were in Canada.
19. REPORTING COMPREHENSIVE INCOME
In accordance with SFAS 130, "Reporting Comprehensive Income," the
following table sets forth the components of comprehensive income.
<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>
Net loss........................ $(42,933) $(2,745) $(330) $(735)
Other comprehensive income
(loss):
Foreign currency translation
adjustment................. 196 (862) 2 (35)
-------- ------- ----- -----
Comprehensive loss.............. $(42,737) $(3,607) $(328) $(770)
======== ======= ===== =====
</TABLE>
20. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133",
which deferred the required date of adoption of SFAS No. 133 for one year, to
fiscal years beginning after June 15, 2000. At adoption, existing hedging
relationships must be designated anew and documented pursuant to the provisions
of the Statement. The Company expects the adoption of SFAS No. 133 will have no
material impact on its financial position, results of operations or cash flows.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. The
Company adopted SOP 98-5 during its fiscal year ended December 31, 1999 with no
material impact on financial position, results of operations or cash flows.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company adopted SOP 98-1 during fiscal
F-26
<PAGE> 103
CLIENTLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
year ended December 31, 1999 with no material impact on financial position,
results of operations or cash flows.
21. COMBINED PERIOD
The following table presents the results of the operating companies that
comprise the combined statements of operations for the period April 28, 1998
through December 31, 1998 in the financial statements.
<TABLE>
<CAPTION>
CLIENTLOGIC SUCCESSOR
CORPORATION COMPANY
--------------------- -----------------
PERIOD FROM PERIOD FROM
SEPTEMBER 25, 1998 TO APRIL 28, 1998 TO
DECEMBER 31, 1998 DECEMBER 17, 1998 COMBINED
--------------------- ----------------- --------
<S> <C> <C> <C>
Revenue......................................... $20,373 $ 6,910 $27,283
Cost and expenses
Cost of services.............................. 11,728 4,625 16,353
Selling, general and administrative
expenses................................... 6,839 2,613 9,452
Depreciation expense.......................... 1,518 382 1,900
Amortization expense.......................... 959 378 1,337
------- ------- -------
Operating loss.................................. (671) (1,088) (1,759)
Interest expense, net........................... 813 108 921
------- ------- -------
Loss before income taxes........................ (1,484) (1,196) (2,680)
Income taxes.................................... 65 -- 65
------- ------- -------
Net loss........................................ $(1,549) $(1,196) $(2,745)
======= ======= =======
</TABLE>
F-27
<PAGE> 104
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-28
<PAGE> 105
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-29
<PAGE> 106
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-30
<PAGE> 107
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-31
<PAGE> 108
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Net cash relating to operating activities:
Net loss.................................................. $(8,909,429) $ (7,645,054)
Adjustments to reconcile net loss to net cash relating to
operating activities:
Depreciation and amortization.......................... 5,776,404 4,384,240
Provision for allowance of doubtful accounts........... 18,335 (1,471)
(Gain)loss on disposal of equipment.................... (5,626) 2,616,252
Deferred income........................................ 433,333 --
Translation adjustment................................. (196,206) (101,325)
Increase(decrease) in cash due to changes in:
Inventory.............................................. (298,566) (75,131)
Trade receivables...................................... 2,901,244 (3,547,478)
Related party receivables.............................. 1,825,881 (2,229,819)
Prepaid expenses and other current assets.............. 108,150 (135,841)
Other assets........................................... 519,193 (497,497)
Trade accounts payable................................. (5,012,004) 1,120,308
Related party payables................................. 1,555,193 2,725,840
Accruals............................................... 1,032,303 985,734
Other current liabilities.............................. (109,144) (333,540)
----------- ------------
Net cash provided(used) by operations....................... (360,939) (2,734,782)
Net cash relating to investing activities:
Proceeds from maturities of investment securities......... -- --
Notes receivable.......................................... (634,040) --
Equipment disposal proceeds............................... 52,666 314,631
Additions to equipment.................................... (5,530,793) (10,053,551)
Assets acquired upon acquisition.......................... -- --
----------- ------------
Net cash provided(used) by investing activities............. (6,112,167) (9,738,920)
Net cash relating to financing activities:
Proceeds from issuance of redeemable preferred stock...... -- 5,000,000
Proceeds from long-term advance from affiliate............ 9,250,000 11,940,000
Repayments of long term debt.............................. (2,593,578) (8,725,309)
Dividend paid............................................. (190,558) (1,232,768)
Proceeds from stock options exercised..................... 212,187 19,523
Capital lease repayments.................................. (730,429) (297,506)
----------- ------------
Net cash provided(used) by financing activities............. 5,947,622 6,703,940
----------- ------------
Increase(decrease) in cash.................................. (525,484) (5,769,762)
Cash -- beginning of period................................. 2,107,841 7,877,603
----------- ------------
Cash -- end of period....................................... $ 1,582,357 $ 2,107,841
=========== ============
Supplemental cash flow disclosures:
Interest payments......................................... $ 573,760 $ 989,041
Income taxes.............................................. 38,178 --
Noncash activities:
Conversion of revolving loan to preferred stock........... $ 5,000,000 $ --
Capital lease obligations incurred........................ 495,516 1,979,139
Dividends accrued, not paid............................... 350,000 190,558
</TABLE>
See accompanying notes to financial statements
F-32
<PAGE> 109
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-33
<PAGE> 110
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-34
<PAGE> 111
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-35
<PAGE> 112
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-36
<PAGE> 113
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-37
<PAGE> 114
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-38
<PAGE> 115
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-39
<PAGE> 116
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-40
<PAGE> 117
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-41
<PAGE> 118
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-42
<PAGE> 119
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-43
<PAGE> 120
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-44
<PAGE> 121
SOFTBANK SERVICES GROUP AND THE IVY GROUP LIMITED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net cash relating to operating activities:
Net loss.................................................. $ (7,293,777) $(8,604,465)
Adjustments to reconcile net loss to net cash relating to
operating activities:
Depreciation........................................... 4,667,841 4,250,844
Provision for allowance of doubtful accounts........... (224,699) (1,456)
(Loss)/profit on disposal of equipment................. (7,251) --
Deferred income........................................ (216,034) 433,333
Translation adjustment................................. (234,675) (160,352)
Increase (decrease) in cash due to changes in:
Inventory.............................................. 307,990 (103,759)
Trade receivables...................................... 4,635,716 (877,734)
Related party receivables.............................. (434,147) 1,750,986
Prepayments and other current assets................... 879,634 (368,811)
Other assets........................................... (11,892) (218,305)
Notes receivable....................................... (566,042) 11,234
Trade accounts payable................................. (2,303,190) (4,684,715)
Related party payables................................. (737,058) 1,580,152
Accruals............................................... (4,637,803) 947,519
Other current liabilities.............................. 2,000,260 (218,674)
------------ -----------
Net cash provided/(used) by operations............ (4,175,127) (6,264,203)
Net cash relating to investing activities:
Equipment disposal proceeds............................... (249,709) 4,077
Additions to equipment.................................... (4,020,654) (2,999,006)
Capital leases............................................ -- (240,023)
------------ -----------
Net cash provided/(used) by investing activities............ (4,270,363) (3,234,952)
Net cash relating to financing activities:
Repayments of long-term debt.............................. 2,981,767 9,004,945
Dividend paid............................................. (525,006) --
Proceeds from stock options exercised..................... 383,084 (262,503)
Proceeds from issuance of stock........................... 4,995,327 343,449
Capital lease repayments.................................. 233,111 (149,541)
------------ -----------
Net cash provided/(used) by financing activities............ 8,068,283 8,936,350
Decrease in cash............................................ (377,207) (562,805)
------------ -----------
Cash -- beginning of period................................. 1,582,357 2,107,841
Cash -- end of period....................................... $ 1,205,150 $ 1,545,036
============ ===========
</TABLE>
F-45
<PAGE> 122
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-46
<PAGE> 123
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-47
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
LCS Industries, Inc.
Clifton, New Jersey
We have audited the accompanying consolidated balance sheets of LCS
Industries, Inc. and Subsidiaries (the "Company") as of September 30, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of LCS Industries, Inc. and its
Subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Parsippany, NJ
November 3, 1998
(December 17, 1998, as to Note 18)
F-48
<PAGE> 125
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-49
<PAGE> 126
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-50
<PAGE> 127
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-51
<PAGE> 128
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-52
<PAGE> 129
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-53
<PAGE> 130
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-54
<PAGE> 131
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-55
<PAGE> 132
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-56
<PAGE> 133
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-57
<PAGE> 134
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-58
<PAGE> 135
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-59
<PAGE> 136
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-60
<PAGE> 137
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-61
<PAGE> 138
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-62
<PAGE> 139
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-63
<PAGE> 140
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-64
<PAGE> 141
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-65
<PAGE> 142
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-66
<PAGE> 143
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-67
<PAGE> 144
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-68
<PAGE> 145
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-69
<PAGE> 146
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-70
<PAGE> 147
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-71
<PAGE> 148
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-72
<PAGE> 149
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and to
the Shareholders of Cordena Call Management B.V.
In our opinion the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity presented in Dutch Guilders (NLG) present fairly, in all material
respects, the financial position of Cordena Call Management B.V. and
subsidiaries as at December 31, 1998 and 1997, and the results of its operations
and cash flows for the years ended December 31, 1998, and 1997 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-73
<PAGE> 150
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
(AFTER PROPOSED APPROPRIATION OF RESULT)
<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-74
<PAGE> 151
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------------- -------------------
NLG '000 NLG '000 NLG '000 NLG '000
<S> <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-75
<PAGE> 152
CORDENA CALL MANAGEMENT B.V., THE HAGUE
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------------- -------------------
NLG '000 NLG '000 NLG '000 NLG '000
<S> <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
------- -------
Cash less bank overdraft at year-end................. 765 2,274
======= =======
</TABLE>
The impact on the consolidated cash flow statement of acquisitions is as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
NLG '000 NLG '000
<S> <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-76
<PAGE> 153
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.
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-77
<PAGE> 154
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-78
<PAGE> 155
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-79
<PAGE> 156
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-80
<PAGE> 157
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-81
<PAGE> 158
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-82
<PAGE> 159
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,
1998 1997
------------ ------------
NLG '000 NLG '000
<S> <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.
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.
F-83
<PAGE> 160
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)
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.
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.
F-84
<PAGE> 161
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)
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.
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.
F-85
<PAGE> 162
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)
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.
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.
F-86
<PAGE> 163
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)
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-87
<PAGE> 164
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-88
<PAGE> 165
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-89
<PAGE> 166
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-90
<PAGE> 167
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-91
<PAGE> 168
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-92
<PAGE> 169
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-93
<PAGE> 170
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-94
<PAGE> 171
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-95
<PAGE> 172
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-96
<PAGE> 173
INDEPENDENT AUDITORS' REPORT
Board of Directors
MarketVision, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of MarketVision as of
December 31, 1998, and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MarketVision as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
[TERRY & STEPHENSON SIG]
May 11, 1999
Denver, Colorado
F-97
<PAGE> 174
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-98
<PAGE> 175
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-99
<PAGE> 176
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-100
<PAGE> 177
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-101
<PAGE> 178
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-102
<PAGE> 179
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-103
<PAGE> 180
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-104
<PAGE> 181
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-105
<PAGE> 182
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-106
<PAGE> 183
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-107
<PAGE> 184
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-108
<PAGE> 185
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-109
<PAGE> 186
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-110
<PAGE> 187
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
CLIENTLOGIC CORPORATION
CLASS A COMMON STOCK
'CLIENTLOGIC LOGO'
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 188
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......... $ 60,720
NASD Fee.................................................... 23,500
Nasdaq National Market Listing Fee.......................... 90,000
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............................................... 328,980
----------
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> 189
We have purchased a directors' and officers' liability insurance policy. We
have also entered into indemnification agreements with Mark B. Briggs, Thomas P.
Dea, Thomas O. Harbison and Seth M. Mersky in connection with their service as
directors and/or executive officers on our behalf and on behalf of our
subsidiaries. The indemnification agreements provide that we will indemnify
Messrs. Briggs, Dea, Harbison and Mersky for any losses in connection with any
proceedings to the fullest extent permitted under the General Corporation Law of
the State of Delaware. See "-- Certain Relationships and Related Party
Transactions -- Director Indemnification Agreements."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1998, we issued 35,000,000 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $35,000,000. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1998, we issued 12,040,000 shares of our common stock to Onex
ClientLogic Holdings LLC as repayment of a promissory note in the amount of
$12,040,000. The securities were issued in a private placement in reliance on
Section 4(2).
In December 1998, we issued 200,000 shares of our common stock to Mark R.
Briggs for an aggregate purchase price of $200,000. The securities were issued
in a private placement in reliance on Section 4(2).
In December 1998, we issued 2,760,000 shares of our common stock to Edward
Schwartz and Peter Berczi for an aggregate purchase price of $2,760,000. The
securities were issued in a private placement in reliance on Regulation S
promulgated under the Securities Act.
In December 1998, we issued 11,410,071 shares of our common stock to Onex
Corporation in consideration for 11,526,055 shares of common stock of
Onexco -- 1293219 Ontario Inc. The securities were issued in a private placement
in reliance on Regulation S promulgated under the Securities Act.
In February 1999, we issued 307,050 shares of our common stock to Jordan
Levy and Ronald Schreiber for an aggregate purchase price of $307,050. The
securities were issued in a private placement in reliance on Section 4(2).
In April 1999, we issued an aggregate of 143,406 shares of our common stock
to Paul Ford and Greg Zehr upon the exercise of subscription rights for an
aggregate purchase price of $215,109. The securities were issued in a private
placement in reliance on Regulation S of the Securities Act.
In July 1999, we issued 1,650 shares of our common stock to Anne Marie
Casey Christiansen upon her exercise of a stock option. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rule 701 under the Securities Act.
In August 1999, we issued 106,666 shares of common stock to Howard Sarna
for an aggregate purchase price of $159,999. The securities were issued in a
private placement in reliance on Regulation S of the Securities Act.
In October 1999, we issued 20,833,333 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $25,000,000. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we issued 6,323,957 shares of our common stock to Onex
ClientLogic Holdings LLC as partial repayment of a promissory note in the amount
of $10,000,000. We repaid the remaining $2,411,252 of the promissory note in
cash. The securities were issued in a private placement in reliance on Section
4(2) of the Securities Act.
In October 1999, we issued 587,533 shares of our common stock to Melissa
Bailey, Joanne G. Biltekoff, Sandi Bush, Julie M. Casteel, Gary M. Crosby,
Joseph Duryea, Steven M. Kawalick, William Rella and Lee O. Waters for an
aggregate purchase price of $705,039. The securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
II-2
<PAGE> 190
In October 1999, we issued 1,421,844 shares of our common stock to Edward
Schwartz for an aggregate purchase price of $1,706,212.80. The securities were
issued in a private placement in reliance on Regulation S of the Securities Act.
In October 1999, we issued 1,118,038 shares of our common stock to Jan L.
Bardoux, Peter E. Dekker, Ole Sommer Erickson, Sytze Koopmans, Allesandra M.
Kortenhorst, Jules K. Kortenhorst, Jules T.H.M. Kortenhorst, Ranier G.
Kortenhorst, Winston P. Kortenhorst, Caroline J.G. Smits, Jeroen J. Smits,
Carien J.G. van der Laan, and Joost A.J. van Gaal as partial consideration for
their depository receipts in Stichting Administratiekantoor Cordena Call
Management. The securities we issued in a private placement in reliance on
Regulation S promulgated under the Securities Act.
In October 1999, we issued 54,473 shares of our common stock to the
Kortenhorst Vetter Family Trust as partial consideration for its depository
receipts in Stichting Administratiekantoor Cordena Call Management. The
securities we issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In October 1999, we issued 723,850 shares of our common stock to Frank
Loubaresse, Laurent Loubaresse and Online Services SARL as partial consideration
for their shares of Groupe Adverbe SA capital stock. The securities we issued in
reliance on Regulation S promulgated under the Securities Act.
In October of 1999, we issued 22,500 shares of our common stock to Stephen
C. Wright upon his exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In November 1999, we issued 50 shares of our common stock to Brent Fiene
upon his exercise of a stock option. The securities were issued in a transaction
exempt from Section 5 of the Securities Act pursuant to Rule 701 under the
Securities Act.
In November 1999, we issued 50 shares of our common stock to John Syzmanski
upon his exercise of a stock option. The securities were issued in a transaction
exempt from Section 5 of the Securities Act pursuant to Rule 701 under the
Securities Act.
In December 1999, we issued 160,437 shares of our common stock to Joanne G.
Biltekoff, Julie M. Casteel, Joseph Duryea, Robert A. Fetter, Steven M.
Kawalick, Jordan Levy, Ronald Schreiber and Lee O. Waters for an aggregate
purchase price of $360,983.25. These securities were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
In December 1999, we issued 19,759 shares of our common stock to Howard
Sarna for an aggregate purchase price of $44,457.75. These securities were
issued in reliance on Regulation S promulgated under the Securities Act.
In December 1999, we issued 1,250 shares of our common stock to Robert
Carnall upon his exercise of a stock option. The securities were issued in a
transaction exempt from Section 5 of the Securities Act pursuant to Rule 701
under the Securities Act.
In December 1999, we issued 15,375,360 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $34,594,560. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1999, we issued 2,385,867 shares of our common stock to Onex
ClientLogic Holdings LLC for an aggregate purchase price of $11,929,335. The
securities were issued in a private placement in reliance on Section 4(2) of the
Securities Act.
In December 1999, we issued 14,133 shares of our common stock to Joseph
Duryea, William Rella, Sandi Bush and Melissa Bailey for an aggregate purchase
price of $70,665. The securities were issued in a private placement in reliance
on Section 4(2) of the Securities Act.
II-3
<PAGE> 191
In January 1999, we issued 1,000,000 shares of our common stock to Joseph
L. Temple, Jr. and S. Dianne Thompson as partial consideration for their shares
of common stock of Marketvision, Inc. We will issue the securities in a private
placement in reliance on Section 4(2) of the Securities Act.
In January 2000, we issued 25,000 shares of our common stock to Greg Young
and Ihab Ghabour upon the exercise of stock options. The securities were issued
in a transaction exempt from Section 5 of the Securities Act pursuant to Rule
701 under the Securities Act.
In January 2000, we issued 225,000 shares to Lonnie Mandel and Anthony
Capato as partial payment for their shares of capital stock of two of our
subsidiaries. These securities were issued in a private placement in reliance on
Section 4(2) of the Security Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(2)
2.1 -- Stock Purchase Agreement, dated September 30, 1998, among
Upgrade Corporation of America, Softbank Holdings Inc.,
SB Holdings (Europe) Ltd., CustomerOne Holding
Corporation, and SSG Acquisition Corp.(1)
2.2 -- Share Exchange Agreement, dated December 17, 1998,
between Onex Corporation and CustomerOne Holding
Corporation.(1)
2.3 -- Agreement and Plan of Merger, dated December 17, 1998, by
and among LCS Industries, Inc., CustomerOne Holding
Corporation and Catalog Acquisition Co.(1)
2.4 -- Asset Purchase Agreement, dated March 19, 1999, among
CustomerOne Corporation, Canadian Access Insurance
Services Inc. and the Stockholders of Canadian Access
Insurance Services Inc.(1)
2.5 -- Share Purchase Agreement, dated as of October 7, 1999, by
and among ClientLogic Holding Corporation, ClientLogic
International Holding, Inc., Stichting
Administratiekantoor Cordena Call Management and the
Management Shareholders listed on the signature pages
thereto.(1)
2.6 -- Stock Purchase Agreement, dated October 8, 1999, among
ClientLogic International Holding, Inc., Messrs. Franck
Loubaresse, Laurent Loubaresse, Jacques Loubaresse and
Online Services.(1)
2.7 -- Stock Purchase Agreement, dated December 6, 1999, among
ClientLogic Holding Corporation, Marketvision, Inc.,
Joseph L. Temple, Jr. and S. Dianne Thompson.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
ClientLogic Corporation.(2)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(2)
4.1 -- Amended and Restated Credit Agreement, among ClientLogic
Corporation and the lenders party thereto.(2)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
10.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
</TABLE>
II-4
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
10.4 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.5 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.6 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.7 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.8 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
10.9 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.10 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.11 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.12 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.13 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.14 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
10.15 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.16 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.17 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(2)
10.18 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.19 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.20 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.21 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(2)
10.22 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
10.23 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated June 8, 1998.(2)
10.24 -- Employment Agreement, dated , 2000, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(2)
</TABLE>
II-5
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
10.26 -- Employment Agreement, dated , 2000, between
ClientLogic Corporation and Robert A. Fetter.(2)
10.27 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.28 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.29 -- Employment Agreement, dated , 1999, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
10.30 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
10.31 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(2)
10.32 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.33 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.34 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.35 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.36 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.37 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
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(1)
23.3 -- Consent of Deloitte & Touche, LLP.(1)
23.4 -- Consent of PricewaterhouseCoopers LLP(1)
23.5 -- Consent of PricewaterhouseCoopers N.V.(1)
23.6 -- Consent of Terry & Stephenson, P.C.(1)
23.7 -- Consent of PricewaterhouseCoopers LLP(1)
24.1 -- Power of Attorney (included on signature page of this
Registration Statement).
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be filed by amendment.
(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>
II-6
<PAGE> 194
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-7
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on February 2, 2000.
CLIENTLOGIC CORPORATION
By: /s/ GENE S. MORPHIS
----------------------------------
Gene S. Morphis
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below severally constitutes and appoints Thomas O. Harbison, Thomas P. Dea, and
Gene S. Morphis, and each of them individually, as his true and lawful
attorney-in-fact and agent, with full power and substitution and resubstitution,
for him and in his person's name, place and stead in his capacities indicated
below, to sign any and all amendments (including post-effective amendments) to
this registration statement and additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act
requisite and necessary to be done in connection therewith, as fully and to all
intents and purposes as the each of the undersigned might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agents, or
either of them or their or his substitute or substitutes, shall do or cause to
be done by virtue of this Power of Attorney.
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>
/s/ THOMAS O. HARBISON Chairman of the Board February 2, 2000
- --------------------------------------------------- (Principal Executive
Thomas O. Harbison Officer)
/s/ MARK R. BRIGGS President, Chief Executive February 2, 2000
- --------------------------------------------------- Officer and Director
Mark R. Briggs
/s/ JULES T. KORTENHORST Chief of International February 2, 2000
- --------------------------------------------------- Operations and Director
Jules T. Kortenhorst
/s/ GENE S. MORPHIS Chief Financial Officer February 2, 2000
- --------------------------------------------------- (Principal Financial and
Gene S. Morphis Accounting Officer) and
Secretary
/s/ THOMAS P. DEA Director February 2, 2000
- ---------------------------------------------------
Thomas P. Dea
/s/ SETH M. MERSKY Director February 2, 2000
- ---------------------------------------------------
Seth M. Mersky
</TABLE>
II-8
<PAGE> 196
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
S-1
<PAGE> 197
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> 198
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) 102(b) -- 2,186 9,645
</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> 199
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............... 280 855 (442) 335 1,028
</TABLE>
S-4
<PAGE> 200
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.(2)
2.1 -- Stock Purchase Agreement, dated September 30, 1998, among
Upgrade Corporation of America, Softbank Holdings Inc.,
SB Holdings (Europe) Ltd., CustomerOne Holding
Corporation, and SSG Acquisition Corp.(1)
2.2 -- Share Exchange Agreement, dated December 17, 1998,
between Onex Corporation and CustomerOne Holding
Corporation.(1)
2.3 -- Agreement and Plan of Merger, dated December 17, 1998, by
and among LCS Industries, Inc., CustomerOne Holding
Corporation and Catalog Acquisition Co.(1)
2.4 -- Asset Purchase Agreement, dated March 19, 1999, among
CustomerOne Corporation, Canadian Access Insurance
Services Inc. and the Stockholders of Canadian Access
Insurance Services Inc.(1)
2.5 -- Share Purchase Agreement, dated as of October 7, 1999, by
and among ClientLogic Holding Corporation, ClientLogic
International Holding, Inc., Stichting
Administratiekantoor Cordena Call Management and the
Management Shareholders listed on the signature pages
thereto.(1)
2.6 -- Stock Purchase Agreement, dated October 8, 1999, among
ClientLogic International Holding, Inc., Messrs. Franck
Loubaresse, Laurent Loubaresse, Jacques Loubaresse and
Online Services.(1)
2.7 -- Stock Purchase Agreement, dated December 6, 1999, among
ClientLogic Holding Corporation, Marketvision, Inc.,
Joseph L. Temple, Jr. and S. Dianne Thompson.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
ClientLogic Corporation.(2)
3.2 -- Amended and Restated Bylaws of ClientLogic
Corporation.(2)
4.1 -- Amended and Restated Credit Agreement, among ClientLogic
Corporation and the lenders party thereto.(2)
5.1 -- Opinion of Legality of Weil, Gotshal & Manges LLP.(2)
10.1 -- Stockholders Agreement, dated October 1, 1998, among
CustomerOne Holding Corporation and the Security Holders
executing signature pages thereto.(1)
10.2 -- Amendment No. 1 to Stockholders Agreement, dated December
21, 1999, among ClientLogic Holding Corporation and the
Security Holders listed on Schedule A thereto.(1)
10.3 -- CustomerOne Holding Corporation 1998 Stock Option
Plan.(1)
10.4 -- First Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of June 21, 1999.(1)
10.5 -- Second Amendment to the CustomerOne Holding Corporation
1998 Stock Option Plan, effective as of December 21,
1999.(1)
10.6 -- ClientLogic Holding Corporation Deferred Compensation
Plan.(1)
10.7 -- Cordena Call Management B.V. Stock Option Plan.(1)
10.8 -- Monitoring and Oversight Agreement, effective as of
January 1, 1999, among CustomerOne Holding Corporation,
the subsidiaries party thereto and Onex Service
Partners.(1)
</TABLE>
<PAGE> 201
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.9 -- Financial Advisory Agreement, dated May 1, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Onex Service Partners.(1)
10.10 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Mark R. Briggs.(1)
10.11 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas P. Dea.(1)
10.12 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Thomas O. Harbison.(1)
10.13 -- Indemnification Agreement, dated January 27, 1999, among
CustomerOne Holding Corporation, the subsidiaries party
thereto and Seth M. Mersky.(1)
10.14 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Joanne G. Biltekoff and CustomerOne Holding
Corporation.(1)
10.15 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Mark R. Briggs and CustomerOne Holding
Corporation.(1)
10.16 -- Phantom Stock Unit Agreement, dated October 1, 1998,
between Steven M. Kawalick and CustomerOne Holding
Corporation.(1)
10.17 -- Contingent Securities Purchase Agreement, effective as of
April 1, 1999, between ClientLogic Holding Corporation
and Gene S. Morphis.(2)
10.18 -- Non-Qualified Stock Option Agreement, effective as of
October 1, 1998, between CustomerOne Holding Corporation
and Mark R. Briggs.(1)
10.19 -- Amendment No. 1 to Non-Qualified Stock Option Agreement,
effective as of October 1, 1998, between CustomerOne
Holding Corporation and Mark R. Briggs.(1)
10.20 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(1)
10.21 -- Stock Option Agreement, between ClientLogic Holding
Corporation and Mark R. Briggs.(2)
10.22 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated September 21, 1999.(1)
10.23 -- Cordena Call Management B.V. Share Issue (Kortenhorst
Warrant Agreement), dated June 8, 1998.(2)
10.24 -- Employment Agreement, dated , 2000, among
ClientLogic Corporation, ClientLogic Operating
Corporation and Mark R. Briggs.(2)
10.25 -- Employment Agreement, dated November 1, 1999, between
ClientLogic Corporation and Julie M. Casteel.(1)
10.26 -- Employment Agreement, dated , 2000, between
ClientLogic Corporation and Robert A. Fetter.(2)
10.27 -- Employment Agreement, dated August 13, 1998, between Onex
Service Partners and Thomas O. Harbison.(1)
10.28 -- Employment Agreement, dated May 4, 1998, between Softbank
Services Group and Steven M. Kawalick.(1)
10.29 -- Employment Agreement, dated , 1999, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
</TABLE>
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.30 -- Employment Agreement, dated June 23, 1999, between
ClientLogic Corporation and Jeffrey J. Michel.(1)
10.31 -- Employment Agreement, effective as of April 1, 1999,
between ClientLogic Corporation, ClientLogic Operating
Corporation and Gene S. Morphis.(2)
10.32 -- Employment Agreement, dated August 25, 1997, between
Softbank Services Group Inc. and Lee O. Waters.(1)
10.33 -- Promissory Note, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.34 -- Pledge Agreement, dated October 11, 1999, executed by Lee
O. Waters in favor of ClientLogic Holding Corporation.(1)
10.35 -- Promissory Note, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.36 -- Pledge Agreement, dated October 12, 1999, executed by Lee
O. Waters in favor of ClientLogic Corporation.(1)
10.37 -- Letter of Agreement, dated , 2000, between
ClientLogic Corporation and Jules T. Kortenhorst.(2)
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(1)
23.3 -- Consent of Deloitte & Touche, LLP.(1)
23.4 -- Consent of PricewaterhouseCoopers LLP(1)
23.5 -- Consent of PricewaterhouseCoopers N.V.(1)
23.6 -- Consent of Terry & Stephenson, P.C.(1)
23.7 -- Consent of PricewaterhouseCoopers LLP(1)
24.1 -- Power of Attorney (included on signature page of this
Registration Statement).
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
UPGRADE CORPORATION OF AMERICA,
SOFTBANK HOLDINGS INC.,
SB HOLDINGS (EUROPE) LTD.,
CUSTOMERONE HOLDING CORPORATION,
AND
SSG ACQUISITION CORP.
DATED SEPTEMBER 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions ......................................................................... 2
ARTICLE II
THE STOCK PURCHASES
SECTION 2.1. Stock Purchases ..................................................................... 10
ARTICLE III
POST-CLOSING ADJUSTMENT
SECTION 3.1. Purchase Price Adjustments .......................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SOFTBANK HOLDINGS
SECTION 4.1. Organization and Qualification ...................................................... 13
SECTION 4.2. Authorization ....................................................................... 13
SECTION 4.3. No Violation ........................................................................ 13
SECTION 4.4. Capitalization of the Company and Ivy Group; Title to Shares ........................ 14
SECTION 4.5. Subsidiaries and Equity Investments ................................................. 15
SECTION 4.6. Consents and Approvals .............................................................. 16
SECTION 4.7. Financial Statements ................................................................ 16
SECTION 4.8. Absence of Undisclosed Liabilities .................................................. 17
SECTION 4.9. Absence of Certain Changes .......................................................... 17
SECTION 4.10. Litigation .......................................................................... 18
SECTION 4.11. Liens and Encumbrances .............................................................. 18
SECTION 4.12. Certain Agreements .................................................................. 19
SECTION 4.13. Employee Benefit Plans .............................................................. 19
SECTION 4.14. Taxes ............................................................................... 20
SECTION 4.15. Compliance with Applicable Law ...................................................... 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 4.16. Brokers' Fees and Commissions ....................................................... 22
SECTION 4.17. Proprietary Rights .................................................................. 22
SECTION 4.18. Year 2000 Compliance ................................................................ 24
SECTION 4.19. Privacy Matters ..................................................................... 24
SECTION 4.20. Labor Relations ..................................................................... 24
SECTION 4.21. Insurance ........................................................................... 25
SECTION 4.22. Real Estate ......................................................................... 25
SECTION 4.23. Personal Property ................................................................... 25
SECTION 4.24. Environmental Matters ............................................................... 26
SECTION 4.25. Customers and Suppliers ............................................................. 26
SECTION 4.26. Certain Business Practices; Potential Conflicts of Interest ......................... 26
SECTION 4.27. Tax Matters - United Kingdom ........................................................ 27
SECTION 4.28. Accounts Receivable ................................................................. 30
SECTION 4.29. Inventory ........................................................................... 30
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF CUSTOMERONE HOLDING AND SUB
SECTION 5.1. Organization and Qualification ...................................................... 31
SECTION 5.2. Authorization ....................................................................... 31
SECTION 5.3. No Violation ........................................................................ 31
SECTION 5.4. Consents and Approvals .............................................................. 32
SECTION 5.5. Brokers' Fees and Commissions ....................................................... 32
ARTICLE VI
COVENANTS
SECTION 6.1. All Reasonable Efforts .............................................................. 32
SECTION 6.2. Consents and Approvals .............................................................. 32
SECTION 6.3. Public Announcements ................................................................ 32
SECTION 6.4. The Merger .......................................................................... 33
SECTION 6.5. Professional Fees and Expenses ...................................................... 33
SECTION 6.6. Brokers' Fees and Commissions ....................................................... 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE VII
CLOSING
SECTION 7.1. Closing ............................................................................. 33
SECTION 7.2. Actions of Softbank Holdings, Softbank Europe and the Company at the Closing ........ 33
SECTION 7.3. Actions of CustomerONE Holding and Sub at the Closing ............................... 35
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
SECTION 8.1. Survival of Representations and Warranties .......................................... 35
SECTION 8.2. Limitations on Liability ............................................................ 35
SECTION 8.3. Indemnification ..................................................................... 36
SECTION 8.4. Tax Indemnification ................................................................. 38
SECTION 8.5. Advancement of Expenses; Defense of Claims; Insurance and Tax Benefit Adjustment .... 39
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Amendment and Modification .......................................................... 41
SECTION 9.2. Waiver of Compliance; Consents ...................................................... 41
SECTION 9.3. Validity ............................................................................ 42
SECTION 9.4. Expenses and Obligations ............................................................ 42
SECTION 9.5. Parties in Interest ................................................................. 42
SECTION 9.6. Tax Matters ......................................................................... 42
SECTION 9.7. Notices ............................................................................. 46
SECTION 9.8. Governing Law ....................................................................... 47
SECTION 9.9. Counterparts ........................................................................ 47
SECTION 9.10. Headings ............................................................................ 47
SECTION 9.11. Entire Agreement .................................................................... 47
SECTION 9.12. Assignment .......................................................................... 48
SECTION 9.13. Jurisdiction and Venue .............................................................. 48
SECTION 9.14. Certain Interpretive Matters ........................................................ 48
</TABLE>
(iii)
<PAGE> 5
Exhibits
Exhibit A Form of Certificate of Merger
Exhibit B-1 Form of Opinion of Sullivan & Cromwell
Exhibit B-2 Form of Opinion of Linklaters & Paines
Exhibit C Form of Legal Opinion of Weil, Gotshal & Manges LLP
(iv)
<PAGE> 6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated September
30, 1998, by and among Upgrade Corporation of America (d/b/a SOFTBANK Services
Group), a Delaware corporation (the "Company"), SOFTBANK Holdings Inc., a
Delaware corporation ("Softbank Holdings") that is the majority stockholder of
the Company and a wholly-owned subsidiary of SOFTBANK Corp., a Japanese
corporation ("Parent"), SB Holdings (Europe) Ltd., a company formed under the
laws of England and Wales and a wholly-owned subsidiary of Parent ("Softbank
Europe"), CustomerONE Holding Corporation, a Delaware corporation ("CustomerONE
Holding"), and SSG Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of CustomerONE Holding ("Sub"). The Company and its Subsidiaries (as
hereinafter defined) and The Ivy Group Limited, a company formed under the laws
of England and Wales and a wholly-owned subsidiary of Softbank Europe ("Ivy
Group"), and its Subsidiaries are sometimes collectively referred to herein as
the "SSG Companies".
RECITALS:
WHEREAS, Softbank Holdings owns 11,279,128 shares of the
Company's Common Stock, par value $0.01 per share (the "Company Common Stock"),
representing 95.21% of the issued and outstanding shares of Company Common
Stock, and 100,000 shares of the Company's Redeemable Preferred Stock (Series
1), par value $100.00 per share (the "Company Preferred Stock"), representing
all of the issued and outstanding shares of Company Preferred Stock;
WHEREAS, Softbank Europe owns all of the issued and
outstanding capital stock of the Ivy Group;
WHEREAS, CustomerONE Holding, through Sub, desires to acquire
all of the issued and outstanding shares of the Company Common Stock held by
Softbank Holdings and all of the issued and outstanding shares of the Company
Preferred Stock (the "Company Stock Purchase");
WHEREAS, CustomerONE Holding, through Sub, desires to acquire
all of the issued and outstanding shares of Ivy Group Stock (the "Ivy Stock
Purchase" and, collectively with the Company Stock Purchase, the "Stock
Purchases"); and
WHEREAS, immediately following the Stock Purchases, pursuant
to Section 253 of the DGCL, CustomerONE Holding will cancel or cause the
cancellation of all of the
<PAGE> 7
Company Preferred Stock and retire or cause the retirement of all of the Company
Common Stock by way of a merger (the "Merger") of Sub with and into the Company,
pursuant to which the Minority Stockholders (as hereinafter defined) will
receive a cash payment in the amounts set forth below.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
(a) "6-Year Look Back Date" has the meaning set forth in
Section 4.13(b);
(b) "Accounts" means the audited balance sheet and profit and
loss statement of the Ivy Group Companies for the last completed fiscal year of
the Ivy Group Companies;
(c) "Accounts Date" means December 31, 1996;
(d) "Adjusted Net Working Capital" means, as of the Closing
Date and derived from the audited closing date balance sheet of the SSG
Companies, prepared on a consolidated basis in accordance with Section 3.1(b),
an amount equal to the net working capital of the SSG Companies, adjusted to
exclude (i) intercompany accounts (other than those between any of the SSG
Companies and another SSG Company), (ii) accounts payable to affiliates of
Parent (other than an SSG Company), and (iii) accounts receivable from
affiliates of Parent (other than an SSG Company); provided, however, that no
such adjustment shall be made in respect of such intercompany accounts, accounts
payable to affiliates of Parent and accounts receivable from affiliates of
Parent representing amounts owing in respect of services provided by or to the
SSG Companies in the ordinary course of business, consistent with past practices
with, and on terms that are consistent with those negotiated on an arm's length
basis with, unaffiliated third parties;
(e) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, another person;
(f) "Affiliated Group" means any affiliated group within the
meaning of Section 1504 of the Code or any similar group defined under a similar
provision of state, local or foreign law, including but not limited to any
combined, consolidated or unitary group;
2
<PAGE> 8
(g) "Agreement" has the meaning set forth in the introduction;
(h) "Applicable Federal Tax Rate" has the meaning set forth in
Section 9.6(e);
(i) "Business Day" means any day other than a Saturday, Sunday
or other day on which banking institutions in the City of New York, New York
shall be permitted or required by law or executive order to be closed;
(j) "Buyer Indemnitee" means any person entitled to
indemnification pursuant to Section 8.3(b), (c), (d), (e), (f) or (g) or Section
8.4 (a) or (b);
(k) "Capital Expenditure Impact" has the meaning set forth in
Section 9.6(e);
(l) "Certificate of Merger" has the meaning set forth in
Section 5.4;
(m) "Closing" has the meaning set forth in Section 7.1;
(n) "Closing Adjusted Net Working Capital Amount" means, as of
the Closing Date and derived from the audited closing date balance sheet of the
SSG Companies prepared on a consolidated basis in accordance with Section
3.1(b), an amount equal to the Adjusted Net Working Capital;
(o) "Closing Date" has the meaning set forth in Section 7.1;
(p) "Closing Debt" means, as of the Closing Date and derived
from the audited closing date balance sheet of the SSG Companies prepared on a
consolidated basis in accordance with Section 3.1(b), an amount equal to the
Designated Debt;
(q) "Closing Differential" means the Proposed Closing
Differential with such revisions, adjustments and changes thereto, if any, as
shall be effected pursuant to Section 3.1(b)(ii);
(r) "Code" means the United States Internal Revenue Code of
1986, as amended;
(s) "Company" has the meaning set forth in the introduction;
(t) "Company Common Stock" has the meaning set forth in the
recitals;
(u) "Company Common Stock Consideration" means the Purchase
Price, less the Ivy Group Consideration, less Designated Debt, less the Company
Preferred Stock
3
<PAGE> 9
Consideration, less the Minority Stockholders' Consideration, less the
Optionholders' Consideration;
(v) "Company Preferred Stock" has the meaning set forth in the
recitals;
(w) "Company Preferred Stock Consideration" means $10,000,000,
plus all accrued and unpaid dividends on the Company Preferred Stock through the
Closing Date and all related charges, fees, expenses and penalties, including
prepayment penalties thereon or which become due as a result of the transactions
contemplated by this Agreement to the extent that any of the foregoing have not
been paid prior to the Closing Date;
(x) "Company Stock Purchase" has the meaning set forth in the
recitals;
(y) "Company Technology" has the meaning set forth in Section
4.17;
(z) "Contract" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sales contract, mortgage, license,
franchise, insurance policy, commitment or other arrangement or agreement;
(aa) "Corel Damages" has the meaning set forth in Section
9.6(e);
(bb) "CPA Firm" has the meaning set forth in Section
3.1(b)(ii);
(cc) "CustomerONE Holding" has the meaning set forth in the
introduction;
(dd) "Debt Differential" means the Proposed Debt Differential
with such revisions, adjustments and changes thereto, if any, as shall be
effected pursuant to Section 3.1(b)(ii);
(ee) "Designated Debt" means any and all liabilities of the
SSG Companies on a consolidated basis immediately prior to the Closing (after
giving effect to the repayment of indebtedness under the Revolving Loan
Agreement, dated as of October 1, 1996, between the Company and Softbank
Holdings and under the Replacement Revolving Note, dated as of March 9, 1998,
held by Marine Midland Bank) (including all related charges, fees, expenses and
penalties, including prepayment penalties thereon or which become due as a
result of the transactions contemplated hereby, to the extent that any of the
foregoing have not been paid prior to the Closing), determined in accordance
with GAAP and in accordance with Section 3.1(b), whether or not such liabilities
appear on the most recently prepared balance sheets of any of the SSG Companies;
provided, that there shall be excluded from such liabilities (i) to the extent
included in net working capital, trade accounts payable, customer remittances,
accrued income taxes, accrued payroll expenses, client retainers and deposits,
deferred revenue, and, subject to CustomerONE Holding's review and satisfaction,
intercompany accounts payable representing amounts owing for services provided
by affiliates of Parent in
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the ordinary course of business consistent with past practices with, and on
terms that are consistent with those negotiated on an arm's length basis with,
unaffiliated third parties and (ii) capital lease obligations;
(ff) "DGCL" means the General Corporation Law of the State of
Delaware;
(gg) "Disclosure Schedule" means the disclosure schedule
prepared by Softbank Holdings, Softbank Europe and the Company, attached hereto;
(hh) "DOJ" has the meaning set forth in Section 4.6;
(ii) "Employee Benefit Plans" has the meaning set forth in
Section 4.13(a);
(jj) "Environmental Law" means any foreign or United States
federal, state or local law (including common law), statute, code, ordinance,
rule, regulation, directive of the European Union, or other requirement relating
to the environment, natural resources, or public or employee health and safety;
(kk) "ERISA" has the meaning set forth in Section 4.13(a);
(ll) "Estimated Adjusted Net Working Capital Amount" means the
Company's and Softbank Holdings' good faith estimate of the Adjusted Net Working
Capital immediately prior to the Closing;
(mm) "Estimated Debt" means the Company's and Softbank
Holdings' good faith estimate of the Designated Debt immediately prior to the
Closing;
(nn) "Exemption Certificate" means a form or statement from a
customer of any of the SSG Companies indicating that the transaction covered by
a Contract is exempt from any sales, use or similar Tax;
(oo) "GAAP" means generally accepted accounting principles in
the United States;
(pp) "Governmental Authority" means any nation or government
or the European Union, any state or other political subdivision thereof and an
entity exercising an executive, legislative, judicial, regulatory or
administrative function of or pertaining to government;
(qq) "HSR Act" has the meaning set forth in Section 4.6;
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(rr) "Indemnifiable Losses" means any and all damages, losses,
liabilities, obligations, costs and expenses, and any and all claims, demands or
suits (by any person, including without limitation any Governmental Authority),
including without limitation the costs and expenses of any and all actions,
suits, proceedings, demands, assessments, judgments, settlements and compromises
relating thereto and including without limitation reasonable attorneys' and
experts' fees and expenses in connection therewith incurred by an Indemnitee;
(ss) "Indemnitee" means a Buyer Indemnitee or a Seller
Indemnitee, as the case may be;
(tt) "Indemnifying Party" means any person or entity required
to provide indemnification under this Agreement;
(uu) "Indemnity Payment" means any amount of Indemnifiable
Losses required to be paid pursuant to this Agreement;
(vv) "Intellectual Property" has the meaning set forth in
Section 4.17;
(ww) "Interim Financial Statements" has the meaning set forth
in Section 4.7;
(xx) "Ivy Group" has the meaning set forth in the
introduction;
(yy) "Ivy Group Companies" means Ivy Group and its
subsidiaries, Professional Support Centre Limited and Avalan Technology Limited,
and "Ivy Group Company" means any one of the foregoing.
(zz) "Ivy Group Consideration" shall mean $1,700,000 million
in cash;
(aaa) "Ivy Stock Purchase" has the meaning set forth in the
recitals;
(bbb) "Legal Proceedings" means any judicial, administrative,
mediation or arbitral actions, suits, proceedings (public or private) or
governmental proceedings;
(ccc) "Leased Real Property" has the meaning set forth in
Section 4.22;
(ddd) "Liens" means any title defects, liens, pledges, claims,
security interests, restrictions, mortgages, tenancies and other possessory
interests, conditional sale or other title retention agreements, assessments,
easements, rights of way, covenants, restrictions, rights of first refusal,
encroachments and other burdens, options or encumbrances of any kind;
(eee) "Litigation" has the meaning set forth in Section 4.10;
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(fff) "Material Adverse Effect" means a material adverse
effect on the condition (financial or otherwise), properties, assets,
liabilities, businesses, prospects, earnings or operations of the SSG Companies
taken as a whole;
(ggg) "Merger" has the meaning set forth in the recitals;
(hhh) "Minority Stockholders" has the meaning set forth in
Section 4.4(d);
(iii) "Minority Stockholders' Consideration" means
$2,390,471.68 million in aggregate cash consideration to be delivered to the
Minority Stockholders pursuant to the Merger;
(jjj) "NOL Excess" has the meaning set forth in Section
9.6(e);
(kkk) "NOLs" means all Tax net operating loss carryforwards of
the SSG Companies, as determined by the Code, that are or should be reflected in
the Interim Financial Statements and all such net operating loss carryforwards
of the SSG Companies arising in connection with the operation of the SSG
Companies between the date of the Interim Financial Statements and the Closing
Date;
(lll) "Optionholders" means the persons listed in Section 4.4
of the Disclosure Schedule as being a holder of a stock option who shall not
have exercised his or her respective stock options on or prior to the Closing;
(mmm) "Optionholders' Consideration" means $1,344,407.41,
which is the amount of cash necessary to pay the difference between the exercise
price of each stock option held by an Optionholder and $4.21;
(nnn) "Order" means any order, injunction, judgment, decree,
ruling, assessment or arbitration award;
(ooo) "Parent" has the meaning set forth in the introduction;
(ppp) "PAYE" means pay as you earn;
(qqq) "person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or, as
applicable, any other entity;
(rrr) "Post-Closing Statement" has the meaning set forth in
Section 3.1(b);
(sss) "Pre-Closing Statement" has the meaning set forth in
Section 3.1(a);
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(ttt) "Proposed Closing Differential" means, as set forth in
the Post-Closing Statement, the amount (whether a positive difference or
negative difference) equal to (x) the Estimated Adjusted Net Working Capital
Amount less (y) the Closing Adjusted Net Working Capital Amount;
(uuu) "Proposed Debt Differential" means, as set forth in the
Post-Closing Statement, the amount (whether a positive difference or negative
difference) equal to (x) the Estimated Debt less (y) the Closing Debt;
(vvv) "Purchase Price" means $73 million, subject to
adjustment pursuant to Section 3.1;
(www) "Seller Indemnitee" means any person entitled to
indemnification pursuant to Section 8.3(a) or Section 8.4(c);
(xxx) "Softbank Europe" has the meaning set forth in the
introduction;
(yyy) "Softbank Holdings" has the meaning set forth in the
introduction;
(zzz) "SSG Companies" has the meaning set forth in the
introduction;
(aaaa) "SSG Companies' Other Pre-Closing Date Tax Liability"
means the aggregate liability, as determined prior to payment thereof, of any of
the SSG Companies for any Taxes (other than a Tax payable or chargeable to
CustomerONE Holding pursuant to Section 9.6(f)) imposed upon Parent, Softbank
Holdings and Softbank Europe (in addition to any of the SSG Companies) not
included in SSG Companies' Pre-Closing Date Federal Tax Liability and: (i)
attributable to a period which ends on or before the Closing Date or assessed as
the result of a transaction which occurs prior to the Closing; (ii) assessed as
of a date following the Closing Date with respect to a Tax year or period which
includes but ends after the Closing Date; or (iii) attributable to a period
which includes the Closing Date but does not begin on that day. In the case of
Taxes giving rise to any liability pursuant to clause (ii) or (iii) of the
preceding sentence, the portion of such Tax liability includable within this
definition shall be that portion of the total tax liability for such period as
is attributable to the portion of that period which ends with the Closing Date
determined on the basis of an interim closing of the books as of the Closing
Date; provided that exemptions, allowances or deductions that are calculated on
an annual basis (including but not limited to depreciation and amortization
deductions) shall be allocated between the period ending on the Closing Date and
the period after the Closing Date in proportion to the number of days in each
such period;
(bbbb) "SSG Companies' Pre-Closing Date Federal Tax Liability"
means the aggregate liability, as determined prior to payment thereof, for all
federal Taxes payable by any of the SSG Companies with respect to any "taxable
year" (within the meaning of Section 7701 of the Code) of any of the SSG
Companies which ends on or before the Closing Date,
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including, but not limited to, (i) any liability of any Affiliated Group of
which any of the SSG Companies was a member on or prior to the Closing Date
including but not limited to any liability for Taxes resulting from a "deferred
intercompany transaction" within the meaning of Treasury Regulation Section
1.1502-13(a)(2) that occurred on or prior to the Closing Date and any liability
of any of the SSG Companies pursuant to Treasury Regulation Section 1.1502-6(a),
and (ii) any federal excise Tax imposed upon Parent, Softbank Holdings or
Softbank Europe (in addition to any of the SSG Companies);
(cccc) "SSG Companies' Total Pre-Closing Date Tax Liability"
means an amount equal to the sum of: (i) SSG Companies' Pre-Closing Date Federal
Tax Liability and (ii) SSG Companies' Other Pre-Closing Date Tax Liability;
(dddd) "Stock Purchases" has the meaning set forth in the
recitals;
(eeee) "Sub" has the meaning set forth in the introduction;
(ffff) "Subsidiary" has the meaning set forth in Section
4.5(a);
(gggg) "Tax" means all taxes, charges, withholdings, fees,
levies, penalties, additions, interest or other assessments imposed by any
foreign, United States federal, state, or local or other taxing authority on any
of the SSG Companies (including, without limitation, as a result of being a
member of an affiliated, combined or unitary group or as a result of any
obligation arising out of an agreement to indemnify any other person), and
including, but not limited to, those related to income, gross receipts, gross
income, sales, use, occupation, salary or wages, services, leasing, valuation,
transfer, license, customs duties or franchise;
(hhhh) "Taxation" means all forms of taxation and statutory,
governmental, state, provincial, local governmental or municipal impositions,
duties, contributions and levies, in such case whether of the United Kingdom or
elsewhere in the world whenever imposed and whether chargeable directly or
primarily against or attributable directly or primarily to the SSG Companies or
any other persons and all penalties, charges, costs and interest relating
thereto;
(iiii) "Taxes Act" means the Income and Corporation Taxes Act
of 1988;
(jjjj) "TCGA" means the United Kingdom Taxation of Chargeable
Gains Act of 1992;
(kkkk) "Third Party Claim" means any claim, action or
proceeding made or brought by any person who or which is not a party to this
Agreement or an affiliate of a party to this Agreement;
(llll) "Third Party Licenses" has the meaning set forth in
Section 4.17;
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(mmmm) "Transfer Taxes" means any sales, use, stamp,
documentary, filing, recording, transfer or similar fees or Taxes or
governmental charges as levied by any taxing authority in connection with the
transactions contemplated by this Agreement (other than income taxes imposed on
Parent, Softbank Holdings or Softbank Europe;
(nnnn) "UCA&L" has the meaning set forth in Section 4.7;
(oooo) "VAT" means the value added Tax of the United Kingdom,
the Republic of Ireland or any other country imposing such a Tax;
(pppp) "VATA" means the United Kingdom Value Added Tax Act
1994; and
(qqqq) "Working Capital Target" means $3,985,095.
ARTICLE II
THE STOCK PURCHASES
SECTION 2.1 Stock Purchases. Upon the terms and subject to the
conditions of this Agreement:
(a) Sub is purchasing from Softbank Holdings, and Softbank
Holdings is selling to Sub,
(i) 11,279,128 shares of Company Common Stock,
representing 95.21% of the issued and outstanding shares of the Company
Common Stock and all of the shares of Company Common Stock owned by
Softbank Holdings, against payment in cash of the Company Common Stock
Consideration, subject to adjustment after the Closing pursuant to
Section 3.1; and
(ii) 100,000 shares of Company Preferred Stock,
representing all of the issued and outstanding Company Preferred Stock,
against payment in cash of the Company Preferred Stock Consideration;
and
(b) Sub is purchasing from Softbank Europe, and Softbank
Europe is selling to Sub, all of the issued and outstanding shares of Ivy Group
Stock, against payment in cash of the Ivy Group Consideration.
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ARTICLE III
POST-CLOSING ADJUSTMENT
SECTION 3.1 Purchase Price Adjustments.
(a) Pre-Closing Statement. (i) The Company has furnished to
CustomerONE Holding and Sub a statement of the Company (the "Pre-Closing
Statement"), prepared as of September 30, 1998, setting forth (x) the Estimated
Debt and (y) the Estimated Adjusted Net Working Capital Amount.
(ii) Based on the Pre-Closing Statement, the Purchase
Price has been reduced by $1,762,480 because the Estimated Adjusted Net Working
Capital Amount was $1,762,480 less than the Working Capital Target.
(b) Post-Closing Statement. (i) As soon as practicable, but in
no event more than 90 days after the Closing Date, CustomerOne Holding shall
deliver to Softbank Holdings a consolidated balance sheet of the SSG Companies
or their successors prepared in accordance with GAAP as of the Closing Date and
immediately prior to the Closing, without regard to any adjustments thereto in
respect of or relating to the transactions contemplated hereby or simultaneous
or subsequent action, and related statement (the "Post-Closing Statement")
setting forth the Closing Adjusted Net Working Capital Amount and the Closing
Debt and the corresponding Proposed Closing Differential and Proposed Debt
Differential. Section 3.1(b) of the Disclosure Schedule sets forth an example of
the calculation of Adjusted Net Working Capital and Designated Debt, as
calculated from the consolidated balance sheet of the SSG Companies as of June
30, 1998, prepared in accordance with GAAP. In preparing the Post-Closing
Statement, the principles applied in preparing Section 3.1(b) of the Disclosure
Schedule shall be utilized. Such balance sheet and related schedules supporting
the Post-Closing Statement shall be audited by Pricewaterhouse Coopers, L.L.P.
and shall be delivered together with their report thereon. Any currency
translation required in preparation of the Post-Closing Statement shall be made
as of the Closing Date.
(ii) Within 45 days after the delivery of the
Post-Closing Statement to Softbank Holdings, Softbank Holdings shall either
accept the amount of the Proposed Closing Differential and the Proposed Debt
Differential as set forth in the Post-Closing Statement as correct or object to
the Proposed Closing Differential and/or the Proposed Debt Differential,
specifying in reasonable detail in writing the nature of its objection(s). In
the event Softbank Holdings does not object to the Proposed Closing Differential
or the Proposed Debt Differential within said 45-day period, Softbank Holdings
shall be deemed to have accepted the Proposed Closing Differential as the
Closing Differential and the Proposed Debt Differential as the Debt
Differential. In the event Softbank Holdings objects to the Proposed Closing
Differential and/or the Proposed Debt Differential, then, during a 45-day period
subsequent to the receipt by CustomerONE Holding of notice of objection(s), the
parties shall attempt in good faith to resolve the differences respecting such
Proposed Closing Differential and/or Proposed Debt Differential. In the event
the parties are unable to resolve their differences within said 45-day period,
the parties agree that the matter shall be submitted to
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KPMG Peat Marwick, LLP (the "CPA Firm"), which the parties acknowledge to be a
mutually acceptable firm of certified public accountants. The costs and expenses
of the CPA Firm shall be borne equally by CustomerONE Holding and Softbank
Holdings. The CPA Firm shall resolve any disputed amounts and shall determine a
final Closing Differential and/or a final Debt Differential as promptly as
practicable, but in any event within 60 days following submission of such matter
to the CPA Firm. The CPA Firm's calculation of the Closing Differential and/or
Debt Differential shall be delivered in writing to CustomerONE Holding and
Softbank Holdings. During the period from the date of delivery of the
Post-Closing Statement to Softbank Holdings through the date of resolution of
any dispute regarding the Proposed Closing Differential or the Proposed Debt
Differential as contemplated by this Section 3.1(b)(ii), CustomerONE Holding
shall provide Softbank Holdings, the CPA Firm, to the extent applicable, and
their respective agents and representatives reasonable access to all appropriate
books, work papers, records (including those supplemental schedules prepared in
connection with preparation of the Post-Closing Statement), facilities and
employees of the SSG Companies and their successors for purposes relevant to the
review of such Post-Closing Statement and the resolution of any related dispute.
If the CPA Firm determines the Closing Differential and/or the Debt
Differential, the determination of the final Closing Differential and/or the
final Debt Differential by the CPA Firm shall be final and binding on all
parties hereto.
(iii) Within five (5) Business Days after the final
determination of the Closing Differential and the Debt Differential, the
Purchase Price shall be adjusted as follows:
(1) If the amount of the Closing
Differential is a positive amount (i.e., the Closing Adjusted Net Working
Capital Amount represents a greater amount of Adjusted Net Working Capital than
the Estimated Adjusted Net Working Capital Amount), then the Purchase Price
shall be adjusted upward by an amount equal to the Closing Differential. In such
case, CustomerONE Holding shall pay, or cause to be paid, to Softbank Holdings
the increase of the Company Common Stock Consideration resulting from such
adjusted Purchase Price. Conversely, if the amount of the Closing Differential
is a negative amount, then the Purchase Price shall be adjusted downward by an
amount equal to the Closing Differential (expressed as a positive amount), which
amount shall be paid by Softbank Holdings to CustomerONE Holding, representing a
decrease in the Company Common Stock Consideration.
(2) If the amount of the Debt Differential
is a positive amount (i.e., the Estimated Debt represents a greater amount of
indebtedness than the Closing Debt), then the Purchase Price shall be adjusted
upward by an amount equal to the Debt Differential. In such case, CustomerONE
Holding shall pay, or cause to be paid, to Softbank Holdings the increase of the
Company Common Stock Consideration resulting from such adjusted Purchase Price.
Conversely, if the amount of the Debt Differential is a negative amount, then
the Purchase Price shall be adjusted downward by an amount equal to the Debt
Differential
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(expressed as a positive amount), which amount shall be paid by Softbank
Holdings to CustomerONE Holding, representing a decrease in the Company Common
Stock Consideration.
Each of the Closing Differential and the Debt Differential shall accrue simple
interest at the most recently announced rate of interest per annum adopted from
time to time by Citibank, N.A., as its prime rate or reference rate in effect at
its principal office in New York, New York, from the Closing Date until the date
of payment of the Closing Differential or the Debt Differential, as the case may
be.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SOFTBANK HOLDINGS
Softbank Holdings represents and warrants to each of
CustomerONE Holding and Sub as set forth below. As used in this Article IV, any
reference to any event, change or effect as being "material" with respect to any
entity means a material event, change or effect related to the condition
(financial or otherwise), properties, assets, liabilities, businesses,
prospects, earnings or operations of such entity.
SECTION 4.1 Organization and Qualification. Except as set forth in
Section 4.1 of the Disclosure Schedule, each of Softbank Holdings, Softbank
Europe and the SSG Companies is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and
each of the SSG Companies has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is now
being conducted. Except as set forth in Section 4.1 of the Disclosure Schedule
,the SSG Companies are qualified or licensed to do business and are in good
standing in the jurisdictions reflected opposite their respective names in
Section 4.1 of the Disclosure Schedule, which jurisdictions represent every
jurisdiction where the nature of the business conducted by any of them or the
properties owned or leased by any of them requires qualification, except where
the failure to be so qualified or licensed and in good standing would not have a
Material Adverse Effect. Softbank Holdings and Softbank Europe have delivered to
CustomerONE Holding complete and correct copies of the charters, bylaws or other
comparable organizational documents of each of the SSG Companies.
SECTION 4.2 Authorization. Each of the Company, Softbank Holdings and
Softbank Europe has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company, Softbank Holdings and
Softbank Europe, the performance by the Company, Softbank Holdings and Softbank
Europe of their obligations hereunder, and the consummation by each of them of
the transactions contemplated hereby, have been duly
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authorized. This Agreement has been duly and validly executed and delivered by
the Company, Softbank Holdings and Softbank Europe and, assuming this Agreement
constitutes a valid and binding obligation of the other parties hereto,
constitutes a valid and binding obligation of the Company, Softbank Holdings and
Softbank Europe enforceable against each of them in accordance with its terms.
SECTION 4.3 No Violation. Except as set forth in Section 4.3 of the
Disclosure Schedule, neither the execution and delivery of this Agreement by the
Company, Softbank Holdings and Softbank Europe and the performance by the
Company, Softbank Holdings and Softbank Europe of their obligations hereunder
nor the consummation by the Company, Softbank Holdings and Softbank Europe of
the transactions contemplated hereby will (a) violate, conflict with or result
in any breach of any provision of the charters, bylaws or other comparable
organizational documents of Softbank Holdings, Softbank Europe or any of the SSG
Companies, (b) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or require the consent of any other party
to, which consent has not been obtained, or result in the acceleration of, or
entitle any party to accelerate (whether as a result of a change in control of
any of the SSG Companies or otherwise) any material obligation, or result in the
loss of any material benefit, or give rise to the creation of any Liens upon any
of the material properties or assets of the SSG Companies under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture or deed
of trust, or any material license, lease, agreement or other instrument or
obligation to which Softbank Holdings, Softbank Europe or any of the SSG
Companies is a party or by which any of them or any of their properties or
assets may be bound or affected, or (c) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation, of any court or Governmental
Authority applicable to Softbank Holdings, Softbank Europe or any of the SSG
Companies or any of their respective properties or assets.
SECTION 4.4 Capitalization of the Company and Ivy Group; Title to
Shares.
(a) The authorized capital stock of the Company consists of
15,000,000 shares of Company Common Stock and 500,000 shares of Company
Preferred Stock. As of the date hereof, the Company has, in the aggregate,
11,846,936 shares of Company Common Stock and 100,000 shares of Company
Preferred Stock issued and outstanding, all of which have been validly issued,
are fully paid and non-assessable and were not issued in violation of any
preemptive rights. Except as set forth in Section 4.4 of the Disclosure
Schedule, immediately prior to the Closing, there were no options, warrants,
calls, subscriptions, conversion or other rights, agreements or commitments
obligating the Company to issue any additional shares of capital stock of the
Company or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of capital stock of the Company. All of
the stock options described in Section 4.4 of the Disclosure Schedule have been
exercised or cancelled prior to the Closing, without any liability, contingent
or otherwise, to any of the SSG Companies after the Closing Date. The Company
has no indebtedness
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outstanding that has voting rights. The Company has not issued any stock
appreciation rights or other rights relating to equity participation. Set forth
in Section 4.4 of the Disclosure Schedule is a true and complete list of all
stockholders of the Company, including the number and type of shares held by
each such stockholder.
(b) Section 4.4(b) of the Disclosure Schedule lists all of the
shares of capital stock of Ivy Group (collectively, the "Ivy Group Stock") which
are, as of the Closing, (i) authorized and (ii) issued and outstanding. All of
the shares of Ivy Group Stock that are issued and outstanding are held
beneficially and of record by Softbank Europe. All of the issued and outstanding
shares of Ivy Group Stock have been duly authorized and validly issued, are
fully paid and non-assessable and were not issued in violation of any preemptive
rights. There are no options, warrants, calls, subscriptions, conversion or
other rights, agreements or commitments obligating Ivy Group to issue any
additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of such
capital stock. Ivy Group has no indebtedness outstanding that has voting rights.
Ivy Group has not issued any stock appreciation rights or other rights relating
to equity participation.
(c) Softbank Holdings is the holder of record and owns
beneficially that number of shares of Company Common Stock and Company Preferred
Stock and Softbank Europe is the holder of record and owns beneficially that
number of shares of Ivy Group Stock set forth opposite their respective names in
Section 4.4(c) of the Disclosure Schedule. Softbank Holdings owned 90.63% of the
issued and outstanding voting securities of the Company on a fully-diluted
basis, assuming exercise of all options and other rights or securities
convertible into Common Stock, immediately prior to the Closing, the Company
Preferred Stock owned by Softbank Holdings represented 100% of the issued and
outstanding Company Preferred Stock immediately prior to the Closing, and the
Ivy Group Stock owned by Softbank Europe represented 100% of the issued and
outstanding Ivy Group Stock immediately prior to the Closing. Each of Softbank
Holdings and Softbank Europe owns such shares free and clear of any Liens.
Neither Softbank Holdings nor Softbank Europe is a party to any voting trust,
proxy or other agreement with respect to the voting of any such shares.
(d) Section 4.4(d)(i) of the Disclosure Schedule sets forth a
true and complete list of all persons and entities owning shares of Company
Common Stock, and the number of shares owned by each such person or entity, as
of the Closing (such persons and entities (other than Softbank Holdings)
hereinafter referred to as the "Minority Stockholders"). Section 4.4(d)(ii) of
the Disclosure Schedule sets forth a true and complete list of all
Optionholders, including the number of shares of Company Common Stock into which
their respective stock options are exercisable and the exercise price of each
such stock option. Attached to Section 4.4(d) of the Disclosure Schedule as
Annexes 1 through 5 are forms of stock option award agreements, which forms are
the only agreements under which the Company has granted or awarded stock options
to employees, consultants, executives or any other person.
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SECTION 4.5 Subsidiaries and Equity Investments.
(a) Section 4.5 of the Disclosure Schedule sets forth (i) the
name of each corporation of which the Company or Ivy Group directly or
indirectly owns shares of capital stock having in the aggregate 50% or more of
the total combined voting power of the issued and outstanding shares of capital
stock entitled to vote generally in the election of directors of such
corporation (individually, a "Subsidiary" and collectively, the "Subsidiaries");
(ii) the name of each corporation, partnership, joint venture or other entity
(other than the Subsidiaries) in which the Company or Ivy Group has, or pursuant
to any agreement has the right to acquire at any time by any means, an equity
interest or investment; (iii) in the case of each of the Subsidiaries and such
other corporations described in the foregoing clause (ii), (A) the jurisdiction
of incorporation and (B) the capitalization thereof and the percentage of each
class of voting stock owned by the Company or Ivy Group or by any of their
respective Subsidiaries; and (iv) in the case of each of such unincorporated
entities, the equivalent of the information provided pursuant to the preceding
clause (iii) with regard to corporate entities.
(b) All of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights, and,
except as specified in Section 4.5 of the Disclosure Schedule, are owned of
record and beneficially, directly or indirectly, by the Company or Ivy Group,
free and clear of any Liens.
(c) There are no options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating any of the
Subsidiaries to issue any additional shares of capital stock of such Subsidiary
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock. None of the
Subsidiaries has any indebtedness outstanding that has voting rights. None of
the Subsidiaries has issued any stock appreciation rights or other rights
relating to equity participation.
SECTION 4.6 Consents and Approvals. Except (i) as set forth in Section
4.6 of the Disclosure Schedule and (ii) any consents and approvals of or filings
or registrations with the Antitrust Division of United States Department of
Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") (all of which have been duly obtained or
made), no filing or registration with, no notice to and no permit,
authorization, consent or approval of any Governmental Authority is necessary
for the consummation by the Company, Softbank Holdings or Softbank Europe of the
transactions contemplated by this Agreement.
SECTION 4.7 Financial Statements. Softbank Holdings and Softbank
Europe have delivered to CustomerONE Holding (a) copies of the audited
consolidated balance sheets of the Company as of December 31, 1995, December 31,
1996 and December 31, 1997, together with the related audited consolidated
statements of income, stockholders' equity and changes in cash flow for the
fiscal years ended on such dates, and the notes thereto, accompanied by the
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reports thereon of the applicable firm of independent public accountants, (b)
copies of the audited consolidated balance sheets of UCA&L Limited, a wholly
owned subsidiary of the Company (other than one share held by an Irish designee)
("UCA&L"), as of December 31, 1996 and December 31, 1997, together with the
related audited consolidated statements of income, stockholders' equity and
changes in cash flow for the fiscal years ended on such dates, and the notes
thereto, accompanied by the reports thereon of the applicable firm of
independent public accountants, (c) copies of the audited consolidated balance
sheets of the Ivy Group as of March 31, 1996 and December 31, 1996, together
with the related audited consolidated statements of income, stockholders' equity
and changes in cash flow for the period ended on such dates, and the notes
thereto, accompanied by the reports thereon of the applicable firm of
independent public accountants, and (d) copies of the unaudited consolidated
balance sheets of the Company, UCA&L and Ivy Group as of August 31, 1998,
together with the related unaudited consolidated statement of income,
stockholders' equity and changes in cash flow for the eight-month period ended
on such date, and the notes thereto, signed by the chief financial officers of
the Company and Ivy Group (the "Interim Financial Statements" and, together with
the audited financial statements referred to above, the "Financial Statements").
The Financial Statements, including the notes thereto, (i) were prepared in
accordance with GAAP throughout the periods covered thereby, except as otherwise
disclosed in Schedule 4.7 of the Disclosure Schedule, (ii) present fairly in all
material respects the consolidated financial position, results of operations and
changes in cash flows of the Company, UCA&L and Ivy Group as of such dates and
for the periods then ended (subject, in the case of the unaudited interim
Financial Statements, to normal year-end audit adjustments consistent with prior
periods that would not be material, individually or in the aggregate), and (iii)
in the case of the audited Financial Statements, have been audited in accordance
with generally accepted auditing standards.
SECTION 4.8 Absence of Undisclosed Liabilities. Except for matters
relating to the transactions contemplated by this Agreement, there are no
material liabilities or financial obligations of the SSG Companies of any kind
whatsoever (whether absolute, accrued, contingent or otherwise, and whether due
or to become due) other than liabilities and obligations: (a) disclosed,
provided for or reserved against in the Financial Statements, (b) arising after
December 31, 1997 in the ordinary course of business consistent with past
experience (other than management fees, if any, owed to any other person, the
existence and amount of which are disclosed in Section 4.8 of the Disclosure
Schedule), or (c) otherwise disclosed in Section 4.8 of the Disclosure Schedule.
SECTION 4.9 Absence of Certain Changes. Except as disclosed in Section
4.9 of the Disclosure Schedule or in the Interim Financial Statements, and
except for matters relating to the transactions contemplated by this Agreement,
since December 31, 1997, the SSG Companies have conducted their respective
businesses only in the ordinary course consistent with past practices and since
December 31, 1997 there has not occurred (a) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the equity interests of any the SSG Companies, (b) any
forgiveness,
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cancellation or waiver by any of the SSG Companies of material debts owed to any
of the SSG Companies or material claims or rights of any of the SSG Companies
against others, or any discharge by any of the SSG Companies of any material
Lien by any of the SSG Companies of any liability or obligation, other than, as
relates to all of the foregoing, in the ordinary course of business consistent
with past practices, (c) any material change in the credit practices of any of
the SSG Companies, (d) (i) any increase in the rate or terms of compensation
(including termination and severance pay) payable or to become payable by any of
the SSG Companies to any of their directors, officers or employees, or any
increase in the rate or terms of any bonus, insurance, pension or other employee
benefit plan, program or arrangement made to, for or with any such directors,
officers or employees, except, in each case, increases occurring in the ordinary
course of business consistent with past practices or as required by applicable
law, or (ii) any entry by any of the SSG Companies into any employment,
severance or termination agreement with any such person, (e) any entry into any
material agreement relating to the borrowing of money or any material agreement,
commitment or transaction by any of the SSG Companies, except any agreements,
commitments or transactions in the ordinary course of business consistent with
past practices, (f) any damage, destruction or theft or other casualty loss to
the properties or assets owned or leased by any of the SSG Companies with a book
or replacement value of $20,000 or more individually or $100,000 in the
aggregate, whether or not covered by insurance (other than damage, destruction
or theft or other casualty loss to any property or assets which property or
assets have been repaired or replaced and the cost of such repair or replacement
has been expensed by the SSG Companies), (g) any change by any of the SSG
Companies in their financial or tax accounting principles or methods, except
insofar as may be required by a change in GAAP, applicable law or circumstances
which did not exist as of the date of the Financial Statements, (h) any change
made or authorized in the charters, bylaws or other comparable organizational
documents of any of the SSG Companies, (i) any purchase, redemption, issue, sale
or other acquisition or disposition by any of the SSG Companies of any shares of
capital stock or other equity securities of any of the SSG Companies, or the
grant of any options, warrants or other rights to purchase, or convert any
obligation into, shares of capital stock or any evidence of indebtedness or
other securities of any of the SSG Companies, (j) any material sale, lease,
license, encumbrance or disposition by any of the SSG Companies of any of their
assets which is not in the ordinary course of business consistent with past
practices, or (k) an event or condition that has had or could reasonably be
expected to have a Material Adverse Effect.
SECTION 4.10 Litigation. Except as set forth in Section 4.10 of the
Disclosure Schedule and except for matters primarily related to environmental
matters which are governed by Section 4.24, there is no action, suit, judicial
or administrative proceeding, arbitration or investigation where alleged damages
are either unspecified or in excess of $100,000 or could otherwise reasonably be
expected to result in a Material Adverse Effect ("Litigation") pending or, to
the knowledge of Softbank Holdings, Softbank Europe and the SSG Companies,
threatened against any of the SSG Companies or any of their respective
properties, assets or rights before any court, arbitrator or administrative or
Governmental Authority, nor is there any judgment, decree, injunction, or order
of any court, governmental department,
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commission, agency, instrumentality or arbitrator outstanding against any of the
SSG Companies.
SECTION 4.11 Liens and Encumbrances. Except as set forth in Section
4.11 of the Disclosure Schedule, all properties and assets owned by each of the
SSG Companies are free and clear of all Liens except (a) statutory Liens not yet
delinquent, (b) purchase money Liens arising in the ordinary course of business
consistent with past practices, (c) Liens reflected in the Financial Statements
(which have not been discharged) and (d) Liens which in the aggregate do not
materially detract from the value or, in the case of personal property,
materially impair the use by any of the SSG Companies of properties or assets
subject thereto or, in the case of real property, materially impair the present
and continued use in the usual and normal conduct of the business of each of the
SSG Companies. Except as set forth on Section 4.11 of the Disclosure Schedule,
the material plant, property, equipment and other tangible assets and properties
which are owned or leased by the SSG Companies (i) are in good operating
condition, ordinary wear and tear excepted, and (ii) constitute all of the
assets and properties used in and necessary for the conduct of the businesses
presently conducted by the SSG Companies.
SECTION 4.12 Certain Agreements. Except as described in Section 4.12
of the Disclosure Schedule, none of the SSG Companies are parties to any oral or
written agreement, plan or arrangement with any officer, director or employee of
any of the SSG Companies (i) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
any of the SSG Companies of the nature of any of the transactions contemplated
by this Agreement, (ii) under which any person may receive payments subject to
the tax imposed by Section 4999 of the Code, or (iii) any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement. Except as
disclosed in Section 4.12 of the Disclosure Schedule, none of the SSG Companies
are parties to any oral or written (i) material agreement, contract, indenture
or other instrument relating to the borrowing of money or the guarantee of, or
other form of assurance of payment of, any obligation for the borrowing of
money, (ii) agreement restricting any SSG Company from competing or otherwise
conducting its business in any jurisdiction, (iii) agreement relating to the
exclusive use by any SSG Company of any vendor, supplier or provider, or (iv)
other contract, agreement or commitment of any of the SSG Companies material to
any of the SSG Companies. Except as set forth in Section 4.12 of the Disclosure
Schedule, each agreement, contract or obligation described in Section 4.12 of
the Disclosure Schedule (which description includes a listing of all amendments
to such agreements, contracts or obligations), or required to be so described,
is a valid and binding obligation of the relevant SSG Company and is in full
force and effect. Except as set forth in the Section 4.12 of the Disclosure
Schedule, each of the relevant SSG Companies and, to the knowledge of Softbank
Holdings, Softbank Europe and the SSG Companies, the other party thereto has
performed in all material respects all material obligations required to be
performed by it through the date
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hereof under the agreements so described and is not (with or without lapse of
time or giving notice, or both) in breach or default in any material respect
thereunder.
SECTION 4.13 Employee Benefit Plans.
(a) Section 4.13 of the Disclosure Schedule sets forth a true
and complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, employment, collective bargaining, consulting,
severance or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program, agreement, arrangement or understanding, and each
other "employee benefit plan" (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is
maintained or contributed to by any of the SSG Companies ("Employee Benefit
Plans") as of the Closing Date.
(b) Except as set forth on Section 4.13(b) of the Disclosure
Schedule, none of the SSG Companies maintains or contributes to, or on or after
the date which is six years prior to the Closing Date (the "6-Year Look Back
Date") has maintained or contributed to, any "multiemployer plan," as such term
is defined in Section 3(37) of ERISA, or any single-employer defined benefit
plans subject to Title IV of ERISA. Each Employee Benefit Plan which is intended
to be qualified under Section 401(a) and, if applicable, Section 401(k) of the
Code, is so qualified, and, to the knowledge of Softbank Holdings, Softbank
Europe and the SSG Companies, no event has occurred or condition exists which
would cause any such plan to lose such qualified status.
(c) Except as disclosed in Section 4.13(c) of the Disclosure
Schedule, no action, suit, judicial or administrative proceeding, arbitration or
investigation relating to any Employee Benefit Plan (other than claims for
benefits for which the plan administrative procedures have not been exhausted
and "qualified domestic relations orders" as defined in Section 414(p) of the
Code) is pending or, to the knowledge of Softbank Holdings, Softbank Europe and
the SSG Companies, threatened against any of the SSG Companies or any Employee
Benefit Plan before any court, arbitrator or administrative or Governmental
Authority. None of the SSG Companies has failed to make contributions to any
Employee Benefit Plan that are required to be made on or after January 1, 1997
under the terms of such Employee Benefit Plans or under applicable law. None of
the SSG Companies or any of the Employee Benefit Plans which are subject to
ERISA, or any trusts created thereunder, or any trustee or administrator
thereof, has engaged in a "prohibited transaction", as such term is defined in
Section 4975 of the Code or under ERISA on or after the 6-Year Look Back Date,
which could reasonably subject any of the SSG Companies to any tax or penalty
imposed by Section 4975 of the Code or Section 502 of ERISA in any amount which
would be material. Each of the SSG Companies is in good faith material
compliance with the continuation coverage requirements applicable to each
Employee Benefit Plan that is a group health plan subject to Section 4980B of
the Code.
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SECTION 4.14 Taxes. Except as set forth in Section 4.14 of the
Disclosure Schedule:
(a) each of the SSG Companies has, during the past three
years, timely filed or caused to be filed all federal, state, local and foreign
Tax returns required to be filed and has paid or caused to be paid, or has made
adequate provision or set up an adequate accrual or reserve on each of the books
of the SSG Companies for the payment of, all Taxes required to be paid in
respect of the periods for which returns are due, and has established an
adequate accrual or reserve under GAAP on each of the books of the SSG Companies
for the payment of all Taxes payable in respect of the period, including
portions thereof, subsequent to the last of said periods required to be so
accrued or reserved up to and including the Closing Date. For these purposes,
the Tax attributable to the period up to and including the Closing Date shall be
determined as if the taxable year of each of the SSG Companies ended as of the
Closing Date. There are no federal, state, and foreign income tax returns which
are due from any of the SSG Companies which have not been filed;
(b) there is no delinquency by any of the SSG Companies in the
payment of any Tax. No deficiencies for any Tax, assessment or governmental
charge have been claimed, proposed or assessed against any of the SSG Companies
or any of their assets, and to the knowledge of Parent, Softbank Holdings,
Softbank Europe and the SSG Companies, none have been threatened;
(c) no waiver or extension of time to assess any Taxes has
been given or requested. None of the SSG Companies has received notice of any
claim made by any taxing authority in any jurisdiction where any of the SSG
Companies do not file Tax returns that any of the SSG Companies are or may be
subject to taxation by that jurisdiction;
(d) the federal, state, local and foreign Tax returns that
include any of the SSG Companies have not been audited since the date of the
most recent audit set forth in Section 4.14 of the Disclosure Schedule by the
Internal Revenue Service or comparable federal, state, local or foreign agencies
or foreign taxing authority;
(e) at the Closing Date, the NOLs of the SSG Companies on a
consolidated basis is at least $11.5 million. None of the SSG Companies has
taken any action or failed to take any action that has had or could reasonably
be expected to have the effect of impairing or reducing such NOLs or impairing
or limiting CustomerONE Holding's ability to utilize such NOLs after the Closing
Date. Softbank Holdings will make any necessary elections to permit the NOLs and
any other tax attributes of the SSG Companies to be utilized by the SSG
Companies or CustomerONE Holding in the future;
(f) none of the SSG Companies has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
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(g) none of the SSG Companies is a party to any tax sharing or
similar agreement or arrangement (whether or not written) pursuant to which it
will have any obligation to make any payments after the Closing Date;
(h) each of the SSG Companies has complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes and has duly and timely withheld from employee
salaries, wages and other compensation and has paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable laws;
(i) there is no contract, agreement, plan or arrangement
covering any person, individually or collectively, that could give rise to the
payment of any amount that would not be deductible by CustomerONE Holding or the
SSG Companies or any of their affiliates by reason of Section 280G of the Code,
or would constitute compensation in excess of the limitation set forth in
Section 162(m) of the Code;
(j) none of the SSG Companies has agreed, nor is required to
make, any adjustment under Code Section 481(a), or similar provision under
foreign law, by reason of a change in accounting method or otherwise;
(k) none of the SSG Companies is subject to any private letter
ruling of the Internal Revenue Service or comparable rulings of other taxing
authorities;
(l) there are no Liens as a result of any unpaid Taxes upon
any of the assets of the SSG Companies; and
(m) no property owned by the SSG Companies is (i) property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986,
(ii) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (iii) is "tax-exempt bond financed property" within the
meaning of Section 168(g) of the Code.
SECTION 4.15 Compliance with Applicable Law. Except as set forth in
Section 4.15 of the Disclosure Schedule, each of the SSG Companies holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its businesses under and pursuant to, and the businesses of each of
the SSG Companies are not being conducted in violation in any material respect
of, any provision of any Federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, directive, concession,
grant, franchise, permit or license or other governmental authorization or
approval applicable to any of the SSG Companies.
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SECTION 4.16 Brokers' Fees and Commissions. None of the SSG Companies,
Parent, Softbank Holdings and Softbank Europe, their directors or officers, or,
to the knowledge of Softbank Holdings, Softbank Europe and the SSG Companies,
any of their employees or agents, has employed any investment banker, broker, or
finder in connection with the transactions contemplated hereby.
SECTION 4.17 Proprietary Rights. Section 4.17 of the Disclosure
Schedule contains an accurate and complete list of all material patents, patent
applications, trade names, trademarks, service marks, trademark registrations
and applications, service mark registrations and applications and copyright
registrations and applications, trade secrets and all material software
developed by or for the SSG Companies owned by any of the SSG Companies
(collectively, the "Intellectual Property"). The SSG Companies own all title and
interest, free and clear of liens and encumbrances in and to the Intellectual
Property and all material software, technology, information and/or data used in
or necessary for its business as now conducted or heretofore conducted and as
proposed to be conducted, including without limitation all software described in
the Disclosure Schedule (collectively, the "Company Technology"), except such
material third party software and technology licensed by the SSG Companies as
set forth in the Disclosure Schedule (the "Third Party Licenses"). The
Intellectual Property, the Company Technology and the Third Party Licenses
constitute all such property necessary to conduct the business of the SSG
Companies as presently conducted. Upon consummation of the transactions
contemplated by this Agreement, each of the SSG Companies will be entitled to
continue to use all such property currently used by it without the payment of
any additional fees or charges, other than ordinary course licensing fees.
Except as set forth in Section 4.17 of the Disclosure Schedule, to the knowledge
of Softbank Holdings, Softbank Europe and the SSG Companies, the use of the
Intellectual Property and the Company Technology does not infringe any
copyrights, trade secret rights, patents, patent rights, trademarks, service
marks, trade names, or privacy or other proprietary rights of any third party.
Except as set forth in Section 4.17 of the Disclosure Schedule, there are no
pending claims, and the SSG Companies have not received any communications or
information, that: (i) challenge the scope, validity, enforceability, or the SSG
Companies' ownership of the Intellectual Property and/or the Company Technology;
or (ii) allege that the SSG Companies have violated or infringed or, by
conducting its business as proposed, would violate or infringe any copyrights,
trade secret rights, patents, patent rights, trademarks, services marks, trade
names, or privacy or other proprietary rights of any third party. Except as set
forth in Section 4.17 of the Disclosure Schedule, all material patents, and any
registration and/or certificates issued by any Governmental Authority relating
to any of the Intellectual Property and all Third Party Licenses are valid and
subsisting, have been properly maintained and neither the SSG Companies nor, to
the knowledge of Softbank Holdings, Softbank Europe and the SSG Companies, any
other person is in default or violation thereunder. To the knowledge of Softbank
Holdings, Softbank Europe and the SSG Companies, no employee of any SSG Company
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the
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use of his or her best efforts to promote the interests of the SSG Companies or
that would conflict with the SSG Companies' business as proposed to be
conducted. Neither the carrying on of the SSG Companies' business by the
employees of the SSG Companies, nor the conduct of the SSG Companies' business
as proposed, will, to the knowledge of Softbank Holdings, Softbank Europe and
the SSG Companies, conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. To the knowledge
of Softbank Holdings, Softbank Europe and the SSG Companies, it is not and will
not be necessary to utilize any inventions of any employee of any SSG Company
(or people the SSG Companies currently intend to hire) made prior to their
employment by the SSG Companies. To the knowledge of Softbank Holdings, Softbank
Europe and the SSG Companies, no other person or entity has violated or
infringed or, by conducting its business as proposed, would violate or infringe
any copyrights, trade secret rights, patents, patent rights, trademarks, service
marks, trade names or privacy or other proprietary rights of the SSG Companies.
SECTION 4.18 Year 2000 Compliance. Except as set forth in Section 4.18
of the Disclosure Schedule (which includes a good faith estimate of any pending
compliance projects), the Company Technology and computing equipment operated by
the SSG Companies and third party software and other technology licensed to any
of the SSG Companies under Third Party Licenses are capable of recording,
storing, processing and presenting calendar dates falling on or after January 1,
2000 and date-dependent data in substantially the same manner and with
substantially the same functionality as such Company Technology, computing
equipment and software and other technology licensed under Third Party Licenses
records, stores, processes and presents calendar dates falling prior to January
1, 2000 and date-dependent data as of the date hereof.
SECTION 4.19 Privacy Matters. The SSG Companies are in compliance with
all applicable privacy laws governing the acquisition, maintenance and use of
information obtained through direct marketing activities. Section 4.19 of the
Disclosure Schedule contains a description of all complaints, orders, inquiries,
investigations and requests issued, made or undertaken by the Federal Trade
Commission, the Federal Communications Commission or any other regulatory body
or Governmental Authority with respect to the privacy of information obtained,
maintained or used by any of the SSG Companies.
SECTION 4.20 Labor Relations. Except as listed or described on Section
4.20 of the Disclosure Schedule, each of the SSG Companies (a) is, and has been
for the past three years, in compliance with all applicable laws regarding
employment and employment practices, terms and conditions of employment, wages
and hours, and plant closing, occupational safety and health and workers'
compensation, codes of conduct, collective agreements, orders or awards, and is
not engaged in any unfair labor practices, (b) has no, and has not had in the
past three years any, unfair labor practice charges or complaints pending or, to
the knowledge of Softbank Holdings, Softbank Europe and the SSG Companies,
threatened against it before the National Labor Relations Board or other
Governmental Authority, (c) has no, and has not had
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in the past three years any, grievances pending or, to the knowledge of Softbank
Holdings, Softbank Europe and the SSG Companies, threatened against it that
could reasonably be expected to have a Material Adverse Effect, and (d) has no,
and has not had in the past three years any, charges pending before the Equal
Employment Opportunity Commission or any state or local agency or other
Governmental Authority responsible for the prevention of unlawful employment
practices. There is no labor strike, slowdown, work stoppage or lockout actually
pending or, to the knowledge of Softbank Holdings, Softbank Europe and the SSG
Companies, threatened against or affecting any of the SSG Companies. To the
knowledge of Softbank Holdings, Softbank Europe and the SSG Companies, no union
organizational campaign or representation petition is currently pending with
respect to the employees of any of the SSG Companies.
SECTION 4.21 Insurance. At all times during the three years prior to
the Closing the SSG Companies have had insurance policies in full force and
effect for such amounts as are sufficient for material compliance with all
requirements of law and of all agreements to which any of the SSG Companies have
been parties or by which they have been bound and which Softbank Holdings,
Softbank Europe and the SSG Companies believe have been otherwise sufficient for
companies of like size in the same industry. Set forth in Section 4.21 of the
Disclosure Schedule is a list of all fire, liability and other forms of
insurance and all fidelity bonds held by or applicable to each of the SSG
Companies or their businesses or properties immediately prior to the Closing,
setting forth in respect of each such policy the policy name, policy number,
carrier, term, type of coverage and annual premium. Except as set forth in
Section 4.21 of the Disclosure Schedule, no event relating to any of the SSG
Companies or their business has occurred which can reasonably be expected to
result in a retroactive upward adjustment in premiums under any such insurance
policies. Except as set forth in Section 4.21 of the Disclosure Schedule,
excluding insurance policies that have expired and been replaced in the ordinary
course of business consistent with past practices, no insurance policy has been
cancelled within the last three years and, to the knowledge of Softbank
Holdings, Softbank Europe and the SSG Companies, no threat has been made to
cancel any insurance policy of any of the SSG Companies during such period.
Except as set forth in Section 4.21 of the Disclosure Schedule, all such
insurance will remain in full force and effect with respect to periods before
the Closing Date after giving effect to the transactions contemplated hereby. No
event has occurred, including, without limitation, the failure by any of the SSG
Companies to give any notice or information or any of the SSG Companies giving
any inaccurate or erroneous notice or information, which limits or impairs the
rights of any of the SSG Companies under any such insurance policies.
SECTION 4.22 Real Estate. None of the SSG Companies owns any real
property. Except as set forth in Section 4.22 of the Disclosure Schedule, each
of the SSG Companies has good and transferable leaseholds in all real estate
leased by it, under valid and enforceable leases (the "Leased Real Property").
Except as disclosed in Section 4.22 of the Disclosure Schedule, none of the
Leased Real Property is subject to any easements, rights of way, licenses,
grants, building or use restrictions, exceptions, reservations, limitations or
other
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impediments which materially and adversely affect the value thereof or which
interfere with or impair the present and continued use in the usual and normal
conduct of the business of each of the SSG Companies. Section 4.22 of the
Disclosure Schedule lists the street address of each parcel of Leased Real
Property. The SSG Companies have delivered to CustomerONE Holding true and
complete copies of the executed lease agreement, together with any amendments
thereto, with respect to each Leased Real Property.
SECTION 4.23 Personal Property. Except as set forth in Section 4.23 of
the Disclosure Schedule, each of the SSG Companies owns outright and has good
title to all the machinery, equipment, furniture, fixtures, inventory,
receivables and other tangible or intangible personal property reflected on the
latest balance sheets included in the Interim Financial Statements and all such
property acquired since the date of the Interim Financial Statements, except for
sales and other dispositions made in the ordinary course of business consistent
with past practices since such date.
SECTION 4.24 Environmental Matters. Except as set forth in Section
4.24 of the Disclosure Schedule: (a) the operations of each of the SSG Companies
have been and are in material compliance with all applicable Environmental Laws;
(b) no judicial or administrative proceedings are pending or, to the knowledge
of Softbank Holdings, Softbank Europe or the SSG Companies, threatened against
any of the SSG Companies or the Leased Real Property that alleges the violation
of, or which seek to impose liability against, any of the SSG Companies pursuant
to any Environmental Laws, and, there are no investigations pending or, to the
knowledge of Softbank Holdings, Softbank Europe or the SSG Companies, threatened
against the SSG Companies or affecting the Leased Real Property, which in any
case could result in any of the SSG Companies incurring material liabilities
under the Environmental Laws; (c) there are no facts, circumstances or
conditions relating to, arising from, or attributable to the SSG Companies that
are reasonably likely to result in any of the SSG Companies incurring material
liabilities under the Environmental Laws; and (d) Softbank Holdings and Softbank
Europe have provided CustomerONE Holding with copies of all environmentally
related audits, assessments, studies, reports, analyses, and results of
investigations of any of the real property currently or formerly owned, operated
or leased by any of the SSG Companies that are in the possession, custody or
control of Softbank Holdings, Softbank Europe or any of the SSG Companies.
SECTION 4.25 Customers and Suppliers. Except as described in Section
4.25 of the Disclosure Schedule, since January 1, 1998 there has not been any
material adverse change in the business relationship of any of the SSG Companies
with any material customer or supplier. Set forth in Section 4.25 of the
Disclosure Schedule is a list of the top ten customers by revenue of the SSG
Companies for the first eight months of 1998.
SECTION 4.26. Certain Business Practices; Potential Conflicts of
Interest. (a) None of the SSG Companies or any directors, officers, agents or
employees of any of the SSG Companies has (i) used any corporate funds for
unlawful contributions, gifts, entertainment or
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other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds or violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
(b) Except as set forth in Section 4.26 of the Disclosure
Schedule, none of Softbank Holdings or the executive officers or directors of
any of the SSG Companies or any entity controlled by any of the foregoing owns,
directly or indirectly, any significant interest in, or is a director, officer,
employee, consultant or agent of, any person which is a competitor, lessor,
lessee or customer of, or supplier of goods or services to, any of the SSG
Companies. Except as set forth in Section 4.26 of the Disclosure Schedule, none
of the stockholders, executive officers or directors of any of the SSG Companies
or any entity controlled by any of the foregoing (i) owns, directly or
indirectly, in whole or in part, any real property, leasehold interests or other
property with a fair market value of at least $25,000 in the aggregate the use
of which is necessary for the business of any of the SSG Companies, (ii) has any
cause of action or other suit, action or claim whatsoever against, or owes any
amount to any of the SSG Companies other than claims for travel and other
reimbursable expenses incurred in the ordinary course of business consistent
with past practices, (iii) has sold to, or purchased from, any of the SSG
Companies any assets or property for aggregate consideration in excess of
$25,000 since January 1, 1995, or (iv) is a party to any contract or
participates in any arrangement, written or oral, pursuant to which any of the
SSG Companies provides office space or services of any nature to any such
individual or entity, except to such individual in his capacity as an employee
of any of the SSG Companies.
SECTION 4.27 Tax Matters-United Kingdom.
(a) Returns and Information. All returns, computations,
notices and information which are or have been required to be made or given by
each Ivy Group Company for any Taxation purpose (i) have been made or given
within the requisite periods and on a proper basis and are up-to-date and
correct and (ii) none of them is the subject of any dispute with the Inland
Revenue or other Taxation authorities. Each Ivy Group Company is in possession
of sufficient information or has reasonable access to such information to enable
it to compute its liability to Taxation insofar as it depends on any transaction
occurring on or before the Closing Date.
(b) Taxation Liabilities. All Taxation of any nature
whatsoever whether of the United Kingdom or elsewhere to which any Ivy Group
Company is liable to account has been duly paid (insofar as such Taxation ought
to be have been paid) and without prejudice to the generality of the foregoing
each Ivy Group Company has made all such deductions and retentions as it was
obliged or entitled to make and all such payment as should have been made.
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(c) Penalties and Interest. No Ivy Group Company has within
the past seven years paid or become liable to pay, nor are there any
circumstances by reason of which any Ivy Group Company is likely to become
liable to pay any penalty, fine, surcharge or interest whether charged by virtue
of the provisions of the Taxes Management Act 1970, the VATA or otherwise.
(d) Investigations. No Ivy Group Company has in the past
twelve months suffered an investigation, audit or visit by the Inland Revenue,
HM Customs & Excise, Department of Social Security or any other Taxation or
excise authority and neither Softbank Europe nor any Ivy Group Company is aware
of any such investigation, audit or visit plans for the next twelve months.
(e) Payments. All rent, annual payments and other sums of an
income nature paid or payable by any Ivy Group Company since the Accounts Date
or which any Ivy Group Company is under an obligation to pay in the future are
wholly allowable as deductions or charges for computing income for the purposes
of corporation Tax.
(f) Loan Relationships. All interest, discounts or premiums
payable by an Ivy Group Company in respect of its loan relationships within the
meaning of Chapter II of Part IV of the Finance Act 1996 are capable of being
brought into account as a debit for the purposes of that Chapter as and to the
extent that they are from time to time recognized in the Ivy Group Company's
accounts (assuming that the accounting policies and methods adopted for the
purposes of the Accounts continue to be so adopted).
(g) Capital Allowances. No balancing charge under the Capital
Allowances Act 1990 (or other legislation relating to any capital allowances)
will be made on any Ivy Group Company on the disposal of any pool of assets
(that is to say, all those assets and expenditure relating to which would have
been taken into account in computing whether a balancing charge would arise on a
disposal of any other of those assets) or of any asset not in such a pool, on
the assumption that the disposals are made for a consideration equal to the book
value shown in or adopted for the purposes of the Accounts for the assets in the
pool or (as the case may be) for the assets.
(h) Acquisition Costs. The book value shown in or adopted for
the purposes of the Accounts as the value of each of the assets of any Ivy Group
Company on the disposal of which a chargeable gain or allowable loss could arise
does not exceed the amount which on a disposal of such asset at the date of this
Agreement would be deductible under Section 38 of the TCGA.
(i) Transactions not at Arms Length. No Ivy Group Company has
acquired any asset in circumstances such that the provisions of Section 19(3)
Capital Gains Act 1979 or Section 17 TCGA could apply to such acquisition nor
given nor agrees to give any consideration to which Section 128(2)(b) TCGA could
apply.
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(j) Compensation for Loss of Office. No Ivy Group Company is
under an obligation to pay nor has it since the Accounts Date paid or agreed to
pay any compensation for the loss of office or any gratuitous payment not
deductible in computing its income for the purposes of corporation Tax.
(k) Group Relief. Except as provided in the Accounts, no Ivy
Group Company is or will be under an obligation to make or have entitlement to
receive in respect of any period ending on or before the Accounts Date any
payment for group relief as defined in Section 402 of the Taxes Act or any
payment for the surrender of the benefit of an amount of advanced corporation
Tax or a repayment of such a payment.
(l) Treasury Consent for Migration of Companies. No Ivy Group
Company has carried out or caused or permitted to be carried out any of the
transactions (i) specified at the relevant time in Section 765(1) of the Taxes
Act otherwise than with the prior consent of HM Treasury and (in the case of a
special as opposed to general consent) full particulars of which are contained
in Section 4.27(l) of the Disclosure Schedule or (ii) specified at the relevant
time in Section 765 (A) of the Taxes Act without having duly provided the
required information to the Board of Inland Revenue.
(m) Tax Avoidance. No Ivy Group Company has been party to any
transaction the main purpose of which was Tax avoidance.
(n) Stamp Duty. All documents in the enforcement of which any
Ivy Group Company may be interested have been duly stamped.
(o) Taxation Claims, Liabilities and Reliefs. No relief
(whether by way of deduction, reduction, set-off, exemption, postponement,
roll-over, hold-over, repayment or allowances or otherwise) from, against or in
respect of any Taxation has been claimed and/or given to any Ivy Group Company
which could or might be effectively withdrawn, postponed, restricted, clawed
back or otherwise lost as a result of any act, omission, event or circumstance
arising or occurring in the ordinary course of business of the relevant Ivy
Group Company (as carried on at the Closing Date) at or on any time after the
Closing Date.
(p) Close Companies. No Ivy Group Company is, nor has ever
been, a close company.
(q) Company Residence. Each Ivy Group Company has been
resident for Tax purposes in the United Kingdom and nowhere else at all times
since its incorporation and is a resident at the Closing Date.
(r) Acquisitions from Members of the Same Group. The
consummation of the transactions contemplated by this Agreement will not result
in any profit or gain being
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deemed to accrue to any Ivy Group Company for Taxation purposes, whether
pursuant to Section 179 of the TCGA or otherwise.
(s) Replacement of Business Assets. No claim has been made
under Section 152, 153 or 154 TCGA or Section 175 TCGA or any other Section
which would effect the amount of any gain accruing or being treated as accruing
on a disposal of an asset of any Ivy Group Company.
(t) Rebasing. No Ivy Group Company has made a disposal to
which Section 35 TCGA applies.
(u) PAYE and National Insurance. Each Ivy Group Company has
properly operated the PAYE and National Insurance contributions systems by
making such deductions as are required by law from all payments made or deemed
to be or treated as made by it or on its behalf, and by duly accounting to the
Internal Revenue for all sums as deducted and for all other amounts for which it
is required in account under the PAYE and National Insurance contributions
systems.
(v) Depreciatory Transactions and Value Shifting. No asset
owned by any Ivy Group Company has at any time since its acquisition by that or
any other Ivy Group Company or any Ivy Group Company which has at any time been
a member of a group (as defined from time to time for any Taxation purpose) of
which the Ivy Group Company has at any time been a member been subjected to a
reduction in value such that any allowable loss arising on its disposal is
likely to be reduced or eliminated or any chargeable gain existing on its
disposal is likely to be increased.
(w) Value Added Tax (VAT). Each Ivy Group Company has complied
fully with all statutory requirements, orders, provisions, directions or
conditions relating to VAT, including (for the avoidance of doubt) the terms of
any agreement reached with the Commissioners of Customs and Excise; no Ivy Group
Company is a developer as defined in paragraph 5 Schedule 6A VATA in relation to
any building or work within paragraph 5(2) of that Schedule or any
reconstructions, enlargements or extension within paragraph 5(8) of that
Schedule either currently being constructed, reconstructed, enlarged or extended
or whose construction, reconstruction, enlargement or extension was completed
with a 10-year period prior to the Closing. No Ivy Group Company is or was
partially exempt in its current or preceding value added tax year. No Ivy Group
Company is or has been treated for value added tax purposes as a member of any
group of companies (other than a group comprising the Group Companies alone). No
direction has been given under paragraph 1 of Schedule 9(A) of the VATA either
to an Ivy Group Company or in circumstances where an Ivy Group Company may be
liable for any value added tax assessed by that direction.
SECTION 4.28 Accounts Receivable. The accounts receivable of each of
the SSG Companies as set forth on the Interim Financial Statements or arising
since the date thereof are
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valid and genuine; have arisen solely out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of business consistent with past practice; are not subject to valid
defenses, set-offs or counterclaims; and are collectible within 90 days after
billing at the full recorded amount thereof less, in the case of accounts
receivable appearing on the Interim Financial Statements, the recorded allowance
for collection losses on the Interim Financial Statements. The allowance for
collection losses on the Interim Financial Statements has been determined in
accordance with GAAP consistent with past practice.
SECTION 4.29 Inventory. All inventory of each of the SSG Companies,
including without limitation raw materials, supplies, work-in process and
finished goods, reflected on the Interim Financial Statements or acquired since
the date thereof was acquired and has been maintained in the ordinary course of
business of the SSG Companies; is of good and merchantable quality; consists
substantially of a quality, quantity and condition usable, leasable or saleable
in the ordinary course of business of the SSG Companies; is valued at the lower
of cost or market; and is not subject to any write-down or write-off. Each of
the SSG Companies is not under any liability or obligation with respect to the
return of inventory in the possession of wholesalers, retailers or other
customers.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF CUSTOMERONE HOLDING AND SUB
CustomerONE Holding and Sub hereby jointly and severally represent and
warrant to Softbank Holdings and Softbank Europe that:
SECTION 5.1 Organization and Qualification. Each of CustomerONE Holding
and Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, with all requisite
power and authority to own, lease and operate its respective properties and to
carry on its respective businesses as now being conducted.
SECTION 5.2 Authorization. Each of CustomerONE Holding and Sub has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. No other corporate proceeding,
including any shareholder vote, on the part of CustomerONE Holding or Sub is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by CustomerONE Holding and Sub and, assuming
this Agreement constitutes a valid and binding obligation of each of the other
parties hereto, will constitute a valid and binding obligation of CustomerONE
Holding and Sub, enforceable against each of them in accordance with its terms.
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SECTION 5.3 No Violation. Neither the execution and delivery of this
Agreement by CustomerONE Holding and Sub nor the performance by each of them of
their obligations hereunder nor the consummation by CustomerONE Holding or Sub
of the transactions contemplated hereby will (a) violate, conflict with or
result in any breach of any provision of the charter or bylaws of CustomerONE
Holding or Sub, (b) violate, conflict with or result in a violation or breach
of, or constitute a default (with or without due notice or lapse of time or
both) under, or permit the termination of, or require the consent of any other
party to, or result in the acceleration of, or entitle any party to accelerate
any obligation under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which CustomerONE Holding or Sub is a party or by
which they or any of their respective properties or assets may be bound or
affected, or (c) violate any order, writ, judgment, injunction, decree, statute,
rule or regulation of any court or domestic or foreign Governmental Authority
applicable to CustomerONE Holding or Sub or any of their respective properties
or assets.
SECTION 5.4 Consents and Approvals. Other than any consents and
approvals of or filings or registrations with the DOJ pursuant to the HSR Act
(all of which have been duly obtained or made) and the filing of the Certificate
of Ownership and Merger (in the form attached hereto as Exhibit A) (the
"Certificate of Merger") to effect the Merger pursuant to the DGCL, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any third party or any public or Governmental Authority is necessary
for the consummation by CustomerONE Holding or Sub of the transactions
contemplated by this Agreement.
SECTION 5.5 Brokers' Fees and Commissions. None of CustomerONE Holding,
Sub or their directors or officers, or, to the knowledge of CustomerONE Holding
or Sub, any of their employees or agents, has employed any investment banker,
broker or finder in connection with the transactions contemplated hereby.
ARTICLE VI
COVENANTS
SECTION 6.1 All Reasonable Efforts. If at any time after the Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, including, without limitation, the execution of additional documents
or instruments, the parties to this Agreement and the proper officers and
directors of such parties shall take all such necessary action.
SECTION 6.2 Consents and Approvals. The parties hereto each will
cooperate with one another and use all reasonable efforts to prepare all
necessary documentation, to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or any
exemptions by, all third parties and Governmental Authorities
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which may be necessary or desirable after the Closing Date to effect the
transactions contemplated hereby. Each party will keep the other party apprised
of the status of any inquiries made of such party by the DOJ or any other
Governmental Authority or members of their respective staffs with respect to
this Agreement or the transactions contemplated hereby.
SECTION 6.3 Public Announcements. Softbank Holdings and CustomerONE
Holding will consult with each other and will mutually agree (the agreement of
each party not to be unreasonably withheld) upon the content and timing of any
press release or other public statements with respect to the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation and agreement, except
as may be required by applicable law or by obligations pursuant to any listing
agreement with any securities exchange or any stock exchange regulations,
provided, however, that Softbank Holdings and CustomerONE Holding will give
prior notice to the other party of the content and timing of any such press
release or other public statement required by applicable law or by obligations
pursuant to any listing agreement with any securities exchange or any stock
exchange regulations.
SECTION 6.4 The Merger. Within a reasonable period of time following
the consummation of the Stock Purchases, CustomerONE Holding will effect the
Merger by duly filing the Certificate of Merger with the Secretary of State of
the State of Delaware, providing for the conversion of each share of Company
Common Stock owned by the Minority Stockholders into the right to receive $4.21
per share.
SECTION 6.5 Professional Fees and Expenses. Softbank Holdings agrees
to pay all accounting, legal, consulting and other fees and expenses of the SSG
Companies and their affiliates related to this Agreement or the transactions
contemplated hereby.
SECTION 6.6 Brokers' Fees and Commissions. Softbank Holdings will pay
any and all fees and commissions payable to any investment banker, broker or
finder engaged by Parent, Softbank Holdings, Softbank Europe or the SSG
Companies, or any of their respective authorized employees or agents, in
connection with the sale of the SSG Companies. CustomerONE Holding will pay any
and all fees and commissions payable to any investment banker, broker or finder
engaged by CustomerONE Holding or Sub, or their parent corporations or
authorized employees or agents, in connection with the Stock Purchases.
ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") is taking place at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153, on September 30, 1998
(the "Closing Date").
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SECTION 7.2 Actions of Softbank Holdings, Softbank Europe and the
Company at the Closing. Softbank Holdings, Softbank Europe and the Company are
causing the following things to occur or be delivered to CustomerONE Holding and
Sub in connection with the Closing:
(a) Softbank Holdings is delivering all of the certificates
representing the Company Common Stock owned by Softbank Holdings and the Company
Preferred Stock, accompanied by duly executed stock powers in blank;
(b) Softbank Europe is delivering all of the certificates
representing the Ivy Group Stock, accompanied by duly executed stock powers in
blank;
(c) Softbank Holdings and Softbank Europe are delivering to
CustomerONE Holding opinions, dated the Closing Date, from Sullivan & Cromwell
and Linklaters & Paine, in the forms attached hereto as Exhibits B-1 and B-2,
respectively;
(d) Softbank Holdings is furnishing CustomerONE Holding with
evidence of the payment in full of the Designated Debt and the release of all
(i) pledges, security interests, mortgages and other Liens securing such
indebtedness and (ii) pledges, security interests, mortgages and other Liens
identified with an asterisk on Section 4.11 of the Disclosure Schedule;
(e) Softbank Holdings and Softbank Europe are delivering
copies of all exercise notices or cancellation agreements with respect to all
options, warrants and other rights to acquire capital stock or otherwise have
any equity participation with respect to any of the SSG Companies, regardless of
whether such options, warrants or other rights are vested or unvested at the
Closing Date;
(f) Softbank Holdings is delivering an officer's certificate
certifying that, except as otherwise agreed to in writing prior to Closing by
CustomerONE Holding, all intercompany accounts of the SSG Companies (other than
those accounts between the Company and its wholly-owned Subsidiaries or between
Ivy Group and its wholly-owned Subsidiaries) have been eliminated and all
accounts payable and accounts receivable between any of the SSG Companies and
Parent or any affiliate of Parent (other than the SSG Companies and other than
accounts receivable from affiliates of Parent resulting from services rendered
by the Company or its wholly-owned Subsidiaries in the ordinary course of
business, consistent with past practices with, and on terms that are consistent
with those negotiated on an arm's length basis with, unaffiliated third parties)
have been repaid in full;
(g) Softbank Holdings is entering into an agreement with
CustomerONE Holding pursuant to which CustomerONE Holding and the SSG Companies
will be permitted to use the name Softbank Services Group and related trademarks
and service marks for a period of 180 days after the Closing Date;
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(h) Softbank Holdings is delivering a duly executed release
evidencing that all accrued and unpaid management fees owed by any SSG Company
to Parent or affiliates of Parent have been repaid in full and any underlying
agreements with respect to such management fees have been cancelled and the SSG
Companies have been unconditionally released from any and all liabilities or
further obligations thereunder; and
(i) Softbank Holdings and Softbank Europe are delivering
resignations and releases of all officers and directors of each of the SSG
Companies, except such as have been designated in writing by CustomerONE
Holding, effective as of the Closing Date.
SECTION 7.3 Actions of CustomerONE Holding and Sub at the Closing.
CustomerONE Holding and Sub are causing the following things to occur or be
delivered to Softbank Holdings and Softbank Europe in connection with the
Closing:
(a) CustomerONE Holding is delivering to Softbank Holding an
opinion, dated the Closing Date, from Weil, Gotshal & Manges LLP, counsel to
CustomerONE Holding and Sub, covering the matters set forth in the form of
opinion attached hereto as Exhibit C;
(b) Sub is delivering the Company Common Stock Consideration
and the Company Preferred Stock Consideration in accordance with Section 2.1;
(c) CustomerONE Holding is delivering the Ivy Stock
Consideration in accordance with Section 2.1;
(d) CustomerONE Holding is segregating the Minority
Stockholders' Consideration in a separate internal account for payment to the
Minority Stockholders in connection with the Merger; and
(e) CustomerONE Holding is segregating the Optionholders'
Consideration in a separate internal account for payment to the Optionholders.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall survive the Closing
for 36 months, except for (i) the representations and warranties contained in
Sections 4.4(c) and 4.4(d), which shall survive for ten years after the Closing
Date, and (ii) the representations and warranties contained in Sections 4.14 and
4.27, which shall survive until the expiration of the applicable statute of
limitations with respect to the subject matter thereof, including any extensions
or tolling of any
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applicable statute of limitations as may be requested by any Governmental
Authority. Any claim for indemnification with respect to any of such matters
which is not asserted by notice given as herein provided within the specified
period of survival may not be pursued and is hereby irrevocably waived after
such time. Any claim for an Indemnifiable Loss asserted within such period of
survival as herein provided will be timely made for purposes hereof.
SECTION 8.2 Limitations on Liability .
(a) Notwithstanding any other provision hereof, no Seller
Indemnitee will be entitled to indemnification pursuant to Section 8.3(a)(i)
unless and until the aggregate amount of Indemnifiable Losses under Section
8.3(a)(i) exceeds $500,000, in which event the Seller Indemnitee will be
entitled to indemnification for the entire amount of the Indemnifiable Loss,
including the first dollar of such Indemnifiable Loss, up to an aggregate of
$7.5 million.
(b) Notwithstanding any other provision hereof, no Buyer
Indemnitee will be entitled to indemnification pursuant to Section 8.3(b)(i)
unless and until the aggregate amount of Indemnifiable Losses under Section
8.3(b)(i) exceeds $500,000, in which event the Buyer Indemnitee will be entitled
to indemnification for the entire amount of the Indemnifiable Loss, including
the first dollar of such Indemnifiable Loss, up to an aggregate of $7.5 million;
provided, however, that the foregoing limitations shall not apply to any breach
of any representation or warranty set forth in Section 4.4(c), 4.4(d), 4.14 or
4.27.
SECTION 8.3 Indemnification.
(a) Subject to Sections 8.1 and 8.2, CustomerONE Holding
agrees to indemnify, defend and hold harmless Softbank Holdings from and against
any and all Indemnifiable Losses to the extent relating to, resulting from or
arising out of:
(i) any breach of representation or warranty of
CustomerONE Holding or Sub under the terms of this Agreement; and
(ii) any breach or nonfulfillment of any agreement or
covenant of CustomerONE Holding or Sub under the terms of this
Agreement.
(b) Subject to Sections 8.1 and 8.2, Softbank Holdings agrees
to indemnify, defend and hold harmless CustomerONE Holding, Sub and their
affiliates from and against any and all Indemnifiable Losses to the extent
relating to, resulting from or arising out of:
(i) any breach of representation or warranty of
Softbank Holdings under the terms of this Agreement; and
(ii) any breach or nonfulfillment of any agreement or
covenant of Softbank Holdings or Softbank Europe under the terms of
this Agreement.
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(c) Softbank Holdings agrees to indemnify and hold harmless
CustomerOne Holding and its affiliates, and the SSG Companies, without regard to
Section 8.2, in respect of any and all Indemnifiable Losses relating to,
resulting from or arising out of liability incurred prior to the Closing Date
under Title IV of ERISA with respect to any pension plan maintained or
contributed to by Softbank Holdings or any corporation, trade or business under
common control or treated as a single employer (within the meaning of Section
4001 of ERISA or Section 414 of the Code) with Softbank Holdings with respect to
the period prior to the Closing Date.
(d) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates, and the SSG Companies, without regard to
Section 8.2, in respect of any and all Indemnifiable Losses relating to,
resulting from or arising out of the defense and disposition of that certain
lawsuit styled Paul F. Seitz v. Upgrade Corporation of America (d/b/a Softbank
Services Group) et al. (NY Sup. Ct. (Erie County) (index # 1998\926).
(e) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates, and the SSG Companies, without regard to
Section 8.2, in respect of any and all Indemnifiable Losses relating to,
resulting from or arising out of the pledge by Softbank Holdings of the shares
of capital stock of UCA&L to Marine Midland Bank and the termination of such
pledge arrangement.
(f) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates, and the SSG Companies, without regard to
Section 8.2, in respect of any and all Indemnifiable Losses relating to,
resulting from or arising out of the failure of Softbank Holdings to deliver
consents to assignment of the following real property lease agreement: Lease
Agreement dated as of June 29, 1995 by and between Trico Products Corporation
and the Company, as amended.
(g) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates, and the SSG Companies, without regard to
Section 8.2, in respect of any and all Indemnifiable Losses relating to,
resulting from or arising out of (i) the Merger or the Company's relationship to
any of the Optionholders or Minority Stockholders as such or any person or
entity claiming to have been a stockholder or holder of any option or other
right to acquire Common Stock prior to closing; provided, however, that the
parties acknowledge and agree that the payment of the Minority Stockholders'
Consideration to the Minority Stockholders and the Optionholders' Consideration
to the Optionholders in accordance with the terms of this Agreement shall not
constitute an Indemnifiable Loss; (ii) the exercise by any of the Minority
Stockholders of appraisal rights under the DGCL in connection with the Merger or
by any Optionholder who subsequently becomes a stockholder by virtue of exercise
of options outstanding at the time of Closing who is cashed out in any
subsequent merger; and (iii) the necessity to effect a subsequent merger to cash
out any Optionholder or Minority Stockholder that was not cashed out in
connection with the Merger, including any fees or expenses incurred in
connection with preparing and filing any documents relating thereto under
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the DGCL or otherwise complying with law. To the extent that CustomerONE Holding
or any of its affiliates incurs any legal fees, costs or related expenses or
other Indemnifiable Losses in connection with eliminating any minority equity
interest, or claim of a minority equity interest, in the Company or the entity
surviving the Merger that arose as a result of any action of or actual or
asserted equity holding in, the Company prior to Closing, Softbank Holding
agrees to indemnify and hold harmless CustomerONE Holding and its affiliates as
a result thereof without regard to Section 8.2.
(h) This Section 8.3 shall not apply to any Indemnifiable Loss
to the extent that such Indemnifiable Loss is subject to indemnification under
Section 8.4.
SECTION 8.4. Tax Indemnification.
(a) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates (including, after the Closing, the
successors to any SSG Companies and all of the SSG Companies), and in each such
case their respective directors, officers, employees and agents, from and
against any and all Indemnifiable Losses resulting from, arising out of, based
on or relating to the SSG Companies' Total Pre-Closing Date Tax Liability if and
to the extent that such liability exceeds the sum of (i) all amounts actually
paid by any Person (including amounts actually paid by any of the SSG Companies
before the Closing, but excluding any amounts paid by CustomerONE Holding, its
affiliates, the successors to any SSG Companies and any of the SSG Companies
after the Closing) on behalf of any of the SSG Companies to the Internal Revenue
Service or to any other tax collecting agency or authority, with respect to the
SSG Companies' Total Pre-Closing Date Tax Liability, (ii) the amount of the
provision for current Taxes reflected on the Post-Closing Statement and (iii)
the amount of any liability reflected on the Post-Closing Statement as a reserve
for future tax disputes.
(b) Softbank Holdings agrees to indemnify and hold harmless
CustomerONE Holding and its affiliates (including, after the Closing, the
successors to any SSG Companies and all other SSG Companies), and in each such
case their respective directors, officers, employees and agents, from and
against any and all Indemnifiable Losses resulting from, arising out of, based
on or relating to any and all sales, use or other similar Taxes required to be
collected in respect of any Contract during the 12 months following the Closing
Date if (i) such Tax is not being collected by any of the SSG Companies in
respect of the Contract pursuant to their reliance on an applicable exemption
from such Tax, (ii) such exemption from Tax is dependent upon receipt by any of
the SSG Companies of a properly executed Exemption Certificate and (iii) within
12 months of the Closing Date, CustomerONE Holding or the successor to the SSG
Companies, as applicable, has notified Softbank Holdings that the applicable
Exemption Certificate neither is in any of the SSG Companies' nor such
successor's existing records or files nor obtainable from the particular
customer following reasonable commercial efforts of CustomerONE Holding or the
successor to the SSG Companies, to obtain such Exemption Certificate from the
customer.
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(c) Except as otherwise set forth in this Section 8.4,
CustomerONE Holding and the successors to any SSG Companies shall indemnify and
hold harmless Softbank Holdings and its affiliates and their directors,
officers, employees and agents from and against any and all Indemnifiable Losses
resulting from, arising out of, based on or relating to, Taxes with respect to
the successors to any SSG Companies or any of the SSG Companies for any taxable
period beginning after the Closing Date and for the portion of any taxable
period beginning before the Closing Date that falls after the Closing Date.
SECTION 8.5. Advancement of Expenses; Defense of Claims; Insurance and
Tax Benefit Adjustment.
(a) Notwithstanding any other provision hereof, Softbank
Holdings agrees to promptly advance (or in any event within five days) to any
Buyer Indemnitee all costs and expenses related to Indemnifiable Losses or any
other matter subject to indemnification under clauses (c), (d), (e), (f) or (g)
of Section 8.3. If a claim for indemnification or advancement of expenses under
any such clause is not paid in full by Softbank Holdings within 60 days after a
written claim has been received by Softbank Holdings, the Buyer Indemnitee may
at any time thereafter bring suit against Softbank Holdings to recover the
unpaid amount of the claim, and if successful in whole or in part, the Buyer
Indemnitee shall be entitled to be paid also the expenses of prosecuting such
claim.
(b) If any Indemnitee receives notice of assertion or
commencement of any Third Party Claim against such Indemnitee with respect to
which an Indemnifying Party may be obligated to provide indemnification under
this Agreement, the Indemnitee will give such Indemnifying Party reasonably
prompt written notice thereof, but in any event not later than 30 days after
receipt of such notice of such Third Party Claim. Such notice will describe the
Third Party Claim in reasonable detail, will include copies of all material
written evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in or, by
giving written notice to the Indemnitee, to assume the defense of any Third
Party Claim at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (reasonably satisfactory to the Indemnitee), and the
Indemnitee will cooperate in good faith in such defense; provided, however, that
if the Indemnitee is advised by counsel that there is or may be an actual or
potential conflict of interest in the event that the Indemnifying Party controls
such defense, the Indemnitee may participate in such defense with counsel of its
own choosing at the expense of the Indemnifying Party.
(c) If, within ten days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 8.5(b), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 8.5(b), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof (unless the proviso of such sentence is applicable);
provided,
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<PAGE> 45
however, that if the Indemnifying Party fails to take reasonable steps necessary
to defend diligently such Third Party Claim within ten Business Days after
receiving written notice from the Indemnitee or if the Indemnifying Party has
not undertaken fully to indemnify the Indemnitee in respect of all Indemnifiable
Losses relating to the matter, the Indemnitee may assume its own defense, and
the Indemnifying Party will be liable for all reasonable costs or expenses paid
or incurred in connection therewith. The Indemnifying Party will not enter into
any settlement of any Third Party Claim without the prior written consent of the
Indemnitee, which consent shall not be unreasonably withheld. If a firm offer is
made to settle a Third Party Claim without leading to liability or the creation
of a financial or other obligation or burden on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party will give written notice to the Indemnitee to that effect. If the
Indemnitee fails to consent to such firm offer within ten days after its receipt
of such notice, the Indemnitee may continue to contest or defend such Third
Party Claim and, in such event, the maximum liability of the Indemnifying Party
as to such Third Party Claim will not exceed the amount of such settlement
offer, plus costs and expenses paid or incurred by the Indemnitee through the
end of such ten day period. The Indemnifying Party shall have no indemnification
obligation with respect to any Third Party Claim which shall be settled or
compromised by the Indemnitee without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld; provided,
however, that a Third Party Claim may be settled or compromised by the
Indemnitee without the prior written consent of the Indemnifying Party (and the
Indemnifying Party shall be liable therefor) if the Indemnifying Party shall not
have responded in writing to the Indemnitee within five days after notice of any
settlement or compromise proposal.
(d) A failure to give timely notice or to include any
specified information in any notice as provided in Section 8.5(b) or 8.5(c) will
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(e) Except as otherwise expressly provided herein, the
Indemnifying Party will have a period of 30 days within which to respond in
writing to any claim by an Indemnitee on account of an Indemnifiable Loss which
does not result from a Third Party Claim (a "Direct Claim"). If the Indemnifying
Party does not so respond within such 30 day period, the Indemnifying Party will
be deemed to have rejected such claim, in which event the Indemnitee will be
free to pursue such remedies as may be available to the Indemnitee on the terms
and subject to the provisions of this Article VIII.
(f) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an Indemnity Payment, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by or against any other person,
the amount of such reduction, less any costs, expenses,
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<PAGE> 46
premiums or taxes incurred in connection therewith, will be repaid by the
Indemnitee to the Indemnifying Party. Upon making any Indemnity Payment the
Indemnifying Party will, to the extent of such Indemnity Payment, be subrogated
to all rights of the Indemnitee against any third party that is not an affiliate
of the Indemnitee in respect of the Indemnifiable Loss to which the Indemnity
Payment related; provided, however, that (i) the Indemnifying Party shall then
be in compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third party on account of said Indemnity Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision hereof,
each such Indemnitee and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
(g) In the event that any indemnification payment is made
under this Article VIII, then, within 30 days after the realization by the
recipient of such indemnification payment of any Tax benefit on account of its
realization of the Indemnifiable Loss for which the payment was made, such
recipient shall pay to the Indemnifying Party the amount of such Tax benefit.
For purposes of this Section 8.5(g), a Tax benefit shall be deemed to be
realized upon the later of the (i) the date on which income Taxes are due
(without regard to any extensions) for the period in which relevant deductions
on account of the Indemnifiable Loss may be claimed and (ii) the date on which
the indemnification payment is made. The amount and timing of any realization of
Tax benefit shall be determined by certification of an officer of the recipient
of the indemnification payment.
(h) With respect to a Third Party Claim for which Softbank
Holdings is the Indemnifying Party, CustomerONE Holding shall, and shall cause
the SSG Companies and their directors, officers, partners, employees, agents or
representatives to, make available to Softbank Holdings and its representatives
all books and records of CustomerONE Holding and the SSG Companies relating to
such Third Party Claim and shall render to Softbank Holdings or its
representatives such assistance and access to records and the representatives of
CustomerONE Holding or the SSG Companies as may be reasonably requested, except
that CustomerONE Holding and the SSG Companies shall not be required to make
available any books, records, documents or other information that CustomerONE
Holding reasonably determines to be confidential or subject to attorney-client
privilege unless and until Softbank Holdings shall have entered into such
agreements as CustomerONE Holding reasonably deems to be necessary in light of
all surrounding circumstances to protect such confidentiality or privilege.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment and Modification. This Agreement may be amended
by a written instrument signed by each of the parties hereto.
SECTION 9.2 Waiver of Compliance; Consents. Any failure of CustomerONE
Holding or Sub, on the one hand, or Softbank Holdings and Softbank Europe, on
the other hand, to comply with any obligation, covenant, agreement or condition
contained herein may be waived in writing by Softbank Holdings or CustomerONE
Holding, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure.
SECTION 9.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 9.4 Expenses and Obligations. All costs and expenses incurred
in connection with the consummation of the transactions contemplated by this
Agreement by CustomerONE Holding or Sub (including, without limitation, any fees
and expenses required in connection with any filings required under the HSR Act
or similar Canadian laws) shall be paid by CustomerONE Holding or the SSG
Companies and all costs and expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement by any of the
SSG Companies, Softbank Holdings or Softbank Europe shall be paid by Softbank
Holdings.
SECTION 9.5 Parties in Interest. This Agreement shall be binding upon
and, except as provided below, inure solely to the benefit of each party hereto,
and, nothing in this Agreement, except as set forth below, express or implied,
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.6 Tax Matters.
(a) Preparation of Tax Returns; Payment of Taxes. (i) (A)
Softbank Holdings shall include, or cause to be included, the Company and its
Subsidiaries in, and shall file, the United States consolidated federal income
Tax return of Softbank Holdings for the taxable period of the Company and its
Subsidiaries ending on the Closing Date and (B) Softbank Holdings and Softbank
Europe shall include, or cause to be included, the SSG Companies in, and shall
file, all other consolidated, combined or unitary Tax returns of Softbank
Holdings, Softbank Europe or any of their respective affiliates for the taxable
periods of each of the SSG Companies ending on the Closing Date, and shall pay
any and all Taxes due with respect to the returns referred to in this clause (i)
or clause (ii) below. Softbank
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Holdings and Softbank Europe also shall or shall cause each of the SSG Companies
to file all other Tax returns of or which include any of the SSG Companies
required to be filed (with regard to extensions) on or prior to the Closing Date
and shall pay any and all Taxes due with respect to such Tax returns.
(ii) Following the Closing, CustomerONE Holding shall
be responsible for preparing or causing to be prepared and filing or causing to
be filed all foreign, state and local Tax returns required to be filed by any of
the SSG Companies on a separate return basis after the Closing Date and, subject
to receiving the payments referred to in the last sentence of this Section
9.6(a)(ii), shall pay the Taxes shown due thereon; provided, however, that
nothing contained in the foregoing shall in any manner terminate, limit or
adversely affect any right of CustomerONE Holding or any of the SSG Companies to
receive indemnification pursuant to any provision in this Agreement. To the
extent any Taxes shown as due on such separate returns are indemnifiable by
Softbank Holdings or Softbank Europe, CustomerONE Holding shall provide such
party and its authorized representatives with copies of each such return at
least 15 days prior to its filing and such party shall have the right to review
and approve (which approval shall not be unreasonably withheld) such returns
prior to the filing thereof. Not later than five days before the due date for
payment of Taxes with respect to any such Tax returns, Softbank Holdings and
Softbank Europe, jointly and severally, shall pay to CustomerONE Holding an
amount equal to that portion of the Taxes shown on such return for which
Softbank Holdings or Softbank Europe have an obligation to indemnify CustomerONE
Holding pursuant to the provisions of Section 8.4.
(iii) For Federal income tax purposes, the taxable
year of each of the SSG Companies shall end as of the close of the Closing Date
and, with respect to all other Taxes, CustomerONE Holding, Softbank Holdings and
Softbank Europe will, unless prohibited by applicable law, elect with the
relevant taxing authority to close the taxable period of each of the SSG
Companies as of the close of the Closing Date. None of CustomerONE Holding,
Softbank Holdings or Softbank Europe shall take any position inconsistent with
the preceding sentence on any Tax return. In any case where applicable law does
not permit any of the SSG Companies to close its taxable year on the Closing
Date or in any case in which a Tax is assessed as of a date following the
Closing Date with respect to a taxable period which incudes the Closing Date,
then Taxes if any, attributable to the taxable period of such SSG Company
beginning on or before and ending after the Closing Date shall be allocated (A)
to Softbank Holdings or Softbank Europe, as applicable, for the period up to and
including the Closing Date, and (B) to CustomerONE Holding for the period
subsequent to the Closing Date. Any allocation of income or deductions required
to determine any Taxes attributable to any period beginning on or before and
ending after the Closing Date shall be made by means of a closing of the books
and records of each of the SSG Companies as of the close of the Closing Date,
provided that exemptions, allowances or deductions that are calculated on an
annual basis (including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on the Closing Date and
the period after the Closing Date in proportion to the number of days in each
such period.
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(b) Cooperation with Respect to Tax Returns. Softbank
Holdings, Softbank Europe and CustomerONE Holding agree to furnish or cause to
be furnished to each other, upon request, and each at their own expense, as
promptly as practicable, such information (including access to books and
records) and assistance relating to any of the SSG Companies as is reasonably
necessary for the filing of any Tax return, for the preparation for any audit,
and for the prosecution or defense of any claim, suit or proceeding relating to
any adjustment or proposed adjustment with respect to Taxes, including making
employees available on a mutually convenient basis to provide additional
information and explanations of any material provided hereunder. CustomerONE
Holding and each of the SSG Companies shall retain in their possession all Tax
returns, supporting books and records and any other materials that Softbank
Holdings or Softbank Europe may reasonably request in writing that might be
relevant to computations or payments required after the Closing Date with
respect to Tax matters relating to any taxable period ending on or prior to the
Closing Date until the relevant statute of limitations has closed. After such
period, CustomerONE Holding or any of the SSG Companies may dispose of such
materials, provided that prior to such disposition such entity shall give
Softbank Holdings and Softbank Europe a reasonable opportunity to take
possession of such materials.
(c) Tax Audits. (i) Whenever any taxing authority asserts a
claim, makes an assessment or otherwise disputes or affects the Tax reporting
position of any of the SSG Companies for taxable periods ending on or prior to
the Closing Date, CustomerONE Holding shall promptly, upon receipt by such
entity of notice thereof, inform Softbank Holdings and Softbank Europe thereof.
The failure of CustomerONE Holding or their affiliates to timely forward such
notification in accordance with the immediately preceding sentence shall not
relieve Softbank Holdings or Softbank Europe of their obligations to pay such
liability for Taxes except and to the extent that the failure to timely forward
such notification actually prejudices the ability of such entity to contest such
liability for Taxes or increases the amount of such Taxes.
(ii) Softbank Holdings and Softbank Europe shall have
the sole right to represent the interests of any of the SSG Companies in any Tax
audit or administrative or court proceeding relating to taxable periods of any
of the SSG Companies which end on or before the Closing Date; provided that if
the results of such Tax audit or proceeding could reasonably be expected to have
a Material Adverse Effect (or a material adverse effect on the condition
(financial or otherwise), properties, assets, liabilities, businesses,
prospects, earnings or operations of CustomerONE Holding) for taxable periods
ending after the Closing Date, then there shall be no settlement or closing or
other agreement with respect thereto without the consent of CustomerONE Holding,
which consent shall not be unreasonably withheld.
(iii) Softbank Holdings or Softbank Europe and
CustomerONE Holding jointly shall represent the interests of any of the SSG
Companies in any Tax audit or administrative or court proceeding relating to any
taxable period of any of the SSG Companies which includes (but does not begin
on) the Closing Date. Any disputes regarding the conduct
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<PAGE> 50
or resolution of any such audit or proceeding shall be resolved in an
arbitration to be conducted by the CPA Firm, whose fees shall be borne equally
by Softbank Holdings and CustomerONE Holding if the dispute involves the Company
or its Subsidiaries and by Softbank Europe and CustomerONE Holding if the
dispute involves the Ivy Group or its Subsidiaries. All of the parties shall be
bound by the decision of the CPA Firm in such arbitration.
(iv) CustomerONE Holding shall have the sole right to
represent the interests of Softbank Holdings, Softbank Europe and any of the SSG
Companies in all other Tax audits or administrative or court proceedings
relating to any taxable period of any of the SSG Companies that begins on or
after the Closing Date.
(d) Refund Claims. To the extent any determination of Tax
liability of any of the SSG Companies, whether as the result of an audit or
examination, a claim for refund, the filing of an amended return or otherwise,
results in any refund of Taxes paid attributable to (i) any period which ends on
or before the Closing Date or (ii) any period which includes the Closing Date
but does not begin on that day, any such refund shall belong to Softbank
Holdings or Softbank Europe, as applicable, (provided that in the case of any
Tax refund pursuant to clause (iii) of this subparagraph 9.6(d), the portion of
such Tax refund which shall belong to such party shall be that portion which
bears the same ratio to the total Tax refund attributable to the period as the
taxable income for the portion of that period which ends on the Closing Date
(determined on the basis of an interim closing of the books) bears to the
taxable income for the total period), and CustomerOne Holding shall promptly pay
upon receipt thereof any such refund, and the interest actually received
thereon, if any, to Softbank Holdings or Softbank Europe, as applicable. Any and
all other refunds shall remain the property of CustomerONE Holding. Any payments
made under this Section 9.6(d) shall be net of any Taxes payable with respect to
such refund, credit or interest thereon. Notwithstanding the foregoing, any
refunds of Taxes that were paid by any Person who is an obligor or lessee under
any Contract or by any other party shall belong to such party.
(e) Excess NOLs. In the event that the amount of the NOLs at
the Closing Date exceeds $11.5 million (the existence of which excess, if any,
to be certified to CustomerONE Holding by an officer of Softbank Holdings) and
CustomerONE Holding shall have utilized all or any portion of such excess to
reduce its United States federal income tax liability (such amount in excess of
$11.5 million which is actually utilized by CustomerONE Holding after the
Closing Date to reduce its United States federal income tax liability less any
Corel Damages being referred to herein as the "NOL Excess"), the following
provisions shall apply. If the Adjusted Net Working Capital was decreased as a
result of capital expenditures of the SSG Companies incurred in the ordinary
course of business from June 1, 1998 through September 30, 1998 and funded from
working capital (the "Capital Expenditure Impact"), then CustomerONE Holding
shall pay to Softbank Holdings an amount equal to the amount of such decrease;
provided, however, that any payment required pursuant to this section shall be
limited to the amount of the Capital Expenditure Impact and, provided further,
that in no event
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shall CustomerONE Holding be required pursuant to this Section 9.6(e) to pay to
Softbank Holdings any amount in excess of the product of the NOL Excess times
the Applicable Federal Tax Rate. For purposes of this Section, (A) "Corel
Damages" means any loss or damages related to or arising from the failure to
collect, after the Closing Date, any accounts receivable owed by Corel
Corporation or its affiliates as of the Closing Date or accounts receivable or
other amounts arising prior to the second anniversary of the Closing Date in
connection with bona fide sales and deliveries of goods by the SSG Companies to
Corel Corporation and its affiliates, performance of services by the SSG
Companies for Corel Corporation and its affiliates and other business
transactions in the ordinary course of business between any of the SSG Companies
and Corel Corporation and its affiliates; (B) "Applicable Federal Tax Rate"
means the rate, expressed as a percentage, at which income of the SSG Companies
is taxed by the United States during the period in which the NOL Excess is
realized, and (C) the timing and amount of the utilization of such NOLs shall be
determined by certification by an officer of CustomerONE Holding.
(f) In any instance in which, pursuant to Section 9.6(e) or
Section 8.5(g) any amount or timing of an item of tax loss, deduction, benefit
or attribute is to be certified by an officer of one party, then the other party
shall have the right, at its sole cost and expense, to verify the accuracy of
such certification by retaining Pricewaterhouse Coopers, L.L.P. (or such other
nationally recognized accounting firm mutually agreed to by the parties) to
review the calculation and determination of such amount or timing and to confirm
the accuracy of such certification. In no event shall the right conferred
hereunder be construed to afford either party the right to review, or challenge
the accuracy of, the other parties' income tax returns. For purposes of this
Section 9.6(f) and the other provisions of this Agreement to which this Section
9.6(f) relates, the accuracy of the certification of an officer of a party shall
be determined taking into account (i) tax returns of such party as filed and
(ii) any adjustments to such returns as finally determined by the relevant
administrative or judicial authorities, or by operation of the expiration of any
relevant statutory periods for collection of the relevant Taxes.
SECTION 9.7 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or on the second next Business
Day after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with request of
assurance of receipt in a manner customary for communication of such type) as
follows:
(a) If to CustomerONE Holding or Sub, to:
Onex Corporation
161 Bay Street, 49th Floor
P.O. Box 700
Toronto, ON M5J 2S1
Attention: Seth M. Mersky
Facsimile No.: 416/362-5765
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with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby, Esq.
Facsimile No.: 214/746-7777
Davies Ward & Beck
1 First Canadian Place
Suite 4400
Toronto, Ontario M5X 1B1
Attention: William M. Ainley, Esq.
Facsimile No.: 416/863-0871
(b) If to Softbank Holdings or Softbank Europe, to:
Softbank Holdings Inc.
10 Langley Road
Suite 403
Newton Center, MA 02159
Attention:Ronald Fisher
Facsimile No.: 617/928-9301
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Stephen Grant, Esq.
Facsimile No.: 212/558-3997
SECTION 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts-of-laws rules thereof.
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SECTION 9.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 9.10 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 Entire Agreement. This Agreement and the Disclosure
Schedule and Exhibits hereto embody the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein or therein.
There are no agreements, representations, warranties or covenants other than
those expressly set forth herein or therein. This Agreement and the Disclosure
Schedule and Exhibits hereto supersede all prior agreements and understandings
between the parties with respect to such subject matter.
SECTION 9.12 Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.13 Jurisdiction and Venue. The parties hereto agree that any
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted only in the United States District Court for the District of New
York, United States of America or, in the absence of jurisdiction, the Supreme
Court of New York. Each party waives any objection it may have now or hereafter
to the laying of the venue of any such suit, action or proceeding, and
irrevocably submits to the jurisdiction of any such court in any such suit,
action or proceeding. EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY EXHIBIT HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING OR
STATEMENTS (WHETHER VERBAL OR WRITTEN) RELATING TO THE FOREGOING. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT.
SECTION 9.14 Certain Interpretive Matters. Unless the context
otherwise requires, (a) all references to Sections, Articles or Exhibits are to
Sections, Articles or Exhibits of or to this Agreement, (b) each term defined in
this Agreement has the meaning assigned to it, (c) each accounting term not
otherwise defined in this Agreement has the meaning assigned to it in accordance
with GAAP, (d) "or" is disjunctive but not necessarily exclusive and (e) words
in the singular include the plural and vice versa. All references to "$" or
dollar amounts are to lawful currency of the United States of America.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all as of
the day and year first above written.
UPGRADE CORPORATION OF AMERICA
By: /s/ MARK BRIGGS
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
SOFTBANK HOLDINGS INC.
By: /s/ RONALD D. FISHER
-----------------------------------
Name: Ronald D. Fisher
-----------------------------
Title: Director
----------------------------
SB HOLDINGS (EUROPE) LTD.
By: /s/ RONALD D. FISHER
-----------------------------------
Name: Ronald D. Fisher
-----------------------------
Title: Director
----------------------------
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS O. HARBISON
-----------------------------------
Name: Thomas O. Harbison
-----------------------------
Title:
----------------------------
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SSG ACQUISITION CORP.
By: /s/ THOMAS O. HARBISON
-----------------------------------
Name: Thomas O. Harbison
-----------------------------
Title:
----------------------------
50
<PAGE> 1
EXHIBIT 2.2
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT made the 17th day of December, 1998.
BETWEEN:
ONEX CORPORATION,
a corporation existing under the laws of the
Province of Ontario,
(hereinafter referred to as the "Transferor"),
OF THE FIRST PART,
- and -
CUSTOMERONE HOLDING CORPORATION,
a corporation existing under the laws of the
State of Delaware,
(hereinafter referred to as the "Transferee"),
OF THE SECOND PART.
THIS AGREEMENT WITNESSES THAT in consideration of the respective
covenants, representations and warranties of the parties hereinafter contained
and for other good and valuable consideration (the receipt and sufficiency of
which are hereby acknowledged by each party), the parties hereby agree as
follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS. For the purposes of this Agreement, unless the context
otherwise requires, the following terms shall have the respective meanings set
out below and grammatical variations of such terms shall have corresponding
meanings:
(a) "COMMON SHARES" means 11,526,055 common shares in the capital of Onexco;
<PAGE> 2
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(b) "HEREBY", "HEREOF" and similar terms refer to this Agreement and not
to any particular Article, section, subsection or other portion of
this Agreement;
(C) "HOLDINGS SHARES" means the 11,410,071 common shares in the capital of
the Transferee to be issued pursuant to section 2.2;
(d) "ITA" means the Income Tax Act (Canada), as amended from time to time;
and
(e) "ONEXCO" means 1293219 Ontario Inc.
1.2 SECTIONS AND HEADINGS. The division of this Agreement into Articles,
sections and subsections and the insertion of headings are for reference
purposes only and shall not affect the interpretation of this Agreement. Unless
otherwise indicated, any reference herein to a particular Article, section or
subsection refers to the specified Article, section or subsection of this
Agreement.
1.3 NUMBER, GENDER AND PERSONS. In this Agreement, words importing the singular
number shall include the plural and vice versa, words importing gender shall
include all genders and words importing persons shall include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities.
1.4 APPLICABLE LAW. This Agreement shall be construed, interpreted and
enforced in accordance with, and the respective rights and obligations of the
parties shall be governed by, the laws of the Province of Ontario and the
federal laws of Canada applicable therein and each party irrevocably and
unconditionally submits to the non-exclusive jurisdiction of the courts of such
province and all courts competent to hear appeals therefrom.
1.5 SUCCESSORS AND ASSIGNS. This Agreement shall enure to the benefit of and
shall be binding on and enforceable by the parties and their respective
successors and permitted assigns, as applicable. Neither party may assign any of
its rights or obligations hereunder without the prior written consent of the
other party.
1.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which taken together
shall constitute one and the same instrument.
<PAGE> 3
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ARTICLE 2
EXCHANGE OF COMMON SHARES
2.1. EXCHANGE. Subject to the provisions of this Agreement and in consideration
for the Holdings Shares, the Transferor hereby transfers to the Transferee all
of the right, title and interest of the Transferor in and to the Common Shares,
having a fair market value on the date hereof of U.S. $11,410,071.
2.2 CONSIDERATION. In consideration for the Common Shares, the Transferee
hereby agrees to issue to the Transferor on the date hereof the Holdings Shares,
having a fair market value on the date hereof of U.S. $11,410,071. The
Transferee hereby agrees to deliver to the Transferor a certificate representing
the Holdings Shares registered in the name of the Transferor.
ARTICLE 3
REPRESENTATIONS, WARRANTIES
AND FURTHER COVENANTS
3.1. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. The Transferor hereby
represents and warrants to the Transferee as follows and acknowledges that the
Transferee is relying on such representations and warranties in connection with
its acquisition of the Common Shares:
(a) Enforceability. This Agreement is a legal, valid and binding obligation of
the Transferor, enforceable against the Transferor by the Transferee in
accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency and other laws affecting the rights of creditors
generally and except that equitable remedies may be granted only in the
discretion of a court of competent jurisdiction.
(b) No Violation. The entering into and performance of this Agreement by the
Transferor will not result in any violation of any agreement or instrument
by which it is bound or of any judgment or order to which it is subject.
(c) Beneficial Ownership. The Transferor is the registered and beneficial
owner of the Common Shares with a good and marketable title thereto, free
of all other liens, charges and encumbrances whatsoever.
(d) Residence. The Transferor is not a non-resident of Canada for purposes of
the ITA.
<PAGE> 4
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3.2 REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE. The Transferee hereby
represents and warrants to the Transferor as follows and acknowledges that the
Transferor is relying on such representations and warranties in connection with
its disposition of the Common Shares and acquisition of the Holdings Shares:
(a) Enforceability. This Agreement is a legal, valid and binding obligation of
the Transferee, enforceable against the Transferee by the Transferor in
accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency and other laws affecting the rights of creditors
generally and except that equitable remedies may be granted only in the
discretion of a court of competent jurisdiction.
(b) No Violation. The entering into and performance of this Agreement by the
Transferee will not result in any violation of any agreement or instrument
by which the Transferee is bound or of any judgment or order to which it
is subject.
(c) Holdings Shares. The Holdings Shares shall be validly issued by the
Transferee as fully paid and non-assessable shares.
3.3 SURVIVAL. The representations and warranties set out in this Article 3
shall survive the purchase and sale of the Common Shares herein provided for and
shall continue in full force and effect for the benefit of the party in whose
favour they are expressed to be made indefinitely.
ARTICLE 4
FURTHER ASSURANCES
4.1 FURTHER ASSURANCES BY THE TRANSFEROR. Upon the request from time to time
of the Transferee, the Transferor shall execute all such transfers, assignments,
notices and other documents, shall use its reasonable efforts to obtain all such
consents and approvals (provided that the Transferor shall not be required to
make any payments to obtain the same) and shall do all such other acts and
things as the Transferee, acting reasonably, may consider necessary or advisable
to have the Common Shares registered in the name of the Transferee.
IN WITNESS WHEREOF the parties have executed this Agreement.
ONEX CORPORATION
by /s/ MARK L. HILSON
-----------------------
/s/ ANTHONY MUNK
-----------------------
<PAGE> 5
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CUSTOMERONE HOLDING
CORPORATION by
by /s/ THOMAS P. DEA
-----------------------
/s/ SETH M. MERSKY
-----------------------
<PAGE> 1
EXHIBIT 2.3
================================================================================
[Conformed Copy]
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LCS INDUSTRIES, INC.,
CUSTOMERONE HOLDING CORPORATION
AND
CATALOG ACQUISITION CO.
DATED
AS OF
DECEMBER 17, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
ARTICLE I
THE OFFER
SECTION 1.1 The Offer ...................................................... 2
SECTION 1.2 Company Actions ................................................ 4
SECTION 1.3 Directors ...................................................... 5
ARTICLE II
THE MERGER
SECTION 2.1 The Merger ..................................................... 7
SECTION 2.2 Effect on Shares ............................................... 8
SECTION 2.3 Surrender and Payment .......................................... 8
SECTION 2.4 Dissenting Shares .............................................. 10
SECTION 2.5 Stock Options .................................................. 11
SECTION 2.6 Merger Without Meeting of Stockholders ......................... 12
SECTION 2.7 Closing ........................................................ 12
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1 Certificate of Incorporation ................................... 12
SECTION 3.2 Bylaws ......................................................... 12
SECTION 3.3 Directors and Officers ......................................... 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
SECTION 4.1 Corporate Existence and Power .................................. 13
SECTION 4.2 Corporate Authorization ........................................ 14
SECTION 4.3 Governmental Authorization ..................................... 14
SECTION 4.4 Non-Contravention .............................................. 15
SECTION 4.5 Capitalization ................................................. 15
SECTION 4.6 Subsidiaries ................................................... 17
SECTION 4.7 SEC Documents .................................................. 18
SECTION 4.8 Financial Statements; No Undisclosed Liabilities ............... 18
SECTION 4.9 Disclosure Documents ........................................... 19
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<TABLE>
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SECTION 4.10 Absence of Certain Changes .................................... 19
SECTION 4.11 Litigation .................................................... 22
SECTION 4.12 Taxes ......................................................... 22
SECTION 4.13 Employee Plans ................................................ 23
SECTION 4.14 Labor Matters ................................................. 25
SECTION 4.15 Compliance with Laws .......................................... 26
SECTION 4.16 Finders' Fees ................................................. 26
SECTION 4.17 Environmental Matters ........................................ 26
SECTION 4.18 Property ...................................................... 28
SECTION 4.19 Trademarks .................................................... 29
SECTION 4.20 Material Contracts ........................................... 29
SECTION 4.21 Insurance ..................................................... 30
SECTION 4.22 Year 2000 Compliance .......................................... 30
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
SECTION 5.1 Corporate Existence and Power ................................. 31
SECTION 5.2 Corporate Authorization ....................................... 31
SECTION 5.3 Governmental Authorization .................................... 32
SECTION 5.4 Non-Contravention ............................................. 32
SECTION 5.5 Disclosure Documents .......................................... 32
SECTION 5.6 Finders' Fees ................................................. 33
SECTION 5.7 Financing ..................................................... 33
SECTION 5.8 Solvency ...................................................... 33
SECTION 5.9 Share Ownership ............................................... 34
SECTION 5.10 Merger Subsidiary's Operations ................................ 34
ARTICLE VI
COVENANTS OF THE COMPANY
SECTION 6.1 Conduct of the Company ........................................ 34
SECTION 6.2 Stockholder Meeting; Proxy Material ........................... 36
SECTION 6.3 Access to Information; Confidentiality Agreement .............. 37
SECTION 6.4 No Solicitation ............................................... 38
SECTION 6.5 Conveyance Taxes .............................................. 39
SECTION 6.6 Directors Stock Plan .......................................... 39
ARTICLE VII
COVENANTS OF BUYER
SECTION 7.1 Obligations of Merger Subsidiary .............................. 40
SECTION 7.2 Voting of Shares .............................................. 40
SECTION 7.3 Director and Officer Insurance ................................ 40
SECTION 7.4 Investment Banking Fees ....................................... 41
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ii
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<TABLE>
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ARTICLE VIII
COVENANTS OF BUYER
AND THE COMPANY
SECTION 8.1 Reasonable Efforts ........................................... 41
SECTION 8.2 Certain Filings .............................................. 41
SECTION 8.3 Public Announcements ......................................... 42
SECTION 8.4 Conveyance Taxes ............................................. 42
SECTION 8.5 Further Assurances ........................................... 42
SECTION 8.6 Employee Matters ............................................. 43
SECTION 8.7 Stockholder Litigation ....................................... 43
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 Conditions to the Obligations of Each Party ................... 43
ARTICLE X
TERMINATION
SECTION 10.1 Termination .................................................. 44
SECTION 10.2 Effect of Termination ........................................ 45
ARTICLE XI
DEFINED TERMS
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices ...................................................... 51
SECTION 12.2 Nonsurvivial of Representations and Warranties ............... 52
SECTION 12.3 Amendments; No Waivers ....................................... 52
SECTION 12.4 Expenses ..................................................... 53
SECTION 12.5 Successors and Assigns ...................................... 53
SECTION 12.6 Governing Law ................................................ 53
SECTION 12.7 Severability ................................................. 53
SECTION 12.8 Third Party Beneficiaries .................................... 53
SECTION 12.9 Entire Agreement ............................................. 54
SECTION 12.10 Counterparts; Effectiveness .................................. 54
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iii
<PAGE> 5
ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 17, 1998 (this
"Agreement"), by and among LCS Industries, Inc., a Delaware
corporation (the "Company"), CustomerONE Holding Corporation, a
Delaware corporation ("Buyer"), and Catalog Acquisition Co., a
Delaware corporation and a wholly owned subsidiary of Buyer ("Merger
Subsidiary").
WHEREAS, the respective Boards of Directors of Buyer, Merger
Subsidiary and the Company have determined that it is fair to, and in
the best interests of their respective stockholders to consummate the
acquisition of the Company by Buyer upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, Buyer will cause
Merger Subsidiary to make a tender offer (as it may be amended from
time to time as permitted under this Agreement, the "Offer") to
purchase all of the issued and outstanding shares of Common Stock, par
value $.01 per share, of the Company (the "Shares") for $17.50 per
Share, net to the seller in cash (the "Offer Price"), upon the terms
and subject to the conditions of this Agreement and the Offer; and
WHEREAS, the Board of Directors of the Company has approved the
Offer and resolved and agreed to recommend that holders of Shares
tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the respective
Boards of Directors of Buyer, Merger Subsidiary and the Company have
approved the merger of Merger Subsidiary with and into the Company in
accordance with the Delaware General Corporation Law (the "DGCL")
whereby each issued and outstanding Share (other than Shares held by
the Company as treasury stock or owned by Buyer, Merger Subsidiary or
any other subsidiary of Buyer immediately prior to the Effective Time
and other than Dissenting Shares (as defined in Section 2.4 hereof)),
will be converted into the right to receive the Offer Price;
WHEREAS, Buyer, Merger Subsidiary and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with the Offer and
<PAGE> 6
the Merger (as defined in Section 2.1) and also to prescribe various
conditions to the Offer and the Merger.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the
parties hereto agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable, but in no event later than five
business days after the initial public announcement of the Offer,
Merger Subsidiary shall, and Buyer shall cause Merger Subsidiary to,
commence (as defined in Rule 14d-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) the Offer. The
obligation of Merger Subsidiary to, and Buyer to cause Merger
Subsidiary to, commence the Offer and accept for payment, and pay for,
any and all Shares tendered pursuant to the Offer shall be subject
only to the conditions set forth in Annex I hereto and to the terms
and conditions of this Agreement; provided, however, that Merger
Subsidiary shall not, without the Company's written consent, waive the
Minimum Condition (as defined in Annex I hereto). Merger Subsidiary
expressly reserves the right to modify the terms of the Offer;
provided that, without the Company's written consent, Merger
Subsidiary shall not (i) reduce the number of Shares which Merger
Subsidiary is offering to purchase in the Offer, (ii) reduce the Offer
Price, (iii) modify or add to the conditions set forth in Annex I
hereto, (iv) change the form of consideration payable in the Offer or
(v) otherwise amend or modify the Offer in any manner adverse to the
holders of the Shares. Notwithstanding the foregoing, if on any
scheduled expiration date the number of Shares that have been
physically tendered and not withdrawn are more than 5O% of the Shares
outstanding on a fully diluted basis but less than 90% of the
outstanding shares of each class of capital stock of the Company on a
fully diluted basis, Merger Subsidiary may extend the Offer for up to
10 additional business days from the date that all conditions to the
Offer (other than the Minimum Condition) shall first have been
satisfied, so long as Merger Subsidiary irrevocably waives the
satisfaction of any condition set forth in
2
<PAGE> 7
Annex A which relates to the occurrence of a Material Adverse Effect
on the Company (as defined in Section 4.1). Further, Merger Subsidiary
may extend the Offer beyond any scheduled expiration date up to the
Outside Termination Date (as defined in Section 10.1) if at the
initial expiration date of the Offer, or any extension thereof, the
conditions in clauses (a) and (b) to Annex I hereto are not satisfied
or waived. Subject to the terms and conditions of the Offer, Merger
Subsidiary shall, and Buyer shall cause Merger Subsidiary to, pay, as
promptly as practicable after expiration of the Offer, for all Shares
validly tendered and not withdrawn.
(b) On the date of commencement of the Offer, Buyer and Merger
Subsidiary shall file with the Securities and Exchange Commission (the
"SEC"), a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer which shall contain an offer to purchase and form of the related
letter of transmittal and summary advertisement (together with any
supplements or amendments thereto, collectively, the "Offer
Documents") and promptly thereafter shall disseminate the Offer
Documents to the stockholders of the Company. Buyer, Merger Subsidiary
and the Company each agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent
that it shall have become false or misleading in any material respect;
and each of Buyer and Merger Subsidiary further agrees to take all
steps necessary to amend or supplement the Offer Documents and to
cause the Offer Documents as so amended or supplemented to be filed
with the SEC and to be disseminated to the Company's stockholders, in
each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given a
reasonable opportunity to review and comment on the Offer Documents
prior to their being filed with the applicable authorities or
disseminated to the Company's stockholders. Buyer and Merger
Subsidiary agree to provide the Company and its counsel any comments
Buyer, Merger Subsidiary or their counsel may receive from the SEC or
its staff with respect to the Offer Documents promptly after the
receipt of such comments and shall provide the Company and its counsel
an opportunity to participate, including by way of discussion with the
SEC or its staff, in the response of Buyer and/or Merger Subsidiary to
such comments.
(c) Buyer shall provide or cause to be provided to Merger
Subsidiary on a timely basis the funds necessary to accept for
payment, and pay for, any Shares
3
<PAGE> 8
that Merger Subsidiary becomes obligated to pay for pursuant to the
Offer or the Merger.
SECTION 1.2 Company Actions. (a) The Company hereby consents to
the Offer and represents that its Board of Directors, at a meeting
duly called and held on December 17, 1998, has (i) determined that
this Agreement and the transactions contemplated hereby, including the
terms of the Offer and the Merger, are fair to and in the best
interests of the Company's stockholders, (ii) approved this Agreement
and the transactions contemplated hereby, including the Offer and the
Merger, and (iii) resolved to recommend acceptance of the Offer and
approval and adoption of this Agreement and the Merger by its
stockholders; provided however, that prior to the purchase by Merger
Subsidiary of Shares pursuant to the Offer, the Company may modify,
withdraw or change such recommendation to the extent that the Board of
Directors of the Company determines, after consultation with outside
legal counsel to the Company, that the failure to so withdraw, modify
or change such recommendation would likely be inconsistent with the
fiduciary duties of the Board of Directors of the Company under
applicable laws.
(b) The Board of Directors of the Company has received the
written opinion of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") to the effect that, as of such date, the Merger Consideration
(as defined in Section 2.2(c)) to be received by holders of Shares
pursuant to the Offer and the Merger, taken together, is fair from a
financial point of view to such holders. The Company has provided a
copy of such opinion to the Buyer.
(c) In connection with the Offer, if requested by Merger
Subsidiary, the Company shall furnish or shall cause to be furnished
to Merger Subsidiary mailing labels and any available listing or
computer file containing the names and addresses of all holders of
record of Shares and lists of securities positions of Shares held in
stock depositories, in each case as of a recent date, and shall
provide to Merger Subsidiary such additional information (including,
without limitation, updated lists of stockholders, mailing labels and
lists of securities positions) and such other assistance as Buyer or
Merger Subsidiary may reasonably request in connection with the Offer.
Except for such steps as are necessary to disseminate the Offer
Documents, Buyer and Merger Subsidiary shall hold in confidence the
information contained in any
4
<PAGE> 9
of such labels and lists and the additional information referred to
in the preceding sentence, will use such information only in
connection with the Offer, and, if this Agreement is terminated, will
upon request of the company deliver or cause to be delivered to the
Company all copies of such information then in its possession or the
possession of its agents or representatives.
(d) As soon as practicable after the filing of the Offer
Documents with the SEC, the Company shall file with the SEC a
Solicitation/Recommendation Statement on schedule 14D-9 (such Schedule
14D-9, as amended or supplemented from time to time, the "Schedule
14D-9") which shall, subject to the fiduciary duties of the Company's
Board of Directors under applicable laws and the provisions of this
Agreement, reflect the recommendation of the Company's Board of
Directors described in Section 1.2(a) hereof, and disseminate the
Schedule 14D-9 to the stockholders of the Company. Buyer, Merger
Subsidiary and the Company each agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the
extent that such Schedule 14D-9 shall have become false or misleading
in any material respect; and the Company further agrees to take all
steps necessary to amend or supplement the Schedule 14D-9 and to
cause the Schedule 14D-9 as so amended or supplemented to be filed
with the SEC and to be disseminated to the Company's stockholders, in
each case as and to the extent required by applicable federal
securities laws. Buyer and Merger Subsidiary and their counsel shall
be given a reasonable opportunity to review and comment on the
Schedule 14D-9 prior to its being filed with the applicable
authorities or disseminated to the Company's stockholders. The Company
agrees to provide Buyer and Merger Subsidiary and their counsel any
comments the Company or its counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of
such comments and shall provide Buyer and Merger Subsidiary and their
counsel an opportunity to participate, including by way of discussion
with the SEC or its staff, in the response of the Company to such
comments.
SECTION 1.3 Directors. (a) Subject to paragraph (b) below,
promptly upon the acceptance for payment by Merger Subsidiary of any
Shares pursuant to the Offer, Buyer shall be entitled to designate
such number of directors, rounded up to the next whole number, on the
Company's Board of Directors as is equal to the product of the total
number of directors on the Company's
5
<PAGE> 10
Board of Directors (giving effect to the election of any additional
directors pursuant to this sentence) and (ii) the percentage that the
aggregate number of Shares beneficially owned by Merger Subsidiary
(including Shares accepted for payment pursuant to the offer) bears to
the total number of Shares outstanding. The Company shall take all
action necessary to cause Merger Subsidiary's designees to be elected
or appointed to the Company's Board of Directors, including, without
limitation, increasing the number of directors and seeking and
accepting resignations of incumbent directors. At such times, the
Company will use its reasonable best efforts to cause individuals
designated by Buyer to constitute the same percentage as such
individuals represent on the Company's Board of Directors of each
Committee of the Board of Directors (other than a Committee
established to take action under this Agreement), each Board of
Directors of any Subsidiary of the Company and each Committee of each
such board. Notwithstanding the foregoing, until the Effective Time
(as defined in Section 2.1(b)), the Company shall retain as members of
its Board of Directors at least two directors who are directors of the
Company on the date hereof (the "Continuing Directors").
(b) The Company's obligations to appoint designees to the Board
of Directors shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Company shall promptly take all
actions required pursuant to Section 14(f) and Rule 14f-1 in order to
fulfill its obligations under this Section 1.3(b) and shall include in
the Schedule 14D-9 such information with respect to the Company and
its officers and directors as is required under Section 14(f) and Rule
14f-1 to fulfill its obligations under this Section 1.3. Buyer and
Merger Subsidiary shall supply in writing and be solely responsible to
the Company for any information with respect to themselves and their
nominees, officers, directors and affiliates required by Section 14(f)
and Rule 14f-1.
(c) From and after the time, if any, that Buyer's designees
constitute a majority of the Company's Board of Directors and prior to
the Effective Time, (i) any amendment of this Agreement, the Company
Certificate of Incorporation or the Company By-Laws or any of its
Subsidiaries, (ii) any termination of this Agreement by the Company,
(iii) any extension of time for performance of any of the obligations
of Buyer or Merger Subsidiary hereunder, (iv) any waiver of any
condition to the
6
<PAGE> 11
obligations of the Company or any of the Company's rights
hereunder and any termination pursuant to Section 10.1(i) hereof, (v)
any amendment or change to the policies of directors' and officers'
liability insurance maintained by the Company and its Subsidiaries on
the date hereof, (vi) any amendment or change to, or decision in
connection with, the indemnification of the individuals who on or
prior to the Effective Time were officers, directors, employees or
agents of the Company or any of its Subsidiaries under the Company
Certificate of Incorporation or Company By-laws, the certificate of
incorporation or bylaws of any Subsidiary of the Company, or under any
existing agreement between such person or persons and the Company or a
Subsidiary of the Company and (vii) any amendment or change to any
Plan (as defined in Section 4.13(a) hereof) or modifications to
existing compensation policies or severance obligations (including
those agreements or obligations referenced in Section 4.13 hereof or
set forth on Schedule 4.13 of the disclosure schedule delivered by the
Company in connection herewith and attached hereto (the "Company
Disclosure Schedule")) may be effected only by the action of a
majority of the directors of the Company then in office who are
Continuing Directors, which action shall be deemed to constitute the
action of a committee specifically designated by the Board of
Directors to approve the actions and transactions contemplated hereby;
provided, that if there shall be no Continuing Directors, such actions
may be effected by majority vote of the entire Board of Directors of
the Company. Any actions with respect to the enforcement of this
Agreement by the Company shall be effected only by the action of a
majority of the Continuing Directors.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. (a) Subject to the terms and conditions
of this Agreement, and in accordance with the DGCL, at the Effective
Time, Merger Subsidiary shall be merged (the "Merger") with and into
the Company, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the
"Surviving Corporation") and shall continue to be governed by the laws
of the State of Delaware.
(b) The Company, Buyer and Merger Subsidiary will cause a
certificate of merger (the "Certificate of
7
<PAGE> 12
Merger") with respect to the Merger to be executed and filed with the
Secretary of State of the State of Delaware (the "Secretary of State")
as provided in the DGCL. The Merger shall become effective on the date
the Certificate of Merger has been duly filed with the Secretary of
State or at such date as is agreed between the parties specified in
the Certificate of Merger, and such time is hereinafter referred to as
the "Effective Time."
(c) From and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities, liabilities and
duties of the Company and Merger Subsidiary.
SECTION 2.2 Effect on Shares. At the Effective Time:
(a) Cancellation of Certain Stock. Each Share held by the Company
as treasury stock or owned by Buyer, Merger Subsidiary or any other
Subsidiary of Buyer and the Dissenting Shares (defined in Section 2.4
hereof, but except as provided in Section 2.4 hereof) immediately
prior to the Effective Time shall automatically be canceled and
retired and cease to exist, and no payment shall be made with respect
thereto.
(b) Capital Stock of Merger Subsidiary. Each share of common
stock of Merger Subsidiary issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid
and nonassessable share of common stock, par value $0.01, of the
Surviving Corporation with the same rights, powers and privileges as
the shares so converted and shall constitute the only outstanding
shares of capital stock of the Surviving Corporation.
(c) Conversion of Shares. Each Share issued and outstanding
immediately prior to the Effective Time shall, except as otherwise
provided in Section 2.2(a) hereof, be converted into the right to
receive the Offer Price, without interest (the "Merger
Consideration").
SECTION 2.3 Surrender and Payment. (a) Prior to the Effective
Time, Buyer shall appoint a depositary (the "Depositary") for the
purpose of exchanging certificates representing Shares for the Merger
Consideration. The Depositary shall at all times be a commercial bank
having a combined capital and surplus of at least
8
<PAGE> 13
$500,000,000. Buyer will pay to the Depositary immediately prior to
the Effective Time, the Merger Consideration to be paid in respect of
the Shares. For purposes of determining the Merger Consideration to be
so paid, Buyer shall assume that no holder of Shares will perfect his
right to appraisal of his Shares. Promptly after the Effective Time,
Buyer will send, or will cause the Depositary to send, but in no event
later than three business days after the Effective Time, to each
holder of Shares at the Effective Time a letter of transmittal for use
in such exchange (which shall specify that the delivery shall be
effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing Shares to the Depositary)
and instructions for use in effecting the surrender of Shares in
exchange for the Merger Consideration.
(b) Each holder of Shares that has been converted into a right to
receive the Merger Consideration, upon surrender to the Depositary of
a certificate or certificates properly representing such Shares,
together with a properly completed letter of transmittal covering such
Shares, will be entitled to receive the Merger Consideration payable
in respect of such Shares less any amounts required to be withheld
under applicable federal, state, local or foreign income tax
regulations. Until so surrendered, each such certificate shall, after
the Effective Time, represent for all purposes, only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by
the certificate or certificates surrendered in exchange therefor, it
shall be a condition to such payment that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the Person requesting such
payment shall pay to the Depositary any transfer or other taxes
required as a result of such payment to a Person other than the
registered holder of such Shares or establish to the satisfaction of
the Depositary that such tax has been paid or is not payable. For
purposes of this Agreement, "Person" means an individual, a
corporation, limited liability company, a partnership, an association,
a trust or any other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
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(d) After the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further
registration of transfers of Shares. If, after the Effective Time,
certificates representing Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set
forth, in this Article II.
(e) Any portion of the Merger Consideration paid to the
Depositary pursuant to Section 2.3(a) that remains unclaimed by the
holders of Shares one year after the Effective Time shall be returned
to Surviving Corporation, upon demand, and any such holder who has not
exchanged his Shares for the Merger Consideration in accordance with
this Section 2.3 prior to that time shall thereafter look only to the
Surviving Corporation for payment of the Merger Consideration in
respect of his Shares, without any interest thereon. Notwithstanding
the foregoing, Buyer, Merger Subsidiary and the Surviving Corporation
shall not be liable to any holder of Shares for any amount paid to a
public official pursuant to applicable abandoned property laws. Any
amounts remaining unclaimed by holders of Shares on the day
immediately prior to such time as such amounts would otherwise escheat
to or become property of any governmental entity shall, to the extent
permitted by applicable law, become the property of Buyer free and
clear of any claims or interest of any Person previously entitled
thereto.
(f) Any portion of the Merger Consideration paid to the
Depositary pursuant to Section 2.3(a) hereof to pay for Shares for
which appraisal rights have been perfected shall be returned to
Surviving Corporation upon demand.
SECTION 2.4 Dissenting Shares. Notwithstanding Section 2.2
hereof, Shares issued and outstanding immediately prior to the
Effective Time and held by a holder who has properly exercised and
perfected appraisal rights under Section 262 of the DGCL (the
"Dissenting Shares"), shall not be converted into the right to receive
the Merger Consideration, but the holders of Dissenting Shares shall
be entitled to receive such consideration as shall be determined
pursuant to Section 262 of the DGCL; provided, however, that if any
such holder shall have failed to perfect or shall withdraw or lose his
right to appraisal and payment under the DGCL, such holder's Shares
shall thereupon be deemed to have been
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converted as of the Effective Time into the right to receive the
Merger Consideration, without any interest thereon, and such Shares
shall no longer be Dissenting Shares. The Company shall give Buyer (i)
prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other instruments served pursuant to the
DGCL received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal
under the DGCL. The Company will not voluntarily make any payment with
respect to any demands for appraisal and will not, except with the
prior written consent of Buyer, settle or offer to settle any such
demands.
SECTION 2.5 Stock Options. (a) Immediately prior to the Effective
Time, each outstanding employee or director stock option (an "Option")
to purchase Shares granted under the 1983 Incentive Stock Option Plan,
the 1993 Incentive Stock Option Plan, the 1993 Non-Employee Directors
Stock Option Plan or the 1996 Non-Employee Directors Stock Option Plan
(collectively, the "Option Plans") or any other compensation plan or
arrangement of the Company shall be canceled, and each holder of any
such Option, whether or not then vested or exercisable, shall be paid
by the Company at the Effective Time for each such Option an amount
determined by multiplying (i) the excess, if any, of the Merger
Consideration over the applicable exercise price of such Option by
(ii) the number of Shares such holder could have purchased (assuming
full vesting of all Options) had such holder exercised such Option in
full immediately prior to the Effective Time.
(b) Prior to the Effective Time, the Company shall use its best
efforts (i) to obtain any consents from holders of Options and (ii)
make any amendments to the terms of the Option Plans or compensation
plans or arrangements, to the extent such consents or amendments are
necessary to give effect to the transactions contemplated by Section
2.5(a). Notwithstanding any other provision of this Section 2.5,
payment may be withheld in respect of any Option until necessary
consents are obtained.
(c) The Company shall promptly amend the 1994 Employee Stock
Purchase Plan to provide for (i) the suspension of participation
during any offering periods commencing subsequent to the date of this
agreement for the pendency of the Merger and subject to the successful
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consummation of the Merger and (ii) the termination of the 1994
Employee Stock Purchase Plan as of the Effective Time.
SECTION 2.6 Merger Without Meeting of Stockholders.
Notwithstanding Section 6.2 hereof, in the event that Buyer, Merger
Subsidiary or any other subsidiary of Buyer shall acquire at least 90%
of the outstanding shares of each class of capital stock of the
Company, pursuant to the Offer or otherwise, the parties hereto agree
to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition,
without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
SECTION 2.7 Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m., New York City time, on a date to be
specified by the parties hereto, which shall be no later than the
third business day after satisfaction or waiver of all of the
conditions set forth in Article IX hereof (the "Closing Date"), at the
offices of Weil, Gotshal & Manges LLP in New York, New York unless
another time, date or place is agreed to in writing by the parties
hereto.
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1 Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time
shall be the certificate of incorporation of the Surviving Corporation
until thereafter amended in accordance with applicable law or such
certificate of incorporation.
SECTION 3.2 Bylaws. The by-laws of Merger Subsidiary in effect at
the Effective Time shall be the by-laws of the Surviving Corporation
until thereafter amended in accordance with applicable law, the
certificate of incorporation or such by-laws.
SECTION 3.3 Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of Merger Subsidiary at
the Effective Time shall be the initial directors of the
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Surviving Corporation and the officers of Merger Subsidiary at the
Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly
elected and appointed or qualified.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Buyer and Merger
Subsidiary that:
SECTION 4.1 Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, and except as set forth on
Schedule 4.1 of the Company Disclosure Schedule, has all corporate
powers and all governmental licenses, authorizations, consents and
approvals (collectively, "Licenses") required to carry on its business
as now conducted except where the failure to have any such License,
individually or in the aggregate, would not have a Material Adverse
Effect (as defined below). The Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified,
individually or in the aggregate, would not have a Material Adverse
Effect. As used herein, the term "Material Adverse Effect" means a
material adverse effect on the condition (financial or otherwise),
business, assets, prospects or results of operations of the Company
and its Subsidiaries (as defined in Section 4.6) taken as a whole, or
the Buyer and the Merger Subsidiary, as the case may be, that is not a
result of general changes in the economy or the industries in which
such entities operate, provided, however, that "prospects" shall not
include the prospects of the Company's IT and Consultancy Services
businesses. The Company has heretofore delivered or made available to
Buyer true and complete copies of the Company Certificate of
Incorporation and Company By-laws as currently in effect. In all
material respects, the minute books of the Company contain accurate
records of all meetings and accurately reflect all other actions taken
by the stockholders, the board of directors
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and all committees of the board of directors of the Company. Complete
and accurate copies of all such minute books and of the stock register
of the Company have been made available by the Company to Buyer.
SECTION 4.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby are within the
Company's corporate powers and, except for any required approval by
the Company's stockholders in connection with the consummation of the
Merger, have been duly authorized by all necessary corporate action.
This Agreement, assuming due and valid authorization, execution and
delivery by the other parties hereto, constitutes a legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, except that (i) enforcement may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting creditors'
rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 4.3 Governmental Authorization. Except as set forth in
Schedule 4.3 of the Company Disclosure Schedule, the execution,
delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby
require no action by or in respect of, or filing with, any
governmental body, agency, official or authority (each, a
"Governmental Entity") other than: (i) the filing of a certificate of
merger in accordance with the DGCL; (ii) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"); (iii) compliance with any
applicable requirements of the Exchange Act; (iv) compliance with the
applicable requirements of state blue sky laws; (v) compliance with
the applicable requirements of any applicable takeover laws and (vi)
such other actions by or in respect of, or filings with, the failure
of which to obtain or make, individually or in the aggregate, would
not have a Material Adverse Effect and which would not materially
impair the ability of the Company to consummate the transactions
contemplated hereby.
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SECTION 4.4 Non-Contravention. The execution, delivery and
performance by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby do not and will
not (i) contravene or conflict with the Certificate of Incorporation
or By-laws of the Company or any Subsidiary, (ii) except as set forth
in Schedule 4.4 of the Company Disclosure Schedule and assuming
compliance with the matters referred to in Section 4.3 hereof,
contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or any Subsidiary of the Company,
(iii) except as set forth in Schedule 4.4 of the Company Disclosure
Schedule, with or without the giving of notice or passage of time or
both, constitute a material default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation
of the Company or any Subsidiary of the Company or to a material loss
of any benefit to which the Company or any Subsidiary of the Company
is entitled under any provision of any agreement, contract or other
instrument binding upon the Company or any Subsidiary of the Company
or any license, franchise, permit or other similar authorization held
by the Company or any Subsidiary of the Company, or (iv) result in the
creation or imposition of any Lien (as defined below) on any asset of
the Company or any Subsidiary of the Company, excluding from the
foregoing clauses (ii), (iii) or (iv), such violations, breaches,
defaults or Liens, individually or in the aggregate, which would not
have a Material Adverse Effect. For purposes of this Agreement, "Lien"
means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.
SECTION 4.5 Capitalization. The authorized capital stock of the
Company consists of 15,000,000 Shares and 1,000,000 shares of
preferred stock (the "Preferred Stock"). As of December 16, 1998,
there were (i) 4,898,447 Shares issued and outstanding; (ii) 214,663
Shares held in the Company's treasury; and (iii) no shares of
Preferred Stock issued and outstanding. As of December 16, 1998, there
were (i) options outstanding pursuant to the 1996 Non-Qualified
Non-Employee Directors Stock Option Plan ("the 1996 Plan") to acquire
an aggregate of 22,000 Shares, at an exercise price of $15.00; (ii)
options outstanding pursuant to the 1993 Non-Qualified Non-Employee
Directors Stock Option Plan ("the 1993 Plan") to acquire an aggregate
of 11,600 Shares, with an
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exercise price range of a minimum exercise price of $3.53 and a
maximum exercise price of $16.00; additional options outstanding
granted to non-employee directors to acquire an aggregate of 48,000
Shares, with an exercise price range of a minimum exercise price of
$2.05 and a maximum exercise price of $5.38; and additional options
outstanding granted to certain officers of the Company to acquire an
aggregate of 25,000 Shares, with an exercise price of $5.75. Schedule
4.5 of the Company Disclosure Schedule accurately sets forth
information regarding the exercise price, date of grant and number of
granted options for each holder of options pursuant to the 1993
Qualified Stock Option Plan and the 1983 Qualified Stock Option Plan
(the "Qualified Plans"). As of December 16, 1998, there were options
outstanding pursuant to the Qualified Plans to acquire an aggregate of
552,450 Shares for a total of 659,050 Shares under all plans. All
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section 4.5, and except for changes since
December 16, 1998 resulting from the exercise of employee options
outstanding on such date, there are outstanding (i) no shares of
capital stock or other voting securities of the Company, (ii) no
securities of the Company or of any Subsidiary of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) except as set forth on Schedule 4.5
of the Company Disclosure Schedule, no options, warrants, calls,
subscriptions or other rights to acquire from the Company, and no
obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company, (iv) no outstanding
contractual obligations or commitments of any character restricting
the transfer of, or requiring the registration for sale of, any
capital stock of the Company, (v) no outstanding contractual
obligations or commitments of any character granting any preemptive or
antidilutive right with respect to, any capital stock of the Company
and (vi) no voting trusts or similar agreements to which the Company
is a party with respect to the voting of the capital stock of the
Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any Subsidiary of the Company to
repurchase, redeem or otherwise acquire any Company Securities.
Neither the Company nor any Subsidiary of the Company has issued any
stock appreciation
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right or similar payment obligation based on the value of the
Company's common equity.
SECTION 4.6 Subsidiaries. (a) Each Subsidiary of the Company (a
"Subsidiary") (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, (ii) except as set forth in Schedule 4.6(a) of the
Company Disclosure Schedule, has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and (iii) except as set
forth in Schedule 4.6(a) of the Company Disclosure Schedule, is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such
qualification necessary, except in each case to the extent the failure
of this representation and warranty to be true would not have a
Material Adverse Effect. The Company has heretofore delivered or made
available to Buyer a complete and correct copy of the charter and
bylaws of each Subsidiary of the Company, as currently in effect. In
all material respects, the minute books of each Subsidiary of the
Company contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the boards of
directors and all committees of the boards of directors of each
Subsidiary of the Company. Complete and accurate copies of all such
minute books and of the stock register of each Subsidiary of the
Company have been made available to the Buyer. For purposes of this
Agreement, "Subsidiary" means with respect to any Person, any
corporation or other legal entity of which such Person owns, directly
or indirectly, more than 50% of the outstanding stock or other equity
interests, the holders of which are entitled to vote for the election
of the board of directors or other governing body of such corporation
or other legal entity. All Subsidiaries and their respective
jurisdictions of incorporation are identified on Schedule 4.6 of the
Company Disclosure Schedule.
(b) Each outstanding share of capital stock of each Subsidiary of
the Company has been duly and validly authorized and issued and is
fully paid and nonassessable. Except as set forth in Schedule 4.6(b)
each outstanding share of capital stock of each Subsidiary is
owned by the Company and/or one or more of its Subsidiaries and such
shares are owned free and clear of any Liens. There are no
subscriptions, options,
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warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issuance, transfer, sale,
delivery, voting or redemption (including any rights of conversion or
exchange under any outstanding security or other instrument) for, any
of the capital stock or other equity interests of any of such
Subsidiaries. There are no agreements requiring the Company or any of
its Subsidiaries to make contributions to the capital of, or lend or
advance funds to, any Subsidiaries of the Company.
SECTION 4.7 SEC Documents. The Company has filed all required
reports, proxy statements, forms and other documents with the SEC
since October 1, 1996 ("Company SEC Documents"). As of their
respective dates, to the knowledge of the Company, (i) the Company SEC
Documents complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to such SEC Documents, and (ii)
none of the Company SEC Documents contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made,
not misleading.
SECTION 4.8 Financial Statements, No Undisclosed Liabilities. The
financial statements of the Company included in the Company SEC
Documents (i) comply as to form in all material respects with all
applicable requirements of the Securities Act and the Exchange Act,
(ii) are in conformity with United States generally accepted
accounting principles ("GAAP"), applied on a consistent basis (except
in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) during the periods involved (except as may be indicated in the
related notes and schedules thereto) and (iii) fairly present in all
material respects the consolidated financial position of the Company
and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in Schedule
4.8 of the Company Disclosure Schedule and except as set forth in the
Company SEC Documents filed and publicly available prior to the date
of this Agreement, and except for liabilities and obligations incurred
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in the ordinary course of business consistent with past practices
since the date of the most recent consolidated balance sheet included
in the Company SEC Documents filed and publicly available prior to the
date of this Agreement, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be
set forth on a consolidated balance sheet of the Company and its
consolidated Subsidiaries or in the notes thereto. To the knowledge of
the Company the books and records of the Company and its Subsidiaries
have been, and are being, maintained, in all material respects, in
accordance with GAAP and any other applicable legal and accounting
requirements.
SECTION 4.9 Disclosure Documents. (a) Each document required to
be filed by the Company with the SEC in connection with the
transactions contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the Schedule 14D-9 will,
when filed, comply as to form in all material respects with the
applicable requirements of applicable law, including without
limitation, the Exchange Act. The Company Disclosure Documents will
not at the time of the filing thereof, at the time of any distribution
thereof or at the time of consummation of the Offer, contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; provided
that this representation and warranty will not apply to statements or
omissions in the Company Disclosure Documents based upon information
furnished to the Company in writing by Buyer and Merger Subsidiary
specifically for use therein.
(b) The information with respect to the Company or any Subsidiary
of the Company that the Company furnishes to Buyer and Merger
Subsidiary in writing specifically for use in the Offer Documents will
not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made
not misleading in the case of any of the Offer Documents, at the time
of the filing thereof and at the time of any distribution thereof.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in
the Company SEC Documents filed by the Company and as set forth in
Schedule 4.10 of the
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Company Disclosure Schedule, the Company and its Subsidiaries have
conducted their business in the ordinary course of business and there
has not been since December 31, 1997:
(a) any event, occurrence or facts (whether or not in the
ordinary course of business) which, individually or in the
aggregate, has had or reasonably could be expected to have a
Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend (other than regular quarterly dividends) or other
distribution with respect to any shares of capital stock of the
Company, or any repurchase, redemption or other acquisition by
the Company or any Subsidiary of the Company of any outstanding
shares of capital stock or other securities of, or other
ownership interests in, the Company or any Subsidiary of the
Company;
(c) any amendment of any material term of any outstanding
security of the Company or any Subsidiary of the Company;
(d) any incurrence, assumption or guarantee by the Company
or any Subsidiary of the Company of any indebtedness for borrowed
money other than in the ordinary course of business;
(e) any creation or assumption by the Company or any
Subsidiary of the Company of any Lien on any asset other than in
the ordinary course of business and other than Liens which do not
have and could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect;
(f) any making of any loan, advance or capital contributions
to or investment in any Person other than advances to employees
in the ordinary course of business not in excess of customary
amounts and loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of the Company made in
the ordinary course of business;
(g) any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting the business or assets of
the Company or any Subsidiary of the Company which individually
or in the
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aggregate, has had or could reasonably be expected to have a
Material Adverse Effect;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any Subsidiary of the
Company relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment
by the Company or any Subsidiary of the Company of any contract
or other right, in either case, that have had or could reasonably
be expected individually or in the aggregate, to have a Material
Adverse Effect, other than transactions and commitments in the
ordinary course of business and those contemplated by this
Agreement;
(i) any change in any method of accounting or accounting
practice by the Company or any Subsidiary of the Company, except
for any such change required by reason of a concurrent change in
GAAP;
(j) any transaction, agreement or understanding between the
Company or any Subsidiary of the Company on the one hand and any
current director or officer of the Company or any Subsidiary of
the Company or any transaction which would be subject to proxy
statement disclosure under the Exchange Act pursuant to the
requirements of Item 404 of Regulation S-K (an "Affiliate
Transaction");
(k) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary of
the Company, (ii) employment, deferred compensation or other
similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company
or any Subsidiary of the Company entered into, (iii) increase in
benefits payable under any existing severance or termination pay
policies or employment agreements or (iv) increase in
compensation, bonus or other benefits payable to directors,
officers or employees of the Company or any Subsidiary of the
Company, in each case, other than in the ordinary course of
business not in excess of customary amounts; or
(l) authorization of, or committing or agreeing to take any
of, the foregoing actions except as otherwise permitted by this
Agreement.
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SECTION 4.11 Litigation. Except as set forth in either the
Company SEC Documents or in Schedule 4.11 of the Company Disclosure
Schedule, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of the Company, threatened
against, the Company or any Subsidiary of the Company or any of their
respective properties before any court or arbitrator or any
Governmental Entity which, if determined or resolved adversely to the
Company or any Subsidiary of the Company in accordance with the
plaintiff's demands, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as
set forth in either the Company SEC documents or in Schedule 4.11 of
the Company Disclosure Schedule, neither the Company nor any
Subsidiary of the Company is subject to any outstanding order, writ,
injunction or decree which has had or, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect.
SECTION 4.12 Taxes. (a) Except as set forth on Schedule 4.12: (i)
the Company and each of its Subsidiaries has properly prepared and
filed or has had properly prepared and filed on its behalf in a timely
manner (within any applicable extension periods) with the appropriate
Governmental Entity all Tax Returns with respect to Taxes of the
Company or any of its Subsidiaries, or with respect to any Taxes for
which the Company or any such Subsidiary may be liable, other than
those Tax Returns the failure of which to file, individually or in the
aggregate, would not have a Material Adverse Effect; (ii) all Taxes
shown to be due and payable on all filed Tax Returns of or with
respect to the Company or any of its Subsidiaries have been paid in
full or have been properly provided for in the SEC Documents in
accordance with GAAP; (iii) there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to
any federal, state, local or foreign income or other material Tax
Returns required to be filed by or with respect to the Company and its
Subsidiaries; (iv) none of the Tax Returns of or with respect to the
Company or any of its Subsidiaries is currently being audited or
examined by any Governmental Entity; and (v) no deficiency for any
income Taxes has been assessed with respect to the Company or any of
its Subsidiaries which has not been abated or paid in full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all
taxes, charges, fees, levies or
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other assessments, including, without limitation, income, gross
receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, customs duties, fees, assessments
or charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any
taxing authority and (ii) "Tax Return" shall mean any report, return,
documents, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction with respect to
Taxes.
SECTION 4.13 Employee Plans. (a) Schedule 4.13(a) of the Company
Disclosure Schedule lists all "employee benefit plans," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all other employee benefit plans or other
benefit arrangements, including but not limited to all employment and
consulting agreements and all bonus and other incentive compensation,
deferred compensation, disability, severance, retention, salary
continuation, vacation, stock award, stock option, stock purchase,
collective bargaining or workers' compensation agreements, plans,
policies and arrangements which the Company or any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with
the Company would be deemed a "single employer" within the meaning of
Section 4001(b) of ERISA, maintains, is a party to, has contributed to
or has any obligation to or liability for current or former employees
and directors of the Company (each an "Employee Benefit Plan" and
collectively, the "Employee Benefit Plans"). Schedule 4.13(a)
separately identifies each of such plans and arrangements Employee
Benefit Plan subject to Title IV of ERISA.
(b) True, correct and complete copies of the following documents
with respect to each of the Employee Benefit Plans (as applicable)
have been delivered or made available to Buyer: (i) the most recent
plan, document or agreement, related trust documents and all
amendments thereto, (ii) the most recent summary plan description and
all related summaries of material modifications, (iii) the annual
report on Form 5500 and attached schedules filed with the Internal
Revenue Service in the last three years, (iv) the most recent
actuarial report, (v) the most recent Internal Revenue Service
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determination letter, and (vi) a description of any nonwritten
Employee Benefit Plan.
(c) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, (i) all payments required to be
made by or under any Employee Benefit Plan, any related trusts, or any
collective bargaining agreement have been timely made; (ii) the Company and
its ERISA Affiliates have performed all material obligations required to be
performed by them under any Employee Benefit Plan; (iii) the Employee
Benefit Plans comply in all respects and have been maintained in compliance
with their terms and the requirements of ERISA, the Code and other
applicable laws; and (iv) there are no actions, suits, arbitrations or
claims (other than routine claims for benefits) pending or, to the
knowledge of the Company, threatened with respect to any Employee Benefit
Plan.
(d) The Company and its ERISA Affiliates have not incurred any
unsatisfied withdrawal liability with respect to any "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
(e) Each Employee Benefit Plan and its related trust which are
intended to be "qualified" within the meaning of Sections 401(a) and 501(a)
of the Internal Revenue Code of 1986, as from time to time amended (the
"Code"), respectively, have been determined by the Internal Revenue
Service to be so "qualified" under such Sections, as amended by the Tax
Reform Act of 1986, and the Company knows of no fact which would adversely
affect the qualified status of any such Employee Benefit Plan and its
related trust.
(f) Except as set forth on Schedule 4.13(f) of the Company Disclosure
Schedule, or as contemplated by this Agreement, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment becoming due, or
increase the amount of compensation due, to any current or former employee
or director of the Company or any of its subsidiaries; (ii) increase any
benefits otherwise payable under any Employment Benefit Plan; or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
(g) No Employee Benefit Plan has an "accumulated funding deficiency"
within the meaning of
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Section 302 of ERISA or Section 412 of the Code, nor has any waiver of the
minimum funding standards of Section 302 of ERISA and Section 412 of the
Code been requested of or granted by the Internal Revenue Service with
respect to any Employee Benefit Plan, nor has any lien in favor of any such
plan arisen under Section 412(n) of the Code or Section 302(f) of ERISA.
(h) The "benefits liabilities," as defined in Section 4001(a)(16)
of ERISA, of each of the Employee Benefit Plans subject to Title IV of
ERISA using the actuarial assumptions that were used in the most recent
actuarial valuation (a true and complete copy of which has been provided to
Buyer) in the event it terminated each such plan, do not exceed the fair
market value of the assets of each such plan.
(i) No stock or other security issued by the Company forms or has
formed a material part of the assets of any Employee Benefit Plan.
(j) No Employee Benefit Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
current or former employees or directors of the Company or any of its ERISA
Affiliates for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable
Laws, (ii) death benefits under any "pension plan" as defined in Section
3(2) of ERISA, or (iii) benefits, the full cost of which is borne by such
current or former employee or director (or his or her beneficiary).
SECTION 4.14 Labor Matters. Except to the extent set forth in Schedule
4.14 of the Disclosure Schedule (i) there is no labor strike, dispute,
slowdown, stoppage or lockout actually pending or threatened, to the
knowledge of the Company, against the Company or any Subsidiary of the
Company and during the past three years there has not been any such action;
(ii) to the knowledge of the Company, there is no current union organizing
activities among the employees of the Company or any Subsidiary of the
Company nor does any question concerning representation exist concerning
such employees; (iii) there is no unfair labor practice charge or complaint
against the Company or any Subsidiary of the Company pending or, to the
knowledge of the Company, threatened before the National Labor Relations
Board or any similar state or foreign agency; (iv) there is no
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grievance pending relating to any collective bargaining agreement or other
grievance procedure; (v) to the knowledge of the Company, no charges with
respect to or relating to the Company or any Subsidiary of the Company are
pending before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment practices; and
(vi) there are no collective bargaining agreements, employment contracts or
severance agreements with any union or any employees of the Company or any
Subsidiary of the Company.
SECTION 4.15 Compliance with Laws. Except as set forth in Schedule
4.11 (as applicable) and Schedule 4.15 of the Company Disclosure Schedule,
the Company and its Subsidiaries are in compliance in all material respects
with all laws, statutes, ordinances or regulations except where such
violations, individually or in the aggregate, would not have a Material
Adverse Effect.
SECTION 4.16 Finders' Fees. Except for DLJ, there is no investment
banker, broker, finder or other intermediary which has been retained by or
is authorized to act on behalf, of the Company or any Subsidiary of the
Company who would be entitled to any fee or commission from the Company,
any Subsidiary of the Company, Buyer or any of Buyer's affiliates upon
consummation of the transactions contemplated by this Agreement. Other than
the fee payable to DLJ pursuant to the agreement between DLJ and the
Company dated September 2, 1997, as amended April 15, 1998 (the "DLJ
Letter"), the Company has no obligations or Commitments to any investment
banker or financial advisor in connection with any future transactions that
may be considered or entered into by the Company after the Effective Time.
SECTION 4.17 Environmental Matters. (a) Except as set forth in the
Company SEC Documents or in Schedule 4.17 of the Company Disclosure
Schedule:
(i) to the Company's knowledge, the Company is and for the past
five years has been in material compliance with Environmental Laws and
possesses all permits, authorizations, licenses or approvals required
by Environmental Laws and necessary for the operation of the Company
and each of its Subsidiaries;
(ii) the Company has not received any written communication from
any person or entity
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(including any Governmental Entity) stating or alleging that the
Company or any of its Subsidiaries is in violation of or may have
liability under Environmental Law (as defined in Section 4.17(c)
hereof) with respect to any actual or alleged environmental
contamination, which if adversely determined could reasonably be
expected to result in the Company or any of its Subsidiaries incurring
material liability under Environmental Laws; neither the Company nor
its Subsidiaries nor, to the Company's knowledge, any Governmental
Entity is conducting or has conducted any environmental remediation or
environmental investigation which could reasonably be expected to
result in liability for the Company or its Subsidiaries under
Environmental Law; and the Company and its Subsidiaries have not
received any request for information under Environmental Law from any
Governmental Entity with respect to any actual or alleged
environmental contamination, except, in each case, for communications,
environmental remediation and investigations and requests for
information which would not, individually or in the aggregate,
reasonably be expected to result in the Company or any of its
Subsidiaries incurring material liability under Environmental Laws;
(iii) since January 1, 1998, the Company and its Subsidiaries
have not received any written communication from any person or entity
(including any Governmental Entity) stating or alleging that the
Company or its Subsidiaries may have violated any Environmental Law,
or that the Company or its Subsidiaries has caused or contributed to
any environmental contamination that has caused any property damage or
personal injury under Environmental Law, except, in each case, for
statements and allegations of violations and statements and
allegations of responsibility for property damage and personal injury
which would not, individually or in the aggregate, result in the
Company or any of its Subsidiaries incurring material liability under
Environmental Laws;
(iv) the Company and its Subsidiaries are not aware of any facts,
circumstances or conditions arising out of or related to the Company
or its Subsidiaries or to any real property currently or formerly
owned, operated or leased by or for the Company or its Subsidiaries,
which could reasonably
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be expected to result in the Company or its Subsidiaries incurring
material liability under Environmental Laws; and
(v) to the knowledge of the Company, the transactions
contemplated by this Agreement do not trigger the New Jersey
Industrial Site Recovery Act or any similar environmental property
transfer law;
(b) (i) The Company has provided Buyer with true and correct copies of
any and all material environmental investigation, study, audit, test,
review and other analysis in the possession of the Company or its
Subsidiaries conducted in relation to the business of the Company or any
property or facility now or previously owned, operated or leased by the
Company or any Subsidiary; and (ii) the Company has not knowingly withheld
from Buyer any consent decree, consent order or similar document in force
and to which it is a party relating to any property currently owned, leased
or operated by the Company or its Subsidiaries.
(c) For purposes of this Section 4.17, "Environmental Law" means all
applicable state, federal and local laws, regulations and rules, including
common law, judgments, decrees and orders relating to pollution, the
preservation of the environment, and the release of material into the
environment.
SECTION 4.18 Property. The Company and its Subsidiaries, as the case
may be, have good and valid title to, or in the case of leased property,
have valid leasehold interests in all properties and assets necessary to
conduct the business of the Company as currently conducted, free and clear
of all Liens or encumbrances of any nature whatsoever, except (i) any Lien
for current Taxes, payments of which are not yet delinquent, (ii) such
imperfections in title, easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract
from the value, or interfere with the present use of the property subject
thereto or affected thereby, or otherwise materially impair the Company's
business operations or (iii) as disclosed in the Company SEC Documents.
There are no developments affecting any of such properties or assets
pending or, to the knowledge of the Company threatened, which, could
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
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SECTION 4.19 Trademarks. (a) The Company and its Subsidiaries own or
possess adequate licenses or other valid rights to use all trademarks,
trademark rights, copyrights, patents, software, trade names and trade name
rights which are material to the Company's business and operations
(collectively, "Material Trademarks") used or held for use in connection
with the business of the Company and the Subsidiaries as currently
conducted in all material respects. Except set forth in Schedule 4.19(a),
all Material Trademarks are validly registered or registrations have been
applied for.
(b) The Company, except as set forth in Schedule 4.19(b) of the
Company Disclosure Schedule, is unaware of any assertion or claim
challenging the validity of any Material Trademark. Except as set forth in
Schedule 4.19(b) of the Company Disclosure Schedule, the conduct of the
business of the Company and its Subsidiaries as currently conducted does
not conflict with any trademark, trademark right, copyright, patent,
software license, trade name or trade name right of any third party in a
manner that could reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. To the knowledge of the Company, there
are no material infringements of any Material Trademarks.
SECTION 4.20 Material Contracts. (a) Except as set forth on Schedule
4.20 of the Company Disclosure Schedule, the Company SEC Documents list all
Material Contracts (as defined below) of the Company, and except as set
forth on Schedule 4.20 of the Company Disclosure Schedule or in the Company
SEC Documents, to the knowledge of the Company, each Material Contract is
valid, binding and enforceable and in full force and effect; except where
such failure to be valid, binding and enforceable and in full force and
effect, individually or in the aggregate, would not have a Material Adverse
Effect, and there are no defaults thereunder, except those defaults that,
individually or in the aggregate, would not have a Material Adverse Effect.
For purposes of this Agreement, "Material Contracts" shall mean (i) all
contracts, agreements or understandings with customers of the Company and
its Subsidiaries in the last fiscal year where each customers' contracts,
agreements or understandings in the aggregate account for more than $3
million of the Company's annual revenues; (ii) all acquisition, merger,
asset purchase or sale agreements entered into and not rescinded by the
Company in the last two fiscal years with a transaction value in excess of
$3
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million; and (iii) any other agreement within the meaning set forth in
Item 601(b)(10) Regulation S-K of Title 17, Part 229 of the Code of Federal
Regulations. The Company has previously made available to the Buyer true
and correct copies of the Material Contracts.
SECTION 4.21 Insurance. Schedule 4.21 of the Company Disclosure
Schedule sets forth the insurance policies and programs maintained by the
Company.
SECTION 4.22 Year 2000 Compliance. As set forth on Schedule 4.22 of
the Company Disclosure Schedule, the Company has a remediation program
which it presently believes will result in all Date Data and Date Sensitive
Systems of the Company and each Subsidiary of the Company being Year 2000
Compliant prior to December 31, 1999. "Date Data" means any data of any
type that includes date information or which is otherwise derived from,
dependent on or related to date information. "Date-Sensitive System" means
any software, microcode or hardware system or component, including any
electric or electronically controlled system or component, that processes
any Date Data and that is installed, in development or on order by the
Company or any Subsidiary of the Company for their internal use, or which
the Company or any Subsidiary of the Company sells, leases, licenses,
assigns or otherwise provides, or the provision or operation of which the
Company and any Subsidiary of the Company provides the benefit, to its
customers, vendors, suppliers, affiliates or any other third party. "Year
2000 Compliant" means (i) with respect to Date Data, that such data is in
proper format and accurate for all dates in the twentieth and twenty-first
centuries, and (ii) with respect to Date-Sensitive Systems, that each such
system accurately processes all Date Data, including for the twentieth and
twenty-first centuries, without loss of any functionality or performance,
including but not limited to calculating, comparing, sequencing, storing
and displaying such Date Data (including all leap year considerations),
when used as a stand-alone system or in combination with other software or
hardware.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUBSIDIARY
Buyer and Merger Subsidiary represent and warrant to the Company that:
SECTION 5.1 Corporate Existence and Power. Each of Buyer and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and except as
set forth on Schedule 5.1 of the disclosure schedule delivered by Buyer and
Merger Subsidiary attached hereto (the "Buyer Disclosure Schedule"), has
all corporate powers and all Licenses required to carry on its business as
now conducted except where the failure to have any such License would not,
individually or in the aggregate, have a Material Adverse Effect. Each of
Buyer and Merger Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. Each of Buyer and
Merger Subsidiary has heretofore delivered or made available to the Company
true and complete copies of the Buyer's and Merger Subsidiary's Certificate
of Incorporation and By-laws as currently in effect.
SECTION 5.2 Corporate Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions
contemplated hereby are within the corporate powers of Buyer and Merger
Subsidiary and have been duly authorized by all necessary corporate action.
This Agreement, assuming due and valid authorization, execution and
delivery by the other parties hereto, constitutes a valid and binding
agreement of each of Buyer and Merger Subsidiary except that (i)
enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the
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discretion of the court before which any proceeding therefor may be
brought.
SECTION 5.3 Governmental Authorization. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions
contemplated by this Agreement require no action by or in respect of, or
filing with, any governmental body, agency, official or authority other
than (i) the filing of a certificate of merger in accordance with the DGCL;
(ii) compliance with any applicable requirements of the HSR Act; and (iii)
compliance with any applicable requirements of the Exchange Act.
SECTION 5.4 Non-Contravention. The execution, delivery and performance
by Buyer and Merger Subsidiary of this Agreement and the consummation by
Buyer and Merger Subsidiary of the transactions contemplated hereby do not
and will not (i) contravene or conflict with the certificate of
incorporation or by-laws of Merger Subsidiary or Buyer, (ii) assuming
compliance with the matters referred to in Section 5.3 hereof, contravene
or conflict or constitute a violation of any provision of law, regulation,
judgment, injunction, order or decree binding upon or applicable to Buyer
or Merger Subsidiary, or (iii) with or without the giving of notice or
passage of time or both, constitute a material default under or give rise
to a right of termination, cancellation or acceleration of any right or
obligation of Buyer or Merger Subsidiary or to a material loss of any
benefit to which Buyer or Merger Subsidiary or any license, franchise,
permit or other similar authorization held by Buyer or Merger Subsidiary,
or (iv) result in the creation or imposition of any Lien on any asset of
Buyer or Merger Subsidiary excluding from the foregoing clauses (ii),
(iii) or (iv) such violations, breaches, defaults or Liens which would not
have a Material Adverse Effect, and which will not materially impair the
ability of Buyer and Merger Subsidiary to consummate the transactions
contemplated hereby.
SECTION 5.5 Disclosure Documents. (a) The information with respect to
Buyer and its Subsidiaries and Merger Subsidiary that Buyer and Merger
Subsidiary furnish to the Company in writing specifically for use in any
Company Disclosure Document will not contain, any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements
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made therein, in the light of the circumstances under which they were
made, not misleading (i) in the case of the Company Proxy Statement
(defined in Section 6.2 herein), at the time the Company Proxy Statement or
any amendment or supplement thereto is first mailed to stockholders of the
Company, at the time the stockholders vote on adoption of this Agreement
and at the Effective Time, and (ii) in the case of any Company Disclosure
Document other than the Company Proxy Statement, at the time of the filing
thereof, at the consummation of the Offer and at the time of any
distribution thereof.
(b) The Offer Documents, when filed, will comply as to form in all
material respects with the applicable requirements of the Exchange Act. The
Offer Documents will not at the time of the filing thereof, at the time of
any distribution, publication or any mailing thereof or at the time of
consummation of the Offer, contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation and warranty will not apply
to statements or omissions in the Offer Documents based upon information
furnished to Buyer or Merger Subsidiary in writing by the Company
specifically for use therein.
SECTION 5.6 Finders' Fees. There is no investment banker, broker,
finder or other intermediary who might be entitled to any fee or commission
in connection with or upon consummation of the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Buyer or
Merger Subsidiary.
SECTION 5.7 Financing. Buyer has provided to the Company copies of an
equity commitment letter from Onex Corporation satisfactory to the Company.
Buyer and Merger Subsidiary have or will have, prior to the expiration of
the Offer and prior to the Effective Time, sufficient funds available to
purchase all of the Shares outstanding on a fully diluted basis and to pay
all related fees and expenses pursuant to the Offer and the Merger and this
Agreement.
SECTION 5.8 Solvency. At and following the expiration date of the
Offer and at the Closing Date, each of Buyer and Merger Subsidiary, in each
case together with their respective Subsidiaries, will be, on a
consolidated basis, Solvent after giving effect to the
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purchase and sale of the Shares and any other transactions contemplated
hereby or by Merger Subsidiary or any of its affiliates on such date or
which would be otherwise taken into account in determining whether the
purchase and sale of the Shares or any of the transactions contemplated
hereby were a fraudulent conveyance or impermissible dividend under
applicable law. For the purpose of the representation and warranty
contained in this Section, Buyer shall be entitled to assume that the
representations and warranties of the Company regarding its liabilities on
a consolidated basis are true and correct in all material respects.
SECTION 5.9 Share Ownership. As of the date hereof, Buyer and Merger
Subsidiary do not own any Shares.
SECTION 5.10 Merger Subsidiary's Operations. Merger Subsidiary was
formed solely for the purpose of engaging in the transactions contemplated
hereby and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated
hereby.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.1 Conduct of the Company. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their
business in the ordinary course, consistent with past practices, and shall
use their best commercially reasonable efforts to preserve intact their
business organizations and relationships with third parties and to keep
available the services of their present officers, employees and business
associates. Without limiting the generality of the foregoing, other than
(i) in the ordinary course of business consistent with past practices, (ii)
as set forth on Schedule 6.1 of the Company Disclosure Schedule, (iii) as
specifically contemplated by this Agreement or (iv) with the written
consent of Buyer or Merger Subsidiary (such consent which shall not be
unreasonably withheld), from the date hereof until the Effective Time, the
Company will not:
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(a) declare, set aside or pay any dividend (other than regular
quarterly dividends) or other distribution with respect to any shares
of capital stock of the Company, or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of the Company of
any outstanding shares of capital stock or other securities of, or
other ownership interests in, the Company or any Subsidiary of the
Company;
(b) issue or sell any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or any Subsidiary of the Company,
other than issuances pursuant to the exercise of options outstanding
on the date hereof and disclosed on Schedule 4.5 of the Company
Disclosure Schedule;
(c) amend any material term of the certificate of incorporation,
by-laws or any outstanding security of the Company or any Subsidiary
of the Company;
(d) split, combine or reclassify its outstanding capital stock;
(e) incur, assume or guarantee by the Company or any Subsidiary
of the Company of any indebtedness for borrowed money;
(f) make any loan, advance or capital contribution to or invest
in any Person;
(g) cause or willfully permit any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the
business or assets of the Company or any Subsidiary of the Company
which has had or could reasonably be expected to have a Material
Adverse Effect;
(h) enter into any transaction, commitment, contract or agreement
by the Company or any Subsidiary of the Company relating to their
assets or business (including the acquisition or disposition of any
assets) or relinquish any contract or other right, in either case,
that have had or could reasonably be expected to have a Material
Adverse
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Effect, other than those contemplated by this Agreement;
(i) neither the Company nor any Subsidiary of the Company shall
pay, discharge, or satisfy any material claims, liabilities or other
obligations (whether absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or
satisfaction in the ordinary course of business, consistent with past
practices, of liabilities reflected or reserved against in the
consolidated financial statements of the Company or incurred since the
most recent date thereof pursuant to an agreement or transaction
described in this Agreement or incurred in the ordinary course of
business, consistent with past practices;
(j) neither the Company nor any Subsidiary of the Company will
amend or modify any existing Affiliate Transaction or enter into any
new Affiliate Transaction other than with the prior written consent of
the Buyer;
(k) change any method of accounting or accounting practice by the
Company or any Subsidiary of the Company, except for any such change
required by reason of a concurrent change in GAAP;
(l) (A) grant any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary of the Company,
(B) enter into any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any Subsidiary of the
Company, (C) increase the benefits payable under any existing
severance or termination pay policies or employment agreements or (D)
increase the compensation, bonus or other benefits payable to any
director, officer or employee of the Company or any Subsidiary of the
Company; or
(m) authorize any of, or commit or agree to take any of, the
foregoing actions except as otherwise permitted by this Agreement.
SECTION 6.2 Stockholder Meeting; Proxy Material. The Company shall
cause a meeting of its stockholders (the "Company Stockholder Meeting") to
be duly
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called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Merger. The Board of
Directors of the Company shall recommend approval and adoption of this
Agreement and the Merger by the Company's stockholders; provided that the
Company's Board of Directors may withdraw, modify or change such
recommendation if it has determined, after consultation with outside legal
counsel to the Company, that such recommendation would likely be
inconsistent with the Board of Directors' fiduciary duties under applicable
law. In connection with such meeting, the Company (i) will promptly, after
the consummation of the Offer, prepare and file with the SEC, will use its
reasonable efforts to have cleared by the SEC and will thereafter mail to
its stockholders as promptly as practicable a proxy statement and all other
proxy materials for such meeting (the "Company Proxy Statement"), (ii) will
use its reasonable efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby and
(iii) will otherwise comply in all material respects with all legal
requirements applicable to such meeting.
SECTION 6.3 Access to Information; Confidentiality Agreement. (a) From
the date hereof until the Effective Time, the Company will give Buyer, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties,
books and records of the Company and the Subsidiaries of the Company, will
furnish to Buyer, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
Company's employees, counsel, financial advisors and independent auditors
to cooperate with Buyer in its investigation of the business of the Company
and the Subsidiaries of the Company; provided that all requests for
information, to visit plants or facilities or to interview the Company's
employees or agents should be directed to and coordinated with an executive
officer of the Company; and provided further that any information received
by Buyer or its representatives shall remain subject to the Confidentiality
Agreement dated December 3, 1998 between Buyer and the Company (the
"Confidentiality Agreement").
(b) The Company shall confer on a regular and frequent basis with one
or more designated representatives of Buyer to report operational matters
of materiality,
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the general status of ongoing operations and such other matters as Buyer
may reasonably request.
(c) The parties hereto agree that the Confidentiality Agreement shall
be hereby amended to provide that any provision therein which in any manner
limits, restricts or prohibits the voting or acquisition of Shares by Buyer
or any of its affiliates or the representation of Buyer's designees on the
Company's Board of Directors or which in any manner would be inconsistent
with this Agreement or the transactions contemplated hereby shall be
amended as of the date hereof to permit the acquisition of Shares pursuant
to the Offer and the Merger, the voting of Shares at the Company
Stockholder Meeting or to otherwise affect the transactions contemplated
hereby. The Confidentiality Agreement shall otherwise remain in full force
and effect.
SECTION 6.4 No Solicitation. From the date of this Agreement until the
termination of this Agreement, the Company and its Subsidiaries will not,
and the Company will use its reasonable efforts to ensure that the
respective officers, directors, employees, agents, advisors or other
representatives of the Company and its Subsidiaries will not, directly or
indirectly (i) solicit, initiate or encourage any Acquisition Proposal (as
defined below) or (ii) engage in negotiations or discussions with, or
disclose any nonpublic information relating to the Company or any
Subsidiary of the Company or afford access to the properties, books or
records of the Company or any Subsidiary of the Company to, any Person
concerning an Acquisition Proposal; provided that, if the Company's Board
of Directors determines in good faith, after consultation with outside
legal counsel to the Company, that the failure to engage in such
negotiations or discussions or provide such information would likely be
inconsistent with the Board of Directors' fiduciary duties under applicable
law, the Company may in response to an Acquisition Proposal, which must be
a Superior Proposal (as defined below), furnish information with respect to
the Company and its Subsidiaries pursuant to a confidentiality agreement
and participate in negotiations and enter into agreements regarding such
Acquisition Proposal. The Company will promptly inform Buyer as to the fact
that information is to be provided and the identity of the third party
after receipt of any Acquisition Proposal and will keep Buyer informed of
the status and details of any such Acquisition Proposal, indication or
request. For purposes of this Agreement, "Acquisition
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<PAGE> 43
Proposal" means any offer or proposal for a merger or other business
combination involving the Company or any Subsidiary of the Company or the
acquisition of any equity interest in, or a substantial portion of the
assets of, the Company or any Subsidiary of the Company, other than the
transactions contemplated by this Agreement. For purposes of this
Agreement, "Superior Proposal" means any bona fide Acquisition Proposal,
which proposal was not solicited by the Company after the date of this
Agreement, made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities (the value of any such
securities to be determined in good faith with the advice of a nationally
recognized investment banking firm) more than a majority of the Shares then
outstanding or all or substantially all of the assets of the Company, and
otherwise on terms which the Board of Directors of the Company determines
in good faith to be more favorable to the Company and its stockholders than
the Offer and the Merger (based on advice of the Company's financial
advisor that the value of the consideration provided for in such proposal
is superior to the value of the consideration provided for in the Offer and
Merger) and has a reasonable prospect of being consummated in accordance
with its terms. Furthermore, nothing contained in this Section 6.4 shall
prohibit the Company or its Board of Directors from taking and disclosing
to the Company's stockholders a position with respect to a tender or
exchange offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or from making such disclosure to the
Company's stockholders or making such disclosure as may be required by
applicable law.
SECTION 6.5 Conveyance Taxes. The Company shall timely pay any real
property transfer or gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other
fees, and any similar taxes (collectively, the "Conveyance Taxes") which
become payable prior to the Effective Time in connection with the
transactions contemplated hereunder that are required to be paid in
connection therewith.
SECTION 6.6 Directors Stock-Plan. Immediately prior to the acceptance
for payment by Merger Subsidiary of any Shares tendered pursuant to the
Offer, the Company shall amend the Company's 1996 Non-Qualified
Non-Employee Directors Stock Option Plan to provide that the Merger
Subsidiary's designees elected or appointed pursuant to
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<PAGE> 44
Section 1.3 hereof shall not be entitled to receive any of the Company's
capital stock or other benefits under the Company's Directors Stock Plan.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
SECTION 7.1 Obligations of Merger Subsidiary. Buyer will take all
action necessary to cause Merger Subsidiary to perform its obligations
under this Agreement and to consummate the Offer and the Merger on the
terms and conditions set forth in this Agreement.
SECTION 7.2 Voting of Shares. Merger Subsidiary shall and Buyer shall
cause Merger Subsidiary to vote all Shares beneficially owned by Merger
Subsidiary or its affiliates in favor of adoption and approval of the
Merger and this Agreement at the Company Stockholder Meeting.
SECTION 7.3 Director and Officer Insurance. (a) Buyer, Merger
Subsidiary and the Company agree that all rights to indemnification and all
limitations on liability existing in favor of any officer, director,
employee or agent of the Company and any of its subsidiaries (the
"Indemnitees") as provided in the Company Certificate of Incorporation,
Company By-laws or a Material Contract as in effect as of the date hereof
shall survive the Merger and continue in full force and effect. For five
years after the Effective Time, Buyer will, and will cause the Surviving
Corporation to, provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering
each such Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof. Buyer agrees that, should the Surviving Corporation fail to comply
with the obligations of this Section 7.3, Buyer shall be responsible
therefor. It is understood that the Indemnitees will seek to be reimbursed
for any liability or loss from such Indemnitee's liability insurance policy
prior to seeking any other reimbursement provided for herein, including
that referred to in the first sentence of this section.
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<PAGE> 45
(b) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into
any other person or entity or (ii) transfers all or substantially all of
its properties or assets to any Person, then, and in each case, proper
provision shall be made so that successors and assigns of the Company or
the Surviving Corporation, as the case may be, honor the obligations set
forth in this Section 7.3 and the agreements set forth in Section 8.6(b)
hereof.
(c) The obligations of the Company, the Surviving Corporation, and
Buyer under this Section 7.3 and Section 8.6 hereof shall not be terminated
or modified in such a manner as to adversely affect any Person to whom this
Section 7.3 or Section 8.6 hereof applies without the consent of such
affected Person (it being expressly agreed that the Persons to whom this
Section 7.3 and Section 8.6(b) hereof applies shall be third party
beneficiaries of this Section 7.3 and Section 8.6(b) hereof).
SECTION 7.4 Investment Banking Fees. The Company has provided to Buyer
a copy of the DLJ Letter.
ARTICLE VIII
COVENANTS OF BUYER
AND THE COMPANY
The parties hereto agree that:
SECTION 8.1 Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement, and to
consummate the Merger by April 30, 1999. Nothing in this Section 8.1 or
otherwise in this Agreement shall prevent or restrict the Company from
entering into a definitive agreement with a third party in connection with
an Acquisition Proposal that the Board of Directors determines in good
faith, after Consultation with its legal counsel, is a Superior Proposal.
SECTION 8.2 Certain Filings. The Company and Buyer shall cooperate
with one another and use their best
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<PAGE> 46
commercially reasonable efforts (a) in connection with the preparation of
the Company Disclosure Documents and the Offer Documents, and (b) in
determining whether any action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts,
in connection with the consummation of the transactions contemplated by
this Agreement and (c) in seeking promptly any such actions, consents,
approvals or waivers or making any such filings, furnishing information
required in connection therewith or with the Company Disclosure Documents
or the Offer Documents and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 8.3 Public Announcements. The initial press releases with
respect to the execution of this Agreement shall be approved in advance by
both Buyer and the Company. Buyer and the Company will consult with each
other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with
any national securities exchange or foreign securities exchange, will not
issue any such press release or make any such public statement prior to
such consultation.
SECTION 8.4 Conveyance Taxes. Buyer and the Company shall cooperate in
the preparation, execution and filing of all Tax Returns, questionnaires,
applications, or other documents regarding any Conveyance Taxes which
become payable in connection with the transactions contemplated hereunder
that are required or permitted to be filed on or before the Effective Time.
SECTION 8.5 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take
and do, in the name and on behalf of the Company or Merger Subsidiary, any
other actions and things to vest, perfect or confirm of record or otherwise
in the Surviving Corporation any and all right, title and interest in, to
and under any of the rights, properties or assets of the Company acquired
or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
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SECTION 8.6 Employee Matters. (a) For a period of one year
immediately following the Closing Date Buyer agrees to cause the Surviving
Corporation and its Subsidiaries to provide to all active employees of the
Company who continue to be employed by the Company as of the Effective Time
("Continuing Employees") coverage under existing benefit plans or
arrangements which is no less favorable than those provided to the
employees immediately prior to the Closing Date. During the second year
following the Closing Date, Buyer agrees to cause the Surviving Corporation
and its Subsidiaries to provide Continuing Employees coverage under benefit
plans and arrangements no less favorable in the aggregate than those
provided to the employees immediately prior to the Closing Date.
(b) Buyer shall, and shall cause its Subsidiaries to, honor in
accordance with their terms all agreements, contracts, arrangements,
commitments and understandings described in Schedule 8.6 of the Company
Disclosure Schedule.
SECTION 8.7 Stockholder Litigation. The Company and the Buyer agree
that in connection with any litigation which may be brought against the
Company or its directors relating to the transactions contemplated hereby,
the Company will keep Buyer, and any counsel which Buyer may retain,
informed of the course of such litigation, to the extent Buyer is not
otherwise a party thereto, and the Company agrees that it will consult with
Buyer prior to entering into any settlement or compromise of any such
stockholder litigation; provided that no such settlement or compromise will
be entered into without Buyer's prior written consent, which consent shall
not be unreasonably withheld.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 Conditions to the Obligations of Each Party. The
obligations of the Company, Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction on or prior to the Effective Time of
the following conditions, except to the extent permitted by applicable law,
that such conditions may be waived:
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<PAGE> 48
(i) if required by the DGCL, this Agreement shall have been
adopted by the stockholders of the Company in accordance with such
Law;
(ii) any applicable waiting period under the HSR Act relating to
the Merger shall have expired;
(iii) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger; and
(iv) Buyer or Merger Subsidiary shall have purchased the Shares
pursuant to the Offer.
ARTICLE X
TERMINATION
SECTION 10.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(i) by mutual written consent of the Company and Buyer;
(ii) by either the Company or Buyer, if the Offer has not been
consummated within 45 business days after the date of execution of
this Agreement (as such date may be extended pursuant to the proviso
to this sentence, the "Outside Termination Date"); provided, however,
that the right to terminate this Agreement under this paragraph shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure to meet the date requirements of this paragraph;
(iii) by either the Company or Buyer, if there shall be any law
or regulation that makes consummation of the Merger illegal or if any
judgment, injunction, order or decree enjoining Buyer or the Company
from consummating the Merger is entered and such judgment, injunction,
order or decree shall become final and nonappealable;
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<PAGE> 49
(iv) by the Company, if Buyer or Merger Subsidiary breaches or
fails in any material respect to perform or comply with any of its
material covenants and agreements contained herein or breaches its
representations and warranties in any material respect;
(v) by Buyer, if the Company breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained herein or breaches its representations and
warranties in any material respect; or
(vi) by either the Company or Buyer, upon the Company entering
into a definitive agreement in connection with an Acquisition Proposal
that the Board of Directors determines in good faith, after
consultation with its legal counsel is a Superior Proposal.
The party desiring to terminate this Agreement pursuant to clauses (ii),
(iii), (iv) or (v) shall give written notice of such termination to the
other party in accordance with the notice procedures set forth in Section
12.1.
SECTION 10.2 Effect of Termination. (a) If this Agreement is
terminated pursuant to Section 10.1 hereof, this Agreement shall become
void and of no effect with no liability on the part of any party hereto;
provided that the agreements contained in Sections 4.16, 10.2 and 12.4
hereof shall survive the termination hereof; and provided, further that the
Confidentiality Agreement shall remain in full force and effect and Section
6.3(b) hereof shall have no binding effect whatsoever.
(b) In the event that this Agreement is terminated by the Company
pursuant to Section 10.1(v) hereof, the Company shall pay to Buyer by wire
transfer of immediately available funds to an account designated by Buyer
on the next business day following such termination, an amount equal to
$3,000,000.
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ARTICLE XI
DEFINED TERMS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Acquisition Proposal" shall have the meaning set forth in Section
6.4.
"Affiliate Transaction" shall have the meaning set forth in Section
4.10(j).
"Agreement" shall have the meaning set forth in the Introduction.
"Buyer" shall have the meaning set forth in Introduction.
"Buyer Disclosure Schedule" shall have the meaning set forth in
Section 5.1.
"Certificate of Merger" shall have the meaning set forth in Section
2.1(b).
"Closing" shall have the meaning set forth in Section 2.7.
"Closing Date" shall have the meaning set forth in Section 2.7.
"Code" shall have the meaning set forth in Section 4.13(e).
"Company" shall have the meaning set forth in the Introduction.
"Company By-laws" means the by-laws of the Company as in effect on the
date of this Agreement.
"Company Certificate of Incorporation" means the certificate of
incorporation of the Company as in effect on the date of this Agreement.
"Company Disclosure Documents" shall have the meaning set forth in
Section 4.9.
"Company Disclosure Schedule" shall have the meaning set forth in
Section 1.3(c).
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<PAGE> 51
"Company Proxy Statement" shall have the meaning set forth in Section
6.2.
"Company SEC Documents" shall have the meaning set forth in Section
4.7.
"Company Securities" shall have the meaning set forth in Section 4.5.
"Company Stockholder Meeting" shall have the meaning set forth in
Section 6.2.
"Confidentiality Agreement" shall have the meaning set forth in
Section 6.3.
"Continuing Directors" shall have the meaning set forth in Section
1.3(a).
"Continuing Employees" shall have the meaning set forth in Section
8.6(a).
"Conveyance Taxes" shall have the meaning set forth in Section 6.5.
"Date Data" shall have the meaning set forth in Section 4.22.
"Date-Sensitive System" shall have the meaning set forth in Section
4.22.
"Depositary" shall have the meaning set forth in Section 2.3(a).
"DGCL" shall have the meaning set forth in the Introduction.
"Dissenting Shares" shall have the meaning set forth in Section 2.4.
"DLJ" shall have the meaning set forth in Section 1.2(b).
"Effective Time" shall have the meaning set forth in Section 2.1(b).
"Employee Benefit Plans" shall have the meaning set forth in Section
4.13(a).
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"Environmental Law" shall have the meaning set forth in Section
4.17(c).
"ERISA" shall have the meaning set forth in Section 4.13.
"ERISA Affiliate" shall have the meaning set forth in Section 4.13(a).
"Exchange Act" shall have the meaning set forth in Section 1.1(a).
"GAAP" shall have the meaning set forth in Section 4.8.
"Group" shall have the meaning set forth in Annex I.
"Governmental Entity" shall have the meaning set forth in Section 4.3.
"HSR Act" shall have the meaning set forth in Section 4.3.
"Indemnitees" shall have the meaning set forth in Section 7.3.
"Knowledge" or "knowledge" means, with respect to the Company and/or
any Subsidiary thereof, knowledge of the current President, Chief Financial
Officer and Executive Vice President of the Company after reasonable
investigation and inquiry commensurate with that of a reasonable person
holding such a position with a public company.
"Licenses" shall have the meaning set forth in Section 4.1.
"Lien" shall have the meaning set forth in Section 4.4.
"Material Adverse Effect" shall have the meaning set forth in Section
4.1.
"Material Contracts" shall have the meaning set forth in Section 4.20.
"Material Trademarks" shall have the meaning set forth in Section
4.19(a).
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"Merger" shall have the meaning set forth in Section 2.1(a).
"Merger Consideration" shall have the meaning set forth in Section
2.2(c).
"Merger Subsidiary" shall have the meaning set forth in the
Introduction.
"Minimum Condition" shall have the meaning set forth in Annex I.
"Offer" shall have the meaning set forth in the Introduction.
"Offer Documents" shall have the meaning set forth in Section 1.1(b).
"Offer Price" shall have the meaning set forth in the Introduction.
"Option" shall have the meaning set forth in Section 2.5(a).
"Option Plans" shall have the meaning set forth in Section 2.5(a).
"Outside Termination Date" shall have the meaning set forth in Section
10.1(ii).
"PBGC" shall have the meaning set forth in Section 4.13(c).
"Person" shall have the meaning set forth in Section 2.3(c).
"Plans" shall have the meaning set forth in Section 4.13(a).
"Preferred Stock" shall have the meaning set forth in Section 4.5.
"Qualified Plans" shall have the meaning set forth in Section 4.5.
"Schedule 14D-9" shall have the meaning set forth in Section 1.2(d).
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"SEC" shall have the meaning set forth in Section 1.1(b).
"Secretary of State" shall have the meaning set forth in Section
2.1(b).
"Securities Act" shall have the meaning set forth in Section 4.7.
"Shares" shall have the meaning set forth in Introduction.
"single employer" shall have the meaning set forth in Section 4.13(a).
"Solvent" shall mean, with respect to any Person, that (a) the fair
saleable value of the property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date,
(b) as of such date, such Person is able to pay all of its liabilities as
such liabilities mature, (c) such Person does not have unreasonably small
capital for conducting the business theretofore or proposed to be conducted
by such Person and its Subsidiaries, and (d) such Person has not incurred
nor does it plan to incur debts beyond its ability to pay as they mature.
The amount of any contingent or unliquidated liability at any time will be
computed as the amount which, in light of all the facts and circumstances
existing at such time, can reasonably be expected to become an actual or
matured liability.
"Subsidiary" shall have the meaning set forth in Section 4.6.
"Superior Proposal" shall have the meaning set forth in Section 6.4.
"Surviving Corporation" shall have the meaning set forth in Section
2.1(a).
"Tax Return" shall have the meaning set forth in Section 4.12(b)(i).
"Taxes" shall have the meaning set forth in Section 4.12(b)(i).
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"The 1995 Plan" shall have the meaning set forth in Section 4.5.
"The 1996 Plan" shall have the meaning set forth in Section 4.5.
"Year 2000 Compliant" shall have the meaning set forth in Section
4.22.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to Buyer or Merger Subsidiary, to:
CUSTOMERONE HOLDING CORPORATION
644 Elliott Street
Buffalo, New York 14201
Telecopy: (716) 871-2175
Attention: Seth M. Mersky
with a copy to:
Mary R. Korby, Esq.
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopy: (214) 746-7777
if to the Company, to:
LCS Industries, Inc.
120 Brighton Road
Clifton, New Jersey 07012
Telecopy: (973) 778-7485
Attention: Pat R. Frustaci
with copies to:
Kirkpatrick & Lockhart, L.L.P.
1251 Avenue of the Americas, 45th Floor
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<PAGE> 56
New York, NY 10020-1104
Telecopy: (212) 536-3901
Attention: Peter B. Hirshfield, Esq.
and:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
or such other address or telecopy number as such party may hereafter
specify for the purpose of giving notice to the other parties hereto. Each
such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section 12.1 and the appropriate telecopy confirmation is
received or (ii) if given by any other means, when delivered at the address
specified in this Section 12.1.
SECTION 12.2 Nonsurvivial of Representations and Warranties. The
representations and warranties contained herein and in any certificate or
other writing delivered pursuant hereto shall not survive the Effective
Time or the termination of this Agreement. All covenants and agreements
contained herein which by their terms are to be performed in whole or in
part subsequent to the Effective Time shall survive the Merger in
accordance with their terms. Nothing contained in this Section 12.2 shall
relieve any party from liability for any willful breach of this Agreement.
SECTION 12.3 Amendments; No Waivers. (a) Except as may otherwise be
provided herein, any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, Buyer and
Merger Subsidiary or in the case of a waiver, by the party against whom the
waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of the Company, no such amendment or waiver
shall, without the further approval of such stockholders: (i) reduce the
Offer Price; (ii) alter or change the Merger Consideration to be received
in exchange for the Shares, or (iii) alter or change any of the terms or
conditions of this Agreement if such alteration or change could adversely
affect the holders of any shares of capital stock of the Company.
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(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 12.4 Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or
expense.
SECTION 12.5 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that Buyer
may transfer or assign, in whole or from time to time in part, to one or
more of its direct or indirect wholly-owned Subsidiaries, the right to
purchase Shares pursuant to the Offer, but any such transfer or assignment
will not relieve Buyer of its obligations under the Offer or prejudice the
rights of tendering stockholders to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
SECTION 12.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware without
regard to conflicts of laws.
SECTION 12.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated herein is not
affected in any manner materially adverse to any party hereto. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner.
SECTION 12.8 Third Party Beneficiaries. No provision of this Agreement
other than Section 7.3 and Section 8.6 hereof is intended to confer upon
any Person other than the parties hereto any rights or remedies hereunder.
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SECTION 12.9 Entire Agreement. This Agreement, including any exhibits,
annexes or schedules hereto and the Confidentiality Agreement constitutes
the entire agreement among the parties hereto with respect to the subject
matter hereof and supersede all other prior agreements or undertaking with
respect thereto, both written and oral.
SECTION 12.10 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
LCS INDUSTRIES, INC.
/s/ William Rella
------------------------------
William Rella
President and Chief Executive Officer
CUSTOMERONE HOLDING CORPORATION
/s/ Mark R. Briggs
------------------------------
Mark R. Briggs
President
CATALOG ACQUISITION CO.
/s/ Mark R. Briggs
------------------------------
Mark R. Briggs
President
55
<PAGE> 1
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
BETWEEN
CUSTOMERONE CORPORATION,
CANADIAN ACCESS INSURANCE SERVICES INC.
AND
THE STOCKHOLDERS OF
CANADIAN ACCESS INSURANCE SERVICES INC.
---------------
Dated as of March 19, 1999
---------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 PURCHASE OF ASSETS................................................................1
1.1 Purchase and Sale of Assets...........................................................1
(a) Contract Rights..............................................................1
(b) Intellectual Property........................................................1
(c) Books and Records............................................................2
1.2 Excluded Assets.......................................................................2
ARTICLE 2 ASSUMPTION OF LIABILITIES.........................................................2
ARTICLE 3 PURCHASE PRICE AND CLOSING........................................................2
3.1 Purchase Price........................................................................2
3.2 Adjustment of Purchase Price..........................................................3
3.3 Allocation of Purchase Price..........................................................4
3.4 Closing...............................................................................4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................................5
4.1 Due Organization......................................................................5
4.2 Authorization and Effect of Agreement.................................................5
4.3 No Restrictions Against Purchase of Assets............................................5
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS.....................6
5.1 Due Organization......................................................................6
5.2 Authorization and Effect of Agreement.................................................6
5.3 No Restrictions Against Sale of the Assets............................................6
5.4 Conduct of Business; Certain Actions..................................................7
5.5 Condition of Assets; Title to Assets..................................................7
5.6 Intellectual Property Rights..........................................................7
5.7 Compliance with Laws..................................................................8
5.8 Contracts and Agreements..............................................................8
5.9 Claims and Proceedings................................................................8
5.10 Certain Consents......................................................................8
5.11 Year 2000 Compliance..................................................................8
5.12 Information Furnished.................................................................8
</TABLE>
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<TABLE>
<S> <C> <C>
5.13 Stockholders of Seller................................................................9
5.14 No Tax Witholding.....................................................................9
ARTICLE 6 COVENANTS.........................................................................9
6.1 Employees.............................................................................9
6.2 Discharge of Business Obligations.....................................................9
6.3 Maintenance of Books and Records......................................................9
6.4 Certain Tax Matters..................................................................10
ARTICLE 7 CONDITIONS TO CLOSING............................................................11
7.1 Conditions Precedent to Obligations of Purchaser.....................................11
7.2 Conditions to Obligations of Seller..................................................13
ARTICLE 8 SURVIVAL AND INDEMNIFICATION.....................................................14
8.1 Survival of Representations, Warranties and Covenants................................14
8.2 Certain Definitions..................................................................14
8.3 Indemnification......................................................................15
8.4 Defense of Claims....................................................................15
8.5 Limitation on Liability; Setoff Right................................................16
ARTICLE 9 MISCELLANEOUS PROVISIONS.........................................................17
9.1 Invalid Provisions...................................................................17
9.2 Notices..............................................................................17
9.3 Expenses.............................................................................18
9.4 Successors and Assigns...............................................................18
9.5 Waiver...............................................................................19
9.6 Entire Agreement.....................................................................19
9.7 Amendments and Supplements...........................................................19
9.8 No Third-Party Beneficiaries.........................................................19
9.9 Further Assurances...................................................................19
9.10 Transfers............................................................................19
9.11 Governing Law........................................................................19
9.12 Execution in Counterparts............................................................19
9.13 Titles and Headings..................................................................19
9.14 Passage of Title and Risk of Loss....................................................19
9.15 Certain Interpretive Matters and Definitions.........................................20
9.16 No Recourse..........................................................................20
9.17 Arbitration to Enforce Agreement.....................................................20
</TABLE>
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<PAGE> 4
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of March ___, 1999, by and among Canadian Access Insurance Services Inc., an
Ontario corporation ("Seller"), the stockholders of Seller listed on Annex A
attached hereto (individually, a "Stockholder" and collectively, the
"Stockholders") and CustomerONE Corporation, a Delaware corporation
("Purchaser").
RECITALS:
Seller desires to sell and Purchaser desires to purchase certain of the
assets and rights of Seller which have been used in the operation of that
portion of Seller's business related to the platform developed by Seller and
Axint Technologies, Inc. ("Axint") in order to effect sales to and on behalf of
insurance companies (the "Business") and, in connection with such purchase and
sale, Purchaser is willing to pay certain consideration to Seller and to assume
certain of Seller's obligations and liabilities, all on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
PURCHASE OF ASSETS
1.1 Purchase and Sale of Assets. On the terms and subject to the conditions
set forth in this Agreement, at the Closing (as such term is defined in Section
3.4 of this Agreement), Seller will sell, transfer, convey, assign and deliver
to Purchaser, and Purchaser will purchase and acquire for the Purchase Price (as
such term is defined in Section 3.1 hereof), all right, title and interest of
Seller in and to the rights and assets of Seller described in Schedule 1.1(a)
and Schedule 1.1(b)(ii) attached hereto which have been used in connection with
the Business, wherever located (collectively, the "Assets"), free and clear of
all mortgages, liens, pledges, security interests, charges, claims, rights of
third parties, restrictions and encumbrances of any nature whatsoever,
including, without limitation, all of Seller's right, title and interest in and
to the rights and assets described in this Section 1.1:
(a) Contract Rights. All rights and incidents of interest as of the
Closing in and to the contracts (the "Contracts"), that are described on
Schedule 1.1(a) attached hereto;
(b) Intellectual Property. All right, title and interest in and to the
software and software applications owned or licensed by Seller and used by
Seller in the operation of the Business, excluding Microsoft Word and other
off-the-shelf software described in Schedule 1.1(b)(i) attached hereto or any
program used by Seller for which Purchaser currently has a license, and all
trade secrets, technical knowledge, know-how and other confidential proprietary
information and related ownership, use and other rights of Seller relating to
such software used in the Business, including but not limited to those
<PAGE> 5
listed or described on Schedule 1.1(b)(ii) attached hereto (collectively, the
"Intellectual Property");
(c) Books and Records. All books and records of Seller, or copies
thereof, relating to the Business, including records or copies thereof relating
to any employees of Seller to be employed by Purchaser or North Direct Response
Inc. ("NDR") in connection with Purchaser's acquisition of the Assets including,
without limitation, records relating to software research and development or
otherwise relating to the software acquired by Purchaser as part of the acquired
Assets.
1.2 Excluded Assets. Any right or asset of Seller not referenced in Section
1.1, or any schedule thereto, will not be included in the Assets acquired by
Purchaser.
ARTICLE 2
ASSUMPTION OF LIABILITIES
Purchaser does not assume or agree to pay, satisfy, discharge or perform,
and will not be deemed by virtue of the execution and delivery of this Agreement
or any document delivered at the Closing pursuant to this Agreement, or as a
result of the consummation of the transactions contemplated by this Agreement,
to have assumed, or to have agreed to pay, satisfy, discharge or perform, any
liability, obligation or indebtedness of Seller, whether primary or secondary,
direct or indirect.
ARTICLE 3
PURCHASE PRICE AND CLOSING
3.1 Purchase Price. Subject to the adjustments provided for in Section 3.2
hereof, the purchase price payable by Purchaser to Seller for the Assets shall
be Three Million One Hundred Thousand Dollars U.S. ($3,100,000 U.S.) (as
adjusted, the "Purchase Price"), payable as follows:
(a) by Purchaser's delivery to Seller at Closing, by wire transfer or
by certified check, of the amount of One Million Dollars U.S. ($1,000,000 U.S.)
payable to Seller, or to such other person(s) as Seller shall designate;
(b) by Purchaser's payment to Axint of a maximum aggregate amount of
Six Hundred Thousand Dollars U.S. ($600,000 U.S.), on the terms described in
Schedule 3.1(b) hereto; and
(c) subject to Section 3.2 hereof, by Purchaser's payment to Seller, or
to such other person(s) as Seller shall designate, of the following amounts:
(i) the sum of Five Hundred Thousand Dollars U.S. ($500,000 U.S.)
on June 19, 2000;
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(ii) the sum of Five Hundred Thousand Dollars U.S. ($500,000 U.S.)
on June 19, 2001; and
(iii) the sum of Five Hundred Thousand Dollars U.S. ($500,000 U.S.)
on June 19, 2002.
3.2 Adjustment of Purchase Price. The Purchase Price payable by Purchaser to
Seller pursuant to Section 3.1 shall be subject to adjustment as follows:
(a) in the event that:
(i) the actual revenues (determined by calculating actual service
fees invoiced to clients, less any issued credits, any reserve for bad debt
and any costs of a pass-through nature (including, without limitation,
telephony, administrative costs and postage, determined in accordance with
generally accepted accounting principles, consistently applied) (the
"Revenues") of that separate portion of the insurance division of Purchaser,
or any affiliate thereof, which uses the platform developed by Seller and
Axint in order to effect sales to insurance companies (the "CA Platform")
for the fifteen (15) month period ending June 19, 2000 are less than Ten
Million Dollars U.S. ($10,000,000 U.S.); and
(ii) fewer than three hundred (300) call center seats used to sell
insurance using the CA Platform (collectively, the "Seats") have been sold
during the twelve (12) month period ending March 19, 2000, and installed and
invoiced within the fifteen (15) month period ending June 19, 2000, then the
amount payable by Purchaser to Seller pursuant to Section 3.1(c)(i) shall be
reduced to zero; provided, however, that in the event that no fewer than one
hundred fifty (150) Seats have been sold during the twelve (12) month period
ending March 19, 2000, and (i) at least three hundred (300) Seats have been
sold during the eighteen (18) month period ending September 19, 2000, and
installed and invoiced within the twenty-one month period ending December
19, 2000, and (ii) as of September 19, 2000 the Revenue test established in
Section 3.2(a)(i) has been satisfied, then the amount previously payable by
Purchaser to Seller pursuant to Section 3.1(c)(i) shall be paid to Seller on
December 19, 2000.
(b) in the event that:
(i) the Revenues of that separate portion of the insurance division
of Purchaser, or any affiliate thereof, which uses the CA Platform for the
twenty-seven (27) month period ending June 19, 2001 are less than Thirty
Million Dollars U.S. ($30,000,000 U.S.); and
(ii) fewer than six hundred (600) Seats have been sold during the
twenty-four (24) month period ending March 19, 2001, and installed and
invoiced within the twenty-seven (27) month period ending June 19, 2001,
then
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<PAGE> 7
the amount payable by Purchaser to Seller pursuant to Section 3.1(c)(ii)
shall be reduced to zero; and
(c) in the event that:
(i) the Revenues of that separate portion of the insurance division
of Purchaser, or any affiliate thereof, which uses the CA Platform for the
thirty-nine (39) month period ending June 19, 2002 are less than Fifty
Million Dollars U.S. ($50,000,000 U.S.); and
(ii) fewer than nine hundred (900) Seats have been sold during the
thirty-six (36) month period ending March 19, 2002, and installed and
invoiced within the thirty-nine (39) month period ending June 19, 2002, then
the amount payable by Purchaser to Seller pursuant to Section 3.1(c)(iii)
shall be reduced to zero.
For purposes of this Section 3.2, where Revenues of the insurance division
must be calculated to determine whether a performance threshold has been
satisfied, at least eight-five percent (85%) of the Revenues included in any
such calculation must be generated by Purchaser's call center, unless
Purchaser shall agree otherwise in writing.
3.3 Allocation of Purchase Price. Seller and Purchaser, in conjunction with
their respective accountants, will agree upon the allocation of the Purchase
Price for the Assets as set forth on Schedule 3.3 attached hereto (the
"Allocation"). Purchaser and Seller agree to prepare and to file all income tax
returns (including, if applicable, U.S. Form 8594) in a manner consistent with
the Allocation and will not in connection with the filing of such returns make
any allocation which is contrary to the Allocation except for buying and selling
expenses incurred by Seller and Purchaser. Purchaser and Seller agree to consult
with each other with respect to all issues related to such Allocation in
connection with any tax audit, controversy or litigation. No party hereto shall
take or shall agree to any position inconsistent with the Allocation in
connection with any tax audit, controversy or litigation which would adversely
affect the taxes of any other party hereto to any material extent without the
prior written consent of such other party. Such consent shall not be
unreasonably withheld, and shall not be necessary to the extent the party which
takes or agrees to such inconsistent position has indemnified the other party
against the effects of such action.
3.4 Closing. Subject to the satisfaction or waiver of all of the conditions
to Closing set forth in Article 7, the consummation of the purchase and sale of
the Assets contemplated hereby (the "Closing") shall take place on March ___,
1999 at the offices of Cassels Brock & Blackwell, Scotia Plaza, Suite 2100, 40
King Street West, Toronto, Canada M5H 3C2 (or at such other place as the parties
may designate) or such other date designated by the parties in writing. The date
on which the Closing is effected is referred to in this Agreement as the
"Closing Date."
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<PAGE> 8
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller and the Stockholders as follows
(with the understanding that Seller and the Stockholders are relying materially
on such representations and warranties in entering into and performing this
Agreement):
4.1 Due Organization. Purchaser is a corporation, validly existing and in
good standing under the laws of the State of Delaware, and has the requisite
corporate power and authority to own, lease or otherwise hold its properties and
assets and to carry on its business as presently conducted.
4.2 Authorization and Effect of Agreement. Purchaser has the requisite
corporate power to execute and to deliver this Agreement and to perform the
transactions contemplated hereby to be performed by Purchaser. The execution and
delivery by Purchaser of this Agreement and the performance by Purchaser of the
transactions contemplated hereby to be performed by Purchaser have been duly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and, assuming the
due execution and delivery of this Agreement by Seller and the Stockholders,
constitutes a valid and binding obligation of Purchaser, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3 No Restrictions Against Purchase of Assets. The execution and the
delivery of this Agreement by Purchaser does not, and the performance by
Purchaser of the transactions contemplated hereby to be performed by it will
not, (a) conflict with the certificate of incorporation or the bylaws of
Purchaser, (b) conflict with, or result in any violation of, or constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, any material contract or permit, order, judgment or
decree to which Purchaser is a party or by which it is bound, or (c) constitute
a violation of any federal, state, provincial, county or local law, rule or
regulation applicable to Purchaser. No consent, approval, order or authorization
of, or registration, declaration or filing with any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality (each a
"Governmental Entity") is required to be obtained or made by, or with respect
to, Purchaser in connection with the execution and delivery of this Agreement by
Purchaser or the performance by Purchaser of the transactions contemplated
hereby, except as listed or described on Schedule 4.3.
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<PAGE> 9
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS
Seller and the Stockholders, jointly and severally, represent and warrant to
Purchaser as follows (with the understanding that Purchaser is relying
materially on each such representation and warranty in entering into and
performing this Agreement):
5.1 Due Organization. Seller is a corporation validly existing and in good
standing under the laws of the Province of Ontario and has the requisite
corporate power and authority to own, lease or otherwise hold its properties and
assets and to carry on its business as presently conducted. Seller is qualified
to do business and is in good standing in the jurisdictions set forth on
Schedule 5.1 attached hereto, which jurisdictions represent every jurisdiction
where such qualification is required.
5.2 Authorization and Effect of Agreement. Seller has the requisite
corporate power to execute and to deliver this Agreement and the Bill of Sale
and Assignment Agreement (the "Related Document") and to perform the
transactions contemplated hereby and thereby. The execution and delivery by
Seller of this Agreement and the Related Document and the performance by Seller
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Seller and the shareholders of Seller.
The Stockholders have the capacity to execute and to deliver this Agreement and
to perform their obligations hereunder. This Agreement has been duly executed
and delivered by Seller and the Stockholders and, assuming the due execution and
delivery of this Agreement by Purchaser, constitutes a valid and binding
obligation of Seller and the Stockholders, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3 No Restrictions Against Sale of the Assets. The execution and delivery
of this Agreement and the Related Document by Seller and the Stockholders does
not, and the performance by Seller of the transactions, and the Stockholders of
their obligations, contemplated hereby and thereby to be performed by Seller and
the Stockholders will not, (a) conflict with the charter or bylaws of Seller,
(b) conflict with, or result in any violation of, or constitute a default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit under, any material contract or permit, order, judgment or decree to
which either Seller or any Stockholder is a party or by which Seller or any
Stockholder is bound, or (c) constitute a violation of any federal, state,
provincial, county or local law, rule or regulation applicable to Seller or the
Stockholders or any order, writ or injunction of any Governmental Entity. No
consent, approval, order or authorization of, or registration, declaration or
filing with any Governmental Entity or other third party is required to be
obtained or made by or with respect to Seller or any Stockholder in connection
with the execution and delivery of this Agreement by Seller and the
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<PAGE> 10
Stockholders or the performance by Seller of the transactions, or the
Stockholders of their obligations, contemplated hereby, except as listed or
described on Schedule 5.3.
5.4 Conduct of Business; Certain Actions. Except as set forth on Schedule
5.4 attached hereto, since January 1, 1999, Seller has conducted its business
and its operations in the ordinary course and consistent with past practices and
has not:
(a) amended or experienced a termination of any contract, agreement,
lease, franchise or license with respect to the Assets;
(b) entered into any other material transactions with respect to the
Assets except in the ordinary course of business;
(c) suffered any material damage, destruction or loss (whether or not
covered by insurance) to any of the Assets to be acquired by Purchaser; or
(d) experienced any claim, assertion, event or condition that has had,
or could reasonably be expected to result in, a material adverse effect with
respect to the Assets to be acquired by Purchaser.
5.5 Condition of Assets; Title to Assets.
(a) The Assets, where applicable, are in good operating condition,
subject to normal wear and maintenance, are usable in the regular and ordinary
course of business and conform to all applicable laws, ordinances, codes, rules
and regulations, and permits relating to their construction, use and operation.
(b) Except as listed or as described on Schedule 5.5 attached hereto,
Seller has, and following the Closing, Purchaser will have, good, valid and
marketable title to the Assets, free and clear of all title defects or
objections, mortgages, liens, claims, charges, pledges, or other encumbrances of
any nature whatsoever, including, without limitation, licenses, leases, chattel
or other mortgages, collateral security arrangements, pledges, title
imperfections, defect or objection liens, security interests, conditional and
installment sales agreements, charges or restrictions of any kind and other
title or interest retention arrangements, reservations or limitations of any
nature (collectively, the "Liens").
5.6 Intellectual Property Rights. Except with respect to the licensed
software described in Schedule 1.1(a), Seller has good and marketable title to
such Assets and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the operation of the Assets (except for know-how
Purchaser is acquiring from Axint), without the payment of any royalty or
similar payment. Seller is not infringing any Intellectual Property of others,
and neither Seller nor any of the Stockholders are aware of any infringement by
others of any such rights owned by Seller. The software listed on Schedules
1.1(a), 1.1(b)(i) and 1.1(b)(ii) attached hereto, together with the software
developed by Axint, constitutes all of the software owned or licensed by Seller
and used in the operation of the Business.
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<PAGE> 11
5.7 Compliance with Laws. Seller has complied in all material respects, and
is in compliance in all material respects, with all laws, regulations and orders
with respect to the operation of the Assets.
5.8 Contracts and Agreements. Any Contract which comprises a portion of the
Assets acquired by Purchaser is valid and enforceable in accordance with its
terms; Seller is in compliance with the provisions thereof; neither Seller nor,
to Seller's or any Stockholder's knowledge, any third party is in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein; and no event has occurred which, with or without the giving
of notice or lapse of time, or both, would constitute a default thereunder.
Furthermore, no such Contact contains any contractual requirement with which
there is a reasonable likelihood Seller or any other party thereto will be
unable to comply.
5.9 Claims and Proceedings. Attached hereto as Schedule 5.9 is a list and
description of all claims, actions, suits, proceedings and investigations
pending or threatened against Seller with respect to the operation of the Assets
to be acquired by Purchaser or otherwise. No inquiry, action or proceeding has
been asserted, instituted or, to the best knowledge of Seller and the
Stockholders, threatened to restrain or to prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof.
5.10 Certain Consents. Seller has obtained, or at Closing will have
obtained, the consents, waivers or approvals listed on Schedule 5.10 attached
hereto required to be executed and/or obtained by the Seller from third parties
in connection with the execution, delivery and performance of this Agreement and
each other agreement, instrument and document required to be executed by the
Seller in connection herewith, and the actions contemplated hereby or thereby.
5.11 Year 2000 Compliance. Except as set forth in Schedule 5.11 hereto, all
information systems (including operating systems, applications and databases)
used by Seller, which are to be acquired by Purchaser from Seller, have been
programmed (whether through original programming or subsequent modification) to
accurately reflect data in the year 2000 and in subsequent years. With respect
to information systems that are not year 2000 compliant, Schedule 5.11
identifies the steps Seller plans to take to make these information systems year
2000 compliant on behalf of Purchaser.
5.12 Information Furnished. Seller has made available to Purchaser and its
officers, attorneys, accountants and representatives true and correct copies of
all agreements, documents and other items listed on the schedules to this
Agreement and all books and records of Seller relating to the Assets, and
neither the representations and warranties of Seller or the Stockholders
contained in this Agreement or in the schedules attached hereto nor any
information provided by Seller or the Stockholders, agreements or documents
delivered to or made available to and reviewed by Purchaser or its officers,
attorneys, accountants or representatives pursuant to this Agreement in
connection with the acquisition of the Assets contain any untrue statement of a
material fact or omit to
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<PAGE> 12
state any material fact necessary to make the statements made herein or therein,
as the case may be, not misleading.
5.13 Stockholders of Seller. The Stockholders listed on Annex A constitute
all of the registered shareholders of Seller.
5.14 No Tax Witholding. The transactions contemplated by this Agreement are
not subject to U.S. tax withholding pursuant to the provisions of Section 3406
of the U.S. Internal Revenue Code of 1986, as amended, (the "Code") or
Subchapter A of Chapter 3 of the Code, or any other similar provision.
ARTICLE 6
COVENANTS
6.1 Employees. As of the Closing Date, Purchaser, or NDR, shall offer
employment, on substantially the same terms and conditions, to, and Seller shall
use its best efforts to assist Purchaser in employing as new employees of
Purchaser, all of the persons listed on Schedule 6.1 attached hereto (the
"Employees"). Seller shall terminate, effective as of the Closing Date, all
employment arrangements it has with any of the Employees. Purchaser or NDR shall
be responsible for any severance or similar obligations arising from the
transaction contemplated hereby; provided, however, that in the event that
Purchaser or NDR shall terminate any Employee within ninety (90) days of
Closing, Seller shall indemnify Purchaser or NDR, in accordance with Article 8
hereof, for any severance amount due Employee as a result of such termination.
In the event that any Employee who has not been terminated by Purchaser or NDR
within ninety (90) days of Closing brings any claim against Seller with respect
to any severance amount due Employee following Employee's termination, Purchaser
shall indemnify Seller, in accordance with Article 8 hereof, for any severance
amount due Employee as a result of such termination.
6.2 Discharge of Business Obligations. From and after the Closing Date,
Seller shall pay and shall discharge, in accordance with past practice but not
less than on a timely basis, all obligations and liabilities incurred prior to
the Closing Date with respect to the operation of the Assets.
6.3 Maintenance of Books and Records. Each of Seller and Purchaser shall
preserve, or shall cause to be preserved, until the fifth anniversary of the
Closing Date originals or copies of all material records in the possession or
control of such party at Closing or which come into the possession or control of
such party following Closing, to which such party is entitled, relating to any
of the assets, liabilities or business of such party prior to the Closing Date.
After the Closing Date, where there is a legitimate purpose, such party shall
provide the other party with access, upon prior reasonable written request
specifying the need therefor, during regular business hours, to (i) the officers
and employees of such party and (ii) the corporate records and books of account
and records of such party, but, in each case, only to the extent relating to the
Assets, liabilities or business of such party prior to the Closing Date, and the
other party and its
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representatives shall have the right to make copies of such books and records;
provided, however, that the foregoing right of access shall not be exercisable
in such a manner as to interfere unreasonably with the normal operations and
business of such party; and further, provided, that, as to so much of such
information as constitutes trade secrets or confidential business information of
such party, the requesting party and its officers, directors and representatives
will use due care to not disclose such information except (i) as required by
law, (ii) with the prior written consent of such party, which consent shall not
be unreasonably withheld, or (iii) where such information becomes available to
the public generally, or becomes generally known to competitors of such party,
through sources other than the requesting party, its affiliates or its officers,
directors or representatives. Such records may nevertheless be destroyed by a
party if such party sends to the other party written notice of its intent to
destroy records, specifying with particularity the contents of the records to be
destroyed. Such records may then be destroyed after the 30th day after such
notice is given unless another party objects to the destruction, in which case
the party seeking to destroy the records shall either agree to retain such
records or deliver such records to the objecting party. Notwithstanding the
foregoing, Seller shall have no continuing obligation to provide Purchaser with
access to any books and records which have been delivered by Seller to Purchaser
at Closing pursuant to Section 1.1(c) of this Agreement. Seller also shall be
entitled to reasonable access following the Closing to any books and records
which have been delivered by Seller to Purchaser relating to the Assets and
shall be entitled to audit any records which relate to Seller's right to receive
payments in accordance with Sections 3.1 and 3.2 hereof.
6.4 Certain Tax Matters.
(a) All sales, use, transfer, stamp, conveyance, value added or other
similar taxes, duties, excises or governmental charges imposed by any taxing
jurisdiction, domestic or foreign, and all recording or filing fees, notarial
fees and other similar costs of Closing with respect to the transfer of the
Assets or otherwise on account of this Agreement or the transactions
contemplated hereby will be borne by Purchaser, other than any filings required
with respect to the release of any Liens. Seller will indemnify Purchaser
against any liability, direct or indirect, for any taxes imposed on Purchaser
with respect to the Assets that are attributable to any taxable periods ending
on, or prior to, the Closing Date or with respect to the allocable portion of
any taxable period that includes but does not end on the Closing Date.
(b) Purchaser will prepare and will file, or will cause to be prepared
and filed, all tax returns with respect to the operation of the Assets required
to be filed with the appropriate federal, state, provincial and local agencies
for all taxable periods for which tax returns are due with respect to the
operation of the Assets following the Closing Date. Purchaser will make all
payments required with respect to any such tax returns. The preceding sentence
will not limit or relieve Seller of its obligation to reimburse Purchaser
concurrently therewith to the extent that any payment by Purchaser relates to
the operation of the Assets for any period ending on or before the Closing Date
or with respect to the allocable portion of any taxable period that includes but
does not end on the Closing Date.
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(c) Seller will prepare and file or cause to be prepared and filed all
tax returns for the Seller that are required to be filed with respect to the
operation of the Assets, other than tax returns that Purchaser is obligated to
prepare and file pursuant to Section 6.4(b), with the appropriate federal,
state, provincial and local agencies with respect to the operation of the Assets
prior to the Closing Date and, except as provided in Section 6.4(a), the sale of
the Assets. Seller will pay or cause to be paid all taxes required to be paid
with respect to such tax returns. Seller will pay all taxes that are imposed
with respect to the operation of the Assets or with respect to the allocable
portion of any taxable period that includes, but does not end on, the Closing
Date (or, if applicable, reimburse Purchaser for the payment of such taxes)
attributable to taxable periods ending on or prior to the Closing Date. The
amount of taxes attributable to a portion of a taxable period that includes but
does not end on the Closing Date shall be determined pursuant to the interim
closing of the books method.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions Precedent to Obligations of Purchaser. The obligations of
Purchaser under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to Closing, of all of
the following conditions, any one or more of which may be waived at the option
of Purchaser:
(a) Seller shall have performed and complied with all of the agreements
required by this Agreement to be performed or complied with by Seller at or
prior to the Closing Date and Purchaser shall have received a certificate, dated
as of the Closing Date, signed by a duly authorized officer of Seller to the
foregoing effect;
(b) No action or proceeding shall have been instituted or threatened
for the purpose, or with the probable or reasonably likely effect, of enjoining
or preventing the consummation of this Agreement or seeking damages on account
thereof;
(c) Purchaser shall have received an opinion of Cassels Brock &
Blackwell, counsel for the Seller, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit 7.1(c);
(d) Prior to the Closing, there shall not have occurred any material
casualty, damage or detriment (whether or not insured) to any of the Assets or
to the Business represented by the Assets and there shall not have occurred any
material adverse change with respect to either the Assets or the Business;
(e) All consents and approvals required to be delivered by Seller in
connection with the execution, delivery and performance of this Agreement shall
have been obtained and Seller shall have delivered evidence thereof to
Purchaser;
(f) All necessary action (corporate or otherwise) shall have been taken
by Seller, the shareholders of Seller and each Stockholder to authorize, approve
and adopt this Agreement and the consummation and performance of the
transactions
11
<PAGE> 15
contemplated hereby, and Purchaser shall have received a certificate, dated as
of the Closing Date, of a duly authorized representative of Seller to the
foregoing effect;
(g) Seller shall have delivered a Bill of Sale and Assignment
Agreement, and other good and sufficient instruments of transfer as Purchaser
may reasonably request, conveying and transferring to Purchaser title to the
Assets, duly executed by Seller;
(h) Purchaser or NDR shall have entered into employment agreements, in
form and substance reasonably satisfactory to Purchaser, with Paul Ford and Greg
Zehr and Purchaser or one of its affiliates shall have entered into consulting
agreements in form and substance reasonably satisfactory to Purchaser with John
Jancaitis and Larry Trudeau;
(i) Purchaser shall have received evidence satisfactory to Purchaser
that any Liens on the Assets have been released, terminated or otherwise
discharged;
(j) Seller shall have executed and delivered each agreement, instrument
and document required to be executed by Seller in connection herewith;
(k) Seller shall have delivered to Purchaser such good standing
certificates, officers' certificates and similar documents and certificates as
counsel for Purchaser shall have reasonably requested prior to the Closing Date;
(l) Seller shall have provided Purchaser with an irrevocable direction
(attached hereto as Schedule 7.1(1)) regarding payment of any part of the
contingent purchase price payable by Purchaser to Seller for the Assets pursuant
to Sections 3.1(c) and 3.2 of this Agreement;
(m) Seller shall have terminated its software license agreement with
Axint and Purchaser shall have entered into both a Computer Program End-User
License Agreement and a Custom Modification Agreement with Axint;
(n) Purchaser shall have reviewed that certain Asset Purchase Agreement
between the Seller and Johnson Inc. ("Johnson");
(o) NDR shall have entered into a Customer Communication Services
Agreement with Seller in form and substance satisfactory to Purchaser;
(p) Purchaser shall have entered into an agreement with Axint regarding
Purchaser's payment of a maximum aggregate amount of $600,000 U.S. to Axint in
substantially the form attached hereto as Exhibit ------- 7.1(p); ------
(q) Seller shall have satisfied its indebtedness to the Bank of
Montreal and shall have discharged all Bank of Montreal security and Purchaser
shall have received evidence satisfactory to it that Seller's indebtedness to
the Bank of Montreal has been satisfied and that the Bank of Montreal security
has been discharged;
12
<PAGE> 16
(r) Seller shall have complied with the provisions of the Bulk Sales
Act of Ontario in connection with the sale in bulk of assets to Purchaser and
Seller shall have provided to Purchaser evidence of such compliance; and
(s) The representations and warranties of Seller and the Stockholders
contained herein shall be true and correct in all material respects.
7.2 Conditions to Obligations of Seller. The obligations of Seller under
this Agreement to consummate the transactions contemplated hereby will be
subject to satisfaction, at or prior to Closing, of all of the following
conditions, any one or more of which may be waived at the option of Seller and
the Stockholders:
(a) Purchaser shall have performed and complied with all of the
agreements required by this Agreement to be performed or complied with by
Purchaser at or prior to the Closing Date and Seller shall have received a
certificate, dated as of the Closing Date, signed by a duly authorized officer
of Purchaser to the foregoing effect;
(b) Purchaser shall have delivered to Seller or to any person or
persons specified by Seller, by wire transfer or by certified check, an amount
equal to the portion of the Purchase Price payable to Seller at Closing pursuant
to Section 3.1(a);
(c) No action or proceeding shall have been instituted or threatened
for the purpose, or with the probable or reasonably likely effect, of enjoining
or preventing the consummation of this Agreement or seeking damages on account
thereof;
(d) All necessary action (corporate or otherwise) shall have been taken
by Purchaser to authorize, approve and adopt this Agreement and the consummation
and performance of the transactions contemplated hereby, and Seller shall have
received a certificate, dated as of the Closing Date, of a duly authorized
representative of Purchaser to the foregoing effect;
(e) Seller shall received an opinion of Weil, Gotshal & Manges LLP,
counsel for Purchaser, dated as of the Closing Date, in substantially the form
attached hereto as Exhibit 7.2(e);
(f) Purchaser or NDR shall have entered into employment agreements, in
form and substance reasonably satisfactory to Purchaser, with Paul Ford and Greg
Zehr and Purchaser or one of its affiliates shall have entered into consulting
agreements in form and substance reasonably satisfactory to Purchaser with John
Jancaitis and Larry Trudeau;
(g) Purchaser shall have delivered to Seller such good standing
certificates, officers' certificates and similar documents and certificates as
counsel for Seller shall have reasonably requested prior to the Closing Date;
(h) Seller shall have terminated its software license agreement with
Axint and Purchaser shall have entered into both a Computer Program End-User
License Agreement and a Custom Modification Agreement with Axint;
13
<PAGE> 17
(i) Purchaser shall have entered into certain option agreements and
subscription rights agreements with Paul Ford, Greg Zehr, John Jancaitis and
Larry Trudeau on terms and conditions mutually agreed upon by the parties;
(j) Seller shall have been released from its debt obligations with
Axint;
(k) Purchaser shall have executed and delivered each agreement,
instrument and document required to be executed by Purchaser in connection
herewith;
(l) Seller shall have entered into an Asset Purchase Agreement with
Johnson; and
(m) Purchaser shall have entered into a Commission Agreement with
Axint, Paul Ford, Greg Zehr and such other individuals as Purchaser, in its sole
discretion, may designate.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants. (a) Except as to
the representations and warranties contained in Section 5.6, which shall survive
the Closing and shall remain in effect for a period of ten (10) years, the
representations and warranties of Seller, the Stockholders and Purchaser
contained in this Agreement shall survive the Closing until the expiration of
two (2) years from the Closing Date. Any claim for indemnification with respect
to any of such matters which is not asserted by notice given as herein provided
relating thereto within such specified period of survival may not be pursued and
is hereby irrevocably waived after such time. Any claim for an Indemnifiable
Loss (as defined in Section 8.2) asserted within such period of survival as
herein provided will be timely made for purposes hereof.
(b) Unless a specified period is expressly set forth in this Agreement
(in which event such specified period will control), the covenants in this
Agreement will survive the Closing and remain in effect indefinitely.
8.2 Certain Definitions. For purposes of this Agreement, (a) "Indemnity
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (b) "Indemnitee" means the party entitled to indemnification
under this Agreement, (c) "Indemnifying Party" means the party required to
provide indemnification under this Agreement, (d) "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 any Governmental 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, and
(e) "Third Party Claim" means any claim, action or proceeding made or brought by
14
<PAGE> 18
any person or entity who or which is not a party to this Agreement or an
affiliate of a party to this Agreement.
8.3 Indemnification.
(a) Subject to Section 8.1, Seller and the Stockholders severally, but
not jointly, agree to indemnify, defend and hold harmless Purchaser and its
directors, officers, affiliates, employees, agents and representatives from and
against any and all Indemnifiable Losses to the extent relating to, resulting
from or arising out of:
(i) any breach of any representation or warranty of Seller or any
Stockholder under the terms of this Agreement;
(ii) any breach or nonfulfillment of any agreement or covenant of
Seller or any Stockholder under the terms of this Agreement or the Related
Document; and
(iii) the use or ownership of any of the Assets prior to or on the
Closing Date.
(b) Subject to Section 8.1, Purchaser agrees to indemnify, defend and
hold harmless Seller and the Stockholders, and Seller's directors, affiliates,
partners, employees, agents or representatives thereof from and against any and
all Indemnifiable Losses to the extent relating to, resulting from or arising
out of:
(i) any breach of representation or warranty of Purchaser under the
terms of this Agreement;
(ii) any breach or nonfulfillment of any agreement or covenant of
Purchaser under the terms of this Agreement; and
(iii) the use or ownership of any of the Assets after the Closing
Date.
8.4 Defense of Claims.
(a) If any Indemnitee receives notice of assertion or commencement of
any Third Party Claim against such Indemnitee with respect to which an
Indemnifying Party is obligated to provide indemnification under Section 8.3(a)
or Section 8.3(b) of this Agreement, the Indemnitee will give such Indemnifying
Party prompt written notice thereof. Such notice will describe the Third Party
Claim in reasonable detail, will include copies of all material written evidence
thereof and will indicate the estimated amount, if reasonably practicable, of
the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The
Indemnifying Party will have the right to participate in, or, by giving written
notice to the Indemnitee, to assume, the defense of any Third Party Claim at
such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel (reasonably satisfactory to the Indemnitee), and the Indemnitee will
cooperate in good faith in such defense.
15
<PAGE> 19
(b) If, within ten calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 8.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 8.4(a), the Indemnifying Party will be liable to
Indemnitee only for the legal expenses reasonably incurred by the Indemnitee
prior to the receipt of such notice in addition to other Indemnifiable Losses.
The Indemnifying Party will not be liable for any legal expenses incurred by the
Indemnitee after the receipt of such written notice in connection with the
defense thereof; provided, however, that if (i) the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim, or
(ii) in the reasonable determination of the Indemnitee such Third Party Claim
presents a conflict of interest with respect to the Indemnifying Party, or (iii)
to the extent the Third Party Claim seeks an order, injunction, or other
equitable relief against the Indemnitee which, if successful, would materially
adversely affect the business, operations, assets or financial condition of the
Indemnitee, then within ten calendar days after receiving written notice from
the Indemnitee that the circumstances set forth in either (i), (ii) or (iii)
above exists or that the Indemnifying Party has not undertaken fully to
indemnify the Indemnitee in respect of all Indemnifiable Losses relating to the
matter, the Indemnitee may assume its own defense, and the Indemnifying Party
will be liable for all reasonable costs or expenses paid or incurred by the
Indemnitee in connection therewith. Without the prior written consent of the
other party, neither the Indemnifying Party nor the Indemnitee will enter into
any settlement of any Third Party Claim.
(c) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 8.4(a) or 8.4(b) will not
affect the rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(d) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnifying Party will be liable to Indemnitee for the
Direct Claim, and Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article 8.
8.5 Limitation on Liability; Setoff Right. In the event that Seller or the
Stockholders are required to indemnify Purchaser for any Indemnifiable Loss
pursuant to this Article 8, the total aggregate amount that Seller and the
Stockholders shall be required to pay Purchaser shall not exceed the Purchase
Price for the Assets, as such amount shall have been adjusted in the event that
any performance targets have not been satisfied and the amount that any
Stockholder is required to pay Purchaser shall not exceed the amount arrived at
by multiplying the percentage interest of such Stockholder in Seller as set out
in Schedule 8.5 hereto by the Purchase Price, as such amount shall
16
<PAGE> 20
have been adjusted in the event that any performance targets have not been
satisfied. No other claims for damages, indemnity or otherwise may be asserted,
except pursuant to this Article 8 and in accordance with the provisions hereof.
In the event that Purchaser must pay Seller, or such other person(s) as Seller
shall designate, any amount pursuant to Section 3.1(c) of this Agreement and, at
the time any such payment is required to be made, Seller, or any other person(s)
designated by Seller, is required to indemnify Purchaser for any Indemnifiable
Loss pursuant to this Article 8, then Purchaser shall be entitled to setoff the
amount of any such payment owed to Seller, or to such person(s) designated by
Seller, by the amount that Seller or any such other person is required to
indemnify Purchaser as an indemnity pursuant to this Section 8.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provision
shall be modified to the minimum extent necessary to make such provision valid
and enforceable, and the remainder of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid or unenforceable
provision prior its modification.
9.2 Notices. Any notices required or permitted to be given under this
Agreement (and, unless otherwise expressly provided therein, under any document
delivered pursuant to this Agreement) shall be given in writing and shall be
deemed received (a) when personally delivered to the relevant party at such
party's address as set forth below, (b) if sent by mail (which must be certified
or registered mail, postage prepaid), when received or rejected by the relevant
party at such party's address indicated below, or (c) if sent by facsimile
transmission, when confirmation of delivery is received by the sending party:
Purchaser: CustomerONE Corporation
8117 Preston Road, Suite 205
Dallas, Texas 75225
Attn: Chief Executive Officer
Fax: (214)696-8788
With a copy to: Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attn: Mary R. Korby, Esq.
Fax: (214) 746-7777
17
<PAGE> 21
Seller: Canadian Access Insurance Services Inc.
3250 Bloor St. West
The Mutual Group Centre
East Tower, 10th Floor
Etobiocoke, Ontario M8X 2X9
Attn: Paul Ford
Fax: (416) 239-3388
With a copy to: Cassels Brock & Blackwell
Scotia Plaza, Suite 2100
40 King Street West
Toronto, Canadia M5H 3C2
Attention: Gordon Goodman, Esq.
Fax: (416) 360-8877
Each party may change its address for purposes of this Section 9.2 by proper
notice to the other parties.
9.3 Expenses. Except as otherwise expressly provided herein, Seller will pay
any expenses incurred by it incident to this Agreement and in preparing to
consummate and consummating the transactions provided for herein. Purchaser will
pay any expenses incurred by it incident to this Agreement and in preparing to
consummate and consummating the transactions provided for herein.
9.4 Successors and Assigns. This Agreement will be binding upon and will
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by any party without
the prior written consent of the other party which shall not be unreasonably
withheld; provided, however, that (a) nothing in this Agreement is intended to
limit Purchaser's ability to sell or to transfer any or all of the Assets
following the Closing Date to any affiliate of Purchaser and provided further
that Purchaser shall be entitled to sell or to transfer all or any of the Assets
following the Closing Date to any third party upon obtaining the consent of
Seller, which consent shall not be unreasonably withheld, (b) upon notice to
Seller, Purchaser may assign or delegate any or all of its rights or obligations
under this Agreement to any affiliate thereof or to any person or entity that
acquires all or substantially all of the assets or voting stock of Purchaser,
and (c) Purchaser may make a collateral assignment of its rights under this
Agreement to any institutional lender who provides funds to Purchaser for the
acquisition of the Assets. Seller agrees to execute acknowledgements of such
assignment(s) and collateral assignments in such forms as Purchaser or
Purchaser's institutional lender(s) may from time to time reasonably request. In
the event of such a proposed assignment by Purchaser, the provisions of this
Agreement shall inure to the benefit of and be binding upon Purchaser's assigns.
In the event of any assignment by Purchaser of its obligations hereunder,
Purchaser hereby acknowledges that it shall remain liable to Seller in the event
that any assign fails to perform its obligations hereunder.
18
<PAGE> 22
9.5 Waiver. No failure or delay on the part of any party in exercising any
right, power or privilege hereunder or under any of the documents delivered in
connection with this Agreement shall operate as a waiver of such right, power or
privilege; nor shall any single or partial exercise of any such right, power or
privilege preclude any other or future exercise thereof or the exercise of any
other right, power or privilege.
9.6 Entire Agreement. This Agreement (including the Schedules hereto)
supersedes any other agreement, whether written or oral, that may have been made
or entered into by any party or any of their respective affiliates (or by any
director, officer or representative thereof) relating to the matters
contemplated hereby. This Agreement (together with the Exhibits and Schedules
hereto) constitutes the entire agreement by and among the parties hereto with
respect to the subject matter hereof and there are no agreements or commitments
by or among such parties or their Affiliates with respect to the subject matter
hereof except as expressly set forth herein.
9.7 Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements signed by the parties
hereto.
9.8 No Third-Party Beneficiaries. No person or entity not a party to this
Agreement shall be deemed to be a third-party beneficiary hereunder or entitled
to any rights hereunder.
9.9 Further Assurances. From time to time, as and when requested by either
party, the other party will execute and deliver, or cause to be executed and
delivered, all such documents and instruments as may be reasonably necessary to
consummate the transactions contemplated by this Agreement and the Related
Document.
9.10 Transfers. Purchaser and Seller will cooperate and take such action as
may be reasonably requested by the other in order to effect an orderly transfer
of the Assets with a minimum of disruption to the operations and employees of
the businesses of Purchaser and Seller.
9.11 Governing Law. This Agreement, including without limitation, the
interpretation, construction and validity hereof, shall be governed by the laws
of New York.
9.12 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
9.13 Titles and Headings. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
9.14 Passage of Title and Risk of Loss. Legal title, equitable title and
risk of loss with respect to the Assets will not pass to Purchaser until such
Assets are transferred at the Closing, which transfer, once it has occurred,
will be deemed effective for tax,
19
<PAGE> 23
accounting and other computational purposes as of 12:01 A.M. (Toronto Time) on
the Closing Date.
9.15 Certain Interpretive Matters and Definitions.
(a) Unless the context otherwise requires, (i) all references to
Sections, Articles or Schedules are to Sections, Articles or Schedules of or to
this Agreement, (ii) each term defined in this Agreement has the meaning
assigned to it, and (iii) words in the singular include the plural and vice
versa.
(b) No provision of this Agreement will be interpreted in favor of, or
against, either of the parties hereto by reason of the extent to which either
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft
hereof or thereof.
9.16 No Recourse. Notwithstanding any of the terms or provisions of this
Agreement, each party agrees that neither such party nor any person acting on
such party's behalf may assert any claims or cause of action against any officer
or director of the other party or any affiliate thereof in connection with or
arising out of this Agreement or the transactions contemplated hereby.
9.17 Arbitration to Enforce Agreement.
(a) The parties specifically agree that any controversy, claim, or
dispute arising out of this Agreement or any alleged breach thereof, shall be
resolved exclusively by arbitration. Any arbitration shall take place in New
York, New York and be administered by the New York City office of the American
Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules in effect at the time the arbitration is initiated
(collectively, the "Rules").
(b) As soon as a demand for arbitration shall be made by either party,
the AAA shall proceed to provide a list of arbitrators from the Commercial Panel
from which the parties shall select one neutral arbitrator in accordance with
the Rules and normal procedures of the New York City office of the AAA. If
necessary, the AAA shall select the arbitrator when it is authorized to do so
under the Rules.
(c) The arbitrator shall render a full, complete, conclusive, and
binding resolution of the dispute. Each party shall bear its own attorneys' fees
in connection with the any such arbitration. The costs of the arbitration and
the arbitrator's compensation shall be borne equally among the parties. Judgment
on the arbitration award may be entered in any court having jurisdiction
thereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CUSTOMERONE CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------------
Name: Thomas P. Dea
------------------------------------
Title:
-----------------------------------
CANADIAN ACCESS INSURANCE SERVICES INC.
By: /s/ PAUL J. FORD
--------------------------------------
Name: Paul J. Ford
------------------------------------
Title:
-----------------------------------
THE STOCKHOLDERS:
/s/ PETER A. BERCZI
-----------------------------------------
Peter A. Berczi
/s/ PAUL J. FORD
-----------------------------------------
Paul J. Ford
/s/ JOHN E. JANCAITIS
-----------------------------------------
John E. Jancaitis
/s/ LAWRENCE R. JOHNSON
-----------------------------------------
Lawrence R. Johnson
/s/ BRIAN W. JONES
-----------------------------------------
Brian W. Jones
<PAGE> 25
/s/ LAWRENCE B. TRUDEAU
-----------------------------------------
Lawrence B. Trudeau
/s/ DONALD W. ZEHR
-----------------------------------------
Donald W. Zehr
/s/ GREGORY L. ZEHR
-----------------------------------------
Gregory L. Zehr
<PAGE> 26
Schedule 6.1
Employee List
1. Paul Ford
2. Greg Zehr
<PAGE> 1
EXECUTION COPY
EXHIBIT 2.5
SHARE PURCHASE AGREEMENT
by and among
CLIENTLOGIC HOLDING CORPORATION
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
CORDENA CALL MANAGEMENT B.V.
STICHTING ADMINISTRATIEKANTOOR CORDENA CALL MANAGEMENT
and
THE MANAGEMENT SHAREHOLDERS LISTED ON THE SIGNATURE PAGES
HERETO
Dated October 7, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE ACQUISITION .....................................................................2
1.1 Purchase and Sale of the Shares and the Sale Warrants ...................................2
1.2 Consideration for the Shares and the Sale Warrants ......................................2
1.3 Delivery and Payment ....................................................................2
1.4 Adjustment of Share Purchase Price ......................................................2
1.5 Amendment of Options and Warrants .......................................................4
1.6 Payment Obligations .....................................................................5
ARTICLE II THE CLOSING .........................................................................5
2.1 Date of Closing .........................................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
MANAGEMENT SHAREHOLDERS OF THE COMPANY ..............................................5
3.1 Corporate Organization ..................................................................5
3.2 Authority; Absence of Conflicts .........................................................6
3.3 Outstanding Capital Stock ...............................................................7
3.4 Financial Statements ....................................................................8
3.5 Absence of Undisclosed Liabilities; Indebtedness ........................................8
3.6 Absence of Material Changes .............................................................9
3.7 Real Property ..........................................................................11
3.8 Tangible Personal Property .............................................................12
3.9 Accounts Receivable ....................................................................13
3.10 Accounts Payable .......................................................................13
3.11 Euro Compliance ........................................................................13
3.12 Year 2000 Compliance ...................................................................13
3.13 Contracts ..............................................................................14
3.14 Legal Proceedings ......................................................................16
3.15 Labor Matters ..........................................................................16
3.16 Employee Benefit Plans .................................................................16
3.17 Environmental Matters ..................................................................17
3.18 Tax Matters ............................................................................19
3.19 Insurance ..............................................................................20
3.20 Books and Records ......................................................................21
3.21 Brokers' or Finders' Fees ..............................................................21
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.22 Material Customers and Suppliers .....................................................21
3.23 Bank Accounts; Powers of Attorney ....................................................22
3.24 Intellectual Property Rights .........................................................22
3.25 Compliance with Laws; Permits and Licenses ...........................................23
3.26 Certain Business Practices; Potential Conflicts of Interest ..........................23
3.27 Projections ..........................................................................24
3.28 Subsidies ............................................................................24
3.29 HSR Act ..............................................................................24
3.30 Disclosure ...........................................................................24
3.31 Material Consents ....................................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
MANAGEMENT SHAREHOLDERS ...........................................................25
4.1 Organization .........................................................................25
4.2 Authority; Absence of Conflicts ......................................................25
4.3 Title to Shares ......................................................................26
4.4 Brokers' or Finders' Fees ............................................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HOLDING
AND BUYER .........................................................................26
5.1 Organization and Corporate Power .....................................................26
5.2 Authority; Absence of Conflicts ......................................................26
5.3 Outstanding Capital Stock; Issuance of Shares ........................................27
5.4 Legal Proceedings ....................................................................28
5.5 Brokers' or Finders' Fees ............................................................28
5.6 Financial Statements .................................................................28
ARTICLE VI COVENANTS..........................................................................28
6.1 Non-Competition; Confidentiality .....................................................28
6.2 Redemption of Depository Receipts ....................................................30
6.3 Agreement Regarding Management .......................................................30
ARTICLE VII CLOSING DELIVERIES ................................................................31
7.1 Documents being delivered by the parties at Closing ..................................31
ARTICLE VIII THE EARNOUT .......................................................................32
8.1 Additional Payments ..................................................................32
8.2 Each Participating Shareholder's Share of the Payments ...............................33
8.3 Method of Payment ....................................................................33
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
8.4 Management Shareholder's Termination .................................................33
ARTICLE IX MISCELLANEOUS .....................................................................33
9.1 Expenses ..............................................................................33
9.2 Attorneys' Fees .......................................................................34
9.3 Brokers ...............................................................................34
9.4 Notices ...............................................................................34
9.5 Transfer Taxes ........................................................................35
9.6 Successors and Assigns ................................................................35
9.7 Entire Agreement and Modification .....................................................36
9.8 Certain Interpretive Matters ..........................................................36
9.9 Governing Law .........................................................................36
9.10 Counterparts ..........................................................................37
9.11 Further Assurances ....................................................................37
9.12 Severability ..........................................................................37
9.13 No Recourse ...........................................................................37
9.14 Public Statements .....................................................................37
9.15 Specific Performance ..................................................................37
9.16 Notary ..............................................................................37
</TABLE>
<PAGE> 5
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 7th day of October, 1999, by and among ClientLogic Holding
Corporation, a Delaware corporation ("Holding"), ClientLogic International
Holding, Inc., a Delaware corporation an indirect wholly owned subsidiary of
Holding ("Buyer"), Cordena Call Management B.V., a Netherlands corporation (the
"Company"), Stichting Administratiekantoor Cordena Call Management, a
Netherlands trust (the "Stichting") and Jules T.H.M. Kortenhorst and Peter E.
Dekker (collectively, the "Management Shareholders").
RECITALS:
WHEREAS, the Stichting is the record owner of 6,337,774 shares (the
"Shares") in the capital of the Company (the "Company Capital Stock"), nominal
value NLG 0.04 per share, which represent all of the capital stock of the
Company;
WHEREAS, the persons listed on Exhibit 1 hereto (the "Shareholders")
are the beneficial owners of such number of Shares set forth opposite such
Shareholder's name on Exhibit 1;
WHEREAS, the persons listed on Exhibit 2 hereto (the "Optionholders")
are the record and beneficial owners of options (the "Options") to purchase the
number of depository receipts representing beneficial ownership of shares of
Company Capital Stock (the "Option Shares") at the exercise prices set forth
opposite each such Optionholder's name on Exhibit 2;
WHEREAS, the persons listed on Exhibit 3 hereto (the "Warrantholders"
and together with the Shareholders and the Optionholders, the "Holders") are the
record and beneficial owners of warrants (the "Warrants") to purchase the number
of depository receipts representing beneficial ownership of shares of Company
Capital Stock (the "Warrant Shares") at the weighted average exercise prices
set forth opposite each such Warrantholder's name on Exhibit 3;
WHEREAS, each of the Holders has granted to the Stichting, through a
power of attorney ("Power of Attorney") the power and authority to execute this
Agreement and sell, assign, transfer and convey such Holder's interest in the
Shares, Options and Warrants, as applicable, to the Holding; and
WHEREAS, the Stichting and the Holders desire to sell and Holding
desires to purchase the Shares, and the Holders elect to receive shares of
common stock of Holding (the "Holding Common Stock"), par value $0.01 per share
upon exercise of the Options and Warrants pursuant to an exchange agreement
between the Optionholders and Warrantholders and Holding.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth in this Agreement, and for other
good and valuable
<PAGE> 6
2
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
THE ACQUISITION
1.1 Purchase and Sale of the Shares. On the terms and subject to
the conditions of this Agreement at the Closing (as defined in Section 2.1),
the Stichting (i) hereby sells and transfers to Buyer, and Buyer hereby
purchases and acquires from the Stichting, all right, title and interest of the
Stichting in and to the Shares, free and clear of all Encumbrances (as defined
in Section 3.7(c)), and (ii) on behalf of the Shareholders, hereby sells and
transfers to Buyer, pursuant to the Shareholders' respective Powers of Attorney,
and Buyer hereby purchases and acquires from the Stichting, all of the
Shareholder's right, title and interest in and to the Shares, free and clear of
all Encumbrances.
1.2 Consideration for the Shares. The aggregate purchase price
payable by Holding for the Shares shall equal NLG 45,202,364.04 (the "Unadjusted
Share Purchase Price") consisting of (a) NLG 39,778,108.89 in cash plus (b)
1,172,511 shares of Holding Common Stock, subject to adjustment as provided in
Section 1.4. All cash payments due hereunder shall be made in NLG.
1.3 Delivery and Payment. At the Closing, the Stichting, Holding,
Buyer and the Company are executing a notarial deed transferring the Shares to
Buyer, and the transfer is being registered in the shareholders' register of the
Company. Immediately thereafter, Holding (a) is delivering (in the case of the
Holding Common Stock as soon as possible but in any event within five business
days of the Closing) to civil law notary H. van Wilsum (the "Notary"), on behalf
of the Holders, by check or wire transfer of immediately available funds an
amount in cash and Holding Common Stock equal to NLG 41,202,364.04, and (b) is
delivering (in the case of the Holding Common Stock as soon as practicable but
in any event within five business days of the Closing) to civil law notary H.
van Wilsum (the "Escrow Agent") an amount, in cash and Holding Common Stock,
equal in value to NLG 4,000,000.00, such amount to be derived from the
respective Shareholders' pro rata portions of the aggregate cash and stock
consideration set forth on Schedule 1.1, calculated based upon their
respective ownership interests in the issued and outstanding Company Capital
Stock (the "Escrow Funds"); such consideration to be held by the Escrow Agent
pursuant to the terms of the Indemnification and Escrow Agreement attached
hereto as Annex A (the "Escrow Agreement").
1.4 Adjustment of Share Purchase Price.
(a) As soon as practicable, but in no event more than 90
days after the Closing Date (as defined in Section 2.1), Holding shall deliver
to the Stichting a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles in effect in the Netherlands ("Dutch GAAP") as of the Closing Date;
provided, that (A) no liabilities, accruals or reserves shall be reduced,
modified or eliminated except by reason of payment or credit occurring in the
ordinary course of business consistent with past practice, (B) such amounts will
be determined without regard to any adjustments thereto in respect of or
relating to the transactions
<PAGE> 7
3
contemplated hereby or simultaneous or subsequent action, and (C) such amounts
shall be determined by eliminating intercompany and affiliate accounts, other
than accounts receivable and payable for goods and services provided in the
ordinary course at costs equivalent to those that would be incurred between
arm's-length third parties. Holding shall simultaneously deliver a related
statement (the "Post-Closing Statement") setting forth the final Share Purchase
Price (as defined in Section 1.4(d)), as calculated from such Closing Date
balance sheet. Such balance sheet and related schedules supporting the
Post-Closing Statement shall be audited by an audit team headed by Anthony F.
Robbins of PriceWaterhouseCoopers and composed of members unaffiliated with any
prior audits of the Company and shall be delivered together with their report
thereon. Any currency translation required in preparation of the Post-Closing
Statement shall be made as of the Closing Date.
(b) Within 45 days after the delivery of the Post-Closing
Statement to the Stichting, the Stichting shall, on behalf of the Holders,
either accept the amount of the final Share Purchase Price as set forth in the
Post-Closing Statement as correct or object to the final Share Purchase Price as
set forth in the Post-Closing Statement, specifying in reasonable detail in
writing the nature of the objection(s). In the event the Stichting does not
object to the final Share Purchase Price as set forth in the Post-Closing
Statement within said 45-day period, the Stichting and the Holders shall be
deemed to have accepted the final Share Purchase Price as so set forth. In the
event the Stichting objects to the final Share Purchase Price, then, during a
45-day period subsequent to the receipt by Holding of notice of objection(s),
the parties shall attempt in good faith to resolve any differences respecting
such final Share Purchase Price as so set forth. In the event the parties are
unable to resolve their differences within said 45-day period, the parties agree
that the matter shall be submitted to KPMG (the "CPA Firm"), which the parties
acknowledge to be a mutually acceptable firm of independent certified public
accountants. The costs and expenses of the CPA Firm shall be borne equally by
Holding and the Stichting. The CPA Firm shall resolve any disputed amounts and
shall determine the final Share Purchase Price as promptly as practicable, but
in any event within 60 days following submission of such matter to the CPA Firm.
The CPA Firm's calculation of the final Share Purchase Price shall be delivered
in writing to Holding and the Stichting. During the period from the date of
delivery of the Post-Closing Statement to the Stichting through the date of
resolution of any dispute regarding the final Share Purchase Price as
contemplated by this Section 1.4, Holding shall provide the Stichting, the CPA
Firm, to the extent applicable, and their respective agents and representatives
reasonable access to all appropriate books, work papers, records (including
those supplemental schedules prepared in connection with preparation of the
Post-Closing Statement), facilities and employees of the Company and its
Subsidiaries and their successors for purposes relevant to the review of such
Post-Closing Statement and the resolution of any related dispute. Any
determination of the final Share Purchase Price by the CPA Firm shall be final
and binding on all parties hereto.
(c) Within five (5) Business Days after the determination
of the final Share Purchase Price:
(i) If the amount of the final Share Purchase
Price is more than the Unadjusted Share Purchase Price, then
Holding shall pay, or cause to be paid, to the Stichting, on
behalf of the Shareholders, in cash an amount equal
<PAGE> 8
4
any such difference between the final Share Purchase Price and
the Unadjusted Share Purchase Price. Upon receipt of such
payment, the Stichting shall promptly pay to each Shareholder
its respective Shareholder Percentage of such payment. The
"Percentage" of any Shareholder shall equal a fraction, the
numerator of which is the NLG value of the Total Cash
Consideration and Total Stock Consideration received by such
Shareholder as set forth on Schedule 1.1 and the denominator
is the NLG value of the Total Cash Consideration and Total
Stock Consideration to be received by all Shareholders as set
forth on Schedule 1.1.
(ii) If the amount of the final Share Purchase
Price is less than the Unadjusted Share Purchase Price, the
difference between the final Share Purchase Price and the
Unadjusted Share Purchase Price shall be paid by the Escrow
Agent to Holding in accordance with the terms of the Escrow
Agreement, with the source of such payment being the Escrow
Funds.
(d) As used herein the term "Share Purchase Price" shall
mean the Unadjusted Share Purchase Price adjusted as follows: (A) in the event
that either (i) Net Debt as of the Closing Date is less than NLG 33,507,000, the
Unadjusted Share Purchase Price shall be increased by the difference between NLG
33,507,000 and Net Debt as of the Closing Date or (ii) Net Debt as of the
Closing Date is greater than NLG 33,507,000, the Unadjusted Share Purchase Price
shall be reduced by the difference between NLG 33,507,000 and Net Debt as of the
Closing Date and (B) in the event that either (i) Working Capital as of the
Closing Date is less than NLG 487,000, the Unadjusted Share Purchase Price shall
be reduced by the difference between NLG 487,000 and Working Capital as of the
Closing Date, or (ii) Working Capital as of the Closing date is greater than NLG
487,000, the Unadjusted Share Purchase Price shall be increased by the
difference between NLG 487,000 and Working Capital as of the Closing Date;
provided, that in the event (i) any aggregate adjustment pursuant to subclauses
(A) and (B) is less than NLG 1,000,000, no such aggregate adjustment shall be
made, or (ii) any aggregate adjustment pursuant to subclauses (A) and (B) above
is equal to or greater than NLG 1,000,000, such adjustment shall be made in its
entirety. The term "Net Debt" shall mean all outstanding current and long term
debt (debt means debt for borrowed monies including, but not limited to, loans,
capital leases, monies owing to the sellers of companies acquired by the Company
and liabilities classified as provisions on Schedules 1.4(d) and 3.4.2), less
all cash and cash equivalents. The term "Working Capital" shall mean current
assets (excluding cash and cash equivalents) less current liabilities (excluding
the current portion of principal and interest in respect of any current and long
term debt (debt means debt for borrowed monies including, but not limited to,
loans, capital leases, and monies owing to the sellers of companies acquired by
the Company and liabilities classified as provisions on Schedules 1.4(d) and
3.4.2), all as determined from a consolidated balance sheet of the Company and
its Subsidiaries, prepared in accordance with Dutch GAAP AS of the Closing Date.
Set forth on Schedule 1.4(d) is the calculation of the Net Debt and Working
Capital Amounts set forth above.
1.5 Amendment of Options and Warrants. On the terms and subject to
the conditions of this Agreement, at the Closing each Optionholder and Exchange
Warrant Holder and the Holding will enter into an arrangement whereby (i) each
Optionholder is
<PAGE> 9
5
amending each Optionholder's option agreement (the "Option Amendments")
providing that each Optionholder agrees to receive that number of shares of
Holding Common Stock set forth on Schedule 1.5 hereof in lieu of depository
receipts to purchase Company Common Stock upon exercise of such Optionholder's
Options and payment of the applicable exercise price and (ii) each Holder of
Exchange Warrants is amending each Exchange Warrant Holder's warrant agreement
(the "Warrant Amendments") providing that each Exchange Warrant Holder agrees to
receive that number of shares of Holding Common Stock set forth on Schedule 1.5
hereof in lieu, of depository receipts to purchase Company Common Stock upon
exercise of such Warrantholder's Warrants and payment of the applicable exercise
price
1.6 Payment Obligations. The parties agree that upon delivery by
Holding of the Unadjusted Share Purchase Price (including by way of delivery of
Holding Common Stock) to the Notary, pursuant to Section 1.3 hereof and to the
Stichting pursuant to Section 1.4(c), Holding shall have fulfilled its payment
obligations to the Stichting and the Holders, and shall have no obligations or
liability to the Stichting or the Holders for any payments under this Agreement.
Upon the receipt of such payments the Notary or the Stichting, as the case may
be, shall be solely responsible and liable for the delivery of such payments to
the Holders, which payments shall be made to the Holders in accordance with the
terms of this Agreement.
ARTICLE II
THE CLOSING
2.1 Date of Closing. The consummation of the purchase and sale of
the Shares contemplated hereby (the "Closing") is taking place on the date
hereof, at the offices of Baker & McKenzie in Amsterdam. The date on which the
Closing is effected is referred to in this Agreement as the "Closing Date." At
the Closing, the parties shall execute and deliver the documents referred to in
Article VII.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE MANAGEMENT SHAREHOLDERS AND THE STICHTING OF THE COMPANY
The Management Shareholders and the Stichting make the following
representations and warranties to Holding and Buyer each of which is true and
correct as of the date hereof and shall be unaffected by any investigation
heretofore or hereafter made by Holding or Buyer or any representative thereof.
Where a reference is made to the knowledge of the Management Shareholders, a
reference is made to such knowledge of each of the Management Shareholders,
having made all reasonable inquiries of the Company, the Subsidiaries and their
officers, auditors, and legal advisors and taking into account that all of the
Management Shareholders are employees of the Company and/or its Subsidiaries.
3.1 Corporate Organization.
(a) The Company is a corporation duly organized and
validly existing under the laws of the Netherlands, and has all requisite
corporate power and authority to
<PAGE> 10
6
own, lease and operate the properties and assets it now owns, leases or operates
and to carry on its business as presently conducted or proposed to be conducted
pursuant to existing plans. The Company is duly qualified or licensed to
transact business in each of the jurisdictions where such qualification or
licensing is required by reason of the nature or location of the properties and
assets owned, leased or operated by it or the business conducted by it. The
jurisdictions in which the Company is so qualified are listed on Schedule
3.1(a). The Company has provided to Holding complete and correct copies of its
Deed of Incorporation, as amended to date (certified by the competent authority
of the jurisdiction of incorporation of the Company within 30 days of the date
hereof).
(b) Each of the subsidiaries of the Company listed on
Schedule 3.1(b) (each a "Subsidiary" and collectively, the "Subsidiaries") is a
corporation duly organized and validly existing under the laws of its
jurisdiction of organization or incorporation as set forth on Schedule 3.1(b),
and each of the Subsidiaries has all requisite corporate power and authority to
own, lease, and operate the properties and assets it now owns, leases or
operates and to carry on its business as presently conducted or proposed to be
conducted pursuant to existing plans. Each of the Subsidiaries is duly qualified
or licensed to transact business in each of the jurisdictions where such
qualification or licensing is required by reason of the nature or location of
the properties and assets owned, leased or operated by it or the business
conducted by it. The jurisdictions in which the Subsidiaries are so qualified
are listed on Schedule 3.1(b). Except as set forth on Schedule 3.1(b) and other
than the Subsidiaries the Company does not (i) own, of record or beneficially,
directly or indirectly, any equity or other proprietary interest in, (ii) except
for the agreement to acquire Adverbe (as defined herein), possess the right to
acquire any such interest, contingent or otherwise in, or (iii) otherwise
control, whether through control over the composition of the board of directors,
or by contract or proxy, any other corporation, partnership, joint venture,
limited liability company, business enterprise or other entity (together with
natural persons, "Persons").
(c) The lawfully appointed directors of Stichting Beheer
Derdengelden H.D.M. are Jules T.H.M. Kortenhorst, Peter E. Dekker and Joost van
Gaal.
3.2 Authority; Absence of Conflicts.
(a) The Company has full corporate power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby, subject to the limitations imposed on the Company by
Article 2:207c BW (Dutch Civil Code). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by the Board of Managing Directors (Bestuur) and the Supervisory
Board of Directors (Raad van Commissarissen) of the Company, and no other
corporate actions on the part of the Company are necessary to authorize and
approve the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming this Agreement constitutes a
valid and binding obligation of Holding and Buyer, constitutes the valid and
binding obligation of the Company, enforceable against it in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability relating to or
affecting creditors' rights and by general equitable principles.
<PAGE> 11
7
(b) Except as set forth on Schedule 3.2(b) hereto,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance with the terms hereof, will
(i) conflict with or violate any provision of the Deed of Incorporation or other
organizational documents of the Company or any Subsidiary, (ii) violate,
conflict with or result in a breach of or default (or constitute any event
which with the lapse of time or the giving of notice or both would constitute a
breach or default) under any of the terms, conditions or provisions of any
Material Contract (as defined in Section 3.13) to which the Company or any
Subsidiary is a party or by which their respective assets or properties are
bound, (iii) accelerate or give to others any interests or rights, including
rights of acceleration, termination, modification or cancellation, under any
Material Contract to which the Company or any Subsidiary is a party or by which
their respective assets are bound or in or with respect to the capital stock,
business, assets or properties of the Company or any Subsidiary, (iv) result in
the creation of any Encumbrance on the capital stock, business, assets or
properties of the Company or any Subsidiary, (v) conflict with, violate or
result in a breach of or constitute a default under any law, statute, rule,
judgment, order, decree, injunction, ruling, treaty, convention or regulation of
any government, governmental agency, authority or instrumentality, court or
arbitration tribunal (each, a "Governmental Entity") to which the Company, any
Subsidiary or any of their respective assets or properties are subject, or (vi)
require the Company or any Subsidiary to give notice to, or obtain an
authorization, approval, order, license, franchise, declaration or consent of,
or make a filing with, any third party, including, without limitation, any
Governmental Entity ("Company Consents").
3.3 Outstanding Capital Stock.
(a) The authorized Company Capital Stock consists of
12,500,000 shares of capital stock, nominal value NLG 0.04 per share, of which
6,337,774 shares are issued and outstanding. No other classes of capital stock
of the Company are authorized or outstanding. All of the issued and outstanding
shares of Company Capital Stock have been duly authorized and are validly
issued, fully paid and nonassessable, and none of such shares has been issued in
violation of any preemptive rights of shareholders.
(b) The authorized capital stock, and the issued and
outstanding shares, of each Subsidiary is as set forth on Schedule 3.3(b).
Except as set forth in Schedule 3.3(b) all the outstanding shares of capital
stock of each Subsidiary have been validly issued and are fully paid and
nonassessable and are owned by the Company, by one or more wholly-owned
subsidiaries of the Company or by the Company and one or more such Subsidiaries,
free and clear of all Encumbrances.
(c) Except for the Options for the purchase of 1,204,178
depository receipts representing a beneficial interest in shares of Company
Capital Stock issued under the Company's Stock Option Plan, the Warrants for the
purchase of 373,925 depository receipts representing a beneficial interest in
shares of Company Capital Stock, depository receipts issued by the Stichting and
that certain promissory note between the Company and Breydon Ltd., there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any kind to purchase or otherwise to receive from
the Company or any Subsidiary any shares of the capital stock or any other
security of the Company or any Subsidiary, and there is no outstanding security
of any kind convertible into such capital stock or other security. Schedule
3.3(c) sets forth a list of
<PAGE> 12
8
such Optionholders and Warrantholders and the respective number of Options
and/or Warrants held by each. There are no stock appreciation or similar
rights to participate in the value of the equity of the Company or any
Subsidiary.
3.4 Financial Statements. The Company has delivered to Holding
true and complete copies of (a) the audited balance sheet of the Company and its
consolidated Subsidiaries at December 31, 1998 and the related statements of
income (including explanatory notes thereto), changes in shareholders' equity,
and cash flows for the year then ended, certified by the Company's independent
public accounting firm, and (b) an unaudited balance sheet of the Company and
its consolidated Subsidiaries at June 30, 1999 and related statements of income,
changes in shareholders' equity, and cash flows for the period then ended
(collectively, the "Financial Statements"). The unaudited balance sheet at June
30, 1999 (the "6/30/99 Balance Sheet") is attached hereto as Schedule 3.4(a)(i)
and a proforma balance sheet at June 30, 1999 setting certain proforma
adjustments to the 6/30/99 Balance Sheet is attached hereto as Schedule
3.4(a)(2). Except as set forth on Schedule 3.4(a), the Financial Statements have
been prepared in accordance with Dutch GAAP consistently applied throughout the
periods involved and such balance sheets, including the related notes, fairly
present the financial position, assets and liabilities (whether accrued,
absolute, contingent or otherwise) of the Company and its consolidated
Subsidiaries at the dates indicated and such statements of income, changes in
stockholders' equity and cash flow fairly present the results of operations,
changes in stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries for the periods indicated; provided, however, that the
unaudited financial statements included in the Financial Statements do not
contain footnotes and are subject to normal year-end adjustments (all of which
are of a recurring nature and none of which individually or in the aggregate
would have a Company Material Adverse Effect). As used in this Agreement,
"Company Material Adverse Effect" means any change, effect, event or
circumstance that (a) is, or could reasonably be expected to be, materially
adverse to the assets, business, financial condition, prospects, liabilities or
results of operations (including, but not limited to, trailing and prospective
earnings before interest, taxes, depreciation or amortization) of the Company
and the Subsidiaries, taken as a whole, or (b) materially impairs the ability of
the Company to perform its obligations under this Agreement. References in this
Agreement to the "Balance Sheet" shall mean the 6/30/99 Balance Sheet of the
Company and its Subsidiaries referred to above, and references in this Agreement
to the "Balance Sheet Date" shall be deemed to refer to June 30, 1999.
3.5 Absence of Undisclosed Liabilities; Indebtedness. Except as
set forth on Schedule 3.5 hereto, neither the Company nor any Subsidiary has any
direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation, or responsibility, whether fixed or
contingent, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured, whether due or to become due
and whether arising out of transactions entered into or any condition or state
of facts existing on or prior to the date hereof (collectively, "Liabilities")
except, (a) Liabilities set forth on the Balance Sheet and (b) Liabilities which
have arisen after the date of the Balance Sheet Date in the ordinary course of
business consistent with past practice, all of which are accurately and fairly
reflected in the books and records of the Company and which will not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Except as set forth on Schedule 3.5 hereto,
<PAGE> 13
9
neither the Company nor any Subsidiary has any outstanding (a) indebtedness for
borrowed money, (b) Liabilities evidenced by bonds, debentures, notes or other
similar instruments, (c) Liabilities in respect of rent or other amounts due
under a lease to which the Company or any Subsidiary is a party that is
required to be classified and accounted for as a capitalized lease under Dutch
GAAP, (d) Liabilities incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations (excluding trade accounts
payable arising in the ordinary course of business consistent with past
practice), (e) Liabilities relating to the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, or (e)
Liabilities in respect of guarantees by the Company or any Subsidiary of items
referred to in clauses (a) through (d) above of other Persons (collectively,
"Indebtedness").
3.6 Absence of Material Changes. Except as set forth on Schedule
3.6 hereto, since the Balance Sheet Date, the Company and each Subsidiary has
conducted its business in the ordinary course of business consistent with past
practice. Without limiting the generality of the foregoing, except as set forth
on Schedule 3.6 hereto and as otherwise contemplated by this Agreement, since
the Balance Sheet Date, neither the Company nor any Subsidiary has:
(a) incurred any Liabilities, other than Liabilities
incurred in the ordinary course of business consistent with past practice, or
discharged or satisfied any Encumbrance, or paid any Liability, other than the
payment of any Liabilities in the ordinary course of business consistent with
past practice, or failed to pay or discharge when due any Liabilities, which the
failure to pay or discharge has caused or will cause any material damage or risk
of material loss to it, its business as now conducted or any of its assets or
properties;
(b) suffered any damage, destruction or loss of physical
property or goods resulting in costs or expenses to the Company or any of the
Subsidiaries in excess of NLG 100,000 whether or not covered by insurance;
(c) created, incurred, assumed or guaranteed any
Indebtedness or subjected to any Encumbrance any of its assets or properties,
tangible or intangible, except for Permitted Liens (as defined in Section
3.7(b));
(d) sold, assigned or transferred any of its assets or
properties or compromised any of its Liabilities, except, in each such case, in
the ordinary course of business consistent with past practice;
(e) experienced any Company Material Adverse Effect;
(f) made any capital expenditures or capital additions or
betterments in excess of an aggregate of NLG 100,000; provided that the Company
and its Subsidiaries have timely made the capital expenditures contemplated by
the Company's 1999 fiscal year budget, attached as Schedule 3.6(f);
(g) revalued any of its assets or properties;
<PAGE> 14
10
(h) made or suffered any amendment or termination of any
Material Contract or waived or compromised any substantial debts or claims held
by it, or waived or compromised any rights of substantial value, whether or not
in the ordinary course of business;
(i) made any change in any financial or tax accounting
method, principle or practice (including, without limitation, practices
regarding accrual methods or policies regarding reserves) or in its method of
applying any such principle or practice;
(j) paid any dividends or made any distributions (however
characterized and whether payable in cash, additional shares of stock or other
property) in respect of any shares of its capital stock;
(k) repurchased or redeemed any shares of its capital
stock or the stock of any Subsidiary not wholly-owned;
(1) issued any additional shares of its capital stock or
granted any right, subscription, warrant, call, option or any other securities
convertible into or exchangeable for shares of its capital stock or right to
participate in the equity thereof;
(m) increased the salaries or other compensation of,
altered any bonus or incentive arrangement or made any advance or loan to, any
officer, director or employee of the Company or any Subsidiary ("Employee");
(n) provided any Employee with any increased security or
tenure of employment;
(o) increased the amounts payable to any Employee upon
the termination of any such person's employment or upon the consummation of this
transaction;
(p) suffered any repeated, recurring or prolonged
shortage, cessation or interruption of supplies or utility or other services
required to conduct its business and operations;
(q) adopted, amended or revised the terms of any Benefit
Plan (as defined in Section 3.16) with respect to the benefits granted to or for
the benefit of any of the present or former Employees thereunder, other than as
required by law;
(r) received notice or had knowledge of any actual or
threatened labor trouble, strike or other occurrence, event or condition of any
similar character;
(s) acquired (by merger, share exchange, consolidation,
combination or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof; or
(t) entered into any agreement to do, or taken any steps
toward doing, any of the foregoing.
<PAGE> 15
11
3.7 Real Property.
(a) The Company does not own any real property.
(b) Schedule 3.72(b) hereto sets forth a complete list of
all real property leased by the Company or any Subsidiary (the "Leased Real
Property" and all other rights, licenses and interests of the Company and the
Subsidiaries in real property are collectively referred to herein as the "Real
Property"). The Company has made available to Holding true and correct copies
of all leases, subleases and licenses in the Company's or any Subsidiary's
possession relating to any of the Real Property. None of the Real Property
reflected in the Balance Sheet has been disposed of, and no Real Property has
been acquired by the Company or any Subsidiary since the date of the Balance
Sheet.
(c) Except for (i) liens disclosed on Schedule 3.7(c)
hereto, (ii) liens for current Taxes (as defined in Section 3.18(h)) not yet
delinquent and duly accrued for on the Balance Sheet, or, if more recent,
otherwise accrued for in the Company's books and records, (iii) covenants,
conditions and restrictions of record, none of which materially impairs the use
of such property in the manner currently used or impairs the ability of the
Company or any Subsidiary to deliver good title to such Real Property, and (iv)
any mechanic's, workmen's, repairmen's, materialmen's, contractor's,
warehousemen's, carrier's, supplier's or vendor's lien, if payment is not yet
due on the underlying obligation and duly accrued for on the Balance Sheet, or,
if more recent, otherwise accrued for in the Company's books and records (the
"Permitted Liens"), the Company or a Subsidiary has a valid leasehold interest
in all Leased Real Property, free and clear of any mortgage, pledge, security
interest, lien, claim, charge, license, conditional sales contract, restriction,
reservation, option, right of first refusal or other encumbrance of any nature
whatsoever (collectively, "Encumbrances"). Except as set forth on Schedule
3.7(c), the Company or a Subsidiary has good title to all structures, plants,
leasehold improvements, systems, fixtures and other property located on or about
any of the Leased Real Property and which are owned by the Company or a
Subsidiary, as reflected in the Balance Sheet or otherwise used by the Company
or a Subsidiary, free and clear of any Encumbrances except for Permitted Liens,
and none of such assets is subject to any Contract (as defined in Section 3.13)
for its use by any Person other than the Company or a Subsidiary.
(d) Each of the leases and subleases relating to the
Leased Real Property is in full force and effect, there is no material default
by the Company or a Subsidiary (or to the knowledge of the Company, by the
lessor) under any such lease or sublease, and, except as set forth on Schedule
3.7(d), each such lease and sublease will remain in full force and effect
following the Closing without any modification in the rights or obligations of
the parties under any such lease or sublease.
(e) Except as set forth on Schedule 3.7(e) hereto, no
work has been performed on or with respect to or in connection with any of the
Real Property that would cause such Real Property to become subject to any
additional mechanic's, materialmen's, workmen's, repairmen's, carrier's or
similar Encumbrance aggregating in excess of NLG 100,000.
(f) The structures, plants, improvements, systems and
fixtures (including, without limitation, storage tanks or other impoundment
vessels, whether above
<PAGE> 16
12
or below ground) located on each parcel of Real Property comply in all material
respects with all applicable laws, ordinances, rules, regulations and similar
governmental and regulatory requirements, and are in good operating condition
and repair, ordinary wear and tear excepted. Each such parcel of Real Property
(in view of the purposes for which it is currently used) conforms in all
material respects with all covenants or restrictions of record and conforms with
all applicable building codes and zoning requirements and there is not, to the
knowledge of the Management Shareholders, any proposed change in any such
governmental or regulatory requirements or in any such zoning requirements. All
existing material electrical, plumbing, fire sprinkler, lighting, air
conditioning, heating, ventilation, elevator and other mechanical systems
located in or about the Real Property are in good operating condition and
repair, ordinary wear and tear excepted.
(g) The Real Property includes all material easements,
rights-of-way and similar rights necessary to conduct the Company's and its
Subsidiaries' business as presently conducted and to use all of their Real
Property as currently used. No such material easement or right will be breached
by, nor will any party thereto be given a right of termination as a result of,
the transactions contemplated by this Agreement.
(h) Except as set forth on Schedule 3.7(h) the Company
and its Subsidiaries do not have any continuing liability in respect of any
other property formerly owned or occupied by them either as the original
contracting party or by virtue of any direct covenant having been given or under
any guarantee agreement or as surety for the obligations of any other person in
respect of any Real Property.
(i) There is no matter of which the Company and its
Subsidiaries is or ought to be aware on reasonable enquiry which adversely
affects the commercial use of any Real Property by the Company.
3.8 Tangible Personal Property.
(a) The Company or a Subsidiary has good title to all
machinery and equipment, tools, spare and maintenance parts, furniture, vehicles
and all other tangible personal property (collectively, the "Tangible Personal
Property") owned by the Company or a Subsidiary, free and clear of any
Encumbrance of any kind or nature whatsoever, except for Permitted Liens. All
material items of Tangible Personal Property currently owned or used by the
Company or a Subsidiary as of the date hereof are in good operating condition
and repair, ordinary wear and tear excepted, are physically located at or about
the Company's or a Subsidiary's place of business and are owned outright, or
validly leased by the Company or a Subsidiary. Except as set forth on Schedule
3.8(a) hereto, the owned and leased Tangible Personal Property consists of all
tangible personal property necessary for the operation of the business of the
Company and its Subsidiaries as currently conducted or as currently contemplated
to be conducted.
(b) Schedule 3.8(b) hereto sets forth a complete and
correct list of all material Tangible Personal Property leases to which the
Company or a Subsidiary is a party, together with a brief description of the
property leased. The Company has made available to Holding complete and correct
copies of each lease (and any amendments thereto) listed on Schedule 3.8(b).
Except as set forth on Schedule 3.8(b): (i) each such lease is in full force and
effect; (ii) all lease payments due to date on any such lease have
<PAGE> 17
13
been paid, and neither the Company nor any Subsidiary nor (to the knowledge of
the Management Shareholders) any other party is in default under any such lease,
and no event has occurred which constitutes, or with the lapse of time or the
giving of notice or both would constitute, a default by the Company or a
Subsidiary or (to the knowledge of the Management Shareholders) any other party
under such lease; and (iii) to the knowledge of the Management Shareholders,
there are no defaults alleged against the Company or a Subsidiary by any other
party with respect to any such lease.
3.9 Accounts Receivable. The accounts receivable and notes
receivable (collectively, the "Accounts Receivable") reflected on the Balance
Sheet are, and the Accounts Receivable of the Company and its Subsidiaries
created from and after the date of the Balance Sheet to the Closing Date will
be, free and clear of any Encumbrance. Except as set forth on Schedule 3.9, all
existing Accounts Receivable of the Company and its Subsidiaries (i) arose from
bona fide sales of goods or services in the ordinary course of business
consistent with past practice, (ii) are accurately and fairly reflected on the
Balance Sheet or, with respect to Accounts Receivable of the Company and its
Subsidiaries created after the date thereof and through the date of this
representation and warranty, are accurately and fairly reflected in the books
and records of the Company, and (iii) are valid and collectible, net of the
reserve for uncollectible accounts reflected on the Balance Sheet, and there is
no contest, claim or right of set-off asserted by any maker of any such Account
Receivable relating to the amount or validity thereof.
3.10 Accounts Payable. Except as set forth on Schedule 3.10
hereto, all accounts payable of the Company and its Subsidiaries (i) arose from
bona fide purchases in the ordinary course of business and consistent with past
practice, and (ii) are accurately and fairly reflected on the Balance Sheet or,
with respect to accounts payable of the Company and its Subsidiaries created
after the Balance Sheet Date and through the date of this representation and
warranty, are accurately and fairly reflected in the books and records of the
Company consistent with past practices.
3.11 Euro Compliance. Except as set forth on Schedule 3.11
Currency-Sensitive Systems are Euro Compliant. "Currency-Sensitive Systems"
means any software, microcode or hardware system or component, including any
business computer system or software application to support pricing, payment or
accounting by the Company or any Subsidiary for goods and services in the unit
of single currency as defined in Counsel Regulations (EC) No. 1103/97 of 17 June
1997 (the "Euro"). "Euro Data" means any data of any type that includes Euro
currency information or which is otherwise derived from, dependent on or related
to Euro currency information. "Euro Compliant" means, with respect to
Currency-Sensitive Systems, that each such system accurately processes all Euro
Data, without any loss of functionality or performance, including, but not
limited to, calculating, comparing, sequencing, storing and displaying such Euro
Data, when used with a stand alone system or in combination with other software
or hardware.
3.12 Year 2000 Compliance. Set forth on Schedule 3.12 is a
description of all actions and testing taken by the Company and its Subsidiaries
to ensure that all Date-Sensitive Systems are Year 2000 Compliant. To the
knowledge of the Management Shareholders as set forth on Schedule 3.12 is a
listing of all deficiencies in the Company's and the Subsidiaries'
Date-Sensitive Systems rendering such systems not Year 2000 Compliant.
"Date-Sensitive System" means any software, microcode or hardware system
<PAGE> 18
14
or component, including any electronic or electronically controlled system or
component, that processes any Date Data and that is installed, in development or
on order by the Company or any Subsidiary for its internal use, or which the
Company or any Subsidiary sells, leases, licenses, assigns or otherwise
provides, or the benefit of which the Company or any Subsidiary provides, to
its customers, vendors, suppliers, affiliates or any other third party. "Date
Data" means any data of any type that includes date information or which is
otherwise derived from, dependent on or related to date information. "Year 2000
Compliant" means, with respect to Date-Sensitive Systems, that each such system
accurately processes all Date Data, including for the twentieth and twenty-first
centuries, without loss of any functionality or performance, including, but not
limited to, calculating, comparing, sequencing, storing and displaying such Date
Data (including all leap year considerations), when used as a stand-alone system
or in combination with other software or hardware.
3.13 Contracts.
(a) Except as set forth on Schedule 3.13(a) hereto,
neither the Company nor any Subsidiary is a party to, or subject to:
(i) any contract, agreement, license, lease
arrangement or understanding, whether oral or written
("Contract"), or series of related Contracts, (A) which
involves annual expenditures or receipts by the Company and
its Subsidiaries of more than NLG 100,000 or (B) which
provides for performance, regardless of amounts, over a period
in excess of one year after the date of such contract,
arrangement or commitment;
(ii) any license or royalty Contract, whether as
licensor or licensee;
(iii) any Contract with suppliers or customers;
(iv) any note, bond, indenture, credit facility,
mortgage, security agreement or other instrument or other
Contract relating to or evidencing Indebtedness or a security
interest in or mortgage on the assets of the Company or any
Subsidiary;
(v) any warranty, indemnity or guaranty issued
by the Company or any Subsidiary (other than customary product
warranties provided by the Company or any Subsidiary in the
ordinary course of business, a description of which is set
forth on Schedule 3.13(a) and the form or forms of which have
previously been provided to Holding);
(vi) any Contract for capital expenditures or the
acquisition or construction of fixed assets;
(vii) any Contract granting to any Person the
right to use any property or property right of the Company or
any Subsidiary, including any lease;
<PAGE> 19
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(viii) any Contract granting to any Person a right
of first refusal, first or similar preferential right to
purchase or acquire any assets or properties of the Company or
any Subsidiary;
(ix) any Contract restricting the right of the
Company or any Subsidiary to engage in any business activity
or to compete with any business;
(x) any joint venture, partnership or similar
Contract;
(xi) any management service, investment advisory,
investment banking, or other similar Contract;
(xii) any outstanding proxy, power of attorney or
similar delegation of authority of the Company or any
Subsidiary;
(xiii) any other material Contract not made in the
ordinary course of business and consistent with past practice;
or
(xiv) any outstanding offer or commitment to enter
into any Contract of the nature described in subsections (i)
through (xiv) of this Section 3.13(a).
(b) Schedule 3.13(b) hereto contains an accurate and
complete list of all Contracts which are currently in effect between the Company
or any Subsidiary and any of the following: (i) each director, officer,
shareholder or affiliate of the Company or any Subsidiary; (ii) the spouses,
children, grandchildren, siblings, parents, grandparents, uncles, aunts, nieces,
nephews or first cousins of any director or officer of the Company or any
Subsidiary or the spouses of any of the foregoing Persons (collectively, "near
relatives"); (iii) any trust for the benefit of any director or officer of the
Company or any Subsidiary or any of their respective near relatives; and (iv)
any Person owned or controlled by any director or officer of the Company or any
Subsidiary or any of their respective near relatives. (The Contracts described
in Schedule 3.13(a) and Schedule 3.13(b) are collectively referred to herein as
"Material Contracts").
(c) The Company has made available to Holding complete
and correct copies of each written Material Contract (and any amendments
thereto), and Schedule 3.13(a) and Schedule 3.13(b) contain accurate summary
descriptions of all oral Material Contracts. Except as set forth on Schedule
3.13(c) hereto: (i) each Material Contract is in full force and effect; (ii)
none of the Company, any Subsidiary nor, to the knowledge of the Management
Shareholders, any other party is in default under any such contract, and no
event has occurred which constitutes, or which with the lapse of time or the
giving of notice or both would constitute, a default by the Company, any
Subsidiary or, to the knowledge of the Management Shareholders, by any other
party under such contract; and (iii) to the knowledge of the Management
Shareholders, there are no defaults alleged against the Company or any
Subsidiary by any other party with respect to any such Contract.
<PAGE> 20
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3.14 Legal Proceedings. Except as set forth on Schedule 3.14
hereto, there are no suits, actions, proceedings (including, without limitation,
arbitral and administrative proceedings), claims or governmental investigations
or audits pending or, to the knowledge of the Management Shareholders,
threatened, by or against the Company, any Subsidiary or their respective
properties, assets or business, Employees or agents in connection with the
business of the Company or any Subsidiary. There are no such suits, actions,
proceedings, claims or investigations pending or, to the knowledge of the
Management Shareholders, threatened, challenging the validity or propriety of,
or otherwise relating to or involving, this Agreement or the transactions
contemplated hereby. Except as set forth on Schedule 3.14, there is no judgment,
order, writ, injunction, decree or award (whether issued by a Governmental
Entity or otherwise) to which the Company or any Subsidiary is a party or
otherwise subject, or involving the property, assets or business of the Company
or any Subsidiary, which is unsatisfied or which requires continuing compliance
therewith by the Company or any Subsidiary.
3.15 Labor Matters. Except as set forth on Schedule 3.15 no union,
works council or other labor organization is certified or recognized as
collective bargaining agent to represent any Employees and the Management
Shareholders do not have knowledge of any campaign currently in progress to seek
representation with respect to any Employees. Neither the Company nor any
Subsidiary is a party to, the subject of, involved in or, to the knowledge of
the Management Shareholders, threatened by any labor dispute, unfair labor
practice charge, strike, work stoppage, work slowdown, picketing, boycott,
handbilling or other concerted action by or on behalf of any Employees.
3.16 Employee Benefit Plans.
(a) For purposes of this Agreement, "Benefit Plan" means
and includes (i) any employment, consulting, severance or other compensation
Contract, (ii) any deferred compensation, stock ownership, executive
compensation, bonus or other incentive compensation, supplemental retirement,
vacation pay, sickness, disability, death benefit, retiree medical or life
insurance, employee stock option or stock purchase, employee discount, club
membership, educational assistance, severance pay, termination or salary
continuation plan, arrangement or practice (whether provided through insurance,
on a funded or unfunded basis or otherwise), and (iii) each other employee
benefit plan, program or arrangement which relates to any of the Employees or
former Employees or in respect of which the Company or any Subsidiary has any
Liability or obligation (contingent or otherwise).
(b) Other than with respect to employment agreements for
call center employees not involving more than NLG 100,000 in any one instance,
Schedule 3.16(b) sets forth a complete and correct list of all Benefit Plans,
and summary of oral Benefit Plans, if any, and the Company has delivered
complete and correct copies of all such written Benefit Plans.
(c) Except as set forth on Schedule 3.16(c), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any material payment
becoming due, or materially increase the amount of compensation due, to any
Employee or former Employee, (ii) materially increase any benefits otherwise
payable under any Benefit Plan, or (iii) result in the acceleration of the
<PAGE> 21
17
time of payment or vesting of any such benefits. With respect to each Benefit
Plan, the Company has made available to Holding complete and correct copies of
all material descriptions distributed to Employees or set forth in any manuals
or other documents, the text of the Benefit Plan and of any trust, insurance or
annuity Contract maintained in connection therewith, and the most recent
actuarial reports, if any, relating to the Benefit Plan.
(d) All contributions required to be made to or with
respect to each Benefit Plan with respect to the service of Employees, former
Employees or other individuals with the Company or any Subsidiary prior to the
date hereof have been made or have been accrued for in the Balance Sheet or in
the books and records of the Company for periods after the date of the Balance
Sheet, as applicable.
(e) Except as set forth on Schedule 3.16(e) hereto, each
Benefit Plan has in all material respects been administered to date in
accordance with applicable laws and with the terms and provisions of all
documents or contracts pursuant to which such Benefit Plan is maintained, except
as otherwise permitted by law; there is no dispute, arbitration, claim, suit or
grievance pending or, to the knowledge of Management Shareholders, threatened,
involving a Benefit Plan (other than routine claims for benefits), and, there is
not, to the knowledge of Management Shareholders, any basis for such a claim;
none of the Benefit Plans nor, to the knowledge of Management Shareholders, any
fiduciary thereof (in such Person's capacity as such) has been the direct or
indirect subject of an order of, or, to the knowledge of Management
Shareholders, an investigation by, a Governmental Entity; and there are no
matters pending as to which the Company or any Subsidiary has received notice
from any Governmental Entity or otherwise with respect to a Benefit Plan.
(f) None of the Benefit Plans provide for post-retirement
life insurance or health benefits coverage for any participant or any
beneficiary of a participant.
3.17 Environmental Matters.
(a) Except as disclosed on Schedule 3.17 hereto:
(i) the Company, its Subsidiaries and their
respective operations have been and are, and the Real Property
during the period that it is or was owned, operated or leased
by or for the Company or any Subsidiary is or was, in material
compliance with all applicable Environmental Laws (as defined
in Section 3.17(c)) and the Company or a Subsidiary obtained,
currently maintains and is in compliance with any permit,
authorization, license or similar approval required by
Environmental Laws and to the knowledge of the Management
Shareholders there are not any facts, circumstances or
conditions that could reasonably be expected to interfere with
such continued material compliance or require capital
expenditures in excess of NLG 100,000 to maintain such
compliance;
(ii) no judicial or administrative proceedings
are pending or, to the knowledge of the Management
Shareholders, threatened, against the Company, any Subsidiary
or the Real Property as owned, operated or leased by or on
behalf of the Company and its Subsidiaries, alleging the
violation of
<PAGE> 22
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or seeking to impose liability under or pursuant to any
Environmental Law, and there are no investigations pending or,
to the knowledge of the Company, threatened, under or pursuant
to Environmental Laws against the Company, any Subsidiary or
the Real Property as owned, operated or leased by or on behalf
of the Company or its Subsidiaries;
(iii) neither the Company nor any Subsidiary has
received any written notice or other communication indicating
or otherwise alleging that the Company or any Subsidiary is or
could be liable for the cost of investigating, remediating or
otherwise addressing Hazardous Material (as defined in Section
3.17(c)) under Environmental Laws;
(iv) neither the Company nor its Subsidiaries are
subject to any outstanding Environmental Costs and Liabilities
(as defined Section 3.17(c)) in the aggregate in excess of NLG
100,000 and, there are not, to the knowledge of the Management
Shareholders, any facts, circumstances or conditions relating
to, arising from, associated with or attributable to the
operations of the Company, any Subsidiary or any Real Property
as owned, operated or leased by or on behalf of the Company or
any Subsidiary that could reasonably be expected to result in
the Company or any Subsidiary incurring Environmental Costs
and Liabilities in the aggregate in excess of NLG 100,000;
(v) there is not now, nor, to the knowledge of
the Management Shareholders, has there been in the past, on,
in or under any Real Property at the time owned, leased or
operated by the Company or any Subsidiary (x) any underground
storage tanks, above-ground storage tanks, dikes or
impoundments containing Hazardous Material, (y) any
asbestos-containing materials, or (z) any polychlorinated
biphenyls; and
(vi) neither the Company nor any Subsidiary has
filed any notice under Environmental Laws indicating past or
present treatment, storage or disposal of hazardous wastes or
reporting a Release (as defined Section 3.17(c)) of Hazardous
Material.
(b) The Company has made available to Holding copies of
all environmentally related audits, assessments, studies, reports, analyses and
results of investigations of any Real Property that are in the Company's or its
Subsidiaries' possession, custody or control.
(c) For purposes of this Agreement, the following terms
have the following definitions:
(i) "Environmental Costs and Liabilities" means
any and all losses, liabilities, obligations, damages, fines,
penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants
and the costs of investigation and feasibility studies and
remedial
<PAGE> 23
19
action) arising from or under any Environmental Law or any
agreement with any Governmental Entity or other Person
thereunder or pursuant thereto.
(ii) "Environmental Law" means any applicable law
(including common law), statute, code, ordinance, rule,
regulation or other requirement relating to the environment,
natural resources, or public or employee health and safety, as
such laws have been amended or supplemented, and the
regulations promulgated pursuant thereto, and all analogous
state or local statutes.
(iii) "Hazardous Material" means any substance,
material or waste that is regulated by any Governmental Entity
as hazardous, toxic or words of similar meaning, including,
without limitation, any material, substance or waste that is
defined as a "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, as
well as petroleum, petroleum products, asbestos, urea
formaldehyde and polychlorinated biphenyls.
(iv) "Real Property", for purposes of this
Section 3.17 only, means any real property currently or
formerly owned, operated or leased by or for the Company or
any Subsidiary.
(v) "Release" means any release, spill,
emission, migration, leaking, pumping, injection, deposit,
disposal, discharge, dispersal or leaching into the indoor or
outdoor environment.
3.18 Tax Matters. Except as disclosed on Schedule 3.18 hereto:
(a) Except as set forth on Schedule 3.18(a) all material
Tax Returns (as defined in Section 3.18(h)) required to be filed by or with
respect to the Company or any Subsidiary have been timely filed. The Company and
its Subsidiaries have timely paid all Taxes that are due, or claimed or asserted
by any taxing authority to be due, from or with respect to them. With respect to
any period for which Taxes are not yet due, the Company has made sufficient
current accruals for all such Taxes in its financial statements (including the
Financial Statements). The Company and its Subsidiaries have made all required
estimated Tax payments sufficient to avoid any penalties. The Company and its
Subsidiaries have withheld and paid all Taxes required by all applicable laws to
be withheld or paid in connection with any amounts paid or owing to any
Employee, creditor, independent contractor or other third party. Schedule
3.18(a) sets forth each jurisdiction in which the Company or any Subsidiary paid
Taxes or filed a Tax return since January 1, 1997, including the type of Taxes
paid.
(b) There are no outstanding Contracts or waivers
extending the statutory period of limitations applicable to any claim for, or
the period for the collection or assessment of, Taxes due from or with respect
to the Company or any Subsidiary for any taxable period, and no power of
attorney granted by or with respect to the Company or any Subsidiary relating to
Taxes is currently in force. No closing agreement has been entered into by or
with respect to the Company or any Subsidiary. No audit or other proceeding by
<PAGE> 24
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any Governmental Entity is pending or threatened in writing, in regard to any
Taxes due from or with respect to the Company or any Subsidiary or any Tax
Return filed by or with respect to the Company or any Subsidiary. No assessment
of Taxes is proposed against the Company or any Subsidiary or any of their
respective assets.
(c) Neither the Company nor any Subsidiary is party to,
is bound by, or has any obligation under, any Tax sharing agreement, Tax
allocation agreement, Tax indemnity agreement, or any other similar Contract.
(d) The Company has made available complete copies of (i)
all filed Tax Returns of the Company or any Subsidiary relating to the taxable
periods since January 1, 1995, (ii) any audit report issued since January 1,
1995 relating to Taxes due from or with respect to the Company or any
Subsidiary, its income, assets or operations, and (iii) any extensions of the
statute of limitations with respect to any Taxes due from or with respect to the
Company or any Subsidiary, their income, assets or operations. All income and
franchise Tax Returns filed by or on behalf of the Company or any Subsidiary
other than for those for the taxable years ended on the respective dates set
forth on Schedule 3.18(d) hereto have been examined by the relevant taxing
authority or the statute of limitations with respect to such Tax Returns has
expired.
(e) Except as set forth on Schedule 3.18(e), since
January 1, 1995, no claim has been made in writing addressed to the Company or
any Subsidiary by a taxing authority in a jurisdiction where the Company or a
Subsidiary does not file Tax Returns asserting that the Company or any
Subsidiary is or may be subject to taxation in that jurisdiction.
(f) There are no Encumbrances as a result of any unpaid
Taxes, other than Taxes not yet due and payable, upon any of the assets of the
Company or any Subsidiary.
(g) Except as set forth on Schedule 3.18 neither the
Company nor any Subsidiary has been a member of any consolidated, combined,
unitary or affiliated group of corporations for any Tax purposes.
(h) "Taxes" shall mean all taxes, charges, fees, levies,
duties and other similar governmental assessments, including, without
limitation, (i) income, gross receipts, ad valorem, premium, value added,
excise, real property, personal property, sales, use, transfer, withholding,
employment, social insurance, payroll, medicare, and franchise taxes imposed by
any body of the European Union, any state, local or foreign government, or any
subdivision, agency, or other similar Person and (ii) any interest, fines,
penalties, assessments, reassessments or additions to Taxes resulting from,
attributable to, or incurred in connection with any Tax or any contest, dispute,
or refund thereof. "Tax Returns" shall mean reports, returns and statements
required to be supplied to a taxing authority in connection with Taxes.
3.19 Insurance. Schedule 3.19 hereto sets forth a complete and
correct list and brief summary description of all insurance policies carried by,
or covering, the Company or any Subsidiary with respect to their respective
business. Complete and correct copies of each such policy have been made
available to Holding. All such policies are in full force
<PAGE> 25
21
and effect for such amounts as are sufficient to provide adequate insurance
coverage for the assets, properties and operations of the Company and its
Subsidiaries and for all material risks customarily insured against by a Person
engaged in a similar business. All such insurance will remain in full force and
effect with respect to periods before the Closing after giving effect to the
transactions contemplated hereby. No notice of cancellation has been received
with respect to any such policy. All premiums due thereon have been paid in a
timely manner and no event has occurred, including, without limitation, the
failure of the Company or any Subsidiary to give any notice or information or
the Company's or any Subsidiary's giving inaccurate or erroneous notice or
information, which materially limits or impairs the rights of the Company or any
Subsidiary under any such insurance policies. Except as set forth on Schedule
3.19, there are no pending claims or, to the knowledge of the Management
Shareholders, threatened claims, under the Company's or any Subsidiary's
insurance policies with respect to the Company's or any Subsidiary's property or
assets.
3.20 Books and Records. True and correct copies of the Company's
and each Subsidiary's meeting minutes and shareholder register have been
provided to Holding. Schedule 3.20 contains a list of all material transactions
approved by the Board of Managing Directors, Supervisory Board of Directors or
Shareholders, as applicable, of the Company and its Subsidiaries. The stock
record books accurately reflect all transactions in shares and depository
receipts of the Company's and each Subsidiary's capital stock. All accounting,
financial, reporting, business, tax, corporate and other similar books and
records of the Company and each Subsidiary accurately reflect the business and
financial condition of the Company or such Subsidiary. Except as set forth on
Schedule 3.20 hereto, all of the records, data, information, databases, systems
and controls maintained, operated or used by the Company or any Subsidiary in
connection with the conduct or administration of its business (including all
means of access thereto and therefrom) are located on the premises of the
Company or a Subsidiary and are under the exclusive ownership or direct control
of the Company or a Subsidiary.
3.21 Brokers' or Finders' Fees. Except as set forth on Schedule
3.21 hereto, no agent, broker, investment banker, or other Person or firm acting
on behalf of the Company or the shareholders of the Company is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly from the Company, any Subsidiary or any shareholder of
the Company in connection with any of the transactions contemplated by this
Agreement.
3.22 Material Customers and Suppliers.
(a) Schedule 3.22(a) hereto sets forth a complete and
correct list of the 30 largest customers of the Company and its Subsidiaries in
terms of amounts invoiced to such customers during the year ended December 31,
1998 and the six months ended June 30, 1999 (each, a "Material Customer"),
showing the total amount invoiced to each such Material Customer for such
periods, including the name of the invoicing entity. Except as set forth and
described on Schedule 3.22(a), no Material Customer has given the Company or any
Subsidiary any notice terminating, suspending or reducing in any material
respect, or specifying an intention to terminate, suspend or reduce in any
material respect in the future, or otherwise reflecting an adverse change in,
the business relationship between such customer and the Company or its
Subsidiaries (including by way of demands
<PAGE> 26
22
for price decreases) and there has not been any adverse change in the business
relationship of the Company or its Subsidiaries with any such customer since
June 30, 1999.
(b) Schedule 3.22(b) hereto sets forth a complete and
correct list of the material suppliers of the Company and its Subsidiaries in
terms of amounts purchased from such suppliers during the year ended December
31, 1998 and the six months ended June 30, 1999 (each, a "Material Supplier"),
showing the total amount purchased from each such Material Supplier for such
periods. Schedule 3.22(b) also correctly identifies all current outstanding
purchase orders of the Company and its Subsidiaries for goods or services with
an aggregate value of NLG 100,000 or more. Except as set forth on Schedule
3.22(b), no supplier identified on Schedule 3.22(b) has given the Company or any
Subsidiary any notice terminating, suspending or reducing in any material
respect, or specifying an intention to terminate, suspend or reduce in any
material respect in the future, or otherwise reflecting an adverse change in,
the business relationship between such supplier and the Company and its
Subsidiaries (including by way of proposed price increases) and there has not
been any adverse change in the business relationship of the Company or any
Subsidiary with any such supplier since June 30, 1999.
3.23 Bank Accounts: Powers of Attorney. Schedule 3.23 hereto sets
forth a complete and correct list showing (a) all banks in which the Company or
any Subsidiary maintains a bank account or safe deposit box (collectively, "Bank
Accounts"), together with, as to each such Bank Account, the account number, the
names of all signatories thereof and the authorized powers of each such
signatory and, with respect to each such safe deposit box, the number thereof
and the names of all persons having access thereto and (b) the names of all
persons holding powers of attorney from the Company or any Subsidiary, true and
correct copies which have been delivered to Holding.
3.24 Intellectual Property Rights.
(a) Schedule 3.24(a)(1) sets forth a complete list of all
of the Company's and its Subsidiaries' Intellectual Property. As used herein,
the term "Intellectual Property" shall mean software licenses and know-how
licenses, trade names, trademarks, copyrights, service marks, trade secrets,
technical knowledge, know-how, computer software (excluding non-customized
computer software available to the Company and its Subsidiaries on an over the
counter basis through normal commercial channels) and other confidential
proprietary information and related ownership, use and other rights. Except as
set forth on Schedule 3.24(a)(2), the Company or a Subsidiary has the right to
use, free and clear of any claims or rights of others, all Intellectual Property
owned or used by it in the operation of its business, and such use does not, to
the knowledge of the Management Shareholders, infringe on any patent, trademark,
copyright, service mark or trade name, or misappropriate any other Intellectual
Property of others.
(b) To the knowledge of the Management Shareholders,
neither the Company nor any Subsidiary has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and neither the Company nor any Subsidiary has received
any charge, complaint, claim or notice alleging any such interference,
infringement, misappropriation, or violation. No third party has, to the
knowledge of the Management Shareholders, interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
<PAGE> 27
23
Property rights of the Company and its Subsidiaries. Neither the Company nor any
Subsidiary has granted any licenses of or other rights to use any of the
Intellectual Property of the Company or any Subsidiary to any third party.
Neither the Company nor any Subsidiary has entered into any Contract to
indemnify any other Person against any charge of infringement of any
Intellectual Property.
3.25 Compliance with Laws; Permits and Licenses. The Company and
its Subsidiaries are in compliance and have complied in all material respects
with all laws, statutes, rules, regulations, codes and ordinances applicable to
their respective business, properties and operations, and have secured all
material permits, authorizations and licenses issued by federal, state, local
and foreign agencies and authorities, applicable to their business, properties,
Employees and operations. There have been no claims made or threatened against
the Company or any Subsidiary arising out of, relating to or alleging any
violation of any of the foregoing, except for claims which are no longer pending
or which are set forth on Schedule 3.25(a) hereto. Except as set forth on
Schedule 3.25(b) lists the Company and its Subsidiaries have all material
permits, licenses, approvals, franchises, notices and authorizations issued by
any Governmental Entity (collectively, "Permits") necessary for the Company and
its Subsidiaries to operate their business. The Company and its Subsidiaries are
in compliance in all respects with all terms required for the continued
effectiveness of each such Permit, and there is not pending, or to the knowledge
of the Management Shareholders, threatened non-renewal or revocation of any such
Permit. No other Permits, in addition to the Permits currently held by the
Company and its Subsidiaries, are necessary to conduct the business of the
Company and its Subsidiaries as it is now conducted. All such Permits are
renewable by their terms or in the ordinary course of business without the need
to comply with any special qualification procedures or to pay any amounts other
than routine filing fees. None of such Permits will be adversely affected by
consummation of the transactions contemplated hereby. Neither any present or
former shareholders of the Company or any Subsidiary or Employees, or any other
Person, holds, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits which the Company or any of its Subsidiaries owns,
possesses or uses in the conduct of its business as now or previously conducted.
3.26 Certain Business Practices; Potential Conflicts of Interest.
(a) None of the Company, any Subsidiary or any agents, Employees or present or
former shareholders of the Company or any Subsidiary has (i) used any of the
Company's or any Subsidiary's funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from the
Company's or a Subsidiary's funds, or (iii) made any other unlawful payment from
the Company's or any Subsidiary's funds.
(b) Except as set forth on Schedule 3.26(b), neither any
shareholder of the Company or any Subsidiary nor any director, officer, or
affiliate of the Company or any Subsidiary (i) owns, directly or indirectly, any
significant interest in, or is a director, officer, employee, consultant or
agent of, any Person which is a competitor, lessor, lessee or customer of, or
supplier of goods or services to, the Company or any Subsidiary, (ii) owns,
directly or indirectly, in whole or in part, any real property, leasehold
interests or other property the use of which is necessary for the conduct of the
business of the Company
<PAGE> 28
24
or any Subsidiary, or (iii) has any cause of action or other suit, action or
claim whatsoever against, or owes any amount to the Company or any Subsidiary
other than claims in the ordinary course of business.
3.27 Projections. Attached hereto as Schedule 3.27 are projected
balance sheets at December 31, 1999 and 2000 and projected income statements for
the years ending December 31, 1999 and 2000 (the "Projections"). Such
Projections have been prepared by the Company in good faith and are based upon
reasonable assumptions, which assumptions are set forth on Schedule 3.29.
3.28 Subsidies. Except as set forth on Schedule 3.28, there is no
outstanding or current subsidy, aid, tax holiday, grant program, loan at a
preferential rate, special contract or lease or similar benefit which has been
made available to the Company or any Subsidiary (including by way of guaranty or
other assurance) by a Governmental Entity (each, a "Subsidy"). The Company and
each Subsidiary is in material compliance with, and has neither breached or
violated in any material respect, any representation, condition or undertaking
made by it to obtain or to maintain any Subsidy. Neither the execution of this
Agreement, nor the performance of any of the transactions contemplated herein
will, pursuant to the express terms of any Subsidy, result in the cancellation,
limitation or reduction of any such Subsidy or require any repayment of, any
reapplication for or reissuance of, or any posting of additional security for
the maintenance of, any Subsidy.
3.29 HSR Act. On the Closing Date, neither the Company nor any
Subsidiary, individually or in the aggregate, will own any assets located in the
United States (other than investment assets or voting or non-voting securities
of another person) having an aggregate book value of U.S. $15,000,000 or more
and will not control (as that term is defined under Section 801.1(b) of the
United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act")) any U.S. issuer (as defined in the HSR Act) that has annual net
sales or total assets of U.S. $25,000,000 or more.
3.30 Disclosure. No representation or warranty by the Management
Shareholders contained in this Agreement, and no statement contained in any
document (including, without limitation, the Financial Statements and the
Schedules hereto), list, certificate or other instrument furnished or to be
furnished by or on behalf of the Management Shareholders, the Company or its
Subsidiaries to the Holding or any of its representatives in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact necessary, in light of the circumstances under which it was
or will be made, in order to make the statements herein or therein not
misleading or necessary in order fully and fairly to provide the information
required to be provided in any such document, list, certificate or other
instrument.
3.31 Material Consents. All consents, required Permits and
approvals ("Material Consents") that are material to the ability of the Holding
to continue to operate the Company and its Subsidiaries in the ordinary course
of business consistent with past practices are identified on Schedule 3.31
attached hereto.
3.32 Adverbe Amendment. The Management Shareholders are not aware
of any item contained in the due diligence reports or the data room index
incorporated into the Disclosure Schedules to the Stock Purchase Agreement
between certain shareholders of
<PAGE> 29
25
Groupe Adverbe International S.A. and the Buyer that should be separately
disclosed on the Disclosure Schedules in the absence of the due diligence
reports and the data room index.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT
SHAREHOLDERS AND THE STICHTING
The Management Shareholders and the Stichting make the following
representations and warranties to Holding and Buyer each of which is true and
correct as of the date hereof and shall be unaffected by any investigation
heretofore or hereafter made by Holding:
4.1 Organization. The Stichting is a legal entity duly organized
and validly existing under the laws of the Netherlands, and has all requisite
power and authority (corporate or otherwise) to own, lease and operate the
properties and assets it now owns, leases or operates and to carry on its
business as presently conducted. The Stichting is duly qualified or licensed to
transact business in each of the jurisdictions where such qualification or
licensing is required by reason of the nature or location of the properties and
assets owned by it, or, except where the failure to be so qualified or licensed
would not have a material adverse effect on the Stichting's ability to timely
fulfill its obligations in full under this Agreement (a "Stichting Material
Adverse Effect").
4.2 Authority; Absence of Conflicts.
(a) The Stichting has full power and authority (corporate
or otherwise) to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby under its governing documents and the
Powers of Attorney granted by the Holders. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved by all necessary or required action of the Stichting and the
Holders under the Power of Attorney, and no other actions on the part of the
Stichting or the Holders is necessary to authorize and approve the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Stichting and each Management Shareholder and, assuming this Agreement
constitutes a valid and binding obligation of Holding and Buyer, constitutes the
valid and binding obligation of the Stichting and each Management Shareholder,
enforceable against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability relating to or affecting creditors' rights and by general
equitable principles.
(b) Except as set forth on Schedule 4.2(b), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance with the terms hereof, will (i)
conflict with or violate any provision of the organizational documents of the
Stichting or the Power of Attorney granted by the Holders, (ii) violate,
conflict with or result in a breach of or default (or constitute any event which
with the lapse of time or the giving of notice or both would constitute a breach
or default) under any of the terms, conditions or provisions of any Contract to
which the Stichting or
<PAGE> 30
26
any Holder is a party or by which their respective assets or properties are
bound, (iii) result in the creation of any Encumbrance on the Shares, to be
transferred by the Stichting under the terms of this Agreement, (iv) conflict
with, violate or result in a breach of or constitute a default under any law,
statute, rule, judgment, order, decree, injunction, ruling, treaty, convention
or regulation of any Governmental Entity to which the Stichting or any Holder or
any of their respective assets or properties are subject, or (v) require the
Stichting or any Holder to give notice to, or obtain an authorization, approval,
order, license, franchise, declaration or consent of, or make a filing with, any
third party, including, without limitation, any Governmental Entity, except with
respect to the foregoing clauses (ii), (iv) and (v) where any such violation,
conflict or breach would not result in a Stichting Material Adverse Effect.
4.3 Title to Shares. The Stichting owns the Shares of record free
and clear of any Encumbrance. After the consummation of the transactions
contemplated hereby Buyer will own the Shares, beneficially and of record and
free and clear of any Encumbrance. The Powers of Attorney from the Holders give
the Stichting full power to transfer all right, title and interest, beneficial
and legal, in and to the Shares.
4.4 Brokers' or Finders' Fees. Except as set forth on Schedule 4.4
hereto, no agent, broker, investment banker, or other Person or firm acting on
behalf of the Stichting or any Holder is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly from
the Company, any Subsidiary, Stichting or Holder in connection with any of the
transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDING AND BUYER
Holding and Buyer make the following representations and warranties to
the Company, the Stichting and the Management Shareholders, each of which is
true and correct as of the date hereof and shall be true and correct as of the
Closing Date and shall be unaffected by any investigation heretofore or
hereafter made by the Management Shareholders:
5.1 Organization and Corporate Power. Holding and Buyer are
corporations duly organized, validly existing and in good standing under the
laws of the state of Delaware and have full corporate power and authority to
own, lease and operate the properties and assets which they now own, lease or
operate and to carry on their business as presently conducted or proposed to be
conducted pursuant to existing plans.
5.2 Authority; Absence of Conflicts.
(a) Holding and Buyer have full corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved by the Boards of Directors of Holding and Buyer, and no other corporate
actions on the part of Holding and Buyer are necessary to authorize and approve
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been
<PAGE> 31
27
duly and validly executed and delivered by Holding and Buyer and, assuming this
Agreement constitutes a valid and binding obligation of the Company, the
Stichting and the Management Shareholders, constitutes the valid and binding
obligation of Holding and Buyer, enforceable against them in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability relating to or
affecting creditors' rights and by general equitable principles.
(b) Except with respect to consents already obtained,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor compliance with the terms hereof will (i)
conflict with or violate any provision of the Articles of Incorporation or
Bylaws of Holding and Buyer, (ii) violate, conflict with or result in a breach
of or default (or constitute any event which with the lapse of time or the
giving of notice or both would constitute a breach or default) under any of the
terms, conditions or provisions of any material Contract to which Holding and
Buyer are a party or by which Holding's and Buyer's assets or properties
are bound, (iii) conflict with, violate or result in a breach of or constitute a
default under any law, statute, rule, judgment, order, decree, injunction,
ruling, treaty convention or regulation of any Governmental Entity to which
Holding and Buyer or any of their assets or properties are subject, or (iv)
require Holding and Buyer to give notice to, obtain an authorization, approval,
order, license, franchise, declaration or consent of, or make a filing with, any
third party, including, without limitation, any Governmental Entity other than
notices or approvals under applicable non-U.S. competition, antitrust or
premerger notification laws and notices, waivers or approvals under applicable
securities laws of the Netherlands ("Holding Consents").
5.3 Outstanding Capital Stock; Issuance of Shares.
(a) The authorized capital stock of Holding consists of
150,000,000 shares of Holding Common Stock and 10,000,000 shares of preferred
stock ("Holding Preferred Stock"), par value $0.01 per share. As of the date
hereof, Holding has, in the aggregate, 86,862,177 shares of Holding Common Stock
issued and outstanding. All of the issued and outstanding shares of Holding
Common Stock have been duly authorized and are validly issued, fully paid and
non-assessable, and none of such shares were issued in violation of any
preemptive rights of Stockholders. Holding also has outstanding (a) options to
purchase up to 6,592,054 shares of Holding Common Stock ("Holding Options") and
(b) stock purchase rights to purchase up to 955,687 shares of Holding Common
Stock ("Holding Rights"). Except for the Holding Options, Holding Rights,
3,054,055 shares of capital stock of 1293220 Ontario Inc. that are exchangeable
for up to 3,054,055 shares of Holding Common Stock and certain rights of Howard
Sarna to subscribe for 106,666 shares of Holding Common Stock, there are no
options, warrants, calls, subscriptions, conversion or other rights, agreements
or commitments obligating Holding to issue any additional shares of capital
stock of Holding or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of capital stock of Holding.
Except for the 310,000 phantom stock units issued under Holding's Deferred
Compensation Plan, there are no stock appreciation or similar rights to
participate in the value of the equity of Holding.
(b) Holding Common Stock to be issued to the Shareholders
under the terms of this Agreement, when issued as contemplated by this
Agreement, will be duly
<PAGE> 32
28
authorized, validly issued, fully paid and nonassessable and not issued in
violation of any preemptive rights of Stockholders.
5.4 Legal Proceedings. There are no suits, actions, proceedings,
claims or investigations pending or, to the knowledge of Holding and Buyer,
threatened, challenging the validity or propriety of, or otherwise relating to
or involving, this Agreement or the transactions contemplated hereby.
5.5 Brokers' or Finders' Fees. No agent, broker, investment
banker, or other Person or firm acting on behalf of Holding or Buyer is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee directly or indirectly from Holding or Buyer in connection with any of the
transactions contemplated by this Agreement, other than customary fees and
expenses of attorneys, accountants and similar professionals.
5.6 Financial Statements.
(a) Holding has delivered to the Stichting true and
complete copies of (a) the unaudited balance sheets of ClientLogic Corporation
and its consolidated subsidiaries at May 1, 1999 and June 1, 1999 and a
statement of operations for the six months ended June 30, 1998 and June 30, 1999
(the "Holding Financial Statements"). Such Holding Financial Statements have
been prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") (except for the absence of footnotes and normal
year-end adjustments) consistently applied throughout the periods involved and
such balance sheets, fairly present the financial position, assets and
liabilities (whether accrued, absolute, contingent or otherwise) of ClientLogic
Corporation and its consolidated subsidiaries at the dates indicated and such
statements of operations of ClientLogic Corporation and its consolidated
Subsidiaries for the periods indicated the Holding Financial Statements are
attached hereto as Schedule 5.6(a).
(b) Attached hereto as Schedule 5.6(b) are the projected
income statements for the years ended December 31, 1999 and 2000 (the "Buyer
Projections"). Such Buyer Projections have been prepared in good faith and are
based upon reasonable assumptions.
ARTICLE VI
COVENANTS
6.1 Non-Competition; Confidentiality.
(a) Until the second anniversary of the termination of
his or her employment with the Company (such period being referred to herein as
the "Noncompetition Term"), each Management Shareholder agrees to refrain from,
anywhere in the world, directly or indirectly through any affiliate (whether
individually or as a principal, officer, director, employee, shareholder,
investor, consultant, advisor, partner, joint venturer, agent, equity owner, or
in any other capacity whatsoever);
(i) engaging or participating in any activity
with respect to the marketing or sale of services that compete
with the business of the Company
<PAGE> 33
29
and its Subsidiaries as conducted as of the Closing Date;
provided, however, that the foregoing shall not be construed
to preclude any Management Shareholder or any of their
respective affiliates from making any investments in the
securities of any Person, whether or not engaged in
competition with the business of the Company and its
Subsidiaries as conducted as of the Closing Date, to the
extent that such securities are actively traded on a national
securities exchange or in the over-the-counter market in the
United States or any foreign securities exchange and such
investment does not exceed one percent (1%) of the issued and
outstanding shares of such Person or give such Management
Shareholder or any of its affiliates the right or power to
control or participate directly in making the policy decisions
of such Person; or
(ii) causing or attempting to cause (A) any
customer to whom the Company or any Subsidiary supplies
services to terminate any purchase or other similar contract
or relationship with the Company or any Subsidiary after the
Closing or to replace the Company as a supplier of services,
in whole or in part, with any other Person, or (B) any
supplier to the Company or any Subsidiary to terminate any
supply or other similar contract or relationship with the
Company; or
(iii) except in furtherance of the business of the
Company encouraging, soliciting, or inducing any manager,
officer, supervisor, or other Employee of the Company or any
Subsidiary to terminate his or her employment relationship
with the Company or any Subsidiary or to become employed by
any Person other than the Company or any Subsidiary.
(b) From and after the date hereof, the Management
Shareholders will not, and will cause their respective affiliates not to,
directly or indirectly, disclose, reveal, divulge or communicate to any Person
other than authorized officers, directors and employees of Holding, the Company,
its Subsidiaries or affiliates of Holding or the Company or use or otherwise
exploit for its own benefit or for the benefit of anyone other than the Company
or Holding, any Confidential Information (as defined below). The Management
Shareholders agree that they shall not have any obligation to keep confidential
any Confidential Information if and to the extent disclosure thereof is
specifically required by law; provided, however, that in the event disclosure is
required by applicable law, such Management Shareholder shall provide the
Company and Holding with prompt notice of such requirement prior to making any
disclosure so that the Company and Holding may seek an appropriate protective
order. For purposes of this Section 6.1 "Confidential Information" shall mean
any confidential information with respect to the conduct or details of the
business of the Company or any Subsidiary, including, without limitation,
methods of operation, customers, and customer lists, products, proposed
products, former products, proposed, pending or completed acquisitions of any
company, division, product line or other business unit, prices, fees, costs,
plans, designs, technology, inventions, trade secrets, know-how, software,
marketing methods, policies, plans, personnel, suppliers, competitors, markets
or other specialized information or proprietary matters. The term Confidential
Information does not include, and there shall be no obligation hereunder with
respect to, information that (i) is generally available to the public on the
date of this
<PAGE> 34
30
Agreement, or (ii) becomes generally available to the public other than as a
result of a disclosure by the Management Shareholder or not otherwise
permissible thereunder, or (iii) the Management Shareholder learns from other
sources where such sources have not violated their confidentiality obligation
to the Company or Holding or their respective affiliates.
(c) Each Management Shareholder severally acknowledges
that the geographic boundaries, scope of prohibited activities, and the
Noncompetition Term contained in this Section 6.1 are reasonable and no broader
than necessary to protect the investment by Holding in the Company and Holding's
and its affiliates ongoing interests in the Company and do not and will not
impose any unreasonable burden upon any Management Shareholder, or their
respective affiliates. Each Management Shareholder severally agrees that (i) any
breach by it of any of the provisions contained in this Section 6.1 would
cause irreparable damage to Holding for which monetary damages and other
remedies at law may not be adequate and (ii) Holding will be entitled as a
matter of right to obtain, without posting any bond whatsoever, a restraining
order, an injunction, specific performance, or other form of equitable or
extraordinary relief from any court of competent jurisdiction to restrain any
threatened or further breach of this Section 6.1 or to require any Management
Shareholder to perform its respective obligations under this Section 6.1, which
right to equitable or extraordinary relief will not be exclusive of, but will be
in addition to, all other remedies to which Holding may be entitled under this
Agreement, at law, or in equity (including, the right to recover monetary
damages). If, during any calendar month during the Noncompetition Term a
Management Shareholder is not in compliance with the terms of this Section 6.1,
Holding will be entitled, in addition to all other remedies to which it may be
entitled, to specifically enforce such non-complying party's compliance with the
terms of this Section 6.1 for an additional number of calendar months (over and
above the number of calendar months included within the Noncompetition Term)
equal to the number of calendar months during which such noncompliance occurred.
Each Management Shareholder hereby agrees to waive proof of actual damages in
any proceeding for equitable or extraordinary relief.
6.2 Redemption of Depository Receipts. After the Closing, the
Stichting shall take all necessary action to cause all depository receipts
representing shares of Company Capital Stock to be redeemed according to the
procedures set forth in the Stichting's governing documents and the laws of the
Netherlands. Upon receipt of consideration pursuant to Article I hereunder, the
Stichting will pay over the applicable pro rata consideration to the Holders or
their representatives.
6.3 Agreement Regarding Management. Unless waived or amended in
writing by Buyer or a duly instructed by a Governmental Entity upon proper
authority, the Managing Shareholders agree that they shall not and shall not
cause the Company to, with the prior approval of the Buyer: (i) to acquire,
hold, rent, let, dispose of or encumber real estate with annual rental value of
greater than NLG 500,000; (ii) to borrow moneys except from the Company's
bankers and to determine the maximum sum to be borrowed from those bankers;
(iii) to lend money's, except for the extension of credit to the Company's
customers for a period less than six months; and to issue loans to the Company's
employees up to a sum corresponding to six month's salary of the employee
involved; (iv) to act on the Company's behalf as plaintiff or defendant in legal
proceedings or arbitration cases, with
<PAGE> 35
31
the exception of summary proceedings and the attachments before judgments or in
such cases where the amount in dispute is less than NLG 500,000; (v) to reach
compromises and settlements in disputes not related to the Company's day to day
management; (vi) to pledge or transfer title to accounts receivable, goods or
fixed assets of the Company other than in the ordinary course of business or as
part of regular asset leasing transactions; (vii) to hire employees in the
Company or as Managing Director of subsidiary companies at an annual base salary
of more than NLG 200,000; (viii) to do any act involving the payment of a sum or
an obligation of more than NLG 500,000, except for cash-management activities
for clients carried out in the ordinary course of business; (ix) to guarantee as
surety or guarantor the obligations of third parties, including employees; (x)
to establish or close the Company's principal or branch offices; (xi) to issue
or acquire or dispose of shares or debentures in the Company and/or any of its
subsidiaries, except where such transactions are amongst the Company and its
subsidiaries for optimization of the corporate structure; (xii) to issue or
acquire or dispose of options in the Company, except as part of an agreed upon
employee share option plan other than the senior management share option plan;
(xiii) to apply for the listing or delisting of the debentures on any stock
exchange; (xiv) to establish or terminate permanent, direct or indirect
co-operation with another company or legal entity, if such co-operation or
termination is of particular strategic importance; (xv) to participate directly
or indirectly in the capital of another company; (xvi) to make capital
investments within the budget of greater than NLG 500,000 and outside the budget
of greater than NLG 200,000 or other financial investments over NLG 200,000;
(xvii) to amend the Company's articles; (xviii) to dissolve the Company; (xix)
to apply for voluntary liquidation or suspension of payments; (xx) to terminate
the employment of thirty employees at once or within a relatively short period
of time; (xxi) to change significantly the working conditions of thirty or more
employees, except for regular annual salary increases or bonus determinations;
(xxii) to decrease the Company's issued capital.
ARTICLE VII
CLOSING DELIVERIES
7.1 Documents being delivered by the parties at Closing.
(a) Shares and Sale Warrants. At Closing, the Stichting,
Holding, Buyer and the Company shall execute a notarial deed of transfer whereby
the Shares are transferred to Buyer and the transfer shall be registered in the
Shareholders Registry of the Company.
(b) Insurance. The Management Shareholders' Vendors
Indemnity and Warranty Insurance Policy and Buyer's Indemnity and Warranty
Insurance Policy (collectively the "Insurance Policies") shall have been
delivered to the parties together with evidence satisfactory to the Holding that
all insurance premiums for the Insurance Policies have been paid by the
Stichting.
(c) Stockholders Agreement. At Closing, each Holder
acquiring Holding Common Stock under the terms of this Agreement shall execute
and deliver a joinder agreement to the Stockholders Agreement of Holding in
effect on the Closing Date.
<PAGE> 36
32
(d) Legal Opinion. Holding shall receive an opinion of
Baker & McKenzie, counsel to the Company, the Stichting, the Management
Shareholders and the Holders, dated as of the Closing Date in form satisfactory
to Holding and its counsel. The Stichting shall receive an opinion of Weil,
Gotshal & Manges LLP dated as of the Closing Date and in form satisfactory to
the Stichting's counsel.
(e) Escrow Agreement. The Escrow Agreement shall have
been duly executed and delivered by the parties thereto.
(f) Resignation of Directors. Each member of the
Supervisory Board of the Company designated by Buyer shall have tendered their
resignations to the Company, as applicable, to be effective as of the Closing
Date.
(g) Delivery of Certificates. Each of the Stichting, the
Management Shareholders and the Company shall have delivered to Holding and
Buyer such good standing certificates, officers' certificates and similar
documents and incumbency certificates as counsel for Holding and Buyer shall
have reasonably requested.
(h) Subscription Agreements. Each Holder acquiring
Holding Common Stock and Holding shall have executed and delivered a
Subscription Agreement in form satisfactory to Holding and its counsel.
(i) Delivery of Certificates. Holding and Buyer shall
have delivered to the Stichting, Management Shareholders or the Company such
good standing certificates, officers' certificates and similar documents and
incumbency certificates as counsel for the Shareholders shall have reasonably
requested.
(j) Amendments. The Stichting shall execute and deliver
the Option Amendments and the Warrant Amendments.
(k) Guarantee and Confidentiality Agreement. Buyer and
Advent International plc ("Advent") shall have executed and delivered a
Guarantee and Confidentiality Agreement providing for certain undertakings on
behalf of Advent.
(1) Employee Stock Option Plan. The Company shall have
delivered to the holders of Options under the Company's Employee Stock Option
Plan termination letters in form satisfactory to Holding and its counsel.
ARTICLE VIII
THE EARNOUT
8.1 Additional Payments.
(a) If the Company and its Subsidiaries consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
including Groupe Adverbe International S.A. ("Adverbe")' contribution to the
Company's consolidated EBITDA calculated as since June 30, 1999 for the periods
following the Closing of the Adverbe transaction and no other acquisitions
following the Closing Date, calculated in accordance with Dutch GAAP in effect
as of the Closing Date, exceeds NLG 6,000,000 for the year
<PAGE> 37
33
ended December 31, 1999, Holding shall pay to Jules T.H.M. Kortenhorst, Peter E.
Dekker, Jan Baurdoux, Carien van der Laan, Sytze Koopmans, Joost van Gaal and
Ole Sommer-Erichson (the "Participating Shareholders") an amount equal to the
excess of actual EBITDA for 1999 over NLG 6,000,000 to the extent such amount
does not exceed NLG 4,000,000 (the "First Additional Payment"), in accordance
with the Article VIII on or before February 15, 2000.
(b) If the First Additional Payment is less than NLG
4,000,000 and the Company and its Subsidiaries consolidated EBITDA, including
Adverbe's contribution to the Company's consolidated EBITDA for the periods
following the Closing of the Adverbe transaction and no other acquisitions
following the Closing Date, calculated in accordance with Dutch GAAP in effect
as of the Closing Date, exceeds NLG 18,700,000 for the year ended December 31,
2000 (the "Second Additional Payment"), Holding shall pay to the Participating
Shareholders an amount equal to the excess of actual EBITDA for 2000 over NLG
18,700,000 to the extent the total of the First Additional Payment and the
Second Additional Payment do not exceed NLG 4,000,000 (together with the First
Additional Payment, the "Payments"), in accordance with this Article VIII on or
before February 15, 2001.
8.2 Each Participating Shareholder's Share of the Payments. Each
Participating Shareholder's share of the Payments shall be equal to the number
of such Shareholder's Shares Options and Exchange Warrants divided by the number
of all Participating Shareholder's Shares, Options and Warrants.
8.3 Method of Payment. Each Participating Shareholder's share of
the Payments shall be made by check in NLG, mailed to each Participating
Shareholder at such Participating Shareholder's address set forth on the
signature pages hereto, or such other method agreed to by the Holding and each
Participating Shareholder.
8.4 Management Shareholder's Termination. In the event a
Management Shareholder is terminated for cause, as defined in such Management
Shareholder's employment agreement, or a Participating Shareholder voluntarily
terminates his employment with the Company prior to December 31, 1999 in the
case of the First Additional Payment or December 31, 2000 in the case of the
Second Additional Payment, such Participating Shareholder shall not participate
in any such Payment made after the date of such termination.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. The Stichting shall be responsible for the expenses
incurred by the Management Shareholders, the Holders, the Stichting and the
Company and its Subsidiaries in connection with the transactions provided for
herein or contemplated hereby, and the Stichting shall not cause or permit the
Company or any Subsidiary to pay or be liable for such costs other than costs
not to exceed NLG 150,000. The Holding and Buyer will be responsible for the
expenses incurred by them in connection with the transactions contemplated
hereby. Stichting shall be responsible for the payment of any premiums on the
Insurance Policies.
<PAGE> 38
34
9.2 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the party for
whom judgment is finally granted by a court in connection with such action shall
be entitled to recover in such action its reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it may be
entitled.
9.3 Brokers. Holding and Buyer shall indemnify and hold harmless
the Stichting, and the Stichting shall, indemnify and hold harmless Holding and
Buyer (and from and after the Closing the Company and its Subsidiaries), from
and against any liability, claim, loss, damage, or expense incurred by Holding
and Buyer and the Company and its Subsidiaries, respectively, relating to any
fees or commissions owed to any broker, finder, or financial advisor as a result
of actions taken by Holding, Buyer, the Management Shareholders, the Stichting,
the Holders, and the Company and its Subsidiaries, respectively, in connection
with this Agreement or the transactions contemplated hereby; provided that the
foregoing does not apply to any fee payable to Hammond and Suddards arising out
of the acquisition of Adverbe.
9.4 Notices. Any notice, request, demand or other communication
given by any party under this Agreement (each a "notice") shall be in writing,
may be given by a party or its legal counsel, and shall be deemed to be duly
given (i) when personally delivered at that party's address as it appears below
or another address of which that party has given written notice to the other
parties hereto, of (ii) when transmitted by telex (or equivalent service), the
sender having received the answer back of the addressee, or (iii) when delivered
by facsimile transmission, the sender having received machine confirmation
thereof.
(a) Notice to the Company, Stichting or the Management
Shareholders prior to the Closing shall be sufficient if given to and these
parties choose their domicile for the purpose of receiving any writ or other
service of process at the following address:
Advent International plc
123 Buckingham Palace Road
London
SW1W 9SL
U.K.
Facsimile No.: 44 (0) 171 333 0801
Attention: Humphrey Battcock
and to:
Cordena Call Management B.V.
Rijswijkseweg 60
2516EH Den Haag
The Netherlands
Facsimile No.: 31 (0) 703 05 17 56
Attention: Peter E. Dekker
<PAGE> 39
35
with a copy to:
Caron Stevens/Baker McKenzie
Hirsch Gebouw
Leidseplein 29,
1017 PS Amsterdam
Postbox 2720, 1000 CS Amsterdam
Facsimile No: 31 (0) 020 6273458
Attention: Mic van Bremen
(b) Notice to the Company after the Closing or to Holding
and Buyer shall be sufficient if given to:
ClientLogic Corporation
8117 Preston Road
Suite 205
Dallas, Texas 75225
Facsimile: (214) 696-8788
Attention: Steve Kawalick
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Facsimile No.: (214) 746-7777
Attention: Mary R. Korby
PricewaterhouseCoopers N.V. Legal Services
Prins Bernhardplein 200
P.O. Box 94917
1090 GX Amsterdam
The Netherlands
Facsimile No.: 31(20) 568 6404
Attention: Wietse de Jong
9.5 Transfer Taxes. The Stichting shall be responsible for the
payment of, and shall indemnify and hold Holding and Buyer and the Company
harmless from and against, any and all sales, use, transfer, recording, stamp,
documentary, real estate or other similar Taxes attributable to purchase and
sale of the Holders' Company Capital Stock, Options or Warrants. All payments
under this Agreement shall be reduced by and made net of any applicable
withholding Taxes.
9.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and its respective successors and
assigns. This Agreement or any part hereof may not be assigned by any party
without the prior written consent of the other parties hereto, except that
Holding and Buyer may (i) assign its rights and obligations to any affiliate of
Holding or Buyer or (ii) make a collateral assignment of its rights under this
Agreement to any lender who provides funds to Holding or Buyer for the
acquisition of the
<PAGE> 40
36
Company without the written consent of the Company; provided that any such
assignment shall not relieve Holding or Buyer from its obligations hereunder.
The Company, the Management Shareholders and the Stichting shall execute
acknowledgements of such assignment(s) and collateral assignments in such forms
as Holding, Buyer or Holding's or Buyer's lender(s) may from time to time
reasonably request.
9.7 Entire Agreement and Modification. This Agreement, the
Schedules and Annexes hereto and agreements executed concurrently herewith (all
of which are hereby incorporated by reference into and considered part of this
Agreement) supersede all prior agreements and understandings among the parties
or any of its respective affiliates (written or oral) relating to the subject
matter of this Agreement, and are intended to be the entire and complete
statement of the terms of the agreement among the parties, and may be amended or
modified only by a written instrument executed by all of the parties. The waiver
by one party of any breach of this Agreement by any other party shall not be
considered to be a waiver of any succeeding breach (whether of a similar or a
dissimilar nature) of any such provision or other provision or a waiver of any
such provision itself. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by any
of the parties.
9.8 Certain Interpretive Matters. Unless the context otherwise
requires, (a) all references to Sections, Articles, Annexes or Schedules are to
Sections, Articles, Annexes or Schedules of or to this Agreement, (b) each term
defined in this Agreement has the meaning assigned to it, (c) "or" is
disjunctive but not necessarily exclusive, (d) words in the singular include the
plural and vice versa, (e) the term "affiliate" means any Person controlled by
or under common control with the applicable referenced Person and (f)
"knowledge," in the case of the Company, any Subsidiary or the Stichting, shall
refer to the actual knowledge, after due inquiry, of Management Shareholders.
All references to "NLG" will be to lawful currency of the Netherlands. No
provision of this Agreement will be interpreted in favor of, or against, either
of the parties hereto by reason of the extent to which either such party or its
counsel participated in the drafting thereof or by reason of the extent to which
any such provision is inconsistent with any prior draft hereof or thereof.
9.9 Governing Law. This Agreement, and the respective rights,
duties and obligations of the parties hereunder, shall be governed by and
construed in accordance with the laws of the Netherlands, without giving effect
to the conflicts of laws provisions thereof. Except as otherwise set forth in
Section 1.4, all disputes arising in connection with this Agreement, shall be
finally settled by binding arbitration in accordance with the Arbitration Rules
of the International Chamber of Commerce ("ICC"). The arbitral tribunal shall be
composed of three neutral, impartial arbitrators. Holding shall have the right
to select one arbitrator who shall be an attorney licensed to practice in the
United States. The Management Shareholders, the Stichting or the Company shall
have the collective right to select one arbitrator. The third arbitrator shall
be a person with experience in the Company's industry and shall be selected to
serve as an arbitrator upon the agreement of the Holding and the opposing party
or parties. The place of arbitration shall be Amsterdam. The arbitral procedure
shall be conducted in the English language.
<PAGE> 41
37
9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
9.11 Further Assurances. Each of the parties shall, at any time and
from time to time after the Closing Date, and at the expense of the other
parties but without further consideration, execute and deliver such further
instruments, assignments or documents and other papers and take such further
actions as may be reasonably required to carry out the provisions hereof and the
transactions contemplated hereby. Each party shall use its reasonable efforts to
fulfill or obtain the fulfillment of the conditions to the Closing.
9.12 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.13 No Recourse. No past, present or future director, officer,
employee, shareholder, incorporator or partner, as such, of Holding, Buyer, the
Company, its Subsidiaries or the Stichting (except to the extent any of the
foregoing is a party to the Agreement) shall have any liability for any
obligations of Holding, Buyer, the Company or the Stichting under this Agreement
or for any claim based on, in respect of or by reason of such obligations or
their creation.
9.14 Public Statements. The Holding and Buyer, on the one hand, and
the Company and the Stichting, on the other hand, will consult with the other
before issuing, and will provide the other with a reasonable opportunity to
review and comment upon, any press release or other public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statements prior to such
consultation except as may be required by applicable law or judicial process.
9.15 Specific Performance. In the event of a breach or threatened
breach by any party hereto of any of his, her or its obligations hereunder to
consummate the transactions provided for herein any other party hereto shall be
entitled to specific performance with respect to said obligation. Nothing herein
shall be construed as prohibiting any party hereto from pursuing any other
remedies available for such breach or threatened breach, including the recovery
of damages.
9.16 Notary. The Notary who will execute the transfer deed is a
civil law notary of Caron & Stevens/Baker & McKenzie, which firm acts as the
external legal advisors of the Stichting and the Management Shareholders. Each
party hereby acknowledges that it is aware of the provisions of the "Guidelines
concerning associations between civil law notaries ("notarissen") and
barristers/solicitors ("advocaten") as established by the Board of the Royal
Professional Organization of Civil Law Notaries ("Koninklijke Notariele
Beroepsorganisatie") and agrees that Caron & Stevens/Baker & McKenzie may advise
and act on behalf of the Stichting and the Management Shareholders with respect
to this Share Purchase Agreement and any agreements and/or any disputes related
to or resulting from this agreement, without prejudice to the obligations of the
civil law notary of Caron &
<PAGE> 42
38
Stevens/Baker & McKenzie to all parties with respect to the execution of the
share transfer deed.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 43
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in two or
more counterparts, each of which shall be deemed one and the same instrument, as
of the day and year first above written.
HOLDING:
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
---------------------------------
Name: Gene Morphis
---------------------------------
Title: Chief Financial Officer
---------------------------------
BUYER:
CLIENTLOGIC INTERNATIONAL
HOLDING, INC.
By: /s/ STEVEN M. KAWALICK
---------------------------------
Name: Steven M. Kawalick
---------------------------------
Title: President
---------------------------------
COMPANY:
CORDENA CALL MANAGEMENT B.V.
By: /s/ JULES T.H.M. KORTENHORST
---------------------------------
Name: Jules T.H.M. Kortenhorst
---------------------------------
Title: Managing Director
---------------------------------
STICHTING:
STICHTING ADMINISTRATIEKANTOOR
CORDENA CALL MANAGEMENT
By: /s/ JULES T. KORTENHORST
---------------------------------
Name: Jules T. Kortenhorst
---------------------------------
Title: Bestuurder
---------------------------------
By: /s/ H.W. BATTCOCK
---------------------------------
Name: H.W. Battcock
---------------------------------
Title:
---------------------------------
<PAGE> 44
40
MANAGEMENT SHAREHOLDERS
/s/ JULES T.H.M. KORTENHORST
---------------------------------
Name: Jules T.H.M. Kortenhorst
Address: Laan van Koot 16 E
2244 AV Wassenaar
The Netherlands
/s/ PETER E. DEKKER
---------------------------------
Name: Peter E. Dekker
Address: Huize de Bark
Reelaan 31
3735 KK Bosch en Duin
The Netherlands
<PAGE> 1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
AMONG
CLIENTLOGIC INTERNATIONAL HOLDING, INC.
(THE "BUYER")
AND
MR. FRANCK LOUBARESSE
MR. LAURENT LOUBARESSE
MR. JACQUES LOUBARESSE
ONLINE SERVICES
(COLLECTIVELY, THE "SELLERS")
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into on October 8,
1999, by and among ClientLogic International Holding, Inc. (the "BUYER"), and
Mr. Franck Loubaresse, a French citizen residing at 17 rue des Perchamps, 75016
Paris, Mr. Laurent Loubaresse, a French citizen residing at 21 rue Georges Sand,
75016 Paris, Mr. Jacques Loubaresse, a French citizen residing at 7 rue Linne,
75005 Paris, and ONLINE SERVICES, a French limited liability company with its
registered office at 75 rue de Lourmel, 75015 Paris, each acting jointly and
severally.
For purposes of this Agreement, Mr. Franck Loubaresse, Mr. Laurent Loubaresse
Mr. Jacques Loubaresse and ONLINE SERVICES SARL are collectively referred to as
the "SELLERS". The Buyer and the Sellers are referred to collectively herein as
the "PARTIES".
The Sellers own 100% of the outstanding capital stock of Groupe Adverbe
International S.A. (the "TARGET"), a corporation organized under the laws of
France with its registered office located at 64, rue du Dessous des Berges,
75013 Paris, France. The Target is the holding company of the Adverbe Group (the
Target and the Subsidiaries (as defined in Section 1.35) are collectively
referred to as the "GROUP").
The Target holds in turn:
- - 100% of the shares of Phone Communication SA, a corporation organized
under the laws of France with its registered office located at 64, rue
du Dessous des Berges, 75013 Paris, France ("PhoneCom").
- - 100% of the shares of H2M - Hors Media Medical, a corporation organized
under the laws of France with its registered office located at 64, rue
du Dessous des Berges, 75013 Paris, France ("H2M").
- - 4,300 shares out of a total of 4,500 shares in Agence de Diffusion et
d'Information de Systemes SARL, a limited liability company organized
under the laws of France with its registered office located at 64, rue
du Dessous des Berges, 75013 Paris, France ("Agedis").
- - 100% of Consulte SARL, a limited liability company organized under the
laws of France with its registered office located at 64, rue du Dessous
des Berges, 75013 Paris, France ("Consulte").
It is acknowledged that this Agreement was to be entered into between
the Sellers and Cordena Call Management Holding (France) SARL, a wholly
owned subsidiary of Cordena Call Management BV, which has negotiated
all of the provisions hereof and has made investigations in connection
with this transaction. In light of the change of control of Cordena
Call Management BV which has been acquired by Client Logic
International Holding Inc., it has been agreed that Cordena Call
Management Holding (France) would
-2-
<PAGE> 3
be substituted in this transaction by Client Logic International
Holding Inc. which hereby fully accepts the provisions of this
Agreement and fully acknowledges the investigations conducted by
Cordena Call Management BV.
THIS AGREEMENT gives effect to a transaction in which the Buyer purchases from
the Sellers and the Sellers sell to the Buyer the outstanding capital stock of
the Target owned by the Sellers.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, the Parties agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall be defined as set forth
below and such definitions shall be applicable to both the singular and plural
forms of such terms:
1.1 "ACCOUNTS RECEIVABLE" means all moneys owing by customers of any of the
Target and the Subsidiaries and includes those amounts disclosed in the
Financial Statements, together with all those amounts assigned to
factoring companies.
1.2 "ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines,
costs, reasonable amounts paid in settlement, Liabilities, obligations,
Taxes, liens, losses, expenses, and fees, including court costs and
reasonable fees and expenses of attorneys, accountants, consultants and
experts.
1.3 "AFFILIATE" means any Person that directly or indirectly controls, is
controlled by, or is under common control with the Person to whom the
reference is made and with respect to a particular individual: (i) each
other member of such individual's family and (ii) any Person that is
controlled by one or more members of such individual's family. As used
in the preceding sentence, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities or otherwise.
1.4 "ALLOCABLE PORTION" means with respect to the share of any Seller in a
particular amount that fraction equal to the number of Target Shares
the Seller holds as set forth in Section 4.2 of the Disclosure Schedule
over the total number of outstanding Target Shares also set forth in
Section 4.2 of the Disclosure Schedule.
1.5 "BAD LEAVER" means in connection with the termination of an employment
contract or of a position as chairman of the board of directors (PDG),
director (administrateur), general manager (directeur general) or
manager (gerant) in any of the Target or the Subsidiaries, a
termination for gross misconduct (faute lourde) or breach of a non
competition or non solicitation undertaking.
-3-
<PAGE> 4
1.6 "BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could
form the basis for any specified consequence.
1.7 "BUYER" has the meaning set forth in the preface above.
1.8 "CLIENTLOGIC" means ClientLogic Holding Corporation, a company
incorporated in Delaware, having its principal place of business at
Dallas, Texas, USA.
1.9 "CLOSING" means the closing of the transactions contemplated by this
Agreement specified in Section 6 below.
1.10 "CLOSING DATE" means the date of signature of this agreement.
1.11 "CODE" means the French Tax Code, as amended.
1.12 "COMMON STOCK" means the common stock of Client Logic.
1.13 "CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Target and the Subsidiaries that is not
already generally available to the public.
1.14 "CORDENA" means Cordena Management Call BV, a company incorporated in
the Netherlands, having its principal place of business at
Rijswijkseweg 60, 2516EH Denhaag, The Netherlands.
1.15(a) "CURRENT ACCOUNTS" means the accounts representing amounts loaned to an
entity by its owners or an Affiliate of such owners.
1.15(b) "DATA ROOM INDEX" means the data room index set forth in EXHIBIT
1.15(b) hereto.
1.16(a) "DEFERRED PAYMENT" has the meaning set forth in Section 2.4.
1.16(b) "DEFERRED PAYMENT DATE" has the meaning set forth in Section 2.4.
1.17 "DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below.
1.18 "EMPLOYEE BENEFIT PLAN" has the meaning set forth in Section 4.23
below.
1.19 "ENCUMBRANCE" means any claim, demand, right of first refusal, purchase
right, option, warrant, commitment, charge, encumbrance or any other
restriction of any kind on ownership, transfer, use, licensing,
possession, receipt of income from or any other exercise of any
attribute of ownership, including any Security Interest.
1.20 "FINANCIAL STATEMENTS" has the meaning set forth in Section 4.7 below.
-4-
<PAGE> 5
1.21 "GAAP" means French generally accepted accounting principles applied on
a basis consistent with the basis on which the Financial Statements
referred to in Section 4.7 were prepared.
1.22 "GOVERNMENTAL BODY" means any country, any national body (including the
European Union), any state, province, municipality, or subdivision of
any of the foregoing, any agency, governmental department, court,
entity, commission, board, ministry, bureau, locality or authority of
any of the foregoing.
1.23 "INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
(b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, all related applications and registrations, and all
goodwill associated therewith, (c) all copyrightable works, all
copyrights, and all copyright applications and registrations, (d) all
mask works, and all mask work applications and registrations, (e) all
trade secrets and business information, (f) all computer software
(including data and related documentation), (g) all internet and
intranet names, addresses, icons and other identifications useful to
identify or locate the Target on a computer network such as the World
Wide Web, and (h) all other proprietary rights.
1.24 "INTEREST RATE" means five percent (5%) per annum, calculated on the
basis of a 365 days per year factor applied to the actual days on which
there exist an unpaid amount.
1.25 "KNOWLEDGE" means actual knowledge after such inquiry as is reasonably
practicable.
1.26 "LAWS" means all constitutions; statutes; regulations; by-laws, codes;
ordinances; decrees; rules; and judicial, arbitral, administrative,
ministerial, departmental or regulatory judgments, orders, decisions,
rulings, or awards.
1.27 "LIABILITY" means any and all liability, obligation, loss, commitment,
damage, or deficiency including interest, penalties, fines, reasonable
fees of attorneys, accountants and consultants, and experts, and any
liability for Taxes (in each instance whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether
accrued, under accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due).
1.28 "ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
1.29 "PARTY" has the meaning set forth in the preface above.
1.30 "PERMIT" means any license, permit, approval, consent, authorization,
requirement and application of or to a Governmental Body and all
governmental or third party product registrations or approvals.
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<PAGE> 6
1.31 "PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization, any other form of
entity, or a Governmental Body.
1.32 "PURCHASE PRICE" has the meaning set forth in Section 2.2 below.
1.33 "REQUISITE SELLERS" means Sellers holding a majority in interest of all
of the Shares as set forth in Section 4.2 of the Disclosure Schedule.
1.34 "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest.
1.35 "SELLERS" has the meaning set forth in the preface above.
1.36 "SHARES" means the shares of capital stock of the Target.
1.37 "SUBSIDIARY" means any corporation with respect to which the Target (or
a Subsidiary thereof) owns common stock, has the power to vote or
direct the voting of securities to elect one or more directors, or owns
any other security, and any partnership in which the Target (or a
Subsidiary thereof) is a general or limited partner.
1.38 "TARGET" has the meaning set forth in the preface above.
1.39 "TAXES" means all French and foreign income, gross receipts, profits,
license, payroll, employment, stamp, premium, windfall profits,
withholding, capital, general corporate, customs duties, environmental,
disability, registration, minimum sales, goods and services, property
(including improvement assessments), severance, production, recording,
ad valorem, gains, transfer, value-added, unemployment compensation,
social security premium, privilege and any and all other taxes,
including any interest, penalty, or addition thereto, but specifically
excluding any of the foregoing due in respect of any indemnification
hereunder.
1.40 "TAX RETURN" means any return, declaration, report, claim of any kind
including for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
2. PURCHASE AND SALE OF TARGET SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, on Closing the Buyer purchases from each of the Sellers, and
each of the Sellers will sell to the Buyer all of his or her Shares for
the consideration specified below in this article 2. The Shares will be
conveyed free and clear of all Encumbrances and together with all
rights now and hereafter attaching thereto. The total number of Shares
(and breakdown by Seller) to be purchased by the Buyer from the Sellers
on the Closing Date is set forth in EXHIBIT 2.1. Upon transfer of the
Shares, the Buyer shall own one hundred percent (100%) of the capital
of the Target.
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<PAGE> 7
2.2 PURCHASE PRICE.
2.2.1 The Buyer agrees to pay to the Sellers sixty one million six
hundred sixty thousand French Francs (FRF. 61,660,000) (the
"PURCHASE PRICE"), less the Purchase Price Adjustment, if any,
determined in accordance with Section 2.3 hereof, for all of
the Shares, consisting of:
- a cash payment in the amount of forty million six
hundred sixty thousand French Francs
(FRF. 40,660,000);
- 723,850 shares of Common Stock valued at ten million
French Francs (FRF. 10,000,000);
- a Deferred Payment in cash of a maximum amount of ten
million French Francs (FRF. 10,000,000) as determined
in accordance with Section 2.4;
- a Deferred Payment of a maximum number of 72,385
shares of Common Stock for a maximum amount of one
million French Francs (FRF. 1,000,000) as determined
in accordance with Section 2.4;
2.2.2 The payment of the Purchase Price to the Sellers shall be made
in the following manner:
- thirty nine million eight hundred four thousand eight
hundred and fifteen French Francs (FRF. 39,804,815)
(which includes a 5% interest for the period between
June 30, 1999 and the Closing Date based on
FRF. 39,251,000) shall be paid in cash at Closing by
wire transfer in the account designated by each
Seller in an amount equal to the amount specified
opposite that Seller's name in EXHIBIT 2.2.2;
- four hundred fifty three thousand French Francs
(FRF. 453,000) shall be paid in cash at Closing by
wire transfer in the account designated by Hausmann &
Associes;
- nine hundred fifty six thousand French Francs
(FRF. 956,000) shall be paid in cash at Closing by
wire transfer in the account designated by Financiere
Breteuil;
- issuance at Closing of Common Stocks to each of the
Sellers in an amount equal to the amount specified
opposite that Seller's name in EXHIBIT 2.2.2;
- Deferred Payment in cash and in Common Stocks on the
Deferred Payment Date in accordance with Section 2.4
below.
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<PAGE> 8
The Buyer shall cause and warrants the delivery of the shares
of Common Stock to the Sellers by Client Logic in the manner
provided above within 5 business days as from the Closing
Date.
2.3 PURCHASE PRICE ADJUSTMENT. The Purchase Price is based upon the
assumption that the consolidated shareholders equity ("capitaux propres
consolides" as defined according to the principles and using these
certain values set out in Exhibit 2.3 all in accordance with GAAP) of
the Group on June 30, 1999, (the "Closing Date Shareholders Equity") is
at least equal to twelve million two hundred thousand French Francs
(FRF. 12,200,000) (the "Base Shareholders Equity"), subject to the
specific provision of Section 4.11.3.
In the event that the Closing Date Shareholders Equity is less than the
Base Shareholders Equity, the Buyer shall be entitled to a franc per
franc reduction of the Purchase Price, which reduction shall be equal
to the difference between the Base Shareholders Equity and the Closing
Date Shareholders Equity.
The Closing Date Shareholders Equity shall be determined according, to
the following procedure:
(i) The Closing Date Shareholders Equity shall be determined as
soon as practicable after the Closing Date by the Sellers'
accountants who shall prepare the consolidated financial
statements of the Group as at the Closing Date (the "Closing
Date Financial Statements"). The Closing Date Financial
Statements shall be prepared according to the principles and
using those certain values set out in Exhibit 2.3 all in
accordance with GAAP on a basis consistent with the methods
applied by the Target in preparing the Financial Statements;
For the purpose of preparing the Closing Date Financial
Statements, the Buyer hereby agrees to allow, as from the
Closing Date, unrestricted access to the Target's premises and
to the Target's legal and accounting documents, books and
registers, to the Sellers and to any Sellers' representatives
as may be designated in writing by the Sellers;
(ii) not later than 60 days after the Closing Date, the Sellers
shall deliver to the Buyer the Closina Date Financial
Statements;
(iii) the Buyer shall within 30 days of the delivery of the Closing
Date Financial Statements by the Sellers either agree to the
Closing Date Financial Statements or, if the Buyer disagrees
in relation to any item of the Closing Date Financial
Statements (together the "Disputed Items"), it shall identify
in writing the Disputed Items to the Sellers.
(iv) if the Parties are in disagreement in relation to any Disputed
Items, and if such disagreement between the Sellers and the
Buyer cannot be resolved by the mutual agreement of the Buyer
and the Sellers by the end of the 45 day period following the
delivery of the Closing Date Financial Statements by the
Sellers to the Buyer, the
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<PAGE> 9
Disputed Items shall be submitted for resolution to the
accounting firm of Arthur Andersen, or, if Arthur Andersen
shall not accept such mission, to another internationally
recognized independent certified public accounting firm
("Independent Accounting Firm") mutually acceptable to the
Sellers and the Buyer. If within five (5) business days
following the date on which Arthur Andersen shall have refused
its mission, the Sellers and the Buyer cannot agree on the
choice of such Independent Accounting Firm, either party shall
be entitled within five (5) business days to request the
designation of an Independent Accounting Firm by the President
of the Court of Commerce of Paris. The Sellers and the Buyer
shall instruct the Independent Accounting Firm to limit its
examination to the Disputed Items affecting the determination
of the Closing Date Shareholders Equity, and to use its best
efforts to make its determination thereon within thirty (30)
business days after its engagement hereunder. The resolution
of any such previously Disputed Items by such Independent
Accounting Firm shall be made in writing delivered to the
Buyer and the Sellers and shall be final, conclusive and
binding upon the Sellers and the Buyer in accordance with
Articles 1592 and 2044 et seq. of the French Civil Code. The
fees and expenses charged by the Independent Accounting Firm
with respect to the Disputed Items shall be shared equally
between the Buyer and the Sellers.
The adjustment amount of the Purchase Price, if any, as
finally determined in accordance with the above provisions,
shall be paid in French Francs by the Sellers by certified
bank check within ten (10) business days of the determination
of the Closing Date Financial Statements, as determined
pursuant to the above procedure.
2.4 DEFERRED PAYMENT. Within four weeks following the issuance of the
financial statements of the companies in the Group audited (when
appropriate) for the fiscal year ended December 31, 1999, (the
"Deferred Payment Date") the Buyer will pay to the Sellers an
additional amount of purchase price, if any, based on the formula and
the principles described in EXHIBIT 2.4 and subject to the provisions
of Section 4.11.3. The Deferred Payment shall not be due to a Seller
if, on the Deferred Payment Date, the latter has resigned or has been
dismissed as a Bad Leaver.
However, if (i) the Buyer terminates the term of office of Franck
Loubaresse as chairman and manager of the Target and the Subsidiaries,
where applicable, or the employment of Laurent Loubaresse or Jacques
Loubaresse for a reason other than a Bad Leaver or (ii) between Closing
and December 31, 1999, Buyer carries out any action materially
detrimental to the Target or the Subsidiaries and which would impede
the achievement of the full Deferred Payment, the Deferred Payment will
become payable in full to the Sellers as promptly as practicable.
The Parties undertake to procure, insofar as each is able, the issuance
of the financial statements of the Group as of December 31, 1999 no
later than June 30, 2000. Such financial statements and the
consolidation shall be prepared in accordance with those principles set
out in EXHIBIT 2.3 all in accordance with GAAP. There shall be written
back into the consolidated profit of the Group costs and expenses
incurred by the Group
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<PAGE> 10
during the due diligence process prior to the signature, and as a
result of the implementation of this Agreement, up to a maximum amount
of FRF.150,000. The Parties shall decide on a mutually agreeable basis
the expenses and investments which shall be made by the Group during
the period running from the Closing Date to December 31, 1999.
The Parties further agree that any provision booked by any of the
Target or the Subsidiaries during fiscal year closed on December 31,
1999, which (i) impacts the consolidated operating result (resultat
d'exploitation consolide) of the Group and (ii) is recaptured on or
before the end of the fiscal year 2001, shall be taken into account for
the recaptured amount in the calculation of a complementary deferred
payment amount on the basis of the formula set forth in Exhibit 2.4
hereto as if such recaptured amount of the provision had not or
partially not, where applicable, existed on the Deferred Payment Date.
This complementary deferred payment amount shall be payable in cash to
the Sellers within 30 days of the approval of the financial statements
of the relevant company for the fiscal year during which the recaptured
of the provision was accounted for. It is understood that the sum of
the above complementary deferred payment amount and the Deferred
Payment amount initially paid shall not exceed the maximum amount set
forth in Section 2.2.1 above, i.e., FRF 11,000,000.
2.5 SET-OFF. If prior to the Deferred Payment Date, the Buyer shall have
obtained an enforceable arbitration award against the Sellers pursuant
to the provisions of article 9 below in connection with any one of the
indemnification undertakings assumed by the Sellers in article 7, the
Buyer shall be authorized to operate a set-off between any payment of
any amount still owed to the Sellers thereunder and any amount that the
Sellers may owe to the Buyer
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers that the statements contained
in this article 3 are correct and complete as of the Closing Date.
3.1 ORGANIZATION OF THE BUYER. The Buyer is a corporation duly organized,
validly existing, and in good standing under the Laws of the
jurisdiction of its incorporation.
3.2 AUTHORIZATION OF TRANSACTION. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder.
3.3 NON-CONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any Law or other restriction of any
Governmental Body to which the Buyer is subject or any provision of its
charter or bylaws or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument,
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<PAGE> 11
or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as set forth in the disclosure schedule delivered by the Sellers to the
Buyer on the date hereof (the "DISCLOSURE SCHEDULE"), the Sellers represent and
warrant, jointly and severally, to the Buyer that the statements contained in
this article 4 are correct and complete as of June 30, 1999, and all references
in this article 4 to the date hereof, the Closing Date shall be deemed to refer
to June 30, 1999, except for the statements contained in Sections 4.1, 4.2, 4.3,
4.4(a), 4.4(c), 4.6, the preamble to 4.8, 4.8.13, 4.9, 4.23 and 4.31 which shall
be correct and complete as of the Closing Date and all references in these
paragraphs to the date hereof and the Closing Date shall be deemed to refer to
October 8, 1999. All verbs in the present tense shall be deemed accordingly
mutatis mutandis in the past tense. Nothing in the Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. The
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
paragraphs contained in this Section 4.
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the Target
and the Subsidiaries is a corporation or limited liability company,
duly organized and validly existing under the laws of the jurisdiction
of its incorporation or formation. Each of the Target and the
Subsidiaries is duly authorized to conduct business under the laws of
each jurisdiction where such qualification is required. Each of the
Target and the Subsidiaries has full power and authority and all
Permits necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. Section 4.1 of the
Disclosure Schedule lists the directors and officers of each of the
Target and the Subsidiaries. The Sellers have delivered to the Buyer
correct and complete copies of the charter and bylaws of each of the
Target and the Subsidiaries (as amended to date). The minute books
(containing the records of meetings of the stockholders and the board
of directors), the share transfer register ("Registre des mouvements de
titres") and the individual shareholders accounts ("Comptes individuels
d'actionnaires"), where applicable, of each of the Target and the
Subsidiaries are correct and complete and each has been provided to the
Buyer. The Target is not in default under or in violation of any
provision of its charter or bylaws.
4.2 CAPITALIZATION. The entire stated capital stock of the Target consists
of 1,225,000 shares of common stock, with a par value of FRF.10 each.
All of the Shares are validly issued and fully paid and are duly owned,
free and clear of any Encumbrances, Taxes, Security Interests and
contracts, by the respective Sellers as set forth in Section 4.2 of the
Disclosure Schedule. Other than as expressly set out in Section 4.2 of
the Disclosure Schedule, there are no outstanding, or authorized
options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could
require the Target or any Subsidiaries to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no
voting arrangements, proxies, or other agreements or
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<PAGE> 12
understandings with respect to the voting of the capital stock of the
Target or any of the Subsidiaries.
4.3 AUTHORIZATION OF TRANSACTION. Each of the Sellers has full power and
authority to execute and deliver this Agreement and to perform the
Seller's obligations hereunder and to consummate the transactions
contemplated hereunder.
4.4(a) NON-CONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any judgment or any provision of the charter
or bylaws of any of the Target and the Subsidiaries or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement
to which any of the Target and the Subsidiaries is a party or by which
it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). None of
the Target and the Subsidiaries needs to give any notice to, make any
filing with, or obtain any Permit of any Governmental Body in order for
the Parties to consummate the transactions contemplated by this
Agreement.
4.4(b) BROKERS' FEES. None of the Target and the Subsidiaries has any
Liability to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
None of the Sellers has any Liability to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable
or obligated.
4.4(c) HSR ACT. On the Closing Date, neither the Company nor any Subsidiary,
individually or in the aggregate, will own any assets located in the
United States (other than investment assets or voting or non-voting
securities of another person) having an aggregate book value of
US$15,000,000 or more and will not control (as that term is defined
under Section 801.1(b) of the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act")) any US issuer (as
defined in the HSR Act) that has annual net sales or total assets of
US$25,000,000 or more.
4.5 TITLE TO ASSETS. Except as set forth in Section 4.5 of the Disclosure
Schedule, the Target and the Subsidiaries have good and marketable
title to, or a valid leasehold interest in, all of the properties and
assets used by them, located on their premises, or shown on the
Financial Statements or acquired after the date thereof, free and clear
of all Encumbrances, except for properties and assets disposed of in
the Ordinary Course of Business since the date of the Financial
Statements.
4.6 SUBSIDIARIES. Section 4.6 of the Disclosure Schedule sets forth for
each of the Subsidiaries (i) its name and jurisdiction of incorporation
or formation, and (ii) the number of shares of each class of its
capital stock, the names of the holders thereof, and the number of
shares held by each such holder. All of the shares of capital stock of
the Subsidiaries have been duly authorized and are validly issued,
fully paid. All of the shares of the Subsidiaries are free and clear of
all Encumbrances, Taxes, Security Interests, contracts and equities.
There are
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<PAGE> 13
no outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights, or other contracts or commitments
that could require any of the Target and the Subsidiaries to sell,
transfer, or otherwise dispose of any capital stock of any of the
Subsidiaries or that could require the Subsidiaries to issue, sell, or
otherwise cause to become outstanding any of its own capital stock.
There are no voting arrangements, proxies, or other agreements or
understandings with respect to the voting of any capital stock of the
Subsidiaries. Except with respect to the Target's control of or equity
participation in the Subsidiaries, none of the Target and the
Subsidiaries controls directly or indirectly or has any direct or
indirect equity participation in any Person.
4.7 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 4.7 are audited (for
the societes anonymes) balance sheets and statements of income
(including the related notes), as of and for the fiscal year December
31, 1998, with respect to the Target and the Subsidiaries as validly
approved by the shareholders of such companies and duly filed with the
appropriate Registries of Commerce and Companies (collectively the
"FINANCIAL STATEMENTS"). The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present truly
and fairly the financial condition, assets and Liabilities, and the
results of operations of the Target and the Subsidiaries for such
periods and are consistent with the books and records of the Target and
the Subsidiaries.
Each transaction of each of the Target and the Subsidiaries is properly
and accurately recorded on the books and records of such company, and
each document (including any contract, invoice or receipt) on which
entries in such company's books and records are based is complete and
accurate in all material respects.
4.8 EVENTS SUBSEQUENT TO DECEMBER 31, 1998. Except as set forth in Section
4.8 of the Disclosure Schedule, since December 31, 1998 and through to
the Closing Date, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or,
in the Sellers' reasonable opinion, future prospects of the Target or
the Subsidiaries. Without limiting the generality of the foregoing,
since December 31, 1998 and through June 30, 1999 (it being understood
that amounts expressed below in French francs refer to amounts on an
annual basis):
4.8.1 none of the Target and the Subsidiaries has sold, leased,
transferred, or assigned, any of its assets, tangible or
intangible, other than for a fair consideration in the
Ordinary Course of Business;
4.8.2 none of the Target and the Subsidiaries has entered into any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving
more than FRF.500,000 or outside the Ordinary Course of
Business;
4.8.3 no party (including any of the Target and the Subsidiaries)
has accelerated, terminated, modified, or canceled any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more
than
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<PAGE> 14
FRF.300,000 to which any of the Target and the Subsidiaries is
a party or by which any of them is bound;
4.8.4 Except as disclosed in Section 4.8.4 of the Disclosure
Schedule [factoring agreement], none of the Target and the
Subsidiaries has imposed any Security Interest upon any of its
assets, tangible or intangible;
4.8.5 none of the Target and the Subsidiaries has made without prior
consultation with the Buyer, any capital expenditure (or
series of related capital expenditures) either involving more
than FRF.300,000 or outside the Ordinary Course of Business;
4.8.6 none of the Target and the Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions) either
involving more than FRF.100,000 or outside the Ordinary
Course of Business;
4.8.7 none of the Target and the Subsidiaries has issued any note,
bond, or other debt security, and none of the Target and the
Subsidiaries has created, incurred, assumed, or guaranteed or
guarantee, any indebtedness for borrowed money or capitalized
lease obligation either involving more than FRF.300,000;
4.8.8 none of the Target and the Subsidiaries has delayed or
postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
4.8.9 none of the Target and the Subsidiaries has canceled,
compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than
FRF.300,000 or outside the Ordinary Course of Business;
4.8.10 none of the Target and the Subsidiaries has granted any
license or sublicense of any rights under or with respect to
any Intellectual Property outside of the Ordinary Course of
Business;
4.8.11 there has been no change made or authorized in the charter or
bylaws of any of the Target and the Subsidiaries;
4.8.12 none of the Target and the Subsidiaries has issued, sold, or
otherwise disposed of any of its capital stock, and none of
the Target and the Subsidiaries has granted any options,
warrants, or other rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital
stock;
4.8.13 Except as disclosed in Section 4.8.13 of the Disclosure
Schedule, none of the Target and the Subsidiaries has
declared, set aside, or paid any dividend, and none of the
Target and the Subsidiaries has made any distribution with
respect to its capital stock (whether in cash or in kind), and
none of the Target and the Subsidiaries has redeemed,
purchased, or otherwise acquired any of its capital stock;
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<PAGE> 15
4.8.14 none of the Target and the Subsidiaries has experienced any
damage, destruction, or loss (whether or not covered by
insurance) to its property of a value in excess of
FRF. 100,000;
4.8.15 none of the Target and the Subsidiaries has made any loan to,
or entered into any other transaction with, any of its
directors, officers, and employees, outside the Ordinary
Course of Business;
4.8.16 none of the Target and the Subsidiaries has entered into any
employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such
contract or agreement, granted any increase in the base or
other compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business, adopted,
amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment
for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other
Employee Benefit Plan), or made any other change in employment
terms for any of its directors, officers, and employees,
outside the Ordinary Course of Business;
4.8.17 none of the Target and the Subsidiaries has made or pledged to
make any capital contribution outside the Ordinary Course of
Business;
4.8.18 none of the Target and the Subsidiaries has changed its
accounting methods, principles, or practices, except as
required by GAAP;
4.8.19 none of the Target and the Subsidiaries has revalued any of
its assets;
4.8.20 there has been no significant adverse change outside the
Ordinary Course of Business in the prices which any of the
Target or the Subsidiaries charges for its products and
services;
4.8.21 none of the Target and the Subsidiaries has committed to any
of the foregoing.
All amounts set forth above are stated on a yearly basis.
4.9 UNDISCLOSED LIABILITIES. None of the Target and the Subsidiaries has
any Liability (and there is no Basis for any present or, to the
Sellers' Knowledge, future action, suit, proceeding, complaint, claim,
or demand against any of them giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Financial Statements
(rather than in any notes thereto) and (ii) Liabilities which have
arisen after December 31, 1998 in the Ordinary Course of Business (none
of which results from or relates to any breach of contract, breach of
warranty, tort, infringement, or violation of Law). No claims will be
made under this Section 4.9 in respect of Liabilities accounted for in
the financial statements prepared for the purposes of Section 2.3.
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4.10 COMPLIANCE WITH LAWS. To the Seller's knowledge, each of the Target,
the Subsidiaries, and their respective predecessors and Affiliates has
complied with all applicable Laws and no action, suit, proceeding,
complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
Particularly, none of the Target and the Subsidiaries is subject to the
obligations imposed by the Data Processing, Data Files and Individual
Liberties Act of 1978 (Loi Informatique et Libertes).
To the Sellers' knowledge, no principal or officer of the Target or the
Subsidiaries has been or is a government official (as hereinafter
defined) or a candidate for political office; and none of the Target,
the Subsidiaries, or the Sellers or, where applicable, Sellers'
officers, in order to assist the Target or the Subsidiaries to obtain
or retain business, has offered, paid, promised to pay, or authorized
the payment of any money or anything of value to a government official,
political party or official thereof, or candidate for political office,
for the purpose of influencing said official to use his influence with
a government or instrumentality thereof to influence any action of such
government or instrumentality. As used in this paragraph, the term
"government official" means any officer or employee of a government or
any department, agency, or instrumentality thereof, or any person
acting in an official capacity for or on behalf of such government or
department, agency, or instrumentality.
4.11 TAX MATTERS. For purposes of this Section 4.11, the term "Target" and
"Subsidiaries" shall include any other company, partnership, or
grouping which has been merged, absorbed, liquidated, within the Target
or the Subsidiaries, or transferred by way of a universal transfer of
assets and Liabilities to or by the Target and/or the Subsidiaries.
4.11.1 RETURNS FILED. Each of the Target and the Subsidiaries has
timeously filed all Tax Returns that it is required to file
and all such Tax Returns were correct and complete in all
respects.
4.11.2 TAXES PAID. All Taxes owed by any of the Target and the
Subsidiaries, either individually or jointly and severally
with any other Person, and whether or not shown on any Tax
Return, have been timeously paid in fall and full provision
has been made for the payment of all Taxes not yet due and
payable which relate to periods on or before the Closing.
There are no Encumbrances on any of the assets of any of the
Target and the Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax.
4.11.3 NO FURTHER ASSESSMENTS. No Seller expects any authority to
assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim
concerning any Liability relating to Taxes of any of the
Target and the Subsidiaries. No Tax Returns of the Target and
the Subsidiaries for any tax period have been or are currently
the subject of a tax audit and no Governmental Body has
contacted the Target or the Subsidiaries regarding such a
prospective tax audit except as set forth in Section 4.11.3 of
the Disclosure Schedules.
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The Buyer acknowledges the existence of a tax reassessment
notified to Groupe Adverbe International SA as disclosed in
Section 4.11.3 of the Disclosure Schedule as well as the
existence of a tax audit performed by the French tax
authorities within AGEDIS the expected consequences of which
are described in Section 4.11.3 of the Disclosure Schedule.
The Buyer agrees to bear the net financial consequences of
these procedures within Groupe Adverbe International and
AGEDIS up to a maximum amount of FRF. 600,000. In addition, as
an exception to Section 2.3, the above net financial
consequences shall not impact the Purchase Price adjustment
nor Deferred Payment to the extent they do not exceed
FRF. 600,000.
None of the Target and the Subsidiaries has taken or omitted
to take any action which has either resulted in the extension
of any statute of limitations for the assessment of any Taxes
or for audit of any Tax Returns for any period ending on or
before the Closing Date or in the deprivation of the benefit
of an accelerated statute of limitation; no deficiency for any
Taxes has been proposed, asserted or assessed which has not
been finally resolved; none of the Target and the Subsidiaries
is aware of any circumstance which could result in any
assertion or assessment of a Tax in a material amount with
respect to any past taxable period; and none of the Target and
the Subsidiaries is aware of any issue concerning the
Liability of the Target or the Subsidiaries for Taxes that by
application of similar principles could result in any
assertion or assessment of a Tax for another taxable period.
4.11.4 NO AFFILIATED GROUP. None of the Target and the Subsidiaries
has ever been a member of or a party to any partnerships,
joint ventures or interest groupings, or tax sharing or tax
allocation agreements under which any of the Target and the
Subsidiaries may be responsible for any tax obligations of any
other Person.
4.11.5 NO AGREEMENTS REGARDING DEFERRALS OF TAXES OR LIABILITIES.
None of the Target and the Subsidiaries has ever made any
commitment or entered into any agreement or taken any action
resulting in tax deferral or in deferred Liability.
4.11.6 NO POST-CLOSING REPORTING OF DEFERRED INCOME BASED ON
PRE-CLOSING MATTERS. None of the Target and the Subsidiaries
has any income reportable for a period ending after the
Closing Date but attributable to a transaction, event or fact
occurring in, or a change in accounting method made for a
period ending on or prior to the Closing Date which resulted
in a deferred reporting of income from such transaction or
from such change in accounting method.
4.11.7 NO ADDITIONAL LIABILITY FOR TAXES. None of the transactions
contemplated by or completed with respect to this Agreement
has or will cause any of the Target and the Subsidiaries to
incur any additional Liability for Taxes as a result thereof.
None of the restructuring operations completed prior to
Closing by any of the Sellers with respect to their
shareholding in the Target and/or the Subsidiaries has
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or will cause any of the Target and the Subsidiaries to incur
any additional Liability for Taxes as a result thereof.
4.12 REAL PROPERTY. Section 4.12 of the Disclosure Schedule lists all real
property that any of the Target and the Subsidiaries owns, leases, or
subleases and indicates the owner, lessor, or sublessor thereof.
Sellers have delivered to Buyer correct and complete copies of the
leases and subleases listed in Section 4.12 of the Disclosure Schedule
(as amended to date). With respect to each lease and sublease listed in
Section 4.12 of the Disclosure Schedule, the lease or sublease is
legal, valid, binding, enforceable, and in full force and effect and,
to the Sellers' knowledge, no party to the lease or sublease is in
breach or default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or permit
termination, modification or acceleration thereunder.
4.13 INTELLECTUAL PROPERTY. Section 4.13 of the Disclosure Schedule sets
forth a list of all registrations of patents and pending applications
therefor, all registrations of trademarks, trade names and service
marks and all pending applications therefor, all registrations of
copyrights and all pending applications therefor (including with
respect to the Callium software) and all licenses, sublicenses or other
agreements with respect to each of the foregoing of either the Target
or the Subsidiaries. To the Sellers' Knowledge, all of the patents,
trademarks, trade names, service marks, copyrights and licenses or
other agreements listed in Section 4.13 of the Disclosure Schedule are
in full force and effect, and either the Target or the Subsidiaries
possesses all right, title, and interest in and to, or valid rights as
a licensee, to or with respect to each such item, free and clear of any
Encumbrance or restriction or rights of any Person, including any
licensee or sublicensee. Neither the Target nor the Subsidiaries are
infringing upon, or otherwise violating, the rights of any third party
with respect to any Intellectual Property, and neither the Target nor
the Subsidiaries have received or have Knowledge of any claim or
allegation that the Target or the Subsidiaries are infringing upon the
Intellectual Property rights of any third party. To the Knowledge of
each of the Sellers, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of the Target or the Subsidiaries.
Except as set forth in Section 4.13 of the Disclosure Schedule, none of
the Target or the Subsidiaries has ever agreed to indemnify any person
or entity for or against any interference, infringements,
misappropriation, or other conflict with respect to its Intellectual
Property.
4.14 TANGIBLE ASSETS. The Target and the Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary
for the conduct of their businesses as presently conducted and as
presently proposed to be conducted. Such assets are free from material
defects, have been maintained in accordance with normal industry
practice, are in good operating condition and repair (subject to normal
wear and tear), and are suitable for the purposes for which they
presently are used. Neither Target nor any Subsidiaries owns or leases
any buildings, machinery, equipment or other tangible asset that is not
presently used in its or their businesses as presently conducted.
4.15 CONTRACTS. Section 4.15 of the Disclosure Schedule lists the following
contracts and other agreements to which any of the Target and the
Subsidiaries is a party:
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4.15.1 any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease
payments in excess of FRF.100,000 per annum;
4.15.2 any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over
a period of more than one year, result in a loss to any of the
Target and the Subsidiaries, or involve consideration in
excess of FRF.500,000 per annum;
4.15.3 any agreement concerning a partnership or joint venture;
4.15.4 any agreement (or group of related agreements) under which the
Target or a Subsidiary has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation;
4.15.5 any agreement concerning confidentiality or non-competition,
other than customer contracts in the Ordinary Course of
Business;
4.15.6 any agreement regarding ownership by any of the Target or the
Subsidiaries of any creations or inventions of any employee or
consultant;
4.15.7 any agreement with any of the Sellers and their Affiliates
(other than the Target and the Subsidiaries);
4.15.8 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan
or arrangement for the benefit of the Target's and the
Subsidiaries' current or former directors, officers, and
employees;
4.15.9 any collective bargaining agreement;
4.15.10 any agreement under which the Target or a Subsidiary has
advanced or loaned any amount to any of its directors,
officers, and employees outside the Ordinary Course of
Business;
4.15.11 any agreement related to any bank account or credit facility,
letter of credit, payment or performance bond, or other surety
relationship, indicating names of signatories, and the amounts
they are authorized to draw;
4.15.12 any agreement to license or sub-license the Registered
Intellectual Property listed in Section 4.13 of the Disclosure
Schedule;
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4.15.13 any agreement under which the consequences of a default or
termination could have an adverse effect on the business,
financial condition, operations, results of operations, or
future prospects of any of the Target and the Subsidiaries; or
4.15.14 any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
FRF.300,000 per annum, other than Customer Contracts in the
Ordinary Course of Business.
The Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in Section 4.15 of the
Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement
referred to in Section 4.15 of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B)
the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby; (C) to the Sellers' knowledge, no party is in breach
or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of
the agreement.
4.16 NOTES AND ACCOUNTS RECEIVABLE. Except as set out in Schedule 4.16, all
notes and accounts receivable of the Target and the Subsidiaries are
reflected properly on their books and records, are valid receivables
subject to no setoffs or counterclaims, and are current. Unprovided or
insufficiently provided bad and doubtful receivables will not exceed
0.5% of the total book value thereof as at September 30, 1999.
4.17 POWERS OF ATTORNEY. Except as set forth in Section 4.17 of the
Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of any of the Target and the Subsidiaries.
4.18 INSURANCE. Section 4.18 of the Disclosure Schedule sets forth a list of
insurance policies under which any of the Target and the Subsidiaries
is a named insured or a beneficiary of coverage. Sellers have provided
the Buyer with copies of all such policies. The Target and the
Subsidiaries have always complied with the terms and conditions of such
insurance policies. With respect to each such policy in effect as of
the date of this Agreement, the continued effectiveness of such policy
after the Closing Date under its current terms will not be affected by
the consummation of the transactions contemplated by this Agreement.
4.19 LITIGATION. Section 4.19 of the Disclosure Schedule sets forth each
instance in which any of the Target and the Subsidiaries (i) is subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or is threatened in writing to be made a
party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasijudicial or administrative agency of
any jurisdiction or before any arbitrator. None of the
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Sellers has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened
against any of the Target and the Subsidiaries.
4.20 PRODUCT WARRANTY. Subject to normal maintenance, each product
manufactured, sold, leased, or delivered by any of the Target and the
Subsidiaries, including, but not limited to the Callium software, has
been in conformity with all applicable contractual commitments and all
express and implied warranties, and none of the Target and the
Subsidiaries has any Liability (and there is no Basis for any present
or future action, suit, proceeding, charge, complaint, claim, or demand
against any of them giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith, in excess of
the reserve for product warranty claims set forth on the face of the
Financial Statements (rather than in any notes thereto) as adjusted for
the passage of time through the Closing Date in accordance with the
past custom and practice of the Target and the Subsidiaries. None of
the Sellers and the directors and officers (and employees with
responsibility for litigation matters) of the Target and the
Subsidiaries has any Knowledge of any defects in the products and parts
sold by the Target or the Subsidiaries or the failure of any such
products and parts to satisfy the warranty applicable to their sale. No
product manufactured, sold, leased, or delivered by any of the Target
and the Subsidiaries is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale
or lease used by the Target and the Subsidiaries in their businesses.
Section 4.20 of the Disclosure Schedule includes copies of the standard
terms and conditions of sale or lease for each of the Target and the
Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions).
4.21 PRODUCT LIABILITY. None of the Target and the Subsidiaries has any
Liability (and there is no Basis for any present or future action,
suit, proceeding, charge, complaint, claim, or demand against any of
them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or
use of any product manufactured, sold, leased, or delivered by any of
the Target and the Subsidiaries, including, but not limited to the
Callium software.
4.22 EMPLOYEES, EMPLOYEE BENEFITS. EMPLOYMENT CONTRACTS.
4.22.1 Except as disclosed on Section 4.22.1 of the Disclosure
Schedule, none of the Target and the Subsidiaries maintains or
is required to make contributions to any pension, profit
sharing, supplementary pension, or other retirement plan,
employee share ownership plan, bonus or other incentive plan,
termination or retirement indemnity plan, health or group
insurance plan, supplementary sickness or disability benefit
plan, supplementary death benefit plan, or similar plan
agreement, policy, arrangement, program or understanding
("EMPLOYEE BENEFIT PLAN"). The Target and the Subsidiaries
have made all required contributions under their respective
Employee Benefit Plans and paid all premium amounts payable
for all periods through and including the Closing Date, and
adequate provisions have been made therefor in the Financial
Statements. The Target and the Subsidiaries have made all
required contributions under the social security regimes
applicable to their businesses.
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4.22.2 Section 4.22.2 of the Disclosure Schedule contains (i) a true
and complete list of the following information for each
employee of the Target and the Subsidiaries, except the
telephone sales representatives: employer, name, job title,
hiring date and current compensation paid; and (ii) a
description of any employment contract which may be terminated
only by giving more than the minimum notice provided for under
French Law or the applicable bargaining agreement or upon
payment of compensation in excess of that provided for by Law
or the applicable collective bargaining agreement. All
employees of the Target and the Subsidiaries have been
provided with payslips in accordance with applicable Law. None
of the employees, except TSR, of the Target and the
Subsidiaries has been the subject of any change to, or action
in connection with, his or her employment contract which will
trigger any liability for constructive dismissals.
4.22.3 Any collective labor agreement applicable to the Target or the
Subsidiaries is stated in Section 4.22.3 of the Disclosure
Schedule. Each of the Target and the Subsidiaries is in
compliance with all applicable Laws with respect to employment
and employment practices and terms and conditions of
employment, including wages and hours.
4.22.4 There is currently no fixed term employment that may be
converted into an employment of indefinite duration, except as
set forth in Section 4.22.4 of the Disclosure Schedule.
4.22.5 To the Knowledge of any of the Sellers, no executive, key
employee, or group of employees has any plans to terminate
employment with any of the Target and the Subsidiaries. None
of the Target and the Subsidiaries has committed at any
material time any discriminatory labor practice.
4.22.6 The Target and the Subsidiaries have always complied with
employees' representation legal requirements.
4.23 GUARANTIES. None of the Target and the Subsidiaries is a guarantor or
otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
4.24 CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET AND THE SUBSIDIARIES.
Except with respect to their Current Accounts and as set out in
Schedule 4.24, none of the Sellers or their Affiliates has been
involved in any business arrangement or relationship with any of the
Target and the Subsidiaries within the past 12 months, and none of the
Sellers or their Affiliates owns, leases or licenses any asset,
tangible or intangible, that is used in the business of any of the
Target and the Subsidiaries.
4.25 ENVIRONMENT, HEALTH AND SAFETY. Each of the Target and of the
Subsidiaries, has complied with all environmental, health and safety
Laws, and no action, suit, proceeding,
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claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
4.26 YEAR 2000 COMPLIANCE. All products manufactured, sold, leased or
delivered by any of the Target and the Subsidiaries, including, but not
limited to the Callium software, (the "PRODUCTS") and all software used
by any of them, including, but not limited to the Callium software,
(the "SOFTWARE") are designed to be used prior to, during, and after
the calendar year 2000 A.D. ("YEAR 2000"), and such Products and
Software will operate during each such time period without error
relating to date data, including, but not limited to, any error
relating to, or product of, date data which represent or reference
different centuries or more than one century. Without limiting the
generality of this Section 4.26, the Sellers further represent and
warrant that: (i) the Products and the Software will not abnormally end
or provide invalid or incorrect results as a result of any such date
data, specifically including date data which represents or references
different centuries or more than one century; (ii) the Products and the
Software have been designed to ensure Year 2000 compatibility,
including, but not limited to, date data recognition, calculations that
accommodate same century and multi-century formulas and data values,
and date data interface values that reflect the century; and (iii) the
Products and the Software include "Year 2000 Capabilities". For
purposes of this Section 4.26, the term "Year 2000 Capabilities" means
that the Products and the Software: (i) will manage and manipulate data
involving dates, including single century formulas and multi-century
formulas, and will not malfunction, cause any program or application to
abnormally end, or generate incorrect values or invalid results
involving such dates; (ii) will provide that all date-related user
interface functionalities and data fields include the proper indication
of the century; and (iii) will provide that all date-related data
interface functionalities include the proper indication of the century.
4.27 EURO COMPLIANCE. As from January 1, 1999, the Software shall recognize
and be capable of managing the symbol and codes for the Euro. During
the Euro transitional period, the Products and Software shall permit
the operation of all transactions employing any one of the former
national currencies of one of the member countries participating in the
Economic and Monetary Union ("EMU"), either in said former national
currency or in Euros. The conversion method used for the above purposes
shall comply with the regulations issued by the EMU.
Upon the expiration of the Euro transition period, the Products and the
Software shall be capable of operating exclusively in Euros all
transactions employing data expressed in any one of the former
currencies of one of the member countries of the EMU.
4.28 MERGER BETWEEN THE TARGET, FRAMAR INVESTISSEMENTS AND L&L CAPITAL. The
merger between the Target, Framar Investissements and L&L Capital was
conducted in compliance with all applicable Laws, including with
respect to Taxes, and was fully effective and finally completed on June
10, 1999. There is no pending formalities remaining to be completed in
connection therewith.
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4.29 RESTRUCTURING OF THE SHAREHOLDING OF FRANCK AND LAURENT LOUBARESSE IN
THE TARGET PRIOR TO CLOSING. The restructuring implemented by Franck
and Laurent Loubaresse with respect to their shareholding in the Target
prior to Closing, including, but not limited to, the contribution of
25.3% of the Shares to ONLINE SERVICES, was conducted in compliance
with all applicable Laws, including with respect to Taxes, and shall
not adversely affect the Buyer, the Target or the Subsidiaries.
4.30 MAINTENANCE OF BUSINESS. To Sellers' Knowledge, none of the material
customers of any of the Target and the Subsidiaries intends to cease
doing business with any of such companies or to reduce materially the
amount of the business that such customer is presently doing with any
of such companies.
4.31 DISCLOSURE. There is no fact currently known to the Sellers, or to any
of the Target and the Subsidiaries, which materially adversely affects
or in the future would (so far as now can be reasonably foreseen)
materially adversely affect any of the Target and the Subsidiaries, its
financial condition or business which has not been set forth in this
Agreement or the Disclosure Schedule hereto. The Sellers are not aware
of any items contained in the executive summaries of the due diligence
reports or the Data Room Index incorporated in the Disclosure Schedule
that should be separately disclosed on the Disclosure Schedule in the
absence of the executive summaries of the due diligence reports and
Data Room Index.
5. POST-CLOSING COVENANTS. The Parties agree to take the actions or, as
appropriate, forebear taking those actions, set forth in the following
paragraphs of this article 5 with respect to the period following the Closing.
5.1 GENERAL. In case at any time after the Closing any further
action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action
(including the execution and delivery of such further
instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to
indemnification therefor under article 7 below). The Sellers
acknowledge and agree that from and after the Closing, the
Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data
of any sort relating to the Target and the Subsidiaries.
5.2 TRANSITION. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business
associate of any of the Target and the Subsidiaries from
maintaining the same business relationships with the Target and
the Subsidiaries after the Closing as it maintained with the
Target and the Subsidiaries prior to the Closing. Each of the
Sellers will refer all customer inquiries relating to the
businesses of the Target and the Subsidiaries to the Buyer from
and after the Closing.
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5.3 CONFIDENTIALITY. Each of the Sellers will treat and hold as such all of
the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the request and option of
the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in the Seller's possession.
5.4 COVENANT NOT TO COMPETE. For a period of two (2) years from and after
the date the Sellers individually cease association with any of the
Target, the Subsidiaries, the Buyer, or the successors to or Affiliates
of any of them, none of the Sellers will (and the Sellers will cause
their Affiliates not to) engage directly or indirectly in any business
that any of companies in the Group conducts as of the Closing Date in
any geographic area in which any of the Target and the Subsidiaries
conducts that business as of the Closing Date, except for services
provided to the companies in the Group; provided, however, that (i)
ownership of less than 1% of the outstanding stock of any publicly
traded corporation or (ii) ownership of less than 34% (in aggregate
amongst all of the Sellers) of the voting rights of any internet
companies in which the Sellers will play a passive role, shall not be
deemed to engage solely by reason thereof in any of its businesses. If
the final judgment of a court of competent jurisdiction declares that
any term or provision of this Section 5.4 is invalid or unenforceable,
the Parties agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration,
or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest
to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified.
5.5 NON-SOLICITATION. For a period of two (2) years from and after the
Closing Date, the Sellers shall not (and the Sellers shall cause their
Affiliates not to) directly or indirectly solicit (i) for employment
the employees and (ii) the customers, of either the Target or the
Subsidiaries without the prior written consent of the Buyer.
5.6 APPOINTMENT OF FRANCK LOUBARESSE AS REPRESENTATIVE OF THE TARGET AND
THE SUBSIDIARIES. Immediately after Closing, the Buyer shall procure
that Franck Loubaresse be appointed as chairman of the board of
directors of the Target, H2M and PhoneCom and as co-manager of Agedis
and Consulte. Franck Loubaresse undertakes not to resign from such
functions until December 31, 1999. The Buyer shall cause the Target and
the Subsidiaries not to dismiss Franck Loubaresse from his functions
until December 31, 1999, except in case of Bad Leaver.
5.7 ACQUISITION OF THE MINORITY SHAREHOLDINGS IN AGEDIS BY THE BUYER. The
Sellers shall use their best efforts to procure that within six months
from the Closing, the minority shareholders in AGEDIS sell their shares
in such companies to the Target for a total aggregate purchase price
not to exceed FRF. 150,000. The Sellers shall hold the Buyer and its
Affiliates harmless from and against any Adverse Consequences arising
out of the acquisition of such shares.
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5.8 YEAR 2000 COMPLIANCE. The Sellers shall use their utmost efforts,
particularly in their capacity as managers of the Target and the
Subsidiaries, to ensure that all products manufactured, sold or leased
by the Target and the Subsidiaries be Year 2000 compliant by December
31, 1999. In accordance with the Deferred Payment provisions set forth
in article 2.4 above, all expenses required in connection with the Year
2000 compliance shall proportionately reduce the amount of the Deferred
Payment.
5.9 STOCK OPTIONS. The Sellers shall use their best efforts to cause the
employees of the Group holding stock options of the Target on the
Closing Date to waive said stock options in exchange for stock options
of Client Logic.
5.10 ONLINE SERVICES. The Sellers (other than Online Services) undertake for
a period of three years from Closing or for so long as any warranty
claim hereunder shall remain unresolved (if longer) not to reduce their
holdings (in aggregate) in Online Services below fifty percent plus one
share, nor to place Online Services into liquidation or dissolution
other than by reason of its insolvency nor to sell any of the assets of
Online Services other than on an arm's length basis.
6. CLOSING
The following actions shall take place on Closing:
6.1 The Sellers shall deliver to the Buyer:
6.1.1 duly executed share transfer forms (ordres de mouvement) in
respect of the Shares and such other instruments of transfer
as are requested by the Buyer to vest in the Buyer good title
to the Shares and the stock of the Subsidiaries;
6.1.2 a certified copy of the minutes of the board of directors of
the Target approving the Buyer (and its nominees) as new
shareholder(s);
6.1.3 a certified copy of the minutes of the board of directors of
each of the Target and the Subsidiaries having validly decided
to convene an ordinary general meeting of the shareholders of
each of the Target and the Subsidiaries respectively, to be
held shortly after the Closing Date (but after the transfer of
the Shares) in order to appoint the new directors and
managers, where applicable, of each of the Target and the
Subsidiaries;
6.1.4 written evidence that the workers' council's representative
has been validly convened to attend the board of directors
meeting of Phone Communication SA to be held shortly after the
Closing Date for the purpose of appointing the new chairman of
the board of directors of Phone Communication SA.
6.1.5 copies of any powers of attorney necessary to complete the
transactions contemplated by this Agreement;
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6.1.6 written evidence that the workers' council of Phone
Communication SA has been validly consulted as required under
French Law regarding the transactions contemplated in this
Agreement;
6.1.7 the Buyer shall have received the resignations, effective as
of the date of replacement, of each director and manager of
the Target and the Subsidiaries, where applicable, and
containing a waiver of any and all claims such persons may
have against the Target or the Subsidiaries for loss of
office, fees, compensation or otherwise and/or an
acknowledgment that no such claims exist, such resignations to
be effective as of the Closing Date;
6.1.8 the Buyer shall have received copy of a letter requesting the
resignation of the statutory auditors of each of the Target
and the Subsidiaries effective as of the general shareholders
meeting to be held in 2000 for the approval of the financial
statements for fiscal year 1999;
6.1.9 Mr. Laurent Loubaresse and Mr. Jacques Loubaresse shall have
entered into employment agreements with the Target;
6.1.10 all Current Accounts shall have been paid by the Target and
the Subsidiaries to the obligees on such accounts; and
6.1.11 an agreement for the transfer of the "Consulte" trademark by
Jacques Loubaresse to the Taraet.
6.2 The Buyer shall deliver to Sellers:
6.2.1 copy of the wire transfer instructions concerning the relevant
part of Purchase Price as provided in Section 2.2;
6.2.2 a certified copy of the minutes of the Buyer's board of
directors meeting having approved the transactions
contemplated by this Agreement and giving powers to the
signatory of this Agreement on behalf of the Buyer so to sign;
6.2.3 certificates in respect the Common Stock as provided in
Section 2.2 (effective delivery shall occur within five
business days as from the Closing Date);
6.2.4 an on demand bank guarantee of up to FRF 10,000,000 issued by
Bank of Scotland;
6.2.5 a legal opinion issued by the law firm of Weil, Gotshal &
Manges LLP regarding the issuance of the Common Stocks
relative to the present transaction.
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7. REMEDIES FOR BREACHES OF THIS AGREEMENT
7.1 SURVIVAL. All of the representations and warranties of the Parties
contained in this Agreement shall survive the Closing hereunder and
continue in full force and effect forever thereafter for three (3)
years after the Closing, except for representations and warranties with
respect to Taxes, which will continue in full force and effect until
the expiration of the applicable statutes of limitations for the
underlying claim(s). All covenants of the Parties contained in this
Agreement shall survive the Closing and continue thereafter until the
expiration of the applicable statute of limitations, other than any
covenant which by its express term terminates sooner.
7.2 SELLERS' AGENT. Mr. Franck Loubaresse, Mr. Laurent Loubaresse, and Mr.
Jacques Loubaresse hereby appoint ONLINE SERVICES, which shall be
represented by Mr. Franck Loubaresse to act as their representative
("Sellers' Agent") for the purpose of this Section 7, and each of the
Sellers renounces his/her rights to intervene in the procedure set out
in this section. ONLINE SERVICES and Mr. Franck Loubaresse hereby
accept this appointment. The Sellers' Agent shall act as the sole
representative to receive notices from the Buyer and to coordinate the
Sellers' joint defense and any other actions hereunder.
7.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
7.3.1 If any of the Sellers breaches any of their representations,
warranties, and covenants contained herein, and Buyer makes a
written claim for indemnification against any of the Sellers,
by providing written notice thereof to Sellers' Agent, within
the survival period, then each of the Sellers will defend,
indemnify (subject to the provisions of article 7.7) and hold
the Buyer harmless from and against the entirety of any
Adverse Consequences that the Buyer may suffer through and
after the date of the claim for indemnification (including any
Adverse Consequences that the Buyer may suffer after the end
of any applicable survival period) resulting from, arising out
of, relating to, in the nature of, or caused by the breach.
7.3.2 Subject to the provisions of article 7.7, each of the Sellers
will defend, indemnify and hold harmless the Buyer from and
against the entirety of any Adverse Consequences it may suffer
resulting from, arising out of, relating to, in the nature of,
or caused by any Liability of any of the Target and the
Subsidiaries for the unpaid Taxes of any Person (other than
any of the Target and the Subsidiaries), as a transferee or
successor, by contract, or operation of Law.
7.3.3 Subject to the provisions of article 7.7, and notwithstanding
any disclosure made to the Buyer, including the disclosures
made in the Disclosure Schedule, each of the Sellers will
indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer resulting from,
arising out of, or relating to all Liabilities of the Target
and the Subsidiaries arising out of any Liability arising
from the failure to comply with applicable Laws with respect
to (i) the
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<PAGE> 29
merger between the Target, Framar Investissements and L&L
Capital and (ii) the restructuring implemented by Franck and
Laurent Loubaresse with respect to their shareholding in the
Target prior to Closing, including, but not limited to, the
contribution of 25.3% of the Shares to ONLINE SERVICES.
7.3.4 Subject to the other provisions of article 7.7, each of the
Parties will indemnify the other from and against the entirety
of any Adverse Consequences such other may suffer resulting
from, arising out of, or relating to any breach by the first
party of a covenant of this Agreement or any ancillary
agreement referenced herein.
7.3.5 The ability of the Buyer to seek indemnity pursuant to Section
7.3.1 shall not preclude the Buyer from asserting its claim
pursuant to Sections 7.3.2, 7.3.3 and 7.3.4 but no claim shall
give rise to double indemnification.
7.4 INDEMNIFICATION PROCEDURE
7.4.1 If any third party shall notify the Target, a Subsidiary, the
Buyer or any of their Affiliates with respect to any matter (a
"Claim") which may give rise to a claim for indemnification
against any Seller under this Section 7, the Buyer shall
promptly notify the Sellers' Agent thereof in writing. No
delay on the part of the Buyer in notifying the Sellers' Agent
shall relieve the Sellers from any obligation hereunder unless
(and then solely to the extent) the Sellers are materially
prejudiced by the delay. All Claims relating to Taxes shall be
notified to the Sellers within fifteen (15) days from receipt
of the notice; provided, however, that no delay on the part of
the Buyer in notifying the Sellers' Agent shall relieve the
Sellers from any obligation hereunder unless (and then solely
to the extent) the Sellers thereby are materially prejudiced.
7.4.2 The Buyer shall take or cause the Target or a company in the
Group to take all such reasonable steps or proceedings as it
may consider necessary to avoid, resist, defend, appeal or
compromise any Claim other than a Claim conducted by Sellers
as described in Section 7.4.3 below. Neither the Buyer nor the
Target will enter into any settlement with respect to a Claim
other than a claim described in Section 7.4.3 without the
prior written consent of the Sellers' Agent (not to be
withheld or delayed unreasonably).
7.4.3 The Sellers' Agent will have the right to defend the Target
against any Claim with its counsel so long as the Sellers'
Agent so notifies the Buyer in writing within 15 days after
the Buyer has given notice of the Claim.
In such event the Buyer shall ensure that the Target and the
Subsidiaries shall at all reasonable times on reasonable
notice allow the Sellers and their authorized representatives
access to inspect and to take copies of such documents and
records of the Target and the Subsidiaries which are relevant
to the Claim subject
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<PAGE> 30
always to keeping the same confidential other than necessary
disclosures in connection with such Claim.
For the avoidance of doubt, the Sellers shall be entitled to
participate in any inquiry or verification by any tax, social
security or customs authority whether or not the same gives
rise to any actual Claim and any such inquiry or verification
shall be notified to the Sellers for such purposes as soon as
reasonably practicable.
7.4.4 The Seller's Agent will not enter into any settlement with
respect to a Claim referred to in Section 7.4.3 above without
the prior written consent of the Buyer (not to be withheld or
delayed unreasonably).
7.4.5 However, if the Sellers' Agent notifies the Buyer that it
decides not to defend the Claim referred to in Section 7.4.3
above, the Buyer or the Group will not enter into any
settlement with respect to the Claim without the prior written
consent of the Sellers' Agent (not to be unreasonably withheld
or delayed). Subject to the limitations set forth in Section
7.6 below, the Sellers will not be released from any Liability
for any Adverse Consequences the Buyer or the Target may
suffer resulting from, arising out of, relating to, or caused
by the Claim.
7.4.6 In case of a Claim related to Taxes and/or social security
being pending or occurring after the Deferred Payment Date,
the Deferred Payment shall nonetheless be paid and the Sellers
shall provide, upon demand of the Buyer and within 30 days of
such demand, an on-demand bank guarantee or a security up to
the amount of such Claim in order to secure indemnification
thereunder only if such bank guarantee or security is
requested by the French tax or social security administration.
This bank guarantee or security shall be in a form acceptable
to the French tax or social security administration and the
costs relating to the issuance of this bank guarantee or
security shall be borne by the Sellers.
In case of a Claim other than a Claim related to Taxes and/or
social security being pending at the Deferred Payment Date,
the Buyer shall nonetheless pay the Deferred Payment less the
corresponding amount of the Claim (less the amount of any Tax
savings realized by the Target or the Subsidiaries as a result
of the Tax deductibility of the relevant Claim), but not
exceed the amount of the Deferred Payment, which the Buyer
shall put into escrow at the time of payment of the Deferred
Payment until the resolution of such Claim. The escrow
agreement shall be substantially in the form of the document
attached as EXHIBIT 7.4.6 hereto.
7.5 OTHER INDEMNIFICATION PROVISIONS. Each of the Sellers hereby agrees
that he will not make any claim for indemnification against any of the
Target and the Subsidiaries by reason of the fact that he was a
director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, director, officer,
employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines,
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costs, amounts paid in settlement, losses, expenses, or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
7.6 LIMITATIONS ON INDEMNIFICATION.
7.6.1 Notwithstanding anything to the contrary in this Section 7, no
claim by the Buyer against the Sellers for indemnification
arising under this Agreement shall be valid and assertible
unless and until such time, if any, as the aggregate Adverse
Consequences in respect of any individual event or occurrence
giving rise to such Adverse Consequences suffered by the
Buyer, the Target, or any of their Affiliates or to which any
of them becomes subject, the after tax effect of which shall
exceed one hundred thousand French Francs (FRF. 100,000)
("DEDUCTIBLE"). Furthermore, the first claim by the Buyer for
indemnification arising hereunder shall not be made until the
aggregate amount of all such valid and assertible claims
exceeds the amount of five hundred thousand French Francs
(FRF. 500,000) (the "BASKET"). In such event, the Buyer shall
be entitled to assert claims only for amounts in excess of the
Basket.
Notwithstanding anything to the contrary contained in this
Section 7, any Adverse Consequences suffered by the Buyer or
the Target arising out of or in connection with (i) VAT,
business tax (taxe professionnelle) or (ii) Section 7.3.3,
shall not be subject to the Deductible and Basket
requirements.
7.6.2 The Sellers' maximum liability for all Adverse Consequences
under Section 7 shall not exceed the amount of the Purchase
Price actually paid in cash and Common Stock.
Claims based on proven fraud or deceit or intentional
wrongdoing (dol) on the part of Sellers shall be excluded from
the foregoing limitation of liability and Sellers will be
liable for all Adverse Consequences with respect to such
claims.
7.6.3 Any amount due by the Sellers with respect to any claim will
be reduced by any amount received from a third party with
respect to such claim. If the amount due by the Sellers has
already been paid to the Buyer, the Buyer shall repay to the
Sellers the lesser of the amount so recovered from the third
party or the indemnification made.
Any indemnification due by the Sellers hereunder shall be
calculated taking into account the effect of any Tax savings
realized by the Target or the Subsidiaries as a result of the
Tax deductibility of the relevant Adverse Consequence.
In addition, any claim related to Taxes which merely
constitutes a timing difference in the deductibility of the
corresponding charge (reintegration of
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<PAGE> 32
depreciation, reintegration of reserves, etc.) shall only be
taken into account to the extent of the costs of any
surcharges, penalties, late payment interest or fines.
The Buyer shall use its best efforts to ensure that the Group
takes reasonable steps to pursue any claim against a third
party arising out of the same fact, matter or thing as may
give rise to a claim against the Sellers hereunder provided
that such steps are in the Group's best interests.
7.7 PAYMENT OF INDEMNIFICATION
Indemnification under this Article 7 with respect to any claim
concerning an Adverse Consequence shall be payable upon (a) actual
payment by the Buyer and/or the Group of any amount in relation with
such Adverse Consequence provided it relates to a third party claim and
not to a direct claim between the Parties, (b) the resolution of the
claim by mutual agreement between the Seller and the Buyer, or (c) the
issuance of an order from a governmental entity (including any State
authority or administrative agency or commission or other Government
Body) or an enforceable (executoire) judgment, award, order or other
ruling by a court or arbitral tribunal having jurisdiction over the
parties and the subject matter of such claim.
Any payment by way of indemnification made hereunder by the Sellers
shall be made to the Buyer and treated as a reduction of the Purchase
Price.
7.8 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. Subject to the
limitations set forth in this Section 7.8, if the Buyer breaches (or if
any third party alleges facts that, if true, would mean the Buyer has
breached) any of its representations, warranties, and covenants
contained herein, and any of the Sellers makes a written claim for
indemnification against the Buyer within the Survival Period, then the
Buyer will defend, indemnify and hold harmless each of the Sellers from
and against the entirety of any Adverse Consequences such Seller may
suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, or caused by the breach.
The Buyer's maximum liability for all Adverse Consequences under this
Section 7 shall not exceed the amount of the Purchase Price, actually
paid in cash and Common Stock.
7.9 LITIGATION SUPPORT. In the event and for so long as any Party is
actively contesting or defending any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving the Target or a Subsidiary, each
of the other Parties will cooperate with the contesting or defending
Party and its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled
to indemnification therefor under this Section 7).
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<PAGE> 33
7.10 The Sellers shall be under no liability in respect of any claim
hereunder to the extent to which:
(1) the same occurs or arises as a result of a wrongful
intentional act after the date hereof of the Buyer, which the
Buyer knew would give rise to the liability unless such
wrongful intentional act occurred:
(i) pursuant to an obligation of one of the Target or
Subsidiaries incurred prior to the date hereof; or
(ii) in compliance with any law, regulation or requirement
of any competent authority; or
(iii) with the agreement or at the request of all of the
Sellers;
(2) the same occurs or arises as a result of any legislation not
in force at the date hereof of as a result of any change in
legislation after the date hereof; or
(3) the subject matter thereof is the subject of a provision or
reserve in the Closing Date Financial Statement to the extent
of such provision.
8. MISCELLANEOUS
8.1 NATURE OF OBLIGATIONS. The representations, warranties, and covenants
of Sellers in this Agreement are joint and several obligations, the
liability of each Seller being nonetheless limited individually to the
amount of the Purchase Price actually received by the relevant Seller.
Subject to this limit and to the aggregate limits provided in article 7
above, each Seller will be responsible for the entirety of any Adverse
Consequences the Buyer may suffer as a result of any breach of the
above representations, warranties, and covenants.
8.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. The Parties shall coordinate
their actions regarding any such press release or public announcement,
and such release shall not include any reference to the Purchase Price.
8.3 ENTIRE AGREEMENT. This Agreement (including all Exhibits, certificates,
Schedules and ancillary agreements attached hereto or referred to
herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by
or among the Parties, written or oral, to the extent they relate in any
way to the subject matter hereof.
8.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and its respective successors and
assigns. This Agreement or any part hereof may not be assigned by any
party without the prior written consent of the other parties hereto,
except that Buyer may without increasing the liability of the Sellers
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<PAGE> 34
hereunder (i) assign its rights and obligations to any affiliate of
Client Logic or Buyer or (ii) make a collateral assignment of its
rights under this Agreement to any lender who provides funds to Client
Logic or Buyer for the acquisition of the Target without the written
consent of the Sellers; provided that any such assignment shall not
relieve Buyer from its obligations hereunder. The Sellers shall execute
acknowledgements of such assignment(s) and collateral assignments in
such forms as Buyer or Client Logic's or Buyer's lender(s) may from
time to time reasonably request.
8.5 LANGUAGE OF AGREEMENT; COUNTERPARTS.
8.5.1 This Agreement, excepting Disclosure Schedules, shall be
executed in English.
8.5.2 This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed given
(i) when delivered by hand, (ii) when transmitted by facsimile
transmission with confirmation of receipt (including a message
generated by the sender equipment) (provided the notice, request,
demand, claim or other communication is also sent by overnight courier
for next day delivery), or (iii) after one business day when sent by
overnight courier for next day delivery, to the addressee at the
following address or fax number, as applicable, or to such other
addressee or fax number as a Party may specify from time to time by
notice hereunder:
IF TO THE SELLERS: Franck Loubaresse
17 rue des Perchamps
75016 Paris
France
COPY TO: Hausmann & Associes
45, rue de Courcelles
75008 Paris
Attention: Philippe Torre
Facsimile: 01 53 83 74 01
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<PAGE> 35
IF TO THE BUYER: ClientLogic International Holding, Inc.
699 Herteol Avenue
Buffalo, New York 14207
Attention: Steve Kawalick
Facsimile: (716) 871 2175
COPY TO: Weil Gotshal & Manges
100 Crescent Court
Suite 1300
Dallas, Texas 75201
USA
Attention: Mary Korby
Facsimile (214) 746 7777
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic Laws of the Republic of France.
8.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement, shall be valid unless the same shall be in writing and
signed by the Buyer and the Sellers. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty
or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
8.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
8.11 EXPENSES. Each of the Parties, the Target, and the Subsidiaries will
bear his, her or its own costs and expenses (including all fees and
expenses of his, her or its attorneys, consultants, investment brokers,
accountants, advisors or other agents or representatives) incurred in
connection with this Agreement and the transactions contemplated
hereby. Save as referred to in Section 2.4, the Sellers agree that none
of the Target and the Subsidiaries has borne or will bear any of the
Sellers' costs and expenses (including fees and expenses of the
Sellers' attorneys, consultants, investment brokers, accountants or
other advisers) related to the negotiation and execution of this
Agreement.
8.12 INCORPORATION OF EXHIBITS, CERTIFICATES, AND SCHEDULES. The Exhibits,
Certificates and Schedules identified in this Agreement, including any
ancillary agreements referred to herein, are incorporated herein by
reference and made a part hereof.
8.13 TRANSFER TAXES. All transfer, registration, recording, conveyancing,
notarial and other such Taxes, duties, costs and expenses (including
any penalties and interest) incurred in France in connection with this
Agreement and the transactions contemplated hereby and
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thereby, shall be borne by the Sellers, except for the registration tax
(droit d'enregistrement et de timbre) related to this Agreement which
shall be borne by the Purchaser. The Buyer and the Sellers shall
cooperate in the filing of all necessary Tax Returns and other returns
and other documentation with respect to all such Taxes, duties, costs
and expenses. The Buyer and the Sellers will each join in the execution
of any such Tax Returns and other documentation. For the purpose of
registration formalities, the Parties hereby agree to sign on the
Closing Date, and without the validity of this Agreement being affected
thereby in any way, a short form deed. In case of inconsistency, the
present Agreement shall prevail over the short form deed.
9. DISPUTE RESOLUTION.
9.1 Except as provided in Section 2.3, in the event of a dispute between
the Buyer on the one hand and Sellers on the other hand with respect to
the validity, intent, interpretation, performance, enforcement or
arbitrability of any of the terms contained in this Agreement, or any
claim arising out of or in connection with this Agreement, the matter
shall be submitted for final resolution to an international arbitration
panel consisting of three (3) arbitrators selected as follows: The
Buyer shall select one arbitrator; and the Sellers collectively shall
select one arbitrator, and the two arbitrators so appointed shall
select a third arbitrator. The third arbitrator shall be the presiding
arbitrator. In the event either the Sellers or the Buyer shall have
failed to select an arbitrator within fifteen (15) days after either
Sellers or the Buyer has selected its arbitrator or the two arbitrators
so selected shall fail to agree on a third arbitrator, such arbitrator
shall be selected by the International Chamber of Commerce as
appointing authority.
9.2 The place of arbitration shall be Paris, France. All arbitrators shall
be fluent in both the English and French languages and their award
shall be rendered in English. The English or French language may be
used in all documents, briefs, evidence and any other writings
submitted to the arbitration panel. All arbitration proceedings shall
be conducted in English.
9.3 The arbitration procedure set forth in this article 9 shall be the sole
and exclusive means of settling or resolving any dispute referred to in
this article 9. The arbitration shall be conducted in accordance with
French law.
9.4 The award of the arbitrators shall be final and binding on the Parties
and may be presented by any of the Parties for enforcement in any court
of competent jurisdiction and the Parties hereby consent to the
jurisdiction of such court solely for purposes of enforcement of this
arbitration agreement and any award rendered hereunder. In any such
enforcement action, irrespective of where it is brought, none of the
Parties will seek to invalidate or modify the decision of the
arbitrators or otherwise to invalidate or circumvent the procedures set
forth in this article 9 as the sole and exclusive means of settling or
resolving such dispute. The fees of the arbitrators and the other costs
of such arbitration shall be borne by the Parties in such proportions
as shall be specified in the arbitration award.
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9.5 Nothing contained in this article 9 shall prevent a Party from seeking
temporary injunctive relief from any judicial or administrative
authority pending the resolution of a controversy or claim by
arbitration.
The Parties hereto have executed this Agreement on the date first above written.
THE BUYER THE SELLERS
CLIENTLOGIC INTERNATIONAL MR. FRANCK LOUBARESSE
HOLDING, INC.
/s/ STEVE KAWALICK /s/ FRANCK LOUBARESSE
- ----------------------------------- -----------------------------
By: Steve Kawalick
Title: President
MR. LAURENT LOUBARESSE
/s/ LAURENT LOUBARESSE
-----------------------------
MR. JACQUES LOUBARESSE
/s/ JACQUES LOUBARESSE
-----------------------------
ONLINE SERVICES
/s/ FRANCK LOUBARESSE
-----------------------------
By: Franck Loubaresse
Title: Manager
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<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
AMONG
CLIENTLOGIC HOLDING CORPORATION,
MARKETVISION, INC.,
JOSEPH L. TEMPLE, JR.
AND
S. DIANNE THOMPSON
DECEMBER 6, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE ACQUISITION...................................................................1
1.1 Purchase and Sale of Shares...........................................................1
1.2 Consideration for the Shares..........................................................1
1.3 Closing...............................................................................2
1.4 Delivery and Payment..................................................................2
1.5 Adjustment of the Unadjusted Cash Consideration.......................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY..............................4
2.1 Organization, Qualification and Corporate Power.......................................4
2.2 Capitalization........................................................................4
2.3 Authorization of Transaction..........................................................4
2.4 Noncontravention......................................................................5
2.5 Subsidiaries..........................................................................5
2.6 Financial Statements..................................................................6
2.7 Accounts Receivable...................................................................6
2.8 Projections...........................................................................6
2.9 Absence of Certain Changes............................................................6
2.10 Undisclosed Liabilities...............................................................8
2.11 Customers and Suppliers...............................................................8
2.12 Taxes.................................................................................8
2.13 Real Property........................................................................10
2.14 Tangible Personal Property...........................................................11
2.15 Intellectual Property................................................................12
2.16 Year 2000 Compliance.................................................................13
2.17 Contracts............................................................................13
2.18 Insurance............................................................................14
2.19 Litigation...........................................................................15
2.20 Labor Matters........................................................................15
2.21 Employee Benefits....................................................................15
2.22 Environmental Matters................................................................16
2.23 Legal Compliance.....................................................................16
2.24 Permits..............................................................................17
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2.25 Brokers' Fees........................................................................17
2.26 Disclosure...........................................................................17
2.27 Change of Control Payments...........................................................17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...............................18
3.1 Title to Shares......................................................................18
3.2 Authority; Absence of Conflicts......................................................18
3.3 Brokers and Finders..................................................................18
3.4 Intellectual Property................................................................19
3.5 Personal Assets......................................................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..........................................19
4.1 Organization.........................................................................19
4.2 Authorization of Transaction.........................................................19
4.3 Noncontravention.....................................................................19
4.4 Outstanding Capital Stock; Issuance of Shares........................................20
4.5 Financial Statements.................................................................20
4.6 Litigation...........................................................................21
4.7 Broker's Fees........................................................................21
ARTICLE V COVENANTS........................................................................21
5.1 Confidentiality......................................................................21
5.2 Tax Matters..........................................................................22
5.3 Funding of Phase III Development.....................................................24
5.4 Stockholders Agreement...............................................................24
5.5 Portal 360 Project Initial Public Offering...........................................24
5.6 Employee Letters.....................................................................25
5.7 Release by Temple....................................................................25
5.8 Release by Thompson..................................................................26
5.9 Indemnification By Temple............................................................26
5.10 Indemnification By Thompson..........................................................27
5.11 Survival.............................................................................27
5.12 Power of Attorney....................................................................27
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5.13 Escrow Agent Fees....................................................................27
5.14 Removal of Guarantees................................................................28
ARTICLE VI CLOSING DELIVERIES...............................................................28
6.1 Closing Deliveries to Buyer..........................................................28
6.2 Closing Deliveries to the Stockholders...............................................28
ARTICLE VII INTENTIONALLY OMITTED............................................................29
ARTICLE VIII DEFINITIONS......................................................................29
8.1 Defined Terms........................................................................29
8.2 Certain Supplemental Defined Terms...................................................30
ARTICLE IX MISCELLANEOUS....................................................................35
9.1 Press Releases and Announcements.....................................................35
9.2 No Third Party Beneficiaries.........................................................35
9.3 Entire Agreement.....................................................................35
9.4 Succession and Assignment............................................................35
9.5 Counterparts.........................................................................35
9.6 Headings.............................................................................35
9.7 Notices..............................................................................35
9.8 Governing Law........................................................................37
9.9 Amendments and Waivers...............................................................37
9.10 Severability.........................................................................37
9.11 Construction.........................................................................37
9.12 No Recourse..........................................................................38
9.13 Specific Performance.................................................................38
9.14 Expenses.............................................................................38
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered
into as of December 6, 1999, effective as of 11:59 p.m. MST, by and among
ClientLogic Holding Corporation, a Delaware corporation (the "Buyer"),
Marketvision, Inc., a Colorado corporation (the "Company"), Joseph Temple
("Temple") and Dianne Thompson ("Thompson"). Temple and Thompson are sometimes
referred to generally as a "Stockholder" and together as the "Stockholders."
Buyer, the Company and the Stockholders are referred to collectively herein as
the "Parties." Capitalized terms used herein but not otherwise defined shall
have the meanings set forth in Section 8.2.
RECITALS
WHEREAS, Temple and Thompson are the record and beneficial
owners of that number of shares of common stock, par value $1.00 per share
("Common Stock"), of the Company set forth on Schedule 1.1 (the "Shares").
WHEREAS, the Shares represent all of the issued and
outstanding capital stock of the Company.
WHEREAS, the Stockholders desire to sell and Buyer desires to
purchase from the Stockholders the Shares in accordance with the terms of this
Agreement.
NOW, THEREFORE, in consideration for the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, and for good and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
ARTICLE I
THE ACQUISITION
1.1 Purchase and Sale of Shares. On the terms and subject to the
conditions of this Agreement and at the closing of the transactions contemplated
by this Agreement (the "Closing"), the Stockholders will sell, assign, transfer
and convey to Buyer, and Buyer will purchase and acquire from the Stockholders,
all right, title and interest of such Stockholders in and to the number of
shares set forth opposite each Stockholder's name on Schedule 1.1, free and
clear of all Security Interests.
1.2 Consideration for the Shares. The aggregate consideration paid by
Buyer to the Stockholders for the Shares shall consist of (a) Eleven Million
Dollars ($11,000,000) less (i) the amount, if any, by which estimated Net Debt
exceeds $750,000.00, less (ii) the amount, if any, by which estimated capital
lease obligations exceed $250,000.00, less (iii) the amount, if any, by which
estimated Adjusted Working Capital is less than $707,642.00, (the "Unadjusted
Cash Consideration"), less (iv) any fees payable to the Escrow Agent (as
defined) in connection with the Escrow Agreement (as defined), less (v) those
amounts paid to the Company by Buyer
<PAGE> 6
pursuant to Section 5.6 hereof, plus (b) (i) two promissory notes (the
"Promissory Notes") in the aggregate principal amount of Five Million Two
Hundred Fifty Thousand Dollars ($5,250,000), the forms of which are attached as
Exhibit A; (ii) two contingent promissory notes (the "Contingent Promissory
Notes") in the maximum aggregate principal amount of Seven Hundred Fifty
Thousand Dollars ($750,000), the forms of which are attached as Exhibit B; and
(iii) 1,000,000 shares of Buyer's common stock, par value $0.01 per share
("Buyer Common Stock"), to be issued pursuant to subscription agreements (the
"Subscription Agreements"), a form of which is attached as Exhibit C. Estimates
required pursuant to this Section 1.2 shall be made in good faith and in
accordance with GAAP as of the Closing Date immediately prior to Closing. For
purposes of the calculation required by clause (a) above, the Company has
delivered a schedule in writing to Buyer, based on the Company's reasonable
judgement, setting forth the estimates required by clauses (i), (ii) and (iii)
and its calculation of the amount of the Unadjusted Cash Consideration, along
with reasonable documentation substantiating its estimates.
1.3 Closing. The Closing is taking place at the offices of Lohf,
Shaiman & Jacobs, P.C., 950 South Cherry Street, Suite 900, Denver, Colorado
80246, at 9:00 a.m., local time, on the date hereof. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date." At the Closing,
the Parties shall execute and deliver the documents referred to in Article VI.
1.4 Delivery and Payment. At the Closing, each Stockholder is
delivering, or causing to be delivered, to Buyer a stock certificate or
certificates evidencing the number of Shares set forth opposite such
Stockholder's name on Schedule 1.1 attached hereto, accompanied by stock powers
or other instruments of transfer (in form and substance reasonably satisfactory
to Buyer) duly executed in blank, and Buyer is:
(a) delivering or causing to be delivered to the Stockholders,
in cash by wire transfer of immediately available funds to an account designated
by such Stockholder, an amount equal to the amount of the Unadjusted Cash
Consideration multiplied by the percentage set forth opposite each Stockholder's
name under the caption "Cash Allocation Percentage" set forth in Schedule 1.1;
(b) executing and delivering, or causing to be delivered, to
each Stockholder a Promissory Note in the principal amount set forth opposite
such Stockholder's name under the caption "Promissory Notes" on Schedule 1.1;
and
(c) executing and delivering, or causing to be delivered, to
each Stockholder a Contingent Promissory Note in the principal amount set forth
opposite such Stockholder's name under the caption "Contingent Promissory Notes"
on Schedule 1.1.
On January 3, 2000, the Buyer shall also issue and deliver to each
Stockholder the number of shares of Buyer Common Stock set forth opposite each
Stockholder's name under the caption "Stock Consideration" on Schedule 1.1 and
deliver to Toronto Dominion (Texas), Inc. (the "Escrow Agent") the amount of
Buyer Common Stock set forth opposite each Stockholder's name under the caption
"Stock Escrow Funds" in Schedule 1.1 (the "Escrow
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<PAGE> 7
Funds"), such consideration to be held by the Escrow Agent pursuant to the terms
of the Escrow Agreement attached hereto as Exhibit D (the "Escrow Agreement").
1.5 Adjustment of the Unadjusted Cash Consideration.
(a) As soon as practicable, but in no event more than 90 days
after the Closing Date, Buyer shall deliver to the Stockholders a consolidated
balance sheet of the Company prepared in accordance with GAAP as of the Closing
Date; provided, that (i) no liabilities, accruals, charges or reserves shall be
reduced, modified or eliminated except by reason of (x) payment or credit
occurring in the ordinary course of business consistent with past practice, (y)
reduction or cancellation of scheduled debts by agreement of any creditor or (z)
reduction or cancellation of debts upon settlement of a dispute, and then any
such changes shall be made only in accordance with GAAP, (ii) such amounts will
be determined without regard to any adjustments thereto in respect of or
relating to the transactions contemplated hereby or simultaneous or subsequent
action, and (iii) such amounts shall be determined by eliminating intercompany
and affiliate accounts, other than accounts receivable and payable for goods and
services provided in the ordinary course at costs equivalent to those that would
be incurred between arms'-length third parties. Buyer shall simultaneously
deliver a related statement (the "Post-Closing Statement") setting forth the
final Cash Consideration, as calculated from such Closing Date balance sheet.
Such balance sheet and related schedules supporting the Post-Closing Statement
shall be audited by PricewaterhouseCoopers and shall be delivered together with
their report thereon.
(b) Within 45 days after the delivery of the Post-Closing
Statement to the Stockholders, the Stockholders shall either accept the amount
of the final Cash Consideration as set forth in the Post-Closing Statement as
correct or object to the final Cash Consideration as set forth in the
Post-Closing Statement, specifying in reasonable detail in writing the nature of
the objection(s). In the event the Stockholders do not object to the final Cash
Consideration as set forth in the Post-Closing Statement within said 45-day
period, the Stockholders shall be deemed to have accepted the final Cash
Consideration as so set forth. In the event the Stockholders object to the final
Cash Consideration, then, during a 45-day period subsequent to the receipt by
Buyer of notice of objection(s), the parties shall attempt in good faith to
resolve any differences respecting such final Cash Consideration as so set
forth. In the event the parties are unable to resolve their differences within
said 45-day period, the parties agree that the matter shall be submitted to a
mutually acceptable firm of independent certified public accountants agreed upon
by the parties at the time of the dispute. The costs and expenses of the CPA
Firm shall be borne equally by Buyer and the Stockholders. The CPA Firm shall
resolve any disputed amounts and shall determine the final Cash Consideration,
based upon the principles set forth in Section 1.5(a), as promptly as
practicable, but in any event within 60 days following submission of such matter
to the CPA Firm. The CPA Firm's calculation of the final Cash Consideration
shall be delivered in writing to Buyer and the Stockholders. During the period
from the date of delivery of the Post-Closing Statement to the Stockholders
through the date of resolution of any dispute regarding the final Cash
Consideration as contemplated by this Section 1.5, Buyer shall provide the
Stockholders, the CPA Firm, to the extent applicable, and their respective
agents and representatives reasonable access to all appropriate books, work
papers, records (including those supplemental schedules prepared in connection
with
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<PAGE> 8
preparation of the Post-Closing Statement), facilities and employees of the
Company and their successors for purposes relevant to the review of such
Post-Closing Statement and the resolution of any related dispute. Any
determination of the final Cash Consideration by the CPA Firm shall be final and
binding on all parties hereto.
(c) Within five (5) Business Days after the determination of
the final Cash Consideration:
(i) If the amount of the final Cash Consideration is less
than the Unadjusted Cash Consideration, the difference between the final Cash
Consideration and the Unadjusted Cash Consideration shall be paid to Buyer in
cash by the Stockholders.
(ii) If the amount of the final Cash Consideration is
more than the Unadjusted Cash Consideration, then no adjustment shall be made.
ARTICLE II
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
The Company and the Stockholders jointly and severally make
the following representations and warranties to Buyer each of which is true and
correct as of the date hereof and shall be true and correct as of the Closing
Date and shall be unaffected by any investigation heretofore or hereafter made
by Buyer.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Colorado. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, except where the failure
to be so qualified or in good standing would not be reasonably expected to have
a Company Material Adverse Effect. The Company has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has furnished to Buyer
complete and accurate copies of its Certificate of Incorporation and Bylaws,
each as amended and as in effect on the date hereof.
2.2 Capitalization. The authorized capital stock of the Company
consists of 50,000 shares of Common Stock, of which 5,000 shares are outstanding
as of the date hereof. Schedule 2.2 sets forth a complete and accurate list of
all stockholders of the Company as of the date of this Agreement, indicating the
number and class of shares held by each stockholder. All of the issued and
outstanding shares of capital stock are duly authorized, validly issued, fully
paid, nonassessable and were issued free of all preemptive rights. The Company
has not issued any voting indebtedness. There are no outstanding or authorized
options, warrants, rights, convertible securities, agreements or commitments to
which the Company is a party or which are binding upon the Company providing for
the issuance, disposition or acquisition of any of its capital stock. There are
no outstanding or authorized stock appreciation, phantom stock or stock rights
with respect to the Company. There are no agreements, voting trusts, proxies or
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<PAGE> 9
understandings with respect to the voting or registration under the Securities
Act of 1933, as amended, of any shares of capital stock of the Company.
2.3 Authorization of Transaction. The Company has all requisite power
and authority to execute and deliver this Agreement and all related documents
and to perform its obligations hereunder and thereunder. The execution and
delivery by the Company of this Agreement and all related documents and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate and stockholder
action on the part of the Company. Each of this Agreement and all related
documents has been duly and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability relating to or affecting creditors' rights and any general
equitable principles.
2.4 Noncontravention. Except as set forth in Schedule 2.4, neither the
execution and delivery by the Company of this Agreement or any related documents
nor the consummation by the Company of the transactions contemplated hereby,
will (a) conflict with or violate any provision of the Certificate of
Incorporation or Bylaws of the Company or any Subsidiary, (b) require, on the
part of the Company or any Subsidiary, any filing with, or any permit,
authorization, consent, waiver or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of obligations under,
create in any party the right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Company
or any of its Subsidiaries is bound or to which any of their respective assets
are subject, (d) result in the imposition of any Security Interest upon the
Shares or any assets of the Company or any Subsidiary, (e) result in any
material restraint on the Company conducting business as it has heretofore been
conducted, or (f) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any Subsidiary or any of their respective
properties or assets.
2.5 Subsidiaries.
(a) Schedule 2.5 sets forth: (i) the name of each corporation,
partnership, joint venture or other entity in which the Company has, directly or
indirectly, an equity interest representing 50% or more of the capital stock
thereof or other equity interests therein (individually, a "Subsidiary" and,
collectively, the "Subsidiaries"); (ii) the number and type of outstanding
equity securities of each Subsidiary and a list of the holders thereof, and
(iii) the jurisdiction of organization of each Subsidiary.
(b) Each Subsidiary is a corporation duly organized, validly
existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good
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standing would not reasonably be expected to have a Company Material Adverse
Effect. Each Subsidiary has all requisite corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it. All of the issued and outstanding shares of capital stock or
other equity interests of each Subsidiary are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. There are no
outstanding or authorized options, warrants, rights, agreements, convertible
securities or commitments to which the Company or any Subsidiary is a party or
which are binding on any of them providing for the issuance, disposition or
acquisition of any capital stock or other equity interests of any Subsidiary.
There are no outstanding stock appreciation, phantom stock or similar rights
with respect to any Subsidiary. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of any capital stock or
other equity interests of any Subsidiary.
(c) Except as set forth in Schedule 2.5(c), the Company does
not own any capital stock or other equity interest in any entity.
2.6 Financial Statements. The Company has provided to Buyer (a) the
audited consolidated balance sheet and statements of income, changes in
stockholders' equity and cash flows of the Company and its Subsidiaries as of
and for the last fiscal year; and (b) the unaudited consolidated balance sheet
(the "Most Recent Balance Sheet") and statements of income, changes in
stockholders' equity and cash flows of the Company and its Subsidiaries as of
and for the nine months ended as of September 30, 1999 (the "Most Recent Balance
Sheet Date"). Such financial statements (collectively, the "Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Securities and Exchange Commission (including, but not limited to, Regulation
S-X), have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, fairly present in all material respects
the consolidated financial condition, results of operations and cash flows of
the Company and the Subsidiaries as of the respective dates thereof and for the
periods referred to therein and are consistent with the books and records of the
Company; provided, however, that the Financial Statements referred to in clause
(b) above are subject to normal recurring year-end adjustments and do not
include notes.
2.7 Accounts Receivable. The accounts receivable of the Company and its
Subsidiaries as set forth on the Most Recent Balance Sheet or arising since the
date thereof are valid and genuine; have arisen solely out of bona fide sales
and deliveries of goods, performance of services and other business transactions
in the ordinary course of business consistent with past practice; and are not
subject to valid defenses, set-offs or counterclaims. The allocation for
collection losses on the Most Recent Balance Sheet has been determined in
accordance with GAAP consistent with past practice.
2.8 Projections. All projections regarding the future performance of
the Company and its Subsidiaries that have been provided to Buyer and are
described in Schedule 2.8 hereto (the "Projections") have been prepared by
senior management of the Company in good faith and are based upon assumptions
which were reasonable at the time of preparation, taking into account
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the past performance of the Company, known future commitments and contingencies,
and general economic conditions.
2.9 Absence of Certain Changes. Since the Most Recent Balance Sheet
Date, (a) there has occurred no event or development which has had, or could
reasonably be expected to have, a Company Material Adverse Effect, and (b)
except as provided by Section 5.6, neither the Company nor any Subsidiary has
taken any of the actions to:
(a) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, or commit to redeem or
repurchase, any stock of any class or any other securities, whether of the
Company or any Subsidiary thereof, or any rights, warrants or options to acquire
any such stock or other securities, or amend any of the terms of (including
without limitation the vesting of) any such convertible securities, warrants or
options or issue any stock appreciation or similar rights to participate in any
increase in the value of the Company's or any Subsidiary's equity;
(b) split, combine or reclassify any shares of its capital
stock, or declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) create, incur or assume any debt (including, except as
provided in clause (e), obligations in respect of capital leases), other than
borrowings under its existing bank line of credit and trade obligations incurred
in the ordinary course of business consistent with past practice; assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
indirectly or otherwise) for the obligations of any other Person or entity other
than collection and deposit of checks submitted to it in the ordinary course; or
make any loans, advances or capital contributions to any other Person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.21 or (except for normal increases in the ordinary course of business
consistent with past practice) increase in any manner the compensation or fringe
benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any benefit not
required by the terms in effect on the date hereof of any existing Employee
Benefit Plan;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the ordinary course of business consistent with past practice;
provided, that the Company and its Subsidiaries shall be obligated to timely
make the capital expenditures contemplated by the Company's 1999 fiscal year
budget, as attached as Schedule 2.9(e);
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<PAGE> 12
(f) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest, except as contemplated by its
bank line of credit as it exists on the date hereof;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the ordinary course of business consistent
with past practice;
(h) amend its Certificate of Incorporation or Bylaws;
(i) change in any material respect its accounting methods,
principles or practices, including those related to accruals or the
establishment of reserves, except insofar as may be required by a generally
applicable change in GAAP;
(j) make or suffer any amendment or termination of any
material agreement, contract, commitment, lease or plan to which it is a party
or by which it is bound, or cancel, modify or waive any substantial debts or
claims held by it or waive any rights of substantial value, whether or not in
the ordinary course of business;
(k) take any action or failed to take any action permitted by
this Agreement with the Knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the
Stockholders or the Company set forth in this Agreement becoming untrue or (ii)
any of the conditions to the Closing set forth in Article VI not being
satisfied; or
(l) agree in writing or otherwise to take any of the foregoing
actions.
2.10 Undisclosed Liabilities. Except as set forth in Schedule 2.10,
none of the Company and its Subsidiaries has any material liability, whether or
not required by GAAP to be set forth on a balance sheet or footnotes thereto,
except for (a) liabilities shown on the Most Recent Balance Sheet and (b)
liabilities which have arisen since the Most Recent Balance Sheet Date in the
ordinary course of business consistent with past practice which are not material
in the aggregate.
2.11 Customers and Suppliers. Except as described on Schedule 2.11,
since January 1, 1999 there has not been any material adverse change in the
business relationship of any of the Company and each of its Subsidiaries with
any material customer or supplier. Set forth in Schedule 2.11 is a list of the
top customers of the Company and its Subsidiaries and the amount of revenue from
each such customer for the first nine months of 1999.
2.12 Taxes.
(a) The Company and its Stockholders have made a valid
election to treat the Company as, and the Company has qualified as, an S
Corporation under the Code (and the equivalent provisions under state, local and
foreign law in all jurisdictions in which the Company is subject to Tax on its
income or is required to file a Tax Return) at all times during its existence,
and the Company will be an S Corporation up to and including the Closing Date.
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(b) Except as set forth in Schedule 2.12(b), (i) the Company
has duly filed all Tax Returns required to be filed (including, but not limited
to, all federal, state, local and foreign Tax Returns and reports) with any
Governmental Entity and all such Tax Returns and reports were correct and
complete in all material respects; (ii) the Company has paid in full all Taxes
required to be paid by the Company before such payment became delinquent; (iii)
no deficiencies have been assessed with respect to the Company for any period,
which deficiencies have not been paid in full; (iv) adequate reserves, if any,
have been accrued on the Financial Statements for Taxes attributable to all
applicable periods; (v) all Taxes which the Company has been required to collect
or withhold have been duly collected or withheld and, to the extent required
when due, have been duly paid to the proper Taxing authority; (vi) there are no
federal, state, local or foreign Tax liens upon any of the properties or assets
of the Company, except for current Taxes not yet due and payable; (vii) there
have been no waivers of statutes of limitations by the Company as to any Tax
with respect to any Governmental Entity; and (viii) no power of attorney has
been granted by the Company with respect to any Tax matter currently in force.
(c) Buyer has received correct and complete copies of (i) all
Tax Returns and similar filings of the Company for each of its Taxable years,
and (ii) all audit reports issued relating to Taxes due from the Company. The
Tax Returns of the Company have not been audited by the Internal Revenue Service
(the "IRS") or by the relevant state or local Taxing authority.
(d) No closing agreement pursuant to Section 7121 of the Code
or compromise pursuant to Section 7122 of the Code (or any predecessor
provision) or any similar provision of any state, local, or foreign law has been
entered into by the Company.
(e) No audit or other proceeding by any court, governmental or
regulatory authority is pending or, to the Knowledge of the Company or the
Stockholders, threatened with respect to any Taxes due from the Company or any
Tax Return filed by the Company. No notice of any assessment of Tax against the
Company or any of its assets has been received by the Company.
(f) The Company has not been notified by any Taxing authority
that the Company may be required to file a Tax Return or similar document in any
jurisdiction in which the Company does not currently file a Tax Return.
(g) The Company has not received a private letter ruling from
the IRS or any comparable ruling from any other Taxing authority.
(h) All material elections made or filed by the Company with
respect to Taxes are set forth on Schedule 2.12(h).
(i) No consent to the application of Section 341(f)(2) of the
Code (or any predecessor provision) has been made or filed by the Company or
with respect to any of its assets.
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(j) None of the assets of the Company is an asset or property
that is or will be required to be treated as being (i) owned by any person other
than the Company pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954 as in effect immediately prior to the Tax Reform Act of
1986, (ii) "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code, or (iii) "tax-exempt bond finance property" within the meaning of
Section 168(g) of the Code.
(k) The Company has not agreed to and is not required to make
any adjustment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of the Company, and
there is no application pending with any Taxing authority requesting permission
for any changes in any accounting method of the Company. The IRS has not
proposed any such adjustment or change in accounting method.
(l) There is no contract, agreement, plan or arrangement
covering any person, that individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company by reason of
Section 280G of the Code.
(m) Except as set forth in Schedule 2.12(m) hereto, the
Company is not a party to any Tax sharing or similar agreement or arrangement
(whether or not written) or any Tax indemnification agreement or similar
arrangement.
(n) None of the Stockholders is a "foreign person" within the
meaning of Section 1445 of the Code.
(o) For purposes of this Section 2.12, any reference to the
Company shall include any corporation which merged with and into or was
liquidated into the Company. The Company has no liability for Taxes of any other
corporation pursuant to Treasury Regulation Section 1.1502-6 or any similar or
analogous state, local or foreign law.
(p) In the past 10 years, the Company has not acquired any
asset the Tax basis to the Company of which was determined in whole or in part
by reference to the Tax basis of such asset in the hands of a C corporation (as
defined in Section 1361(a)(2) of the Code).
2.13 Real Property.
(a) Schedule 2.13(a) hereto sets forth a complete list of (i)
the real property owned by the Company or any Subsidiary (the "Owned Real
Property") and (ii) all real property leased by the Company or any Subsidiary
(the "Leased Real Property") (the Owned Real Property, the Leased Real Property
and all other rights, licenses or interests of the Company or any Subsidiary in
real property are collectively referred to herein as the "Real Property"). The
Company has made available to Buyer true and correct copies of all leases,
subleases, abstracts of title, surveys, title opinions and title insurance
policies in the Company's or any Subsidiary's possession or control relating to
any of the Real Property. None of the Real Property reflected in the Most Recent
Balance Sheet has been disposed of, and no Real Property has been acquired by
the Company or any Subsidiary since the date of the Most Recent Balance Sheet.
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(b) Except for (i) liens disclosed in Schedule 2.13(b) hereto,
(ii) liens for current Taxes not yet delinquent and duly accrued for on the Most
Recent Balance Sheet, or, if more recent, otherwise accrued for in the Company's
books and records, (iii) covenants, conditions and restrictions of record, none
of which materially impairs the use of such property in the manner currently
used, reduces the fair market value of such property or impairs the ability of
the Company or any Subsidiary to deliver good title to such Real Property, and
(iv) any mechanic's, workmen's, repairmen's, materialmen's, contractor's,
warehousemen's, carrier's, supplier's or vendor's lien, if payment is not yet
due on the underlying obligation and duly accrued for on the Most Recent Balance
Sheet, or, if more recent, otherwise accrued for in the Company's books and
records or if such lien did not arise from actions taken by the Company or the
Stockholders (the "Permitted Liens"), the Company or a Subsidiary has good title
to all Owned Real Property, and a valid leasehold interest in all Leased Real
Property, free and clear of any Security Interest. Except as set forth in
Schedule 2.13(b), the Company or a Subsidiary has good title to all structures,
plants, leasehold improvements, systems, fixtures and other property located on
or about any of the Leased Real Property and which are owned by the Company or a
Subsidiary, as reflected in the Most Recent Balance Sheet, free and clear of any
Security Interests except for Permitted Liens, and none of such assets is
subject to any contract for its use by any Person other than the Company or a
Subsidiary.
(c) Each of the leases and subleases relating to the Leased
Real Property is in full force and effect, there is no material default by the
Company or a Subsidiary (or to the Knowledge of the Stockholders and the
Company, by the lessor) under any such lease or sublease, and, except as set
forth on Schedule 2.13(c), each such lease and sublease will remain in full
force and effect following the Closing without any modification in the rights or
obligations of the parties under any such lease or sublease.
(d) Except as set forth in Schedule 2.13(d) hereto, no work
has been performed by the Company or on behalf of the Company, or to the
knowledge of the Company and the Stockholders, any third party, on or with
respect to or in connection with any of the Real Property that would cause such
Real Property to become subject to any additional Security Interests.
(e) To the best knowledge of the Company and the Stockholders,
without them having made any inquiry or investigation, the structures, plants,
improvements, systems and fixtures (including, without limitation, storage tanks
or other impoundment vessels, whether above or below ground) (collectively,
"Improvements") located on each parcel of Real Property comply in all material
respects with all applicable laws, ordinances, rules, regulations and similar
governmental and regulatory requirements. The Improvements are in good operating
condition and repair, ordinary wear and tear excepted. To the best knowledge of
the Stockholders and the Company, without them having made any inquiry or
investigation, each such parcel of Real Property (in view of the purposes for
which it is currently used) conforms in all material respects with all covenants
or restrictions of record and conforms with all applicable building codes and
zoning requirements and there is not any proposed change in any such
governmental or regulatory requirements or in any such zoning requirements. All
existing electrical, plumbing, fire sprinkler, lighting, air conditioning,
heating, ventilation, elevator and other mechanical systems located in or about
the Real Property ("Facilities Equipment") are, to
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the best knowledge of the Company and the Stockholders, without them having made
any inquiry or investigation, in good operating condition and repair, ordinary
wear and tear excepted, and will not interfere with the operation of the
business of the Company as currently conducted. Schedule 2.13(e) sets forth a
list of all maintenance agreements relating to Facilities Equipment and the term
of such maintenance agreements.
(f) To the Knowledge of the Stockholders and the Company, the
Real Property includes all material easements, rights-of-way and similar rights
necessary to conduct the Company's and its Subsidiaries' business as presently
conducted and to use all of their Real Property as currently used and no such
material easement or right will be breached by, nor will any party thereto be
given a right of termination as a result of, the transactions contemplated by
this Agreement.
(g) Except as set forth in Schedule 2.13(g), no contracts,
agreements, leases or subleases governing any Real Property listed on Schedule
2.13(a) or any Facilities Equipment requires notice, waiver or consent of any
third party to consummate that transactions contemplated by this Agreement or
will result in a breach of such contracts, agreements, leases or subleases upon
the consummation of the transactions contemplated by this Agreement.
2.14 Tangible Personal Property.
(a) The Company or a Subsidiary has good title to all
machinery and equipment, tools, spare and maintenance parts, furniture, vehicles
and all other tangible personal property (collectively, the "Tangible Personal
Property") owned by the Company or a Subsidiary, free and clear of any Security
Interest of any kind or nature whatsoever, except for Permitted Liens. Except as
set forth in Schedule 2.14(a), all material items of Tangible Personal Property
currently owned or used by the Company or a Subsidiary as of the date hereof are
in good operating condition and repair, ordinary wear and tear excepted, are
physically located at or about the Company's or a Subsidiary's place of business
and are owned outright, or validly leased, by the Company or a Subsidiary.
Except as set forth in Schedule 2.14(a), the owned and leased Tangible Personal
Property consists of all tangible personal property necessary for the operation
of the business of the Company and its Subsidiaries as currently conducted or as
currently contemplated to be conducted.
(b) Schedule 2.14(b), sets forth a complete and correct list
of all material Tangible Personal Property leases to which the Company or a
Subsidiary is a party, together with a brief description of the property leased.
The Company has made available to Buyer complete and correct copies of each
lease (and any amendments thereto) listed in Schedule 2.14(b). Except as set
forth in Schedule 2.14(b): (i) each such lease is in full force and effect; (ii)
all lease payments due to date on any such lease have been paid, and neither the
Company nor any Subsidiary nor (to the Knowledge of the Stockholders and the
Company) any other party is in default under any such lease, and no event has
occurred which constitutes, or with the lapse of time or the giving of notice or
both would constitute, a default by the Company or a Subsidiary or (to the
Knowledge of the Stockholders and the Company) any other party under such lease;
(iii) to the Knowledge of the Stockholders and the Company, there are no
defaults alleged against the Company or a Subsidiary by any other party with
respect to any such lease;
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and (iv) no such lease requires notice, waiver or consent of any third party to
consummate the transactions contemplated in this Agreement nor will the
consummation of the transactions contemplated by this Agreement result in a
breach of such lease or alter the rights or obligations of any party thereto.
2.15 Intellectual Property.
(a) Except for off-the-shelf software programs having an
individual acquisition cost of $1,000.00 or less licensed by the Company or a
Subsidiary pursuant to "shrink wrap" licenses, Schedule 2.15(a) sets forth a
list of all Intellectual Property necessary for, or used in, the operation of
the Company's business as presently conducted ("Company Intellectual Property").
Each of the Company and each Subsidiary owns or has the valid and enforceable
right to use all Company Intellectual Property. The Company or a Subsidiary, as
applicable, owns all right, title and interest in and to the Company
Intellectual Property set forth on Schedule 2.15(a) ("Owned Company Intellectual
Property") free and clear of any Security Interest or other claims of third
parties. Except as set forth on Schedule 2.15(a), the Portal 360 Project and the
Company's application suite referred to as RMS (together with the Portal 360
Project, the "Core Intellectual Property") were developed by employees of the
Company within the scope of their employment or by individual independent
contractors, each of whom has executed a written agreement whereby such employee
or independent contractor assigned all of his right, title and interest in and
to such Core Intellectual Property to the Company. Attached to Schedule 2.15(a)
are complete copies of each such written assignment.
(b) Set forth on Schedule 2.15(b) is a list of all independent
contractors who conceived, developed, created, discovered or reduced to practice
any of the Owned Company Intellectual Property, including a general description
of the work done for the Company by such independent contractor on the Owned
Company Intellectual Property. Except as set forth on Schedule 2.15(b), no
independent contractor conceived, developed, created, discovered or reduced to
practice any Owned Company Intellectual Property or any part thereof, or any
code embedded therein or otherwise used as a basis thereof.
(c) To the Knowledge of the Stockholders, none of the Company
Intellectual Property, activities or business presently conducted by the Company
or a Subsidiary infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any Person or entity.
(d) Schedule 2.15 (d) identifies each license or other
agreement (or type of license or other agreement) pursuant to which the Company
or a Subsidiary has licensed, distributed or otherwise granted any material
rights to any third party with respect to any of the Company Intellectual
Property.
(e) Schedule 2.15 (e) identifies each item of Company
Intellectual Property that is owned by a party other than the Company or a
Subsidiary, including the Stockholders, and the license or agreement pursuant to
which the Company or a Subsidiary uses it (excluding off-the-shelf software
programs licensed by the Company or a Subsidiary pursuant to "shrink wrap"
licenses).
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(f) The Company has in its control copies of all source codes
related to Company Intellectual Property.
2.16 Year 2000 Compliance. As of the Closing Date, except as set forth
in Schedule 2.16, all Date Data and Date-Sensitive Systems of the Company and
each Subsidiary are Year 2000 Compliant. Schedule 2.16 also sets forth the
amount estimated by the Company in good faith necessary to remediate all such
Date Data and Date Sensitive Systems that are not Year 2000 Compliant. Each of
the Company and each Subsidiary has obtained written representations or
assurances from each entity that (x) provides Date Data to it, (y) processes in
any way Date Data for it or otherwise provides any material product or service
to it that is dependent on Year 2000 Compliant Date Data or Year 2000 Compliant
Date-Sensitive System, that all of such entity's Date Data and Date-Sensitive
Systems that are used for, or on behalf, of it are Year 2000 Compliant.
2.17 Contracts.
(a) Schedule 2.17 lists the following agreements (written or
oral) to which the Company or any Subsidiary, or the Company and its
Subsidiaries collectively, is a party as of the date of this Agreement:
(i) any agreement (or group of related agreements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $20,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of products or for the furnishing or receipt of services
which requires the payment or receipt by the Company and/or a Subsidiary of more
than the sum of $100,000 in the aggregate;
(iii) any agreement establishing a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness (including capitalized lease obligations)
involving more than $100,000 or under which it has imposed (or may impose) a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement prohibiting the Company or any
Subsidiary from freely engaging in business anywhere in the world;
(vi) any agreement involving any officer, director or
stockholder of the Company or any Affiliate thereof, and
(vii) any other agreement (or group of related
agreements) requiring the payment or receipt by the Company and/or a Subsidiary
of more than $100,000 annually.
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(b) The Company has made available to Buyer a complete and
accurate copy of each agreement (as amended to date) listed in Schedule 2.17.
With respect to each agreement so listed or required to be so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect,
and (ii) neither the Company nor any Subsidiary nor, to the Knowledge of
Stockholders and the Company, any other party, is or has been in material breach
or violation of, or material default under, any such agreement. Except as set
forth in Schedule 2.17, no notice, waiver or consent of any third party is
required under any agreement listed or required to be listed on such schedule to
consummate the transactions contemplated hereby nor will the consummation of the
transactions contemplated hereby result in a breach of any such agreement or
modification of any right or obligation thereunder.
2.18 Insurance. The Company and each Subsidiary have insurance policies
in full force and effect for such amounts as are sufficient for material
compliance with all requirements of applicable laws and of all contracts to
which the Company or any Subsidiary is a party or by which it is bound. Set
forth in Schedule 2.18, is a list of all fire, liability, property, workers
compensation, directors and officers liability, and other forms of insurance and
all fidelity bonds held by or applicable to the Company and the Subsidiaries or
otherwise insuring the business, operations or affairs of the Company or the
Subsidiaries or affecting or relating to the ownership, use or operations of any
assets of the Company or the Subsidiaries. Schedule 2.18 sets forth, in respect
of each such policy or fidelity bond, the policy name, policy number, carrier,
term, type of coverage and annual premium. Except as set forth in Schedule 2.18,
no event relating to the Company and the Subsidiaries has occurred which can
reasonably be expected to result in a material retroactive upward adjustment in
premiums under any such insurance policies or which is likely to result in a
material prospective upward adjustment in such premiums. Excluding insurance
policies that have expired and been replaced in the ordinary course of business,
no insurance policy has expired or been cancelled, voided or otherwise
terminated within the last two years, and, to Stockholders' or the Company's
Knowledge, no threat has been made to cancel, void or otherwise terminate any
insurance policy of the Company or any Subsidiary during such period. Except as
noted in Schedule 2.18, all such insurance (i) is currently in full force and
effect, (ii) will remain in full force and effect with respect to all periods up
to and including the Closing and (iii) to the best knowledge of the Company and
the Stockholders, is with financially sound and reputable insurers. No event has
occurred, including the failure by the Company or any Subsidiary to give any
notice or information or the Company or any Subsidiary giving any inaccurate or
erroneous notice or information, which materially limits or impairs, or could
reasonably be expected to materially limit or impair, the rights of the Company
under any such insurance policies. The Stockholders and the Company are not
aware of any circumstance or event that could result in the cancellation,
avoidance or other termination of any policy.
2.19 Litigation. Except as set forth in Schedule 2.19, there are no
suits, actions, proceedings (including, without limitation, arbitral and
administrative proceedings), claims or governmental investigations or audits (a
"Legal Proceeding") pending or, to the Knowledge of the Stockholders or the
Company, threatened, against the Company or any of its Subsidiaries or its or
any of their properties, assets or business, or pending, or, to the Knowledge of
the Stockholders or the Company, threatened against, relating to or involving
any of the officers, directors, employees or agents of the Company and each of
its Subsidiaries, or threatening,
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challenging the validity or propriety of, or otherwise relating to or involving,
this Agreement or the transactions contemplated hereby. Except as set forth in
Schedule 2.19, there is no judgment, order, writ, injunction, decree or award
(whether issued by a court, an arbitrator, a governmental body or agency thereof
or otherwise) to which the Company or any of its Subsidiaries is a party, or
involving the property, assets or business of the Company or any of its
Subsidiaries, which is unsatisfied or which requires continuing compliance
therewith by the Company or any of its Subsidiaries.
2.20 Labor Matters. Neither the Company nor any Subsidiary is a party
to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining dispute. The Stockholders and the Company do not have
Knowledge of any organizational effort made or threatened, either currently or
within the past two years, by or on behalf of any labor union with respect to
employees of the Company or any Subsidiary.
2.21 Employee Benefits.
(a) Schedule 2.21(a) contains a complete and accurate list of
all Employee Benefit Plans maintained, or contributed to, by the Company, or any
Subsidiary. Complete and accurate copies of (i) all Employee Benefit Plans which
have been reduced to writing, (ii) written summaries of all unwritten Employee
Benefit Plans, and (iii) all related agreements, insurance contracts and summary
plan descriptions have been made available to Buyer. Each Employee Benefit Plan
has been administered in all material respects in accordance with its terms, and
each of the Company and the Subsidiaries has in all material respects met its
obligations with respect to such Employee Benefit Plan and has timely made all
required contributions thereto. The Company and each Employee Benefit Plan are
in compliance in all material respects with the currently applicable provisions
of ERISA, the Code and other laws.
(b) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code are so qualified and the trusts
related thereto are exempt from federal income taxes under Sections 401(a) and
501(a) of the Code.
(c) Neither the Company nor any Subsidiary has any obligation
or liability (contingent or otherwise) with respect to an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA.
(d) At no time has the Company or any Subsidiary been
obligated to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(e) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the Company or any
Subsidiary which would subject the Company or any Subsidiary to any material
fine, penalty, tax or liability of any kind imposed under ERISA or the Code.
(f) Schedule 2.21(f) discloses each: (i) agreement with any
stockholder, director, executive officer or other key employee of the Company or
any Subsidiary (A) the benefits of which are contingent, or the terms of which
are materially altered, upon the
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occurrence of a transaction involving the Company or any Subsidiary of the
nature of any of the transactions contemplated by this Agreement, or (B)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii) agreement,
plan or arrangement under which any Person may receive payments from the Company
or any Subsidiary that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such Person's "parachute payment" under
Section 280G of the Code, and (iii) agreement or plan binding the Company or any
Subsidiary, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan or Employee Benefit Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
2.22 Environmental Matters.
(a) Except as disclosed in Schedule 2.22(a), (i) each of the
Company and each Subsidiary has complied and is in compliance with all
applicable Environmental Laws; (ii) there is no pending or, to the Knowledge of
the Stockholders or the Company, threatened, civil or criminal litigation,
written notice of violation, administrative proceeding, or investigation,
inquiry or information request by any Governmental Entity or Person, relating to
or otherwise arising under any Environmental Law involving the Company or any
Subsidiary; (iii) no facts, circumstances or conditions exist that could
reasonably be expected to result in the Company or a Subsidiary incurring
liabilities under or pursuant to Environmental Laws, except for liabilities that
could not reasonably be expected to result in losses in excess of $10,000; and
(iv) there have been no releases of any Materials of Environmental Concern into
the environment at any parcel of real property or any facility currently or, to
the Knowledge of the Stockholders or the Company, formerly owned, operated or
controlled by the Company or a Subsidiary of concentrations exceeding those
allowed by Environmental Laws. As used in this Section 2.22, the terms "release"
and "environment" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended and
in effect on the Closing Date ("CERCLA").
(b) The Company has provided Buyer with copies of any and all
environmental or health and safety audits, its assessments, investigations or
similar reports relating to the Company or any Subsidiary or any real property
currently or formerly owned, operated or controlled by the Company or any
Subsidiary to the extent in the possession, custody or control of the
Stockholders, the Company or a Subsidiary.
2.23 Legal Compliance. Each of the Company and each Subsidiary is in
compliance with all applicable laws (including rules and regulations thereunder)
currently in effect of any federal, state, local or foreign government, or any
Governmental Entity, except where the failure to comply therewith would not
reasonably be expected to have a Company Material Adverse Effect.
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2.24 Permits. The Company and each Subsidiary has obtained all material
Permits (as defined below) necessary for the conduct of its business as
currently conducted and as currently contemplated to be conducted. Such material
Permits are in full force and effect and each of the Company and each Subsidiary
has complied with such permits in all material respects. Neither the Company nor
any Subsidiary is in violation of or default under any permit, license,
franchise or authorization from any Governmental Authority used in its business
or operations as presently conducted and material to the business or operations
of the Company and the Subsidiaries, taken as a whole (collectively, the
"Permits"). Except as set forth in Schedule 2.24, no Permit will be revoked,
terminated prior to its normal expiration date or not renewed solely as a result
of the consummation of the transactions contemplated hereby except, in any case,
for any violation, default, revocation, termination or renewal that would not
reasonably be expected to have a Company Material Adverse Effect.
2.25 Brokers' Fees. None of the Company or any of the Subsidiaries has
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
2.26 Disclosure. No representation or warranty by the Company or the
Stockholders contained in this Agreement, and no statement contained in any
document (including without limitation the Financial Statements referenced in
Section 2.6, the closing documents delivered pursuant to Article VI and the
Schedules hereto), list, certificate or other instrument furnished or to be
furnished by or on behalf of the Company, its Subsidiaries, the Stockholders or
any Affiliate thereof to Buyer or any of its representatives in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading or necessary in
order fully and fairly to provide the information required to be provided in any
such document, list, certificate or other instrument. Neither the Company nor
the Stockholders have failed to disclose to Buyer any fact which would
reasonably be determined to have a Company Material Adverse Effect.
2.27 Change of Control Payments. Except for those payments to be made
to Company Employees in accordance with Section 5.6 hereof, no payment resulting
from an agreement or arrangement between the Company or any Subsidiary thereof
and any other Person or entity is required to be made by the Company or a
Subsidiary as a result of the execution of this Agreement or the consummation of
the transactions contemplated hereby, including any payment expressly
characterized as a "stay bonus," "change of control" payment or similar
arrangement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
The Stockholders jointly and severally make the following
representations and warranties to Buyer each of which is true and correct as of
the date hereof and shall be true and correct as of the Closing Date and shall
be unaffected by any investigation heretofore or hereafter made by Buyer.
3.1 Title to Shares. Each Stockholder owns beneficially and of record
free and clear of any Security Interest that number of Shares set forth opposite
Stockholder's name in Schedule 1.1. After the consummation of the transactions
contemplated hereby Buyer will own, beneficially and of record and free and
clear of any Security Interest, that number of Shares set forth opposite all of
the Stockholders' names in Schedule 1.1.
3.2 Authority; Absence of Conflicts.
(a) This Agreement has been and the Ancillary Agreements to
which such Stockholder is a party will be duly and validly executed and
delivered by each Stockholder and, assuming this Agreement and the Ancillary
Agreements to which such Stockholder is a party constitute a valid and binding
obligation of Buyer, constitute the valid and binding obligation of each
Stockholder, enforceable against them in accordance with their terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general applicability relating to or affecting creditors' rights
and by general equitable principles.
(b) Except as set forth in Schedule 3.2(b), neither the
execution and delivery of this Agreement nor the Ancillary Agreements to which
such Stockholder is a party nor the consummation of the transactions
contemplated hereby or thereby, nor compliance with the terms hereof, will (i)
violate, conflict with or result in a breach of or default (or constitute any
event which with the lapse of time or the giving of notice or both would
constitute a breach or default) under any of the terms, conditions or provisions
of any contract or agreement to which any Stockholder is a party or by which his
or her assets or properties are bound, (ii) result in the creation of any
Security Interest on the Shares to be transferred by each Stockholder to Buyer
under the terms of this Agreement, (iii) conflict with, violate or result in a
breach of or constitute a default under any law, statute, rule, judgment, order,
decree, injunction, ruling, treaty, convention or regulation of any Governmental
Entity to which any Stockholder or any of his, her or its assets or properties
are subject, or (iv) require any Stockholder to give notice to, or obtain an
authorization, approval, order, license, franchise, declaration or consent of,
or make a filing with, any third party, including, without limitation, any
Governmental Entity, except with respect to the foregoing clauses (iii) and (iv)
where any such violation, conflict or breach would not result in a Stockholder
Material Adverse Effect.
3.3 Brokers and Finders. None of the Stockholders has employed any
investment banker, broker or finder, or incurred any liability for brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
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3.4 Intellectual Property. Except as set forth on Schedule 3.4, each
Stockholder has assigned (or if not previously assigned, hereby assigns) all of
his or her right, title and interest in and to all Intellectual Property
relating to the business of the Company to the Company free and clear of all
Security Interests and has not granted any rights in such Intellectual Property
to any third party and no third party has any ownership interest in or exclusive
rights to such Intellectual Property. Schedule 3.4 sets forth a list of all
Intellectual Property owned by the Stockholders or in which the Stockholders
have any interest.
3.5 Personal Assets. The Stockholders do not own any other investments
in or assets of any other company or entity that would cause the Company,
Stockholders and/or Buyer to file under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
Buyer makes the following representations and warranties to
the Company and the Stockholders, each of which is true and correct as of the
date hereof and shall be true and correct as of the Closing Date and shall be
unaffected by any investigation heretofore or hereafter made by the Company or
the Stockholders:
4.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
4.2 Authorization of Transaction. Buyer has all requisite power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform its obligations hereunder and thereunder. The execution and delivery
by Buyer of this Agreement and the Ancillary Agreements and the consummation by
Buyer of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of Buyer. This
Agreement has been, and the Ancillary Agreements will be, duly and validly
executed and delivered by Buyer and constitute a valid and binding obligation of
Buyer, enforceable against it in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting creditors' rights and by
general equitable principles.
4.3 Noncontravention. Subject to compliance with applicable
requirements of the Hart-Scott-Rodino Act, neither the execution and delivery of
this Agreement nor the Ancillary Agreements by Buyer, nor the consummation by
Buyer of the transactions contemplated hereby or thereby, will (a) conflict with
or violate any provision of the Certificate of Incorporation or Bylaws of Buyer,
(b) require on the part of Buyer any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any material contract or instrument to which
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Buyer is a party or by which it is bound or to which any of its assets are
subject, or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or any of its properties or assets, other than
any violation which would not reasonably be expected to have a Buyer Material
Adverse Effect or materially impair the ability of Buyer to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements.
4.4 Outstanding Capital Stock; Issuance of Shares.
(a) The authorized capital stock of Buyer consists of
150,000,000 shares of Buyer Common Stock and 10,000,000 shares of preferred
stock ("Buyer Preferred Stock"), par value $0.01 per share. As of the date
hereof, Buyer has, in the aggregate, 93,054,470 shares of Buyer Common Stock
issued and outstanding. All of the issued and outstanding shares of Buyer Common
Stock have been duly authorized and are validly issued, fully paid and
non-assessable, and none of such shares were issued in violation of any
preemptive rights of stockholders. There are also outstanding (a) options to
purchase up to 8,120,110 shares of Buyer Common Stock ("Buyer Options") and (b)
stock purchase rights to purchase up to 955,687 shares of Buyer Common Stock
("Buyer Rights"). Except for Buyer Options, Buyer Rights and 3,054,055 shares of
capital stock of 1293220 Ontario Inc. that are exchangeable for up to 3,054,055
shares of Buyer Common Stock, there are no options, warrants, calls,
subscriptions, conversion or other rights, agreements or commitments obligating
Buyer to issue any additional shares of capital stock of Buyer or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of capital stock of Buyer. Except for the 310,000
phantom stock units issued under Buyer's Deferred Compensation Plan, there are
no stock appreciation or similar rights to participate in the value of the
equity of Buyer.
(b) Buyer Common Stock to be issued to the Stockholders under
the terms of this Agreement and the Subscription Agreements, when issued as
contemplated by this Agreement and the Subscription Agreements, will be duly
authorized, validly issued, fully paid and nonassessable and not issued in
violation of any preemptive rights of stockholders.
4.5 Financial Statements. Buyer has provided to the Stockholders (a)
the audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of ClientLogic Corporation, a Delaware
corporation and direct wholly-owned subsidiary of Buyer ("ClientLogic"), and its
subsidiaries; (b) the unaudited consolidated balance sheets and statements of
income, changes in stockholder's equity and cash flows of Buyer for the final
year ended December 31, 1998; and (c) Buyer's and ClientLogic's unaudited
consolidated balance sheet and statements of income, changes in stockholders'
equity and cash flows as of and for the nine months ended as of September 30,
1999. Such financial statements (collectively, the "Buyer Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Securities and
Exchange Commission (including, but not limited to, Regulation S-X), have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, fairly present in all material respects the
consolidated financial condition, results of operations and cash flows of Buyer
and its subsidiaries as of the respective dates thereof and for the periods
referred to therein and are consistent with the books and records of Buyer;
provided,
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however, that the Financial Statements referred to in clause (b) above are
subject to normal recurring year-end adjustments and do not include notes. Since
September 30, 1999, there has occurred no event or development which has had, or
could reasonably be expected to have, a Buyer Material Adverse Effect.
4.6 Litigation. There are no material suits, actions, proceedings
(including, without limitation, arbitral and administrative proceedings), claims
or governmental investigations or audits (a "Buyer Legal Proceeding") pending
or, to the Knowledge of the Buyer, threatened, against Buyer or any of its
subsidiaries or its or any of their properties, assets or business, or pending,
or, to the Knowledge of Buyer, threatened against, relating to or involving any
of the officers, directors, employees or agents of Buyer and each of its
subsidiaries in their capacities as such, threatening, challenging the validity
or propriety of, or otherwise relating to or involving, this Agreement or the
transactions contemplated hereby. There is no material judgment, order, writ,
injunction, decree or award (whether issued by a court, an arbitrator, a
governmental body or agency thereof or otherwise) to which Buyer or any of its
subsidiaries is a party, or involving the property, assets or business of Buyer
or any of its subsidiaries, which is unsatisfied or which requires continuing
compliance therewith by Buyer or any of its subsidiaries.
4.7 Broker's Fees. Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
5.1 Confidentiality.
(a) From and after the date hereof, the Stockholders will not,
and will cause their respective Affiliates not to, directly or indirectly,
disclose, reveal, divulge or communicate to any Person other than authorized
officers, directors and employees of Buyer, the Stockholders' and the Company's
attorneys and accountants, the Company, its Subsidiaries or Affiliates of Buyer
or the Company or use or otherwise exploit for its own benefit or for the
benefit of anyone other than the Company or Buyer, any Confidential Information.
The Stockholders and their respective Affiliates shall not have any obligation
to keep confidential any Confidential Information if and to the extent
disclosure thereof is specifically required by law; provided, however, that in
the event disclosure is required by applicable law, such Stockholder shall
provide the Company and Buyer with prompt notice of such requirement prior to
making any disclosure so that the Company and Buyer may seek an appropriate
protective order.
(b) Each Shareholder severally agrees that (i) any breach by
it of any of the provisions contained in this Section 5.1 would cause
irreparable damage to Buyer for which monetary damages and other remedies at law
may not be adequate and (ii) Buyer will be entitled as a matter of right to
obtain, without posting any bond whatsoever, a restraining order,
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an injunction, specific performance, or other form of equitable or extraordinary
relief from any court of competent jurisdiction to restrain any threatened or
further breach of this Section 5.1 or to require any Stockholder to perform his
or her respective obligations under this Section 5.1, which right to equitable
or extraordinary relief will not be exclusive of, but will be in addition to,
all other remedies to which Buyer may be entitled under this Agreement, at law,
or in equity (including, the right to recover monetary damages). Each
Stockholder hereby agrees to waive proof of actual damages in any proceeding for
equitable or extraordinary relief.
5.2 Tax Matters.
(a) Preparation of Tax Returns; Payment of Taxes.
(i) Except as provided in Section 5.2(a)(iv), following
the Closing, Buyer shall be responsible for preparing or causing to be prepared
all federal, foreign, state and local Tax Returns required to be filed by the
Company after the Closing Date. To the extent any Taxes shown due on any such
Tax Return relate to a taxable period ending on or before the Closing Date (or a
taxable period that is deemed to close on the Closing Date pursuant to Section
5.2(a)(iii)), (A) such Tax Return shall be prepared in a manner consistent with
prior practice unless otherwise required by applicable Tax laws; (B) Buyer shall
provide the Stockholders with copies of such Tax Return at least 30 days prior
to the due date for filing such Return (including extensions, if any); and (C)
the Stockholders shall have the right to review such Tax Returns for 15 days
following receipt thereof. The failure of the Stockholders to propose any
changes to any such Tax Return within such 15 days shall be deemed to be an
indication of their approval thereof. The Stockholders and Buyer shall attempt
in good faith mutually to resolve any disagreements regarding such Tax Returns
prior to the due date for filing thereof. Buyer shall file or cause to be filed
all such Tax Returns and shall, subject to receiving the payments from the
Stockholders referred to in Section 5.2(a)(ii), pay the Taxes shown due thereon;
provided, however, that in the event that any disagreement between Buyer and the
Stockholders in respect of such Tax Returns shall not be resolved prior to the
due date for filing thereof, Buyer shall file or cause to be filed all such Tax
Returns in the manner deemed appropriate by the Buyer and shall, subject to
receiving the payments from the Stockholders referred to in Section 5.2(a)(ii),
pay the Taxes shown due thereon; provided, further, that nothing contained in
the foregoing shall in any manner terminate, limit or adversely affect any right
of Buyer to receive indemnification pursuant to any provision in this Agreement
or the right of the Stockholders to further pursue such disagreement, which, if
not resolved by the parties, shall be resolved in the manner described in
Section 1.5(b) (the "Dispute Resolution Mechanism").
(ii) Not later than five (5) days before the due date for
payment of Taxes with respect to any Tax Returns which Buyer has the
responsibility to file, the Stockholders shall pay to Buyer an amount equal to
that portion of the Taxes shown on such Return for which the Stockholders have
an obligation to indemnify Buyer pursuant to the provisions of Sections 2.2(a)
of the Escrow Agreement.
(iii) For federal income Tax purposes, the taxable year
of the Company shall end as of the close of the Closing Date and, with respect
to all other Taxes,
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the Stockholders and Buyer will, unless prohibited by applicable law, close the
taxable period of the Company as of the close of the Closing Date. Neither the
Stockholders nor Buyer shall take any position inconsistent with the preceding
sentence on any Tax Return. In any case where applicable law does not permit the
Company to close its taxable year on the Closing Date or in any case in which a
Tax is assessed with respect to a taxable period which includes the Closing Date
(but does not begin or end on that day), then Taxes, if any, attributable to the
taxable period of the Company beginning before and ending after the Closing Date
shall be allocated (i) to the Stockholders for the period up to and including
the Closing Date, and (ii) to the Company for the period subsequent to the
Closing Date. Any allocation of income or deductions required to determine any
Taxes attributable to any period beginning before and ending after the Closing
Date shall be prepared by Buyer and shall be made by means of a closing of the
books and records of the Company as of the close of the Closing Date, provided
that exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on the Closing Date and the period after
the Closing Date in proportion to the number of days in each such period. Buyer
shall provide the Stockholders with a schedule showing the computation of the
allocation at least 30 days prior to the due date for filing a Tax Return which
includes the Closing Date. The Stockholders shall have the right to review such
schedule, and Buyer and the Stockholders shall attempt in good faith mutually to
resolve any disagreements regarding the determination of such allocation. Any
amount owing from the Stockholders under this Section 5.2(a)(iii) shall be paid
no later than five (5) days prior to the due date for filing of the underlying
Tax Return.
(iv) Each of the Stockholders shall (at his or her own
expense) hire a firm of independent certified public accountants (the "CPA
Firm") to prepare the Company's federal income tax return on Form 1120S and
comparable state and local returns for the Company's taxable year ending as of
the close of the Closing Date (collectively, the "Final S Period Tax Return").
The Final S Period Tax Return shall be prepared in a manner consistent with
prior practice unless otherwise required by applicable tax laws. The CPA Firm
shall provide Buyer with a copy of the Final S Period Tax Return at least 30
days prior to the due date for filing such return (including extensions, if
any), and Buyer shall cause the Company to cooperate in the preparation and
filing of such returns. Buyer shall have the right to review and approve (which
approval shall not be unreasonably withheld) the Final S Period Tax Return for
15 days following receipt thereof. The failure of Buyer to propose any changes
to any such return within such 15 days shall be deemed to be an indication of
its approval thereof. The Stockholders and Buyer shall attempt in good faith
mutually to resolve any disagreements regarding the Final S Period Tax Return
prior to the due date for filing thereof. In the event that any disagreement
between Buyer and the Stockholders in respect of the Final S Period Tax Return
shall not be resolved prior to the due date for filing thereof, the Stockholders
shall file or cause to be filed such return and Buyer shall cause the Company to
cooperate in the filing of such return; provided, however, that nothing
contained in the foregoing shall in any manner terminate, limit or adversely
affect any right of Buyer's Indemnified Parties (as defined in the Escrow
Agreement) to receive indemnification pursuant to any provision in the Escrow
Agreement or the right of Buyer to further pursue such disagreement, which, if
not resolved by the parties, shall be resolved pursuant to the Dispute
Resolution Mechanism.
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(b) Tax Audits.
(i) Buyer shall have the sole right to represent the
interests of the Company in any Tax audit or administrative or court proceeding
relating to taxable periods of the Company beginning after the Closing Date and
to employ counsel of its choice at its expense. The Stockholders agree that they
will provide such cooperation and information as the Buyer and its counsel shall
reasonably request in the defense against or compromise of any claim in any said
proceeding.
(ii) Buyer shall promptly notify the Stockholders in
writing upon receipt by Buyer of notice of any pending or threatened Tax audit
or assessment which would affect the Tax liabilities of the Company for which
the Stockholders would be required to indemnify Buyer. The Stockholders shall
have the right to represent the interests of the Company in any Tax audit or
administrative or court proceeding relating to any Taxes or taxable periods of
the Company for which the Stockholders have an obligation to indemnify Buyer
hereunder, and to employ counsel of their choice at their expense; provided,
however, that Buyer shall have the right to participate in any such audit or
proceeding to the extent that any such audit or proceeding may affect the Tax
liability of Buyer, any of its Affiliates, or the Company for any period ending
after the Closing Date and to employ counsel of its choice at its own expense
for purposes of such participation. Notwithstanding anything to the contrary
contained or implied in this Agreement, without the prior written approval of
Buyer, the Stockholders shall not agree or consent to compromise or settle,
either administratively or after the commencement of litigation, any issue or
claim arising in any such audit or proceeding, or otherwise agree or consent to
any Tax liability, to the extent that any such compromise, settlement, consent
or agreement may affect the Tax liability of Buyer, any of its Affiliates, or
the Company for any period ending after the Closing Date.
(c) Transfer Taxes. The Stockholders shall pay all sales, use,
stamp, documentary, filing, recording, transfer or similar fees or taxes or
governmental charges (including, without limitation, real property transfer
gains taxes, UCC-3 filing fees, FAA, ICC, DOT, real estate and motor vehicle
registration, title recording or filing fees and other amounts payable in
respect of transfer filings) as levied by any Taxing authority or governmental
agency in connection with the transactions contemplated by this Agreement. The
Stockholders shall file all necessary documents (including, but not limited to,
all Tax Returns) with respect to all such amounts in a timely manner.
5.3 Funding of Phase III Development. Following the Closing through
June 30, 2000, Buyer shall allocate to the Company not less than $1,232,172.00
to develop Phase III of the Portal 360 Project. Such amount shall be provided to
the Company by Buyer or an Affiliate of Buyer in the increments and at the times
set forth in the business plan for the Company (the "Business Plan") attached
hereto as Exhibit E.
5.4 Stockholders Agreement. At Closing, each Stockholder shall execute
and deliver a counterpart to the Stockholders Agreement between the Buyer and
its stockholder (the "Stockholders Agreement") of Buyer in effect on the Closing
Date.
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5.5 Portal 360 Project Initial Public Offering
(a) If the Board of Directors of Buyer determines to cause the
Company to contribute all or substantially all of the assets of the Company
constituting the Portal 360 Project (the "Contribution") to a separate entity
(the "360 Entity") with the express intention of disposing of some or all of
Buyer's or its Affiliates' ownership of the 360 Entity by way of an initial
public offering, each Stockholder shall, subject to the limitations set forth in
this Section 5.5, have the right (the "Conversion Right") to convert (the
"Conversion") a portion of his or her shares of Buyer Common Stock acquired in
the transactions contemplated by this Agreement into common stock of the 360
Entity. Prior to the completion of the Contribution, Buyer shall give written
notice (the "Notice") to each Stockholder in accordance with Section 9.7
notifying such Stockholder of the Contribution. Subject to the limitations set
forth in subsection (c) below, within 10 days of receipt of the Notice, each
Stockholder shall transmit a written response (a "Response") in accordance with
Section 9.7 to Buyer declining or exercising the Conversion Right and, if
exercising such Conversion Right, indicating the number of shares of Buyer
Common Stock held by such Stockholder to be converted. If any Stockholder fails
to respond to the Notice within 10 days of receipt of such Notice, he or she
will be deemed to have waived his or her Conversion Right.
(b) The Conversion of each Stockholder's Buyer Common Stock,
if any, shall occur and be effective immediately prior to the consummation of
the initial public offering of the 360 Entity (the "Conversion Date") and such
Buyer Common Stock to be converted will be converted into shares of common stock
of the 360 Entity at a ratio (the "Ratio") equal to a fraction, the numerator of
which is the Per Share Value and the denominator of which is the offering price
per share (before the deduction of underwriting discounts and commissions) of
the common stock of the 360 Entity in such initial public offering, provided
that the number of shares of Buyer Common Stock to be converted will be rounded
up to the nearest whole share as necessary to avoid the issuance of any
fractional shares. As used herein, "Per Share Value" means the per share value
of the Buyer Common Stock to be so converted as determined by the Board of
Directors of Buyer in good faith on the Conversion Date. The Per Share Value
shall be final and binding upon each Stockholder. In exercising his or her
Conversion Right, each Stockholder may convert no more than the lesser of (i)
5%, or (ii) $250,000 in value (calculated using the Per Share Value) of the
Buyer Common Stock received by such Stockholder in the transactions contemplated
by this Agreement. The Board of Directors of Buyer shall deliver to each
Stockholder exercising his or her Conversion Right concurrently with the
Conversion a schedule setting forth the Ratio. Absent manifest error, the
determination of the Ratio by the Board of Directors of Buyer shall be final and
binding on the Stockholders.
(c) Notwithstanding anything in this Agreement to the
contrary, no Stockholder shall have any Conversion Right under this Section 5.5
if prior to the effectiveness of such Conversion (i) the Buyer has completed an
IPO or (ii) (A) such Stockholder's Management Agreement has been terminated for
Cause (as defined in the Employment Agreement to be entered into between each
Stockholder and Buyer on the Closing Date (each an "Employment Agreement,"
together the "Employment Agreements"), (B) such Stockholder voluntarily
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terminates his or her employment with the Company or (C) such Stockholder is in
violation of Section 6 of his or her Employment Agreement.
5.6 Employee Letters. The Company shall deliver to those employees of
the Company (each, a "Company Employee") set forth on Schedule 5.6 a letter in
substantially the form of Exhibit F hereto providing for those benefits in the
amounts set forth opposite each Company Employee's name in Schedule 5.6. Buyer
shall provide funds for, and the Company shall make, those payments provided for
in Schedule 5.6 according to the terms of such letter.
5.7 Release by Temple. Temple agrees and stipulates that the
consideration set forth in Article 1 herein is in full accord and satisfaction
of any claims Temple may, or may have any right to, assert with respect to the
distribution or allocation of the Cash Consideration. Accordingly, Temple, on
behalf of himself and his family, employees, assigns, agents, spouse, heirs,
executors, administrators, attorneys, and representatives of any kind, hereby
covenants not to sue and fully, finally, and forever generally RELEASES,
SURRENDERS, REMISES, ACQUITS, AND FOREVER DISCHARGES Buyer, the Company, and
their former and present parents, subsidiaries, insurers, Affiliates,
predecessors, successors, assigns, officers, administrators, directors,
shareholders, general or limited partners, principals, representatives, agents,
employees, accountants, attorneys and representatives of any kind (collectively,
the "ClientLogic Released Parties"), jointly and severally, from any and all
claims, demands, actions, liabilities, obligations, damages, suits in equity,
debts, accounts, costs, expenses, setoffs, contributions, dividends, promises,
covenants, attorneys' fees and/or causes of action of whatever kind or
character, whether past, present, future, known or unknown, liquidated or
unliquidated, accrued or unaccrued, which Temple has or might claim to have
against the ClientLogic Released Parties arising out of, relating to, or in
connection with any transfer, distribution or receipt of any portion of the Cash
Consideration to Thompson, pursuant to this Agreement, the Contingent Promissory
Notes, the Promissory Notes or otherwise, including, without limitation, ANY AND
ALL CLAIMS REGARDING COMMUNITY OR MARITAL PROPERTY OR CLAIMS SEEKING TO ENFORCE
COMMUNITY OR MARITAL PROPERTY RIGHTS, WHETHER STATUTORY OR COMMON LAW, CLAIMS
FOR COMMUNITY OR MARITAL PROPERTY RIGHTS IN RELATION TO THE CONSIDERATION SET
FORTH IN THIS AGREEMENT, OR ANY OTHER CLAIM WHICH RELATES TO OR ARISES OUT OF
COLORADO LAW, INCLUDING BUT NOT LIMITED TO, THE COLORADO UNIFORM MARRIAGE ACT,
C.R.S.A. Section 14-2-101 ET SEQ., COLORADO UNIFORM DISSOLUTION OF MARRIAGE ACT,
C.R.S.A. Section 14-10-101 ET SEQ., COLORADO MARITAL AGREEMENT ACT, C.R.S.A.
Section 14-2-301 ET SEQ., AND C.R.S.A. Section 14-2-201 ET SEQ.; provided
however, that this release shall neither be deemed to diminish or affect the
rights of Temple for full performance of this Agreement.
5.8 Release by Thompson. Thompson agrees and stipulates that the
consideration set forth in Article 1 herein is in full accord and satisfaction
of any claims Thompson may, or may have any right to, assert with respect to the
distribution or allocation of the Cash Consideration. Accordingly, Thompson, on
behalf of herself and her family, employees, assigns, agents, spouse, heirs,
executors, administrators, attorneys, and representatives of any kind, hereby
covenants not to sue and fully, finally, and forever generally RELEASES,
SURRENDERS, REMISES, ACQUITS, AND FOREVER DISCHARGES Buyer, the Company, and the
Client
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Logic Released Parties, jointly and severally, from any and all claims,
demands, actions, liabilities, obligations, damages, suits in equity, debts,
accounts, costs, expenses, setoffs, contributions, dividends, promises,
covenants, attorneys' fees and/or causes of action of whatever kind or
character, whether past, present, future, known or unknown, liquidated or
unliquidated, accrued or unaccrued, which Thompson has or might claim to have
against the ClientLogic Released Parties arising out of, relating to, or in
connection with this any transfer, distribution or receipt of any portion of the
Cash Consideration to Temple, pursuant to this Agreement, the Contingent
Promissory Notes, the Promissory Notes or otherwise including, without
limitation, ANY AND ALL CLAIMS REGARDING COMMUNITY OR MARITAL PROPERTY OR CLAIMS
SEEKING TO ENFORCE COMMUNITY OR MARITAL PROPERTY RIGHTS, WHETHER STATUTORY OR
COMMON LAW, CLAIMS TO ENFORCE COMMUNITY OR MARITAL PROPERTY RIGHTS IN RELATION
TO THE CONSIDERATION SET FORTH IN THIS AGREEMENT, OR ANY OTHER CLAIM WHICH
RELATES TO OR ARISES OUT OF THE LAW OF THE STATE OF COLORADO, INCLUDING WITHOUT
LIMITATION, THE COLORADO UNIFORM MARRIAGE ACT, C.R.S.A. Section 14-2-101 ET
SEQ., COLORADO UNIFORM DISSOLUTION OF MARRIAGE ACT, C.R.S.A. Section 14-10-101
ET SEQ., COLORADO MARITAL AGREEMENT ACT, C.R.S.A. Section 14-2-301 ET SEQ., AND
C.R.S.A. Section 14-2-201 ET SEQ.; provided however, that this release shall
neither be deemed to diminish or affect the rights of Thompson for full
performance of this Agreement.
5.9 Indemnification By Temple. Temple hereto represents that he has
full and express authority to make the release and stock transfer set forth in
this Agreement, that he has not made any assignment of those claims, and that he
knows of no person or entity that intends to assert a claim by, through, under,
or on behalf of him ("Known Claimants"). TO THE EXTENT THAT ANY CLAIM MAY BE
BROUGHT BY PERSONS OR ENTITIES CLAIMING BY, THROUGH, OR UNDER TEMPLE OR BY KNOWN
CLAIMANTS, TEMPLE AGREES TO INDEMNIFY AND HOLD HARMLESS THE CLIENTLOGIC RELEASED
PARTIES (AND ANY PERSON OR ENTITY ASSOCIATED WITH SUCH PARTY THAT IS DESCRIBED
IN THIS AGREEMENT) FROM ANY COSTS OR EXPENSES, INCLUDING LEGAL FEES, COURT
COSTS, JUDGMENTS, OR REASONABLE SETTLEMENT PAYMENTS ARISING FROM SUCH CLAIMS
INCLUDING, WITHOUT LIMITATION, CLAIMS REGARDING COMMUNITY OR MARITAL PROPERTY OR
CLAIMS SEEKING TO ENFORCE COMMUNITY OR MARITAL PROPERTY RIGHTS, WHETHER
STATUTORY OR COMMON LAW.
5.10 Indemnification By Thompson. Thompson hereto represents that she
has full and express authority to make the release and stock transfer set forth
in this Agreement, that she has not made any assignment of those claims, and
that she knows of no Known Claimants. TO THE EXTENT THAT ANY CLAIM MAY BE
BROUGHT BY PERSONS OR ENTITIES CLAIMING BY, THROUGH, OR UNDER THOMPSON OR BY
KNOWN CLAIMANTS, THOMPSON AGREES TO INDEMNIFY AND HOLD HARMLESS THE CLIENTLOGIC
RELEASED PARTIES (AND ANY PERSON OR ENTITY ASSOCIATED WITH SUCH PARTY THAT IS
DESCRIBED IN THIS AGREEMENT) FROM ANY COSTS OR EXPENSES, INCLUDING LEGAL FEES,
COURT COSTS, JUDGMENTS, OR REASONABLE SETTLEMENT PAYMENTS ARISING FROM SUCH
CLAIMS
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INCLUDING, WITHOUT LIMITATION, CLAIMS REGARDING COMMUNITY OR MARITAL PROPERTY OR
CLAIMS SEEKING TO ENFORCE COMMUNITY OR MARITAL PROPERTY RIGHTS, WHETHER
STATUTORY OR COMMON LAW.
5.11 Survival. The Indemnification provided by Temple and Thompson
pursuant to Sections 5.7 and 5.8 shall survive until six months after the
expiration of the applicable statute of limitations.
5.12 Power of Attorney. Each Stockholder constitutes and appoints,
effective as of the Closing Date, the Company, Buyer and each of their duly
authorized officers and agents, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for Executive and in his or her name, place and stead, in any and all
capacities, to perform any acts necessary (including signing any documents) to
further the prosecution, registration, issuance, and enforcement of patents,
copyrights, trademarks, trade secrets, or similar rights or protections thereon,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
5.13 Escrow Agent Fees. The Stockholders agree to pay any Fees and
Expenses (as defined in the Escrow Agreement) that they owe pursuant to the
Escrow Agreement.
5.14 Removal of Guarantees. Following the Closing, Buyer shall use its
commercially reasonable efforts to have Temple removed as a guarantor from all
personal guarantees set forth in Schedule 5.14 of Company obligations. To the
extent Temple suffers any liability as a result of Buyer's failure to perform
its obligations pursuant to this Section 5.14, Buyer will indemnify Temple from
and against all such liabilities.
ARTICLE VI
CLOSING DELIVERIES
6.1 Closing Deliveries to Buyer. At Closing, Buyer shall have received
the following:
(a) the Company and the Subsidiaries shall have delivered
confirmation that all notices and obtained all of the waivers, permits,
consents, approvals or other authorizations shown on Schedules 2.4, 2.13(g),
2.14(b), 2.17 and 3.2(b);
(b) Buyer and each of Temple and Thompson, respectively, shall
have entered into Employment Agreements in the form attached hereto as Exhibits
G-1 and G-2;
(c) the executive officers and directors of the Company
identified in Schedule 6.1(c) shall have tendered their resignations to the
Company to be effective as of the Closing Date;
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(d) Buyer shall have received evidence to its satisfaction
that all brokers fees and expenses of the Company and the Stockholders, if any,
have been paid prior to Closing;
(e) the Stockholders shall have executed and delivered the
Escrow Agreement;
(f) each of the Stockholders shall have delivered to Buyer
stock certificates, duly executed in blank, representing all of his or her
Shares of the Company;
(g) Buyer shall have received the opinion of Lohf, Shaiman &
Jacobs, P.C., counsel to the Company and the Stockholders, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit H;
(h) the Stockholders Agreement shall have been duly executed
and delivered by each Stockholder acquiring Buyer Common Stock under the terms
of this Agreement;
(i) the Stockholders shall have executed the Subscription
Agreements; and
(j) the Company shall deliver (i) a Termination and Release
Agreement executed by Bank One, Colorado, N.A. ("Lender") releasing any and all
rights, liens and security interests granted by the Company in favor of Lender
and (ii) UCC-3 Financing Statements evidencing the release of such rights, liens
and security interests.
6.2 Closing Deliveries to the Stockholders. At Closing, the Company and
the Stockholders shall have received the following:
(a) the Company shall have executed and delivered the
Promissory Notes and Contingent Promissory Notes;
(b) Buyer shall have executed and delivered the Escrow
Agreement;
(c) Buyer shall have delivered the Unadjusted Cash
Consideration to the Stockholders; and
(d) the Company shall have executed the Employment Agreements;
and
(e) The Stockholders and the Company shall have received the
opinion of Weil, Gotshal & Manges LLP, counsel to the Buyer, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit I.
ARTICLE VII
INTENTIONALLY OMITTED
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<PAGE> 35
ARTICLE VIII
DEFINITIONS
8.1 Defined Terms. For purposes of this Agreement, each of the
following defined terms is defined in the Section of this Agreement indicated
below.
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
360 Entity 5.5(a)
Business Plan 5.3
Buyer Introduction
Buyer Common Stock 1.2
Buyer Financial Statements 4.5
Buyer Legal Proceeding 4.6
Buyer Preferred Stock 4.4(a)
Buyer Options 4.4(a)
Buyer Rights 4.4(a)
CERCLA 2.22(a)
ClientLogic Released Parties 5.7
Closing 1.1
Closing Date 1.3
Common Stock Recitals
Company Introduction
Company Employee 5.6
Company Intellectual Property 2.15(a)
Contingent Promissory Notes 1.2(b)
Contribution 5.5(a)
Conversion 5.5(a)
Conversion Right 5.5(a)
CPA Firm 1.5(b)
Dispute Resolution Mechanism 5.2(a)(i)
Employment Agreement(s) 5.5(c)
Escrow Agent 1.4
Escrow Agreement 1.4
Escrow Funds 1.4
Facilities Equipment 2.13(e)
Final S Period Tax Return 5.2(a)(iv)
Financial Statements 2.6
Governmental Entity 2.4
Improvements 2.13(e)
IRS 2.12(c)
Known Claimants 5.9
Leased Real Property 2.13(a)
Legal Proceeding 2.19
Most Recent Balance Sheet 2.6
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
Most Recent Balance Sheet Date 2.6
Notice 5.5(a)
Owned Company Intellectual Property 2.15(a)
Owned Real Property 2.13(a)
Party or Parties Introduction
Per Share Value 5.5(a)
Permits 2.24
Permitted Liens 2.13(b)
Post Closing Statement 1.5(a)
Projections 2.8
Promissory Notes 1.2(b)
Ratio 5.5(c)
Real Property 2.13(a)
Response 5.5(b)
Shares Recitals
Stockholder or Stockholders Introduction
Stockholders Agreement 5.4
Subscription Agreements 1.2(b)
Subsidiary or Subsidiaries 2.5(a)
Tangible Personal Property 2.14(a)
Temple Introduction
Thompson Introduction
Unadjusted Cash Consideration 1.2
</TABLE>
8.2 Certain Supplemental Defined Terms.
"Acquisition Proposal" means any proposal with respect to a
merger, consolidation, joint venture, share exchange or similar transaction
involving the Company or any Subsidiary of the Company, or any purchase of all
or any significant portion of the assets of the Company or any Subsidiary of the
Company, or any equity interest in the Company or any Subsidiary of the Company,
other than the transactions contemplated hereby.
"Adjusted Working Capital" means current assets (excluding
cash, cash equivalents and marketable securities) less current liabilities
(excluding the current portion of principal and interest in respect of any
indebtedness for borrowed money and capital leases and obligations for or bonus
payments made to Company Employees pursuant to Section 5.6), all as determined
from a consolidated balance sheet of the Company and its Subsidiaries, prepared
as of the Closing Date in accordance with GAAP; provided that (i) no
liabilities, accruals or reserves shall be reduced, modified or eliminated
except by reason of (x) payment or third party credit occurring in the ordinary
course of business consistent with past practice, (y) reduction or cancellation
of scheduled debts by agreement of any creditor or (z) reduction or cancellation
of debts upon settlement of a dispute, (ii) such amounts shall be determined
without regard to any adjustments thereto in respect of or relating to the
transactions contemplated hereby or simultaneous or subsequent action, and (iii)
such amounts shall be determined by
32
<PAGE> 37
eliminating intercompany and Affiliate accounts, other than accounts receivable
and payable for goods and services provided in the ordinary course at costs
equivalent to those that would be incurred between arms'-length third parties.
"Affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, another Person.
"Ancillary Agreements" means the Promissory Notes, the
Contingent Promissory Notes, the Escrow Agreement, the Subscription Agreements
and the Management Agreements.
"Buyer Material Adverse Effect" means any change, effect,
event or circumstance that (a) is, or could reasonably be expected to be,
materially adverse to the assets, business, financial condition, prospects,
liabilities or results of operations (including, but not limited to, trailing
and prospective EBITDA) of the Buyer and its subsidiaries, taken as a whole, or
(b) materially impairs the ability of the Buyer to consummate the transactions
contemplated by this Agreement or the Ancillary Agreements.
"Cash Consideration" shall be equal to Eleven Million Dollars
($11,000,000), less (i) the amount, if any, by which Net Debt exceeds
$750,000.00, less (ii) the amount, if any, by which estimated capital lease
obligations exceed $250,000.00, less (iii) the amount, if any, by which Adjusted
Working Capital is less than $707,642, less (iv) any fees payable to the Escrow
Agent in connection with the Escrow Agreement, less (v) those amounts paid to
the Company by Buyer pursuant to Section 5.6 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Material Adverse Effect" means any change, effect,
event or circumstance that (a) is, or could reasonably be expected to be,
materially adverse to the assets, business, financial condition, prospects,
liabilities or results of operations (including, but not limited to, trailing
and prospective EBITDA) of the Company and the Subsidiaries, taken as a whole,
or (b) materially impairs the ability of the Company to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements (as
applicable).
"Confidential Information" shall mean any confidential
information with respect to the conduct or details of the business of Buyer and
its Affiliates and the Company or any Subsidiary, including, without limitation,
methods of operation, customers, and customer lists, products, proposed
products, former products, proposed, pending or completed acquisitions of any
company, division, product line or other business unit, prices, fees, costs,
plans, designs, technology, Intellectual Property, marketing methods, policies,
plans, personnel, suppliers, competitors, markets or other specialized
information or proprietary matters. The term Confidential Information does not
include, and there shall be no obligation hereunder with respect to, information
that (i) is generally available to the public on the date of this Agreement, or
(ii) becomes generally available to the public other than as a result of a
disclosure by the Stockholder not otherwise permissible thereunder, or (iii) the
Stockholder
33
<PAGE> 38
learns from other sources where such sources have not violated their
confidentiality obligation to the Company or Buyer or their respective
Affiliates.
"Date Data" means any data of any type that includes date
information or which is otherwise derived from, dependent on or related to date
information.
"Date-Sensitive System" means any software, microcode or
hardware system or component, including any electronic or electronically
controlled system or component, that processes any Date Data and that is
installed, in development or on order by the Company or its Subsidiaries for
their internal use, which the Company or any of its Subsidiaries sells, leases,
licenses, assigns or otherwise provides, or the provision or operation of which
the Company or any of its Subsidiaries provides the benefit, to its customers,
vendors, suppliers, Affiliates or any other third party.
"Employee Benefit Plan" means any "employee pension benefit
plan" (as defined in Section 3(2) of ERISA), any "employee welfare benefit plan"
(as defined in Section 3(l) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation maintained or contributed by the Company or any Subsidiary.
"Environmental Law" means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste, (ii) air, water and noise pollution; (iii) groundwater
and soil contamination, (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; and
(vii) manufacturing, processing, using, distributing, treating, storing,
disposing, transporting or handling of materials declared under any law as
pollutants, contaminants, toxic or hazardous materials or substances or oil or
petroleum products or solid or hazardous waste.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP", as used in this Agreement, means U.S. generally
accepted accounting principles, applied on a consistent basis throughout the
periods in question.
"Intellectual Property" means all (i) patents and patent
applications, (ii) copyrights and registrations thereof (including, without
limitation, moral rights), (iii) computer software (including, without
limitation, all code), data and documentation, (iv) trade secrets,
34
<PAGE> 39
inventions, processes, algorithms, improvements, designs, discoveries, ideas,
know-how and all other business, technical or financial information, whether
patentable or unpatentable and whether or not reduced to practice, (v)
trademarks, service marks, trade names, domain names and applications and
registrations therefor and (vi) all other proprietary rights.
"IPO" shall mean a firm commitment underwritten public
offering of Buyer Common Stock or other equity securities pursuant to a
prospectus, registration statement or similar document under the Securities Act
or equivalent laws of appropriate jurisdictions where such shares of Buyer
Common Stock or equity securities are listed on at least one of The Toronto
Stock Exchange, The Montreal Exchange, the New York Stock Exchange or the
American Stock Exchange or authorized to be quoted and/or listed on the NASDAQ
Stock Market, together with such other stock exchange or exchanges as may be
approved by the Board of Directors of Buyer.
"Knowledge" or any similar expression, as it applies to the
Stockholders or the Company, means the knowledge which any (i) director or
executive officer of the Company or any Subsidiary has or (ii) Temple or
Thompson, in each case, has or reasonably should have in the prudent exercise of
that individual's duties, after due inquiry. Knowledge or any similar
expression, as it applies to the Buyer, means the knowledge any director or
executive officer of Buyer has or reasonably should have in the prudent exercise
of that individual's duties, after due inquiry.
"Materials of Environmental Concern" means any hazardous
substance, pollutant or contaminant (as such terms are defined under CERCLA),
oil, petroleum and petroleum products.
"Net Debt" means any interest and principal on any current and
long-term indebtedness for borrowed money (excluding capital leases but
including, without limitation, letters of credit) less unrestricted cash, cash
equivalents and marketable securities, as each item should be reflected on a
consolidated balance sheet of the Company and its Subsidiaries prepared on the
Closing Date in accordance with GAAP, plus all charges, fees, expenses and
penalties relating to such indebtedness, including prepayment penalties thereon
or which become due as a result of the transactions contemplated hereby, to the
extent that any of the foregoing have not been paid prior to Closing.
"Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or, as applicable, any
other entity.
"Portal 360 Project" means an existing research and
development ("R&D") effort to create the next generation of customer
relationship management ("CRM") system based entirely on a WEB component
architecture and associated technologies. Core technologies include but are not
limited to: JAVA, EJB1.1, XML, XSL and COBRA. Portal 360 Project will provide
similar or greater functionality and supercede the current application suite
which is based on client/server technologies. The R&D effort will be
incrementally delivered in phases. "Phase III of the Portal 360 Project" shall
mean the third incremental deliverable under the Portal 360 Project. This phase
will result in a marketable next generation
35
<PAGE> 40
CRM software system and will be deemed ready for use by clients. June 30, 2000
is the target completion date for Phase III of the Portal 360 Project.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, claim, voting agreement or other similar
limitation on the Shares, or other lien (whether arising by contract or by
operation of law), other than (i) mechanic's, materialmen's, and similar liens,
(ii) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, in the case of each
of clauses (i), (ii) and (iii), arising in the ordinary course of business and
which are reflected on the Company's books and records in accordance with GAAP.
"Stockholder Material Adverse Effect" means any change,
effect, event or circumstance that materially impairs the ability of any of the
Stockholders to consummate the transactions contemplated by this Agreement or
the Ancillary Agreements.
"Taxes" means all domestic or foreign federal, state, or local
taxes, charges, fees, levies or other similar assessments or liabilities,
including without limitation income, profits, gross receipts, ad valorem,
premium, value-added, alternative or add-on minimum, excise, real property,
personal property, sales, service, license, lease, use, transfer, withholding,
employment, unemployment, insurance, social security, business license, business
organization, environmental, workers compensation, payroll, severance, stamp,
occupation, customs, duties and franchise taxes imposed by the United States of
America or any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such government, and any
interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or dispute
thereof with any taxing authority (domestic or foreign) and shall include any
transferee liability in respect of Taxes, any liability in respect of Taxes
imposed by contract, Tax sharing agreement, Tax reimbursement agreement, or any
similar agreement.
"Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority or
jurisdiction (domestic or foreign) in connection with Taxes, including
information returns, any document in respect of or accompanying payments or
estimated Taxes, or in respect of or accompanying requests for the extension of
time in which to file any such report, return document, declaration, or other
information.
"Year 2000 Compliant" means (i) with respect to Date Data,
that such data is in proper format and accurate for all dates in the twentieth
and twenty-first centuries, and (ii) with respect to Date-Sensitive Systems,
that each such system accurately processes all Date Data, including for the
twentieth and twenty-first centuries, without loss of any functionality or
performance, including but not limited to calculating, comparing, sequencing,
storing and displaying such Date Data (including all leap year considerations),
when used as a stand-alone system or in combination with other software or
hardware.
36
<PAGE> 41
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however that
any Party may make any public disclosure it believes in good faith is required
by applicable law or stock market regulation (in which case the disclosing Party
shall use reasonable efforts to advise the other Parties and provide them with a
copy of the proposed disclosure prior to making the disclosure).
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
9.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided, that (i) Buyer may assign its rights, interests and
obligations hereunder to a direct or indirect wholly-owned subsidiary of Buyer
or any third party purchasing all or substantially all of the capital stock of
assets of Buyer and/or the Company and (ii) Buyer may make a collateral
assignment of its rights under this Agreement to its secured lenders without the
written consent of the Stockholders or the Company; provided further, that any
such assignment under (i) and (ii) above shall not relieve Buyer from its
obligations hereunder.
9.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication here-under shall be deemed duly delivered two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
37
<PAGE> 42
If to the Company (prior to the Closing) or the Stockholders:
Marketvision, Inc.
10065 East Harvard, Suite 750
Denver, Colorado 80231
Attention: Joseph L. Temple, Jr.
Facsimile: (303) 338-9560
Copy to:
Lohf, Shaiman & Jacobs, P.C.
950 South Cherry Street, Suite 900
Denver, Colorado 80246
Attn: Charles H. Jacobs
Facsimile: (303) 753-9997
If to the Company (after the Closing) or Buyer:
ClientLogic Holding Corporation
One American Center
3100 West End Avenue
Suite 150
Nashville, Tennessee 37203
Attention: Steven M. Kawalick
Facsimile: (615) 301-7150
Copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Facsimile: (214) 746-7777
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 Governing Law.
(a) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the State of New York.
38
<PAGE> 43
(b) The parties hereto hereby irrevocably and unconditionally
submit to the jurisdiction of any State court (and the appropriate appellate
court) sitting in New York, New York, over any suit, action or proceeding
arising out of or relating to this Agreement. Each party hereto hereby agrees
that service of any process, summons, notice or document by U.S. registered mail
addressed to the appropriate party shall be effective service of process for any
action, suit or proceeding brought against such party in any such court. Each
party hereto agrees irrevocably and unconditionally to waive any objection to
the laying of venue of any such suit, action or proceeding brought in any such
court and any claim that any such suit action or proceeding brought in any such
court has been brought in an inconvenient forum. Each party hereto agrees that a
final judgment in any suit, action or proceeding brought in any such court shall
be conclusive and binding upon such party and may be enforced in any other
courts to whose jurisdiction such party is or may be subject, by suit upon such
judgment.
9.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver of any right or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
9.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 Construction.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
9.12 No Recourse. No past, present or future director, officer,
employee, shareholder, incorporator or partner, as such, of Buyer, the Company,
its Subsidiaries or the
39
<PAGE> 44
Stockholders (except to the extent any of the foregoing is a party to this
Agreement) shall have any liability for any obligations of Buyer, the Company or
the Stockholders under this Agreement or for any claim based on, in respect of
or by reason of such obligations or their creation.
9.13 Specific Performance. In the event of a breach or threatened
breach by any party hereto of any of his, her or its obligations hereunder to
consummate the transactions provided for herein any other party hereto shall be
entitled to specific performance with respect to said obligations. Nothing
herein shall be construed as prohibiting any party hereto from pursuing any
other remedies available for such breach or threatened breach, including the
recovery of damages.
9.14 Expenses. The Stockholders shall be responsible for the expenses
incurred by the Stockholders and the Company and its Subsidiaries in connection
with the transactions provided for herein or contemplated hereby, and the
Stockholders shall not cause or permit the Company or any Subsidiary to pay or
be liable for such costs. Buyer will be responsible for the expenses incurred by
Buyer in connection with the transactions contemplated hereby.
40
<PAGE> 45
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
MARKETVISION, INC.
By: /s/ JOSEPH L. TEMPLE, JR.
--------------------------------
Name: Joseph L. Temple, Jr.
------------------------------
Title: CEO & Chairman
-----------------------------
JOSEPH L. TEMPLE, JR.
By: /s/ JOSEPH L. TEMPLE, JR.
--------------------------------
Name: Joseph L. Temple, Jr.
------------------------------
Title: CEO & Chairman
-----------------------------
S. DIANNE THOMPSON
By: /s/ S. DIANNE THOMPSON
--------------------------------
Name: S. Dianne Thompson
------------------------------
Title: President
-----------------------------
CLIENTLOGIC HOLDING CORPORATION
By: /s/ S. DIANNE THOMPSON
--------------------------------
Name: S. Dianne Thompson
------------------------------
Title: Chairman
-----------------------------
<PAGE> 1
EXHIBIT 10.1
================================================================================
STOCKHOLDERS AGREEMENT
CUSTOMERONE HOLDING CORPORATION
--------------------
Dated as of October 1, 1998
--------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
TABLE OF CONTENTS
<S> <C>
1. INTERPRETATION..........................................................................................1
1.1 Definitions....................................................................................1
1.2 Rules of Construction..........................................................................9
2. CORPORATE GOVERNANCE...................................................................................10
2.1 Board.........................................................................................10
(a) Board Representation.................................................................10
(b) Vacancies............................................................................10
(c) Termination of Rights................................................................11
(d) Costs and Expenses...................................................................11
(e) Election of Designees................................................................11
2.2 Other Activities of the Stockholders; Fiduciary Duties........................................11
2.3 Grant of Proxy................................................................................12
3. ISSUANCE OF SECURITIES.................................................................................12
3.1 Issuances of Capital Stock or Common Stock Equivalents........................................12
3.2 Issuances of Employee Incentive Securities....................................................12
3.3 Preemptive Rights.............................................................................12
(a) Rights to Participate in Future Sales................................................12
(b) Offer Notice.........................................................................13
(c) Exercise.............................................................................13
(d) Second Round Subscribers.............................................................13
(e) Exceptions to Preemptive Rights......................................................14
4. TRANSFERS OF SECURITIES AND LIMITATIONS ON TRANSFERS...................................................14
4.1 Restrictions on Transfer......................................................................14
4.2 Restrictive Legends...........................................................................14
(a) Securities Act Legend................................................................14
(b) Other Legends........................................................................15
4.3 Notice of Proposed Transfers..................................................................15
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.4 Termination of Certain Restrictions...........................................................16
4.5 Exempt Transfers..............................................................................16
(a) Transfers to an Affiliate............................................................16
(b) Pledges..............................................................................17
(c) Sales to Onex Management.............................................................17
(d) Public Offerings.....................................................................17
(e) Transfer to Berczi...................................................................17
4.6 Sales by Minority Stockholders................................................................17
4.7 Sales by Onex.................................................................................17
4.8 Onex Rights of First Refusal..................................................................17
(a) Rights of First Refusal..............................................................17
(b) Sale Notice..........................................................................18
(c) Exercise Notice......................................................................18
(d) Failure to Exercise..................................................................18
(e) Offers Irrevocable...................................................................18
4.9 Tag Along Rights..............................................................................19
(a) Tag Along Rights.....................................................................19
(b) Notice...............................................................................19
(c) Exercise.............................................................................19
(d) Failure to Exercise..................................................................19
4.10 Drag Along Rights.............................................................................20
(a) Drag Along Rights....................................................................20
(b) Notice...............................................................................20
(c) Implementation.......................................................................20
(d) Proxy................................................................................20
4.11 Involuntary Transfers.........................................................................21
(a) Termination of Employment............................................................21
(b) Death, Disability or Retirement......................................................22
(c) Event of Default.....................................................................23
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(d) Determination of Fair Market Value...................................................23
4.12 General Provisions Relating to Certain Sales of Securities....................................24
(a) Definitions..........................................................................24
(b) Closing..............................................................................25
(c) Deliveries at Closing................................................................25
(d) Failure to Make Deliveries...........................................................25
(e) Deemed Transfer......................................................................25
(f) Seller Entitled to Purchase Price....................................................26
(g) Pledged Securities...................................................................26
(h) Power of Attorney....................................................................26
4.13 All Stockholders to be Bound..................................................................26
4.14 Certain Events Not Deemed Transfers...........................................................27
4.15 Transfer and Exchange.........................................................................27
4.16 Replacement Securities........................................................................27
5. PUBLIC OFFERINGS.......................................................................................27
5.1 Qualified IPO.................................................................................27
5.2 Secondary Offering in Connection with Qualified IPO...........................................27
5.3 Piggyback Registrations.......................................................................28
(a) Right to Piggyback...................................................................28
(b) Priority on Registrations............................................................28
5.4 Holdback Agreement............................................................................29
5.5 Registration Procedures.......................................................................29
5.6 Suspension of Dispositions....................................................................33
5.7 Registration Expenses.........................................................................33
5.8 Indemnification...............................................................................34
5.9 Further Assurances............................................................................37
6. OPTION BY CERTAIN UNACCREDITED STOCKHOLDERS............................................................37
6.1 Grant of Option...............................................................................37
6.2 Option Transaction............................................................................38
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6.3 Exercise of Option............................................................................38
6.4 Closing.......................................................................................38
6.5 Exercise Price................................................................................39
6.6 Assignment of Option..........................................................................39
7. CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION..................................................39
7.1 Acknowledgement...............................................................................39
7.2 Covenants.....................................................................................39
(a) Covenants of Stockholders............................................................39
(b) Covenants of Schwartz................................................................40
7.3 Exceptions....................................................................................41
(a) Disclosure by Onex...................................................................41
(b) Acquisition of Public Securities.....................................................41
7.4 Reasonable Restrictions.......................................................................41
8. MISCELLANEOUS..........................................................................................41
8.1 Implementation................................................................................41
8.2 Notices.......................................................................................41
8.3 Successors and Assigns........................................................................42
8.4 Remedies......................................................................................42
8.5 Termination...................................................................................42
8.6 Legal Holidays................................................................................42
8.7 Governing Law.................................................................................43
8.8 Severability..................................................................................43
8.9 No Waivers; Amendments........................................................................43
(a) No Waivers...........................................................................43
(b) Amendment and Waiver.................................................................43
8.10 Currency......................................................................................43
8.11 Sections and Headings.........................................................................43
8.12 Entire Agreement..............................................................................43
8.13 Duplicate Originals...........................................................................43
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8.14 Time of Essence...............................................................................44
8.15 Number and Gender.............................................................................44
8.16 Ceasing to be a Party.........................................................................44
8.17 Change in Securities..........................................................................44
8.18 Securities Subsequently Acquired..............................................................44
8.19 Registration of Securities....................................................................44
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<PAGE> 7
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement")
dated as of October 1, 1998, is entered into by and among CustomerONE Holding
Corporation, a Delaware corporation (including its successors, the
"Corporation"), and the securityholders listed on the signature pages hereof.
RECITALS
WHEREAS, the Corporation was incorporated under the DGCL by a
certificate of incorporation dated September 25, 1998 (as the same may be
amended from time to time, the "Certificate");
WHEREAS, the authorized capital stock of the Corporation
consists of 110,000,000 shares of capital stock, consisting of 10,000,000 shares
of Preferred Stock, and 100,000,000 shares of Common Stock, and
WHEREAS, as of the date hereof the Stockholders collectively
own all the outstanding shares of Common Stock of the Corporation as enumerated
in Schedule A.
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:
1. INTERPRETATION
1.1 Definitions.
"ACCREDITED INVESTOR" shall mean an "Accredited Investor," as
defined in Regulation D, or any successor rule then in effect.
"ACCREDITED OFFEREE" shall have the meaning provided in
Section 3.3(a).
"ADVICE" shall have the meaning provided in Section 5.6.
"AFFILIATE" shall mean, 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 management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"AFFILIATED SUCCESSOR" shall have the meaning provided in
Section 3.3(a).
"BERCZI" shall mean Peter Berczi.
<PAGE> 8
"BOARD" shall mean the Board of Directors of the Corporation.
"BUSINESS DAY" shall mean a day that is not a Legal Holiday.
"BYLAWS" shall mean the Bylaws of the Corporation as in effect
from time to time.
"CALL RIGHT" shall have the meaning provided in Section
4.11(c).
"CAUSE" shall mean (i) the willful refusal of a Management
Stockholder to perform in any material respect the duties or
responsibilities to the Corporation as assigned by an authorized
officer of the Corporation, 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 a Management
Stockholder in conduct that causes material injury, monetarily or
otherwise, to the Corporation, including, but not limited to,
misappropriation or conversion of assets of the Corporation (other than
nonmaterial assets), unless such actions were approved by the Board or
the Chief Executive Officer of the Corporation; (iii) conviction of or
entry of a plea of nolo contendere to a felony; or (iv) a material
breach of any agreement between a Management Stockholder and the
Corporation by such Management Stockholder engaging in violation of the
restrictive covenants in such agreement. No act or failure to act by a
Stockholder 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 Corporation.
"CERTIFICATE" shall have the meaning provided in the Recitals
hereof.
"COMMON STOCK" shall mean shares of the Common Stock, $0.01
par value per share, of the Corporation, and any capital stock into
which such Common Stock thereafter may be changed.
"COMMON STOCK EQUIVALENTS" shall mean, without duplication
with any other Common Stock or 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, Common Stock
of the Corporation and securities convertible or exchangeable into
Common Stock of the Corporation, whether at the time of issuance or
upon the passage of time or the occurrence of some future event.
"CONFIDENTIAL INFORMATION" shall have the meaning provided in
Section 7.1.
"CORPORATION" shall have the meaning provided in the
introductory paragraph hereof.
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<PAGE> 9
"CUSTOMERONE CORPORATION" shall mean CustomerONE Corporation,
a Delaware corporation that is a Subsidiary of the Corporation.
"DATE OF CLOSING" shall have the meaning provided in Section
4.12(b).
"DEFAULTING STOCKHOLDER" shall have the meaning provided in
Section 4.11(c).
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"DRAG ALONG RIGHTS" shall mean the rights of Onex pursuant to
Section 4.10.
"DRAG SALE" shall have the meaning provided in Section 4.10.
"EMPLOYEE INCENTIVE SECURITIES" shall mean any shares of
Common Stock, Common Stock Equivalents or other securities of the
Corporation or any Subsidiary of the Corporation that may be issued
from time to time to directors, officers, employees or consultants of
the Corporation or any of its Subsidiaries in compliance with Section
3.2.
"EVENT OF DEFAULT" shall mean, with respect to any
Stockholder, any one of the following:
(i) the Stockholder Transfers any or all of its Common
Stock in contravention of the provisions of this Stockholders
Agreement;
(ii) the Stockholder is the subject of any Insolvency
Proceeding;
(iii) if the Stockholder is a corporation, limited
liability company or limited partnership, such Stockholder passes or
purports to pass, or takes or purports to take, any proceeding with
respect to the surrender of its charter, its dissolution, liquidation
or winding up or loses its charter by expiration, forfeiture or
otherwise;
(iv) the Stockholder breaches any material provision of
this Stockholders Agreement, and such breach has not been cured within
10 Business Days of the Stockholder receiving written notice thereof
from the Corporation; or
(v) if the Stockholder is an individual, any application
is made in any other jurisdiction pursuant to which such Stockholder's
spouse has requested the Transfer of all or any portion of the shares
of Common Stock owned by such Stockholder to such spouse or any other
person.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated by the SEC
thereunder.
3
<PAGE> 10
"EXCLUDED REGISTRATION" shall mean a registration under the
Securities Act of (i) securities registered on Form S-8 or any similar
successor form and (ii) securities registered to effect the acquisition
of or combination with another Person.
"EXEMPT TRANSFER" shall have the meaning provided in Section
4.5.
"EXERCISE NOTICE" shall have the meaning provided in Section
3.3(c).
"EXERCISE PERIOD" shall have the meaning provided in Section
4.8(b).
"FULLY-DILUTED COMMON STOCK" shall mean, at any time, the then
outstanding Common Stock of the Corporation plus (without duplication)
all shares of Common Stock issuable, whether at such time or upon the
passage of time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then outstanding Common Stock
Equivalents.
"INSOLVENCY PROCEEDING" shall mean, with respect to any
Stockholder, the occurrence of any of the following:
(i) such Stockholder
(A) making a general assignment for the benefit
of creditors or becoming insolvent or unable
to meet its obligations as they generally
become due,
(B) filing a petition for voluntary liquidation
or bankruptcy,
(C) commencing any case or proceeding under
applicable insolvency or bankruptcy laws now
or hereafter existing (including Title 11 of
the United States Code or similar U.S.
federal or state law for the relief of
debtors, the Bankruptcy and Insolvency Act
(Canada) and, with respect to any
Stockholder that is a Canadian corporation,
the Companies' Creditors Arrangement Act
(Canada)),
(D) consenting to the appointment of any
receiver, receiver-manager, administrator,
custodian, liquidator or trustee of all or
any part of such Stockholder's assets or
property,
(E) taking any action for the purpose of
effecting any of the foregoing, or
(F) being adjudicated as bankrupt or insolvent;
or
4
<PAGE> 11
(ii) if any petition for any proceedings in bankruptcy or
liquidation or for the winding up, reorganization or readjustment of
the indebtedness of such Stockholder shall be filed, or any case or
proceeding shall be commenced in respect of such Stockholder under any
applicable bankruptcy or insolvency laws now or hereafter existing or
any receiver, receiver-manager, administrator, custodian, liquidator or
trustee is appointed for such Stockholder or for all or any part of
such Stockholder's assets or property, or any order for relief or for
the winding up, dissolution or liquidation of such Stockholder shall be
entered in any judicial proceeding, and such proceeding or appointment
is not dismissed or discharged, as the case may be, within 30 days of
the filing thereof or such appointment.
"INSPECTORS" shall have the meaning provided in Section 5.5.
"JOINDER AGREEMENT" shall mean an agreement, substantially in
the form of Schedule B hereto, executed by transferees of
securityholders making such transferee a party to this Stockholders
Agreement.
"LEGAL HOLIDAY" shall have the meaning provided in Section
8.6.
"LIQUIDITY DEADLINE" shall have the meaning provided in
Section 4.6.
"LIQUIDITY TRANSACTION" shall mean a transaction of the nature
described in Section 4.6.
"MANAGEMENT STOCKHOLDER(S)" shall mean any person who is or
becomes an officer or employee of CustomerONE Corporation or any
Subsidiary thereof and becomes a Stockholder at any time after the date
of this Stockholders Agreement.
"MANDATORY OFFER" shall have the meaning provided in Section
4.11(a).
"MINORITY DESIGNEE" shall have the meaning provided in Section
2.1(a).
"MINORITY STOCKHOLDERS" shall mean all of the Stockholders
other than Onex and any member of the Onex Group.
"NASD" shall have the meaning provided in Section 5.7.
"OFFER" shall have the meaning provided in Section 4.8(b).
"OFFER NOTICE" shall have the meaning provided in Section
3.3(b).
"OFFERED SECURITIES" shall have the meaning provided in
Section 3.3(a).
"ONEX" shall mean Onex CustomerOne LLC.
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<PAGE> 12
"ONEX GROUP" shall mean Onex and its Affiliates and its and
their respective officers, directors, and employees (and members of
their respective families and trusts for the primary benefit of such
family members).
"ONEX GROUP DESIGNEE" shall have the meaning provided in
Section 2.1(a).
"ONEX MANAGEMENT" shall mean, collectively, Onex, its
Affiliates, its and their directors, officers and employees and any
members of their immediate families and trusts established for their or
their families' benefit.
"ONEX SALE NOTICE" shall have the meaning provided in Section
4.9(b).
"OPTION" shall have the meaning provided in Section 6.1.
"OPTION SECURITIES" shall have the meaning provided in Section
6.1.
"OPTION TRANSACTION" shall have the meaning provided in
Section 6.2.
"PERSON" or "PERSON" shall mean any individual, corporation,
partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization or government
or other agency or political subdivision thereof.
"PREEMPTIVE RIGHTS" shall mean the respective rights of the
Stockholders pursuant to Section 3.3(a) to subscribe for and purchase
Offered Securities issued from time to time.
"PREEMPTIVE RIGHTS OFFER" shall have the meaning provided in
Section 3.3(a).
"PREEMPTIVE RIGHTS TRANSACTION" shall have the meaning
provided in Section 3.3(a).
"PREFERRED STOCK" shall mean shares of the Preferred Stock,
$0.01 par value per share, of the Corporation, and any capital stock
into which such Preferred Stock thereafter may be changed.
"PROPORTIONATE INTEREST" of any Stockholder at any relevant
time shall mean the percentage then held by such Stockholder of the
Fully-Diluted Common Stock then outstanding.
"PURCHASER" shall have the meaning provided in Section
4.12(a).
"PURCHASE PRICE" shall have the meaning provided in Section
4.12(c).
"PURCHASED SECURITIES" shall have the meaning provided in
Section 4.12(a).
6
<PAGE> 13
"QUALIFIED IPO" shall mean a firm commitment underwritten
public offering of Common Stock or other equity securities pursuant to
a prospectus, registration statement or similar document under the
Securities Act or equivalent laws of appropriate jurisdictions where
both (i) the proceeds (prior to deducting any underwriters' discounts
and commissions) equal or exceed Fifty Million Dollars ($50,000,000)
and (ii) such shares of Common Stock or equity securities are listed on
at least one of The Toronto Stock Exchange, The Montreal Exchange, the
New York Stock Exchange or the American Stock Exchange or authorized to
be quoted and/or listed on the Nasdaq Stock Market, together with such
other stock exchange or exchanges as may be approved by the Board.
"RECORDS" shall have the meaning provided in Section 5.5.
"REGISTRABLE SHARES" shall mean, at any time, the Common Stock
of the Corporation owned by the Onex Group or the Stockholders, 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 of the SEC under the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning provided in
Section 5.7.
"REGULATION D" shall mean Regulation D promulgated under the
Securities Act by the SEC.
"REPRESENTATIVES" shall have the meaning provided in Section
7.1.
"REQUESTING STOCKHOLDER" shall have the meaning provided in
Section 5.3(a).
"REQUIRED STOCKHOLDERS" shall mean Stockholders who then own
of record more than 66-2/3% of the aggregate number of shares of Common
Stock subject to this Stockholders Agreement.
"RETIREMENT" shall mean, with respect to any Management
Stockholder, that (i) such Management Stockholder has reached
retirement age and has retired as an employee of CustomerONE
Corporation or any subsidiary thereof in accordance with the
established practices and policies of CustomerONE Corporation regarding
the retirement of its employees or (ii) such Management Stockholder has
accepted an offer to retire as an employee of CustomerONE Corporation
or any Subsidiary thereof.
"RETIREMENT DATE" shall have the meaning provided in Section
4.11(b).
"RETIRING MANAGEMENT STOCKHOLDERS" shall have the meaning
provided in Section 4.11(b).
7
<PAGE> 14
"RIGHTS OF FIRST REFUSAL" shall mean the rights granted to
Onex pursuant to Section 4.8.
"SALE NOTICE" shall have the meaning provided in Section
4.8(b).
"SCHWARTZ" shall mean Edward Schwartz.
"SEC" shall mean the Securities and Exchange Commission.
"SECOND ROUND SECURITIES" shall have the meaning provided in
Section 3.3(d).
"SECOND ROUND SUBSCRIBERS" shall have the meaning provided in
Section 3.3(d).
"SECURITY" or "SECURITIES" shall mean the Common Stock and any
other securities governed by the provisions of this Stockholders
Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated by the SEC
thereunder.
"SELLER" shall have the meaning provided in Section 4.12(a).
"SELLER AFFILIATES" shall have the meaning provided in Section
5.8(a).
"SELLING PARTY" shall have the meaning provided in Section
4.11(d).
"SELLING MANAGEMENT STOCKHOLDER" shall have the meaning
provided in Section 4.11(a).
"SELLING STOCKHOLDER" shall have the meaning provided in
Section 4.8(a).
"STOCKHOLDER(S)" shall mean (i) a securityholder listed on the
signature page hereof and (ii) any direct or indirect transferee of any
such securityholder who becomes a party to this Stockholders Agreement
pursuant to a Joinder Agreement in substantially the form of Schedule B
hereto.
"STOCKHOLDERS AGREEMENT" shall mean this Stockholders
Agreement, as such from time to time may be amended.
"SUBJECT SECURITIES" shall have the meaning provided in
Section 4.8(a).
"SUBSIDIARY" of any Person shall mean (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
8
<PAGE> 15
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 the directors or other governing body of such Person.
"SUSPENSION NOTICE" shall have the meaning provided in Section
5.6.
"TAG ALONG EXERCISE PERIOD" shall have the meaning provided in
Section 4.9(b).
"TAG ALONG OFFER" shall have the meaning provided in Section
4.9(a).
"TAG ALONG PROPORTION" shall have the meaning provided in
Section 4.9(a).
"TAG ALONG RIGHTS" shall mean the respective rights of the
Stockholders (other than Onex) pursuant to Section 4.9.
"TAG SALE" shall have the meaning provided in Section 4.9.
"TERMINATION DATE" shall have the meaning provided in Section
4.11(a).
"THIRD PARTY OFFER" shall have the meaning provided in Section
4.8(a).
"THIRD PARTY PURCHASER" shall mean, in relation to any
Stockholder, a Person with whom such Stockholder deals at arm's length
and to whom such Stockholder proposes to sell, or from whom such
Stockholder has received a bona fide offer to purchase, any shares of
Common Stock or other securities governed by this Stockholder
Agreement.
"TIME OF CLOSING" shall have the meaning provided in Section
4.12(b).
"TRANSFER" shall mean any disposition of any Security or any
interest therein that would constitute a "sale" thereof within the
meaning of the Securities Act.
"TRANSFER NOTICE" shall have the meaning provided in Section
4.3.
"UNACCREDITED STOCKHOLDER" shall have the meaning provided in
Section 6.2.
"VALUATION NOTICE" shall have the meaning provided in Section
4.11(d).
"VALUATOR" shall mean an independent third party reasonably
experienced in valuing like businesses.
1.2 Rules of Construction. Unless the context otherwise requires
(a) a term has the meaning assigned to it;
9
<PAGE> 16
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
and
(e) "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.
2. CORPORATE GOVERNANCE
2.1 Board.
(a) Board Representation. Subject to Section 2.1(c), the Board
shall consist of (i) such number of individuals as may be designated from time
to time by the Minority Stockholders that equals the greater of (a) one and (b)
twenty percent (20%) of the total number of directors (rounded, as appropriate,
to the nearest whole number) (the "Minority Designee") and (ii) such individuals
as may be designated from time to time by the Onex Group (an "Onex Group
Designee"). The Minority Stockholders shall be entitled to designate a director
or directors as provided in clause (i) above only for so long as the Minority
Stockholders collectively own more than five percent (5%) of the shares of
Fully-Diluted Common Stock then outstanding; thereafter, Onex shall be entitled
to designate all of the directors of the Corporation, subject to Section 2.1(c).
Each Minority Designee shall be a Minority Stockholder.
(b) Vacancies. If, prior to his or her election to the Board
pursuant to Section 2.1(a), any Minority Designee or Onex Group Designee shall
be unable or unwilling to serve as a director of the Corporation, the Minority
Stockholders or Onex Group, as applicable, shall be entitled to designate a
replacement who shall then be a Minority Designee or an Onex Group Designee, as
applicable, for purposes of this Article 2. If, following an election to the
Board pursuant to Section 2.1(a), any Minority Designee or Onex Group Designee
shall resign or be removed or be unable to serve for any reason prior to the
expiration of his or her term as a director of the Corporation, the Minority
Stockholders or the Onex Group, as applicable, shall, within thirty (30) days of
such event, notify the Board in writing of a replacement Minority Designee or
Onex Group Designee, as applicable, and either (i) the Stockholders shall vote
their shares of Common Stock, at any regular or special meeting called for the
purpose of filling positions on the Board or in any written consent executed in
lieu of such a meeting of stockholders, and shall take all such other actions
necessary to ensure the election to the Board of such replacement Minority
Designee or Onex Group Designee to fill the unexpired term of the Minority
Designee or Onex Group Designee who such new Minority Designee or Onex Group
Designee, as applicable, is replacing or (ii) the Board shall elect such
replacement Minority Designee or Onex Group Designee to fill the unexpired term
of the Minority Designee or the Onex Group Designee who such new Minority
Designee or Onex Group Designee, as applicable, is replacing. If Stockholders
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<PAGE> 17
holding a majority of the shares of Common Stock held by the Minority
Stockholders or the Onex Group, as applicable, request that any Minority
Designee or any Onex Group Designee, as applicable, be removed as a Director
(with or without cause) by written notice thereof to the Corporation, then the
Corporation shall take all actions necessary to effect, and each of the
Stockholders shall vote all his, her or its capital stock in favor of, such
removal upon such request.
(c) Termination of Rights. The right of the Minority
Stockholders and the Onex Group to designate directors under Section 2.1(a), and
the obligation of the Stockholders to vote their shares as provided herein,
shall terminate upon the first to occur of (i) the termination or expiration of
this Stockholders Agreement or this Article 2, (ii) such time as the holders of
a majority of the shares of Common Stock held by the Minority Stockholders or
the Onex Group elects in writing to terminate their respective rights under this
Article 2, or (iii) such time as the Onex Group ceases to own at least fifteen
percent (15%) of the shares of Fully-Diluted Common Stock then outstanding.
(d) Costs and Expenses. The Corporation will pay all
reasonable out-of-pocket expenses incurred by the designees of the Minority
Stockholders and the Onex Group in connection with their participation in
meetings of the Board (and committees thereof) of the Corporation and the Boards
of Directors (and committees thereof) of the Subsidiaries of the Corporation.
(e) Election of Designees. Each Stockholder shall vote his,
her or its shares of Common Stock or Common Stock Equivalents entitled to vote
for the election of directors at any regular or special meeting of stockholders
of the Corporation or in any written consent executed in lieu of such a meeting
of stockholders and shall take all other actions necessary to give effect to the
agreements contained in this Stockholders Agreement (including without
limitation the election of persons designated by the Minority Stockholders and
the Onex Group to be elected as directors as described in the preceding
sentences) and to ensure that the Certificate of Incorporation and Bylaws as in
effect immediately following the date hereof do not, at any time thereafter,
conflict in any respect with the provisions of this Stockholders Agreement. In
order to effectuate the provisions of this Article 2, each Stockholder hereby
agrees that when any action or vote is required to be taken by such Stockholder
pursuant to this Stockholders Agreement, such Stockholder shall use his, her or
its best efforts to call, or cause the appropriate officers and directors of the
Corporation to call, a special or annual meeting of stockholders of the
Corporation, as the case may be, or execute or cause to be executed a consent in
writing in lieu of any such meetings pursuant to Section 228(a) of the DGCL.
2.2 Other Activities of the Stockholders; Fiduciary Duties. It is understood and
accepted that the Stockholders and their Affiliates have interests in other
business ventures which may be in conflict with the activities of the
Corporation and its Subsidiaries and that, subject to applicable law and the
provisions of Article 7 hereof, nothing in this Stockholders Agreement shall
limit the current or future business activities of the Stockholders whether or
not such activities are competitive with those of the Corporation and its
Subsidiaries. Nothing in this Stockholders Agreement, express or implied, shall
relieve any officer or director of the Corporation or any of its Subsidiaries,
11
<PAGE> 18
or any Stockholder, of any fiduciary or other duties or obligations they may
have to the Corporation's stockholders.
2.3 Grant of Proxy. Each Stockholder hereby constitutes and appoints Onex, with
full power of substitution, as its true and lawful proxy and attorney-in-fact to
vote any and all shares of any class or series of capital stock of the
Corporation or any Subsidiary of the Corporation held by such Stockholder in
accordance with the provisions of Sections 2.1 of this Stockholders Agreement.
Each Stockholder acknowledges that the proxy granted hereby is irrevocable,
being coupled with an interest, and that such proxy will continue until the
termination of such Stockholder's obligation to vote any shares in accordance
with this Article 2.
3. ISSUANCE OF SECURITIES
3.1 Issuances of Capital Stock or Common Stock Equivalents. The Corporation may,
at any time and from time to time with the approval of the Board, issue shares
of capital stock, including Common Stock, or any Common Stock Equivalents,
including, without limitation: (a) any Employee Incentive Securities issued from
time to time pursuant to Section 3.2; (b) any shares of Common Stock issued from
time to time upon the conversion, exchange or exercise of any Common Stock
Equivalents, including, without limitation, any Employee Incentive Securities
which are Common Stock Equivalents; or (c) any shares of Common Stock or Common
Stock Equivalents issued in connection with a Qualified IPO.
3.2 Issuances of Employee Incentive Securities. The Corporation or any
Subsidiary of the Corporation may issue Employee Incentive Securities pursuant
to employee benefit or similar plans or arrangements of the Corporation and/or
its Subsidiaries and with the approval of the Board and pursuant to the DGCL.
3.3 Preemptive Rights.
(a) Rights to Participate in Future Sales. Subject to Section
3.3(e), in the event that the Corporation or any Affiliated Successor (as
hereinafter defined) proposes to issue or sell (a "Preemptive Rights
Transaction") any shares of Common Stock, Common Stock Equivalents or other
generally voting equity securities (the "Offered Securities"), the Corporation
shall first offer (the "Preemptive Rights Offer") to each Stockholder who
certifies (to the reasonable satisfaction of the Corporation) that such
Stockholder is an Accredited Investor (an "Accredited Offeree"), at the same
price and for the same consideration to be paid by the proposed purchaser, that
proportion of the Offered Securities which equals that Accredited Offeree's
Proportionate Interest at the time the Board determines to issue such Offered
Securities. As used herein, the term "Affiliated Successor" shall mean a
successor entity to the Corporation (whether by merger, consolidation,
reorganization, or otherwise) in which the Onex Group owns at least the same
percentage of the fully-diluted common stock of such entity (after giving effect
to the merger, consolidation, reorganization, or other transaction) as the Onex
Group owns of the Fully-Diluted Common Stock of the Corporation.
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(b) Offer Notice. The Corporation shall, no later than twenty
(20) days prior to the consummation of a Preemptive Rights Transaction, give
notice in writing (the "Offer Notice") to each Stockholder of such Preemptive
Rights Transaction. The Offer Notice shall describe the proposed Preemptive
Rights Transaction (including, the price at which the Offered Securities are to
be issued and the date (which shall be not less than fifteen (15) nor more than
sixty (60) days after the later of the date of the initial Offer Notice and a
supplemental Offer Notice, if any) on which the purchase of any securities taken
up under the Preemptive Rights is to be completed), identify the proposed
purchaser, identify the respective Proportionate Interests of the Stockholders,
and contain the Preemptive Rights Offer. If any such information is not then
known to the Corporation, or has not then been determined by the Corporation,
such information shall be included in a supplemental Offer Notice delivered to
the Stockholders promptly after the Corporation becomes aware of such
information or makes such determination. The Corporation shall also provide to
each Stockholder, with the Offer Notice, the audited financial statements of the
Corporation for its most recently ended fiscal year (as well as for any previous
year for which audited financial statements of the Corporation are available),
any quarterly financial statements prepared by the Corporation for its current
fiscal year and the profit plan or budget of the Corporation for the current
fiscal year. The Corporation will provide to the Stockholder any other materials
or information relating to the Corporation which are requested by any
Stockholder and, in the determination of the Corporation, acting reasonably, are
relevant to the determination of the value of the Offered Securities proposed to
be issued.
(c) Exercise. Any Stockholder may exercise its Preemptive
Right by giving notice (an "Exercise Notice") to the Corporation within ten (10)
days after the Offer Notice (or any supplement thereto) is sent by the
Corporation by registered mail to the Stockholder. The Exercise Notice shall
specify the number of shares of Offered Securities, as the case may be, that the
Stockholder wishes to purchase and shall irrevocably bind the Stockholder to
purchase such securities at the price and on the date specified in the Offer
Notice. If any such Stockholder fails to accept such offer by written notice
within ten (10) days after the Offer Notice was sent by the Corporation by
registered mail to the Stockholder, the Corporation or such Affiliated Successor
may proceed with the proposed issue or sale of the Offered Securities, free of
any right on the part of such Stockholder under this Section 3.3 in respect
thereof.
(d) Second Round Subscribers. In the event that one or more
Stockholders fail to give a properly completed Exercise Notice in respect of all
or part of the Offered Securities offered to it, him or her pursuant to Section
3.3(a), the Offered Securities not subscribed for (the "Second Round
Securities") shall be allocated among those Accredited Offerees (if any)
("Second Round Subscribers") who indicate in their respective Exercise Notices a
desire to subscribe for more than their Proportionate Interest of the total
Offered Securities offered pursuant to Section 3.3(a) up to any maximum number
set out in the Exercise Notice. If the number or amount of Second Round
Securities is less than the number or amount desired to be taken up by Second
Round Subscribers, the Second Round Securities shall be allocated among the
Second Round Subscribers on a pro rata basis (such that all the Second Round
Securities are allocated) according to their respective Proportionate Interests
(rounded, as appropriate,
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to the nearest whole number). In the event that not all Second Round Securities
are taken up and purchased by the Stockholders, the Corporation may issue such
Second Round Securities not so subscribed for at a price not less than that set
out in the Offer Notice to such Persons as the Board may determine in its
discretion, subject to compliance with Section 4.11.
(e) Exceptions to Preemptive Rights. The Corporation may,
subject to compliance with Section 4.11, issue any of the following securities
without triggering the Preemptive Rights: (i) issuances or sales of Employee
Incentive Securities, (ii) issuances or sales of Common Stock or Common Stock
Equivalents upon exercise of any Common Stock Equivalent which, when issued, was
subject to or exempt from the Preemptive Rights under this Section 3.3, (iii)
securities distributed or set aside ratably to all holders of Common Stock (or
any class or series thereof) on a per share equivalent basis, (iv) issuances or
sales of Common Stock or equity securities in a Qualified IPO approved in
accordance with Section 5.1, (v) shares of Common Stock or Common Stock
Equivalents issued in connection with a merger or consolidation or other
business combination of the Corporation or a Subsidiary of the Corporation into
or with another entity or an acquisition by the Corporation or a Subsidiary of
the Corporation of another business or corporation, (vi) issuances of Common
Stock by the Corporation in payment of all or any portion of the principal of,
or interest or premium on, any indebtedness of the Corporation or any of its
Subsidiaries, (vii) issuances of shares of Preferred Stock of the Corporation
that are not Common Stock Equivalents, or (viii) issuances of Common Stock
Equivalents that are attached to or otherwise issued in connection with
indebtedness of the Corporation.
4. TRANSFERS OF SECURITIES AND LIMITATIONS ON TRANSFERS
4.1 Restrictions on Transfer. The Securities shall not be Transferred or
otherwise conveyed, assigned or hypothecated before satisfaction of (i) the
conditions specified in Sections 4.1, 4.2, and 4.3, which conditions are
intended to ensure compliance with the provisions of the Securities Act with
respect to the Transfer of any Security and (ii) if applicable, Sections 4.8,
4.9, 4.10, 4.11, 4.12 and 4.15. Any purported Transfer in violation of this
Article 4 shall be void ab initio and of no force or effect. Other than
Transfers to the public pursuant to an effective registration statement or sales
to the public pursuant to Rule 144 under the Securities Act otherwise permitted
hereunder, each Stockholder will cause any proposed transferee of any Security
or any interest therein held by it to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Stockholders
Agreement.
4.2 Restrictive Legends.
(a) Securities Act Legend. Except as otherwise provided in
Section 4.4, each Security held by a Stockholder, and each Security issued to
any subsequent transferee of such Security, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
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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.
Notwithstanding the prior provisions, in the event that any
Stockholder is not a resident of the United States, the legend stamped or
otherwise imprinted on such Security shall be in substantially the following
form:
THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF OTHER JURISDICTIONS AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, "U.S. PERSONS" (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT) EXCEPT IN
ACCORDANCE WITH REGULATIONS UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION
OF THE SECURITIES UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
(b) Other Legends. Except as otherwise permitted by the last
sentence of Section 4.1, each Security issued to each Stockholder or a
subsequent transferee shall include a legend in substantially the following
form:
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.
4.3 Notice of Proposed Transfers. Prior to any Transfer or attempted Transfer of
any Security, the Stockholder of such Security shall (i) give ten (10) days'
prior written notice (a "Transfer Notice") to the Corporation of such
Stockholder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and (ii) either (A) provide to the
Corporation an opinion reasonably satisfactory to the Corporation from counsel
who shall be reasonably satisfactory to the Corporation (or supply such other
evidence reasonably satisfactory to the Corporation) that the proposed Transfer
of such Security may be effected without registration under the Securities Act,
or (B) certify to the Corporation that the Stockholder reasonably believes the
proposed transferee is a "qualified institutional buyer" and that such
Stockholder has taken reasonable steps to make the proposed transferee aware
that such Stockholder may rely on Rule 144A under the Securities Act in
effecting such Transfer. After receipt of the
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Transfer Notice and opinion (if required), the Corporation shall, within five
(5) days thereof, so notify the Stockholder of such Security and such
Stockholder shall thereupon be entitled to Transfer such Security in accordance
with the terms of the Transfer Notice. Each Security issued upon such Transfer
shall bear the appropriate restrictive legend set forth in Section 4.2(a),
unless in the opinion of such counsel such legend is not required in order to
ensure compliance with the Securities Act. The Stockholder of the Security
giving the Transfer Notice shall not be entitled to Transfer such Security until
receipt of the notice from the Corporation under this Section 4.3.
4.4 Termination of Certain Restrictions. Notwithstanding the foregoing
provisions of this Section 4, the restrictions imposed by Section 4.2(a) upon
the transferability of the Securities and the legend requirements of Section
4.2(a) shall terminate as to any Security (i) when and so long as such Security
shall have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Corporation shall have received an opinion of
counsel reasonably satisfactory to it that such Security may be transferred
without registration thereof under the Securities Act and that such legend may
be removed. Whenever the restrictions imposed by Section 4.2(a) shall terminate
as to any Security, the Stockholder thereof shall be entitled to receive from
the Corporation, at the Corporation's expense, a new Security not bearing the
restrictive legend set forth in Section 4.2(a).
4.5 Exempt Transfers. Any transaction described below in this Section is an
"Exempt Transfer" which shall not be subject to the restrictions set out in
Section 4.1 and may be effected without triggering Rights of First Refusal, Tag
Along Rights or Drag Along Rights.
(a) Transfers to an Affiliate. A Stockholder may Transfer all
or part of the Common Stock or Common Stock Equivalents held by it from time to
time to an Affiliate of the transferring Stockholder; provided, however, that
prior to such Transfer:
(i) such transferee (if not already a party to this
Stockholders Agreement) shall agree to be bound by this Stockholders
Agreement in accordance with Section 4.13;
(ii) such transferee shall execute such documents as the
Corporation, acting reasonably, may consider necessary to ensure that,
in the event such transferee ceases for any reason to be an Affiliate
of such transferor, such transferee shall be legally bound to Transfer
to such transferor all Common Stock and Common Stock Equivalents then
held by such transferee; and
(iii) such transferor shall agree, in form and content
satisfactory to the Corporation, acting reasonably, that as long as
such transferee holds any Common Stock or Common Stock Equivalents,
such transferor shall guarantee and be responsible for the performance
and observance by such transferee of all of its obligations under this
Stockholders Agreement.
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(b) Pledges. A Stockholder may pledge or otherwise grant a
security interest in all or part of the Common Stock and Common Stock
Equivalents held by it from time to time in favor of a bank, trust company or
other similar financial institution to secure bona fide indebtedness of such
Stockholder, provided, however, that, prior thereto, such bank, trust company or
financial institution acknowledges, in form and content satisfactory to the
Corporation, acting reasonably, that the securities subject to such pledge or
security interest and all rights of such bank, trust company or financial
institution, as the case may be, in respect thereof shall be subject in all
respects to the provisions of this Stockholders Agreement.
(c) Sales to Onex Management. Onex may Transfer a portion of
the Common Stock held by it at any time or from time to time to any person
forming part of the Onex Management, and any members of the Onex Management may
transfer Common Stock to any other member of Onex Management or to Onex;
provided, however, that prior to such Transfer, the transferee (if not already a
party to this Stockholders Agreement) shall agree to be bound by this
Stockholders Agreement in accordance with Section 4.13.
(d) Public Offerings. Any Stockholder may sell all or any part
of the Common Stock or Common Stock Equivalents held by it, him or her pursuant
to a registered public offering of such Common Stock or Common Stock
Equivalents, subject to the terms of Section 5.
(e) Transfer to Berczi. Onex may Transfer any shares of Common
Stock to Berczi pursuant to the employment stock purchase agreement dated June
30, 1998 between Berczi and Onex.
4.6 Sales by Minority Stockholders. It is the intention of the Stockholders that
the Corporation will use commercially reasonable efforts to pursue a transaction
or transactions that will enhance liquidity opportunities for holders of Common
Stock who so desire it, whether through a private sale of Common Stock, a
private sale of the assets of the Corporation, a Qualified IPO of Common Stock,
a recapitalization or otherwise (a "Liquidity Transaction"), on or prior to
April 28, 2003 (the "Liquidity Deadline"). In the event that a Liquidity
Transaction has not occurred and no bona fide opportunity to participate in a
Liquidity Transaction has been presented to the Minority Stockholders on or
prior to the Liquidity Deadline, the Minority Stockholders shall have the right
to solicit and accept Third Party Offers, subject to the Rights of First Refusal
in favor of Onex contained in Section 4.8 and the provisions of Section 4.13.
4.7 Sales by Onex. Subject to Sections 4.9 and 4.13, Onex shall be entitled to
sell all or any portion of the Common Stock or Common Stock Equivalents owned by
it to any Third Party Purchaser.
4.8 Onex Rights of First Refusal.
(a) Rights of First Refusal. If any Minority Stockholder (a
"Selling Stockholder") wishes to Transfer to a Third Party Purchaser all or any
portion of the
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Common Stock or Common Stock Equivalents then held by it, him or her (the
"Subject Securities") and such Minority Stockholder is then entitled to so
Transfer its Common Stock or Common Stock Equivalents pursuant to this Article
4, other than by way of an Exempt Transfer, the Selling Stockholder must first
offer the Subject Securities to Onex on the terms set out in this Section 4.8.
Prior to so offering the Subject Securities to Onex, the Selling Stockholder
shall obtain from such Third Party Purchaser a legally binding offer (a "Third
Party Offer") in writing to purchase from the Selling Stockholder the Subject
Securities, which offer must provide that (i) the entire purchase price for the
Subject Securities shall be payable in cash at closing and there shall be no
other consideration for the Subject Securities, (ii) no property is to be
transferred by the Selling Stockholder other than such Subject Securities and
(iii) there are no conditions to the completion of such purchase other than the
continuing accuracy of any customary representations and warranties required to
be given by such Selling Stockholder.
(b) Sale Notice. The Selling Stockholder shall give notice (a
"Sale Notice") to Onex of any proposed sale to a Third Party Purchaser, which
notice shall contain a copy of the Third Party Offer and set out, in reasonable
detail, information regarding the identity and financial strength of the Third
Party Purchaser. The Sale Notice shall also contain an offer (the "Offer") to
sell the Subject Securities to Onex on the same terms (including the same
covenants, representations, warranties, indemnities and consideration per share
of Common Stock or Common Stock Equivalents, as the case may be) and conditions,
mutatis mutandis, as contained in the Third Party Offer. The Offer shall be
irrevocable and shall be open for acceptance by Onex during the period (the
"Exercise Period") specified in the Sale Notice, which period shall not end less
than twenty-one (21) days after the date on which the Sale Notice is received by
Onex.
(c) Exercise Notice. If Onex wishes to accept the Offer, it
shall give notice thereof (an "Exercise Notice") to the Selling Stockholder on
or before the last day of the Exercise Period. If Onex so delivers an Exercise
Notice, the Selling Stockholder shall be bound to sell the Subject Securities to
Onex, and Onex shall be bound to purchase the Subject Securities, for the
consideration and on the other terms and conditions specified in this Section
4.8.
(d) Failure to Exercise. If an Exercise Notice is not
delivered to the Selling Stockholder in accordance with Section 4.8(c), the
Selling Stockholder may sell all (but not less than all) the Subject Securities
to the Third Party Purchaser for the consideration and on the other terms and
subject to the conditions specified in the Third Party Offer; provided, however,
such sale is completed within thirty (30) days following the expiry of the
Exercise Period, failing which the Selling Stockholder may not sell the Subject
Securities to a Third Party Purchaser without again offering the Subject
Securities to Onex in accordance with this Section 4.8.
(e) Offers Irrevocable. All offers made by any Selling
Stockholder to Onex pursuant to this Section 4.8 shall be irrevocable during the
Exercise Period.
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4.9 Tag Along Rights.
(a) Tag Along Rights. If at any time Onex proposes to sell (a
"Tag Sale"), other than by way of an Exempt Transfer, to a Third Party
Purchaser, Onex may complete such sale to the Third Party Purchaser only if the
Third Party Purchaser extends an offer (a "Tag Along Offer") to each of the
Minority Stockholders so that each Minority Stockholder shall have the option to
sell to the Third Party Purchaser up to the same percentage of such Minority
Stockholder's Fully-Diluted Common Stock as the shares being sold by Onex
represent of its Fully-Diluted Common Stock (the "Tag Along Proportion") on the
same terms (including the same covenants, representations, warranties,
indemnities and consideration per share of Common Stock or Common Stock
Equivalent, as the case may be) and conditions, mutatis mutandis, as those
specified in the Onex Sale Notice delivered pursuant to Section 4.9(b);
provided, however, that, if the consideration to be received by Onex includes
any securities, only co-sellers who have certified to the reasonable
satisfaction of Onex that they are Accredited Investors shall be entitled to
participate in such Transfer, unless the transferee consents otherwise.
(b) Notice. Onex shall forthwith give notice (an "Onex Sale
Notice") to the Minority Stockholders of any proposed sale to a Third Party
Purchaser, which notice shall set out, in reasonable detail, (i) information
regarding the identity of the Third Party Purchaser and the consideration and
other material terms and conditions of such sale, (ii) a description of the Tag
Along Rights arising in connection with such sale and (iii) any other
information required by this Section 4.9, and shall contain an offer from the
Third Party Purchaser to purchase up to the Tag Along Proportion of such
Minority Stockholder's Common Stock on the same terms (including the same
covenants, representations, warranties, indemnities and consideration per share
of Common Stock or Common Stock Equivalent, as the case may be) and conditions,
mutatis mutandis, as set out in the Onex Sale Notice. The offer from the Third
Party Purchaser shall be irrevocable and shall be open for acceptance by the
Minority Stockholders during the period specified in the Onex Sale Notice (the
"Tag Along Exercise Period"), which period shall not end less than twenty-one
(21) days after the date on which the Onex Sale Notice is given to the Minority
Stockholders.
(c) Exercise. A Minority Stockholder may irrevocably exercise
its Tag Along Right by giving notice to Onex prior to the expiry of the Tag
Along Exercise Period, in which case such Minority Stockholder shall be
obligated to sell to the Third Party Purchaser the number of shares of Common
Stock which it has indicated in such notice it wishes to sell. The closing of
each such sale shall be conditional on the closing of the sale of Common Stock
by Onex and each Minority Stockholder that elects to exercise its Tag Along
Rights, which condition may not be waived without the consent of all Minority
Stockholders.
(d) Failure to Exercise. If any Minority Stockholder does not
exercise its, his or her Tag Along Right by delivering the notice contemplated
by Section 4.9(c), or exercises its Tag Along Right with respect to less than
the Tag Along Proportion of its, his or her Common Stock, Onex and those
Minority Stockholders who elect to sell more than their respective Tag Along
Proportion of Common Stock shall be entitled to sell
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additional shares of Common Stock to the Third Party Purchaser; provided,
however, that (i) no Stockholder shall be entitled to sell more than the maximum
number of shares of Common Stock specified in its election and (ii) if the total
number of shares of Common Stock which Onex and all Minority Stockholders that
exercise their Tag Along Rights wish to sell exceeds the total number of shares
of Common Stock which the Third Party Purchaser has offered to purchase, the
option to sell additional shares of Common Stock to the Third Party Purchaser
shall be allocated among Onex and such Minority Stockholders on a pro rata basis
according to their respective percentages then held of Fully-Diluted Common
Stock.
4.10 Drag Along Rights.
(a) Drag Along Rights. Subject as provided below in this
Section 4.10(a), if at any time Onex proposes to sell or otherwise transfer,
including by way of merger, consolidation or otherwise, Common Stock held by
members of the Onex Group to a Third Party Purchaser (a "Drag Sale"), Onex may,
by giving notice to the Minority Stockholders, require each such Minority
Stockholder to sell a stated portion of its Common Stock at the same time for
the same consideration per share and otherwise on the same terms (including
covenants, representations, warranties and indemnities) and conditions, mutatis
mutandis, so that each Stockholder (including Onex and any other member of the
Onex Group) shall be obligated to sell up to its Proportionate Interest of
Fully-Diluted Common Stock to be sold to such Third Party Purchaser (or such
lower portion thereof to which the Drag Along Rights apply).
(b) Notice. If at any time Onex intends to exercise its rights
pursuant to Section 4.10(a), it shall give written notice thereof to the
Minority Stockholders. The notice shall set out, in reasonable detail, (i)
information concerning the identity of the Third Party Purchaser, (ii) a
description of the material terms and conditions of any proposed sale and (iii)
the portion of each Minority Stockholder's Common Stock which shall be subject
to the Drag Along Rights.
(c) Implementation. Any Minority Stockholder that is required
to sell all or any part of its Common Stock pursuant to the exercise by Onex of
its Drag Along Rights shall be required to make customary representations or
warranties in favor of the Third Party Purchaser, including the same
representations and warranties as to the Corporation and its business and
affairs as are being made by Onex in favor of such Third Party Purchaser.
(d) Proxy. In the event Onex exercises its Drag Along Rights
in connection with a transaction that requires a vote of the stockholders of the
Corporation or any Subsidiary to approve, including a merger, consolidation,
sale of substantially all of the assets of the Corporation or other similar
transaction, any Minority Stockholder that is required to sell all or any part
of its Common Stock or Common Stock Equivalents pursuant to the exercise by Onex
of its Drag Along Rights shall vote any and all shares of any class or series of
capital stock of the Corporation or any Subsidiary of the Corporation held by
such Stockholder as Onex votes thereon. Each Minority Stockholder hereby
constitutes and appoints Onex, with full power of substitution, as its true and
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lawful proxy and attorney-in-fact to vote any and all shares of any class or
series of capital stock of the Corporation or any Subsidiary of the Corporation
held by such Minority Stockholder in accordance with the provisions of this
Section 4.10(d). Each Minority Stockholder acknowledges that the proxy granted
hereby is irrevocable, being coupled with an interest, and that such proxy will
continue until the termination of such holder's obligation to vote any shares in
accordance with this Section 4.10(d).
4.11 Involuntary Transfers.
(a) Termination of Employment.
(i) If any Management Stockholder ceases to be an
employee of either the Corporation or any Subsidiary for any reason
(other than by reason of the death, disability or Retirement of such
Management Stockholder), the Management Stockholder and any Affiliate
of such Management Stockholder (collectively, the "Selling Management
Stockholder") shall offer to sell all (but not less than all) of the
Common Stock then held by the Selling Management Stockholder to the
Corporation by giving written notice of such offer (the "Mandatory
Offer") to the Corporation within ninety (90) days of the termination
of such Management Stockholder's employment (the "Termination Date").
If the Mandatory Offer has not been delivered by the Selling Management
Stockholder within such ninety (90)-day period, the Mandatory Offer
shall be deemed to have been delivered to the Corporation at the time
of the expiry of such ninety (90)-day period.
(ii) The Corporation shall notify the Selling Management
Stockholder of its acceptance or rejection of the Mandatory Offer
within thirty (30) days of the delivery or deemed delivery thereof. If
such notice has not been received by the Selling Management Stockholder
within such thirty (30)-day period, the Mandatory Offer shall be deemed
to be revoked (and not accepted by the Corporation) unless extended in
writing by the Selling Management Stockholder. If the Mandatory Offer
is accepted by the Corporation, the sale to the Corporation of the
Common Stock held by the Selling Management Stockholder shall be
completed on the tenth Business Day following the expiry of the
above-noted thirty (30)-day period.
(iii) Except as provided in Section 4.11(a)(ii), the
delivery or the deemed delivery of the Mandatory Offer by the Selling
Management Stockholder shall be binding and irrevocable and, if
accepted, shall require the Selling Management Stockholder to sell and
the Corporation (subject as provided below) to purchase the Common
Stock beneficially owned by the Selling Management Stockholder at a
price equal to its fair market value (as at the end of the month
preceding the month in which the Termination Date occurred).
Notwithstanding the foregoing, the Corporation shall not be required to
complete, or to cause the completion of, any such purchase unless it
has obtained all necessary waivers or consents from third parties
required to complete such
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purchase and such purchase is not prohibited by the DGCL or any other
applicable law.
(iv) In the case of any purchase and sale of Common Stock
pursuant to this Section 4.11(a), the purchase price for the Common
Stock beneficially owned by the Selling Management Stockholder shall be
paid by the Corporation in cash on the date of completion of such
purchase and sale.
(v) If the Corporation shall not be required to complete
any purchase provided for in Section 4.11(a) because it has not
obtained all necessary waivers or consents or is prohibited by the DGCL
or any other applicable law, it shall use all reasonable efforts to
obtain such consents or to satisfy such prohibition, as the case may
be, and such purchase and sale shall be completed on the seventh
Business Day after such consents are obtained or prohibitions
satisfied.
(b) Death, Disability or Retirement.
(i) In the event of the death, disability, retirement or
dismissal without Cause of a Management Stockholder, such Management
Stockholder or his legal personal representative(s), as the case may be
(in any case, the "Retiring Management Stockholder"), shall be entitled
to require the Corporation to purchase for cancellation from the
Retiring Management Stockholder any or all the Common Stock then
beneficially owned by the Retiring Management Stockholder by giving
written notice to the Corporation to such effect within 180 days of the
date (the "Retirement Date") of such Retiring Management Stockholder's
death, disability, Retirement or dismissal without Cause, as the case
may be; provided, however, that the Corporation shall not be required
to complete such purchase unless it has obtained all necessary waivers
or consents from third parties required to complete such purchase and
such purchase is not prohibited by the DGCL or any other applicable
law.
(ii) Any purchase and sale of Common Stock pursuant to
this Section 4.11(b) shall take place at a price equal to the fair
market value of the Common Stock as at the end of the month preceding
the date notice is first given by the Retiring Management Stockholder
pursuant to Section 4.11(b)(i) and shall, subject to Section
4.11(b)(i), be completed ninety (90) days following the date of the
receipt by the Corporation of such notice or on such other date as the
Corporation and the Retiring Management Stockholder may mutually agree.
(iii) The purchase price for any Common Stock purchased
by the Corporation pursuant to this Section 4.11(b) shall be payable in
cash on the date of completion of such purchase and sale.
(iv) If the Corporation shall not be required to complete
any purchase provided for in this Section 4.11(b) because it has not
obtained all necessary waivers or consents or is prohibited by the DGCL
or any other
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applicable law, it shall use all reasonable efforts to obtain such
consents or to satisfy such prohibition, as the case may be, and such
purchase and sale shall be completed on the fifth Business Day after
such consents are obtained or prohibitions satisfied.
(v) If, at the time of the first anniversary of the date
on which any purchase and sale pursuant to this Section 4.11(b) would
otherwise have been required to be completed, the Corporation has not
purchased the Common Stock beneficially owned by the Retiring
Management Stockholder, each of the other Stockholders shall have the
right (but not the obligation) to purchase such Common Stock based on
their Proportionate Interest in Fully-Diluted Common Stock in the
manner and on the terms provided in Section 3.3(a), mutatis mutandis.
If all the Common Stock beneficially owned by the Retiring Management
Stockholder is not purchased by the other Stockholders within sixty
(60) days of such anniversary, the Retiring Management Stockholder
shall have the right to sell such Common Stock to any Third Party
Purchaser; provided, however that such Third Party Purchaser shall
comply with Section 4.13.
(c) Event of Default. Each Stockholder acknowledges that the
occurrence of any Event of Default with respect to any Stockholder (the
"Defaulting Stockholder") will result in immediate and irreparable harm to the
other Stockholders and the Corporation. Accordingly, upon the occurrence of any
such Event of Default, the Corporation shall have the right (the "Call Right")
to purchase for cancellation any or all of the securities of the Corporation
held by such Stockholder or any Affiliate of such Stockholder. The Corporation
may exercise the Call Right, by giving written notice to such Stockholder, at
any time within ninety (90) days after the Corporation first becomes aware of
such Event of Default. Upon the giving of any such notice, the Defaulting
Stockholder and each Affiliate (if any) of such Stockholder shall be obliged to
sell and the Corporation shall be obliged to purchase or cause to be purchased
the securities of the Corporation in respect of which the Call Right was
exercised at a price equal to, in the case of an Event of Default referred to in
clauses (i), (ii), (iii) or (iv) of the definition of "Event of Default"
enumerated in Section 1.1, ninety percent (90%) of their fair market value and,
in the case of an Event of Default referred to in clause (v) of the definition
of "Event of Default" enumerated in Section 1.1, their fair market value (in any
case as at the end of the month immediately preceding such breach and otherwise
determined as provided in Section 4.11(d)). In the event that the Corporation
exercises the Call Right pursuant to this Section 4.11(c), each of the other
Stockholders hereby waives any and all of its rights under any applicable law or
otherwise to sell to the Corporation, or receive a pro rata offer from the
Corporation for, any or all of its shares of Common Stock.
(d) Determination of Fair Market Value.
(i) On or prior to the earlier of the date which is ten
(10) days prior to the completion of any purchase and sale pursuant to
this Section 4.11, the Corporation shall by notice in writing (the
"Valuation Notice") advise the Selling Management Stockholder, Retiring
Management Stockholder or Defaulting Stockholder (in any case, the
"Selling Party" for purposes of this Section 4.11(d),
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as the case may be, of the fair market value of the Common Stock
beneficially owned by the Selling Party, as determined by the Board.
(ii) If the Selling Party objects to the fair market
value set out in the Valuation Notice, the Selling Party shall by
notice in writing inform the Corporation of such objection within five
(5) Business Days of the receipt by the Selling Party of the Valuation
Notice. The Corporation and the Selling Party shall, within ten (10)
Business Days after the receipt by the Corporation of notice of the
objection of the Selling Party, each make a determination of the fair
market value of the Common Stock beneficially owned by the Selling
Party as at the relevant date (determined in accordance with Section
4.11(a), (b) or (c), as the case may be) and provide a copy of such
determination to the other party. For the purpose of making the
determination contemplated by this Section 4.11(d)(ii), the Corporation
shall provide to the Selling Party, if requested to do so, the audited
financial statements of the Corporation for its most recently ended
fiscal year (as well as for any previous year for which audited
financial statements of the Corporation are available), any quarterly
financial statements prepared by the Corporation for its current fiscal
year and the profit plan or budget of the Corporation for the current
fiscal year. The Corporation will provide to the Selling Party any
other materials or information relating to the Corporation which are
requested by the Selling Party and, in the determination of the
Corporation, acting reasonably, are relevant to the determination of
fair market value.
(iii) If the lower of the two valuations provided by the
parties in accordance with Section 4.11(d)(ii) is at least ninety
percent (90%) of the higher of the two valuations, the fair market
value of the Common Stock beneficially owned by the Selling Party shall
be deemed to be the simple arithmetic average of the two valuations.
Otherwise, the Corporation and the Selling Party shall forthwith
jointly appoint a Valuator and such Valuator shall be instructed to
select within fifteen (15) Business Days after its appointment one of
the two valuations, in which event the valuation so selected shall be
deemed to be the fair market value of the Selling Party's Common Stock.
If the Corporation and the Selling Party fail to so jointly appoint a
Valuator within five (5) Business Days of both parties making their
valuations available to the other, either party shall be entitled to
apply to a court of competent jurisdiction in the State of New York to
have such court appoint a Valuator. If the Selling Party fails to
complete its valuation within the time period specified above, the fair
market value of such Common Stock shall be deemed to be that determined
by the Corporation. The fees and expenses of the Valuator jointly
appointed in accordance with the foregoing shall be paid by the party
whose valuation is not selected by such Valuator. The fair market value
of any Common Stock determined in accordance with the provisions of
this Section 4.11(d) shall be final and binding for all purposes.
4.12 General Provisions Relating to Certain Sales of Securities.
(a) Definitions. In this Section 4.12, the term "Purchased
Securities" means any shares of Common Stock or Common Stock Equivalents to be
purchased from
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a Stockholder by Onex pursuant to the Rights of First Refusal or by the
Corporation pursuant to Section 4.11(a), (b) or (c) and the terms "Seller" and
"Purchaser" mean, respectively, the seller and the purchaser of such Purchased
Securities.
(b) Closing. The closing of the purchase and sale of the
Purchased Securities shall, in the absence of a contrary agreement between the
Seller and Purchaser, occur at the offices of counsel to the Corporation at such
time and on the closing date specified in the sale notice. Such date and time
are referred to as the "Date of Closing" and the "Time of Closing,"
respectively.
(c) Deliveries at Closing. At the Time of Closing on the Date
of Closing, subject to the other provisions of this Stockholders Agreement: (1)
the Purchaser shall pay to the Seller the aggregate purchase price (the
"Purchase Price") payable for the Purchased Securities by delivery of a bank
draft or certified check drawn on a Canadian chartered bank if by Onex or
otherwise a federally chartered U.S. bank; (2) the Seller shall deliver to the
Purchaser: (A) a receipt for payment of the Purchase Price; (B) the certificates
or instruments representing the Purchased Securities, duly endorsed for
transfer, or an affidavit or other evidence, satisfactory to the Corporation, to
the effect that the certificate representing such Purchased Securities has been
lost, destroyed or wrongfully taken; and (C) a written warranty from the Seller
that: (i) the Seller is the sole beneficial owner of the Purchased Securities,
free and clear of all liens, charges, pledges, security interests, adverse
claims or other encumbrances; and (ii) there are no contractual or other
restrictions on the transfer of the Purchased Securities which have not been
complied with; and (3) the Seller shall deliver to the Corporation, if the
Seller is selling all of its securities of the Corporation, a written release by
the Seller and each of its nominees, if any, of all claims against the
Corporation and its Subsidiaries with respect to any matter up to and including
the Date of Closing in the Seller's capacity as a director, officer, employee or
Stockholder of the Corporation or any of its Subsidiaries.
(d) Failure to Make Deliveries. If the Seller is not present
at the Time of Closing or is present but fails for any reason to deliver to the
Purchaser and to the Corporation the documents referred to in Sections 4.12(c),
the Purchaser may deposit the Purchase Price into a special account at a branch
of the Corporation's banker in the name of the Seller. Such deposit shall
constitute valid payment of the Purchase Price even though the Seller may have
voluntarily encumbered or disposed of any of the Purchased Securities and
notwithstanding the fact that the certificates or instruments representing the
Purchased Securities may have been delivered to any pledgee, transferee or other
person.
(e) Deemed Transfer. If, pursuant to Section 4.12(d), the
Purchase Price is deposited with the Corporation's bankers in the name of the
Seller, from and after the date of such deposit, and even though the
certificates or instruments representing the Purchased Securities have not been
delivered to the Purchaser, the purchase and sale of the Purchased Securities
shall be deemed to have been fully completed and all right, title, benefit and
interest, both at law and in equity, in and to the Purchased Securities shall be
conclusively deemed to have been transferred and assigned to and become vested
in the Purchaser and all right, title, benefit and interest, both at law and in
equity, of the Seller
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or of any transferee, assignee or any other person claiming any interest, legal
or equitable, therein or thereto through the Seller shall cease.
(f) Seller Entitled to Purchase Price. The Seller shall be
entitled to receive the Purchase Price so deposited, without interest, upon
delivery to the Purchaser and the Corporation of the documents required to be
delivered by it pursuant to Section 4.12(c).
(g) Pledged Securities. Where the Seller is unable to deliver
the certificates or instruments representing the Purchased Securities because
the Purchased Securities have been pledged as security for bona fide
indebtedness of the Seller, the Purchaser may, instead of paying the amount of
the Purchase Price into a special bank account as provided in Section 4.12(d),
pay all or a portion of the Purchase Price to the credit of the Seller to
discharge the indebtedness secured thereby and to obtain a release of the
relevant security interest. Any such payment by the Purchaser shall constitute a
complete discharge of the Purchaser's obligation to pay to the Seller all or the
relevant portion, as the case may be, of the Purchase Price. If the Purchaser
pays only a portion of the Purchase Price to a creditor of the Seller pursuant
to this Section 4.12(g), the Purchaser shall be entitled to deposit an amount
equal to the balance of the Purchase Price into a special bank account in
accordance with the provisions of Section 4.12(d) and the provisions of Section
4.12(d) shall apply, mutatis mutandis, to the portion of the Purchase Price so
deposited. If, following any payment by the Purchaser to a creditor of the
Seller pursuant to this Section 4.12(g), the balance, if any, of the Purchase
Price is either paid to the Seller or deposited in a special bank account as
provided in Section 4.10(d), then, from and after the date of the last to occur
of such payment and such deposit, and even though the certificates or
instruments representing the Purchased Securities may not have been delivered to
the Purchaser, the purchase and sale of the Purchased Securities shall be deemed
to have been fully completed and all right, title, benefit and interest, both at
law and in equity, in and to the Purchased Securities shall be conclusively
deemed to have been transferred and assigned to and become vested in the
Purchaser and all right, title, benefit and interest, both at law and in equity,
of the Seller or of any transferee, assignee or any other person claiming any
interest, legal or equitable, therein or thereto through the Seller shall cease.
(h) Power of Attorney. The Seller hereby irrevocably
constitutes and appoints any person who at such time is a director or officer of
the Corporation as the true and lawful attorney-in-fact and agent for, in the
name of and on behalf of the Seller to execute and deliver all such assignments,
transfers, instruments and other documents as may be necessary effectively to
transfer and assign the Purchased Securities, or any portion thereof, to the
Purchaser on the books of the Corporation. Such appointment and power of
attorney, being coupled with an interest, shall not be revoked by the
insolvency, bankruptcy or incapacity of the Seller and the Seller hereby
ratifies and confirms and agrees to ratify and confirm all that such attorney
may lawfully do or cause to be done by virtue of the provisions of this Section
4.12.
4.13 All Stockholders to be Bound. No Person shall become a holder of Common
Stock or Common Stock Equivalents without first having executed and delivered to
the
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Corporation an agreement, substantially in the form and on the terms of Schedule
B, by which such person agrees to be bound by this Stockholders Agreement. Any
person who so agrees to be bound by this Stockholders Agreement shall thereafter
be regarded for all purposes as a party to this Stockholders Agreement and shall
be entitled to all the rights and shall be subject to all the obligations of a
Stockholder hereunder.
4.14 Certain Events Not Deemed Transfers. In no event shall any exchange,
reclassification, or other conversion of shares into any cash, securities, or
other property pursuant to a merger or consolidation of the Corporation or any
Subsidiary with, or any sale or transfer by the Corporation or any Subsidiary of
all or substantially all its assets to, any Person constitute a Tag Sale of
shares of Common Stock by the Onex Group for purposes of Section 4.9. In
addition, Section 4.9 shall not apply to any transfer, sale, or disposition of
shares of Common Stock solely among members of the Onex Group.
4.15 Transfer and Exchange. When Securities are presented to the Corporation
with a request to register the transfer of such Securities or to exchange such
Securities for Securities of other authorized denominations, the Corporation
shall register the transfer or make the exchange as requested if the
requirements of this Stockholders Agreement for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Corporation, duly executed by the Stockholder thereof
or its attorney and duly authorized in writing. No service charge shall be made
for any registration of transfer or exchange, but the Corporation may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith.
4.16 Replacement Securities. If a mutilated Security is surrendered to the
Corporation or if the Stockholder of a Security claims and submits an affidavit
or other evidence, satisfactory to the Corporation, to the effect that the
Security has been lost, destroyed or wrongfully taken, the Corporation shall
issue a replacement Security if the Corporation's requirements are met. If
required by the Corporation, such Stockholder must provide an indemnity bond, or
other form of indemnity, sufficient in the judgment of the Corporation to
protect the Corporation against any loss which may be suffered. The Corporation
may charge such Stockholder for its reasonable out-of-pocket expenses in
replacing a Security which has been mutilated, lost, destroyed, or wrongfully
taken.
5. PUBLIC OFFERINGS
5.1 Qualified IPO. At any time, the Corporation may offer its Common Stock or
Common Stock Equivalents to the public in a Qualified IPO with the approval of
the Board.
5.2 Secondary Offering in Connection with Qualified IPO. In connection with a
Qualified IPO by the Corporation, the Corporation will use its reasonable best
efforts to effect the qualification or registration under applicable securities
laws of the Common Stock or Common Stock Equivalents, as applicable to the
Qualified IPO, held by Stockholders to the extent required to permit the
distribution of such shares of Common
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Stock or Common Stock Equivalents by way of a secondary offering concurrently
with such Qualified IPO and shall prepare and file such registration statements,
prospectuses, amendments and other documents as may be required to effect such
secondary offering; provided, however, that: (a) the Corporation will only be
required to effect the qualification or registration for distribution of such
number of shares of Common Stock or Common Stock Equivalents pursuant to this
Section 5.2 which, in the written opinion of the underwriters for the Qualified
IPO of the Corporation, after consultation with the Corporation and the
Stockholders, would not adversely affect such Qualified IPO and, in any event,
only to the extent permitted under applicable securities laws and under any
requirements imposed by the SEC or any securities regulatory authorities or any
stock exchanges on which the Common Stock or Common Stock Equivalents are to be
listed; and (b) to the extent that the number of shares of Common Stock or
Common Stock Equivalents which Stockholders wish to sell through a secondary
offering pursuant to this Section 5.2 is greater than the number of shares of
Common Stock or Common Stock Equivalents to be so sold in accordance with
Section 5.2, then the number of shares of Common Stock or Common Stock
Equivalents which each holder of Common Stock or Common Stock Equivalents will
be entitled to sell under the secondary offering shall be calculated on a pro
rata basis, based upon each such Stockholder's Proportionate Interest.
5.3 Piggyback Registrations.
(a) Right to Piggyback. In connection with a registered public offering
of Common Stock (other than pursuant to an Excluded Registration) under the
Securities Act for sale to the public (whether for the account of the
Corporation or the account of any securityholder of the Corporation) and in the
event that the form of registration statement to be used permits the
registration of Registrable Shares, the Corporation shall give prompt written
notice to each Stockholder of Registrable Shares (which notice shall be given
not less than thirty (30) days prior to the effective date of the Corporation's
registration statement), which notice shall offer each such Stockholder the
opportunity to include any or all of his, her or its Registrable Shares in such
registration statement, subject to the limitations contained in Section 5.3(b).
Each Stockholder who desires to have his, her or its Registrable Shares included
in such registration statement (each a "Requesting Stockholder") shall so advise
the Corporation in writing (stating the number of shares desired to be
registered) within twenty (20) days after the date of such notice from the
Corporation. Any Stockholder shall have the right to withdraw such Stockholder's
request for inclusion of such Stockholder's Registrable Shares in any
registration statement pursuant to this Section 5.3(a) by giving written notice
to the Corporation of such withdrawal. Subject to Section 5.3(b) below, the
Corporation shall include in such registration statement all such Registrable
Shares so requested to be included therein; provided, however, that the
Corporation 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.
(b) Priority on Registrations. If the managing underwriter advises the
Corporation that the inclusion of Registrable Shares in the registration
statement would cause a material adverse effect, the Corporation will be
obligated to include in such
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registration statement, as to each Requesting Stockholder, only a portion of the
shares such Stockholder has requested be registered equal to the ratio which
such Stockholder's requested shares bears to the total number of shares
requested to be included in such registration statement by all Persons other
than the Corporation (including Requesting Stockholders) 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
5.3(b) any Stockholder shall not be entitled to include all Registrable
Securities in a registration that such Stockholder has requested to be so
included, such Stockholder may withdraw such Stockholder'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 Corporation 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, her 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 on the condition that such liability will
be limited to, the net amount received by such Person from the sale of his, her
or its Registrable Shares pursuant to such registration.
5.4 Holdback Agreement. Unless the managing underwriter otherwise agrees, each
of the Corporation and the Stockholders agrees (and the Corporation 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 Common Stock or Common Stock Equivalents during the ten (10)
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 Corporation and the managing underwriter may agree.
5.5 Registration Procedures. Whenever any Stockholder has requested that any
Registrable Shares be registered pursuant to this Stockholders Agreement, the
Corporation 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 Corporation
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;
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(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 5.6 and the requirements of the Securities Act and
applicable state securities laws, the Corporation 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 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 Corporation 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 or (B)
consent to general service of process in any 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,
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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 Corporation'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 Corporation'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 Corporation timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K 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 Corporation'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,
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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 Corporation (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Corporation's officers, directors and
employees to supply all information requested by any such Inspector in
connection with such registration statement; provided, however, 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 Corporation shall not be required
to provide any information under this subparagraph (x) if (A) the
Corporation believes, after consultation with counsel for the
Corporation, that to do so would cause the Corporation to forfeit an
attorney-client privilege that was applicable to such information or
(B) if either (1) the Corporation has requested and been granted from
the SEC confidential treatment of such information contained in any
filing with the SEC or documents provided supplementally or otherwise
or (2) the Corporation 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 Stockholder of Registrable Securities requesting such
information agrees to enter into a confidentiality agreement in
customary form and subject to customary exceptions; and provided
further, however, that each Stockholder 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
Corporation and allow the Corporation, 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
Corporation, and (B) a comfort letter or comfort letters from the
Corporation's independent public accountants, each in customary form
and covering such matters as are negotiated with the managing
underwriter;
(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 Corporation are then
listed, or (B) authorized to be quoted and/or listed (to the extent
applicable) on the NASD. Automated Quotation System or the Nasdaq Stock
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 NASD;
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(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;
(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 Corporation 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.
5.6 Suspension of Dispositions. Each Stockholder agrees by acquisition of any
Registrable Shares that, upon receipt of any notice (a "Suspension Notice") from
the Corporation of the happening of any event of the kind described in Section
5.5(v)(C) such Stockholder will forthwith discontinue disposition of Registrable
Shares until such Stockholder's receipt of the copies of the supplemented or
amended prospectus, or until it is advised in writing (the "Advice") by the
Corporation 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 Corporation, such
Stockholder will deliver to the Corporation all copies, other than permanent
file copies then in such Stockholder's possession, of the prospectus covering
such Registrable Shares current at the time of receipt of such notice. In the
event the Corporation shall give any such notice, the time period regarding the
effectiveness of registration statements set forth in Section 5.5(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
Corporation shall use its commercially reasonable efforts and take such actions
as are reasonably necessary to render the Advice as promptly as practicable.
5.7 Registration Expenses. All expenses incident to the Corporation's
performance of or compliance with this Article 5 including, without limitation,
all registration and filing
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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 Registrable Shares in a form eligible
for deposit with Depository Trust Corporation and of printing prospectuses if
the printing of prospectuses is requested by a holder of Registrable Shares),
messenger and delivery expenses, the Corporation'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 Corporation 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
Corporation elects to obtain such insurance), the fees and expenses of any
special experts retained by the Corporation in connection with such
registration, and the fees and expenses of other persons retained by the
Corporation 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
Corporation whether or not any registration statement becomes effective;
provided, however, 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 Stockholders.
5.8 Indemnification.
(a) The Corporation 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 and disbursements except as limited by Section
5.8(c)) 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 loss, liability, claim, damage, and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement 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, and (C) against any and all
costs and expenses (including reasonable fees and disbursements of counsel) as
may be reasonably incurred in
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investigating, preparing, or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, or
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,
to the extent that any such expense or cost is not paid under subparagraph (A)
or (B) above; except insofar as the same are made in reliance upon and in strict
conformity with information furnished in writing to the Corporation 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 Corporation has
furnished such seller or Seller Affiliate with a sufficient number of copies of
the same. The reimbursements required by this Section 5.8(a) will be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(b) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to the
Corporation in writing such information and affidavits as the Corporation
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 Corporation and its directors and officers and each Person who
controls the Corporation (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 and
disbursements except as limited by Section 5.8(c)) 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, however, 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 on the condition
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 Corporation 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 Corporation.
(c) 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, however, that the failure to give such
notice shall not limit the rights of such Person) and (B) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with
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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.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 5.8(a) or 5.8(b) 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 5.8(d) were determined by pro
rata allocation (even if the Stockholders 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 5.8(d). 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
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or, except as provided in Section 5.8(c), defending any such
action or claim. Notwithstanding the provisions of this Section 5.8(d), no
Stockholder shall be required to
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contribute an amount greater than the dollar amount by which the net proceeds
received by such Stockholder with respect to the sale of any Registrable Shares
exceeds the amount of damages which such Stockholder 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 Stockholders' obligations
in this Section 5.8(d) 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 5.8, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 5.8(a) and 5.8(b) without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 5.8(d) subject, in the case of the
Stockholders, to the limited dollar amounts set forth in Section 5.8(b).
(e) 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 and the termination of this Stockholders Agreement.
5.9 Further Assurances. Each Stockholder shall do all such acts and things as,
in the opinion of the Board, may be necessary or advisable to facilitate a
Qualified IPO, including, without limitation, authorizing all amendments to the
Certificate that the Board may consider necessary or advisable to facilitate any
reorganization of the Corporation that is to occur prior to the Qualified IPO.
Upon the completion of a Qualified IPO of Common Stock of the Corporation, all
the provisions of this Stockholders Agreement and all rights and obligations
hereunder shall terminate automatically, with the exception of the provisions of
Section 5.2 dealing with the allocation of participation in a secondary offering
and Section 5.8 to the extent that such provisions have not already been
fulfilled or other agreements are not in place at such time to give effect to
such provisions.
6. OPTION BY CERTAIN UNACCREDITED STOCKHOLDERS
6.1 Grant of Option. Each Stockholder acknowledges the Onex Group's desire that
each holder of the Securities of the Corporation qualify as an Accredited
Investor so that no disclosure document will be required in order to exempt
(pursuant to Regulation D under the Securities Act of 1933, as amended) any
future issuances of securities to the existing Stockholders of the Corporation.
Accordingly, upon the occurrence of an Option Transaction (as defined in Section
6.2 hereof) with respect to the Corporation, each Stockholder shall be deemed to
have granted to Onex an option ("Option") to purchase, upon the terms and
conditions set forth herein, all Securities held by such Stockholder and all
shares, notes, or other securities now or hereafter issued or issuable in
respect of
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any such Securities (whether issued or issuable by the Corporation or any other
person or entity) (collectively, the "Option Securities").
6.2 Option Transaction. The Option may be exercised only if (a) the Corporation
is engaged in or proposes to engage in a transaction in which any shares, notes,
or other securities will be issued to such Stockholder in a transaction
constituting a "sale" within the meaning of Section 2(3) of the Securities Act
(whether through a merger, consolidation, exchange, or purchase), (b) the
Stockholder is not an Accredited Investor at the time of the respective
transaction (an "Unaccredited Stockholder"), (c) no security holder (except for
such Unaccredited Stockholder or any other person granting a similar option to
Onex) of the Corporation involved in the respective transaction fails at the
time of such transaction to qualify as an Accredited Investor, and (d) the
issuer of the shares, notes, or other securities involved in such transaction
(as conclusively evidenced by any notice signed in good faith by an executive
officer or other authorized representative of Onex) has not prepared and is not
expected to prepare in connection with such transaction appropriate disclosure
documents that are sufficient to register such shares, notes, or other
securities under the Securities Act or to exempt such registration in accordance
with Regulation D. Each transaction for which the Option may be exercised as
provided in this Section 6.2 is herein referred to as an "Option Transaction."
6.3 Exercise of Option. Onex may exercise the Option solely with respect to all,
but not less than all, of such Unaccredited Stockholder's Option Securities
involved in the respective Option Transaction. The Option may be exercised with
respect to such Option Securities at any time before the consummation of the
respective Option Transaction for which the Option is then exercisable. The
exercise of the Option will be timely and effectively made if Onex provides
written notice of such exercise to such Unaccredited Stockholder before such
consummation of the respective Option Transaction. The earlier date on which
such notice is so mailed or delivered will constitute the respective exercise
date of the Option to which such notice relates.
6.4 Closing. Unless otherwise agreed by Onex and such Unaccredited Stockholder,
the closing of each exercise of the Option will take place at the offices of
Onex or at such place as Onex and such Unaccredited Stockholder agree, on the
fifth business day after notice of the Option's exercise is mailed or delivered
in accordance with Section 6.3. At the closing, Onex will pay the exercise price
to such Unaccredited Stockholder in cash (by certified or cashier's check)
solely upon such Unaccredited Stockholder's delivering to Onex valid
certificates evidencing all Option Securities then being purchased pursuant to
the exercise of the Option. Such certificates will be duly endorsed (with
signature guaranteed) for transfer to Onex, and upon delivery of such
certificates to Onex, such Unaccredited Stockholder will be deemed to represent
and warrant to Onex that the transferred Option Securities are owned by such
Unaccredited Stockholder free and clear of all liens, adverse claims, and other
encumbrances other than as provided in this Stockholders Agreement. Payment of
the exercise price for the Option Securities is not required in order to effect
the timely exercise of the Option. In order to ensure the transfer of the Option
Securities purchased upon exercise of the Option, each Unaccredited Stockholder
hereby severally appoints Onex as his, her or its attorney in fact for the
purpose of effecting any such transfer, and each Unaccredited Stockholder
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acknowledges and agrees that such power of attorney is coupled with an interest
and is irrevocable. Moreover, Onex and each Unaccredited Stockholder will
promptly perform, whether before or after any Option closing, such additional
acts (including without limitation executing and delivering additional
documents) as are reasonably required by either such party to effect more fully
the transactions contemplated hereby.
6.5 Exercise Price. The exercise price for each Option Security will equal the
price per share (or, in the case of securities other than capital stock, other
applicable denomination) to be paid in connection with the Option Transaction as
determined in good faith by the Board or such other governing body (or
authorized committees thereof) of either (a) the issuer of such Option Security
or (b) Onex if no such issuer determination is made, it being understood that
determinations made by the issuer or Onex pursuant to this Section 6.5 will be
final and conclusive.
6.6 Assignment of Option. The Option may be assigned or transferred in whole or
in part by Onex without any consent or other action on the part of any
Stockholder, and all references herein to "Onex" will include without limitation
each assignee or transferee of all or any part of the Option.
7. CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION
7.1 Acknowledgement. The Stockholders acknowledge that they and their respective
employees, nominees, advisors, agents or other representatives (collectively,
"Representatives") will have access to and will be entrusted with detailed
confidential information and trade secrets ("Confidential Information") relating
to the present and contemplated operations of the Corporation and its
Subsidiaries, the disclosure of any of which Confidential Information to
competitors of the Corporation and its Subsidiaries or to the general public
would be highly detrimental to the best interests of the Corporation. The
Stockholders acknowledge and agree that the right to maintain the
confidentiality of such Confidential Information and the right to preserve the
goodwill of the Corporation constitute proprietary rights which the Corporation
is entitled to protect.
7.2 Covenants.
(a) Covenants of Stockholders. Each Stockholder hereby agrees with each
of the other Stockholders and with the Corporation that neither it nor any of
their respective representatives shall, directly or indirectly:
(1) subject to Section 7.3, at any time disclose any Confidential
Information to any person nor use the same for any purpose other than the
purposes of the Corporation, nor disclose or use for any purpose other than
those of the Corporation the private affairs of the Corporation or any
other non-public information relating to the business and affairs of the
Corporation or any of its Subsidiaries which they may acquire as a result
of being a Stockholder or director of the Corporation or any of its
Subsidiaries; provided, however, that any party may disclose any
information (i) to the extent required by law, regulation or by valid order
of a governmental body, regulatory board, administrative tribunal or
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comparable entity, (ii) to such party's legal counsel or (iii) to any of
its Affiliates or accounting or financial advisors who need to know such
information and have delivered to the Corporation a confidentiality
agreement, in form and content satisfactory to the Corporation, acting
reasonably, by which the Affiliate or advisor, as the case may be, has
agreed not to disclose such information to any person, not to use such
information for any purpose other than to provide advice to the Stockholder
and, forthwith upon request, to return to the Corporation all tangible
evidence of such information;
(2) subject to Section 7.2(b), until such time as such Stockholder
ceases to be a Stockholder of the Corporation, either individually or in
partnership or jointly or in conjunction with any person, as principal,
agent, shareholder or in any other manner whatsoever, carry on or be
engaged in or concerned with or interested in, or advise, lend money to,
guarantee the debts or obligations of, or permit its name or any part
thereof to be used or employed by or associated with, any person engaged in
or concerned with or interested in any business which is competitive with
the business carried on by the Corporation or any Subsidiary at such time
without, in each case, the prior written consent of the Corporation, which
consent shall not be unreasonably withheld or delayed; and
(3) until such time as such Stockholder ceases to be a Stockholder of
the Corporation, at any time contact, or take any steps designed to bring
information to the attention of, any employee or executive of the
Corporation for the purpose of offering such employee or executive
employment with, or enticing such employee or executive to seek employment
with, any person other than the Corporation, regardless of the business in
which such other person is engaged, without, in each case, the prior
written consent of the Corporation, which consent shall not be unreasonably
withheld or delayed or until such time as such Stockholder ceases to be a
Stockholder of the Corporation, at any time, directly or indirectly,
individually or in partnership or jointly or in conjunction with any
person, as principal, agent, shareholder or in any other manner whatsoever,
contact, approach or solicit any customer or client (or prospective
customer or client) of the Corporation for the purpose of soliciting any
such client or customer (or prospective client or customer) for the purpose
of selling to such person services the same or similar to any services
provided by the Corporation.
(b) Covenants of Schwartz. Schwartz shall not be bound by the
restrictions on competitive activities contained in Section 7.2(a)(2); provided,
however, that (i) Schwartz shall not commence any such activity or take any step
in furtherance thereof without providing prior written notice thereof to the
Corporation and to Onex and (ii) upon Schwartz commencing any activity of the
type referred to in Section 7.2(a)(2), Schwartz shall, subject to applicable
law, not be entitled to receive any Confidential Information from the
Corporation or any other person.
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7.3 Exceptions.
(a) Disclosure by Onex. The restriction set out in Section 7.2(a) shall
not preclude disclosure of Confidential Information by Onex in connection with
any proposed Liquidity Transaction or other transaction involving the
Corporation; provided, however, that such disclosure shall not be made without
the approval of the Board and until the person receiving such Confidential
Information has delivered to the Corporation a confidentiality agreement, in
form and content satisfactory to the Corporation, acting reasonably, by which
the person receiving such Confidential Information agrees: (1) not to disclose
such information to any person other than its legal and financial advisors,
subject in each case to such legal and financial advisors agreeing prior to any
such disclosure to them to be bound by such confidentiality agreement; (2) not
to use such information for any purpose other than in connection with the
proposed Liquidity Transaction or other proposed transaction; and (3) forthwith
upon request, to return to the Corporation or to Onex all tangible evidence of
such information.
(b) Acquisition of Public Securities. The restriction set out in
Section 7.2(a) shall not preclude the acquisition by any Stockholder of up to
five percent (5%) in the aggregate of the outstanding shares of any class or
series of any issuer which are traded on any stock exchange or other public
market.
7.4 Reasonable Restrictions. The Stockholders hereby agree that all restrictions
contained in this Article 7 are reasonable and valid and waive all defenses to
the strict enforcement thereof to the fullest extent permitted by law.
8. MISCELLANEOUS
8.1 Implementation. Each Stockholder agrees to vote its shares of Common Stock,
and all other securities of the Corporation entitled to vote on a particular
matter, at all times, to cause its nominees to the Board (if any) to act at all
times and otherwise to exercise its influence in respect of the Corporation, the
Corporation agrees to exercise its influence in respect of its Subsidiaries, and
the Corporation and each Stockholder agrees to sign all such documents and to do
and perform all such other acts or things as may be necessary or desirable from
time to time in order to give full effect to the provisions and intent of this
Stockholders Agreement and to ensure that the provisions of this Stockholders
Agreement shall govern the affairs of the Corporation and its Subsidiaries to
the maximum extent permitted by law, notwithstanding any conflicting provision
in the Certificate or the Bylaws or any conflicting resolutions of the directors
or shareholders of the Corporation. In the case of any conflict between the
provisions of this Stockholders Agreement and the Certificate, the Bylaws or any
such resolutions, each Stockholder agrees to take all such action as may be
required under the DGCL or otherwise to amend the Certificate, the Bylaws or
such resolutions, as the case may be, to resolve such conflict so that the
provisions of this Stockholders Agreement shall, to the maximum extent permitted
by law, at all times prevail.
8.2 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
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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 Corporation:
With copies to (which shall not constitute notice):
If to any Stockholder, 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 Stockholder or
any defect in it shall not affect its sufficiency with respect to other
Stockholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
8.3 Successors and Assigns. Whether or not an express assignment has been made
pursuant to the provisions of this Stockholders Agreement, provisions of this
Stockholders Agreement that are for the Stockholders' benefit as the holders of
any Securities are also for the benefit of, and enforceable by, all subsequent
holders of Securities, except as otherwise expressly provided herein. This
Stockholders Agreement shall be binding upon the Corporation, each Stockholder,
and their respective successors and assigns.
8.4 Remedies. The Stockholders agree and acknowledge that money damages may not
be an adequate remedy for any breach of the provisions of this Stockholders
Agreement and that any Stockholder may in its sole discretion apply to any court
of competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violation of the provisions of this Stockholders
Agreement.
8.5 Termination. The provisions of this Stockholders Agreement, other than
Article 5, shall terminate upon the consummation of a Qualified IPO and may be
terminated at any time by agreement in writing of the Required Stockholders at
the time of such agreement.
8.6 Legal Holidays. A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions at such
place are not required to be open. If a payment date is a Legal Holiday at such
place, payment may be made at such place on the next succeeding day that is not
a Legal Holiday, and no interest on the amount of such payment shall accrue for
the intervening period.
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8.7 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.
8.8 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
8.9 No Waivers; Amendments.
(a) No Waivers. No failure or delay on the part of the Corporation or
any Stockholder 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. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Corporation or any Stockholder at law or in equity or otherwise.
(b) Amendment and Waiver. 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 Corporation and the Required Stockholders and such
amendment or waiver shall be binding on all of the Stockholders and the
Corporation.
8.10 Currency. Unless otherwise indicated, all dollar amounts referred to in
this Stockholders Agreement are expressed in United States dollars.
8.11 Sections and Headings. The division of this Stockholders Agreement into
Articles and Sections and the insertion of headings are for reference purposes
only and shall not affect the interpretation of this Stockholders Agreement. The
terms "this Stockholders Agreement", "hereof", "herein", "hereunder" and similar
expressions refer to this Stockholders Agreement and not to any particular
Section or other portion hereof and include any agreement or instrument
supplemental or ancillary hereto. Unless otherwise indicated, any reference in
this Stockholders Agreement to a Section or Schedule refers to the specified
Section of or Schedule to this Stockholders Agreement.
8.12 Entire Agreement. This Stockholders Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral. There are no conditions, covenants, agreements,
representations, warranties or other provisions, express or implied, collateral,
statutory or otherwise, relating to the subject matter hereof except as provided
in this Stockholders Agreement.
8.13 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.
43
<PAGE> 50
8.14 Time of Essence. Time shall be of the essence of this Stockholders
Agreement.
8.15 Number and Gender. In this Stockholders Agreement, words importing the
singular number only shall include the plural and vice versa and words importing
any gender shall include all genders.
8.16 Ceasing to be a Party. Except as otherwise provided in this Stockholders
Agreement, a Stockholder shall cease to be a party to this Stockholders
Agreement in the event that such Stockholder and every Affiliate thereof no
longer holds or has any interest in any securities of the Corporation. Any
Stockholder that ceases to be a party to this Stockholders Agreement shall have
no further rights or obligations under this Stockholders Agreement, other than
rights and obligations that may have arisen or accrued before such Stockholder
ceased to be a party.
8.17 Change in Securities. The provisions of this Stockholders Agreement
relating to securities of any class or series shall apply, mutatis mutandis, to
any securities into which such securities may be converted, reclassified,
redesignated, subdivided, consolidated or otherwise changed from time to time
and to any securities of any successor or continuing corporation to the
Corporation that may be received in respect of any securities on a
reorganization, amalgamation, consolidation or merger, statutory or otherwise.
8.18 Securities Subsequently Acquired. Each Stockholder agrees that, in addition
to the shares of Common Stock now owned by it as set out opposite its, his or
her name in Schedule A, all Common Stock or Common Stock Equivalents hereafter
acquired by such Stockholder shall be subject in all respects to the provisions
of this Stockholders Agreement.
8.19 Registration of Securities. The parties acknowledge that shares of Common
Stock and Common Stock Equivalents beneficially owned by a Stockholder may from
time to time be registered in the name of a nominee which will hold such
securities as a bare trustee for the sole benefit and under the sole direction
of such Stockholder. Each Stockholder shall cause all such shares of Common
Stock and Common Stock Equivalents to remain subject in all respects to, and to
be dealt with only in accordance with, this Stockholders Agreement in the same
manner as if they were registered at all times in the name of such Stockholder.
The Corporation may at any time require that evidence satisfactory to it, acting
reasonably, be provided to the effect that any such nominee holds all shares of
Common Stock and Common Stock Equivalents for the sole benefit of the relevant
Stockholder.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
44
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this
Stockholders Agreement to be duly executed as of the date first written above.
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS O. HARBISON
----------------------------------
Name: Thomas O. Harbison
--------------------------------
Title: CEO
-------------------------------
ONEX CUSTOMERONE LLC
By: /s/ DONALD F. WEST
----------------------------------
Don West
Title: Director
-------------------------------
By: /s/ ERIC J. ROSEN
----------------------------------
Eric J. Rosen
Title: Managing Director
-------------------------------
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
THIS AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT, dated as of December
21, 1999 (this "Amendment"), is entered into by and among ClientLogic Holding
Corporation, a Delaware corporation, formerly known as CustomerONE Holding
Corporation (including its successors, the "Corporation"), and the
securityholders listed on Schedule A attached hereto. Unless otherwise noted,
all capitalized terms have the defined meanings afforded them in that certain
Stockholders Agreement, dated as of October 1, 1998, by and among the
Corporation and the securityholders listed therein (the "Stockholders
Agreement").
WHEREAS, the Corporation and its Stockholders desire to amend such
Stockholders Agreement as set forth in this Amendment, and
WHEREAS, as of the date hereof the Stockholders collectively own all
the outstanding shares of Common Stock of the Corporation as enumerated in
Schedule A.
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:
1. AMENDMENT TO SECTION 1.1 OF STOCKHOLDERS AGREEMENT
A definition of the term "Designating Minority Stockholders" is hereby
added to read as follows:
"DESIGNATING MINORITY STOCKHOLDERS" shall mean Berczi and Schwartz.
2. AMENDMENT TO SECTION 2.1 OF STOCKHOLDERS AGREEMENT
Section 2.1 of the Stockholders Agreement is hereby amended to read in its
entirety as follows:
2.1 Board
(a) Board Representation. Subject to Section 2.1(c), the
Board shall consist of (i) such number of individuals as may be designated
from time to time by the Designating Minority Stockholders that equals the
greater of (a) one and (b) twenty percent (20%) of the total number of
directors (rounded, as appropriate, to the nearest whole number) (the
"Minority Designee") and (ii) such individuals as may be designated from
time to time by the Onex Group (an "Onex Group Designee"). The Designating
Minority Stockholders shall be entitled to designate a director or
directors as provided in clause (i) above only for so long as the
Designating Minority Stockholders collectively own more than five percent
(5%) of the shares of Fully-Diluted Common Stock then outstanding;
thereafter, Onex shall be entitled to designate all of the directors of the
Corporation, subject to Section 2.1(c). Each Minority Designee shall be a
Designating Minority
<PAGE> 2
Stockholder; provided, however, that if and only if, all Designating Minority
Stockholders are Minority Designees and the Designating Minority Stockholders
are entitled to designate additional Minority Designees, then such additional
Minority Designees are not required to be Designating Minority Stockholders.
(b) Vacancies. If, prior to his or her election to the Board pursuant
to Section 2.1(a), any Minority Designee or Onex Group Designee shall be
unable or unwilling to serve as a director of the Corporation, the Designating
Minority Stockholders or Onex Group, as applicable, shall be entitled to
designate a replacement who shall then be a Minority Designee or an Onex Group
Designee, as applicable, for purposes of this Article 2. If, following an
election to the Board pursuant to Section 2.1(a), any Minority Designee or
Onex Group Designee shall resign or be removed or be unable to serve for any
reason prior to the expiration of his or her term as a director of the
Corporation, the Designating Minority Stockholders or the Onex Group, as
applicable, shall, within thirty (30) days of such event, notify the Board in
writing of a replacement Minority Designee or Onex Group Designee, as
applicable, and either (i) the Stockholders shall vote their shares of Common
Stock, at any regular or special meeting called for the purpose of filling
positions on the Board or in any written consent executed in lieu of such a
meeting of stockholders, and shall take all such other actions necessary to
ensure the election to the Board of such replacement Minority Designee or Onex
Group Designee to fill the unexpired term of the Minority Designee or Onex Group
Designee who such new Minority Designee or Onex Group Designee, as applicable,
is replacing or (ii) the Board shall elect such replacement Minority Designee or
Onex Group Designee to fill the unexpired term of the Minority Designee or the
Onex Group Designee who such new Minority Designee or Onex Group Designee, as
applicable, is replacing. If Stockholders holding a majority of the shares of
Common Stock held by the Designating Minority Stockholders or the Onex Group, as
applicable, request that any Minority Designee or any Onex Group Designee, as
applicable, be removed as a Director (with or without cause) by written notice
thereof to the Corporation, then the Corporation shall take all actions
necessary to effect, and each of the Stockholders shall vote all his, her or its
capital stock in favor of, such removal upon such request.
(c) Termination of Rights. The right of the Designating Minority
Stockholders and the Onex Group to designate directors under Section 2.1(a),
and the obligation of the Stockholders to vote their shares as provided herein,
shall terminate upon the first to occur of (i) the termination or expiration of
this Stockholders Agreement or this Article 2, (ii) such time as the holders of
a majority of the shares of Common Stock held by the Designating Minority
Stockholders or the Onex Group elects in writing to terminate their respective
rights under this Article 2, or (iii) such time as the Onex Group ceases to own
at least fifteen percent (15%) of the shares of Fully-Diluted Common Stock then
outstanding.
2
<PAGE> 3
(d) Costs and Expenses. The Corporation will pay all reasonable
out-of-pocket expenses incurred by the designees of the Designating Minority
Stockholders and the Onex Group in connection with their participation in
meetings of the Board (and committees thereof) of the Corporation and the Boards
of Directors (and committees thereof) of the Subsidiaries of the Corporation.
(e) Election of Designees. Each Stockholder shall vote his, her or its
shares of Common Stock or Common Stock Equivalents entitled to vote for the
election of directors at any regular or special meeting of stockholders of the
Corporation or in any written consent executed in lieu of such a meeting of
stockholders and shall take all other actions necessary to give effect to the
agreements contained in this Stockholders Agreement (including without
limitation the election of persons designated by the Designating Minority
Stockholders and the Onex Group to be elected as directors as described in the
preceding sentences) and to ensure that the Certificate of Incorporation and
Bylaws as in effect immediately following the date hereof do not, at any time
thereafter, conflict in any respect with the provisions of this Stockholders
Agreement. In order to effectuate the provisions of this Article 2, each
Stockholder hereby agrees that when any action or vote is required to be taken
by such Stockholder pursuant to this Stockholders Agreement, such Stockholder
shall use his, her or its best efforts to call, or cause the appropriate
officers and directors of the Corporation to call, a special or annual meeting
of stockholders of the Corporation, as the case may be, or execute or cause to
be executed a consent in writing in lieu of any such meetings pursuant to
Section 228(a) of the DGCL.
3. AMENDMENT TO SECTION 7.2(a)(2) OF STOCKHOLDER AGREEMENT
Section 7.2(a)(2) of the Stockholders Agreement is hereby amended to read
in its entirety as follows:
(2) subject to Section 7.2(b), until such time as such Stockholder
ceases to be a Stockholder of the Corporation, either individually or in
partnership or jointly or in conjunction with any person, as principal, agent,
shareholder or in any other manner whatsoever, carry on or be engaged in or
concerned with or interested in, or advise, lend money to, guarantee the debts
or obligations of, or permit its name or any part thereof to be used or employed
by or associated with, any person engaged in or concerned with or interested in
any business which is competitive with the business carried on by the
Corporation or any Subsidiary at such time without, in each case, the prior
written consent of the Corporation, which consent shall not be unreasonably
withheld or delayed; provided, however , that a Stockholder shall not be bound
by the restrictions set forth in this Section 7.2(a)(2) if and during such time
as such Stockholder's fully diluted ownership of the equity securities of the
Corporation constitutes less than one and one half percent (1.5%) of the total
issued and outstanding equity ownership of the Corporation; and
3
<PAGE> 4
4. AMENDMENT TO SECTION 3.3(a) OF STOCKHOLDERS AGREEMENT
Section 3.3(a) of the Stockholders Agreement is amended and restated to
read, in its entirety, as follows:
(a) Rights to Participate in Future Sales. Subject to Section 33(e), in
the event that the Corporation or any Affiliated Successor (as hereinafter
defined) proposes to issue or sell (a "Preemptive Rights Transaction") any
shares of Common Stock, Common Stock Equivalents or other generally voting
equity securities (the "Offered Securities"), the Corporation shall first offer
(the "Preemptive Rights Offer") to each Stockholder (i) who certifies (to the
reasonable satisfaction of the Corporation) that such Stockholder is an
Accredited Investor (an "Accredited Offeree") or (ii) who is not a "U.S. person"
(as defined in Regulation S under the Securities Act) (a "Foreign Stockholder")
but only in the event that the participation of such Foreign Stockholder in the
Preemptive Rights Offer would not (a) require delivery by the Corporation or any
other person of a prospectus, offering circular or any other similar material
(including, without limitation, financial statements of the Corporation), (b)
require the registration (or equivalent action) with respect to the Offered
Securities or the obtaining of any waiver with respect to the Offered
Securities, (c) restrict the Corporation's or its Subsidiaries' ability to
complete any transaction in a timely manner, or (d) require the filing by the
Corporation or its Subsidiaries of any periodic reports following the completion
of any such Preemptive Rights Offer, at the same price and for the same
consideration to be paid by the proposed purchaser, that proportion of the
Offered Securities which equals that Accredited Offeree's Proportionate Interest
at the time the Board determines to issue such Offered Securities. As used
herein, the term "Affiliated Successor" shall mean a successor entity to the
Corporation (whether by merger, consolidation, reorganization, or otherwise) in
which the Onex Group owns at least the same percentage of the fully-diluted
common stock of such entity (after giving effect to the merger, consolidation,
reorganization, or other transaction) as the Onex Group owns of the
Fully-Diluted Common Stock of the Corporation. Notwithstanding the foregoing, as
a condition to any Foreign Stockholder's right to participate in any Preemptive
Rights Offer, such Foreign Stockholder shall make such undertakings to the
Corporation as required to comply with the requirements of Regulation S.
5. AMENDMENT TO SECTION 3.3(c) OF STOCKHOLDERS AGREEMENT
SECTION 3.3(c) of the Stockholders Agreement is amended and restated to
read, in its entirety, as follows:
(c) Exercise. Any Stockholder may exercise its Preemptive Right by
giving notice (an "Exercise Notice") to the Corporation within five (5) days
after the Offer Notice (or any supplement thereto) is sent by the Corporation by
registered mail to the Stockholder. The Exercise Notice shall specify the
4
<PAGE> 5
number of shares of Offered Securities, as the case may be, that the Stockholder
wishes to purchase and shall irrevocably bind the Stockholder to purchase such
securities at the price and on the date specified in the Offer Notice. If any
such Stockholder fails to accept such offer by written notice within five (5)
days after the Offer Notice was sent by the Corporation by registered mail to
the Stockholder, the Corporation or such Affiliated Successor may proceed with
the proposed issue or sale of the Offered Securities, free of any right on the
part of such Stockholder under this Section 3.3 in respect thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
CLIENTLOGIC HOLDING
CORPORATION
By: /s/ MARK S. BRIGGS
------------------------------------
Name: Mark S. Briggs
----------------------------------
Title: Chief Executive Office
---------------------------------
ONEX CLIENTLOGIC HOLDINGS LLC
By: /s/ DONALD F. WEST
------------------------------------
Donald F. West
Director
By: /s/ ERIC J. ROSEN
------------------------------------
Eric J. Rosen
Director
<PAGE> 7
SCHEDULE A
C/L HOLDINGS -- STOCKHOLDERS OF RECORD
<TABLE>
<CAPTION>
NAME NO. OF SHARES NO. OF SHARES
- ---- HELD OUTRIGHT HELD IN ESCROW
------------- --------------
<S> <C> <C>
Bailey, Melissa 5,000
Baurdoux, Jan L. 26,876 2,609
Berczi, Peter A. 260,000
Biltekoff, Joanne 15,000
Briggs, Mark R. 200,000
Bush, Sandra 30,000
Casey-Christensen, Ann-Marie 1,650
Casteel, Julie 83,333
Crosby, Gary M. 20,000
Dekker, Peter E. 120,619 11,710
Duryea, Joseph 25,000
Erickson, Ole Sommer 35,132 3,411
Fiene, Brent (to be issued) 50
Ford, Paul J. 71,703
Kawalick, Steve 4,200
Koopmans, Sytze 21,641 2,101
Kortenhorst, Alessandra M. 2,008 195
Kortenhorst, Jules K. 2,008 195
Kortenhorst, Jules T. 50,683 54,103
Kortenhorst, Jules T. 506,609
Kortenhorst, Rainier G. 2,008 195
Kortenhorst, Winston P. 2,008 195
Kortenhorst Vetter Family Trust 49,653 4,820
Levy, Jordan A. 153,525
Loubaresse, Frank 359,305
Loubaresse, Laurent 181,367
Onex ClientLogic Holdings LLC 85,607,360
Online Services SARL 183,178
Rella, Bill 400,000
Sarna, Howard 106,666
Schreiber, Ronald M. 153,525
Schwartz, Edward 3,921,844
Smits, Caroline J. G. 2,008 195
Smits, Jeroen, J. 2,008 195
Szymanski, John M. 50
van der Lann, Carien C. 119,018 11,555
van Gaal, Joost A. J. 126,475 12,278
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Waters, Lee 5,000
Wright, Stephen C. 22,500
Zehr, Gregory L. 71,703
---------- -------
SUBTOTALS 92,950,713 103,757
GRAND TOTAL 93,054,470
</TABLE>
<PAGE> 1
EXHIBIT 10.3
CUSTOMERONE HOLDING CORPORATION
1998 STOCK OPTION PLAN
1. Purpose.
Customer ONE Holding Corporation, a Delaware corporation (herein,
together with its successors, referred to as the "Company"), by means of this
1998 Stock Option Plan (the "Plan"), desires to afford certain key employees
employed by, and certain persons performing services for the Company and any
direct or indirect subsidiary or parent corporation thereof now existing or
hereafter formed or acquired (such corporations sometimes referred to herein as
"Related Entities") who are responsible for the continued growth of the Company
an opportunity to acquire a proprietary interest in the Company, and thus to
create in such persons an increased interest in and a greater concern for the
welfare of the Company and any Related Entities. Certain definitions used herein
are defined in Section 19 of this Plan.
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options, are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer the Plan (the "Committee"); provided, however, that the entire Board
of Directors may act as the Committee if it chooses to do so; and provided,
further, that (i) for purposes of determining any Performance-Based Options (as
hereinafter defined) applicable to Key Employees (as hereinafter defined) who
constitute "covered employees" within the meaning of Section 162(m) of the Code,
"Committee" shall mean the members of the Option Committee of the Board of
Directors who qualify as "outside directors" within the meaning of Section
162(m) of the Code, and such Performance-Based Options shall be subject to
ratification by unanimous approval of the members of the Board of Directors, and
(ii) if, when and for so long as the Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the
<PAGE> 2
Committee shall be composed solely of two or more "Non-Employee Directors" as
defined in Rule 16b-3, as amended ("Rule 16b-3"), promulgated thereunder;
provided, however, that, alternatively, for purposes of granting Options other
than Performance-Based Options hereunder, the Board of Directors may authorize
such grants and may take any other action permitted pursuant to Section 162(m)
of the Code, Rule 16b-3 and applicable law and regulations.
The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that majority of the Board of Directors determines
otherwise, shall be no less than two individuals. The Chairman of the Board of
Directors of the Company shall be a member of the Committee at all times. A
majority of the Committee shall constitute a quorum (or if the Committee
consists of only two members, then both members shall constitute a quorum), and
subject to the provisions of Section 5, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be the acts of the Committee. Whenever
the Company shall have a class of equity securities registered pursuant to
Section 12 of the Exchange Act, the Committee shall administer the Plan so as
(i) to comply at all times with the Exchange Act, and (ii) to ensure that
compensation attributable to Options granted under the Plan to Key Employees who
constitute "covered employees" within the meaning of Section 162(m) of the Code
shall (A) meet the deduction limitation imposed by Section 162(m) of the Code,
or (B) qualify as "performance-based compensation" as such term is used in
Section 162(m) of the Code and the regulations promulgated thereunder and thus
be exempt from the deduction limitation imposed by Section 162(m) of the Code.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership on the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be less than two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3 or
other applicable rules under Section 16(b) of the Exchange Act, Section 162(m)
of the Code, or any successor or analogous rules or laws may require from time
to time.
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 11, the maximum
aggregate number of shares of Common Stock, par value $0.01 per share, of the
Company ("Common Stock") in respect of which Options may be granted for all
purposes under the Plan shall be 5,907,500 shares. If, for any reason, any
shares as to which Options have been granted cease to be subject to purchase
thereunder, including the expiration of any
2
<PAGE> 3
such Option, the termination of any such Option prior to exercise, or the
forfeiture of any such Option, such shares shall thereafter be available for
grants under the Plan. Options granted under the Plan may be fulfilled in
accordance with the terms of the Plan with (i) authorized and unissued shares of
the Common Stock, or (ii) issued shares of such Common Stock held in the
Company's treasury.
The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee, including any Options
that may have been granted to such Key Employee as an Eligible Non-Employee (as
hereinafter defined), during the Term (as hereinafter defined) of the Plan shall
be 1,300,000 shares, subject to the adjustments provided in Section 11. For
purposes of the preceding sentence, such Options that are cancelled or repriced
shall continue to be counted in determining such maximum aggregate number of
shares of Common Stock that may be granted to any single Key Employee, including
any Options that may have been granted to such Key Employee as an Eligible
Non-Employee, during the Term of the Plan.
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who are regularly employed
on a salaried basis and who are so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein, the
term "Eligible Non-Employee" 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 (collectively, a "Person"),
that the Committee designates as eligible for a grant of Options pursuant to the
Plan because such Person performs bona fide consulting, advisory, or other
services for the Company or any Related Entity (other than services in
connection with the offer or sale of securities in a capital-raising
transaction) and the Board of Directors or the Committee determines that the
Person has a direct and significant effect on the performance of the Company or
any Related Entity.
The adoption of the Plan shall not be deemed to give any Person a right
to be granted any Options.
3
<PAGE> 4
5. Authority of Committee.
Subject to and consistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be
granted, the number of Options, the purchase price or exercise
price of each Option, the period(s) during which such Options
shall be exercisable (whether in whole or in part, including
whether such Options shall become immediately exercisable upon
the consummation of a Change of Control), the restrictions to be
applicable to Options and all other terms and provisions thereof
(which need not be identical);
b. require, as a condition to the granting of any Option, that the
Person receiving such Option agree not to sell or otherwise
dispose of such Option, any Common Stock acquired pursuant to
such Option, or any other "derivative security" (as defined by
Rule 16a-1(c) under the Exchange Act) of the Company for a period
of six months following the later of (i) the date of the grant of
such Option or (ii) the date when the exercise price of such
Option is fixed if such exercise price is not fixed at the date
of grant of such Option, or for such other period as the
Committee may determine;
c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of
Governors of the Federal Reserve, for the purpose of assisting
the optionee in the exercise of an Option, such authority to
include the payment by the Company of the commissions of the
broker-dealer;
d. provide the establishment of procedures for an optionee to
exercise an Option or a portion thereof by delivering that number
of shares of Common Stock already owned by such optionee and held
at least six months and having an aggregate Fair Market Value
which shall equal the desired Option exercise price; provided,
however, that in the case of an Incentive Option, no shares shall
be used to pay the exercise price under this paragraph unless (A)
such shares were not acquired through the exercise of an
Incentive Option, or (B) if so acquired, (x) such shares have
been held for more than two years since the grant of such
Incentive Option and for more than one year since the exercise of
such Incentive Option (the "Holding Period"), or (y) if such
shares do not meet the Holding Period, the optionee elects in
writing to use such shares to pay the exercise price under this
paragraph;
4
<PAGE> 5
e. provide (in accordance with Section 14 or otherwise) the
establishment of a procedure whereby a number of shares of Common
Stock or other securities may be withheld from the total number
of shares of Common Stock or other securities to be issued upon
exercise of an Option to meet the obligation of withholding for
income, social security and other taxes incurred by an optionee
upon such exercise or required to be withheld by the Company or a
Related Entity in connection with such exercise unless, as
determined by the Committee in the exercise of its discretion,
such procedure is not permitted by applicable law or would result
in a charge to earnings that otherwise would not have occurred;
f. reduce the number of unvested Options granted to any employee in
the event that such employee is demoted;
g. prescribe, amend, modify and rescind rules and regulations
relating to the Plan; and
h. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other acts,
exercise all other powers, and establish any other procedures
determined by the Committee to be necessary, appropriate, or
advisable in administering the Plan or for the conduct of the
Committee's business.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that any
such delegation shall be in writing; and provided, however, that, any
determination of Performance-Based Options applicable to Key Employees who
constitute "covered employees" within the meaning of Section 162(m) of the Code
may not be delegated to a member of the Board of Directors who, if elected to
serve on the Committee, would not qualify as an "outside director" within the
meaning of Section 162(m) of the Code. The Committee may employ attorneys,
consultants, accountants, or other Persons and the Committee, the Company, and
its officers and directors shall be entitled to rely upon the advice, opinions,
or valuations of any such Persons. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and determinations
under the Plan or any Option, made in good faith, shall be final, conclusive and
binding on all parties. No member or agent of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan and all members and agents of the Committee shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
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<PAGE> 6
6. Stock Option Grants to Key Employees.
Subject to the express provisions of the Plan, the Committee shall have
the authority to grant incentive stock options pursuant to Section 422 of the
Code ("Incentive Options"), to grant non-qualified stock options (options which
do not qualify under Section 422 of the Code) ("Non-Qualified Options"), and to
grant both Incentive Options and Non-Qualified Options to Key Employees. No
Incentive Option shall be granted pursuant to the Plan after the earlier of ten
years from the date of adoption of the Plan or ten years from the date of
approval of the Plan by the shareholders of the Company. Incentive Options may
be granted only to Key Employees. The terms and conditions of the Options
granted under this Section 6 shall be determined from time to time by the
Committee and shall be reflected in the option grant letter delivered to the Key
Employee in respect thereof; provided, however, that the Options granted under
this Section 6 shall be subject to all terms and provisions of the Plan (other
than Section 7), including the following:
a. Option Exercise Price. The Committee shall establish the Option
exercise price at the time any Option is granted to a Key
Employee at such amount as the Committee shall determine;
provided, however, that, in the case of an Incentive Option, such
price shall not be less than the Fair Market Value per share of
Common Stock at the date the Option is granted; and provided,
further, that in the case of an Incentive Option granted to a
person who owns, at the time such Incentive Option is granted,
shares of the Company or any Related Entity which shares
represent, in the aggregate, more than 10% of the total combined
voting power of all classes of shares of the Company or of any
Related Entity, the option exercise price shall not be less than
110% of the Fair Market Value per share of Common Stock at the
date the Option is granted. The Option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 11 of the Plan.
b. Payment. The price per share of Common Stock with respect to each
Option exercise by a Key Employee shall be payable at the time of
such exercise. Such price shall be payable in cash or by any
other means acceptable to the Committee, including by the
delivery to the Company of shares of Common Stock owned by the
optionee pursuant to a procedure created pursuant to subsection
5(d) of the Plan (but, with respect to Incentive Options, subject
to the limitations described in such subsection 5(d)). Shares
delivered to the Company in payment of the Option exercise price
shall be valued at the Fair Market Value of the Common Stock on
the day preceding the date of the exercise of the Option.
c. Exercisability of Stock Option. At the time of grant, the
Committee shall determine, subject to the provisions of
subsections 6(d), (e), (f), (g) and (i) below, when and under
what conditions stock options granted to Key Employees hereunder
shall vest and become exercisable.
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<PAGE> 7
No Option by its terms shall be exercisable after the expiration
of ten years from the date of grant of the Option, unless, as to
any Non-Qualified Option, otherwise expressly provided in the
option grant letter reflecting such Option; provided, however,
that no Incentive Option granted to a person who, at the time
such Option is granted, owns stock of the Company, or any Related
Entity, possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any Related
Entity, shall be exercisable after the expiration of five years
from the date such Option is granted.
d. Death. If an optionee's employment with the Company or a Related
Entity terminates due to the death of such optionee, the estate
of such optionee, or a Person who acquired the right to exercise
such Option by bequest or inheritance or by reason of the death
of the optionee, shall have the right to exercise the vested
portion of such Option in accordance with its terms at any time
and from time to time within 180 days after the date of death
unless a longer or shorter period is expressly provided in the
option grant letter reflecting such Option or established by the
Committee pursuant to Section 9 (but in no event after the
expiration date of such Option), and thereafter such Option shall
lapse and no longer be exercisable.
e. Disability. If the employment of an optionee terminates because
of his or her Disability (as defined in Section 19), such
optionee or his or her legal representative shall have the right
to exercise the vested portion of such Option in accordance with
its terms at any time and from time to time within 180 days after
the date of such termination unless a longer or shorter period is
expressly provided in the option grant letter reflecting such
Option or established by the Committee pursuant to Section 9 (but
in no event after the expiration date of the Option), and
thereafter such Option shall lapse and no longer be exercisable;
provided, however, that in the case of an Incentive Option, the
optionee or his or her legal representative shall in any event be
required to exercise the vested portion of such Incentive Option
within one year after termination of the optionee's employment
due to his or her Disability.
f. Termination for Good Cause; Voluntary Termination. Unless an
optionee's Option expressly provides otherwise, such optionee
shall immediately forfeit all rights under his or her Option,
except as to the shares of stock already purchased thereunder, if
the employment of such optionee with the Company or a Related
Entity is terminated by the Company or any Related Entity for
Good Cause (as defined below) or if such optionee voluntarily
terminates employment without the consent of the Company or any
Related Entity. The determination that there exists
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<PAGE> 8
Good Cause for termination shall be made by the Committee (unless
otherwise agreed to in writing by the Company and the optionee)
and any decision in respect thereof by the Committee shall be
final and binding on all parties in interest.
g. Other Termination of Employment. If the employment of an optionee
with the Company or a Related Entity terminates for any reason
other than those specified in subsections 6(d), (e) or (f) above,
then with the approval of the Board of Directors, such optionee
shall have the right to exercise the vested portion of his or her
Option in accordance with its terms, within 30 days after the
date of such termination, unless a longer or shorter period is
expressly provided in the option grant letter reflecting such
Option or established by the Committee pursuant to Section 9 (but
in no event after the expiration date of the Option), and
thereafter such Option shall lapse and no longer be exercisable;
provided, that (i) no Incentive Option shall be exercisable more
than three months after such termination, and (ii) the Committee
may, in the exercise of its discretion, extend the exercise date
of any Option upon termination of employment for a period not to
exceed six months plus one day (but in no event after the
expiration date of the Option) if the Committee determines that
the stated exercise date will have an inequitable result under
Section 16(b) of the Exchange Act.
h. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the
Option) with respect to which Incentive Options are exercisable
for the first time by an optionee during any calendar year under
all plans of the Company and any Related Entity exceeds $100,000,
such Incentive Options shall be treated as Non-Qualified Options.
i. Continuation of Employment. Each Incentive Option shall require
the optionee to remain in the continuous employ of the Company or
any Related Entity from the date of grant of the Incentive Option
until at least three months prior to the date of exercise of the
Incentive Option.
j. Interpretation of Plan. Any termination of employment of an
optionee with the Company or any Related Entity shall in no way
change or amend the Company's at-will termination policy.
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of the Plan, the Committee shall have
the authority to grant Non-Qualified Options (and not Incentive Options) to
Eligible Non-Employees; provided, however, that whenever the Company has any
class of equity securities registered pursuant to Section 12 of the Exchange
Act, no Eligible Non-Employee then serving on the Committee (or such other
committee then administering the Plan) shall be granted Options hereunder if the
grant of such Options would cause
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<PAGE> 9
such Eligible Non-Employee to no longer be a "Non-Employee Director" as set
forth in Section 2 hereof. The terms and conditions of the Options granted under
this Section 7 shall be determined from time to time by the Committee; provided,
however, that the Options granted under this Section 7 shall be subject to all
terms and provisions of the Plan (other than Section 6), including the
following:
a. Option Exercise Price. The Committee shall establish the Option
exercise price at the time any Non-Qualified Option is granted to
an Eligible Non-Employee at such amount as the Committee shall
determine. The Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 11 of the
Plan.
b. Payment. The price per share of Common Stock with respect to each
Option exercise by an Eligible Non-Employee shall be payable at
the time of such exercise. Such price shall be payable in cash or
by any other means acceptable to the Committee, including by the
delivery to the Company of shares of Common Stock owned by the
optionee for at least six months pursuant to a procedure created
pursuant to subsection 5(d) of the Plan. Shares delivered to the
Company in payment of the Option exercise price shall be valued
at the Fair Market Value of the Common Stock on the day preceding
the date of the exercise of the Option.
c. Exercisability of Stock Option. At the time of grant, the
Committee shall determine, subject to the provisions of
subsections 6(d), (e), (f), (g) and (i) below, when and under
what conditions stock options granted to Key Employees hereunder
shall vest and become exercisable.
No Option shall be exercisable after the expiration of ten years
from the date of grant of the Option, unless otherwise expressly
provided in the option grant letter reflecting such Option.
d. Death. If the retention by the Company or any Related Entity of
the services of any Eligible Non-Employee that is a natural
person terminates because of his or her death, the estate of such
optionee, or a Person who acquired the right to exercise the
vested portion of such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise such Option in accordance with its terms, at any time
and from time to time within 180 days after the date of death
unless a longer or shorter period is expressly provided in the
option grant letter reflecting such Option or established by the
Committee pursuant to Section 9 (but in no event after the
expiration date of such Option), and thereafter such Option shall
lapse and no longer be exercisable.
e. Disability. If the retention by the Company or any Related Entity
of the services of any Eligible Non-Employee that is a natural
person terminates because of his or her Disability, such optionee
or his or her legal
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<PAGE> 10
representative shall have the right to exercise the vested
portion of such Option in accordance with its terms at any time
and from time to time within 180 days after the date of the
optionee's termination unless a longer or shorter period is
expressly provided in the option grant letter reflecting such
Option or established by the Committee pursuant to Section 9 (but
in no event after the expiration of the Option), and thereafter
such Option shall lapse and no longer be exercisable.
f. Termination for Good Cause; Voluntary Termination. If the
retention by the Company or any Related Entity of the services of
any Eligible Non-Employee is terminated (i) for Good Cause, (ii)
as a result of removal of the optionee from office as a director
of the Company or of any Related Entity for cause by action of
the shareholders of the Company or such Related Entity in
accordance with the charter or the bylaws of the Company or such
Related Entity, as applicable, and the corporate law of the
jurisdiction of incorporation of the Company or such Related
Entity, or (iii) as a result of the voluntary termination by such
optionee of the optionee's service without the consent of the
Company or any Related Entity, then such optionee shall
immediately forfeit his, her or its rights under such Option
except as to the shares of stock already purchased. The
determination that there exists Good Cause for termination shall
be made by the Committee (unless otherwise agreed to in writing
by the Company and the optionee) and any decision in respect
thereof by the Committee shall be final and binding on all
parties in interest.
g. Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those specified
in subsections 7(d), (e) or (f) above, then with the approval of
the Board of Directors, such optionee shall have the right to
exercise the vested portion of his, her or its Option in
accordance with its terms within 30 days after the date of such
termination, unless a longer or shorter period is expressly
provided in the option grant letter reflecting such Option or
established by the Committee pursuant to Section 9 (but in no
event after the expiration date of the Option), and thereafter
such Option shall lapse and no longer be exercisable; provided,
however, that the Committee may, in the exercise of its
discretion, extend the exercise date of any Option upon
termination of retention of an Eligible Non-Employee's services
for a period not to exceed six months plus one day (but in no
event after the expiration date of the Option) if the Committee
determines that the stated exercise date will have an inequitable
result under Section 16(b) of the Exchange Act.
8. Performance-Based Options.
The Committee, in its sole discretion, may designate and design Options
granted under the Plan as Performance-Based Options, recognizing that due to the
deduction
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<PAGE> 11
limitation imposed by Section 162(m) of the Code, compensation attributable to
such Options might not otherwise be tax deductible by the Company. Accordingly,
Options granted under the Plan may be granted in such a manner that the
compensation attributable to such Options is intended by the Committee to
qualify as "performance-based compensation" as such term is used in Section
162(m) of the Code and the regulations promulgated thereunder and thus be exempt
from the deduction limitation imposed by Section 162(m) of the Code
("Performance-Based Options").
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if:
a. The Option exercise price is not less than the Fair Market Value
per share of Common Stock at the date the Option is granted;
provided, however, that in the case of an Incentive Option, such
price is subject to the limitations described in subsection 6(a);
provided, further, that the Option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 11 of the Plan; or
b. With respect to a Non-Qualified Option granted at an exercise
price that is below the Fair Market Value per share of the Common
Stock on the date of grant, such Option satisfies the following
requirements:
(i) the granting or vesting of such Non-Qualified Option is
subject to the achievement of a performance goal or goals
based on one or more of the following performance measures
(either individually or in any combination): net sales;
pre-tax income before allocation of corporate overhead and
bonus; budget; cash flow; earnings per share; net income;
division, group or corporate financial goals; return on
stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in
and/or maintenance of the price of the Common Stock or any
other publicly-traded securities of the Company; market
share; gross profits; earnings before interest and taxes;
earnings before interest, taxes, depreciation and
amortization; economic value-added models; comparisons with
various stock market indices; increase in number of
customers; and/or reductions in costs;
(ii) the Committee establishes in writing (A) the objective
performance-based goals applicable to a given performance
period, and (B) the individual employees or class of
employees to which such performance-based goals apply no
later than ninety days after the commencement of such
performance period (but in no event after twenty-five
percent of such performance period has elapsed);
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<PAGE> 12
(iii) no compensation attributable to Performance-Based Options
will be paid to or otherwise received by a Key Employee who
constitutes a "covered employee" within the meaning of
Section 162(m) of the Code until the Committee certifies in
writing that the performance goal or goals (and any other
material terms) applicable to such performance period have
been satisfied;
(iv) after the establishment of a performance goal, the
Committee shall not revise such performance goal (unless
such revision will not disqualify compensation attributable
to the Performance-Based Options as "performance-based
compensation" under Section 162(m) of the Code) or increase
the amount of compensation payable with respect to such
Performance-Based Options upon the attainment of such
performance goal; and
(v) as required by the regulations promulgated under Section
162(m) of the Code, the material terms of performance goals
as described in subsection 8(b)(i) shall be disclosed to
and reapproved by the Company's shareholders no later than
the first shareholder meeting that occurs in the fifth year
following the year in which the Company's shareholders
previously approved such performance goals.
9. 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 declare any or all Options outstanding under the Plan 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 such Options. Each Option accelerated by the Committee
pursuant to the preceding sentence shall terminate, notwithstanding any express
provision thereof or any other provision of the Plan, on such date (not later
than the stated exercise date) as the Committee shall determine.
10. Purchase Option.
a. Except as otherwise expressly provided in the option grant letter
reflecting any particular Option, if (i) any optionee's
employment (or, in the case of any Option granted under Section
7, the optionee's relationship) 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 option is
exercised, the optionee (or, with respect to Common Stock
acquired pursuant to the exercise of an Option, the optionee's
assignee, or the optionee's executor or the administrator of the
optionee's estate, in the
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<PAGE> 13
event of the optionee's death, or the optionee's legal
representative in the event of the optionee'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 shares of Common Stock
and/or Options held by the Grantor (such shares of Common Stock
and 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 year after the earlier
of the date of the termination of the optionee's employment or
engagement or such Change of Control. Such notice shall state the
number of Purchasable Shares to be purchased and the purchase
price 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 Common Stock, the Fair Market Value per share as of the
date of the notice of exercise of the Purchase Option times the
number of shares being purchased, and in the case of any Option,
the Fair Market Value per share times the number of vested shares
(including by acceleration) subject to such Option which are
being purchased, less the applicable per share Option exercise
price. The purchase price shall be paid in cash. For purposes
hereof, if the Purchase Option shall be exercised within six
months after a Change of Control, the Fair Market Value shall be
deemed to be that price per share of Common Stock received by
members of the Onex Group as a result of such Change of Control.
The closing of such purchase shall take place at the Company's
principal executive offices within ten 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, and
paid to the holder of, all unpaid indebtedness or other
obligation for which such Purchasable Shares are then pledged or
encumbered.
d. To assure the enforceability of the Company's rights under this
Section 10, each certificate or instrument representing Common
Stock or an Option held by him or it shall bear a conspicuous
legend in substantially the following form:
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"THE SHARES [REPRESENTED BY THIS CERTIFICATE]
[ISSUABLE PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO
AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS
OF THE COMPANY'S 1998 STOCK OPTION PLAN AND A STOCK
OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A
COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT ARE
AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES."
The Company's rights under this Section 10 shall terminate upon the
consummation of a Qualifying Public Offering.
11. Adjustment of Shares.
Except as otherwise contemplated in Section 9, and unless otherwise
expressly provided in the option grant letter reflecting a particular Option, in
the event that, by reason of any merger, consolidation, combination,
liquidation, recapitalization, 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 and/or
interests subject to this Plan and to any Option 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, (i) each such adjustment with respect to an Incentive Option
shall comply with the rules of Section 424(a) of the Code to an Incentive
Option, (ii) in no event shall any adjustment be made which would render any
Incentive Option granted hereunder other than an "incentive stock option" for
purposes of Section 422 of the Code, and (iii) no adjustment shall be made under
this Section 11 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, any optionee will hold Options
issued pursuant to the Plan which have not been exercised, cancelled, or
terminated in connection therewith, the Company shall cause such Options to be
assumed (or cancelled and replacement Options issued) by the surviving entity or
a Related Entity. In the event of any perceived conflict between the provisions
of Section 9 and this Section 11, the Committee's determinations under Section 9
shall control.
12. Assignment or Transfer.
Except as otherwise expressly provided in the option grant letter
reflecting any Non-Qualified Option, no Option granted under the Plan or any
rights or interests therein
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<PAGE> 15
shall be assignable or transferable by an optionee except by will or the laws of
descent and distribution, and during the lifetime of an optionee, Options
granted to him or her hereunder shall be exercisable only by the optionee or, in
the event that a legal representative has been appointed in connection with the
Disability of an optionee, such legal representative.
13. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state or foreign securities laws, to permit
exercise of any Option or to issue any Common Stock in violation of the
Securities Act or any applicable securities laws. Each optionee (or, in the
event of his or her death or, in the event a legal representative has been
appointed in connection with his or her Disability, the Person exercising the
Option) shall, as a condition to his or her right to exercise any 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 shares of Common Stock pursuant to
such exercise is not required to be registered under the Securities Act or any
applicable securities laws.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
In the event that shares are issued to U.S. residents:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. 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 OR STATE LAWS."
In the event that shares are issued to non-U.S. residents:
THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF OTHER JURISDICTIONS AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES
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<PAGE> 16
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, "U.S. PERSONS" (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, EXCEPT IN ACCORDANCE WITH REGULATIONS UNDER THE
SECURITIES ACT, PURSUANT TO REGISTRATION OF THE SECURITIES
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
In the event that shares are issued to a party to the Stockholders
Agreement (as defined).
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.
For all shares:
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.
No legend relating to exemptions from registration under the Securities
Act shall be required for shares of Common Stock issued pursuant to an effective
registration statement under the Securities Act and in accordance with
applicable state or foreign securities laws.
14. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree
to reimburse the Company or any Related Entity by which the optionee is employed
for any federal, state, or local taxes required by any government to be withheld
or otherwise deducted by such corporation in respect of the optionee's exercise
of all or a portion of the Option; (ii) authorize the Company or any Related
Entity by which the optionee is employed to withhold from any cash compensation
paid to the optionee or on the optionee's behalf, an amount sufficient to
discharge any federal, state and local taxes
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<PAGE> 17
imposed on the Company or the Related Entity by which the optionee is employed,
and which otherwise has not been reimbursed by the optionee, in respect of the
optionee's exercise of all or a portion of the Option; and (iii) agree that the
Company may, in its discretion, hold the stock certificate to which the optionee
is entitled upon exercise of the 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 the Option having
a Fair Market Value on the date of exercise which is equal to the amount to be
withheld.
15. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
16. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the payment of any Option under the Plan.
17. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
18. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided herein
or therein. Nothing contained in the Plan or any agreement related hereto or
referred to herein shall impose, or be construed as imposing, an obligation on
(i) the Company or any Related Entity to continue the employment of any Key
Employee, and (ii) any Key Employee to remain in the employ of the Company or
any Related Entity.
19. Definitions.
In addition to the terms specifically defined elsewhere in the Plan, as
used in the Plan, the following terms shall have the respective meanings
indicated:
"Adjustment Event" shall have the meaning set forth in Section 11
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 have the meaning set forth in Section 2
hereof.
17
<PAGE> 18
"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 of the Company 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 direct the voting of securities having more
than 50% of the ordinary voting power for the election of directors of
the Company.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
"Company" shall have the meaning set forth in Section 1 hereof.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company on
the date of adoption of the Plan, (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 such
Board of Directors at the time of such nomination or election, or (iii)
is a member of the Onex Group.
"Disability" shall mean (i) permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis or (ii) if no
such long-term disability plan exists, an inability to perform a
participant's employment duties and responsibilities by reason of any
physical or mental condition for a period of 26 consecutive weeks or a
period of 26 weeks during any 12-month period in connection with the
same physical or mental condition or (iii) another meaning agreed to in
writing by the Committee and the optionee; provided, however, that in
the case of the optionee holding an Incentive Option "disability" shall
have the meaning specified in Section 22(e)(3) of the Code.
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"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
18
<PAGE> 19
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, 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 arms 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. Except as may be otherwise
expressly provided in the option grant letter reflecting a particular
Option, Fair Market Value shall be determined in good faith by the
Committee.
"Good Cause", with respect to any Key Employee, shall mean (unless
another definition is agreed to in writing by the Company and the
optionee) termination by action of the Board of Directors because of:
(A) the optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the optionee's
personal dishonesty, willful misconduct, willful violation of any law,
rule, or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit;
(C) the optionee's willful commission of material mismanagement in the
conduct of his or her duties as assigned to him by the Board of
Directors or the optionee's supervising officer or officers of the
Company; (D) the optionee's willful failure to execute or comply with
the policies of the Company or his or her stated duties as established
by the Board of Directors or the optionee's supervising officer or
officers of the Company, or the optionee's intentional failure to
perform the optionee's stated duties; or (E) substance abuse or
addiction on the part of the optionee. "Good Cause", with respect to
any Eligible Non-Employee, shall mean (unless another definition is
agreed to in writing by the Company and the optionee) termination by
action of the Board of Directors because of: (A) the optionee's
conviction of, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's
willful commission of material mismanagement in providing services to
the Company or any Related Entity; (D) the optionee's willful failure
to comply with the policies of the Company in providing services to the
Company or any Related Entity, or the optionee's intentional failure to
perform the services for which the optionee has been engaged; (E)
substance abuse or addiction on the part of the optionee; or (F) the
optionee's willfully making any material misrepresentation or willfully
omitting to disclose any material fact to the board of directors of the
Company or any Related Entity with respect to the business of the
Company or any Related Entity.
"Grantor" has the meaning set forth in Section 10 hereof.
19
<PAGE> 20
"Holding Period" shall have the meaning set forth in subsection 5(d)
hereof.
"Incentive Options" shall have the meaning set forth in Section 6
hereof.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Non-Qualified Options" shall have the meaning set forth in Section 6
hereof.
"Onex Group" shall mean 1293219 Ontario, Inc., its Affiliates, and
their respective employees, officers, partners and directors (and
members of their respective families and trusts for the primary benefit
of such family members).
"Options" shall have the meaning set forth in Section 1 hereof.
"Performance-Based Options" shall have the meaning set forth in Section
8 hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
"Purchasable Shares" shall have the meaning set forth in Section 10
hereof.
"Purchase Option" shall have the meaning set forth in Section 10
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 Entities" shall have the meaning set forth in Section 1
hereof.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
"Securities Act" shall have the meaning set forth in Section 13 hereof.
"Term" shall have the meaning set forth in Section 21 hereof.
20. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, however, that no amendment shall be
made which shall increase the total number of shares of the Common Stock which
may be issued and sold pursuant to Options granted under the Plan or decrease
the minimum Option exercise price in the case of an Incentive Option, or modify
the provisions of the Plan relating to eligibility with respect to Incentive
Options unless such amendment is
20
<PAGE> 21
made by or with the approval of the shareholders. The Board of Directors shall
be authorized to amend the Plan and the Options granted thereunder, without the
consent or joinder of any optionee or other Person, in such manner as may be
deemed necessary or appropriate by the Board of Directors in order to cause the
Plan and the Options granted thereunder (i) to qualify as "incentive stock
options" within the meaning of Section 422 of the Code, (ii) to comply with Rule
16b-3 (or any successor rule) under the Exchange Act (or any successor law) and
the regulations (including any temporary regulations) promulgated thereunder or
(iii) to comply with Section 162(m) of the Code (or any successor section) and
any regulations (including any temporary regulations) promulgated thereunder.
Except as provided above, no amendment, modification, suspension or termination
of the Plan shall materially impair the value of any Options previously granted
under the Plan, without the consent of the holder thereof.
21. Effective Date.
The Plan shall be effective as of September 30, 1998, and shall be void
retroactively as to any Incentive Option if not approved by the shareholders of
the Company within twelve months thereafter. The Plan shall terminate on the
tenth anniversary of the date of adoption of the Plan or the date of approval of
the Plan by the shareholders of the Company, whichever is earlier, unless sooner
terminated by the Board of Directors (the "Term").
21
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 1
TO
CUSTOMERONE HOLDING CORPORATION
1998 STOCK OPTION PLAN
This Amendment (this "Amendment") to the CustomerONE Holding
Corporation 1998 Stock Option Plan (the "Plan") is effective as of June 21,
1999.
WHEREAS, each of the Board of Directors (the "Board of
Directors) of ClientLogic Holding Corporation (formerly CustomerONE Holding
Corporation), a Delaware corporation (the "Company"), and the stockholders (the
"Stockholders") of the Company have heretofore adopted and approved the Plan;
WHEREAS, the Company has recently changed its name from
CustomerONE Holding Corporation to ClientLogic Holding Corporation; and
WHEREAS, the Board of Directors and the Stockholders wish to
amend the Plan to reflect the recent change of the Company's name , to provide
for a greater maximum aggregate number of shares of the common stock, par value
$0.01 per share, of the Company (the "Common Stock") in respect of which Options
(as that term is defined in the Plan) may be granted for all purposes under the
Plan, and to provide for a greater maximum aggregate number of shares of Common
Stock underlying all Options that may be granted to any single Key Employee (as
such term is defined in the Plan) during the Term (as that term is defined in
the Plan);
NOW, THEREFORE, the Plan is hereby amended as follows:
1. TITLE OF PLAN.
The title of the Plan, as set forth on the first page of the
Plan, is hereby amended to read, in its entirety, as follows:
<PAGE> 2
CLIENTLOGIC HOLDING CORPORATION
1998 STOCK OPTION PLAN
2. SECTION 1.
The first paragraph of Section 1 of the Plan is hereby amended
and restated to read, in its entirety, as follows:
ClientLogic Holding Corporation, a Delaware
corporation (herein, together with its successors, referred to as the
"Company"), by means of this 1998 Stock Option Plan (the "Plan"),
desires to afford certain key employees employed by, and certain
persons performing services for the Company and any direct or indirect
subsidiary or parent corporation thereof now existing or hereafter
formed or acquired (such corporations sometimes referred to herein as
"Related Entities") who are responsible for the continued growth of the
Company an opportunity to acquire a proprietary interest in the
Company, and thus to create in such persons an increased interest in
and a greater concern for the welfare of the Company and any Related
Entities. Certain definitions used herein are defined in Section 19 of
this Plan.
3. SECTION 3.
Section 3 of the Plan is hereby amended and restated to read,
in its entirety, as follows:
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 11,
the maximum aggregate number of shares of Common Stock, par value $0.01
per share, of the Company ("Common Stock") in respect of which Options
may be granted for all purposes under the Plan shall be 7,300,000
shares. If, for any reason, any shares as to which Options have been
granted cease to be subject to purchase thereunder, including the
expiration of any such Option, the termination of any such Option prior
to exercise, or the forfeiture of any such Option, such shares shall
thereafter be available for grants under the Plan. Options granted
under the Plan may be fulfilled in accordance with the terms of the
Plan with (i) authorized and unissued shares of the Common Stock, or
(ii) issued shares of such Common Stock held in the Company's treasury.
The maximum aggregate number of shares of Common
Stock underlying all Options that may be granted to any single Key
Employee, including any Options that may have been granted to such Key
Employee as an Eligible Non-Employee (as hereinafter defined), during
the Term (as hereinafter defined) of the Plan shall be 1,886,500
shares, subject to the adjustments provided in Section 11. For purposes
of the preceding sentence, such Options that are cancelled or repriced
shall continue to be counted in determining such maximum aggregate
number of shares of Common Stock that may be granted to any single Key
Employee, including any Options that may have been granted to such Key
Employee as an Eligible Non-Employee, during the Term of the Plan.
2
<PAGE> 3
4. SECTION 13.
Section 13 of the Plan is hereby amended and restated to read,
in its entirety, as follows:
13. Compliance with Securities Laws.
The Company shall not in any event be obligated to
file any registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or any applicable state or foreign
securities laws, to permit exercise of any Option or to issue any
Common Stock in violation of the Securities Act or any applicable
securities laws. Each optionee (or, in the event of his or her death
or, in the event a legal representative has been appointed in
connection with his or her Disability, the Person exercising the
Option) shall, as a condition to his or her right to exercise any
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 shares of
Common Stock pursuant to such exercise is not required to be registered
under the Securities Act or any applicable securities laws.
Certificates for shares of Common Stock, when issued,
may have substantially the following legend, or statements of other
applicable restrictions, endorsed thereon, and may not be immediately
transferable:
In the event that shares are issued to U.S. residents:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. 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 OR
STATE LAWS."
In the event that shares are issued to non-U.S. residents:
THE SECURITIES COVERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES
3
<PAGE> 4
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF OTHER JURISDICTIONS AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, "U.S. PERSONS"
(AS DEFINED IN REGULATION S PROMULGATED UNDER THE
SECURITIES ACT, EXCEPT IN ACCORDANCE WITH REGULATIONS
UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION OF
THE SECURITIES UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
In the event that shares are issued to a party to the
Stockholders Agreement (as defined):
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 HOLDING CORPORATION AT ITS PRINCIPAL
EXECUTIVE OFFICES.
For all shares:
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.
No legend relating to exemptions from registration
under the Securities Act shall be required for shares of Common Stock
issued pursuant to an effective registration statement under the
Securities Act and in accordance with applicable state or foreign
securities laws.
4
<PAGE> 5
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
5
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 2
TO
CLIENTLOGIC HOLDING CORPORATION
1998 STOCK OPTION PLAN
This Amendment (this "Amendment") to the ClientLogic Holding
Corporation 1998 Stock Option Plan (the "Plan") is effective as of December 21,
1999.
WHEREAS, each of the Board of Directors (the "Board of Directors") of
ClientLogic Holding Corporation, a Delaware corporation (the "Company"), and the
stockholders (the "Stockholders") of the Company have heretofore adopted and
approved the Plan; and
WHEREAS, the Board of Directors and the Stockholders wish to amend the
Plan to provide for a greater maximum aggregate number of shares of the common
stock, par value $0.01 per share, of the Company (the "Common Stock") in respect
of which Options (as that term is defined in the Plan) may be granted for all
purposes under the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. SECTION 3.
Section 3 of the Plan is hereby amended and restated to read, in its
entirety, as follows:
3. Shares Available and Maximum Individual Grants.
Subject to the adjustments provided in Section 11, the maximum
aggregate number of shares of Common Stock, par value $0.01 per share, of
the Company ("Common Stock") in respect of which Options may be granted for
all purposes under the Plan shall be 9,306,376 shares. If, for any reason,
any shares as to which Options have been granted cease to be subject to
purchase thereunder, including the expiration of any such Option, the
termination of any such Option prior to exercise, or the forfeiture of any
such Option, such shares shall thereafter be available for grants under the
Plan. Options granted under the Plan may be fulfilled in accordance with
the terms of the Plan with (i) authorized and unissued
<PAGE> 2
shares of the Common Stock, or (ii) issued shares of such Common Stock held
in the Company's treasury.
The maximum aggregate number of shares of Common Stock underlying
all Options that may be granted to any single Key Employee, including any
Options that may have been granted to such Key Employee as an Eligible
Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 2,302,000 shares, subject to the adjustments
provided in Section 11. For purposes of the preceding sentence, such
Options that are cancelled or repriced shall continue to be counted in
determining such maximum aggregate number of shares of Common Stock that
may be granted to any single Key Employee, including any Options that may
have been granted to such Key Employee as an Eligible Non-Employee, during
the Term of the Plan.
2
<PAGE> 1
EXHIBIT 10.6
ClientLogic Holding Corporation
(Formerly CustomerONE Holding Corporation)
DEFERRED COMPENSATION PLAN
<PAGE> 2
CLIENTLOGIC HOLDING CORPORATION
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. PURPOSE....................................................................................1
2. DEFINITIONS................................................................................1
3. ELIGIBILITY AND PARTICIPATION..............................................................4
4. DEFERRAL ELECTIONS.........................................................................4
5. PHANTOM STOCK UNITS........................................................................5
6. VESTING AND FORFEITURES....................................................................5
7. DISTRIBUTIONS..............................................................................6
8. SHARES AVAILABLE...........................................................................7
9. STOCKHOLDERS AGREEMENT.....................................................................7
10. ADMINISTRATION.............................................................................8
11. CLAIMS.....................................................................................8
12. WITHHOLDING TAXES..........................................................................9
13. EFFECT ON EMPLOYMENT OR ENGAGEMENT.........................................................9
14. ASSIGNABILITY AND TRANSFERABILITY.........................................................10
15. FUNDING...................................................................................10
16. NO RIGHT, TITLE OR INTEREST IN COMPANY ASSETS.............................................10
17. GOVERNING LAW.............................................................................10
18 AMENDMENT AND TERMINATION.................................................................10
</TABLE>
<PAGE> 3
CLIENTLOGIC HOLDING CORPORATION
(FORMERLY CUSTOMERONE HOLDING CORPORATION)
DEFERRED COMPENSATION PLAN
1. PURPOSE
The ClientLogic Holding Corporation (formerly CustomerONE Holding
Corporation) Deferred Compensation Plan ("Plan"), effective as of October 1,
1998, is an unfunded deferred compensation plan, with investment credits based
upon hypothetical shares of the Company's common stock, for a select group of
management, highly compensated employees and other persons performing services
for ClientLogic Holding Corporation or any direct or indirect subsidiary or
parent of the Company now existing or hereafter formed or acquired ("Related
Entities"). The Plan is intended to be exempt from coverage under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and from the
registration filing requirements pursuant to Rule 701 under Section 3(b) of the
Securities Act of 1933, as amended (the "Securities Act").
2. DEFINITIONS
The following terms shall have the following meanings unless the
context indicates otherwise:
"Affiliate" means, as to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled
by or is under common control with the Person, as determined for
purposes of the Securities Act. For purposes hereof, LLC2 and any
successor in interest thereof and Onex Corporation shall be deemed to
be Affiliates of the Company.
"Board of Directors" means the Board of Directors of the Company.
"Cause" shall mean any willful misconduct by the employee which results
in or is likely to result in material and demonstrable liability or
damage to the Company or any Related Entity or the property or business
of any of them. The existence of Cause is to be determined in the good
faith discretion of the Board of Directors.
"Change in 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 for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than to the Company, its
Related Entities, LLC2 and/or
<PAGE> 4
any Affiliate thereof, singly or as a group); (ii) a majority of the
Board of Directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or Group
of Persons (other than the Company, its Related Entities, LLC2 and/or
any Affiliate thereof, singly or as a group) of the power, directly or
indirectly, to vote or direct the voting of securities having more than
50 percent of the ordinary voting power for the election of directors
of the Company.
"Committee" means the Compensation Committee of the Board of Directors
or, in the absence of a designated Compensation Committee, the Board of
Directors.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means ClientLogic Holding Corporation (which, prior to a name
change, was known as CustomerONE Holding Corporation) or its successive
successors and, for purposes of the definition and application of
Change in Control, such corporation and its operating subsidiaries
taken as a whole.
"Compensation" means remuneration for services performed for the
Company or any of its Related Entities.
"Continuing Director" shall mean, as of the date of determination, any
Person who: (i) was a member of the Board of Directors on the date of
adoption of this Plan; (ii) was nominated for election or elected to
the Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the
time of such nomination; or (iii) is an appointed designee of LLC2
and/or its Affiliates.
"Deferral Account" means, with respect to each Participant, a
bookkeeping account established and maintained by the Company which
shall record the amount of Compensation deferred by such Participant
and investment credits or debits thereon, including the number of
Phantom Stock Units credited to the Participant under Section 5.2
below. This notional account shall be for bookkeeping purposes only,
and no separate funds shall be segregated by the Company for the
benefit of any Participant.
"Distribution Event" shall have the meaning set forth in Section 7.1.
"Fair Market Value", as it relates to the Common Stock, means 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 National Market of the National
Association of Securities Dealers Automated Quotation System, as
applicable ("NASDAQ"), for the ten business days prior to the date
specified herein for such a determination; or if there were no sales on
any 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
NASDAQ, 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 any minority discount, absence of liquidity, or transfer
restrictions imposed by any applicable law or agreement) at the date of
2
<PAGE> 5
the event giving rise to a need for a determination. Except as may be
otherwise expressly provided herein, Fair Market Value shall be
determined in good faith by the Board of Directors or a duly appointed
committee thereof, and such determination shall be binding for all
purposes under the Plan.
"Freely Tradeable" with regard to the Common Stock shall mean such time
as the Common Stock is admitted to trading or quotation on any of the
Toronto Stock Exchange, Montreal Exchange, New York Stock Exchange,
NASDAQ, or in each case, any successor thereto, or any other stock
exchange or exchanges as may be approved by the Board of Directors.
"Good Reason" shall mean with respect to any Participant: (i) any
reduction in the Participant's then-effective base salary; (ii) any
change in the Participant's work location of more than 50 miles which
is not consented to by the Participant, or (iii) after a Change in
Control, any material adverse change in the Participant's position or
duties which is not consented to by the Participant.
"LLC2" means Onex CustomerONE Holdings LLC, and any
successor-in-interest thereto that is also an Affiliate of Onex
Corporation.
"Liquidity Event" means the first to occur of any of the following: (i)
a Change in Control, (ii) the Common Stock becoming Freely Tradeable or
(iii) the liquidation or winding up of the Company.
"Participant" means any eligible individual selected by the Committee
to participate in the Plan who has executed a valid Compensation
deferral election and Phantom Stock Unit Agreement.
"Person" means any person or entity of any nature whatsoever, including
but not limited to an individual, firm, company, corporation,
partnership or trust.
"Phantom Stock Unit" means a hypothetical share of Common Stock.
"Spread" means, with respect to a Participant as of any date, the
excess, if any (to the extent not yet distributed from such Deferral
Account by such date), of: (a) the Fair Market Value of a Phantom Stock
Unit on the date of determination over (b) the Fair Market Value of
such Phantom Stock Unit at the time such Phantom Stock Unit is credited
to the Participant's Deferral Account (unless another value is
expressly attributed to such credited Phantom Stock Unit by the
Committee in the Phantom Unit Agreement, in which case, the Phantom
Unit Agreement shall control).
"Subsidiary" shall mean a corporation of which the Company, directly or
indirectly, owns more than 50 percent of the voting stock or any other
business entity in which the Company, directly or indirectly, has an
ownership interest of more than 50 percent.
3
<PAGE> 6
"Valuation Date" shall mean (i) for so long as the Common Stock is not
Freely Tradeable, the last determination of the Fair Market Value of
the Common Stock made by the Board of Directors; provided, that such
determination will be made no less frequently than annually; and (ii)
for so long as the Common Stock is Freely Tradeable, the date of any
distribution or deferral that gives rise to the need to determine the
Fair Market Value of the Common Stock.
3. ELIGIBILITY AND PARTICIPATION
The Committee in its sole discretion may designate the Persons who are
eligible to participate in the Plan, each of whom shall be (i) an officer or
other management employee, or highly compensated employee, of the Company or any
Related Entity or (ii) a director or other Person performing bona fide
consulting or advisory services for the Company or any Related Entity (other
than services in connection with the offer or sale of securities in a
capital-raising transaction). No Person shall become a Participant unless such
Person executes and delivers a compensation deferral election and Phantom Unit
Agreement (as defined below) in the form provided by the Committee. The adoption
of the Plan shall not be deemed to give any Person a right to participate in the
Plan.
4. DEFERRAL ELECTIONS
4.1 Election to Defer Compensation. A Participant may elect to defer
all or part of his or her Compensation in such amounts, for such periods and
subject to maximum annual limits and other terms as are approved by the
Committee. Any deferral election by a Participant shall be made on a form
furnished by the Committee, and such deferral election shall apply only to
Compensation for services performed after the date the election is made. A
Participant may revoke or modify his or her deferral election in accordance with
any rules and procedures the Committee may establish.
4.2 Election to Extend Deferral of Payment. Subject to the approval of
the Committee in its sole discretion, a Participant may elect, in the form and
manner determined by the Committee, to further defer the receipt of all or any
portion of the Participant's Deferral Account that would be payable to the
Participant by reason of a Distribution Event to a date or dates designated by
the Participant. At a Participant's request at other times, the Committee may in
its sole discretion agree to extend the date of payment of all or a portion of
the Participant's Deferral Account; provided that the Committee determines that
any such extension is in the interest of the Company and such request is made at
least six months prior to the date payment otherwise would have been made. A
Participant shall not have any right to extend the date of payment, and the
Committee shall have no obligation to approve any request for an extension.
4.3 Deferral Accounts. The Company shall establish and maintain for
recordkeeping purposes a separate Deferral Account for each Participant, and
each such account shall reflect the amounts of Compensation deferred by such
Participant pursuant to Section 4.1, the hypothetical investment gains or losses
thereon, and any expenses attributable thereto. The net account balance of a
Deferral Account from time to time may be stated as a number of Phantom Stock
Units (or fractions thereof) or in dollars as the Committee may determine.
4
<PAGE> 7
5. PHANTOM STOCK UNITS
5.1 Phantom Unit Agreement. Each Participant shall properly execute and
deliver to the Committee a written agreement regarding Phantom Stock Units in
the form provided by the Committee ("Phantom Unit Agreement"). In the event of
any conflict between a provision of the Plan and any provision of an Phantom
Unit Agreement, the provision of the Plan shall prevail.
5.2 Investment of Deferral Accounts.
(a) Phantom Stock Units Generally. Unless otherwise provided in the
Plan or agreed in writing by the Committee and a Participant with respect to his
or her own Deferral Account, all Compensation deferred by a Participant under
the Plan shall be credited to the Participant's Deferral Account and shall be
converted into and deemed to be invested in Phantom Stock Units on the day as of
which such Compensation would have been paid absent a deferral pursuant hereto,
based on the Fair Market Value of a share of Common Stock as of the last
Valuation Date prior to such deferral. Any other amount to be credited to a
Deferral Account shall be converted into and deemed to be invested in Phantom
Stock Units as of the date that such amount would otherwise have been paid and
received, based on the Fair Market Value of a share of Common Stock as of the
last Valuation Date prior to such deemed investment.
(b) Dividends. Cash dividends paid on Common Stock shall be credited to
Deferral Accounts and shall be converted into and deemed to be invested in
additional Phantom Stock Units one business day following the payment of such
dividend based on the Fair Market Value of a share of Common Stock as of the
last Valuation Date prior to such deemed investment. Noncash dividends shall be
credited to Deferral Accounts on the business day following payment of such
noncash dividend at the Committee's discretion either in the same securities or
other property received as noncash dividends by the Company's shareholders or in
additional Phantom Stock Units based on the Committee's good faith determination
of the Fair Market Value of the securities or other property received as a
noncash dividend and the Fair Market Value of a share of Common Stock as of the
last Valuation Date prior to such deferral. The Committee's determination shall
be final and binding for all purposes under the Plan.
6. VESTING AND FORFEITURES
A Participant shall be fully vested at all times in the amounts of
Compensation credited as deferrals to his or her Deferral Account, subject to
adjustment for gains and losses on the amount of such deferrals based on the
investment performance of the Deferral Account. A Participant shall be fully
vested in the aggregate Spread, if any, credited in his or her Deferral Account
(subject to adjustment for gains or losses thereafter), unless his or her
employment by the Company or any of its Related Entities is terminated for Cause
or without Good Reason, in which case ten percent (10%) of the aggregate Spread
credited to the Participant's Deferral Account shall be forfeited.
5
<PAGE> 8
7. DISTRIBUTIONS
7.1 Distribution Event. The vested portion of a Participant's Deferral
Account shall be available for distribution to the Participant (or in the event
of 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
events (each a "Distribution Event") (i) the date of the Participant's
termination of employment by the Company or any of its Related Entities
(including by reason of his or her death or total and permanent disability),
(ii) the date of the Participant's resignation with Good Reason, (iii) the
second anniversary of the Participant's resignation without Good Reason, or (iv)
if a Liquidity Event has occurred, the date or dates following such event
elected in writing by the Participant; provided, however, that absent the
written consent of the Committee in its sole discretion to the contrary, no
Distribution Event shall be deemed to have occurred until the occurrence of a
Liquidity Event. The date or dates of distribution elected by a Participant need
not be the same for all amounts in the Participant's Deferral Account , and the
Committee may establish a minimum period of deferral or other terms applicable
to such elections.
7.2 Acceleration of Payment. Notwithstanding any provision contained in
this Plan to the contrary, the Committee may, in its sole discretion, accelerate
the distribution in a lump sum of (i) any or all of the Deferral Accounts to the
date of the Change in Control, (ii) any or all of a Participant's Deferral
Account following the Participant's resignation without Good Reason or (iii) all
of the Deferral Accounts upon the liquidation or dissolution of the Company.
7.3 Form of Payment. In the event of a Distribution Event described in
Section 7.1 with respect to a Participant, the amount credited to a
Participant's Deferral Account shall be paid in a lump sum unless the
Participant has elected to receive payment of his or her Deferral Account in
installments in a manner permitted by and subject to the approval of the
Committee. Such lump sum payment or installment payments shall be made in cash,
shares of Common Stock or any combination thereof, as determined in the sole
discretion of the Committee. If an installment payment is being made, only the
portion of the Deferral Account required to make such installment (and a
corresponding amount of the Phantom Stock Units credited to such Account) shall
be deemed to be liquidated for purposes of making such installment payment. For
purposes of satisfying payment of a Participant's Deferral Account with shares
of Common Stock, (i) the Fair Market Value of such shares of Common Stock and
the Fair Market Value of the Phantom Stock Units credited to such Deferral
Account shall each be determined as of the last Valuation Date prior to such
payment and (ii) the Company shall withhold from such distribution and pay to
the appropriate tax authorities the amount of applicable federal and state
income taxes that would be imposed on such distribution, as determined using the
highest amount required to be withheld by applicable law. Any fractional Phantom
Stock Units credited to a Participant's Deferral Account shall be paid in cash.
6
<PAGE> 9
7.4 Hardship Distribution. Following the date on which the Common Stock
is Freely Tradeable and upon a written request of a Participant and the
Participant's demonstration to the Committee that a Hardship (as defined below)
exists, the Committee may, in its sole discretion, permit the distribution of
all or any portion of the Participant's Deferral Account prior to the date such
amount otherwise would be distributed. For purposes of the Plan, "Hardship"
means a Participant's immediate and heavy financial need, which need is not the
result or consequence of the Participant's own actions or failure to act, except
in the case of the purchase of a principal residence (as that term is defined in
the Code), or payments required to avoid the Participant's eviction therefrom.
For example, but not by way of limitation, a Hardship includes expenses for
medical care, payment of tuition, purchase of a principal residence, and
payments necessary to avoid eviction of the Participant from his or her
principal residence. The determination of the existence of a Hardship shall be
made based upon all relevant facts and circumstances, as determined in the sole
and absolute discretion of the Committee. In addition, the receipt of a Hardship
distribution by any Participant shall result in the suspension of the
Participant's deferral election under the Plan for a period of one year
following the date of the distribution.
8. SHARES AVAILABLE
8.1 Number of Shares. Subject to adjustment in accordance with Section
8.2, the maximum aggregate number of shares of Common Stock that may be made
subject to Phantom Stock Units under the Plan shall be 5,000,000.
8.2 Adjustment Event. In the event there is any change in the Common
Stock, through merger, consolidation, reorganization, recapitalization (other
than pursuant to bankruptcy proceedings), stock dividend, stock split, reverse
stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure (an
"Adjustment Event"), the number of Phantom Stock Units subject to the Plan, and
the type of securities that may be distributed as payment pursuant to Section
7.3 hereof, shall be adjusted by the Committee in its sole judgment so as to
give appropriate effect to such Adjustment Event. Any fractional units resulting
from such adjustment may be eliminated. Each successive Adjustment Event shall
result in the consideration by the Committee of whether any adjustment to the
number of Phantom Stock Units subject to the Plan is necessary in the
Committee's judgment. Issuance of Common Stock or securities convertible into
Common Stock for value will not be deemed to be an Adjustment Event unless
otherwise expressly determined by the Committee.
9. STOCKHOLDERS AGREEMENT
In the event that the Company determines to issue shares of Common
Stock in payment of any Participant's Deferral Account, a Participant shall be
required to execute and deliver to the Company a Joinder Agreement to the
Company's Stockholders Agreement, substantially in the form annexed hereto as
such may be amended. In the event of any perceived conflict between the
Stockholders Agreement and the Plan, the Stockholders Agreement shall control.
7
<PAGE> 10
10. ADMINISTRATION
10.1 Responsibility. The Committee shall be the administrator of the
Plan. The Committee shall have the responsibility, in its sole discretion, to
control, operate, manage, interpret and administer the Plan in accordance with
its terms and shall have all the discretionary authority that may be necessary
or helpful to enable it to discharge its responsibilities with respect to the
Plan.
10.2 Delegation of Authority. The Committee may delegate to one or more
of its members, or to one or more agents, such administrative duties as it may
deem advisable. In addition, the Committee or any such delegate may employ one
or more Persons to render advice with respect to any responsibility the
Committee or such delegate may have under the Plan. The Committee or any such
delegate may employ such legal or other counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion or computation received from any such counsel, consultant or agent.
10.3 Determinations and Interpretations by the Committee. All
determinations and interpretations made by the Committee in good faith shall be
binding and conclusive on all Participants and their heirs, successors and legal
representatives.
10.4 Other Powers. The Committee in its sole discretion, and subject to
the limitations contained herein, may establish in writing such other terms,
conditions, restrictions and/or limitations, if any, with respect to any
elective deferrals and distributions under the Plan.
10.5 Indemnification. No Participant shall have any right of action
against any Committee member or officer or director (the "Company Parties") of
the Company individually for any action, or lack thereof, taken by such
individual in connection with the Plan. No Company Party shall be a fiduciary
with respect to any Participant. By participation in the Plan, each Participant
agrees, on behalf of such Participant and his or her heirs and designated
beneficiaries, to indemnify and forever hold harmless each Company Party against
any loss, cost or expense incurred as a result of any claim or cause of action
brought by such Participant, or in the name or on behalf thereof, against such
Company Party as a result of or arising from such Company Party's serving as a
member of the Committee or acting in any other way in respect of the Plan.
11. CLAIMS
11.1 Claims Procedure. If any Participant or his or her designated
beneficiary has a claim for amounts which are not being distributed following a
Distribution Event, such claimant may file with the Committee a written claim,
in such form as is provided or approved by the Committee, setting forth the
amount and nature of the claim, supporting facts, and the claimant's address.
The Committee shall notify each claimant of its decision in writing by
registered or certified mail within ninety (90) days after its receipt of a
claim, unless special circumstances require an extension of time for processing
the claim. If such an extension of time is required, written notice of the
extension shall be
8
<PAGE> 11
furnished to the claimant prior to the termination of the initial ninety (90)
day period, which notice shall specify the special circumstances requiring an
extension and the date by which a final decision will be reached (which date
shall not be later than one hundred eighty (180) days after the date on which
the claim was filed). If a claim is denied, the written notice of denial shall
set forth the reasons for such denial, refer to pertinent Plan provisions on
which the denial is based, describe any additional material or information
necessary for the claimant to realize the claim, and explain the claim review
procedure under the Plan.
11.2 Claims Review Procedure. A claimant whose claim has been denied or
such claimant's duly authorized representative may file, within sixty (60) days
after notice of such denial is received by the claimant, a written request for
review of such claim by the Committee. If a request is so filed, the Committee
shall review the claim and notify the claimant in writing of its decision within
sixty (60) days after receipt of such request. In special circumstances, the
Committee may extend for up to sixty (60) additional days the deadline for its
decision. The notice of the final decision of the Committee shall include the
reasons for its decision and specific references to the provisions of the Plan
on which the decision is based. The decision of the Committee shall be final and
binding on all parties.
12. WITHHOLDING TAXES
By participation in the Plan, any individual who is an employee of the
Company or any Related Entity shall be deemed to (a) agree to reimburse the
Company or any Related Entity by which the Participant is employed for any taxes
required by any governmental regulatory authority to be withheld or otherwise
deducted by such entity in respect of the payment of any amounts hereunder, (b)
authorize the Company or any Related Entity by which the Participant is employed
to withhold from any cash compensation paid to the Participant or on the
Participant's behalf, an amount sufficient to discharge such taxes and which
otherwise has not been reimbursed by the Participant in respect of the payment
of any amounts hereunder, and (c) authorize the Company or any Related Entity
to, in its discretion, effect any required withholding by retaining shares
issuable to the Participant, having a Fair Market Value on the date of issuance
which is equal to the amount to be withheld.
13. EFFECT ON EMPLOYMENT OR ENGAGEMENT
Nothing contained in the Plan shall affect, or be construed as
affecting, the terms of employment or engagement of any Participant except to
the extent specifically provided herein. Nothing contained in the Plan shall
impose, or be construed as imposing, an obligation on the Company or any Related
Entity to continue the employment or engagement of any Participant, or any
Participant to remain in the employ or services of the Company or any Related
Entity, subject to any limitations or procedures as may be set forth in a
separate employment or retention agreement between the Company or any Related
Entity and such Participant. Participation in the Plan is a matter of separate
inducement.
9
<PAGE> 12
14. ASSIGNABILITY AND TRANSFERABILITY
No interest in the Plan shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution. Any
purported assignment or transfer of an interest in the Plan to a creditor of a
Participant shall be null and void, and such interest may be forfeited at the
discretion of the Committee.
15. FUNDING
The Company shall make no provision for the funding of any amounts
payable under the Plan that would cause the Plan to be a funded plan for
purposes of Section 404(a)(5) of the Internal Revenue Code of 1986, as amended
(the "Code") or Title I of ERISA, or would cause the Plan to be other than an
"unfunded and unsecured promise to pay money or other property in the future"
under Treasury Regulation 1.83-3(e). The Company shall have no obligation to
make any arrangement for the accumulation of funds to pay any amounts under the
Plan. Subject to the preceding sentence, the Company, in its sole discretion,
may establish one or more grantor trusts described in subpart E, part I,
subchapter J, chapter 1, subtitle A of the Code to accumulate shares of Common
Stock or other amounts to pay amounts under the Plan, provided that the assets
of such trusts shall be required to be used to satisfy the claims of the
Company's general creditors in the event of the Company's bankruptcy or
insolvency. In the event that the Company establishes an advance accrual reserve
on its books against the future expense of payments under the Plan, such reserve
shall not under any circumstances be deemed an asset of the Plan but, at all
times, shall remain a part of the general assets of the Company subject to the
claims of the Company's general creditors.
16. NO RIGHT, TITLE OR INTEREST IN COMPANY ASSETS
Participants shall have no right, title, or interest whatsoever in or
to any investments which the Company may make to aid it in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create a trust of any kind, or a fiduciary
relationship between the Company and any Participant, beneficiary, legal
representative or any other person. To the extent that any person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of the
Company. The Plan is not intended to be subject to ERISA.
17. GOVERNING LAW
The Plan and all actions taken in connection herewith shall be governed
by and construed in accordance with the laws of the State of New York without
reference to principles of conflict of laws, except as superseded by applicable
federal law.
18. AMENDMENT AND TERMINATION
18.1 Amendment or Termination of Plan. The Committee may amend, suspend or
terminate the Plan at any time with or without prior notice; provided, however,
that no
10
<PAGE> 13
action authorized by this Section 18 shall materially impair any rights or
benefits (other than the right to effect Compensation deferrals under a previous
election) which theretofore accrued hereunder without the consent of affected
Participants. If the Committee determines to accelerate distribution in a lump
sum pursuant to Section 7.2(i), each deferral election of a Participant
receiving payment as a result thereof shall be deemed to be terminated on the
date of the Change in Control.
18.2 Amendment or Termination of Phantom Unit Agreements. The Committee
may amend or modify any Phantom Unit Agreement at any time, provided that no
such amendment or modification shall materially impair any rights or benefits
which theretofore accrued under such Phantom Unit Agreement without the consent
of the affected Participant, and may amend or modify any Phantom Unit Agreement
at any time by mutual agreement between the Committee and the Participant or
such other persons as may then have an interest therein.
11
<PAGE> 1
EXHIBIT 10.7
1
STOCK OPTION PLAN
OF
CORDENA HOLDING B.V.
1. INTRODUCTION
1.1. This Stock Option Plan provides for the granting of options on depository
receipts of shares (Dutch: certificaten van aandelen) in the capital of
Cordena Holding B.V., registered in Amsterdam, hereinafter referred to as
"the Company", to
a. employees of the Company and its present and future subsidiaries. The
present subsidiaries include Hulsink Direct Marketing B.V..
b. individuals, other than the employees referred to above, nominated by
the Company's management board (Dutch: statutair bestuur) and approved
of by the General Meeting of Shareholders of the Company (Dutch: de
algemene vergadering van aandeelhouders) to receive such options for
their contribution to the growth and success of the Company and its
subsidiaries.
1.2 The Plan has been approved and adopted on November 30, 1997 by the General
Meeting of Shareholders of the Company.
2. PURPOSE OF THE PLAN
2.1 The Company intends to provide employees and certain individuals, who
contribute to the success of the Company and its subsidiaries ("Nominees"),
an additional incentive by granting options giving them the opportunity to
participate in the share capital of the Company.
<PAGE> 2
2.2 The Plan enables Nominees to benefit from the future growth and success of
the Company and its subsidiaries.
3. DEFINITIONS
Date of Grant: the date at which an Option is granted to a
Nominee.
Deposit: the deposit as set forth in clause 13.4 of
this Plan.
Depository Receipts of Shares: The depository receipts of shares in the
capital stock of the Company issued by the
Trust as set forth in clause 6.1 of this
Plan.
Employee: each of the employees referred to in clause
1.1 of this Plan.
Employee-Optionee: an employee of the Company or any of its
subsidiaries to whom an Option has been
granted.
General Meeting of Shareholders: the General Meeting of Shareholders (Dutch:
de algemene vergadering van aandeelhouders)
of the Company.
Management Board: the Management Board (Dutch: Statutair
Bestuur) of the Company.
Nominees: employees and certain individuals or
organizations eligible for receiving Options.
Option: the right to purchase Depository Receipts of
Shares.
Optionee: a Nominee to whom an Option has been granted
(irrespective of whether the Option has been
<PAGE> 3
exercised).
Option Agreement: the agreement as referred to in clause 9.1 of this Plan
between the Company and a Nominee, containing the terms and
conditions under which an Option has been granted.
Option Price: the price to be paid for the Depository Receipts of Shares
to be acquired upon exercise of the Option.
Option Term: the period of time within which Options can be exercised.
Penalty: the penalty as set forth in clause 14.1 of this Plan.
Trust: the foundation "Stichting Administratiekantoor Cordena
Teleservices". An informal translation of the deed creating
the foundation is attached to this Plan as Exhibit 1.
4. ADMINISTRATION OF THE PLAN
4.1 The Plan shall be administered by the Trust. The Trust shall be authorized
to take all actions required or advisable for the administration and proper
implementation of the Plan.
4.2 Having obtained a prior approval by the General Meeting of Shareholders,
the Management Board shall be authorized:
4.2.1 to select the Nominees to whom, and the time at which, an Option
shall be granted;
4.2.2 to interpret the Plan;
4.2.3 to enter into Option Agreements with Nominees on behalf of the
Company;
<PAGE> 4
4.2.4 furthermore, to make all other decisions necessary or advisable to
enable the administration and proper implementation of the Plan.
5. APPLICATION WORLD-WIDE
5.1 The Plan is intended to be applied world-wide. However, it has been drafted
to accommodate Netherlands income tax payers. If and when the Trust intends
to grant Options to Optionees that are subject to foreign income tax, the
Trust may grant Options on tax efficient terms and in accordance with
applicable laws, provided, however, that such terms do meet the intentions
of the Plan and do not require the Trust to obtain prior approval of the
shareholders of the Company.
6. DEPOSITORY RECEIPTS OF SHARES
6.1 The Trust shall issue Depository Receipts of Shares to Optionees upon
exercise by those Optionees of their Option. The Depository Receipts of
Shares shall be issued without the co-operation of the Company. The Company
shall issue shares in its capital to the Trust in order to enable the Trust
to issue Depository Receipts of Shares to Optionees exercising their Option.
6.2 The Trust shall issue Depository Receipts of Shares under the terms and
conditions ("Administratievoorwaarden") as attached to this Plan as Exhibit
2.
6.3 The Depository Receipts of Shares to be acquired by Nominees under this Plan
cannot be converted into shares in the capital of the Company, unless
holders of Depository Receipts of Shares other than Nominees may convert the
Depository Receipts of Shares into shares in the capital of the Company.
7. MAXIMUM NUMBER OF DEPOSITORY RECEIPTS OF SHARES AS TO WHICH OPTIONS MAY BE
GRANTED
7.1 The aggregate number of Depository Receipts of Shares to which Options may
be granted under and pursuant to this Plan shall not exceed the number
corresponding
<PAGE> 5
5
with 1,500,000 ordinary shares in the capital of the Company.
7.2 If any Option terminates or is forfeited without having been exercised in
full, the Depository Receipts of Shares not issued under the Option shall
be available for distribution in connection with future Options under this
Plan, provided that this Plan is still effective and has not expired.
8. TERM OF THE PLAN
8.1 This Plan shall be effective up to December 31, 2007. Existing Options
granted prior to this date can be exercised until 5 years after the issue
of the Option involved.
9. OPTION AGREEMENT
9.1 Issue of Options shall be evidenced by Option Agreements. A form of Option
Agreements to be used when granting Options to Employee Optionees is
attached to this Plan as Exhibit 3. Option Agreements with Optionees other
than Employee Optionees shall be substantially in a form attached to this
plan as Exhibit 3. These Option Agreements, however, may deviate from this
form to account for the specific capacity of such Optionee.
10. OPTION PURCHASE PRICE
10.1 No purchase price shall be payable to the Company by an Employee-Optionee
for obtaining the Option and for the administration thereof by the Trust.
11. TRANSFERABILITY AND EXERCISABILITY OF OPTIONS
11.1 An Option granted under this Plan may not be transferred, pledged or
charged in any way and may only be exercised by the Optionee or, on his
death, by his
<PAGE> 6
6
successors.
11.2 Provided prior approval has been obtained from the Trust, an Employee
Optionee may transfer (part of) his Options to his relatives once
removed or, alternatively, may have Options (that are to offered to
him) directly granted to his relatives once removed. The relatives
once removed may be replaced by a trust nominated by the relatives
involved to acquire Options. All rights and obligations, including
restrictions, attached to such Options (and the Depository Receipts
of Shares acquired upon exercise of the Options) will be similar to
the rights and obligations, including restrictions, that would have
been attached to the Options and/or Depository Receipts of Shares if
they would have been granted or issued to the Employee Optionee. The
Trust may require the relatives involved (or their trust) to sign a
deed of adherence to the Option Agreement between the Employee
Optionee and the Company (if Options are transferred by the Employee
Optionee to the relatives) or to enter into an Option Agreement with
the Company (if Options are granted directly to the relative).
Paragraph 9 of this Plan shall apply to such Option Agreements.
11.3 Each Option granted under the Plan shall be immediately exercisable,
for a maximum period of 5 years starting on the execution date of the
Option Agreement. In the event an Employee-Optionee shall cease to be
an Employee, the Option or any part thereof which has not been
exercised will be deemed cancelled and ceases to exist.
11.4 If an Optionee shall demise, the Management Board may authorize his
legal representative to exercise the Option up to 12 months after the
date the Optionee demised.
11.5 If an Optionee becomes mentally or physically unable to fully perform
his normal employment duties, his Option, or part thereof which has
not been exercised, will be deemed cancelled and ceases to exist
after 12 months have elapsed since the date the Optionee became so
disabled.
11.6 The Optionee shall have no right to compensation for any loss
resulting from the expiration, cancellation or forfeiture of the
Option without having been exercised in full.
<PAGE> 7
7
12. EXERCISE OF THE OPTION
12.1 Any Option granted under the Plan may be exercised by notifying the
Management Board and the Trust in writing as provided for in the Option
Agreement. The Option may be exercised in part or in full.
12.2 Within one month of the notification referred to in clause 12.1, the
Depository Receipts of Shares shall be issued to the Optionee, against
immediate payment of the Option Price, by money transfer into such account
as designated by the Trust.
12.3 The Option Price shall be equal to the fair market value of the Depository
Receipts of Shares for which an Option has been granted as per the date on
which the wage tax for granting the Option should be withheld, provided
that the Option Price shall not be less than the nominal value of the
Depository Receipts of Shares. The fair market value shall be determined
by the General Meeting of Shareholders of the Company, in consultation
with the Management Board and after having received advice from the
accountant and tax adviser of the Company. If deemed necessary, the tax
inspector will be consulted as well.
13. TRANSFER OF DEPOSITORY RECEIPTS OF SHARES
13.1 Depository Receipts of Shares subject to an Option or purchased upon
exercise of an Option may not be sold, assigned, transferred, pledged,
mortgaged or otherwise disposed of other than to the Trust or a person
designated by the General Meeting of Shareholders of the Company
("Designated Person"). The purchase price for the Depository Receipts of
Shares to be sold to the Company or to a Designated Person shall be equal
to the fair market value of the Depository Receipts of Shares as per the
day the Depository Receipts of Shares are offered for sale. Lacking a
market price, the fair market value shall be determined by mutual
agreement on the basis of a proposal of the external accountant of the
Company. If no mutual agreement can be reached, the fair market value will
be determined in accordance with the procedure as set forth in the
Articles of Association of the Company as applicable according to the
terms and conditions referred to in clause 6.2 of this Plan.
13.2 The Optionee, intending to transfer Depository Receipts of Shares acquired
under
<PAGE> 8
8
this Plan, will notify the Management Board in a manner as specified in the
Option Agreement, specifying the amount of Depository Receipts of Shares
that are offered for sale. The transfer of Depository Receipts of Shares to
the Trust or to a Designated Person will be effected against simultaneous
payment of the purchase price within one week after the parties have
reached agreement on the number of Depository Receipts of Shares to be
sold, the purchase price, and any other conditions of the sale.
13.3 An Optionee (or on his death his successors) is (are) obligated to sell
the Depository Receipts of Shares acquired under this Plan to the Trust or
to a Designated Person who is willing to purchase and accept the offered
Depository Receipts of Shares against simultaneous payment of the purchase
price within three months after:
13.3.1 a moratorium of payments or bankruptcy or similar proceedings have
been granted, commenced or threatened with respect to the Optionee
13.3.2 the appointment of a guardian by a court (Dutch: onder
curatelestelling) over the Optionee, or
13.3.3 termination of the employment between the Employee-Optionee and the
Company or its subsidiary.
13.4 If within the Option Term the Optionee sells and transfers his Depository
Receipts of Shares acquired under this Plan, the Optionee shall be obliged
to transfer an amount equal to the Penalty into a bank account designated
by the Trust ("the Deposit"). The Deposit shall be held by the Trust during
the remainder of the Option Term as a security for the due fulfilment by
the Optionee of his obligations pursuant to clause 14 of this Plan.
Upon expiration of the Option Term the Deposit, with accrued interest
thereon, shall be released to the Optionee, unless (part of) the Deposit
has been set off against a Penalty payable by the Optionee pursuant to
clause 14 of this Plan.
<PAGE> 9
9
14. PENALTY
14.1 If and when the employment of an Employee-Optionee is terminated within the
Option Term, not caused by the Employee-Optionee's death, the
Employee-Optionee shall pay to the Company a penalty which shall be
immediately due and payable in full ("the Penalty").
14.2 The Penalty is equal to the fair market value of the Depository Receipts of
Shares acquired under the Option at the date the Option was exercised
reduced by the Option Price, subject to the rules in 14.3 below.
14.3 If the employment of an Employee-Optionee with the Company or one of its
subsidiaries is terminated, the Penalty described in 14.2 will be reduced
by a percentage of the Penalty, which percentage increases in a straight
line during the first three years of the Option Term from 0% at the Date of
Grant up to 100% at the third anniversary of the Date of Grant. For
calculating the exact percentage at any given date a year shall be
considered to have 360 days and a month shall be considered to have 30
days.
The Penalty shall, however, not be reduced in accordance with the preceding
paragraph if the employment with the Employee-Optionee is terminated:
- for the compelling reasons (Dutch: dringende redenen) referred to in
Article 678 of Book 7 of the Dutch Civil Code; or
- for serious cause (Dutch: gewichtige redenen) as referred to in Article
685 of Book 7 of the Dutch Civil Code if such serious cause is the
result of the behaviour of the Employee-Optionee.
The Trust may in its sole discretion and after having obtained prior
approval of the Management Board decide that the Penalty shall be reduced
by higher percentages than those outlined above.
14.4 In the interest of the Company, the Optionee will grant the Management
Board the irrevocable power of attorney to effectuate, on his behalf, any
sale and transfer to the Trust or to a Designated Person of any Depository
Receipts of Shares that the Optionee is obligated to sell and transfer.
This power of attorney shall survive, to the fullest extent permitted by
law, the death, bankruptcy or any other event affecting the Optionee.
<PAGE> 10
10
15. DIVIDENDS
15.1 Exercising the Option does not entitle the Optionee to any dividends or
other payments distributed on the Depository Receipts of Shares before
exercising the Option.
16. TAXES, COSTS
16.1 The Company and/or its subsidiaries shall withhold any wage tax and
premiums payable due to granting Options under the Plan. Any costs involved
with the transfer of the Depository Receipts of Shares under the Plan shall
be borne by the Company.
17. PUBLIC LISTING, MERGER, TAKE-OVER
17.1 Optionees, including those who acquired Depository Receipts of Shares
under the Plan shall be informed by the Management Board of:
17.1.1 an application for listing of the Depository Receipts of Shares
or the underlying shares at the Amsterdam Stock Exchange or a
Stock Exchange recognized by the Amsterdam Stock Exchange, such
as: Nasdaq, Easdaq and the New York and London Stock Exchange;
17.1.2 an intended purchase by a third party of a majority of the
shares in the capital of the Company;
17.1.3 any intention to merge the Company with another company.
17.2 The Management Board may require an Optionee to sell and transfer its
Options and/or its Depositor Receipts of Shares acquired under the Plan to
the Trust or a Designated Person if the Company is subject to a merger or a
third party intends
<PAGE> 11
11
to buy a substantial part of the shares in the Company. The purchase price
for the Options and/or the Depository Receipts of Shares so sold and
transferred shall be determined by the external accountant of the Company
on the basis of principles set forth by the General Meeting of
Shareholders.
17.3 If the Depository Receipts of Shares, subject to an Option, change due to
merger, reorganization, or change in the Company's capitalisation, stock
dividend, stock split, exchange of shares, combination of shares or any
other event changing the value of the Option, the Option shall be adjusted
according to the trading rules of the European Option Exchange.
18. CONFIDENTIALITY
18.1 By executing the Option Agreement, the Optionees shall accept an obligation
not to disclose any information regarding the Plan, or any information in
connection therewith, unless the Optionee is legally obliged to disclose
such information by law or stock exchange regulations.
<PAGE> 1
EXHIBIT 10.8
NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT CONTAINS INDEMNIFICATION
PROVISIONS IN SECTION 5 THAT APPLY TO CLAIMS, LIABILITIES, LOSSES, DAMAGES
OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM
THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE
OF ONEX SERVICE PARTNERS OR ANY OTHER INDEMNIFIED PERSON IDENTIFIED
THEREIN.
MONITORING AND OVERSIGHT AGREEMENT
THIS MONITORING AND OVERSIGHT AGREEMENT (this "Agreement") is made and
entered into effective as of January 1, 1999, among CustomerONE Corporation, a
Delaware corporation (together with its successors, the "Company") CustomerONE
Holding Corporation, a Delaware corporation (together with its successors,
"Holdings") LCS Industries, Inc., a Delaware corporation, Catalog Liquidators,
Inc., a Delaware corporation, LCS Canada, Inc., a Delaware corporation, Catalog
Resources, Inc., a Delaware corporation, LCS Industries Ltd., a corporation
organized under the laws of the United Kingdom, Spec Holdings, Inc., a New York
corporation, The SpeciaLISTS Ltd., a New York corporation, Computer Marketing
Systems, Inc., a New York corporation, 1293219 Ontario Inc., a corporation
organized under the laws of the province of Ontario, Canada, 1293220 Ontario
Inc., a corporation organized under the laws of the province of Ontario, Canada,
ClientLogic Canada Corporation, a corporation organized under the laws of the
province of Ontario, Canada, The Ivy Group Limited, a corporation organized
under the laws of the United Kingdom, Professional Support Centre Limited, a
corporation organized under the laws of the United Kingdom, UCA&L Limited, a
corporation organized under the laws of Ireland, together with any subsidiary
that may hereafter become a party hereto ("Subsidiaries," and together with the
Company and Holdings, the "Clients") and Onex Service Partners, a New York
general partnership (together with its successors, "QSP").
1. Retention. The Clients hereby acknowledge that they have retained
OSP to, and OSP acknowledges that, subject to reasonable advance notice in order
to accommodate scheduling, OSP will, provide financial oversight and monitoring
services to the Clients as requested by the board of directors of Holdings
during the term of this Agreement.
2. Term. The term of this Agreement shall continue until the earlier to
occur of (i) the tenth anniversary of the date hereof and (ii) the date on which
Onex Corporation, a corporation organized under the laws of the province of
Ontario, Canada ("Onex"), or its successors, and their respective affiliates
shall cease to own beneficially, directly or indirectly, any securities of any
of the Clients or their respective successors.
<PAGE> 2
3. Compensation.
(a) As compensation for OSP's services to the Clients under this
Agreement, the Clients hereby irrevocably agree, jointly and severally, to pay
to OSP an annual fee (the "Monitoring Fee") of US$600,000 (the "Base Fee"),
prorated on a daily basis for any partial calendar year during the term of this
Agreement. The Monitoring Fee shall be payable in equal quarterly installments
on each January 1, April 1, July 1 and October 1 during the term of this
Agreement (each a "Payment Date"), beginning with the first Payment Date
following the date hereof All payments shall be made by wire transfer of
immediately available funds to the account described on Exhibit A hereto (or
such other account as OSP may hereafter designate in writing). Notwithstanding
the foregoing, payment of a Monitoring Fee pursuant to this Section 3 will only
be made to the extent payment of such Monitoring Fee does not result in an event
of default or violate any provision of any agreement for indebtedness of the
Clients, both before and after giving effect to payment of such Monitoring Fee.
(b) All past due payments in respect of the Monitoring Fee shall bear
interest at the lesser of the highest rate of interest which may be charged
under applicable law or the prime commercial lending rate per annum of Toronto
Dominion (Texas), Inc. or its successors (which rate is a reference rate and is
not necessarily its lowest or best rate of interest actually charged to any
customer) (the "Prime Rate") as in effect from time to time, plus one percent
(1.0%), from the due date of such payment to and including the date on which
payment is made to OSP in full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3 hereof, the Clients agree, jointly and severally, to
pay or reimburse OSP for all "Reimbursable Expenses," which shall consist of all
reasonable disbursements and out-of-pocket expenses (including, without
limitation, costs of travel, postage, deliveries, communications, etc.) incurred
by OSP or its affiliates for the account of any Client or in connection with the
performance by OSP of the services contemplated by Section 1 hereof. Promptly
(but not more than 10 days) after request by or notice from OSP, the applicable
Client shall pay OSP, by wire transfer of immediately available funds to the
account described on Exhibit A hereto (or such other account as OSP may
hereafter designate in writing), the Reimbursable Expenses for which OSP has
provided such Client invoices or reasonably detailed descriptions. All past due
payments in respect of the Reimbursable Expenses shall bear interest at the
lesser of the highest rate of interest which may be charged under applicable law
or the Prime Rate plus 1.0% from the Payment Date to and including the date on
which such Reimbursable Expenses plus accrued interest thereon are fully paid to
OSP. Notwithstanding the foregoing, the payment or reimbursement of any
Reimbursable Expenses pursuant to this Section 4 will only be made to the extent
such payment or reimbursement does not result in an event of default or violate
any provision of any agreement for indebtedness of the Clients, both before and
after giving effect to such payment or reimbursement.
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of OSP, its affiliates, and their respective directors,
officers,
2
<PAGE> 3
controlling persons (within the meaning of Section 15 of the Securities Act of
1933, as amended, or Section 20(a) of the Securities Exchange Act of 1934, as
amended), if any, agents and employees (OSP, its affiliates, and such other
specified persons being collectively referred to as "Indemnified Persons," and
individually as an "Indemnified Person") from and against any and all claims,
liabilities, losses, damages and expenses incurred by any Indemnified Person
(including those arising out of an Indemnified Person's negligence and
reasonable fees and disbursements of the respective Indemnified Person's
counsel) which (A) are related to or arise out of (i) actions taken or omitted
to be taken (including, without limitation, any untrue statements made or any
statements omitted to be made) by any of the Clients or (ii) actions taken or
omitted to be taken by an Indemnified Person with any Client's consent or in
conformity with any Client's instructions or any Client's actions or omissions
or (B) are otherwise related to or arise out of OSP's engagement, and will
reimburse each Indemnified Person for all costs and expenses, including, without
limitation, fees and disbursements of any Indemnified Person's counsel, as they
are incurred, in connection with investigating, preparing for, defending or
appealing any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with OSP's acting pursuant to OSP's
engagement, whether or not any Indemnified Person is named as a party thereto
and whether or not any liability results therefrom. None of the Clients will,
however, be responsible for any claims, liabilities, losses, damages or expenses
pursuant to clause (B) of the preceding sentence that have resulted primarily
from OSP's bad faith, gross negligence or willful misconduct. The Clients also
agree that neither OSP nor any other Indemnified Person shall have any liability
to any Client for or in connection with such engagement except for any such
liability for claims, liabilities, losses, damages or expenses incurred by any
Client that have resulted primarily from OSP's bad faith, gross negligence or
willful misconduct. The Clients further agree that none of them will, without
the prior written consent of OSP, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of OSP and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding. EACH CLIENT
HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ANY
CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES THAT HAVE RESULTED FROM OR ARE
ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR
CONCURRENT ORDINARY NEGLIGENCE OF OSP OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that OSP and/or any other Indemnified Person may have at common law or otherwise
and shall remain in full force and effect following the completion or any
termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against OSP or any other Indemnified
Person.
3
<PAGE> 4
It is understood that, in connection with OSP's engagement, OSP may
also be engaged to act for a Client or Clients in one or more additional
capacities, and that the terms of this engagement or any such additional
engagement(s) may be embodied in one or more separate written agreements. This
indemnification shall apply to the engagement specified in the first paragraph
hereof as well as to any such additional engagement(s) (whether written or oral)
and any modification of said engagement or such additional engagement(s) and
shall remain in full force and effect following the completion or termination of
said engagement or such additional engagements.
Each of the Clients further understands and agrees that if OSP is asked
to furnish any Client a financial opinion letter or act for any Client in any
other formal capacity, such further action may be subject to a separate
agreement containing provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, OSP agrees not to divulge any confidential information,
secret processes or trade secrets disclosed by any Client or any of its
subsidiaries to it solely in its capacity as a financial advisor, unless such
Client consents to the divulging thereof or such information, secret processes
or trade secrets are publicly available or otherwise available to OSP without
restriction or breach of any confidentiality agreement or unless required by any
governmental authority or in response to any valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of New York, excluding any
choice-of-law provisions thereof. Each of the parties hereby (a) irrevocably
submits to the exclusive jurisdiction of the United States Federal District
Court for the Southern District of New York, sitting in New York County, New
York, the United States of America, in the event such court has jurisdiction or,
if such court does not have jurisdiction, to any district court sitting in New
York County, New York, the United States of America, for the purpose of any
suit, action, or proceeding arising out of or relating to this Agreement,
including any claims by any Indemnified Persons for indemnity pursuant to
Section 5 hereof, (b) waives, and agrees not to assert in any such suit, action,
or proceeding, any claim that (i) it is not personally subject to the
jurisdiction of such court or of any other court to which proceedings in such
court may be appealed, (ii) such suit, action or proceeding is brought in an
inconvenient forum, or (iii) the venue of such suit, action, or proceeding is
improper and (c) expressly waives any requirement for the posting of a bond by
the party bringing such suit, action, or proceeding. Each of the parties
consents to process being served in any such suit, action, or proceeding by
mailing, certified mail, return receipt requested, a copy thereof to such party
at the address in effect for notices hereunder, and agrees that such services
shall constitute good and sufficient service of process and notice thereof.
Nothing in this Section 7 shall affect or limit any right to serve process in
any other manner permitted by law.
8. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned (other than with respect to
4
<PAGE> 5
the rights and obligations of OSP, which may be assigned to any one or more of
its principals or affiliates) by any of the parties without the prior written
consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
10. Other Understandings. All discussions, understanding and agreements
heretofore made between any of the parties hereto with respect to the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the Agreement of the parties hereto. All calculations of the
Monitoring Fee and Reimbursable Expenses shall be made by OSP and, in the
absence of mathematical error, shall be final and conclusive.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ONEX SERVICE PARTNERS
By: /s/ THOMAS O. HARBISON
--------------------------------
Thomas O. Harbison,
its Managing Director
CUSTOMERONE CORPORATION
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
CUSTOMERONE HOLDING CORPORATION
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS INDUSTRIES, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
6
<PAGE> 7
CATALOG LIQUIDATORS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS CANADA, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
CATALOG RESOURCES, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS INDUSTRIES LTD.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
7
<PAGE> 8
SPEC HOLDINGS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
THE SPECIALISTS LTD.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
COMPUTER MARKETING SYSTEMS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
1293219 ONTARIO INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
8
<PAGE> 9
1293220 ONTARIO INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CLIENTLOGIC CANADA CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
THE IVY GROUP LIMITED
By: /s/ STEVEN M. KAWALICK
--------------------------------
Steven M. Kawalick
Company Secretary
PROFESSIONAL SUPPORT CENTRE LIMITED
By: /s/ STEVEN M. KAWALICK
--------------------------------
Steven M. Kawalick
Company Secretary
9
<PAGE> 10
UCA&L LIMITED
By: /s/ KARL CRAVEN
--------------------------------
Name: Karl Craven
------------------------------
Title: Financial Controller
-----------------------------
10
<PAGE> 1
EXHIBIT 10.9
NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT CONTAINS INDEMNIFICATION
PROVISIONS IN SECTION 5 THAT APPLY TO CLAIMS, LIABILITIES, LOSSES, DAMAGES
OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED FROM
THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR CONCURRENT ORDINARY NEGLIGENCE
OF LLC OR ANY OTHER INDEMNIFIED PERSON IDENTIFIED THEREIN.
FINANCIAL ADVISORY AGREEMENT
THIS FINANCIAL ADVISORY AGREEMENT (this "Agreement") is made and
entered into effective as of May 1, 1999 among CustomerONE Corporation, a
Delaware corporation (together with its successors, the "Company"). CustomerONE
Holding Corporation, a Delaware corporation (together with its successors,
"Holdings"), LCS Industries, Inc., a Delaware corporation, Catalog Liquidators,
Inc., a Delaware corporation, LCS Canada, Inc., a Delaware corporation, Catalog
Resources, Inc., a Delaware corporation, LCS Industries Ltd., a corporation
organized under the laws of the United Kingdom, Spec Holdings, Inc., a New York
corporation, The SpeciaLISTS Ltd., a New York corporation, Computer Marketing
Systems, Inc., a New York corporation, 1293219 Ontario Inc., a corporation
organized under the laws of the province of Ontario, Canada, 1293220 Ontario
Inc., a corporation organized under the laws of the province of Ontario, Canada,
ClientLogic Canada Corporation, a corporation organized under the laws of the
province of Ontario, Canada, The Ivy Group Limited, a corporation organized
under the laws of the United Kingdom, Professional Support Centre Limited, a
corporation organized under the laws of the United Kingdom, UCA&L Limited, a
corporation organized under the laws of Ireland, together with any subsidiary
that may hereafter become a party hereto ("Subsidiaries," and together with the
Company and Holdings, the "Clients") and Onex Service Partners, a New York
general partnership (together with its successors, "OSP").
WHEREAS, the Clients have requested that OSP render financial advisory,
investment banking, and other similar services to them with respect to future
proposals for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring, or other similar transaction directly or
indirectly involving any of the Clients or any of their respective subsidiaries
and any other person or entity (collectively, "Transactions");
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by OSP to the Clients, and to evidence the obligations of the Clients
to OSP and the mutual covenants herein contained, the Clients hereby jointly and
severally agree with OSP as follows:
1. Retention. Each of the Clients acknowledges that it has retained OSP
as its exclusive financial advisor in connection with any Transactions that may
be
<PAGE> 2
consummated during the term of this Agreement, and that none of the Clients will
retain any other person or entity to provide such services in connection with
any such Transaction without the prior written consent of OSP. OSP agrees that
it shall provide such financial advisory, investment banking and other similar
services in connection with any such Transaction as may be requested from time
to time by the board of directors of the applicable Client.
2. Term. The term of this Agreement shall continue until the earlier to
occur of (i) the tenth anniversary of the date hereof and (ii) the date on which
Onex Corporation, a corporation organized under the laws of the province of
Ontario, Canada ("Onex"), or its successors, and their respective affiliates
shall cease to own beneficially, directly or indirectly, any securities of any
of the Clients or their respective successors.
3. Compensation. In connection with any Transaction consummated during
the term of this Agreement, the applicable Client shall, and the other Clients
shall cause such Client to, pay to OSP, at the closing of any such Transaction,
a cash fee (the "Advisory Fee") equal to up to 1.5% of the Transaction Value of
such Transaction. As used herein, the term "Transaction Value" means the total
value of the Transaction, including, without limitation, the aggregate amount of
the funds required to complete the Transaction (excluding any fees payable
pursuant to this Section 3), including, without limitation, the amount of any
indebtedness, preferred stock or similar items assumed (or remaining
outstanding) less any cash balances, the aggregate amount of any noncompetition
or consulting agreements entered into in conjunction with any Transaction, the
aggregate amount of any "golden parachutes" or termination payments to employees
incurred as a result of any such Transaction, and like costs, all as reasonably
determined by OSP. Notwithstanding the foregoing, payment of an Advisory Fee
pursuant to this Section 3 will only be made to the extent payment of such
Advisory Fee does not result in an event of default or violate any provision of
any agreement for indebtedness of the Clients, both before and after giving
effect to payment of such Advisory Fee.
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3 hereof, the Clients agree, jointly and severally, to
reimburse OSP, promptly following demand therefor, together with invoices or
reasonably detailed descriptions thereof, for all reasonable disbursements and
out-of-pocket expenses (including, without limitation, fees and disbursements
of counsel) incurred by OSP in connection with the performance by it of the
services contemplated by Section 1 hereof (the "Reimbursable Expenses").
Notwithstanding the foregoing, the payment or reimbursement of any Reimbursable
Expenses pursuant to this Section 4 will only be made to the extent such payment
or reimbursement does not result in an event of default or violate any provision
of any agreement for indebtedness of the Clients, both before and after giving
effect to such payment or reimbursement.
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of OSP, its affiliates and their respective directors,
officers, controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20(a) of the Securities Exchange
Act of 1934, as amended), if any,
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<PAGE> 3
agents and employees (OSP, its affiliates and such other specified persons being
collectively referred to as "Indemnified Persons" and individually as an
"Indemnified Person") from and against any and all claims, liabilities, losses,
damages and expenses incurred by an Indemnified Person (including, without
limitation, those arising out of an Indemnified Person's negligence and
reasonable fees and disbursements of the respective Indemnified Person's
counsel) which (A) are related to or arise out of (i) actions taken or omitted
to be taken (including, without limitation, any untrue statements made or any
statements omitted to be made) by any of the Clients or (ii) actions taken or
omitted to be taken by an Indemnified Person with any Client's consent or in
conformity with any Client's instructions or any Client's actions or omissions
or (B) are otherwise related to or arise out of OSP's engagement, and will
reimburse each Indemnified Person for all costs and expenses, including, without
limitation, fees and disbursements of any Indemnified Person's counsel, as they
are incurred, in connection with investigating, preparing for, defending or
appealing any action, formal or informal claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
caused by or arising out of or in connection with OSP's acting pursuant to OSP's
engagement, whether or not any Indemnified Person is named as a party thereto
and whether or not any liability results therefrom. None of the Clients will,
however, be responsible for any claims, liabilities, losses, damages or expenses
pursuant to clause (B) of the preceding sentence that have resulted primarily
from OSP's bad faith, gross negligence or willful misconduct. The Clients also
agree that neither OSP nor any other Indemnified Person shall have any liability
to any Client for or in connection with such engagement except for any such
liability for claims, liabilities, losses, damages or expenses incurred by any
Client that have resulted primarily from OSP's bad faith, gross negligence or
willful misconduct. The Clients further agree that none of them will, without
the prior written consent of OSP, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of OSP and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding. EACH CLIENT
HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO ALL
CLAIMS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES THAT HAVE RESULTED FROM OR ARE
ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT OR
CONCURRENT ORDINARY NEGLIGENCE OF OSP OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that OSP and/or any other Indemnified Person may have at common law or otherwise
and shall remain in full force and effect following the completion or any
termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against OSP or any other Indemnified
Person.
It is understood that, in connection with OSP's engagement, OSP may
also be engaged to act for a Client or Clients in one or more additional
capacities, and that the
3
<PAGE> 4
terms of this engagement or any such additional engagements may be embodied in
one or more separate written agreements. This indemnification shall apply to the
engagement specified in the first paragraph hereof as well as to any such
additional engagement(s) (whether written or oral) and any modification of said
engagement or such additional engagement(s) and shall remain in full force and
effect following the completion or termination of said engagement or such
additional engagements.
Each of the Clients further understands and agrees that if OSP is asked
to furnish any Client a financial opinion letter or act for any Client in any
other formal capacity, such further action may be subject to a separate
agreement containing provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, OSP agrees not to divulge any confidential information,
secret processes or trade secrets disclosed by any Client or any of its
subsidiaries to it solely in its capacity as a financial advisor, unless such
Client consents to the divulging thereof or such information, secret processes
or trade secrets are publicly available or otherwise available to OSP without
restriction or breach of any confidentiality agreement or unless required by any
governmental authority or in response to any valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of New York, excluding any
choice-of-law provisions thereof. Each of the parties hereby (a) irrevocably
submits to the exclusive jurisdiction of the United States Federal District
Court for the Southern District of New York, sitting in New York County, New
York, the United States of America, in the event such court has jurisdiction or,
if such court does not have jurisdiction, to any district court sitting in New
York County, New York, the United States of America, for the purpose of any
suit, action, or proceeding arising out of or relating to this Agreement,
including any claims by any Indemnified Persons for indemnity pursuant to
Section 5 hereof, (b) waives, and agrees not to assert in any such suit, action,
or proceeding, any claim that (i) it is not personally subject to the
jurisdiction of such court or of any other court to which proceedings in such
court may be appealed, (ii) such suit, action or proceeding is brought in an
inconvenient forum, or (iii) the venue of such suit, action, or proceeding is
improper and (c) expressly waives any requirement for the posting of a bond by
the party bringing such suit, action, or proceeding. Each of the parties
consents to process being served in any such suit, action, or proceeding by
mailing, certified mail, return receipt requested, a copy thereof to such party
at the address in effect for notices hereunder, and agrees that such services
shall constitute good and sufficient service of process and notice thereof.
Nothing in this Section 7 shall affect or limit any right to serve process in
any other manner permitted by law.
8. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned (other than with respect to the rights and obligations of OSP, which
may be assigned to any one or more of its
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<PAGE> 5
principals or affiliates) by any of the parties without the prior written
consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
10. Other Understandings. All discussions, understandings and
agreements heretofore made between any of the parties hereto with respect to the
subject matter hereof are merged in this Agreement, which alone fully and
completely expresses the Agreement of the parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ONEX SERVICE PARTNERS
By: /s/ THOMAS O. HARBISON
--------------------------------
Thomas O. Harbison,
its Managing Director
CUSTOMERONE CORPORATION
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
CUSTOMERONE HOLDING CORPORATION
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS INDUSTRIES, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
6
<PAGE> 7
CATALOG LIQUIDATORS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS CANADA, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
CATALOG RESOURCES, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
LCS INDUSTRIES LTD.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
7
<PAGE> 8
SPEC HOLDINGS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
THE SPECIALISTS LTD.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
COMPUTER MARKETING SYSTEMS, INC.
By: /s/ GENE MORPHIS
--------------------------------
Gene Morphis
Chief Financial Officer
1293219 ONTARIO INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
8
<PAGE> 9
1293220 ONTARIO INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CLIENTLOGIC CANADA CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
THE IVY GROUP LIMITED
By: /s/ STEVEN M. KAWALICK
--------------------------------
Steven M. Kawalick
Company Secretary
PROFESSIONAL SUPPORT CENTRE LIMITED
By:
--------------------------------
Steven M. Kawalick
Company Secretary
9
<PAGE> 10
UCA&L LIMITED
By: /s/ KARL CRAVEN
--------------------------------
Name: KARL CRAVEN
------------------------------
Title: FINANCIAL CONTROLLER
-----------------------------
10
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 27th day
of January, 1999 (the "Agreement"), by and among CustomerONE Holding
Corporation, a Delaware corporation (the "Company"), LCS Industries, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("LCS"), Catalog
Liquidators, Inc., a Delaware corporation and wholly owned subsidiary of LCS
("CLI"), LCS Canada, Inc., a Delaware corporation and wholly owned subsidiary of
LCS ("LCS Canada"), Catalog Resources, Inc., a Delaware corporation and wholly
owned subsidiary of LCS ("CRI" and, collectively with CLI, LCS Canada and CRI,
the "Subsidiaries") and the executive officer whose name appears on the
signature page of this Agreement ("Indemnitee"), who is an executive officer of
the entities listed opposite the signature.
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly held corporations as executive officers or in other capacities unless
they are provided with reasonable protection through insurance or
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations.
WHEREAS, the Board of Directors of the Company, LCS and the Subsidiaries
(each a "Board") have determined that the Company, LCS and the Subsidiaries
should act to assure its executive officers that there will be increased
certainty of such protection in the future.
WHEREAS, it is reasonable, prudent and necessary for the Company, LCS and
the Subsidiaries to contractually obligate themselves to indemnify such persons
to the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company, LCS and/or the Subsidiaries free from undue
concern that they will not be so indemnified.
WHEREAS, Indemnitee is willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries on the condition that Indemnitee be so indemnified.
WHEREAS, in consideration of the benefits received and to be received by
the Company, LCS and the Subsidiaries in connection with actions taken and to be
taken by the Board and by the officers of the Company, LCS and the relevant
Subsidiaries, the Boards have determined that it is in the best interest of the
Company, LCS and the Subsidiaries for the reasons set forth above to be a party
to this Agreement and to provide indemnification to the executive officers of
the Company, LCS and the Subsidiaries in connection with their service to and
activities on behalf of the Company, LCS and the Subsidiaries.
WHEREAS, the Company, LCS and the Subsidiaries acknowledge that for
purposes of this Agreement the executive officers of the Company, LCS and/or the
Subsidiaries who enter into this Agreement are serving in such capacities at the
request of the Company, LCS and/or the Subsidiaries, as applicable.
WHEREAS, the Company, LCS and the Subsidiaries further acknowledge that
such executive officers are willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries, as applicable, thereby benefiting the Company, LCS and the
Subsidiaries, on the condition that the Company, LCS and the Subsidiaries enter
into, and provide indemnification pursuant to, this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, LCS, the Subsidiaries and Indemnitee do hereby
covenant and agree as follows:
1. Definitions.
(a) For purposes of this Agreement:
(i) "Affiliate" shall mean any corporation, partnership,
joint venture, trust or other enterprise in respect of which Indemnitee is or
was or will be serving directly or indirectly at the request of the Company, LCS
and/or the Subsidiaries, as applicable.
(ii) "Disinterested Director" shall mean a director who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Indemnitee.
(iii) "Expenses" shall include all attorneys' fees and
costs, retainers, court costs, transcripts, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and all other disbursements or expenses
incurred in connection with asserting or defending claims.
(iv) "Independent Counsel" shall mean a law firm or lawyer
that neither is presently nor in the past year has been retained to represent:
(i) the Company or Indemnitee in any matter material to any such party or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder in any matter material to such other party. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any firm or person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing any of the Company, LCS, the
Subsidiaries or Indemnitee in an action to determine Indemnitee's right to
indemnification under this Agreement. All Expenses of the Independent Counsel
incurred in connection with acting pursuant to this Agreement shall be borne by
the Company, LCS and/or the Subsidiaries, as applicable.
(v) "Losses" shall mean all liabilities, losses and claims
(including judgments, fines, penalties and amounts to be paid in settlement)
incurred in connection with any Proceeding.
(vi) "Proceeding" shall include any threatened, pending or
completed action, suit, arbitration, mediation, alternate dispute resolution
mechanism, investigation, administrative hearing or any other proceeding,
whether civil, criminal, administrative or investigative.
2. Service by Indemnitee. Indemnitee agrees to begin or continue to serve
the Company, LCS and/or the Subsidiaries, as applicable, or any Affiliate as an
executive officer. Notwithstanding anything contained herein, this Agreement
shall not create a contract of employment between the Company, LCS or the
Subsidiaries and Indemnitee, and the termination of Indemnitee's relationship
with the Company, LCS or the Subsidiaries or an Affiliate by either party hereto
shall not be restricted by this Agreement.
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<PAGE> 3
3. Indemnification. The Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee for, and hold Indemnitee harmless from
and against, any Losses or Expenses at any time incurred by or assessed against
Indemnitee arising out of or in connection with the service of Indemnitee as an
officer of the Company, LCS and/or the Subsidiaries or in any capacity for an
Affiliate at the request of the Company, LCS or the Subsidiaries (collectively
referred to as an "Officer of the Company") to the fullest extent permitted by
the laws of the State of Delaware in effect on the date hereof or as such laws
may from time to time hereafter be amended to increase the scope of such
permitted indemnification. Without diminishing the scope of the indemnification
provided by this Section 3, the rights of indemnification of Indemnitee provided
hereunder shall include but shall not be limited to those rights set forth
hereinafter.
4. Action or Proceeding Other Than an Action by or in the Right of the
Company. Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to or is involved (including, without limitation, as a witness)
in any Proceeding, other than an action by or in the right of the Company, LCS
or a Subsidiary, as the case may be, by reason of (a) the fact that Indemnitee
is or was an Officer of the Company, or (b) anything done or not done by
Indemnitee in any such capacity.
5. Actions by or in the Right of the Company. Indemnitee shall be entitled
to the indemnification rights provided herein if Indemnitee is a person who was
or is a party or is threatened to be made a party to or is involved (including,
without limitation, as a witness) in any Proceeding brought by or in the right
of the Company, LCS or a Subsidiary to procure a judgment in its favor by reason
of (a) the fact that Indemnitee is or was an Officer of the Company, or (b)
anything done or not done by Indemnitee in any such capacity. Pursuant to this
Section, Indemnitee shall be indemnified against Losses or Expenses incurred or
suffered by Indemnitee or on Indemnitee's behalf in connection with the defense
or settlement of any Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, LCS or the Subsidiaries, as applicable.
Notwithstanding the foregoing provisions of this Section, no such
indemnification shall be made in respect of any claim, issue or matter as to
which Delaware law expressly prohibits such indemnification by reason of an
adjudication of liability of Indemnitee to the Company, LCS or a Subsidiary
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Losses and Expenses which the Court of Chancery or such other
court shall deem proper.
6. Indemnification for Losses and Expenses of Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been wholly successful on the merits or otherwise in any
Proceeding referred to in Section 3, 4 or 5 hereof on any claim, issue or matter
therein, Indemnitee shall be indemnified against all Losses and Expenses
incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee to the maximum extent permitted by law
against all Losses and Expenses incurred by Indemnitee in connection with each
successfully resolved claim, issue or matter. In any review or Proceeding to
determine the extent of indemnification, the Company, LCS and/or the
Subsidiaries, as applicable,
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<PAGE> 4
shall bear the burden of proving any lack of success and which amounts sought in
indemnity are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a successful resolution as to such claim, issue or matter.
7. Payment for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of the fact that
Indemnitee is or was an Officer of the Company, a witness in any Proceeding, the
Company, LCS and the Subsidiaries agree to pay to Indemnitee all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
8. Advancement of Expenses. All Expenses incurred by or on behalf of
Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee
within three months) in connection with any Proceeding shall be paid by the
Company, LCS or a Subsidiary, as applicable, in advance of the final disposition
of such Proceeding within twenty days after the receipt by the Company, LCS or
the applicable Subsidiary of a statement or statements from Indemnitee
requesting from time to time such advance or advances, whether or not a
determination to indemnify has been made under Section 9. Indemnitee's
entitlement to such advancement of Expenses shall include those incurred in
connection with any Proceeding by Indemnitee seeking an adjudication or award in
arbitration pursuant to this Agreement. The financial ability of Indemnitee to
repay an advance shall not be a prerequisite to the making of such advance. Such
statement or statements shall reasonably evidence such Expenses incurred (or
reasonably expected to be incurred) by Indemnitee in connection therewith and
shall include or be accompanied by a written undertaking by or on behalf of
Indemnitee to repay such amount if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified therefor pursuant to the terms of
this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement (which shall not
include in any case the right of Indemnitee to receive payments pursuant to
Section 7 and Section 8 hereof, which shall not be subject to this Section 9),
Indemnitee shall submit a written request for indemnification to the Company.
Determination of Indemnitee's entitlement to indemnification shall be made
promptly, but in no event later than 30 days after receipt by the Company, LCS
or the applicable Subsidiary of Indemnitee's written request for
indemnification. The Secretary of the Company, LCS or the applicable Subsidiary
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the relevant Board that Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification under this
Agreement shall be determined in the specific case (1) by the relevant Board by
a majority vote of the Disinterested Directors, even though less than a quorum,
or (2) if there are no Disinterested Directors, or if such Disinterested
Directors so direct, by Independent Counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board and
approved by Indemnitee. Upon failure of the Board to so select such Independent
Counsel or upon failure of Indemnitee to so approve, such Independent Counsel
shall be selected by the American Arbitration Association of
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<PAGE> 5
New York, New York or such other person as such Association shall designate to
make such selection.
(d) If the determination made pursuant to Section 9(b) is that
Indemnitee is not entitled to indemnification to the full extent of Indemnitee's
request, Indemnitee shall have the right to seek entitlement to indemnification
in accordance with the procedures set forth in Section 11 hereof.
(e) If the person or persons empowered pursuant to Section 9(b) to make
a determination with respect to entitlement to indemnification shall have failed
to make the requested determination within 30 days after receipt by the Company,
LCS or a Subsidiary, as applicable, of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of Indemnitee to indemnification hereunder
except as may be specifically provided herein, or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, LCS
and/or a Subsidiary, as the case may be, or create a presumption that (with
respect to any criminal action or proceeding) Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder,
Indemnitee shall be deemed to have acted in good faith if in taking such action
Indemnitee relied on the records or books of account of the Company or an
Affiliate, including financial statements, or on information supplied to
Indemnitee by the officers of the Company or an Affiliate in the course of their
duties, or on the advice of legal counsel for the Company or an Affiliate or on
information or records given or reports made to the Company or an Affiliate by
an independent certified public accountant or by an appraiser or other expert
selected with reasonable care to the Company or an Affiliate. The Company, LCS
or the relevant Subsidiary shall have the burden of establishing the absence of
good faith. The provisions of this Section 9(g) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which Indemnitee may
be deemed to have met the applicable standard of conduct set forth in this
Agreement.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Company or an Affiliate shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
10. Remedies in Cases of Determination Not to Indemnify or to Advance
Expenses.
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advances are not made pursuant
to Section 8 hereof or (iii) payment has not been timely made following a
determination of entitlement to indemnification pursuant to Section 9 hereof,
Indemnitee shall be entitled to seek a final adjudication either through an
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<PAGE> 6
arbitration proceeding or in an appropriate court of the State of Delaware or
any other court of competent jurisdiction of Indemnitee's entitlement to such
indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 9 hereof, in whole or in part, that Indemnitee
is not entitled to indemnification, any judicial proceeding or arbitration
referred to in Section 10(a) shall be de novo and Indemnitee shall not be
prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification, and the Company, LCS or the relevant Subsidiary
shall bear the burdens of proof specified in Sections 6 and 9 hereof in such
proceeding.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 9 or 10 hereof that Indemnitee is entitled to
indemnification, the Company, LCS and/or the Subsidiaries, as applicable, shall
be bound by such determination in any judicial proceeding or arbitration in the
absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a
final judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be
paid by the Company, LCS or the relevant Subsidiary to Indemnitee at a rate
equal to the rate paid by the Company or its subsidiaries to the principal
senior secured lender thereto for amounts which the Company, LCS or the relevant
Subsidiary indemnifies or is obliged to indemnify Indemnitee for the period
commencing with the date on which Indemnitee requested indemnification (or
reimbursement or advancement of any Expenses) and ending with the date on which
such payment is made to Indemnitee by the Company, LCS or a Subsidiary.
11. Expenses Incurred by Indemnitee to Enforce this Agreement. All Expenses
incurred by Indemnitee in connection with the preparation and submission of
Indemnitee's request for indemnification hereunder shall be borne by the
Company, LCS or the relevant Subsidiary. In the event that Indemnitee is a party
to or intervenes in any proceeding in which the validity or enforceability of
this Agreement is at issue or seeks an adjudication to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee,
if Indemnitee prevails in whole in such action, shall be entitled to recover
from the Company, LCS or the relevant Subsidiary, and shall be indemnified by
such entity against, any Expenses incurred by Indemnitee. If it is determined
that Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, Expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which Indemnitee is entitled to indemnification and for claims,
issues or matters for which Indemnitee is not so entitled.
12. Non-Exclusivity. The rights of indemnification and to receive advances
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under any law, certificate of
incorporation, by-law, other agreement, vote of stockholders or resolution of
directors or otherwise, both as to action in Indemnitee's official capacity and
as to action in another capacity while holding such office. To the extent
Indemnitee would be prejudiced thereby, no amendment, alteration, rescission or
replacement of this Agreement or any provision hereof shall be effective as to
Indemnitee with respect to any action taken or omitted by such Indemnitee in
Indemnitee's position with the Company or an Affiliate or
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<PAGE> 7
any other entity which Indemnitee is or was serving at the request of the
Company, LCS or a Subsidiary prior to such amendment, alteration, rescission or
replacement.
13. Duration of Agreement. This Agreement shall apply to any claim asserted
and any Losses and Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) ten years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Section 3, 4
or 5 hereof; or (b) one year after the final termination of all pending or
threatened Proceedings of the kind described herein with respect to Indemnitee.
This Agreement shall be binding upon the Company, LCS, the Subsidiaries and
their respective successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, assigns, heirs, devisee, executors,
administrators or other legal representatives.
14. Maintenance of D&O Insurance.
(a) The Company, LCS and the Subsidiaries, as applicable, hereby
covenant and agree with Indemnitee that, so long as Indemnitee shall continue to
serve as an Officer of the Company and thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was an Officer of the Company or any other entity which Indemnitee was serving
at the request of the Company, LCS or a Subsidiary, the Company, LCS or a
Subsidiary shall maintain in full force and effect (i) the directors' and
officers' liability insurance issued by the insurer and having the policy amount
and deductible as currently in effect with respect to directors and officers of
the Company, LCS or the Subsidiaries and (ii) any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that currently
provided under such existing policy (collectively, "D&O Insurance").
(b) In all policies of D&O Insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) Notwithstanding anything to the contrary set forth in (a) above,
the Company, LCS and the Subsidiaries shall have no obligation to maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium cost for such insurance is disproportionate to
the amount of coverage provided or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
15. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions hereof shall not be affected thereby, and the
illegal or unenforceable portions hereof shall be and hereby are redrafted to
conform with applicable law, while leaving the remaining portions hereof intact.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
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<PAGE> 8
17. Headings. Section headings are for convenience only and do not control
or affect meaning or interpretation of any terms or provisions hereof.
18. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of the
parties hereto.
19. No Duplicative Payment. The Company, LCS and the Subsidiaries shall not
be liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment (net of Expenses incurred in collecting such
payment) under any insurance policy, contract, agreement or otherwise.
20. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed,
enclosed in a registered or certified postpaid envelope, in any general or
branch office of the United States Postal Service, or sent by Federal Express or
other similar overnight courier service, addressed to the address of the parties
stated below or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answer back is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company, LCS or a Subsidiary to:
CustomerONE Holding Corporation
161 Bay Street, 49th Floor
Toronto, ONM5J 2S1
Attention: Chief Executive Officer
21. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of Delaware without regard to its conflicts of law rules.
22. Entire Agreement. Subject to the provisions of Section 12 hereof, this
Agreement constitutes the entire understanding between the parties and
supersedes all proposals, commitments, writings, negotiations and
understandings, oral and written, and all other communications between the
parties relating to the subject matter hereof. This Agreement may not be amended
or otherwise modified except in writing duly executed by all of the parties. A
waiver by any party of any breach or violation of this Agreement shall not be
deemed or construed as a waiver of any subsequent breach or violation thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS P. DEA
-----------------------------
Name: Thomas P. Dea
---------------------------
Title:
---------------------------
LCS INDUSTRIES, INC.
By: /s/ THOMAS P. DEA
-----------------------------
Name: Thomas P. Dea
---------------------------
Title:
-------------------------
CATALOG LIQUIDATORS, INC.
By: /s/ THOMAS P. DEA
-----------------------------
Name: Thomas P. Dea
---------------------------
Title:
-------------------------
LCS CANADA, INC.
By:/s/ MARK R. BRIGGS
----------------------------
Name: Mark R. Briggs
--------------------------
Title:
-------------------------
CATALOG RESOURCES, INC.
By: /s/ THOMAS P. DEA
-----------------------------
Name: Thomas P. Dea
---------------------------
Title:
-------------------------
INDEMNITEE
/s/ MARK R. BRIGGS
------------------------------
Name: Mark R. Briggs
--------------------------
Address:
-----------------------
City and State:
----------------
Telecopier Number:
-------------
Positions:
---------------------
------------------------------
------------------------------
------------------------------
------------------------------
9
<PAGE> 10
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 27th day
of January, 1999 (the "Agreement"), by and among CustomerONE Holding
Corporation, a Delaware corporation (the "Company"), LCS Industries, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("LCS"), Catalog
Liquidators, Inc., a Delaware corporation and wholly owned subsidiary of LCS
("CLI"), LCS Canada, Inc., a Delaware corporation and wholly owned subsidiary of
LCS ("LCS Canada"), Catalog Resources, Inc., a Delaware corporation and wholly
owned subsidiary of LCS ("CRI" and, collectively with CLI, LCS Canada and CRI,
the "Subsidiaries") and the executive officer whose name appears on the
signature page of this Agreement ("Indemnitee"), who is an executive officer of
the entities listed opposite the signature.
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly held corporations as executive officers or in other capacities unless
they are provided with reasonable protection through insurance or
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations.
WHEREAS, the Board of Directors of the Company, LCS and the Subsidiaries
(each a "Board") have determined that the Company, LCS and the Subsidiaries
should act to assure its executive officers that there will be increased
certainty of such protection in the future.
WHEREAS, it is reasonable, prudent and necessary for the Company, LCS and
the Subsidiaries to contractually obligate themselves to indemnify such persons
to the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company, LCS and/or the Subsidiaries free from undue
concern that they will not be so indemnified.
WHEREAS, Indemnitee is willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries on the condition that Indemnitee be so indemnified.
WHEREAS, in consideration of the benefits received and to be received by
the Company, LCS and the Subsidiaries in connection with actions taken and to be
taken by the Board and by the officers of the Company, LCS and the relevant
Subsidiaries, the Boards have determined that it is in the best interest of the
Company, LCS and the Subsidiaries for the reasons set forth above to be a party
to this Agreement and to provide indemnification to the executive officers of
the Company, LCS and the Subsidiaries in connection with their service to and
activities on behalf of the Company, LCS and the Subsidiaries.
WHEREAS, the Company, LCS and the Subsidiaries acknowledge that for
purposes of this Agreement the executive officers of the Company, LCS and/or the
Subsidiaries who enter into this Agreement are serving in such capacities at the
request of the Company, LCS and/or the Subsidiaries, as applicable.
WHEREAS, the Company, LCS and the Subsidiaries further acknowledge that
such executive officers are willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries, as applicable, thereby benefiting the Company, LCS and the
Subsidiaries, on the condition that the Company, LCS and the Subsidiaries enter
into, and provide indemnification pursuant to, this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, LCS, the Subsidiaries and Indemnitee do hereby
covenant and agree as follows:
1. Definitions.
(a) For purposes of this Agreement:
(i) "Affiliate" shall mean any corporation, partnership,
joint venture, trust or other enterprise in respect of which Indemnitee is or
was or will be serving directly or indirectly at the request of the Company, LCS
and/or the Subsidiaries, as applicable.
(ii) "Disinterested Director" shall mean a director who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Indemnitee.
(iii) "Expenses" shall include all attorneys' fees and
costs, retainers, court costs, transcripts, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and all other disbursements or expenses
incurred in connection with asserting or defending claims.
(iv) "Independent Counsel" shall mean a law firm or lawyer
that neither is presently nor in the past year has been retained to represent:
(i) the Company or Indemnitee in any matter material to any such party or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder in any matter material to such other party. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any firm or person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing any of the Company, LCS, the
Subsidiaries or Indemnitee in an action to determine Indemnitee's right to
indemnification under this Agreement. All Expenses of the Independent Counsel
incurred in connection with acting pursuant to this Agreement shall be borne by
the Company, LCS and/or the Subsidiaries, as applicable.
(v) "Losses" shall mean all liabilities, losses and claims
(including judgments, fines, penalties and amounts to be paid in settlement)
incurred in connection with any Proceeding.
(vi) "Proceeding" shall include any threatened, pending or
completed action, suit, arbitration, mediation, alternate dispute resolution
mechanism, investigation, administrative hearing or any other proceeding,
whether civil, criminal, administrative or investigative.
2. Service by Indemnitee. Indemnitee agrees to begin or continue to serve
the Company, LCS and/or the Subsidiaries, as applicable, or any Affiliate as an
executive officer. Notwithstanding anything contained herein, this Agreement
shall not create a contract of employment between the Company, LCS or the
Subsidiaries and Indemnitee, and the termination of Indemnitee's relationship
with the Company, LCS or the Subsidiaries or an Affiliate by either party hereto
shall not be restricted by this Agreement.
2
<PAGE> 3
3. Indemnification. The Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee for, and hold Indemnitee harmless from
and against, any Losses or Expenses at any time incurred by or assessed against
Indemnitee arising out of or in connection with the service of Indemnitee as an
officer of the Company, LCS and/or the Subsidiaries or in any capacity for an
Affiliate at the request of the Company, LCS or the Subsidiaries (collectively
referred to as an "Officer of the Company") to the fullest extent permitted by
the laws of the State of Delaware in effect on the date hereof or as such laws
may from time to time hereafter be amended to increase the scope of such
permitted indemnification. Without diminishing the scope of the indemnification
provided by this Section 3, the rights of indemnification of Indemnitee provided
hereunder shall include but shall not be limited to those rights set forth
hereinafter.
4. Action or Proceeding Other Than an Action by or in the Right of the
Company. Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to or is involved (including, without limitation, as a witness)
in any Proceeding, other than an action by or in the right of the Company, LCS
or a Subsidiary, as the case may be, by reason of (a) the fact that Indemnitee
is or was an Officer of the Company, or (b) anything done or not done by
Indemnitee in any such capacity.
5. Actions by or in the Right of the Company. Indemnitee shall be entitled
to the indemnification rights provided herein if Indemnitee is a person who was
or is a party or is threatened to be made a party to or is involved (including,
without limitation, as a witness) in any Proceeding brought by or in the right
of the Company, LCS or a Subsidiary to procure a judgment in its favor by reason
of (a) the fact that Indemnitee is or was an Officer of the Company, or (b)
anything done or not done by Indemnitee in any such capacity. Pursuant to this
Section, Indemnitee shall be indemnified against Losses or Expenses incurred or
suffered by Indemnitee or on Indemnitee's behalf in connection with the defense
or settlement of any Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, LCS or the Subsidiaries, as applicable.
Notwithstanding the foregoing provisions of this Section, no such
indemnification shall be made in respect of any claim, issue or matter as to
which Delaware law expressly prohibits such indemnification by reason of an
adjudication of liability of Indemnitee to the Company, LCS or a Subsidiary
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Losses and Expenses which the Court of Chancery or such other
court shall deem proper.
6. Indemnification for Losses and Expenses of Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been wholly successful on the merits or otherwise in any
Proceeding referred to in Section 3, 4 or 5 hereof on any claim, issue or matter
therein, Indemnitee shall be indemnified against all Losses and Expenses
incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee to the maximum extent permitted by law
against all Losses and Expenses incurred by Indemnitee in connection with each
successfully resolved claim, issue or matter. In any review or Proceeding to
determine the extent of indemnification, the Company, LCS and/or the
Subsidiaries, as applicable,
3
<PAGE> 4
shall bear the burden of proving any lack of success and which amounts sought in
indemnity are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a successful resolution as to such claim, issue or matter.
7. Payment for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of the fact that
Indemnitee is or was an Officer of the Company, a witness in any Proceeding, the
Company, LCS and the Subsidiaries agree to pay to Indemnitee all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
8. Advancement of Expenses. All Expenses incurred by or on behalf of
Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee
within three months) in connection with any Proceeding shall be paid by the
Company, LCS or a Subsidiary, as applicable, in advance of the final disposition
of such Proceeding within twenty days after the receipt by the Company, LCS or
the applicable Subsidiary of a statement or statements from Indemnitee
requesting from time to time such advance or advances, whether or not a
determination to indemnify has been made under Section 9. Indemnitee's
entitlement to such advancement of Expenses shall include those incurred in
connection with any Proceeding by Indemnitee seeking an adjudication or award in
arbitration pursuant to this Agreement. The financial ability of Indemnitee to
repay an advance shall not be a prerequisite to the making of such advance. Such
statement or statements shall reasonably evidence such Expenses incurred (or
reasonably expected to be incurred) by Indemnitee in connection therewith and
shall include or be accompanied by a written undertaking by or on behalf of
Indemnitee to repay such amount if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified therefor pursuant to the terms of
this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement (which shall not
include in any case the right of Indemnitee to receive payments pursuant to
Section 7 and Section 8 hereof, which shall not be subject to this Section 9),
Indemnitee shall submit a written request for indemnification to the Company.
Determination of Indemnitee's entitlement to indemnification shall be made
promptly, but in no event later than 30 days after receipt by the Company, LCS
or the applicable Subsidiary of Indemnitee's written request for
indemnification. The Secretary of the Company, LCS or the applicable Subsidiary
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the relevant Board that Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification under this
Agreement shall be determined in the specific case (1) by the relevant Board by
a majority vote of the Disinterested Directors, even though less than a quorum,
or (2) if there are no Disinterested Directors, or if such Disinterested
Directors so direct, by Independent Counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board and
approved by Indemnitee. Upon failure of the Board to so select such Independent
Counsel or upon failure of Indemnitee to so approve, such Independent Counsel
shall be selected by the American Arbitration Association of
4
<PAGE> 5
New York, New York or such other person as such Association shall designate to
make such selection.
(d) If the determination made pursuant to Section 9(b) is that
Indemnitee is not entitled to indemnification to the full extent of Indemnitee's
request, Indemnitee shall have the right to seek entitlement to indemnification
in accordance with the procedures set forth in Section 11 hereof.
(e) If the person or persons empowered pursuant to Section 9(b) to make
a determination with respect to entitlement to indemnification shall have failed
to make the requested determination within 30 days after receipt by the Company,
LCS or a Subsidiary, as applicable, of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of Indemnitee to indemnification hereunder
except as may be specifically provided herein, or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, LCS
and/or a Subsidiary, as the case may be, or create a presumption that (with
respect to any criminal action or proceeding) Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder,
Indemnitee shall be deemed to have acted in good faith if in taking such action
Indemnitee relied on the records or books of account of the Company or an
Affiliate, including financial statements, or on information supplied to
Indemnitee by the officers of the Company or an Affiliate in the course of their
duties, or on the advice of legal counsel for the Company or an Affiliate or on
information or records given or reports made to the Company or an Affiliate by
an independent certified public accountant or by an appraiser or other expert
selected with reasonable care to the Company or an Affiliate. The Company, LCS
or the relevant Subsidiary shall have the burden of establishing the absence of
good faith. The provisions of this Section 9(g) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which Indemnitee may
be deemed to have met the applicable standard of conduct set forth in this
Agreement.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Company or an Affiliate shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
10. Remedies in Cases of Determination Not to Indemnify or to Advance
Expenses.
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advances are not made pursuant
to Section 8 hereof or (iii) payment has not been timely made following a
determination of entitlement to indemnification pursuant to Section 9 hereof,
Indemnitee shall be entitled to seek a final adjudication either through an
5
<PAGE> 6
arbitration proceeding or in an appropriate court of the State of Delaware or
any other court of competent jurisdiction of Indemnitee's entitlement to such
indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 9 hereof, in whole or in part, that Indemnitee
is not entitled to indemnification, any judicial proceeding or arbitration
referred to in Section 10(a) shall be de novo and Indemnitee shall not be
prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification, and the Company, LCS or the relevant Subsidiary
shall bear the burdens of proof specified in Sections 6 and 9 hereof in such
proceeding.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 9 or 10 hereof that Indemnitee is entitled to
indemnification, the Company, LCS and/or the Subsidiaries, as applicable, shall
be bound by such determination in any judicial proceeding or arbitration in the
absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a
final judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be
paid by the Company, LCS or the relevant Subsidiary to Indemnitee at a rate
equal to the rate paid by the Company or its subsidiaries to the principal
senior secured lender thereto for amounts which the Company, LCS or the relevant
Subsidiary indemnifies or is obliged to indemnify Indemnitee for the period
commencing with the date on which Indemnitee requested indemnification (or
reimbursement or advancement of any Expenses) and ending with the date on which
such payment is made to Indemnitee by the Company, LCS or a Subsidiary.
11. Expenses Incurred by Indemnitee to Enforce this Agreement. All Expenses
incurred by Indemnitee in connection with the preparation and submission of
Indemnitee's request for indemnification hereunder shall be borne by the
Company, LCS or the relevant Subsidiary. In the event that Indemnitee is a party
to or intervenes in any proceeding in which the validity or enforceability of
this Agreement is at issue or seeks an adjudication to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee,
if Indemnitee prevails in whole in such action, shall be entitled to recover
from the Company, LCS or the relevant Subsidiary, and shall be indemnified by
such entity against, any Expenses incurred by Indemnitee. If it is determined
that Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, Expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which Indemnitee is entitled to indemnification and for claims,
issues or matters for which Indemnitee is not so entitled.
12. Non-Exclusivity. The rights of indemnification and to receive advances
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under any law, certificate of
incorporation, by-law, other agreement, vote of stockholders or resolution of
directors or otherwise, both as to action in Indemnitee's official capacity and
as to action in another capacity while holding such office. To the extent
Indemnitee would be prejudiced thereby, no amendment, alteration, rescission or
replacement of this Agreement or any provision hereof shall be effective as to
Indemnitee with respect to any action taken or omitted by such Indemnitee in
Indemnitee's position with the Company or an Affiliate or
6
<PAGE> 7
any other entity which Indemnitee is or was serving at the request of the
Company, LCS or a Subsidiary prior to such amendment, alteration, rescission or
replacement.
13. Duration of Agreement. This Agreement shall apply to any claim asserted
and any Losses and Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) ten years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Section 3, 4
or 5 hereof; or (b) one year after the final termination of all pending or
threatened Proceedings of the kind described herein with respect to Indemnitee.
This Agreement shall be binding upon the Company, LCS, the Subsidiaries and
their respective successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, assigns, heirs, devisee, executors,
administrators or other legal representatives.
14. Maintenance of D&O Insurance.
(a) The Company, LCS and the Subsidiaries, as applicable, hereby
covenant and agree with Indemnitee that, so long as Indemnitee shall continue to
serve as an Officer of the Company and thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was an Officer of the Company or any other entity which Indemnitee was serving
at the request of the Company, LCS or a Subsidiary, the Company, LCS or a
Subsidiary shall maintain in full force and effect (i) the directors' and
officers' liability insurance issued by the insurer and having the policy amount
and deductible as currently in effect with respect to directors and officers of
the Company, LCS or the Subsidiaries and (ii) any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that currently
provided under such existing policy (collectively, "D&O Insurance").
(b) In all policies of D&O Insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) Notwithstanding anything to the contrary set forth in (a) above,
the Company, LCS and the Subsidiaries shall have no obligation to maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium cost for such insurance is disproportionate to
the amount of coverage provided or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
15. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions hereof shall not be affected thereby, and the
illegal or unenforceable portions hereof shall be and hereby are redrafted to
conform with applicable law, while leaving the remaining portions hereof intact.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
7
<PAGE> 8
17. Headings. Section headings are for convenience only and do not control
or affect meaning or interpretation of any terms or provisions hereof.
18. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of the
parties hereto.
19. No Duplicative Payment. The Company, LCS and the Subsidiaries shall not
be liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment (net of Expenses incurred in collecting such
payment) under any insurance policy, contract, agreement or otherwise.
20. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed,
enclosed in a registered or certified postpaid envelope, in any general or
branch office of the United States Postal Service, or sent by Federal Express or
other similar overnight courier service, addressed to the address of the parties
stated below or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answer back is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company, LCS or a Subsidiary to:
CustomerONE Holding Corporation
161 Bay Street, 49th Floor
Toronto, ONM5J 2S1
Attention: Chief Executive Officer
21. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of Delaware without regard to its conflicts of law rules.
22. Entire Agreement. Subject to the provisions of Section 12 hereof, this
Agreement constitutes the entire understanding between the parties and
supersedes all proposals, commitments, writings, negotiations and
understandings, oral and written, and all other communications between the
parties relating to the subject matter hereof. This Agreement may not be amended
or otherwise modified except in writing duly executed by all of the parties. A
waiver by any party of any breach or violation of this Agreement shall not be
deemed or construed as a waiver of any subsequent breach or violation thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS P. DEA
-----------------------------
Name: Thomas P. Dea
---------------------------
Title:
---------------------------
LCS INDUSTRIES, INC.
By: /s/ THOMAS P. DEA
----------------------------
Name: Thomas P. Dea
--------------------------
Title:
-------------------------
CATALOG LIQUIDATORS, INC.
By: /s/ THOMAS P. DEA
----------------------------
Name: Thomas P. Dea
--------------------------
Title:
-------------------------
LCS CANADA, INC.
By: /s/ THOMAS P. DEA
----------------------------
Name: Thomas P. Dea
--------------------------
Title:
-------------------------
CATALOG RESOURCES, INC.
By: /s/ THOMAS P. DEA
----------------------------
Name: Thomas P. Dea
--------------------------
Title:
-------------------------
INDEMNITEE
/s/ THOMAS P. DEA
------------------------------
Name: Thomas P. Dea
--------------------------
Address:
-----------------------
City and State:
----------------
Telecopier Number:
-------------
Positions:
---------------------
------------------------------
------------------------------
------------------------------
------------------------------
9
<PAGE> 10
<PAGE> 1
EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 27th day
of January, 1999 (the "Agreement"), by and among CustomerONE Holding
Corporation, a Delaware corporation (the "Company"), LCS Industries, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("LCS"), Catalog
Liquidators, Inc., a Delaware corporation and wholly owned subsidiary of LCS
("CLI"), LCS Canada, Inc., a Delaware corporation and wholly owned subsidiary of
LCS ("LCS Canada"), Catalog Resources, Inc., a Delaware corporation and wholly
owned subsidiary of LCS ("CRI" and, collectively with CLI, LCS Canada and CRI,
the "Subsidiaries") and the executive officer whose name appears on the
signature page of this Agreement ("Indemnitee"), who is an executive officer of
the entities listed opposite the signature.
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly held corporations as executive officers or in other capacities unless
they are provided with reasonable protection through insurance or
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations.
WHEREAS, the Board of Directors of the Company, LCS and the Subsidiaries
(each a "Board") have determined that the Company, LCS and the Subsidiaries
should act to assure its executive officers that there will be increased
certainty of such protection in the future.
WHEREAS, it is reasonable, prudent and necessary for the Company, LCS and
the Subsidiaries to contractually obligate themselves to indemnify such persons
to the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company, LCS and/or the Subsidiaries free from undue
concern that they will not be so indemnified.
WHEREAS, Indemnitee is willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries on the condition that Indemnitee be so indemnified.
WHEREAS, in consideration of the benefits received and to be received by
the Company, LCS and the Subsidiaries in connection with actions taken and to be
taken by the Board and by the officers of the Company, LCS and the relevant
Subsidiaries, the Boards have determined that it is in the best interest of the
Company, LCS and the Subsidiaries for the reasons set forth above to be a party
to this Agreement and to provide indemnification to the executive officers of
the Company, LCS and the Subsidiaries in connection with their service to and
activities on behalf of the Company, LCS and the Subsidiaries.
WHEREAS, the Company, LCS and the Subsidiaries acknowledge that for
purposes of this Agreement the executive officers of the Company, LCS and/or the
Subsidiaries who enter into this Agreement are serving in such capacities at the
request of the Company, LCS and/or the Subsidiaries, as applicable.
WHEREAS, the Company, LCS and the Subsidiaries further acknowledge that
such executive officers are willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries, as applicable, thereby benefiting the Company, LCS and the
Subsidiaries, on the condition that the Company, LCS and the Subsidiaries enter
into, and provide indemnification pursuant to, this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, LCS, the Subsidiaries and Indemnitee do hereby
covenant and agree as follows:
1. Definitions.
(a) For purposes of this Agreement:
(i) "Affiliate" shall mean any corporation, partnership,
joint venture, trust or other enterprise in respect of which Indemnitee is or
was or will be serving directly or indirectly at the request of the Company, LCS
and/or the Subsidiaries, as applicable.
(ii) "Disinterested Director" shall mean a director who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Indemnitee.
(iii) "Expenses" shall include all attorneys' fees and
costs, retainers, court costs, transcripts, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and all other disbursements or expenses
incurred in connection with asserting or defending claims.
(iv) "Independent Counsel" shall mean a law firm or lawyer
that neither is presently nor in the past year has been retained to represent:
(i) the Company or Indemnitee in any matter material to any such party or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder in any matter material to such other party. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any firm or person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing any of the Company, LCS, the
Subsidiaries or Indemnitee in an action to determine Indemnitee's right to
indemnification under this Agreement. All Expenses of the Independent Counsel
incurred in connection with acting pursuant to this Agreement shall be borne by
the Company, LCS and/or the Subsidiaries, as applicable.
(v) "Losses" shall mean all liabilities, losses and claims
(including judgments, fines, penalties and amounts to be paid in settlement)
incurred in connection with any Proceeding.
(vi) "Proceeding" shall include any threatened, pending or
completed action, suit, arbitration, mediation, alternate dispute resolution
mechanism, investigation, administrative hearing or any other proceeding,
whether civil, criminal, administrative or investigative.
2. Service by Indemnitee. Indemnitee agrees to begin or continue to serve
the Company, LCS and/or the Subsidiaries, as applicable, or any Affiliate as an
executive officer. Notwithstanding anything contained herein, this Agreement
shall not create a contract of employment between the Company, LCS or the
Subsidiaries and Indemnitee, and the termination of Indemnitee's relationship
with the Company, LCS or the Subsidiaries or an Affiliate by either party hereto
shall not be restricted by this Agreement.
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<PAGE> 3
3. Indemnification. The Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee for, and hold Indemnitee harmless from
and against, any Losses or Expenses at any time incurred by or assessed against
Indemnitee arising out of or in connection with the service of Indemnitee as an
officer of the Company, LCS and/or the Subsidiaries or in any capacity for an
Affiliate at the request of the Company, LCS or the Subsidiaries (collectively
referred to as an "Officer of the Company") to the fullest extent permitted by
the laws of the State of Delaware in effect on the date hereof or as such laws
may from time to time hereafter be amended to increase the scope of such
permitted indemnification. Without diminishing the scope of the indemnification
provided by this Section 3, the rights of indemnification of Indemnitee provided
hereunder shall include but shall not be limited to those rights set forth
hereinafter.
4. Action or Proceeding Other Than an Action by or in the Right of the
Company. Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to or is involved (including, without limitation, as a witness)
in any Proceeding, other than an action by or in the right of the Company, LCS
or a Subsidiary, as the case may be, by reason of (a) the fact that Indemnitee
is or was an Officer of the Company, or (b) anything done or not done by
Indemnitee in any such capacity.
5. Actions by or in the Right of the Company. Indemnitee shall be entitled
to the indemnification rights provided herein if Indemnitee is a person who was
or is a party or is threatened to be made a party to or is involved (including,
without limitation, as a witness) in any Proceeding brought by or in the right
of the Company, LCS or a Subsidiary to procure a judgment in its favor by reason
of (a) the fact that Indemnitee is or was an Officer of the Company, or (b)
anything done or not done by Indemnitee in any such capacity. Pursuant to this
Section, Indemnitee shall be indemnified against Losses or Expenses incurred or
suffered by Indemnitee or on Indemnitee's behalf in connection with the defense
or settlement of any Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, LCS or the Subsidiaries, as applicable.
Notwithstanding the foregoing provisions of this Section, no such
indemnification shall be made in respect of any claim, issue or matter as to
which Delaware law expressly prohibits such indemnification by reason of an
adjudication of liability of Indemnitee to the Company, LCS or a Subsidiary
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Losses and Expenses which the Court of Chancery or such other
court shall deem proper.
6. Indemnification for Losses and Expenses of Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been wholly successful on the merits or otherwise in any
Proceeding referred to in Section 3, 4 or 5 hereof on any claim, issue or matter
therein, Indemnitee shall be indemnified against all Losses and Expenses
incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee to the maximum extent permitted by law
against all Losses and Expenses incurred by Indemnitee in connection with each
successfully resolved claim, issue or matter. In any review or Proceeding to
determine the extent of indemnification, the Company, LCS and/or the
Subsidiaries, as applicable,
3
<PAGE> 4
shall bear the burden of proving any lack of success and which amounts sought in
indemnity are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a successful resolution as to such claim, issue or matter.
7. Payment for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of the fact that
Indemnitee is or was an Officer of the Company, a witness in any Proceeding, the
Company, LCS and the Subsidiaries agree to pay to Indemnitee all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
8. Advancement of Expenses. All Expenses incurred by or on behalf of
Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee
within three months) in connection with any Proceeding shall be paid by the
Company, LCS or a Subsidiary, as applicable, in advance of the final disposition
of such Proceeding within twenty days after the receipt by the Company, LCS or
the applicable Subsidiary of a statement or statements from Indemnitee
requesting from time to time such advance or advances, whether or not a
determination to indemnify has been made under Section 9. Indemnitee's
entitlement to such advancement of Expenses shall include those incurred in
connection with any Proceeding by Indemnitee seeking an adjudication or award in
arbitration pursuant to this Agreement. The financial ability of Indemnitee to
repay an advance shall not be a prerequisite to the making of such advance. Such
statement or statements shall reasonably evidence such Expenses incurred (or
reasonably expected to be incurred) by Indemnitee in connection therewith and
shall include or be accompanied by a written undertaking by or on behalf of
Indemnitee to repay such amount if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified therefor pursuant to the terms of
this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement (which shall not
include in any case the right of Indemnitee to receive payments pursuant to
Section 7 and Section 8 hereof, which shall not be subject to this Section 9),
Indemnitee shall submit a written request for indemnification to the Company.
Determination of Indemnitee's entitlement to indemnification shall be made
promptly, but in no event later than 30 days after receipt by the Company, LCS
or the applicable Subsidiary of Indemnitee's written request for
indemnification. The Secretary of the Company, LCS or the applicable Subsidiary
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the relevant Board that Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification under this
Agreement shall be determined in the specific case (1) by the relevant Board by
a majority vote of the Disinterested Directors, even though less than a quorum,
or (2) if there are no Disinterested Directors, or if such Disinterested
Directors so direct, by Independent Counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board and
approved by Indemnitee. Upon failure of the Board to so select such Independent
Counsel or upon failure of Indemnitee to so approve, such Independent Counsel
shall be selected by the American Arbitration Association of
4
<PAGE> 5
New York, New York or such other person as such Association shall designate to
make such selection.
(d) If the determination made pursuant to Section 9(b) is that
Indemnitee is not entitled to indemnification to the full extent of Indemnitee's
request, Indemnitee shall have the right to seek entitlement to indemnification
in accordance with the procedures set forth in Section 11 hereof.
(e) If the person or persons empowered pursuant to Section 9(b) to make
a determination with respect to entitlement to indemnification shall have failed
to make the requested determination within 30 days after receipt by the Company,
LCS or a Subsidiary, as applicable, of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of Indemnitee to indemnification hereunder
except as may be specifically provided herein, or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, LCS
and/or a Subsidiary, as the case may be, or create a presumption that (with
respect to any criminal action or proceeding) Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder,
Indemnitee shall be deemed to have acted in good faith if in taking such action
Indemnitee relied on the records or books of account of the Company or an
Affiliate, including financial statements, or on information supplied to
Indemnitee by the officers of the Company or an Affiliate in the course of their
duties, or on the advice of legal counsel for the Company or an Affiliate or on
information or records given or reports made to the Company or an Affiliate by
an independent certified public accountant or by an appraiser or other expert
selected with reasonable care to the Company or an Affiliate. The Company, LCS
or the relevant Subsidiary shall have the burden of establishing the absence of
good faith. The provisions of this Section 9(g) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which Indemnitee may
be deemed to have met the applicable standard of conduct set forth in this
Agreement.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Company or an Affiliate shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
10. Remedies in Cases of Determination Not to Indemnify or to Advance
Expenses.
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advances are not made pursuant
to Section 8 hereof or (iii) payment has not been timely made following a
determination of entitlement to indemnification pursuant to Section 9 hereof,
Indemnitee shall be entitled to seek a final adjudication either through an
5
<PAGE> 6
arbitration proceeding or in an appropriate court of the State of Delaware or
any other court of competent jurisdiction of Indemnitee's entitlement to such
indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 9 hereof, in whole or in part, that Indemnitee
is not entitled to indemnification, any judicial proceeding or arbitration
referred to in Section 10(a) shall be de novo and Indemnitee shall not be
prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification, and the Company, LCS or the relevant Subsidiary
shall bear the burdens of proof specified in Sections 6 and 9 hereof in such
proceeding.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 9 or 10 hereof that Indemnitee is entitled to
indemnification, the Company, LCS and/or the Subsidiaries, as applicable, shall
be bound by such determination in any judicial proceeding or arbitration in the
absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a
final judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be
paid by the Company, LCS or the relevant Subsidiary to Indemnitee at a rate
equal to the rate paid by the Company or its subsidiaries to the principal
senior secured lender thereto for amounts which the Company, LCS or the relevant
Subsidiary indemnifies or is obliged to indemnify Indemnitee for the period
commencing with the date on which Indemnitee requested indemnification (or
reimbursement or advancement of any Expenses) and ending with the date on which
such payment is made to Indemnitee by the Company, LCS or a Subsidiary.
11. Expenses Incurred by Indemnitee to Enforce this Agreement. All Expenses
incurred by Indemnitee in connection with the preparation and submission of
Indemnitee's request for indemnification hereunder shall be borne by the
Company, LCS or the relevant Subsidiary. In the event that Indemnitee is a party
to or intervenes in any proceeding in which the validity or enforceability of
this Agreement is at issue or seeks an adjudication to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee,
if Indemnitee prevails in whole in such action, shall be entitled to recover
from the Company, LCS or the relevant Subsidiary, and shall be indemnified by
such entity against, any Expenses incurred by Indemnitee. If it is determined
that Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, Expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which Indemnitee is entitled to indemnification and for claims,
issues or matters for which Indemnitee is not so entitled.
12. Non-Exclusivity. The rights of indemnification and to receive advances
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under any law, certificate of
incorporation, by-law, other agreement, vote of stockholders or resolution of
directors or otherwise, both as to action in Indemnitee's official capacity and
as to action in another capacity while holding such office. To the extent
Indemnitee would be prejudiced thereby, no amendment, alteration, rescission or
replacement of this Agreement or any provision hereof shall be effective as to
Indemnitee with respect to any action taken or omitted by such Indemnitee in
Indemnitee's position with the Company or an Affiliate or
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<PAGE> 7
any other entity which Indemnitee is or was serving at the request of the
Company, LCS or a Subsidiary prior to such amendment, alteration, rescission or
replacement.
13. Duration of Agreement. This Agreement shall apply to any claim asserted
and any Losses and Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) ten years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Section 3, 4
or 5 hereof; or (b) one year after the final termination of all pending or
threatened Proceedings of the kind described herein with respect to Indemnitee.
This Agreement shall be binding upon the Company, LCS, the Subsidiaries and
their respective successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, assigns, heirs, devisee, executors,
administrators or other legal representatives.
14. Maintenance of D&O Insurance.
(a) The Company, LCS and the Subsidiaries, as applicable, hereby
covenant and agree with Indemnitee that, so long as Indemnitee shall continue to
serve as an Officer of the Company and thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was an Officer of the Company or any other entity which Indemnitee was serving
at the request of the Company, LCS or a Subsidiary, the Company, LCS or a
Subsidiary shall maintain in full force and effect (i) the directors' and
officers' liability insurance issued by the insurer and having the policy amount
and deductible as currently in effect with respect to directors and officers of
the Company, LCS or the Subsidiaries and (ii) any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that currently
provided under such existing policy (collectively, "D&O Insurance").
(b) In all policies of D&O Insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) Notwithstanding anything to the contrary set forth in (a) above,
the Company, LCS and the Subsidiaries shall have no obligation to maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium cost for such insurance is disproportionate to
the amount of coverage provided or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
15. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions hereof shall not be affected thereby, and the
illegal or unenforceable portions hereof shall be and hereby are redrafted to
conform with applicable law, while leaving the remaining portions hereof intact.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
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<PAGE> 8
17. Headings. Section headings are for convenience only and do not control
or affect meaning or interpretation of any terms or provisions hereof.
18. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of the
parties hereto.
19. No Duplicative Payment. The Company, LCS and the Subsidiaries shall not
be liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment (net of Expenses incurred in collecting such
payment) under any insurance policy, contract, agreement or otherwise.
20. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed,
enclosed in a registered or certified postpaid envelope, in any general or
branch office of the United States Postal Service, or sent by Federal Express or
other similar overnight courier service, addressed to the address of the parties
stated below or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answer back is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company, LCS or a Subsidiary to:
CustomerONE Holding Corporation
161 Bay Street, 49th Floor
Toronto, ON M5J 2S1
Attention: Chief Executive Officer
21. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of Delaware without regard to its conflicts of law rules.
22. Entire Agreement. Subject to the provisions of Section 12 hereof, this
Agreement constitutes the entire understanding between the parties and
supersedes all proposals, commitments, writings, negotiations and
understandings, oral and written, and all other communications between the
parties relating to the subject matter hereof. This Agreement may not be amended
or otherwise modified except in writing duly executed by all of the parties. A
waiver by any party of any breach or violation of this Agreement shall not be
deemed or construed as a waiver of any subsequent breach or violation thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
LCS INDUSTRIES, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CATALOG LIQUIDATORS, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
LCS CANADA, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CATALOG RESOURCES, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: /s/ Thomas P. Dea
------------------------------
Title:
-----------------------------
INDEMNITEE
Name: Thomas O. Harbison
------------------------------
Address:
---------------------------
City and State:
--------------------
Telecopier Number:
-----------------
Positions:
-------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
9
<PAGE> 1
EXHIBIT 10.13
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 27th day
of January, 1999 (the "Agreement"), by and among CustomerONE Holding
Corporation, a Delaware corporation (the "Company"), LCS Industries, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("LCS"), Catalog
Liquidators, Inc., a Delaware corporation and wholly owned subsidiary of LCS
("CLI"), LCS Canada, Inc., a Delaware corporation and wholly owned subsidiary of
LCS ("LCS Canada"), Catalog Resources, Inc., a Delaware corporation and wholly
owned subsidiary of LCS ("CRI" and, collectively with CLI, LCS Canada and CRI,
the "Subsidiaries") and the executive officer whose name appears on the
signature page of this Agreement ("Indemnitee"), who is an executive officer of
the entities listed opposite the signature.
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly held corporations as executive officers or in other capacities unless
they are provided with reasonable protection through insurance or
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations.
WHEREAS, the Board of Directors of the Company, LCS and the Subsidiaries
(each a "Board") have determined that the Company, LCS and the Subsidiaries
should act to assure its executive officers that there will be increased
certainty of such protection in the future.
WHEREAS, it is reasonable, prudent and necessary for the Company, LCS and
the Subsidiaries to contractually obligate themselves to indemnify such persons
to the fullest extent permitted by applicable law so that they will serve or
continue to serve the Company, LCS and/or the Subsidiaries free from undue
concern that they will not be so indemnified.
WHEREAS, Indemnitee is willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries on the condition that Indemnitee be so indemnified.
WHEREAS, in consideration of the benefits received and to be received by
the Company, LCS and the Subsidiaries in connection with actions taken and to be
taken by the Board and by the officers of the Company, LCS and the relevant
Subsidiaries, the Boards have determined that it is in the best interest of the
Company, LCS and the Subsidiaries for the reasons set forth above to be a party
to this Agreement and to provide indemnification to the executive officers of
the Company, LCS and the Subsidiaries in connection with their service to and
activities on behalf of the Company, LCS and the Subsidiaries.
WHEREAS, the Company, LCS and the Subsidiaries acknowledge that for
purposes of this Agreement the executive officers of the Company, LCS and/or the
Subsidiaries who enter into this Agreement are serving in such capacities at the
request of the Company, LCS and/or the Subsidiaries, as applicable.
WHEREAS, the Company, LCS and the Subsidiaries further acknowledge that
such executive officers are willing to serve, to continue to serve and to take
on additional service for or on behalf of the Company, LCS and/or the
Subsidiaries, as applicable, thereby benefiting the Company, LCS and the
Subsidiaries, on the condition that the Company, LCS and the Subsidiaries enter
into, and provide indemnification pursuant to, this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company, LCS, the Subsidiaries and Indemnitee do hereby
covenant and agree as follows:
1. Definitions.
(a) For purposes of this Agreement:
(i) "Affiliate" shall mean any corporation, partnership,
joint venture, trust or other enterprise in respect of which Indemnitee is or
was or will be serving directly or indirectly at the request of the Company, LCS
and/or the Subsidiaries, as applicable.
(ii) "Disinterested Director" shall mean a director who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Indemnitee.
(iii) "Expenses" shall include all attorneys' fees and
costs, retainers, court costs, transcripts, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and all other disbursements or expenses
incurred in connection with asserting or defending claims.
(iv) "Independent Counsel" shall mean a law firm or lawyer
that neither is presently nor in the past year has been retained to represent:
(i) the Company or Indemnitee in any matter material to any such party or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder in any matter material to such other party. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any firm or person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing any of the Company, LCS, the
Subsidiaries or Indemnitee in an action to determine Indemnitee's right to
indemnification under this Agreement. All Expenses of the Independent Counsel
incurred in connection with acting pursuant to this Agreement shall be borne by
the Company, LCS and/or the Subsidiaries, as applicable.
(v) "Losses" shall mean all liabilities, losses and claims
(including judgments, fines, penalties and amounts to be paid in settlement)
incurred in connection with any Proceeding.
(vi) "Proceeding" shall include any threatened, pending or
completed action, suit, arbitration, mediation, alternate dispute resolution
mechanism, investigation, administrative hearing or any other proceeding,
whether civil, criminal, administrative or investigative.
2. Service by Indemnitee. Indemnitee agrees to begin or continue to serve
the Company, LCS and/or the Subsidiaries, as applicable, or any Affiliate as an
executive officer. Notwithstanding anything contained herein, this Agreement
shall not create a contract of employment between the Company, LCS or the
Subsidiaries and Indemnitee, and the termination of Indemnitee's relationship
with the Company, LCS or the Subsidiaries or an Affiliate by either party hereto
shall not be restricted by this Agreement.
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<PAGE> 3
3. Indemnification. The Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee for, and hold Indemnitee harmless from
and against, any Losses or Expenses at any time incurred by or assessed against
Indemnitee arising out of or in connection with the service of Indemnitee as an
officer of the Company, LCS and/or the Subsidiaries or in any capacity for an
Affiliate at the request of the Company, LCS or the Subsidiaries (collectively
referred to as an "Officer of the Company") to the fullest extent permitted by
the laws of the State of Delaware in effect on the date hereof or as such laws
may from time to time hereafter be amended to increase the scope of such
permitted indemnification. Without diminishing the scope of the indemnification
provided by this Section 3, the rights of indemnification of Indemnitee provided
hereunder shall include but shall not be limited to those rights set forth
hereinafter.
4. Action or Proceeding Other Than an Action by or in the Right of the
Company. Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to or is involved (including, without limitation, as a witness)
in any Proceeding, other than an action by or in the right of the Company, LCS
or a Subsidiary, as the case may be, by reason of (a) the fact that Indemnitee
is or was an Officer of the Company, or (b) anything done or not done by
Indemnitee in any such capacity.
5. Actions by or in the Right of the Company. Indemnitee shall be entitled
to the indemnification rights provided herein if Indemnitee is a person who was
or is a party or is threatened to be made a party to or is involved (including,
without limitation, as a witness) in any Proceeding brought by or in the right
of the Company, LCS or a Subsidiary to procure a judgment in its favor by reason
of (a) the fact that Indemnitee is or was an Officer of the Company, or (b)
anything done or not done by Indemnitee in any such capacity. Pursuant to this
Section, Indemnitee shall be indemnified against Losses or Expenses incurred or
suffered by Indemnitee or on Indemnitee's behalf in connection with the defense
or settlement of any Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, LCS or the Subsidiaries, as applicable.
Notwithstanding the foregoing provisions of this Section, no such
indemnification shall be made in respect of any claim, issue or matter as to
which Delaware law expressly prohibits such indemnification by reason of an
adjudication of liability of Indemnitee to the Company, LCS or a Subsidiary
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Losses and Expenses which the Court of Chancery or such other
court shall deem proper.
6. Indemnification for Losses and Expenses of Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been wholly successful on the merits or otherwise in any
Proceeding referred to in Section 3, 4 or 5 hereof on any claim, issue or matter
therein, Indemnitee shall be indemnified against all Losses and Expenses
incurred by Indemnitee or on Indemnitee's behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company, LCS and/or the Subsidiaries, as
applicable, agree to indemnify Indemnitee to the maximum extent permitted by law
against all Losses and Expenses incurred by Indemnitee in connection with each
successfully resolved claim, issue or matter. In any review or Proceeding to
determine the extent of indemnification, the Company, LCS and/or the
Subsidiaries, as applicable,
3
<PAGE> 4
shall bear the burden of proving any lack of success and which amounts sought in
indemnity are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a successful resolution as to such claim, issue or matter.
7. Payment for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the extent that Indemnitee is, by reason of the fact that
Indemnitee is or was an Officer of the Company, a witness in any Proceeding, the
Company, LCS and the Subsidiaries agree to pay to Indemnitee all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
8. Advancement of Expenses. All Expenses incurred by or on behalf of
Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee
within three months) in connection with any Proceeding shall be paid by the
Company, LCS or a Subsidiary, as applicable, in advance of the final disposition
of such Proceeding within twenty days after the receipt by the Company, LCS or
the applicable Subsidiary of a statement or statements from Indemnitee
requesting from time to time such advance or advances, whether or not a
determination to indemnify has been made under Section 9. Indemnitee's
entitlement to such advancement of Expenses shall include those incurred in
connection with any Proceeding by Indemnitee seeking an adjudication or award in
arbitration pursuant to this Agreement. The financial ability of Indemnitee to
repay an advance shall not be a prerequisite to the making of such advance. Such
statement or statements shall reasonably evidence such Expenses incurred (or
reasonably expected to be incurred) by Indemnitee in connection therewith and
shall include or be accompanied by a written undertaking by or on behalf of
Indemnitee to repay such amount if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified therefor pursuant to the terms of
this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement (which shall not
include in any case the right of Indemnitee to receive payments pursuant to
Section 7 and Section 8 hereof, which shall not be subject to this Section 9),
Indemnitee shall submit a written request for indemnification to the Company.
Determination of Indemnitee's entitlement to indemnification shall be made
promptly, but in no event later than 30 days after receipt by the Company, LCS
or the applicable Subsidiary of Indemnitee's written request for
indemnification. The Secretary of the Company, LCS or the applicable Subsidiary
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the relevant Board that Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification under this
Agreement shall be determined in the specific case (1) by the relevant Board by
a majority vote of the Disinterested Directors, even though less than a quorum,
or (2) if there are no Disinterested Directors, or if such Disinterested
Directors so direct, by Independent Counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board and
approved by Indemnitee. Upon failure of the Board to so select such Independent
Counsel or upon failure of Indemnitee to so approve, such Independent Counsel
shall be selected by the American Arbitration Association of
4
<PAGE> 5
New York, New York or such other person as such Association shall designate to
make such selection.
(d) If the determination made pursuant to Section 9(b) is that
Indemnitee is not entitled to indemnification to the full extent of Indemnitee's
request, Indemnitee shall have the right to seek entitlement to indemnification
in accordance with the procedures set forth in Section 11 hereof.
(e) If the person or persons empowered pursuant to Section 9(b) to make
a determination with respect to entitlement to indemnification shall have failed
to make the requested determination within 30 days after receipt by the Company,
LCS or a Subsidiary, as applicable, of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be absolutely entitled to such indemnification, absent (i)
misrepresentation by Indemnitee of a material fact in the request for
indemnification or (ii) a final judicial determination that all or any part of
such indemnification is expressly prohibited by law.
(f) The termination of any Proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the rights of Indemnitee to indemnification hereunder
except as may be specifically provided herein, or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, LCS
and/or a Subsidiary, as the case may be, or create a presumption that (with
respect to any criminal action or proceeding) Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(g) For purposes of any determination of good faith hereunder,
Indemnitee shall be deemed to have acted in good faith if in taking such action
Indemnitee relied on the records or books of account of the Company or an
Affiliate, including financial statements, or on information supplied to
Indemnitee by the officers of the Company or an Affiliate in the course of their
duties, or on the advice of legal counsel for the Company or an Affiliate or on
information or records given or reports made to the Company or an Affiliate by
an independent certified public accountant or by an appraiser or other expert
selected with reasonable care to the Company or an Affiliate. The Company, LCS
or the relevant Subsidiary shall have the burden of establishing the absence of
good faith. The provisions of this Section 9(g) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which Indemnitee may
be deemed to have met the applicable standard of conduct set forth in this
Agreement.
(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Company or an Affiliate shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement.
10. Remedies in Cases of Determination Not to Indemnify or to Advance
Expenses.
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advances are not made pursuant
to Section 8 hereof or (iii) payment has not been timely made following a
determination of entitlement to indemnification pursuant to Section 9 hereof,
Indemnitee shall be entitled to seek a final adjudication either through an
5
<PAGE> 6
arbitration proceeding or in an appropriate court of the State of Delaware or
any other court of competent jurisdiction of Indemnitee's entitlement to such
indemnification or advance.
(b) In the event a determination has been made in accordance with the
procedures set forth in Section 9 hereof, in whole or in part, that Indemnitee
is not entitled to indemnification, any judicial proceeding or arbitration
referred to in Section 10(a) shall be de novo and Indemnitee shall not be
prejudiced by reason of any such prior determination that Indemnitee is not
entitled to indemnification, and the Company, LCS or the relevant Subsidiary
shall bear the burdens of proof specified in Sections 6 and 9 hereof in such
proceeding.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 9 or 10 hereof that Indemnitee is entitled to
indemnification, the Company, LCS and/or the Subsidiaries, as applicable, shall
be bound by such determination in any judicial proceeding or arbitration in the
absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a
final judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall be
paid by the Company, LCS or the relevant Subsidiary to Indemnitee at a rate
equal to the rate paid by the Company or its subsidiaries to the principal
senior secured lender thereto for amounts which the Company, LCS or the relevant
Subsidiary indemnifies or is obliged to indemnify Indemnitee for the period
commencing with the date on which Indemnitee requested indemnification (or
reimbursement or advancement of any Expenses) and ending with the date on which
such payment is made to Indemnitee by the Company, LCS or a Subsidiary.
11. Expenses Incurred by Indemnitee to Enforce this Agreement. All Expenses
incurred by Indemnitee in connection with the preparation and submission of
Indemnitee's request for indemnification hereunder shall be borne by the
Company, LCS or the relevant Subsidiary. In the event that Indemnitee is a party
to or intervenes in any proceeding in which the validity or enforceability of
this Agreement is at issue or seeks an adjudication to enforce Indemnitee's
rights under, or to recover damages for breach of, this Agreement, Indemnitee,
if Indemnitee prevails in whole in such action, shall be entitled to recover
from the Company, LCS or the relevant Subsidiary, and shall be indemnified by
such entity against, any Expenses incurred by Indemnitee. If it is determined
that Indemnitee is entitled to indemnification for part (but not all) of the
indemnification so requested, Expenses incurred in seeking enforcement of such
partial indemnification shall be reasonably prorated among the claims, issues or
matters for which Indemnitee is entitled to indemnification and for claims,
issues or matters for which Indemnitee is not so entitled.
12. Non-Exclusivity. The rights of indemnification and to receive advances
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under any law, certificate of
incorporation, by-law, other agreement, vote of stockholders or resolution of
directors or otherwise, both as to action in Indemnitee's official capacity and
as to action in another capacity while holding such office. To the extent
Indemnitee would be prejudiced thereby, no amendment, alteration, rescission or
replacement of this Agreement or any provision hereof shall be effective as to
Indemnitee with respect to any action taken or omitted by such Indemnitee in
Indemnitee's position with the Company or an Affiliate or
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<PAGE> 7
any other entity which Indemnitee is or was serving at the request of the
Company, LCS or a Subsidiary prior to such amendment, alteration, rescission or
replacement.
13. Duration of Agreement. This Agreement shall apply to any claim asserted
and any Losses and Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) ten years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Section 3, 4
or 5 hereof; or (b) one year after the final termination of all pending or
threatened Proceedings of the kind described herein with respect to Indemnitee.
This Agreement shall be binding upon the Company, LCS, the Subsidiaries and
their respective successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's spouse, assigns, heirs, devisee, executors,
administrators or other legal representatives.
14. Maintenance of D&O Insurance.
(a) The Company, LCS and the Subsidiaries, as applicable, hereby
covenant and agree with Indemnitee that, so long as Indemnitee shall continue to
serve as an Officer of the Company and thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was an Officer of the Company or any other entity which Indemnitee was serving
at the request of the Company, LCS or a Subsidiary, the Company, LCS or a
Subsidiary shall maintain in full force and effect (i) the directors' and
officers' liability insurance issued by the insurer and having the policy amount
and deductible as currently in effect with respect to directors and officers of
the Company, LCS or the Subsidiaries and (ii) any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that currently
provided under such existing policy (collectively, "D&O Insurance").
(b) In all policies of D&O Insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) Notwithstanding anything to the contrary set forth in (a) above,
the Company, LCS and the Subsidiaries shall have no obligation to maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium cost for such insurance is disproportionate to
the amount of coverage provided or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
15. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions hereof shall not be affected thereby, and the
illegal or unenforceable portions hereof shall be and hereby are redrafted to
conform with applicable law, while leaving the remaining portions hereof intact.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
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<PAGE> 8
17. Headings. Section headings are for convenience only and do not control
or affect meaning or interpretation of any terms or provisions hereof.
18. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of the
parties hereto.
19. No Duplicative Payment. The Company, LCS and the Subsidiaries shall not
be liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment (net of Expenses incurred in collecting such
payment) under any insurance policy, contract, agreement or otherwise.
20. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed,
enclosed in a registered or certified postpaid envelope, in any general or
branch office of the United States Postal Service, or sent by Federal Express or
other similar overnight courier service, addressed to the address of the parties
stated below or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answer back is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company, LCS or a Subsidiary to:
CustomerONE Holding Corporation
161 Bay Street, 49th Floor
Toronto, ON M5J 2S1
Attention: Chief Executive Officer
21. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of Delaware without regard to its conflicts of law rules.
22. Entire Agreement. Subject to the provisions of Section 12 hereof, this
Agreement constitutes the entire understanding between the parties and
supersedes all proposals, commitments, writings, negotiations and
understandings, oral and written, and all other communications between the
parties relating to the subject matter hereof. This Agreement may not be amended
or otherwise modified except in writing duly executed by all of the parties. A
waiver by any party of any breach or violation of this Agreement shall not be
deemed or construed as a waiver of any subsequent breach or violation thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
LCS INDUSTRIES, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CATALOG LIQUIDATORS, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
LCS CANADA, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
CATALOG RESOURCES, INC.
By: /s/ THOMAS P. DEA
--------------------------------
Name: Thomas P. Dea
------------------------------
Title:
-----------------------------
INDEMNITEE
Name: /s/ SETH M. MERSKY
------------------------------
Address:
---------------------------
City and State:
--------------------
Telecopier Number:
-----------------
Positions:
-------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
9
<PAGE> 1
EXHIBIT 10.14
Joanne Biltekoff
CUSTOMERONE HOLDING CORPORATION
PHANTOM STOCK UNIT AGREEMENT
1. Participation. CustomerONE Holding Corporation, a Delaware
corporation (the "Company"), hereby selects Joanne Biltekoff (the "Participant")
to participate in the Company's Deferred Compensation Plan (the "Plan"), subject
to the terms and conditions of this Phantom Unit Agreement, dated as of October
1, 1998 (the "Agreement"), the "Deferral Election" attached as Exhibit A hereto,
and the Plan. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Plan.
2. Election to Defer Compensation. Upon Participant's execution of this
Agreement and the Deferral Election, and the Committee's approval of the
Deferral Election, the Participant shall commence participation in the Plan.
3. Phantom Stock Units. All compensation deferred pursuant to a
Deferral Election shall be credited to the Participant's Deferral Account and
shall be deemed to be invested in Phantom Stock Units ("Units").
(a) Each Unit credited to Participant's Deferral account in
accordance with the Plan shall be valued at $1.00 per Unit.
4. Vesting of Units. Participant shall be fully vested in all amounts
deferred under the Plan. Participant shall be fully vested in the Spread
credited to Participant's deferral account; provided, however, that if
Participant's employment is terminated for Cause or if Participant voluntarily
terminates employment without Good Reason, as such terms are defined in Section
1 of the Plan, Participant shall forfeit ten percent (10%) of the Spread
credited to Participant's deferral account.
(b) Spread. Spread means, with respect to a Participant as of
any date, the excess, if any (to the extent not yet distributed from such
Account by such date), of: (a) the Fair Market Value of a Unit on the date of
determination over (b) the Fair Market Value of such Unit at the time such Unit
is credited to the Participant's Deferral Account (unless another value is
expressly set forth in Section 3(a) of this Agreement).
5. Deferral Account Distributions. Except as set forth in paragraph (c)
below, the vested portion of a Participant's deferral account shall not be
distributed until a Distribution Event has occurred, as set forth in the Plan.
(a) Acceleration of Distributions. Notwithstanding any
provision contained in the Plan or this Agreement to the contrary, the Committee
may, in its sole discretion, accelerate the distribution in a lump sum of (i)
any or all of the Deferral Accounts to the date of a Change in Control, (ii) any
or all of a Participant's Deferral
<PAGE> 2
Account following the Participant's resignation without Good Reason or (iii) all
of the Deferral Accounts upon the liquidation or dissolution of the Company.
(b) Form of Payment. In the event of a Distribution Event
described in Section 7.1 of the Plan with respect to a Participant, the amount
credited to a Participant's Deferral Account shall be paid in a lump sum unless
the Participant has elected to receive payment of the Deferral Account in
installments in a manner permitted by and subject to the approval of the
Committee. Such lump sum payment or installment payments shall be made in cash,
shares of common stock of the Company ("Common Stock") or any combination
thereof, as determined in the sole discretion of the Company. For purposes of
satisfying payment of a Participant's Deferral Account with Common Stock, (i)
the Fair Market Value of such Common Stock and the Fair Market Value of the
Units credited to such Deferral Account shall each be determined as of the
payment date and (ii) the Company shall withhold from such distribution and pay
to the appropriate tax authorities the amount of applicable federal and state
income taxes that would be imposed on such distribution, as determined using the
highest marginal rate. Any fractional Units credited to a Participant's Deferral
Account shall be paid in cash.
(c) Hardship Distributions. Upon a written request of a
Participant and the Participant's demonstration to the Committee that a Hardship
(as defined in Section 7.4 of the Plan) exists, the Committee may permit the
distribution of all or any portion of the Participant's Deferral Account prior
to the date such amount otherwise would be distributed. The receipt of a
Hardship distribution by any Participant shall result in the suspension of the
Participant's deferral election under the Plan for a period of one year
following the date of the distribution.
(d) Discharge for Cause; Termination without Good Reason. If
the Participant is discharged by the Company for Cause or if the Participant
terminates employment with the Company without Good Reason (as each such term is
defined in Section 1 of the Plan), the Participant shall forfeit ten percent
(10%) of the Spread credited to Participant's account.
6. Delivery of Common Stock; Compliance With Securities Laws, Etc. In
accordance with the terms of the Plan, pursuant to Participant's written request
for, and the Committee's approval, in its sole discretion, of, distribution of
all or a portion of his or her Deferral Account in the form of Common Stock, the
Company shall make delivery of such Common Stock to the Participant, provided
that if any law or regulation requires the Company to take any action with
respect to such Common Stock before the issuance thereof, then the date of
delivery of such Common Stock shall be extended for the period necessary to
complete such action.
(a) Listing, Qualification, Etc. Requests for distribution of
all or a portion of Participant's Deferral Account in the form of Common Stock
shall be subject to the approval of the Committee and the requirement that if,
at any time, counsel to the Company shall determine that the listing,
registration or qualification of the Common Stock upon any securities exchange
or under any state, federal or foreign law, or the
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<PAGE> 3
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance of Common
Stock hereunder, such distribution may not be made, in whole or in part, unless
such listing, registration, qualification, consent or approval, disclosure or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.
7. Nontransferability of Units. The Units credited to a Participant's
account shall not be transferable otherwise than by will or the laws of descent
and distribution.
8. No Special Employment Rights. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Participant.
9. Rights as a Stockholder. Unless and until stock certificates
evidencing the Common Stock which may be received pursuant to the Units have
been issued (as evidenced by the appropriate entry on the books of the Company
or a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to such
Common Stock. The Company shall issue (or cause to be issued) such stock
certificates in accordance with the terms of the Plan. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date of the stock certificate is issued, except as provided in the Plan.
10. Adjustment Event. In the event there is any change in the Common
Stock, through merger, consolidation, reorganization, recapitalization (other
than pursuant to bankruptcy proceedings), stock dividend, stock split, reverse
stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure (each an
"Adjustment Event"), the number of Units subject to the Plan shall be adjusted
by the Committee in its sole judgment so as to give appropriate effect to such
Adjustment Event. Any fractional units resulting from such adjustment may be
eliminated. Each successive Adjustment Event shall result in the consideration
by the Committee of whether any adjustment to the number of Units subject to the
Plan is necessary in the Committee's judgment. Issuance of Common Stock or
securities convertible into Common Stock for value will not be deemed to be an
Adjustment Event unless otherwise expressly determined by the Committee.
11. Withholding Taxes. By participation in the Plan, any individual who
is an employee of the Company or any Related Entity shall be deemed to (a) agree
to reimburse the Company or any Related Entity by which the Participant is
employed for any taxes required by any governmental regulatory authority to be
withheld or otherwise deducted by such entity in respect of the payment of any
amounts under the Plan, (b) authorize the Company or any Related Entity by which
the Participant is employed to withhold from any cash compensation paid to the
Participant or on the Participant's behalf, an amount sufficient to discharge
such taxes and which otherwise has not been
3
<PAGE> 4
reimbursed by the Participant in respect of the payment of any amounts
hereunder, or (c) authorize the Company or any Related Entity to, in its
discretion, effect any required withholding by retaining Common Stock issuable
to the Participant, having a Fair Market Value on the date of issuance which is
equal to the amount to be withheld.
12. Investment Representations. The Participant represents, warrants
and covenants that:
(i) Any Common Stock received upon distribution of
Participant's Deferral Account shall be acquired for the Participant's
account for investment only and not with a view to, or for sale in
connection with, any distribution of the shares in violation of the
Securities Act of 1933 (the "Securities Act") or any rule or regulation
under the Securities Act; and
(ii) If any Common Stock shall be registered under
the Securities Act, no public offering (otherwise than on a national
securities exchange, as defined in the Exchange Act) of any Common
Stock acquired hereunder shall be made by the Participant (or any other
person) under such circumstances that Participant (or such person) may
be deemed an underwriter, as defined in the Securities Act; and
(iii) The Participant agrees that the Company shall
have the authority to endorse upon the certificate or certificates
representing the Common Stock acquired hereunder such legends referring
to the foregoing restrictions, and any other applicable restrictions,
as it may deem appropriate.
13. Miscellaneous.
(a) Amendment or Termination of Plan. The Committee may amend,
suspend or terminate the Plan at any time with or without prior notice;
provided, however, that no such action shall materially impair any rights or
benefits (other than the right to effect Compensation deferrals under a previous
election) which theretofore accrued under the Plan without the consent of
affected Participants. If the Committee determines to accelerate distribution in
a lump sum pursuant to Section 7.2(i) of the Plan, each deferral election of a
Participant receiving payment as a result thereof shall be deemed to be
terminated on the date of the Change in Control.
(b) Amendment or Termination of Agreements. The Committee may
amend or modify any Agreement at any time, provided, however, that no such
action shall materially impair any rights or benefits (other than the right to
effect Compensation deferrals under a previous election) which theretofore
accrued under the Plan without the consent of affected Participants, and may
amend or modify any Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an interest
therein.
4
<PAGE> 5
(c) All notices under this Agreement shall be mailed or
delivered by hand to the parties at their respective addresses set forth beneath
their names below or at such other address as may be designated in writing by
either of the parties to one another.
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5
<PAGE> 6
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principals.
Submitted by:
/s/ JOANNE BILTEKOFF
--------------------------------------------
Joanne Biltekoff
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK R. BRIGGS
-----------------------------------------
Mark R. Briggs
President
<PAGE> 7
Joanne Biltekoff
EXHIBIT A
CUSTOMERONE HOLDING CORPORATION
DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION
CustomerONE Holding Corporation (the "Company")
Attention: Treasurer
Deferral Election. Effective as of the date of this election the
undersigned ("Participant") hereby elects to defer $55,000 of Participant's
December 1998 bonus compensation pursuant to the Company's Deferred Compensation
Plan (the "Plan") and the Phantom Stock Unit Agreement dated as of October 1,
1998, (the "Phantom Unit Agreement").
1. Timing of Deferral. The deferral of compensation hereunder shall be
made effective as of October 1, 1998.
2. Representations of Participant. Participant acknowledges that
Participant has received, read and understood the Plan, the Phantom Unit
Agreement, and this Deferral Agreement and agrees to abide by and be bound by
the terms and conditions of such documents.
3. Compliance with Securities Laws. Notwithstanding any other provision
of the Phantom Unit Agreement or the Plan to the contrary, the exercise of any
rights under the Plan is expressly conditioned upon compliance with the
Securities Act of 1933, as amended, all applicable state securities laws and all
applicable requirements of any stock exchange or over-the-counter market on
which the Company's Common Stock may be listed or traded. Participant agrees to
cooperate with the Company to ensure compliance with such laws.
4. Tax Consultation. Participant understands that Participant may
suffer adverse tax consequences as a result of Participant's participation in
the Plan. Participant represents that Participant has consulted with any tax
consultants Participant deems advisable in connection with participating in and
receiving benefits under the Plan and that Participant is not relying on the
Company for any tax advice.
5. Definitions; Interpretation. Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Plan and the Phantom Unit Agreement. Any dispute regarding the
interpretation of this Deferral Election shall be submitted by Participant or by
the Company forthwith to the Company's Board of Directors or the Committee
thereof that administers the Plan, which shall review such dispute at its next
regular meeting. The resolution of such a dispute by the Board or Committee
shall be final and binding on the Company and on Purchaser.
<PAGE> 8
6. No Employment or Service Contract. Nothing in this Deferral
Election, the Plan or in the Phantom Unit Agreement shall confer upon
Participant any right to continue in service of the Company for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Related Entity employing or retaining Participant) or of
Participant, which rights are hereby expressly reserved by each, to terminate
Participant's service at any time for any reason, with or without cause.
7. Governing Law; Severability. This Deferral Election shall be
governed by an construed in accordance with the laws of the State of New York,
without regard to conflicts of law principles. Should any provision of this
Deferral Election be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
8. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Deferral Election.
9. Entire Agreement. The Plan and Phantom Unit Agreement are
incorporated herein by reference. This Deferral Election, the Plan and the
Phantom Unit Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Participant with respect to the subject matter hereof.
10. Participant Undertaking. Participant hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Participant or the Common Stock
pursuant to the provisions of the Plan, the Phantom Unit Agreement or applicable
law.
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8
<PAGE> 9
Joanne Biltekoff
11. Counterparts. This Deferral Election may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
Submitted by:
/s/ JOANNE BILTEKOFF
---------------------------------------------
Joanne Biltekoff
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK R. BRIGGS
------------------------------------------
Mark R. Briggs
President
<PAGE> 1
EXHIBIT 10.15
Mark R. Briggs
CUSTOMERONE HOLDING CORPORATION
PHANTOM STOCK UNIT AGREEMENT
1. Participation. CustomerONE Holding Corporation, a Delaware
corporation (the "Company"), hereby selects Mark R. Briggs (the "Participant")
to participate in the Company's Deferred Compensation Plan (the "Plan"), subject
to the terms and conditions of this Phantom Unit Agreement, dated as of October
1, 1998 (the "Agreement"), the "Deferral Election" attached as Exhibit A hereto,
and the Plan. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Plan.
2. Election to Defer Compensation. Upon Participant's execution of this
Agreement and the Deferral Election, and the Committee's approval of the
Deferral Election, the Participant shall commence participation in the Plan.
3. Phantom Stock Units. All compensation deferred pursuant to a
Deferral Election shall be credited to the Participant's Deferral Account and
shall be deemed to be invested in Phantom Stock Units ("Units").
(a) Each Unit credited to Participant's Deferral account in
accordance with the Plan shall be valued at $1.00 per Unit.
4. Vesting of Units. Participant shall be fully vested in all amounts
deferred under the Plan. Participant shall be fully vested in the Spread
credited to Participant's deferral account; provided, however, that if
Participant's employment is terminated for Cause or if Participant voluntarily
terminates employment without Good Reason, as such terms are defined in Section
1 of the Plan, Participant shall forfeit ten percent (10%) of the Spread
credited to Participant's deferral account.
(a) Spread. Spread means, with respect to a Participant as of
any date, the excess, if any (to the extent not yet distributed from such
Account by such date), of: (a) the Fair Market Value of a Unit on the date of
determination over (b) the Fair Market Value of such Unit at the time such Unit
is credited to the Participant's Deferral Account (unless another value is
expressly set forth in Section 3(a) of this Agreement).
5. Deferral Account Distributions. Except as set forth in paragraph (c)
below, the vested portion of a Participant's deferral account shall not be
distributed until a Distribution Event has occurred, as set forth in the Plan.
(a) Acceleration of Distributions. Notwithstanding any
provision contained in the Plan or this Agreement to the contrary, the Committee
may, in its sole discretion, accelerate the distribution in a lump sum of (i)
any or all of the Deferral Accounts to the date of a Change in Control, (ii) any
or all of a Participant's Deferral
<PAGE> 2
Account following the Participant's resignation without Good Reason or (iii) all
of the Deferral Accounts upon the liquidation or dissolution of the Company.
(b) Form of Payment. In the event of a Distribution Event
described in Section 7.1 of the Plan with respect to a Participant, the amount
credited to a Participant's Deferral Account shall be paid in a lump sum unless
the Participant has elected to receive payment of the Deferral Account in
installments in a manner permitted by and subject to the approval of the
Committee. Such lump sum payment or installment payments shall be made in cash,
shares of common stock of the Company ("Common Stock") or any combination
thereof, as determined in the sole discretion of the Company. For purposes of
satisfying payment of a Participant's Deferral Account with Common Stock, (i)
the Fair Market Value of such Common Stock and the Fair Market Value of the
Units credited to such Deferral Account shall each be determined as of the
payment date and (ii) the Company shall withhold from such distribution and pay
to the appropriate tax authorities the amount of applicable federal and state
income taxes that would be imposed on such distribution, as determined using the
highest marginal rate. Any fractional Units credited to a Participant's Deferral
Account shall be paid in cash.
(c) Hardship Distributions. Upon a written request of a
Participant and the Participant's demonstration to the Committee that a Hardship
(as defined in Section 7.4 of the Plan) exists, the Committee may permit the
distribution of all or any portion of the Participant's Deferral Account prior
to the date such amount otherwise would be distributed. The receipt of a
Hardship distribution by any Participant shall result in the suspension of the
Participant's deferral election under the Plan for a period of one year
following the date of the distribution.
(d) Discharge for Cause; Termination without Good Reason. If
the Participant is discharged by the Company for Cause or if the Participant
terminates employment with the Company without Good Reason (as each such term is
defined in Section 1 of the Plan), the Participant shall forfeit ten percent
(10%) of the Spread credited to Participant's account.
6. Delivery of Common Stock; Compliance With Securities Laws, Etc. In
accordance with the terms of the Plan, pursuant to Participant's written request
for, and the Committee's approval, in its sole discretion, of, distribution of
all or a portion of his or her Deferral Account in the form of Common Stock, the
Company shall make delivery of such Common Stock to the Participant, provided
that if any law or regulation requires the Company to take any action with
respect to such Common Stock before the issuance thereof, then the date of
delivery of such Common Stock shall be extended for the period necessary to
complete such action.
(a) Listing, Qualification, Etc. Requests for distribution of
all or a portion of Participant's Deferral Account in the form of Common Stock
shall be subject to the approval of the Committee and the requirement that if,
at any time, counsel to the Company shall determine that the listing,
registration or qualification of the Common Stock upon any securities exchange
or under any state, federal or foreign law, or the
2
<PAGE> 3
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance of Common
Stock hereunder, such distribution may not be made, in whole or in part, unless
such listing, registration, qualification, consent or approval, disclosure or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.
7. Nontransferability of Units. The Units credited to a Participant's
account shall not be transferable otherwise than by will or the laws of descent
and distribution.
8. No Special Employment Rights. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Participant.
9. Rights as a Stockholder. Unless and until stock certificates
evidencing the Common Stock which may be received pursuant to the Units have
been issued (as evidenced by the appropriate entry on the books of the Company
or a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to such
Common Stock. The Company shall issue (or cause to be issued) such stock
certificates in accordance with the terms of the Plan. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date of the stock certificate is issued, except as provided in the Plan.
10. Adjustment Event. In the event there is any change in the Common
Stock, through merger, consolidation, reorganization, recapitalization (other
than pursuant to bankruptcy proceedings), stock dividend, stock split, reverse
stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure (each an
"Adjustment Event"), the number of Units subject to the Plan shall be adjusted
by the Committee in its sole judgment so as to give appropriate effect to such
Adjustment Event. Any fractional units resulting from such adjustment may be
eliminated. Each successive Adjustment Event shall result in the consideration
by the Committee of whether any adjustment to the number of Units subject to the
Plan is necessary in the Committee's judgment. Issuance of Common Stock or
securities convertible into Common Stock for value will not be deemed to be an
Adjustment Event unless otherwise expressly determined by the Committee.
11. Withholding Taxes. By participation in the Plan, any individual who
is an employee of the Company or any Related Entity shall be deemed to (a) agree
to reimburse the Company or any Related Entity by which the Participant is
employed for any taxes required by any governmental regulatory authority to be
withheld or otherwise deducted by such entity in respect of the payment of any
amounts under the Plan, (b) authorize the Company or any Related Entity by which
the Participant is employed to withhold from any cash compensation paid to the
Participant or on the Participant's behalf, an amount sufficient to discharge
such taxes and which otherwise has not been
3
<PAGE> 4
reimbursed by the Participant in respect of the payment of any amounts
hereunder, or (c) authorize the Company or any Related Entity to, in its
discretion, effect any required withholding by retaining Common Stock issuable
to the Participant, having a Fair Market Value on the date of issuance which is
equal to the amount to be withheld.
12. Investment Representations. The Participant represents, warrants
and covenants that:
(i) Any Common Stock received upon distribution of
Participant's Deferral Account shall be acquired for the Participant's
account for investment only and not with a view to, or for sale in
connection with, any distribution of the shares in violation of the
Securities Act of 1933 (the "Securities Act") or any rule or regulation
under the Securities Act; and
(ii) If any Common Stock shall be registered under
the Securities Act, no public offering (otherwise than on a national
securities exchange, as defined in the Exchange Act) of any Common
Stock acquired hereunder shall be made by the Participant (or any other
person) under such circumstances that Participant (or such person) may
be deemed an underwriter, as defined in the Securities Act; and
(iii) The Participant agrees that the Company shall
have the authority to endorse upon the certificate or certificates
representing the Common Stock acquired hereunder such legends referring
to the foregoing restrictions, and any other applicable restrictions,
as it may deem appropriate.
13. Miscellaneous.
(a) Amendment or Termination of Plan. The Committee may amend,
suspend or terminate the Plan at any time with or without prior notice;
provided, however, that no such action shall materially impair any rights or
benefits (other than the right to effect Compensation deferrals under a previous
election) which theretofore accrued under the Plan without the consent of
affected Participants. If the Committee determines to accelerate distribution in
a lump sum pursuant to Section 7.2(i) of the Plan, each deferral election of a
Participant receiving payment as a result thereof shall be deemed to be
terminated on the date of the Change in Control.
(b) Amendment or Termination of Agreements. The Committee may
amend or modify any Agreement at any time, provided, however, that no such
action shall materially impair any rights or benefits (other than the right to
effect Compensation deferrals under a previous election) which theretofore
accrued under the Plan without the consent of affected Participants, and may
amend or modify any Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an interest
therein.
4
<PAGE> 5
(c) All notices under this Agreement shall be mailed or
delivered by hand to the parties at their respective addresses set forth beneath
their names below or at such other address as may be designated in writing by
either of the parties to one another.
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5
<PAGE> 6
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principals.
Submitted by:
/s/ MARK R. BRIGGS
----------------------------------------
Mark R. Briggs
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK BRIGGS
-------------------------------------
Title:
----------------------------------
<PAGE> 7
Mark R. Briggs
EXHIBIT A
CUSTOMERONE HOLDING CORPORATION
DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION
CustomerONE Holding Corporation (the "Company")
Attention: Treasurer
Deferral Election. Effective as of the date of this election the
undersigned ("Participant") hereby elects to defer $16,666.66 of Participant's
November 1998 salary compensation and $8,333.33 of Participant's salary
compensation for each of the following twenty-two (22) months, beginning with
December 1998 and ending with September 2000, pursuant to the Company's Deferred
Compensation Plan (the "Plan") and the Phantom Stock Unit Agreement dated as of
October 1, 1998, (the "Phantom Unit Agreement").
1. Timing of Deferral. The deferral of compensation hereunder shall be
made effective as of October 1, 1998.
2. Representations of Participant. Participant acknowledges that
Participant has received, read and understood the Plan, the Phantom Unit
Agreement, and this Deferral Agreement and agrees to abide by and be bound by
the terms and conditions of such documents.
3. Compliance with Securities Laws. Notwithstanding any other provision
of the Phantom Unit Agreement or the Plan to the contrary, the exercise of any
rights under the Plan is expressly conditioned upon compliance with the
Securities Act of 1933, as amended, all applicable state securities laws and all
applicable requirements of any stock exchange or over-the-counter market on
which the Company's Common Stock may be listed or traded. Participant agrees to
cooperate with the Company to ensure compliance with such laws.
4. Tax Consultation. Participant understands that Participant may
suffer adverse tax consequences as a result of Participant's participation in
the Plan. Participant represents that Participant has consulted with any tax
consultants Participant deems advisable in connection with participating in and
receiving benefits under the Plan and that Participant is not relying on the
Company for any tax advice.
5. Definitions; Interpretation. Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Plan and the Phantom Unit Agreement. Any dispute regarding the
interpretation of this Deferral Election shall be submitted by Participant or by
the Company forthwith to the Company's Board of Directors or the Committee
thereof that administers the Plan, which shall review
<PAGE> 8
such dispute at its next regular meeting. The resolution of such a dispute by
the Board or Committee shall be final and binding on the Company and on
Purchaser.
6. No Employment or Service Contract. Nothing in this Deferral
Election, the Plan or in the Phantom Unit Agreement shall confer upon
Participant any right to continue in service of the Company for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Related Entity employing or retaining Participant) or of
Participant, which rights are hereby expressly reserved by each, to terminate
Participant's service at any time for any reason, with or without cause.
7. Governing Law; Severability. This Deferral Election shall be
governed by an construed in accordance with the laws of the State of New York,
without regard to conflicts of law principles. Should any provision of this
Deferral Election be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
8. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Deferral Election.
9. Entire Agreement. The Plan and Phantom Unit Agreement are
incorporated herein by reference. This Deferral Election, the Plan and the
Phantom Unit Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Participant with respect to the subject matter hereof.
10. Participant Undertaking. Participant hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Participant or the Common Stock
pursuant to the provisions of the Plan, the Phantom Unit Agreement or applicable
law.
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8
<PAGE> 9
Mark R. Briggs
11. Counterparts. This Deferral Election may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
Submitted by:
/s/ MARK R. BRIGGS
----------------------------------------
Mark R. Briggs
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK BRIGGS
-------------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.16
Steve Kawalick
CUSTOMERONE HOLDING CORPORATION
PHANTOM STOCK UNIT AGREEMENT
1. Participation. CustomerONE Holding Corporation, a Delaware
corporation (the "Company"), hereby selects Steve Kawalick (the "Participant")
to participate in the Company's Deferred Compensation Plan (the "Plan"), subject
to the terms and conditions of this Phantom Unit Agreement, dated as of October
1, 1998 (the "Agreement"), the "Deferral Election" attached as Exhibit A hereto,
and the Plan. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Plan.
2. Election to Defer Compensation. Upon Participant's execution of this
Agreement and the Deferral Election, and the Committee's approval of the
Deferral Election, the Participant shall commence participation in the Plan.
3. Phantom Stock Units. All compensation deferred pursuant to a
Deferral Election shall be credited to the Participant's Deferral Account and
shall be deemed to be invested in Phantom Stock Units ("Units").
(a) Each Unit credited to Participant's Deferral account in
accordance with the Plan shall be valued at $1.00 per Unit.
4. Vesting of Units. Participant shall be fully vested in all amounts
deferred under the Plan. Participant shall be fully vested in the Spread
credited to Participant's deferral account; provided, however, that if
Participant's employment is terminated for Cause or if Participant voluntarily
terminates employment without Good Reason, as such terms are defined in Section
1 of the Plan, Participant shall forfeit ten percent (10%) of the Spread
credited to Participant's deferral account.
(a) Spread. Spread means, with respect to a Participant as of
any date, the excess, if any (to the extent not yet distributed from such
Account by such date), of: (a) the Fair Market Value of a Unit on the date of
determination over (b) the Fair Market Value of such Unit at the time such Unit
is credited to the Participant's Deferral Account (unless another value is
expressly set forth in Section 3(a) of this Agreement).
5. Deferral Account Distributions. Except as set forth in paragraph (c)
below, the vested portion of a Participant's deferral account shall not be
distributed until a Distribution Event has occurred, as set forth in the Plan.
(a) Acceleration of Distributions. Notwithstanding any
provision contained in the Plan or this Agreement to the contrary, the Committee
may, in its sole discretion, accelerate the distribution in a lump sum of (i)
any or all of the Deferral Accounts to the date of a Change in Control, (ii) any
or all of a Participant's Deferral
<PAGE> 2
Account following the Participant's resignation without Good Reason or (iii) all
of the Deferral Accounts upon the liquidation or dissolution of the Company.
(b) Form of Payment. In the event of a Distribution Event
described in Section 7.1 of the Plan with respect to a Participant, the amount
credited to a Participant's Deferral Account shall be paid in a lump sum unless
the Participant has elected to receive payment of the Deferral Account in
installments in a manner permitted by and subject to the approval of the
Committee. Such lump sum payment or installment payments shall be made in cash,
shares of common stock of the Company ("Common Stock") or any combination
thereof, as determined in the sole discretion of the Company. For purposes of
satisfying payment of a Participant's Deferral Account with Common Stock, (i)
the Fair Market Value of such Common Stock and the Fair Market Value of the
Units credited to such Deferral Account shall each be determined as of the
payment date and (ii) the Company shall withhold from such distribution and pay
to the appropriate tax authorities the amount of applicable federal and state
income taxes that would be imposed on such distribution, as determined using the
highest marginal rate. Any fractional Units credited to a Participant's Deferral
Account shall be paid in cash.
(c) Hardship Distributions. Upon a written request of a
Participant and the Participant's demonstration to the Committee that a Hardship
(as defined in Section 7.4 of the Plan) exists, the Committee may permit the
distribution of all or any portion of the Participant's Deferral Account prior
to the date such amount otherwise would be distributed. The receipt of a
Hardship distribution by any Participant shall result in the suspension of the
Participant's deferral election under the Plan for a period of one year
following the date of the distribution.
(d) Discharge for Cause; Termination without Good Reason. If
the Participant is discharged by the Company for Cause or if the Participant
terminates employment with the Company without Good Reason (as each such term is
defined in Section 1 of the Plan), the Participant shall forfeit ten percent
(10%) of the Spread credited to Participant's account.
6. Delivery of Common Stock; Compliance With Securities Laws, Etc. In
accordance with the terms of the Plan, pursuant to Participant's written request
for, and the Committee's approval, in its sole discretion, of, distribution of
all or a portion of his or her Deferral Account in the form of Common Stock, the
Company shall make delivery of such Common Stock to the Participant, provided
that if any law or regulation requires the Company to take any action with
respect to such Common Stock before the issuance thereof, then the date of
delivery of such Common Stock shall be extended for the period necessary to
complete such action.
(a) Listing, Qualification, Etc. Requests for distribution of
all or a portion of Participant's Deferral Account in the form of Common Stock
shall be subject to the approval of the Committee and the requirement that if,
at any time, counsel to the Company shall determine that the listing,
registration or qualification of the Common Stock upon any securities exchange
or under any state, federal or foreign law, or the
2
<PAGE> 3
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance of Common
Stock hereunder, such distribution may not be made, in whole or in part, unless
such listing, registration, qualification, consent or approval, disclosure or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.
7. Nontransferability of Units. The Units credited to a Participant's
account shall not be transferable otherwise than by will or the laws of descent
and distribution.
8. No Special Employment Rights. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Participant.
9. Rights as a Stockholder. Unless and until stock certificates
evidencing the Common Stock which may be received pursuant to the Units have
been issued (as evidenced by the appropriate entry on the books of the Company
or a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to such
Common Stock. The Company shall issue (or cause to be issued) such stock
certificates in accordance with the terms of the Plan. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date of the stock certificate is issued, except as provided in the Plan.
10. Adjustment Event. In the event there is any change in the Common
Stock, through merger, consolidation, reorganization, recapitalization (other
than pursuant to bankruptcy proceedings), stock dividend, stock split, reverse
stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, dividend in kind or other like change in capital structure (each an
"Adjustment Event"), the number of Units subject to the Plan shall be adjusted
by the Committee in its sole judgment so as to give appropriate effect to such
Adjustment Event. Any fractional units resulting from such adjustment may be
eliminated. Each successive Adjustment Event shall result in the consideration
by the Committee of whether any adjustment to the number of Units subject to the
Plan is necessary in the Committee's judgment. Issuance of Common Stock or
securities convertible into Common Stock for value will not be deemed to be an
Adjustment Event unless otherwise expressly determined by the Committee.
11. Withholding Taxes. By participation in the Plan, any individual who
is an employee of the Company or any Related Entity shall be deemed to (a) agree
to reimburse the Company or any Related Entity by which the Participant is
employed for any taxes required by any governmental regulatory authority to be
withheld or otherwise deducted by such entity in respect of the payment of any
amounts under the Plan, (b) authorize the Company or any Related Entity by which
the Participant is employed to withhold from any cash compensation paid to the
Participant or on the Participant's behalf, an amount sufficient to discharge
such taxes and which otherwise has not been
3
<PAGE> 4
reimbursed by the Participant in respect of the payment of any amounts
hereunder, or (c) authorize the Company or any Related Entity to, in its
discretion, effect any required withholding by retaining Common Stock issuable
to the Participant, having a Fair Market Value on the date of issuance which is
equal to the amount to be withheld.
12. Investment Representations. The Participant represents, warrants
and covenants that:
(i) Any Common Stock received upon distribution of
Participant's Deferral Account shall be acquired for the Participant's
account for investment only and not with a view to, or for sale in
connection with, any distribution of the shares in violation of the
Securities Act of 1933 (the "Securities Act") or any rule or regulation
under the Securities Act; and
(ii) If any Common Stock shall be registered under
the Securities Act, no public offering (otherwise than on a national
securities exchange, as defined in the Exchange Act) of any Common
Stock acquired hereunder shall be made by the Participant (or any other
person) under such circumstances that Participant (or such person) may
be deemed an underwriter, as defined in the Securities Act; and
(iii) The Participant agrees that the Company shall
have the authority to endorse upon the certificate or certificates
representing the Common Stock acquired hereunder such legends referring
to the foregoing restrictions, and any other applicable restrictions,
as it may deem appropriate.
11. Miscellaneous.
(a) Amendment or Termination of Plan. The Committee may amend,
suspend or terminate the Plan at any time with or without prior notice;
provided, however, that no such action shall materially impair any rights or
benefits (other than the right to effect Compensation deferrals under a previous
election) which theretofore accrued under the Plan without the consent of
affected Participants. If the Committee determines to accelerate distribution in
a lump sum pursuant to Section 7.2(i) of the Plan, each deferral election of a
Participant receiving payment as a result thereof shall be deemed to be
terminated on the date of the Change in Control.
(b) Amendment or Termination of Agreements. The Committee may
amend or modify any Agreement at any time, provided, however, that no such
action shall materially impair any rights or benefits (other than the right to
effect Compensation deferrals under a previous election) which theretofore
accrued under the Plan without the consent of affected Participants, and may
amend or modify any Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an interest
therein.
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(c) All notices under this Agreement shall be mailed
or delivered by hand to the parties at their respective
addresses set forth beneath their names below or at such other
address as may be designated in writing by either of the
parties to one another.
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(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts of laws
principals.
Submitted by:
/s/ STEVE KAWALICK
----------------------------------------
Steve Kawalick
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK R. BRIGGS
-------------------------------------
Mark R. Briggs
President
<PAGE> 7
Steve Kawalick
EXHIBIT A
CUSTOMERONE HOLDING CORPORATION
DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION
CustomerONE Holding Corporation (the "Company")
Attention: Treasurer
Deferral Election. Effective as of the date of this election the
undersigned ("Participant") hereby elects to defer $20,000 of Participant's
December 1998 bonus compensation pursuant to the Company's Deferred Compensation
Plan (the "Plan") and the Phantom Stock Unit Agreement dated as of October 1,
1998, (the "Phantom Unit Agreement").
1. Timing of Deferral. The deferral of compensation hereunder shall be
made effective as of October 1, 1998.
2. Representations of Participant. Participant acknowledges that
Participant has received, read and understood the Plan, the Phantom Unit
Agreement, and this Deferral Agreement and agrees to abide by and be bound by
the terms and conditions of such documents.
3. Compliance with Securities Laws. Notwithstanding any other provision
of the Phantom Unit Agreement or the Plan to the contrary, the exercise of any
rights under the Plan is expressly conditioned upon compliance with the
Securities Act of 1933, as amended, all applicable state securities laws and all
applicable requirements of any stock exchange or over-the-counter market on
which the Company's Common Stock may be listed or traded. Participant agrees to
cooperate with the Company to ensure compliance with such laws.
4. Tax Consultation. Participant understands that Participant may
suffer adverse tax consequences as a result of Participant's participation in
the Plan. Participant represents that Participant has consulted with any tax
consultants Participant deems advisable in connection with participating in and
receiving benefits under the Plan and that Participant is not relying on the
Company for any tax advice.
5. Definitions; Interpretation. Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Plan and the Phantom Unit Agreement. Any dispute regarding the
interpretation of this Deferral Election shall be submitted by Participant or by
the Company forthwith to the Company's Board of Directors or the Committee
thereof that administers the Plan, which shall review such dispute at its next
regular meeting. The resolution of such a dispute by the Board or Committee
shall be final and binding on the Company and on Purchaser.
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<PAGE> 8
6. No Employment or Service Contract. Nothing in this Deferral
Election, the Plan or in the Phantom Unit Agreement shall confer upon
Participant any right to continue in service of the Company for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Related Entity employing or retaining Participant) or of
Participant, which rights are hereby expressly reserved by each, to terminate
Participant's service at any time for any reason, with or without cause.
7. Governing Law; Severability. This Deferral Election shall be
governed by an construed in accordance with the laws of the State of New York,
without regard to conflicts of law principles. Should any provision of this
Deferral Election be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
8. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Deferral Election.
9. Entire Agreement. The Plan and Phantom Unit Agreement are
incorporated herein by reference. This Deferral Election, the Plan and the
Phantom Unit Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Participant with respect to the subject matter hereof.
10. Participant Undertaking. Participant hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Participant or the Common Stock
pursuant to the provisions of the Plan, the Phantom Unit Agreement or applicable
law.
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Steve Kawalick
11. Counterparts. This Deferral Election may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
Submitted by:
/s/ STEVE KAWALICK
----------------------------------------
Steve Kawalick
Address:
Accepted by:
CUSTOMERONE HOLDING CORPORATION
By: /s/ MARK R. BRIGGS
-------------------------------------
Mark R. Briggs
President
<PAGE> 1
EXHIBIT 10.18
BRIGGS
THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO AN OPTION
TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1998 STOCK
OPTION PLAN FOR KEY EMPLOYEES AND THIS AGREEMENT ENTERED INTO PURSUANT
THERETO. A COPY OF SUCH PLAN IS AVAILABLE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.
CUSTOMERONE HOLDING CORPORATION
1998 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR KEY EMPLOYEES
The Board of Directors of CustomerONE Holding Corporation (the
"Company") has adopted the Company's 1998 Stock Option Plan (the "Plan") for
certain individuals, directors and key employees of the Company and its Related
Entities. A copy of the Plan is being furnished to you concurrently with the
execution of this Option Agreement and shall be deemed a part of this Option
Agreement as if fully set forth herein. Unless the context otherwise requires,
all terms defined in the Plan shall have the same meaning when used herein.
1. The Grant.
Subject to the conditions set forth below, the Company hereby
grants to you, effective as of October 1, 1998 (the "Grant Date"), as a matter
of separate inducement and not in lieu of any salary or other compensation for
your services, the right and option to purchase (the "Option"), in accordance
with the terms and conditions set forth herein and in the Plan, an aggregate of
1,300,000 shares of Common Stock of the Company (the "Option Shares"), at the
Exercise Price (as hereinafter defined). The Option is granted in full
satisfaction of the Company's obligation under Sections 7(a) and (b) of that
certain Employment Agreement (the "Employment Agreement"), dated as of September
30, 1998, by and between CustomerONE Corporation ("CustomerONE"), a Delaware
corporation, and you. As used herein, the term "Exercise Price" shall mean a
price equal to $1.00 per share, subject to the adjustments and limitations set
forth herein and in the Plan. The Option granted hereunder is intended to
constitute a Non-Qualified Option within the meaning of the Plan; however, you
should consult with your 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 Option.
<PAGE> 2
2. Exercise.
(a) For purposes of this Option Agreement, the Option Shares
shall be deemed "Nonvested Shares" unless and until they have become "Vested
Shares" as described below. Twenty-five percent (25%) of the Option Shares shall
become "Vested Shares" on the second anniversary of the Grant Date and
seventy-five percent (75%) of the Option Shares shall become "Vested Shares" on
the third anniversary of the Grant Date in accordance with the terms of the
Plan. In the event of your death or Permanent Disability, as that term is
defined in the Employment Agreement, or if CustomerONE terminates your
employment without Cause, as that term is defined in the Employment Agreement,
on or after the second anniversary of the Grant Date, Option Shares that have
not become "Vested Shares" shall accelerate and become "Vested Shares" at the
rate of 5% of the Option Shares granted hereunder per month, such amount to be
in addition to scheduled vesting hereunder, beginning in the twenty-fifth month
following the Grant Date with the balance becoming "Vested Shares" on the third
anniversary of the Grant Date. Only upon the occurrence of a Liquidity Event (as
hereinafter defined) that results in Onex CustomerONE Holdings LLC ("LLC2")
achieving an overall compounded IRR (as hereinafter defined) of 15% on its
investment in the Portfolio Company (as hereinafter defined) as at such time,
will "Vested Shares" become "Exercisable Shares." Until such time, you will not
have the right to exercise all or any portion of your Option, whether or not
vested. In addition, 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, any Option Shares that have not become
"Vested Shares" will accelerate and immediately become both "Vested Shares" and
"Exercisable Shares."
(b) Subject to the relevant provisions and limitations
contained herein and in the Plan, you may exercise the Option to purchase all or
a portion of the applicable number of Exercisable Shares at any time prior to
the termination of the Option pursuant to this Option Agreement. In no event
shall you be entitled to exercise the Option for any Nonvested Shares, Vested
Shares that are not Exercisable Shares or for a fraction of an Exercisable
Share.
(c) The unexercised portion of the Option, if any, will
automatically, and without notice, terminate and become null and void upon the
expiration of ten (10) years from the Grant Date.
(d) Any exercise by you of the Option must be in writing
addressed to the Secretary 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 Secretary), and must be accompanied by a certified or bank check payable
to the order of the Company in the full amount of the Exercise Price of the
shares so purchased, or in such other manner as described in the Plan and
approved by the Committee.
(e) For purposes hereof, a "Liquidity Event" shall mean the
first to occur of any of the following:
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<PAGE> 3
(i) any sale of all or substantially all of the
assets of the Company or its operating subsidiaries taken as a
whole (for purposes hereof, 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; 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.
(f) For purposes hereof, "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.
3. Termination of Employment.
In the case of termination of your employment with the Company
or any Related Entity for Cause, as that term is defined in the Employment
Agreement, pursuant to Section 8(d) of the Employment Agreement, then you shall
immediately forfeit your rights under the Option, including rights in any Vested
Shares and/or Exercisable Shares, except as to those Option Shares already
purchased.
4. Transferability.
Except as provided in Section 7 hereof, the Option and any
rights or interests therein are not assignable or transferable by you except by
will or the laws of descent and distribution, and during your lifetime, the
Option shall be exercisable only by you or, in the event that a legal
representative has been appointed in connection with your Disability, such legal
representative.
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<PAGE> 4
5. 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 the Option or to issue any
Common Stock in violation of the Securities Act or any applicable securities
laws of any other jurisdiction. You (or in the event of your death or, in the
event a legal representative has been appointed in connection with your
Disability, the Person exercising the Option) must, as a condition to your right
to exercise the 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 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.
6. Withholding Taxes.
By acceptance hereof, you hereby (i) agree to reimburse the
Company or any Related Entity by which you are 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 your
exercise of all or a portion of the Option; (ii) authorize the Company or any
Related Entity by which you are employed to withhold from any cash compensation
paid to you or on your 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 you are employed, and which otherwise has not
been reimbursed by you, in respect of your exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the
4
<PAGE> 5
stock certificate to which you are entitled upon exercise of the 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 the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.
7. Purchase Option.
(a) If (i) your 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, you (or your executor or
the administrator of your estate or the Person who acquired the right to
exercise the Option by bequest or inheritance in the event of your death, or
your legal representative in the event of your 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 held by the Grantor (such Option Shares and
Option 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 your 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, and in the case
of the Option, the Fair Market Value per share less the applicable per share
Exercise Price, times the number of Exercisable Shares subject to such 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 7, each certificate or instrument representing Option Shares
subject to this Option Agreement shall bear a conspicuous legend in
substantially the following form:
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<PAGE> 6
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION TO
REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S 1998 STOCK
OPTION PLAN AND A STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO.
A COPY OF SUCH OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
8. Stockholders Agreement. You acknowledge and agree that upon exercise
of your Option you 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 you 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.
9. 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. Miscellaneous.
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan. In the event of
any conflict or inconsistency between the terms hereof and the terms of the
Plan, the terms of the Plan shall be controlling.
(b) This Option Agreement is not a contract of employment and
the terms of your 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
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or any Related Entity to continue your employment, or (ii) on your part to
remain in the employ of the Company or any Related Entity.
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7
<PAGE> 8
Please indicate your acceptance of all the terms and
conditions of the Option and the Plan by signing and returning a copy of this
Option Agreement.
Very truly yours,
CUSTOMERONE HOLDING CORPORATION
By: /s/ THOMAS O. HARBISON
------------------------------------------
Its: CEO
-----------------------------------------
ACCEPTED:
- ----------------------------------
Signature of Optionee
Mark Briggs
- ----------------------------------
Name of Optionee (Please Print)
Date:
-----------------------------
<PAGE> 1
EXHIBIT 10.19
AMENDMENT NO. 1
TO
NON-QUALIFIED STOCK OPTION AGREEMENT
This Amendment (this "Amendment") to that certain Non-Qualified Stock
Option Agreement (the "Option Agreement"), effective as of October 1, 1998, by
and between ClientLogic Holding Corporation (formerly known as CustomerONE
Holding Corporation) (the "Company") and Mark R. Briggs (the "Optionee"), is
made and entered into as of August 10, 1999, by and between the Company and the
Optionee.
RECITALS
WHEREAS, the Company and Optionee have heretofore entered into the Option
Agreement; and
WHEREAS, the Company and the Optionee wish to amend the Option Agreement
as more fully set forth in this Amendment;
NOW, THEREFORE, the parties agree to amend the Option Agreement as follows:
1. Section 2(e).
Section 2(e) of the Option Agreement is hereby amended and restated to
read, in its entirety, as follows:
(e) For purposes hereof, a "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
Company and its operating subsidiaries taken as a whole (for purposes
hereof, 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
<PAGE> 2
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; 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.
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In witness whereof, the parties have caused this Amendment to be executed
as of the date first set forth above.
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
----------------------------------
Name: Gene Morphis
--------------------------------
Title:
-------------------------------
MARK BRIGGS
/S/ MARK BRIGGS
-------------------------------------
<PAGE> 1
EXHIBIT 10.20
THE SHARES ISSUABLE PURSUANT TO THIS AGREEMENT ARE SUBJECT TO
AN OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE
COMPANY'S 1998 STOCK OPTION PLAN FOR KEY EMPLOYEES AND THIS
AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH PLAN
IS AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICES.
CLIENTLOGIC HOLDING CORPORATION
STOCK OPTION AGREEMENT
1998 STOCK OPTION PLAN, AS AMENDED
FOR KEY EMPLOYEES
The Board of Directors of ClientLogic Holding Corporation (the
"Company") has adopted the Company's 1998 Stock Option Plan, as amended
(the "Plan") for certain individuals, directors and key employees of
the Company and its Related Entities. A copy of the Plan is being
furnished to you concurrently with the execution of this Option
Agreement and shall be deemed a part of this Option Agreement as if
fully set forth herein. Unless the context otherwise requires, all
terms defined in the Plan shall have the same meaning when used herein.
1. Certain Definitions.
In addition to the terms specifically defined elsewhere herein
and in the Plan, as used herein, the following terms will have the
meanings indicated:
"Cause" shall have the meaning set forth in Section 8(d) of
the Employment Agreement.
"Common Stock" shall mean the common stock, par value $0.01
per share, of the Company.
"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
ClientLogic Corporation (formerly CustomerONE Corporation), a
Delaware Corporation and wholly-owned subsidiary of the
Company, and you.
"First Option" shall have the meaning set forth in Section
2(a) hereof.
<PAGE> 2
"First Option Exercise Price" shall mean a price equal to
US$1.20 per share, subject to the adjustments and limitations
set forth herein and in the Plan.
"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.
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.
"Option" shall mean either of the First Option or the Second
Option.
2
<PAGE> 3
"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.
"Portfolio Company" shall mean the Company and its operating
subsidiaries taken as a whole.
"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 and in the Plan.
"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.
2. The Grants.
(a) Subject to the conditions set forth herein, the
Company hereby grants to you, 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 your services, the right and option to purchase
(the "First Option"), in accordance with the terms and conditions set forth
herein and in the Plan, an aggregate of 583,333 shares of Common Stock (the
"First Option Shares"), at the First Option Exercise Price. You should consult
with your 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 you, 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 your services, the right and option to purchase (the
"Second Option"), in accordance with the terms and conditions set forth herein
and in the Plan, an aggregate of 2,868 shares of Common Stock (the "Second
Option Shares"), at the Second Option Exercise Price. You should consult with
your 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
3
<PAGE> 4
shall become "Vested Shares" on the second annual anniversary of the First
Option Grant Date and seventy-five percent (75%) of the First Option Shares
shall become "Vested Shares" on the third annual anniversary of the First Option
Grant Date in accordance with the terms of the Plan. 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, you 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
annual anniversary of the Second Option Grant Date and seventy-five percent
(75%) of the Second Option Shares shall become "Vested Shares" on the third
annual anniversary of the Second Option Grant Date in accordance with the terms
of the Plan. 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, you 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 and in the Plan, you 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 you 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 you 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 described in the Plan and
approved by the Committee.
4. Termination of Employment.
In the case of termination of your employment with the Company
or any Related Entity for Cause, as defined pursuant to Section 8(d) of the
Employment
4
<PAGE> 5
Agreement, you shall immediately forfeit your rights under the Options,
including rights in any Vested Shares and/or Exercisable Shares, except as to
those Option Shares already purchased.
5. Transferability.
Except as provided in Section 8 hereof, the Options and any
rights or interests therein are not assignable or transferable by you except by
will or the laws of descent and distribution, and during your lifetime, each
Option shall be exercisable only by you or, in the event that a legal
representative has been appointed in connection with your Permanent Disability,
such legal representative.
6. 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. You (or in the event of your death or, in the
event a legal representative has been appointed in connection with your
Permanent Disability, the Person exercising an Option) must, as a condition to
your 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 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.
5
<PAGE> 6
7. Withholding Taxes.
By acceptance hereof, you hereby (i) agree to reimburse the
Company or any Related Entity by which you are 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 your
exercise of all or a portion of an Option; (ii) authorize the Company or any
Related Entity by which you are employed to withhold from any cash compensation
paid to you or on your 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 you are employed, and which otherwise has not
been reimbursed by you, in respect of your exercise of all or a portion of an
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which you are 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.
8. Purchase Option.
(a) If (i) your 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, you (or your executor or
the administrator of your estate or the Person who acquired the right to
exercise an Option by bequest or inheritance in the event of your death, or your
legal representative in the event of your 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 your 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
6
<PAGE> 7
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 8, each certificate or instrument representing Option
Shares subject to this Option Agreement shall bear a conspicuous legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE
COMPANY'S 1998 STOCK OPTION PLAN, AS AMENDED, AND A STOCK
OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH
OPTION PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
9. Stockholders Agreement.
You acknowledge and agree that upon exercise of an Option, you
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 you
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 CLIENTLOGIC HOLDING CORPORATION AT ITS PRINCIPAL
EXECUTIVE OFFICES.
7
<PAGE> 8
10. 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.
11. Miscellaneous.
(a) This Option Agreement is subject to all the terms,
conditions, limitations and restrictions contained in the Plan. In the event of
any conflict or inconsistency between the terms hereof and the terms of the
Plan, the terms of the Plan shall be controlling.
(b) This Option Agreement is not a contract of
employment and the terms of your 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 your employment, or (ii) on your part to remain in the employ of the
Company or any Related Entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
8
<PAGE> 9
Please indicate your acceptance of all the terms and
conditions of the Option and the Plan by signing and returning a copy of this
Option Agreement.
Very truly yours,
CLIENTLOGIC HOLDING CORPORATION
By: /s/ GENE MORPHIS
-------------------------------------------
Its:
------------------------------------------
ACCEPTED:
/s/ MARK BRIGGS
- --------------------------------
Signature of Optionee
Mark Briggs
- --------------------------------
Name of Optionee (Please Print)
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.22
CARON & STEVENS/BAKER & McKENZIE
CORDENA CALL MANAGEMENT B.V.
established at Amsterdam
Share issue
TRUE COPY of the deed of share issue in the capital of Cordena Call Management
B.V., executed on September 21, 1999, before P.G. van Druten, Esq., a deputy
civil-law notary, representing the office of H. van Wilsum, Esq., a civil-law
notary in Amsterdam.
<PAGE> 2
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP] 1
SHARE ISSUE
This day, the twenty-first day of September, nineteen hundred and ninety-nine,
there appeared before me, Pieter Gerard van Druten, Esq., a deputy civil-law
notary, residing at Bussum, hereinafter to be referred to as: "a civil-law
notary", representing the office of Hendrik van Wilsum, Esq., a civil law notary
in Amsterdam, who is absent on leave: Catharina Martina Johanna Tielemans, Esq.,
a deputy civil-law notary, unmarried, not registered as partner in a personal
partnership, born at Eindhoven on the twenty-first day of March nineteen hundred
and seventy-two, residing at 1053 HB Amsterdam, Jacob van Lennepstraat 21/I,
holder of a passport with number: N69662327, valid until the second day of June
two thousand and three, 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";
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
<PAGE> 3
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP] 2
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";
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 us
"GPE III-B LP";
d. Advent Partners (NA) GPE III Limited Partnership, a limited
partnership formed and entered into under the 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
<PAGE> 4
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP] 3
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, 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";
<PAGE> 5
CARON & STEVENS/BAKER & McKENZIE
[NOTARY STAMP] 4
l. 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";
m. 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, herinafter referred to as "Sarda";
n. Christopher Fitzroy Robinson, company director, married, residing at
Bowbeer Farmhouse, Spreyton, Crediton, Devon EXI7 5AE, United Kingdom, born
in Hove, United Kingdom, on the twenty-second day of June nineteen hundred
fifty-three, hereinafter referred to as "Robinson";
o. Sally Vanessa Robinson, housewife, married, residing at Bowbeer Farmhouse,
Spreyton, Crediton, Devon EXI7 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";
p. Nandy M. Sarda, engineer, unmarried, born in the Philippines, on the ninth
day of September nineteen hundred and thirty-nine, residing at 10037 Villa
Ridge Drive, Las Vegas, Nevada 89134, the United States of America,
hereinafter referred to as "Nandy Sarda";
q. George Matthew Vetter III, banker, married, born in New York, United States
of America, on the twenty-seventh day of February nineteen hundred and
fifty-seven, residing at 57 Alta Vista Avenue, Mill Valley, California,
94941, United States of America, acting in his capacity as trustee and as
such representing the trust organized under the laws of the State of
Florida, United States of America Kortenhorst Vetter
<PAGE> 6
CARON & STEVENS/BAKER & MCKENZIE
5
[NOTARY STAMP]
Family Trust, with address at Rijswijkseweg 60, 2516 EH's-Gravenhage,
the Netherlands, hereinafter referred to as the "Family Trust";
r. Four Seasons Venture II A.S., a company incorporated under the laws
of Norway, having its registered office at 0250 Oslo, Vika Atrium,
Munkedamsveien 45, hereinafter referred to as "Four Seasons";
s. Jan Laurens Baurdoux, Vice President Operations, married, born in
Hilversum, the Netherlands, on the sixth day of November nineteen
hundred and forty-nine, residing at 2242 SX Wassenaar, the
Netherlands, Jagerslaan 29; hereinafter referred to as "Baurdoux";
t. Kevin Cannon, chief operating officer, married, born in Bridgeport,
Connecticut, United States of America, on the nineteenth day of
December nineteen hundred and fifty-eight, residing at 8 Fox Run
Drive, Easton, Connecticut 06612, United States of America,
hereinafter referred to as "Cannon";
u. Denise De Venuto, retired, unmarried, born in Newburg, New York, the
United States of America, on the twenty-seventh day of August,
nineteen hundred and fifty-five, residing at 10037 Villa Ridge Dr., NV
89134, the United States of America; hereinafter referred to as "De
Venuto";
the parties referred to under 2.a up to and including u. 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, Leidseplein 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 fourteen
(14) private deeds attached to this deed.
<PAGE> 7
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP]
6
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 five million six hundred and thirty-two
thousand three hundred and sixty-three (5,632,363) shares, numbered 1 up to
and including 5,632,363, 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 one hundred and seventy-two thousand eight hundred
(172,800) shares in the Company's capital stock, numbered
5,632,364 up to and including 5,805,163 with a par value of four
Netherlands cents (NLG 0,04) each, hereinafter referred to as the
"GPE III LP Shares";
b. GPE III-A LP eighty thousand seven hundred and thirty-three
(80,733) shares in the Company's capital stock, numbered
5,805,164 up to and including 5,885,896 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 four thousand sixty-seven (4,067) shares in the
Company's capital stock, numbered 5,885,897 up to and including
5,889,963 with a
<PAGE> 8
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP]
7
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 eight hundred (800) shares in the
Company's capital stock, numbered 5,889,964 up to and including
5,890,763 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 two thousand six hundred and sixty-seven
(2,667) shares in the Company's capital stock, numbered 5,890,764 up
to and including 5,893,430 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 fifty-three thousand eight hundred and sixty-seven
(53,867) shares in the Company's capital stock, numbered 5,893,431 up
to and including 5,947,297 with a par value of four Netherlands cents
(NLG 0,04) each, hereinafter referred to as the "GPE III-C LP Shares";
g. Advent PGGM Global LP twenty-six thousand nine hundred and
thirty-three (26,933) shares in the Company's capital stock, numbered
5,947,298 up to and including 5,974,230 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 fourteen thousand nine hundred and thirty-three
(14,933) shares in the Company's capital stock, numbered 5,974,231 up
to and including 5,989,163 with a par value of four Netherlands cents
(NLG 0,04) each,
<PAGE> 9
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP]
8
hereinafter referred to as the "Oakstone Ventures LP Shares";
i. Advent Partners LP one thousand four hundred and sixty-seven (1,467)
shares in the Company's capital stock, numbered 5,989,164 up to and
including 5,990,630 with a par value of four Netherlands cents (NLG
0,04) each, hereinafter referred to as the "Advent Partners LP
Shares";
j. Kortenhorst thirty thousand (30,000) shares in the Company's capital
stock, numbered 5,990,631 up to and including 6,020,630 with a par
value of four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Kortenhorst Shares";
k. Van der Laan nine thousand four hundred and ten (9,410) shares in the
Company's capital stock, numbered 6,020,631 up to and including
6,030,040 with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Van der Laan Shares";
l. Dekker seven thousand eight hundred and three (7,803) shares in the
Company's capital stock, numbered 6,030,041 up to and including
6,037,843 with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Dekker Shares";
m. Sarda twenty thousand (20,000) shares in the Company's capital stock,
numbered 6,037,844 up to and including 6,057,843 with a par value of
four Netherlands cents (NLG 0,04) each, hereinafter referred to as the
"Sarda Shares";
n. Robinson eight hundred and seven (807) shares in the Company's
capital stock, numbered 6,057,844 up to and including 6,058,650 with a
<PAGE> 10
CARON & STEVENS/BAKER & McKENZIE
[NOTARY STAMP] 9
par value of four Netherlands cents (NLG 0,04) each, hereinafter
referred to as the "Robinson Shares";
o. Mrs Robinson eight hundred and six (806) shares in the Company's
capital stock, numbered 6,058,651 up to and including 6,059,456
with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Mrs Robinson Shares";
p. Nandy Sarda twenty-five thousand (25,000) shares in the Company's
capital stock, numbered 6,059,457 up to and including 6,084,456
with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Nanda Sarda Shares";
q. Kortenhorst Vetter Family Trust seven thousand (7,000) shares in
the Company's capital stock, numbered 6,084,457 up to and
including 6,091,456 with a par value of four Netherlands cents
(NLG 0,04) each, hereinafter referred to as the "Kortenhorst
Vetter Family Trust Shares";
r. Four Seasons nineteen thousand (19,000) shares in the Company's
capital stock, numbered 6,091,457 up to and including 6,110,456
with a par value of four Netherlands cents (NLG 0,04) each,
hereinafter referred to as the "Four Seasons Shares";
s. Baurdoux two thousand one hundred and twenty-five (2,125) shares
in the Company's capital stock, numbered 6,110,457 up to and
including 6,112,581 with a par value of four Netherlands cents
(NLG 0,04) each, hereinafter referred to as the "Baurdoux
Shares";
t. Cannon fourteen thousand five hundred (14,500) shares in the
Company's capital stock, numbered
<PAGE> 11
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP]
10
6,112,582 up to and including 6,127,081 with a par value of
four Netherlands cents (NLG 0,04) each, hereinafter referred
to as the "Cannon Shares";
u. De Venuto twenty-five thousand (25,000) shares in the
Company's capital stock, numbered 6,127,082 up to and
including 6,152,081 with a par value of four Netherlands
cents (NLG 0,04) each, hereinafter referred to as the "De
Venuto 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. twenty-four thousand six hundred and eighty-five (24,685)
shares to GPE III LP, hereinafter referred to as the "GPE
III LP Option";
b. eleven thousand five hundred and thirty-three (11,533)
shares to GPE III-A LP, hereinafter referred to as the
"GPE III-A LP Option";
c. five hundred and eighty-one (581) shares to GPE III-B LP,
hereinafter referred to as the "GPE III-B LP Option";
d. one hundred and fourteen (114) shares to Advent Partners
(NA) GPE III LP, hereinafter referred to as the "Advent
Partners (NA) GPE III LP Option";
e. three hundred and eighty-one (381) shares to Advent Partners
GPE III LP, hereinafter referred to as the "Advent Partners
GPE III LP Option";
f. seven thousand six hundred and ninety-five (7,695) shares to
GPE III-C LP, hereinafter
<PAGE> 12
CARON & STEVENS/BAKER & MCKENZIE
11
[NOTARY STAMP]
referred to as the "GPE III-C LP Option";
g. three thousand eight hundred and forty-seven (3,847) shares to
Advent PGGM Global LP, hereinafter referred to as the "Advent
PGGM Global LP Option";
h. two thousand one hundred and thirty-three (2,133) shares to
Oakstone Ventures LP, hereinafter referred to as the "Oakstone
Ventures LP Option";
i. two hundred and nine (209) shares to Advent Partners LP,
hereinafter referred to as the "Advent Partners LP Option";
j. four thousand two hundred and eighty-five (4,285) shares to
Kortenhorst, hereinafter referred to as the "Kortenhorst
Option";
k. one thousand three hundred and forty-four (1,344) shares to Van
der Laan, hereinafter referred to as the "Van der Laan Option";
l. one thousand one hundred and fourteen (1,114) shares to Dekker,
hereinafter referred to as the "Dekker Option";
m. two thousand eight hundred and fifty-seven (2,857) shares to
Sarda, hereinafter referred to as the "Sarda Option";
n. one hundred and fifteen (115) shares to Robinson, hereinafter
referred to as the "Robinson Option";
o. one hundred and fifteen (115) shares to Mrs. Robinson,
hereinafter referred to as the "Mrs. Robinson Option";
p. three thousand five hundred and seventy-one (3,571) shares to
Nandy Sarda, hereinafter referred to as the "Nandy Sarda Option";
q. one thousand (1,000) shares to Kortenhorst Vetter Family Trust,
hereinafter referred to as the "Kortenhorst, Vetter Family Trust
Option";
<PAGE> 13
CARON & STEVENS/BAKER & MCKENZIE
12
[NOTARY STAMP]
r. two thousand seven hundred and fourteen (2,714) shares to Four
Seasons, hereinafter referred to as the "Four Seasons Option";
s. three hundred and three (303) shares to Baurdoux, hereinafter
referred to as the "Baurdoux Option";
t. two thousand and seventy-one (2,071) shares to Cannon,
hereinafter referred to as the "Cannon Option";
u. three thousand five hundred and seventy-one (3,571) shares to De
Venuto, hereinafter referred to as the "De Venuto Option".
the options hereinafter jointly as well as separately referred to as
the "Optioned Shares" in the Company's capital stock at an 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 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;
<PAGE> 14
CARON & STEVENS/BAKER & McKENZIE
[NOTARY STAMP] 13
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 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 Dekker Shares to Dekker on condition that Dekker satisfies the ensuing
payment obligation;
m. the Sarda Shares to Sarda on condition that Sarda satisfies the ensuing
payment obligation;
n. the Robinson Shares to Robinson on condition that Robinson satisfies the
ensuing payment obligation;
o. the Mrs Robinson Shares to Mrs Robinson on condition that Mrs Robinson
satisfies the ensuing payment obligation;
p. the Nandy Sarda Shares to Nandy Sarda on condition that Nandy Sarda satisfies
the ensuing payment obligation;
q. the Kortenhorst Vetter Family Trust Shares to Kortenhorst Vetter Family
Trust on condition that
<PAGE> 15
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY STAMP] 14
Kortenhorst Vetter Family Trust satisfies the ensuing payment
obligation;
r. the Four Seasons Shares to Four Seasons on condition that
Four Seasons satisfies the ensuing payment obligation;
s. the Baurdoux Shares to Baurdoux on condition that Baurdoux
satisfies the ensuing payment obligation;
t. the Cannon Shares to Cannon on condition that Cannon satisfies
the ensuing payment obligation;
u. the De Venuto Shares to De Venuto on condition that De Venuto
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 option:
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
<PAGE> 16
CARON & STEVENS/BAKER & MCKENZIE
15
[NOTARY STAMP]
III LP Option, who accepts the Advent Partners GPE 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. Dekker the Dekker Option, who accepts the Dekker Option;
m. Sarda the Sarda Option, who accepts the Sarda Option;
n. Robinson the Robinson Option, who accepts the Robinson Option;
o. Mrs Robinson the Mrs Robinson Option, who accepts the Mrs Robinson
Option;
p. Nandy Sarda the Nandy Sarda Option, who accepts the Nandy Sarda
Option;
q. Kortenhorst Vetter Family Trust the Kortenhorst Vetter Family Trust
Option, who accepts the Kortenhorst Vetter Family Trust Option;
r. Four Seasons the Four Seasons Option, who accepts the Four Seasons
Option;
s. Baurdoux the Baurdoux Option, who accepts the Baurdoux Option;
t. Cannon the Cannon Option, who accepts the Cannon Option;
u. De Venuto the De Venuto Option, who accepts the De Venuto Option.
<PAGE> 17
CARON & STEVENS/BAKER & MCKENZIE
[NOTARY SEAL] 16
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; P.G. van Druten.)
FOR TRUE COPY
[NOTARY STAMP] /s/JULES T. KORTENHORST
-----------------------
<PAGE> 18
TERMS AND CONDITIONS OPTIONS
1. The Option is subject to the condition precedent that the Acquirer
immediately following the issuance of the Optioned Shares transfers the
Optioned Shares to the Stichting for administration.
2. The Option is subject to the condition precedent that the Acquirer prior to
the exercising the Option shall have executed and delivered a deed of
adherence whereby the Acquirer covenants with and undertakes to each of
the Stichting, the Company and all depository receipt holders in the
capital of the Company, with effect from the Acquirer being registered as a
depository receipt holder of the Company, to be bound and to adhere to the
terms of conditions of the depository receipt holders' agreement regarding
Cordena Call Management B.V. dated November 14, 1997, as if the Acquirer
had been an original party to the that agreement.
3. The Option may not be transferred in any manner otherwise than by will or
by the laws of descent and may be exercised during the lifetime of the
Optionee only by the Optionee. The terms of the Option shall be binding
upon the executors, administrators, heirs, successors and assignees of the
Optionee.
4. The Option may not be pledged or charged in any way.
5. The Option may be exercised, immediately in whole or in part, until five
years after the date hereof.
6. The Acquirer shall have no right to compensation for any loss resulting
from the expiration, cancellation or forfeiture of the Option without
having been exercised in full.
<PAGE> 19
2
7. The Option shall be exercised by written notice which shall state the
election to exercise the Option, the number of shares in respect of which
the Option is exercised, and such other representations and agreements as
to the Optionee's investment intent with respect to such shares as may be
required by the Company. The Option shall be deemed to have been exercised
upon receipt by the Stichting of such written notice.
8. Within one month for the notification referred to in the previous
paragraph, the shares shall be issued to the Acquirer, against immediate
payment of the purchase price, by money transfer into such account as
designated by the Stichting.
9. Exercising the Option does not entitle the Acquirer to any dividend or
payments distributed on the shares before the Option was exercised.
10. The Company shall inform the Acquirer of:
an application for listing of the shares at the Amsterdam Stock Exchange
or a stock exchange recognised by the Amsterdam Stock Exchange, such as
Nasdaq, Easdaq and the New York Stock Exchange:
an intended purchase by a third party of a majority of the shares in the
capital of the Company:
any intention to merge the Company with another company.
11. The Company may require the Acquirer to sell and transfer the Option to
the Stichting:
a. if the Company is subject to a merger:
b. a third party intends to buy a majority of the shares in the Company's
capital stock; or
c. if an application for listing of a substantial part of the shares in
the Company's capital stock at a Stock Exchange recognised by the
Amsterdam Stock Exchange is made.
The purchase price for the Option so sold and transferred shall be
determined by the external accountant of the Company on the basis of
principles set forth by the General Meeting of Shareholders of the Company.
<PAGE> 20
3
12. If the Optioned Shares change due to merger, reorganisation, or change in
the Company's capitalisation, stock dividend, stock split, exchange of
shares, combination of shares or any other event changing the value of the
Option, the Option shall be adjusted according to the trading rules of the
Amsterdam Stock Exchange AEX.
<PAGE> 1
EXHIBIT 10.25
November 1, 1999
Revised
Julie Casteel
Dallas Office
Dear Julie:
The purpose of this letter is to reiterate the details of our offer to you.
Title: Chief Client Management Officer
Reports to: Mark Briggs, President
Salary: $300,000.00 annually, paid on a bi-weekly basis.
Stock Options: We have proposed 90,000 additional stock options in your
name (vested 25% per year over a four year period.) for a
total of 180,000 plus the $100,000 investment you made for
the 83,333 shares of stock. ClientLogic has designed this
right of ownership as another incentive for our continued
long-term relationship. This issuance of stock options is
offered at the going rate per share at the time of approval.
Pending approval, the stock option agreement will be
forthcoming.
Commissions: % override from new/renewal revenue based on margin
Relocation: You will need to relocate to Nashville, TN by August 1, 2000
Relocation Cap is $50,000.00 - Policy Attached along with
Acknowledgement and Acceptance
Move Expenses: You will receive the standard move package.
Julie, we believe this offer is comprehensive and recognizes your considerable
skills, knowledge and abilities. We are confident that you will continue to
prosper, grow and make a significant contribution to the overall success and
future of the organization.
The management 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 give me a call at ext. 12104.
Sincerely,
/s/ JULIE CASTEEL
- -----------------------
Julie Casteel
2
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
AGREEMENT, dated August 13, 1998, between Onex Service Partners, a
general partnership organized under the laws of the State of New York (the
"Partnership"), and Thomas O. Harbison (the "Employee").
The Partnership desires to employ the Employee to serve as an employee
of the Partnership, and the Employee desires to be so employed by the
Partnership, upon the terms and conditions hereinafter set forth.
Therefore, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment by the Partnership.
The Partnership hereby employs the Employee, for the term provided
in Section 2, to render exclusive and full-time services and to devote
substantially all his business time and efforts to the Partnership and to serve
on its behalf as the Chief Executive Officer of North Direct Response Inc. (the
"Company") and, if requested by the Partnership as a director or chief executive
officer of any other business in the call centre, direct marketing and
enterprise customer management industry in which the Partnership or an affiliate
of the Partnership has an interest (a "Portfolio Company"), subject to the terms
and conditions hereof and to the direction and control of the Partnership. The
Employee shall have general supervision over the business and operations of the
Partnership and for so long as the Partnership or an affiliate of the
Partnership has an economic interest in the Company, shall be responsible for
managing and monitoring the Company on the Partnership's behalf and identifying,
negotiating and completing further investments in the call centre,
<PAGE> 2
direct marketing and enterprise customer management industry in Canada, the
United States, Asia and Europe. The Employee shall also perform such other
services and duties commensurate with his office as he shall reasonably be
directed by the Partnership to perform.
1.2 Acceptance of Employment by the Employee.
(a) The Employee hereby accepts such employment and agrees to
render the services referred to in Section 1.1.
(b) Subject to the last sentence of Section 1.1, during the Term,
the Employee shall devote his entire business time and efforts to the
performance of the duties and obligations referred to in this Agreement.
(c) The Employee's services under this Agreement shall be performed
primarily in Dallas, Texas, or in such other city in the United States as may
be consented to by the Partnership (which consent will not unreasonably be
withheld). The parties acknowledge and agree that the nature of the Employee's
duties hereunder shall require regular periods of U.S., Canadian, Asian and
European travel from time to time.
2. Term of Employment.
The term of the Employee's employment under this Agreement shall
commence on the date hereof and shall end on the second anniversary of the date
hereof (the "Initial Term"), unless sooner terminated pursuant to Article 5 of
this Agreement; provided, however, that this Agreement shall be automatically
extended for a one-year period after the expiration of the Initial Term, and for
additional one-year periods subsequent thereto (the "Additional Term" and,
together with the initial Term, the "Term"), unless one party hereto furnishes
to the other three months' prior written notice of termination of this Agreement
at the end of the initial two-year, or a subsequent one-year, period.
2
<PAGE> 3
3. Compensation.
As full compensation for all services to be rendered by the Employee in
the capacities referred to in this Agreement, the Partnership shall pay to the
Employee during the Term, the Base Salary, as provided in this Section 3.
3.1 Base Salary. The Partnership shall pay to the Employee an annual
base salary (the "Base Salary") of $360,000, payable in equal semi-monthly
installments. The Base Salary may be reviewed after the first calendar year of
employment, and from time to time thereafter, by the General Partner and may be
increased, but not decreased, based on such review.
3.2 Bonuses. The Board of Directors, in its sole discretion, may
determine to pay to the Employee such bonuses as it deems appropriate, based on
the Employee's contribution to the performance of the Partnership and such
other criteria as it considers relevant.
3.3 Automobile Allowance. The Employee shall receive an automobile
allowance of $1,200 per month, which shall be paid each month with the first of
the semi-monthly Base Salary installments.
3.4 Required Withholding. All payments under this Agreement shall be
reduced by any amounts which are required to be deducted or withheld in order to
comply with applicable laws and regulations that may be in effect from time to
time during the Term, and the Partnership shall promptly remit such amount to
the applicable governmental authorities.
4. Benefits.
4.1 Expenses. The Partnership shall pay or reimburse the Employee for
all reasonable expenses actually incurred or paid by him during the Term in the
performance of his duties under this Agreement. Such reimbursement shall be made
upon presentation of expense statements or such other supporting information as
the Partnership may require in accordance with its policies;
3
<PAGE> 4
provided, however, that such expenses during any period shall be substantially
in accordance with the annual operating budget of the Partnership approved by
the General Partner.
4.2 Participation in Employee Benefit Plans. The Employee shall be
entitled to such life, hospitalization or health and disability insurance
coverage as the Partnership may determine to be appropriate, having regard to
benefits typically provided to senior executives in the call centre, customer
care and enterprise customer management industry; provided, however, that the
Partnership shall provide life insurance and disability insurance that shall
provide the Employee with a sum equal to $1,500,000 upon the Employee's death or
disability.
5. Termination.
5.1 Termination Upon Death. If the Employee shall die during the Term,
this Agreement shall terminate, except that the Employee's legal representatives
shall be entitled to receive the Base Salary for a period of 45 days from the
day on which his death occurs.
5.2 Termination Upon Disability.
If during the Term the Employee shall, in the reasonable judgement
of the General Partner based on medical advice, become physically or mentally
disabled, so that he is unable substantially to perform his services hereunder
(i) for a period of six consecutive months, or (ii) for shorter periods
aggregating six months during any twelve month period, the General Partner may,
by written notice to the Employee, terminate this Agreement. In the event of
termination pursuant to this Section 5.2, the Employee or his legal
representatives shall be entitled to receive the monthly installments in respect
of the Base Salary to the date of such termination.
5.3 Termination for Cause. The Partnership may terminate the Employee's
employment hereunder at any time for Cause (defined herein) by written notice to
the Employee. For purposes of this Agreement, "Cause" shall mean (a) the
Employee's conviction of any felony or
4
<PAGE> 5
misdemeanor, in the latter case involving the property of the Partnership, the
Company or any company in which the Partnership or its affiliates has an
interest or involving moral turpitude (including, but not limited to, conviction
for use or possession of illegal drugs), (b) the Employee's gross neglect of his
duties and responsibilities hereunder or his gross misconduct in connection-with
the performance of his duties hereunder, provided that the normal exercise of
the Employee's business judgment shall not be deemed gross neglect or gross
misconduct, (c) the Employee's repeated, continuing failure to follow reasonable
written directions of the General Partner consistent with his duties and
responsibilities under this Agreement if such failure is materially injurious to
the Partnership or any Portfolio Company as determined by the General Partner or
(d) the Employee's material breach of any provision of this Agreement. Upon any
termination of this Agreement pursuant to this Section 5.3, the Partnership
shall pay to the Employee any accrued and unpaid Base Salary.
5.4 Termination by the Partnership Other than for Cause or due to Death
or Disability.
(a) The Partnership may terminate the Employee's employment
hereunder, otherwise than as specified in Sections 5.1 through 5.3, at any time
upon not less than six months' prior written notice to the Employee. If the
Partnership terminates the Employee's employment pursuant to this Section 5.4,
the Employee shall be entitled to receive the Base Salary pursuant to the terms
hereof for the balance of the Initial Term or the Additional Term, as the case
may be, without regard to such termination (the "Severance Pay").
(b) At the Employee's discretion, the Employee's employment
hereunder shall be deemed terminated pursuant to this Section 5.4 in the event
of (i) the failure of the Partnership to pay the Employee on a timely basis any
compensation or benefits due and payable
5
<PAGE> 6
hereunder; or (ii) a material, continuing breach by the Partnership of its
obligations hereunder, provided, however, that (a) the Employee had given notice
to the Partnership describing the breach or other action giving rise to the
deemed termination and (b) such breach or other action remains uncured by the
Partnership for a period of 30 days following the date such notice was given by
the Employee to the Partnership. The above provisions of this Section 5.4(b)
shall be applicable only if the Employee did not materially contribute to, or
did not have the ability, in the normal course of his duties, to prevent the
occurrence of, any of the events listed in clauses (i) and (ii) above. Subject
to the provisions of Section 6.5 hereof, the Employee's employment hereunder
shall be deemed terminated pursuant to this Section 5.4 in the event of the
liquidation and winding up of the Partnership pursuant to Section 11 of the
Partnership Agreement of the Partnership (the "Partnership Agreement").
5.5 No Further Obligations; Resignations and Releases. Except as
provided in the foregoing provisions of this Section 5, the Employee (and his
estate or legal representatives, if applicable) shall have no claim whatsoever
against the Partnership, the General Partner or any other partner of the
Partnership, any Portfolio Company or any other person for damages, remuneration
or any other payment arising out of or relating to any termination of his
employment hereunder. The Employee specifically agrees to execute a formal
release document to the effect and shall deliver appropriate resignations from
all offices and positions with the Partnership and any Portfolio Company and
from his position as a director or officer of any other company or entity in
respect of which the Employee has acted in such capacity at the request of the
General Partner or the Partnership.
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<PAGE> 7
6. Certain Covenants of the Employee.
6.1 Confidential Information. In view of the fact that the Employee's
work for the Partnership will involve the provision to him of confidential
information relating to the Partnership, the partners of the Partnership and
their respective affiliates, the Company and any Portfolio Company, the Employee
covenants and agrees that he shall keep secret and retain in the strictest
confidence, and shall not use for his benefit or the benefit of others, other
than the Partnership, all such confidential information, including, without
limitation, information relating to any investment opportunities identified or
located by or for the Partnership during the Term and any business acquisition
plans and other business affairs of the Partnership.
6.2 Property of the Partnership. All memoranda, notes, lists, records
and other documents (and all copies thereof) and other assets, including such
items stored in computer memories, on microfiche or by any other means, made or
compiled by or on behalf of the Employee during the Term, or made available to
the Employee during the Term relating to the Partnership's activities, are and
shall be the Partnership's property and shall be delivered to the Partnership
promptly upon the termination of the Employee's employment with the Partnership
or at any other time on request, provided, however, that the Employee may retain
copies of his personal notes and work papers, which notes and work papers shall
be kept confidential by the Employee and shall otherwise be subject to the
provisions of Section 6.1 hereof.
6.3 Employees of the Partnership and the Partnership.
(a) During the Term, and for a period of eighteen months following
the termination of the Employee's employment with the Partnership, the Employee
shall not, directly or indirectly, hire or solicit any employee of the Company
(or of any other Portfolio Company which the Employee serves in an executive
capacity at the request of the Partnership) or any consultant then
7
<PAGE> 8
under contract with the Company (or of any Portfolio Company which the Employee
serves in an executive capacity at the request of the Partnership), or
encourage such employee or consultant to leave such employment.
6.4 Investment Opportunities. During the Term, the Employee shall not,
directly or indirectly, take any action with respect to any investment
opportunity in an entity in the call centre, direct marketing and enterprise
customer management industry, except on behalf of the Partnership, or with the
prior written consent of the General Partner; provided, however, that the
Employee shall be permitted to make a Passive Investment (as such term is
defined in the Partnership Agreement, as long as (i) the Partnership has been
notified of such investment, (ii) the Partnership declines to participate in
such investment and (iii) such investment is not in an entity which directly or
indirectly competes with the Partnership, the Company or a Portfolio Company.
6.5 Non-Compete.
During the Term and for a period of one year thereafter, the Employee
shall not engage or participate, directly or indirectly, in any manner (whether
as an employee, consultant, officer, director, lender, shareholder or otherwise)
anywhere in the United States or Canada in any business within the call centre,
direct marketing and enterprise customer management industry. The foregoing
provision shall not apply in the event (i) the Employee is terminated pursuant
to Section 5.4 and (ii) the Employee elects not to receive the Severance Pay.
7. Other Provisions.
7.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall
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be deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, two days after the date of deposit in the
United States mails, addressed as follows:
(i) if to the Partnership, to:
Onex Service Partners
c/o Onex Corporation
161 Bay Street
Toronto, Ontario M5J 2S1
Canada
Attention: Seth M. Mersky
(ii) if to the Employee, to:
Thomas O. Harbison
3612 Beverly Drive
Dallas, Texas 75201
with a copy to:
Michael Kohn
The Kohn Partnership
7820 Maryland Avenue
St. Louis, Missouri 63105
7.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, with respect thereto.
7.3 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended (other than extensions provided for in Section 2
hereof), and the terms hereof may be waived, only by a written instrument signed
by the parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any right, power or privilege, nor any single or partial exercise
of any such right, power or
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privilege, preclude any other or further exercise thereof or the exercise of any
other such right, power or privilege.
7.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
7.5 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original but all of which together shall constitute one and the same
instrument. Each counterpart may consist of two copies hereof each signed by one
of the parties hereto.
7.6 Survival. The provisions of Section 6.1, 6.2, 6.3 and 6.5 shall
survive the termination of this Agreement.
7.7 Conformity to Law. If any one or more provisions of this Agreement
should ever be determined to be illegal, invalid, or otherwise unenforceable by
a court of competent jurisdiction or be invalid or invalidated or unenforceable
by reason of any law or statute, then to the extent and within the jurisdiction
invalid or unenforceable, it shall be limited, construed or severed and deleted
therefrom, and the remaining portions of this Agreement shall survive, remain in
full force and effect, and continue to be binding and shall not be affected and
shall be interpreted to give effect to the intention of the parties insofar as
that is possible.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ONEX SERVICE PARTNERS
By: OMI Partnership Holdings Ltd.,
its general partner
By: /s/ SETH M. MERSKY
-----------------------------
Name:
Title: Vice President
By: /s/ MARK L. HILSON
-----------------------------
Name:
Title:
/s/ THOMAS O. HARBISON
---------------------------
Thomas O. Harbison
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<PAGE> 1
EXHIBIT 10.28
[SOFTBANK SERVICES GROUP LOGO]
May 4, 1998
Mr. Steven M. Kawalick
4156 Red Rock Drive
Larkspur, CO 80118
Dear Steve:
On behalf of Brian Cunningham, Gary Crosby and the 2,000 associates at SOFTBANK
Services Group ("SOFTBANK"), 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.
SOFTBANK 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: General Counsel and Vice President, Special Projects
2. REPORTS TO:
Brian Cunningham, President, SSG International Operations
on Europe an matters
Gary Crosby, Chief Financial Officer,
on U.S. Projects and Legal matters
3. SALARY: $125,000.00 annually, paid on a bi-weekly basis
4. STATUS: Full-time, Exempt
5. START DATE: April 1, 1998 (retroactive)
6. STOCK OPTIONS: We have agreed to grant you 40,000 qualified stock options
(including those already proposed to you) to be exercised
as follows:
November 1, 1998 - 25%
November 1, 1999 - 25%
November 1, 2000 - 25%
November 1, 2001 - 25%
This right of ownership in SOFTBANK is designed as another
incentive for our continued long term relationship. This
issuance of stock options is offered at an exercise price of
$2.50 per share. Future options may be offered and the
price may change as granted by the Option Committee and
adopted by the Board of Directors.
<PAGE> 2
7. TERMINATION
Notwithstanding anything to the contrary contained in the Agreement, your
employment hereunder may be terminated as follows:
(a) Death. Your employment hereunder shall terminate upon your death.
(b) Disability. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from your 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, you shall not have returned to the
performance of your duties hereunder on a full-time basis, SOFTBANK may
terminate your employment.
(c) Cause. SOFTBANK may terminate your employment hereunder for "cause".
For purposes of this Agreement, SOFTBANK shall have "cause" to
terminate your employment hereunder upon (i) your conviction of a
felony related to your job performance, or (ii) your violation of the
provisions of Section 8 hereof. If your employment shall be terminated
for cause at any time during the Term of this Agreement, SOFTBANK shall
pay you your base salary at the rate in effect on the Termination Date
through and including the Termination Date.
(d) Without Cause. SOFTBANK may terminate your employment hereunder without
"cause".
(e) Notice of Termination. Any termination by SOFTBANK 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 7 or in a separate agreement with respect to your
relocation to Europe, no further compensation, wages, bonus or base
salary shall be payable by SOFTBANK to you following the termination of
your employment with SOFTBANK.
8. CONFIDENTIALITY; DISCOVERIES AND INVENTIONS; NON-INTERFERENCE:
a) During the term of your employment under this Agreement and for a
period ending one (1) thereafter, or, if earlier, for the period ending
on the date on which you no longer own any common stock of SOFTBANK or
have any right to purchase common stock of SOFTBANK in connection with
the exercise any stock options, you will not directly or indirectly:
(i) divulge to anyone, other than SOFTBANK or persons designated by
it in writing, any trade secrets or other confidential
information, or any ideas, creations, inventions, discoveries,
improvements, devices, practices, processes, methods or products,
whether or not patented or patentable, owned by SOFTBANK which
are not be generally know to the public or recognized as standard
practice;
(ii) claim to have any right, title or interest of any kind or nature
whatsoever in or to any products, methods, practices, processes,
discoveries, ideas, improvements, devices, creations or
inventions owned by SOFTBANK.
(iii) solicit, induce or influence any customer, supplier, lender,
lessor or any other person which has a business relationship with
SOFTBANK to discontinue or reduce the extent of such relationship
with SOFTBANK;
(iv) recruit, solicit or otherwise induce or influence any Key
Executive (as hereinafter defined), except your spouse or an
immediate member of your family, or sales agent of SOFTBANK to
discontinue such employment, agency or other relationship with
SOFTBANK; or
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(v) employ or assist any third party in employing any person who
is at the time (or was at the time within six (6) months
prior to the date of such employment) employed by SOFTBANK as
a Key Executive, except your spouse or an immediate member of
your family.
"Key Executive" shall mean any person who is employed in a management,
executive, supervisory, marketing, or sales capacity or any person who
is performing any of the above functions as an independent contractor.
For purposes of this Section 8, the term "SOFTBANK Services Group"
shall include SOFTBANK Services Group, The Ivy Group and its
subsidiaries and UCA&L Limited.
b) In the event of a breach or a threatened breach of any of the
covenants contained in Subsection 8(a) above (collectively, the
"Covenants"), SOFTBANK shall, in addition to the remedies
provided by law, have:
(i) The right and remedy to have the Covenants and each of them
specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any
breach of any of the Covenants will cause irreparable injury
to SOFTBANK and that money damages will not provide an
adequate remedy to SOFTBANK; and
(ii) The right and remedy to require you to account for and pay
over to SOFTBANK all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits")
derived or received by you as a result of any transactions
constituting a breach of any of the Covenants, and you hereby
agree to account for and pay over such Benefits to SOFTBANK.
c) You acknowledge and agree 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, of such
Covenants, and, in such reduced form, such Covenants shall then be
enforceable.
d) SOFTBANK and you intend to and hereby do confer jurisdiction to
enforce the Covenants upon the courts of any jurisdiction within the
United States. 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 SOFTBANK and you that
such determination not bar or in any way affect SOFTBANK's right to
the relief provided above in the courts of any other jurisdiction
within the United States 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.
9. Governing Law:
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to its conflicts of
law doctrine and the venue shall be Buffalo, New York.
10. Relocation:
o Three house hunting trips for you and your spouse covering your
hotel, rental car and airfare for a maximum of 5 days.
o Up to $30,000.00 toward closing costs associated with selling of
current residence and the purchasing of a new residence.
o The packing and transportation of household belongings by a national
moving company. Unpacking of boxes is not provided.
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o We will also "gross up" all applicable relocation expenses for tax
purposes according to guidelines established by our Finance
Department.
o If you are faced with duplicate mortgage payments, we will pay the
mortgage payment on your current residence (4156 Red Rock Drive,
Larkspur, CO 80118) for a period not to exceed twelve (12) months so
long as such residence is either for sale or rent. The twelve (12)
month period need not be consecutive.
11. Fringe Benefits:
Our comprehensive fringe benefits are effective the first of the month after two
months of employment. Our plans are designed on a cost-shared basis and give
you choices depending on your personal situation. An overview of our benefit
package is outlined below.
MEDICAL INSURANCE - SOFTBANK contributes toward the premium for health care
coverage. Associates who choose to participate in the company's health
insurance plan will also be asked to contribute toward the monthly premium.
You are eligible to receive health insurance on the first day of the month
after you have completed your sixty-day introductory period.
DENTAL INSURANCE - SOFTBANK will make a contribution toward the premium and
associates will be asked to contribute toward the premium difference. You
are eligible to receive dental insurance on the first day of the month
after you have completed your sixty-day introductory period.
ASSOCIATE LIFE INSURANCE/ACCIDENTAL DEATH & DISMEMBERMENT (AD&D) - The
company pays for a term life insurance policy equivalent to one times your
annual base compensation up to a maximum of $100,000. The AD&D policy
allows for an additional one times your annual base compensation.
401k PLAN - This voluntary plan provides a SOFTBANK company match of 25%
up to 4% of the associate's contribution. Each associate is eligible the
first of the quarter after 12 months of employment. The maximum associate
contribution is 15% (up to the Federal allowable maximum) of total
compensation.
LONG TERM DISABILITY POLICY - SOFTBANK pays for a long term disability
policy for all of our associates. This benefit compensates a disabled
associate after 180 days of disability. This program is in addition to the
short term disability program that is cost shared with the associate.
SUPPLEMENTARY DISABILITY PAY - This program supplements your short term
disability policy to afford you 80% of your regular compensation for eight
weeks after a one week waiting period, plus one (1) additional week for
every year of service on or after an associate's three year anniversary
not to exceed twelve (12) weeks.
VISION CARE PLAN - Coverage is available to all associates and their
families for examinations, lenses and frames.
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.
SABBATICAL - SOFTBANK believes in a long term commitment to and from its
associates. As a company benefit, upon crossing your fifth year
anniversary date, an associate may apply for a sabbatical of four
successive weeks additional vacation, to be used within a 24 month period
of time.
This benefit is designed as a perk so that an associate maintains a
holistic life perspective. To be eligible for this benefit, an associate
must apply for the sabbatical prior to the requested date and must adhere
to the guidelines of the program.
PROFIT SHARING - 10% of the annual post tax profits earned by the company
will be shared with all full time associates hired prior to September 1 and
employed as of December 31 of the plan year.
All benefits outlined herein are governed by the specific plan description or
applicable program parameters.
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We also offer a variety of company sponsored benefits which are described in
the Company Associate Handbook, which you will receive during your new hire
orientation. You are more than welcome to review these additional benefits
prior to accepting this offer. Please let me know and I will make the handbook
available to you prior to your start date, if desired.
Our offer of Employment is extended on an "at will" basis which is for no
specific period of time. As a result, either you or SOFTBANK are free to
separate your employment relationship at any time for any reason, with or
without cause. This is the full and complete agreement between us on this term.
Although your position responsibilities, title, position location, compensation
and benefits, as well as SOFTBANK's policies and procedures, may change from
time to time; the "at will" nature of your employment may only be changed in
express writing signed by you and the President of SOFTBANK. Except for what
appears in this letter, no other statements or representations should be relied
upon by you in accepting employment with SOFTBANK.
Steve, we believe this offer is comprehensive and recognizes your considerable
skills, knowledge and abilities. We are confident that you will find SOFTBANK
to be a company where you can prosper, grow and make a significant contribution
to the overall success and future of the organization. The SOFTBANK 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) 871-2140.
Sincerely,
FOR MARK BRIGGS --
CHERYL SCHILTZ
Mark Briggs
President
Attachment/Addendum
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ADDENDUM
STEVEN M. KAWALICK
My signature below acknowledges that I am accepting this offer of employment
including relocation with SOFTBANK Services Group and agree to the terms and
conditions as outlined herein.
I further understand and agree that nothing in this offer letter alters the
at-will employment relationship between me and the company and that either I or
the company may terminate the employment relationship at any time, for any
reason, with or without cause. I understand that although my job duties, title,
compensation and benefits, as well as the company's personnel policies and
procedures, may change time-to-time, the "at-will" nature of my employment may
only be changed in an express writing signed by me and the President of the
company.
ACCEPTED AND AGREED TO this 4th day of May, 1998.
/s/ STEVEN M. KAWALICK
- -------------------------------------------
(Signature)
Steven M. Kawalick
- -------------------------------------------
(Name)
May 4, 1998
- -------------------------------------------
(Date)
- --------------------------------------------------------------------------------
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August 14, 1998
Mr. Steven M. Kawalick
8547 East Arapahoe Road #J343
Greenwood Village, CO 80112
Dear Steve:
The purpose of this letter is to confirm the additional terms of your
employment necessitated by your agreement to relocate to the United Kingdom
("U.K."). For purposes of this letter the "Company" shall include Upgrade
Corporation of America SOFTBANK Services Group, Professional Support Centre,
Ltd., UCA&L Limited and their successors and assigns. The terms, conditions and
benefits contained herein are in addition to the terms, conditions,
compensation and other benefits set forth in the letter dated May 1, 1998 and
are as follows:
1. START DATE AND DURATION
The start date of your assignment shall be June 1, 1998 and shall continue for
a two-year period ending May 31, 2000. The duration of your assignment may be
extended by our mutual agreement.
2. ACCOMMODATIONS
You will be provided suitable, fully furnished housing (including all
appliances, linens, kitchenware, etc.) in the U.K. for yourself and your family.
This will include all utilities. Prior to your spouse's arrival you agree to
use the flat currently being rented by Profession Support Centre Ltd.
Subsequent to your spouse's arrival in the U.K., you may relocate to a suitable
flat/house of your choosing, with a rental/lease cost not to exceed circa
fifteen thousand (L.15,000.00) British pounds per annum.
3. AUTOMOBILE.
You will be provided the use of the 1994 9000CSE Saab automobile, maintained and
insured at Company expense. The company will contribute circa six thousand
(L.6,000.00) British pounds to accommodate a lease buyout on the
aforementioned vehicle currently in your possession.
4. STORAGE AND SHIPPING
Your household items, personal items and automobiles will be stored for two
years, or the duration of your assignment, whichever is longer, at an
anticipated cost, excluding the costs associated with the storage of two (2)
cars, of circa fifteen thousand, nine hundred and twenty-five ($15,925.00) U.S.
dollars for the anticipated two (2) year duration of this assignment. To the
extent that you or your spouse cannot transport necessary personal items to
the U.K., they can be shipped at Company expense.
<PAGE> 8
5. NON UNITED STATES OF AMERICA ("U.S.") TAXES
Payment of all non-U.S. taxes, including but not limited to income, pension,
insurance or similar taxes imposed upon the compensation and benefits provided
pursuant to this letter agreement will be paid for by the Company. Company
reimbursements under this paragraph are estimated to be circa forty thousand
(L.40,000.00) British pounds per year for the anticipated two (2) year duration
of the assignment.
6. TRAVEL.
Prior to your spouse's arrival in the U.K. you will be entitled to return to
the U.S. at Company expense approximately once a month and your spouse will be
entitled to one trip to the U.K. In lieu of your traveling to the U.S., your
spouse may come to the U.K. Subsequent to your spouse's relocation to the U.K.,
each of you will be entitled to one trip at Company expense to the U.S. per
year. Your children and mother-in-law will be entitled to one trip at Company
expense to the U.K. per year as well. If you are required to be in the U.S. for
personal business, you will be only responsible for paying the cost
differential in the airline fare to your destination over the fare from the U.K.
to Buffalo, New York. Subsequent to your spouse's arrival in the U.K., the
company's annual reimbursements to you under this paragraph shall not exceed
circa six thousand ($6,000.00) U.S. dollars.
7. U.S. TAXES
The Company will be responsible to reimburse you, on a fully grossed-up basis,
for all U.S. taxes (including but not limited to, Income, Social Security,
Medicare and similar taxes) you are required to pay on the taxable
compensation and benefits provided to you pursuant to this letter agreement.
You will continue to be responsible for payment of all U.S. taxes (including
but not limited to, income, social security, Medicare and similar taxes) you
are required to pay on your base salary of $125,000. To the extent that you are
able to utilize various provisions of the Internal Revenue Code of 1986 (as
amended) applicable to U.S. citizens and residents working overseas and/or with
foreign source income, those provisions will not be considered in the gross-up
calculation. You will be entitled to retain those benefits to offset higher
cost of living in the U.K.
8. REPATRIATION
At the end of the two-year period or your assignment, whichever is later, the
Company will transport your family and personal items to your home in Larkspur,
Colorado. In addition, your property held in storage will be transported to
your home in Larkspur. To the extent you want to return to a location other
than Larkspur, you will be responsible for the cost differential, if any.
9. TERMINATION
Notwithstanding anything to the contrary contained in the letter dated May 1,
1998 and this letter, your employment hereunder may only be terminated as
follows:
For Cause. The Company may terminate your employment hereunder for "cause". For
purposes of this Agreement, the Company shall have "cause" to terminate your
employment hereunder upon (i) your conviction of a felony related to your job
performance, or (ii) your violation of the provisions of Section 8 of the
letter dated May 1, 1998. If your employment shall be terminated for cause at
any time during the duration of your
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assignment in the U.K., the Company shall pay you your base salary at the rate
in effect on the Termination Date (herein after defined) through to and
including the Termination Date.
Without Cause. The Company may terminate your employment hereunder without
"cause". If your employment shall be terminated without cause at any time during
the duration of your assignment in the U.K., the Company shall pay you your base
salary (including any benefits you are entitled to as an employee of SoftBank
Services Group) and continue to provide you with all of the benefits provided
for herein for the period commencing on the Termination Date and ending on May
31, 2000 ("Salary and Benefit Continuation Period"). In addition, should the
Salary and Benefit Continuation Period be less than twelve months, the Company
shall continue to pay you your base salary (including any benefits you are
entitled to as an employee of SoftBank Services Group) until the first
anniversary of the Termination Date. If your employment shall be terminated
without cause at any time after your assignment in the U.K., the Company shall
pay you your base salary (including any benefits you are entitled to as an
employee of SoftBank Services Group) for the period commencing on the
Termination Date and ending on the first anniversary of the Termination Date.
Notice of Termination. All notices of termination by the Company pursuant to
this letter shall be communicated by a written notice of termination (a "Notice
of Termination") and shall set forth the date on which the termination shall be
effective (the "Termination Date"). To the extent the termination is based on
cause, the Notice of Termination shall also set forth in reasonable detail the
facts and circumstances claimed to provide a basis for such termination.
10. GOVERNING LAW:
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to its conflicts of law doctrine
and the venue shall be Buffalo, New York.
Sincerely,
/s/ MARK BRIGGS
Mark Briggs
President
ACCEPTED AND AGREED TO this 4 day of September, 1998.
/s/ STEVEN M. KAWALICK
- --------------------------------------------------------------------------------
(Signature)
Steven M. Kawalick
- --------------------------------------------------------------------------------
(Name)
- --------------------------------------------------------------------------------
(Date)
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[CLIENTLOGIC LOGO] EXHIBIT 10.30
June 23, 1999
Revised July 6, 1999
Mr. Jeff Michel
5616 Pecan Spring Court
Dallas, TX 75252
Dear Jeff:
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 customer management
solutions for the Fortune 2000. 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: Chief Technology Officer
2. Reports to: Mark Briggs, President & Chief Executive Officer
3. Start Date: July 6, 1999
4. Status: exempt, full-time
5. Salary: $225,000.00 per year, paid on a bi-weekly basis
6. Bonus: Up to $100,000.00 per year, based on meeting EBITDA
and Focus 99 Objectives
$50,000 upon relocation to Nashville
7. Relocation: To Nashville, TN; Relocation Cap is $70,000.00
(acknowledgment below)
8. Stock Options:
We have proposed 220,000 qualified stock options in your name (vested
25% per year over a four year period). ClientLogic has designed this
right of ownership as another incentive for our continued long-term
relationship. this benefit is pending approval by the Options
Committee and Board of Directors for issuance. This issuance of stock
options is offered at the going rate per share at the time of
approval. Pending approval, the stock option agreement will be
forthcoming.
You will be considered for additional stock option grants on an annual
basis.
9. Severance Clause
ClientLogic may terminate your 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.
10. Associate Agreement
You are required to sign the enclosed confidentiality agreement and
return it to ClientLogic prior to your start date.
<PAGE> 2
[CLIENTLOGIC - LOGO]
Associate Benefits:
Our comprehensive fringe benefits are effective the first of the month
following two months of employment. Our plans are designed on a
cost-shared basis and give you choices depending on your personal
situation. An overview of our benefit package is outlined below.
MEDICAL INSURANCE - ClientLogic contributes toward the premium for
health care coverage. Associates who choose to participate in the
company's health insurance plan will also be asked to contribute
toward the monthly premium.
DENTAL INSURANCE - ClientLogic will make a contribution toward the
premium and associates will be asked to contribute toward the premium
difference.
ASSOCIATE LIFE INSURANCE / ACCIDENTAL DEATH & DISMEMBERMENT (AD&D)-
The company pays for a term life insurance policy equivalent to one
times your annual base compensation up to a maximum of $100,000. The
AD&D policy allows for an additional one times your annual base
compensation.
401K PLAN - This voluntary plan provides a CLIENTLOGIC company match
of 25% up to 4% of the associate's contribution. Each associate is
eligible the first of the quarter after 12 months of employment. The
maximum associate contribution is 15% (up to the Federal allowable
maximum) of total compensation.
LONG TERM DISABILITY POLICY - CLIENTLOGIC pays for a long term
disability policy for all of our associates. This benefit compensates
a disabled associate after 180 days of disability. This program is in
addition to the short-term disability program that is cost shared with
the associate.
SUPPLEMENTARY DISABILITY PAY - This program supplements your short
term disability policy to afford you 80% of your regular compensation
for eight weeks after a one week waiting period, plus 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 - CLIENTLOGIC 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 which will be available to you on the company
Intranet.
Jeff, 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) 871-2140.
Sincerely,
/s/ MARK BRIGGS
Mark Briggs
President and CEO
ClientLogic
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<PAGE> 3
[CLIENTLOGIC LOGO]
A reply to this offer must be received by ClientLogic prior to your start date.
I am accepting this offer of employment from ClientLogic and agree to the terms
and conditions as outlined herein.
/s/ JEFF MICHEL 7-7-99
- --------------- ------
Jeff Michel Date
3
<PAGE> 1
EXHIBIT 10.32
[SOFTBANK SERVICES GROUP LETTERHEAD]
August 25, 1997
Mr. Lee Waters
9736 Ascot Drive
Omaha, NE 68114
Dear Lee:
On behalf of Mark Briggs and the 2,000 associates at SOFTBANK Services Group, we
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.
SOFTBANK Services Group 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.
POSITION: Executive Vice President responsible for all Client Process
Teams (see attached) and Inside Sales Teams
REPORTS TO: Mark Briggs,
President and CEO
SALARY: $160,000.00 Annually, paid on a bi-weekly basis
ANNUAL BONUS: $40,000.00 Annual Bonus Potential
1
<PAGE> 2
[SOFTBANK SERVICES GROUP LOGO]
STOCK OPTIONS: We have proposed 100,000 stock options in your name to be
exercised accordingly 25% over a four year period. This
right of ownership in SOFTBANK Services Group is designed as
another incentive for our continued long term relationship.
This issuance of stock options is offered at $2.50 per
share. This benefit is pending approval by the Options
Committee and Board of Directors for issuance. Future
options may be offered and the price may change as granted
by the Option Committee and adopted by the Board of
Directors Pending approval, the stock option agreement will
be forthcoming.
RELOCATION: O One house hunting trip for you and your spouse covering
your hotel, rental car and airfare for a maximum of 5
days.
O Up to $20,000.00 toward closing costs associated with
selling of current residence and the purchasing of a
new residence.
O The packing and transportation of household belongings
by a national moving company. Unpacking of boxes is not
provided.
O Temporary living accommodation for a total of two (2)
months.
O We will also "gross up" all applicable relocation
expenses for tax purposes according to guidelines
established by our Finance Department.
O We will guarantee a bridge loan for the purchase of
your new home.
O If you are faced with duplicate mortgage payments, we
will pay your lowest mortgage payment for three (3)
months.
START DATE: September 1, 1997
2
<PAGE> 3
[SOFTBANK SERICES GROUP LOGO]
FRINGE Our comprehensive fringe benefits are effective the first of
BENEFITS: the month after two months of employment. Our plans are
designed on a cost-shared basis and give you choices
depending on your personal situation. An overview of our
benefit package is outlined below.
MEDICAL INSURANCE - SOFTBANK Services Group contributes
toward the premium for health care coverage. Associates who
choose to participate in the company's health insurance plan
will also be asked to contribute toward the monthly premium.
You are eligible to receive health insurance on the first
day of the month after you have completed your sixty-day
introductory period.
DENTAL INSURANCE - SOFTBANK Services Group will make a
contribution toward the premium and associates will be asked
to contribute toward the premium difference. You are
eligible to receive dental insurance on the first day of the
month after you have completed your sixty-day introductory
period.
ASSOCIATE LIFE INSURANCE / ACCIDENTAL DEATH & DISMEMBERMENT
(AD&D)- The company pays for a term life insurance policy
equivalent to one times your annual base compensation up to
a maximum of $100,000. The AD&D policy allows for an
additional one times your annual base compensation.
401k PLAN - This voluntary plan provides a SOFTBANK company
match of 25% up to 4% of the associate's contribution. Each
associate is eligible the first of the quarter after 12
months of employment. The maximum associate contribution is
15% (up to the Federal allowable maximum) of total
compensation.
LONG TERM DISABILITY POLICY - SOFTBANK pays for a long term
disability policy for all of our associates. This benefit
compensates a disabled associate after 180 days of
disability. This program is in addition to the short term
disability program that is cost shared with the associate.
SUPPLEMENTARY DISABILITY PAY - This program supplements your
short term disability policy to afford you 80% of your
regular compensation for eight weeks after a one week
waiting period, plus one (1) additional week for every year
of service on or after an associate's three year anniversary
not to exceed twelve (12) weeks.
3
<PAGE> 4
[SOFTBANK SERVICES GROUP LOGO]
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.
SABBATICAL - SOFTBANK believes in a long term commitment to
and from its associates. As a company benefit, upon
crossing your fifth year anniversary date, an associate may
apply for a sabbatical of four successive weeks additional
vacation, to be used within a 24 month period of time.
This benefit is designed as a perk so that an associate
maintains a holistic life perspective. To be eligible for
this benefit, an associate must apply for the sabbatical
prior to the requested date and must adhere to the
guidelines of the program.
PROFIT SHARING - 10% of the annual post tax profits earned
by the company will be shared with all full time associates
hired prior to September 1 and employed as of December 31 of
the plan year.
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, which you will receive during your new hire
orientation. You are more than welcome to review these additional benefits prior
to accepting this offer. Please let me know and I will make the handbook
available to you prior to your start date, if desired.
Our offer of Employment is extended on an "at will" basis which is for no
specific period of time. As a result, either you or SOFTBANK are free to
separate your employment relationship at any time for any reason, with or
without cause. This is the full and complete agreement between us on this term.
Although your position responsibilities, title, position location, compensation
and benefits, as well as SOFTBANK's policies and procedures, may change from
time to time; the "at will" nature of your employment may only be changed in
express writing signed by you and the President of the Company. Except for what
appears in this letter, no other statements or representations should be relied
upon by you in accepting employment with SOFTBANK.
Also enclosed in this package is our confidentiality/non-compete agreement.
Your signing of this agreement in addition to providing the legally required
proof of identity and authorization (I-9 form) to work in the United States are
conditions of this offer and employment. Although, there are several documents
that can be supplied to complete your I-9 form, the most common forms of
identification are a picture ID drivers license and a social security card.
Please bring these with you to your new hire orientation.
4
<PAGE> 5
[SOFTBANK SERICES GROUP LOGO]
Lee, we believe this offer is comprehensive and recognizes your considerable
skills, knowledge and abilities. We are confident that you will find SOFTBANK to
be a company where you can prosper, grow and make a significant contribution to
the overall success and future of the organization. The SOFTBANK 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 either myself at (716) 871-2104 or Joanne Biltekoff at 871-7631.
SINCERELY,
/s/ CHERYL R. SCHILTZ
Cheryl R. Schiltz
Employment Manager
A reply to this offer must be received by SOFTBANK no later than Monday,
September 8, 1997.
I am accepting this offer of employment from SOFTBANK and agree to the terms and
conditions as outlined herein.
- ---------------------------------------- ----------------------------------
Lee Waters Date
5
<PAGE> 6
RELOCATION PROGRAM
We will reimburse you for all reasonable relocation costs. An outline of those
costs are listed below.
O Remember to keep all receipts for reimbursable items, which must accompany
your check request form when you submit your expenses. (All expenses must
be submitted to Human Resources within 30 days from your new location start
date.) Alcoholic beverages and tobacco products are not reimbursable items.
O We will provide a moving company (Wilson/North American - Barbara -
716-826-3555) to move your belonging and automobiles (1 per associate or 2
per family) that are necessary. You may also elect to use a "Ryder" truck,
if appropriate. The company will pay this cost directly. SOFTBANK Services
Group will make the arrangement for our relocation company to contact you,
if you desire.
O We will reimburse up to $50.00 total for the transportation of any pets.
O The reimbursement of airfare - (all reservations must be made through our
Travel Desk.)
O Auto mileage (if appropriate) is calculated at $.29 cents.
O Temporary Housing - See offer letter.
O Rental car up to one week provided that the associate's car is in transit
from their previous residence. (This must be arranged by our Travel Desk.)
O Utility hookup charges (This does not apply to deposits - there is a
$200.00 maximum)
O Department of Motor Vehicles, re-registering of automobiles up to $150.00
one-time reimbursement per family.
O Any lost security deposits for current housing up to two (2) months.
O Reimbursement of one fact-finding trip to the new site. (See offer letter)
<PAGE> 7
SOFTBANK SERVICES GROUP
ASSOCIATE AGREEMENT
In consideration of my employment by Softbank Services Group I am entering
into this Agreement
I agree to the following:
1. COMPETITIVE RELATIONSHIPS: While working at Softbank Services Group and/or
for a period of one (1) year following the termination of my employment
with Softbank Services Group, I will not directly or indirectly; (i) own or
operate any business which competes in any way with the business of
Softbank Services Group; or (ii) accept employment or contract with any
competitor of Softbank Services Group to perform the same or similar
services for any Softbank Services Group client to which I was assigned
during the one (1) year period immediately preceding the date of
termination of my employment with Softbank Services Group.
2. CLIENT RELATIONSHIPS: I will not, directly or indirectly, for a period of
one (1) year from the date of termination of my employment with Softbank
Services Group, accept employment or a contractor position with any
Softbank Services Group client to which I was assigned during the one (1)
year immediately preceding the date of termination of my employment with
Softbank Services Group.
3. EMPLOYMENT RELATIONSHIPS: I will not, directly or indirectly, during the
term of my employment with Softbank Services Group and for a period of one
(1) year following the date of termination of my employment with Softbank
Services Group, solicit, hire or recruit any Softbank Services Group
employee to provide services for any organization rather than Softbank
Services Group.
4. CONFIDENTIAL INFORMATION: I will not, directly or indirectly, during the
term of my employment with Softbank Services Group and after the
termination of my employment with Softbank Services Group, disclose to
anyone any client or customer lists, trade secrets, price lists, credit
card numbers or other proprietary or confidential information relating to
Softbank Services Group or its clients obtained by me during my employment
with Softbank Services Group. I will not directly or indirectly
inappropriately use Softbank Services Group's clients' databases, product
offers, and/or proprietary computer systems for personal gain or use.
5. DEVELOPMENTS/IMPROVEMENTS: All ideas, inventions, trademarks, copyrights
and other developments or improvements conceived by me, alone or with
others, during the term of my employment, whether or not during working
hours, that are within the scope of Softbank Services Group's business
operations or that relate to any company work or projects, are the
exclusive property of Softbank Services Group. I agree to assist the
company, at its expense, to obtain patents on any such patentable ideas,
inventions, trademarks, and other developments, and agree to execute all
documents necessary to obtain such patents in the name of the company.
6. REPAYMENT OF ADVANCES: I agree in the event I owe Softbank Services Group
any sum at the time of my termination, Softbank Services Group may deduct
the sum owed by me from my compensation or severance pay.
<PAGE> 1
EXHIBIT 10.33
PROMISSORY NOTE
Buffalo, New York, U.S.A.
AMOUNT; FOR VALUE RECEIVED, the undersigned, Lee Waters
INTEREST ("BORROWER"), residing at 5557 Woods Edge Court,
RATE Williamsville, New York 14221, promises to pay to the
order of ClientLogic Corporation (ClientLogic), a
corporation organized and existing under the laws of
Delaware, with offices at 699 Hertel Avenue, Buffalo,
New York 14207, the principal sum Sixty-five thousand
United States dollars (US $65,000.00). This note will
bear interest from the date hereof at the rate of eight
percent (8%) per annum, unless otherwise stated herein.
PAYMENT The principal amount of this Note shall be payable to
SCHEDULE ClientLogic from the proceeds and upon the sale of the
BORROWER's property located at 5557 Woods Edge Court,
Williamsville, New York, or six months from the
execution of this Note, whichever occurs first.
DEFAULT If any of the following events shall occur, the entire
unpaid outstanding principal balance of this Note
shall, on demand by the holder of this Note, be
immediately due and payable: (a) nonpayment of any sum
due under this Note; (b) a default under any other
provision of this Note; (c) a breach of any
representation or warranty under this Note; (d) the
making of any assignment for the benefit of creditors
by the undersigned; (e) the filing of a petition under
any bankruptcy, insolvency or similar law against the
undersigned and such petition not being dismissed
within a period of thirty (30) days of the filing, or
(f) the authorization of BORROWER for the dissolution
of BORROWER. Acceptance of payments of arrears or while
BORROWER is in default shall not waive or affect any
prior acceleration of this Note.
ACCELERATION ON In the event BORROWER is separated from employment with
PAYMENT the holder of this note, the outstanding balance shall
be immediately due and owing. The holder of this note
is authorized by BORROWER, upon separation from
employment to deduct from wages, vacation pay or any
other amounts due to BORROWER, the outstanding balance
due and owing on this note, if any.
COLLATERAL In addition, if any outstanding balance is due on this
note and BORROWER desires to exercise vested stock
options, BORROWER agrees to execute a stock pledge
agreement and stock power and deliver to holder in good
transferable form the full number of shares of common
stock which are purchased pursuant to such options
("Collateral"), as continuing collateral security for
the payment of all indebtedness, the BORROWER agrees to
pledge and assign to holder, and grants to the holder a
lien upon and security interest in, the Collateral.
DEFAULT The outstanding balance of any amount owing under this
INTEREST Note which is not paid when due shall bear interest at
the rate of eighteen percent (18%) per annum.
USURY CLAUSE Notwithstanding any other provision of this Note,
interest under this Note shall not exceed the maximum
rate permitted by law; and if any amount is paid under
this Note as interest in excess or such maximum rate,
then the amount so paid will not constitute interest
but will constitute a prepayment on account of the
principal amount of this Note.
TAX All payments under this Note shall be made without
defense, set-off or counterclaim, free and clear of
and without deduction for any taxes of any nature now
or hereafter imposed. Should any such payment be
subject to any tax, the undersigned shall pay to the
holder of this Note such additional amounts as may be
necessary to enable the holder to receive a net amount
equal to the full amount payable hereunder. As used in
this paragraph, the term "tax" means any tax, levy
impost, duty, charge, fee, deduction, withholding,
turnover tax, stamp tax and any restriction or
condition resulting in a charge imposed in any
jurisdiction upon the payment or receipt of any amount
specified herein, other than taxes on the overall net
income of the holder under the laws of New York.
CONFIDENTIAL & PROPRIETARY
<PAGE> 2
EXPENSES The undersigned agrees to pay on demand all expenses of
collecting and enforcing this Note, including, without
limitation, expenses and fees of legal counsel, court
costs and the cost of appellate proceedings.
GOVERNING LAW; This Note and the obligations of the undersigned shall
AGENT FOR SERVICE be governed by and construed in accordance with the
OF PROCESS laws or the State of New York. For purposes of any
proceeding involving this Note or any of the
obligations of the undersigned, the undersigned hereby
submits to the non-exclusive jurisdiction of the courts
of the State of New York and of the United States
having jurisdiction in the County of Eric State of New
York, and agrees not to raise and waives any objection
to or defense based upon the jurisdiction or venue of
any such court based. The undersigned agrees not to
bring any action or other proceeding with respect to
this Note, or with respect to any of its obligations,
in any other court unless such courts of the State of
New York and of the United States determine that they
do not have jurisdiction in the matter.
WAIVER OF The undersigned waives presentment for payment, demand,
PRESENTMENT, ETC. protest and notice of protest and of non-payment and
any or all notices or demands in connection with the
delivery, acceptance, performance or default of
enforcement of this Note.
DELAY; WAIVER The failure or delay by the holder of this Note
exercising any of its rights hereunder in any instance
shall not constitute a waiver thereof in that or any
other instance. The holder of this Note may not waive
any of its rights except by an instrument in writing
signed by the holder.
PREPAYMENT The undersigned may prepay all or any portion of the
principal of this Note at any time and from time to
time without premium or penalty.
AMENDMENT This Note may not be amended without the written
approval of the holder.
This Note may not be changed or modified orally, but only by agreement in
writing signed by the party against whom enforcement or such change or
termination is sought.
BORROWER hereby knowingly, voluntarily and intentionally waives any right it
may have to a trial by jury in respect of any litigation based hereon, or
arising out of, under or in connection with this Note or any document
executed in connection herewith, or any course of conduct, course of
dealing, statements (whether written or oral) or actions or the parties.
IN WITNESS WHEREOF, the BORROWER has duly executed this Note the day and
year above written.
/s/ LEE WATERS
------------------------------
BY: LEE WATERS
Sworn to and subscribed before me this 11th
day of October, 1999.
/s/ CARLEEN A. DUNNE
---------------------
Notary Public CARLEEN A. DUNNE
Notary Public, State of New York
Qualified in Erie County
My Commission Expires July 26, 2001
CONFIDENTIAL & PROPRIETARY
<PAGE> 1
EXHIBIT 10.34
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of
October 11, 1999, is executed by Lee Waters ("Pledgor"), in favor of
ClientLogic Corporation, a Delaware corporation ("Lender").
RECITALS
A. Pledgor has requested that Lender make a loan to Pledgor in the
principal amount of $65,000.00 (the "Loan") pursuant to that certain
Promissory Notes, dated as of even date herewith, made by Pledgor in favor
of Lender (the "Note") in connection with Lender's relocation of Pledgor to
Nashville, Tennessee, and other reasons.
B. It is a condition precedent to the obligations of Lender to make the
Loan under the Note that Pledger shall have executed and delivered this
Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Pledgor hereby agrees with Lender as follows:
1. Definitions and Interpretation. All terms defined in the New
York Uniform Commercial Code (the "UCC") shall have the respective meanings
given to those terms in the UCC.
2. The Pledge. To secure the payment when due of all obligations
and liabilities of Pledger under the Note, including all principal and
interest (the "Obligation"), Pledgor hereby pledges and assigns to Lender,
and grants to Lender a security interest in, all of Pledgor's right, title
and interest, whether now existing or hereafter arising, in the following
property (the "Collateral"):
(a) all right, title and interest of Pledgor in and to _______
shares (the "Pledged Shares") of common stock, par value $0.01 per share
("Common Stock"), of ClientLogic Holding Corporation presently owned or
hereafter acquired by Pledgor;
(b) all dividends, other distributions or other property,
securities or instruments in respect of or in exchange for the Pledged
Shares, whether by way of recapitalization, mergers, consolidations,
split-ups, combinations or exchanges of shares or otherwise; and
(c) all proceeds of the foregoing.
3. Delivery of Pledged Shares.
(a) In furtherance of the pledge provided for herein, concurrent
with the execution of this Pledge Agreement, Pledgor has delivered to Lender
each and
<PAGE> 2
every certificate representing Pledged Shares presently owned by Pledgor,
together with any and all documentation of such delivery that Lender may
reasonably request.
(b) With respect to certificates (each an "After-Acquired
Certificate") for any Pledged Shares hereafter acquired by Pledgor from
Lender or any third party, Pledgor shall immediately deliver, or cause to be
delivered, to Lender each and every After-Acquircd Certificate, together
with any and all documentation of such delivery that Lender may reasonably
request. ClientLogic Holding Corporation shall not be obligated to deliver
any After Acquired Certificates representing the Pledged Shares to Pledgor
but may instead deliver such Lender.
(c) Notwithstanding anything to the contrary herein or elsewhere
contained, during any such time as Pledgor comes into possession of any
certificates for Pledged Shares, such possession shall be deemed to be in
trust for the benefit of Lender, and Pledgor shall immediately, upon coming
into possession of any certificates for Pledged Shares, submit written
notification to Lender of Pledger's possession of such certificates and
shall immediately deliver, or cause to be delivered, to Lender such
certificates, together with any and all documentation of such delivery that
Lender may reasonably request.
4. Representations and Warranties. Pledgor hereby represents and
warrants as follows:
(a) The Pledged Shares owned by Pledgor on the date hereof have
been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Pledgor is the legal and beneficial owner of the Pledged
Shares, free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Pledge Agreement.
(c) The pledge of the Pledged Shares hereby does not require the
consent of any person, and no filing or registration with, or notice to any
governmental body is necessary for the validity, enforceability or
perfection of such pledge.
5. Further Assurances. Pledgor agrees that at any time and from
time to time, at Pledgor's expense, Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action,
that Lender may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable
Lender to exercise and enforce its rights and remedies hereunder with
respect to the Collateral.
6. Rights on Default.
(a) Remedies. Upon (i) any failure by Pledgor to pay any of the
Obligations within five (5) days of the date when due, (ii) a sale, transfer
or other conveyance of the Collateral or (iii) a breach of this Pledge
Agreement by the Pledgor (a "Default"), Lender may, subject to any necessary
consent by any governmental body, exercise all rights and remedies of a
secured party under the UCC or otherwise by law.
<PAGE> 3
The proceeds of any sale or other disposition of Collateral shall be applied
in accordance with the provisions of the Note.
(b) Voting. Unless a Default has occurred and is continuing,
Pledgor shall have and retain all right to vote the Pledged Shares which
Pledgor owns at any given time.
7. Miscellaneous.
(a) Notices. All notices and communications under this Pledge
Agreement shall be delivered in accordance with the provisions set forth in
the Note.
(b) Nonwaiver. No failure or delay on Lender's part in
exercising any right hereunder shall operate as a waiver thereof or of any
other right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other right.
(e) Amendments and Waivers. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Pledgor and Lender. Each waiver or consent under any
provision hereof shall be effective only in the specific instances for the
purpose for which given.
(d) Binding Effect. This Pledge Agreement shall be binding upon
and inure to the benefit of Lender and Pledgor and their respective
successors and assigns.
(e) Cumulative Rights. The rights, powers and remedies of Lender
under this Pledge Agreement shall be in addition to all rights, powers and
remedies given to Lender by law, or in equity, all of which rights, powers,
and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Lender's rights hereunder.
(f) Partial Invalidity. If any time any provision of this Pledge
Agreement is or becomes illegal, invalid or unenforceable in any respect
under the law or any jurisdiction in any respect, neither the legality,
validity or enforceability of the remaining provisions of this Pledge
Agreement nor the legality, validity or enforceability of such provision
under the law of any other jurisdiction shall in any way be affected or
impaired thereby.
(g) Expenses. Pledgor shall pay on demand all reasonable
out-of-pocket fees and expenses, including reasonable attorneys' fees and
expenses, incurred by Lender in connection with custody, preservation or
sale of, or other realization on, any of the Pledged Shares.
(h) APPLICABLE LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
(i) Submission to Jurisdiction; Waivers. (i) The Pledgor hereby
irrevocably submits for himself and his property in any legal action or
proceeding
<PAGE> 4
relating to this Pledge Agreement, the Note or any other document executed
in connection herewith or therewith to the exclusive jurisdiction of the
state courts located in the city of Buffalo, State of New York, the courts
of the United States of America for the Western District of New York, and
appellate courts from any thereof, Pledgor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or relating to this Pledge Agreement or any other instruments executed in
connection herewith brought in any such court, and hereby further
irrevocably waives any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(ii) The Pledgor hereby expressly and unconditionally waives, in
connection with any suit, action or proceeding brought by the Lender on this
Pledge Agreement, the Note or any other document executed in connection
herewith or therewith, any and every right he may have to (i) injunctive
relief, (ii) a trial by jury, (iii) interpose any counterclaim therein and
(iv) have the same consolidated with any other or separate suit, action or
proceeding.
(j) Return of Collateral. Upon satisfaction in full of the
Obligations, Lender shall promptly return to Pledgor the Collateral.
IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be
executed as of the day and year first above written.
------------------------------
Signature of Pledgor
Lee Waters
------------------------------
Name of Pledgor (Please Print)
ACKNOWLEDGED AND ACCEPTED
CLIENTLOGIC CORPORATION
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.35
PROMISSORY NOTE
Buffalo, New York, U.S.A.
AMOUNT; FOR VALUE RECEIVED, the undersigned, Lee Waters
INTEREST ("BORROWER"), residing at 451 Autumn Lake Trail,
RATE Franklin, TN 37067, promises to pay to the order of
ClientLogic Corporation (ClientLogic), a corporation
organized and existing under the laws of Delaware, with
offices at 699 Hertel Avenue, Buffalo, New York 14207,
the principal sum Three hundred seventy-four thousand
two hundred seventy dollars and fifty-seven cents
($374,270.57). This note will bear interest from the
date hereof at the rate of eight percent (8%) per
annum, unless otherwise stated herein.
PAYMENT The principal amount of this Note shall be payable to
SCHEDULE ClientLogic upon the securing of a mortgage for the
Borrower's residence located in Nashville, Tennessee,
but for a period not to exceed the date of February 28,
2000
DEFAULT If any of the following events shall occur, the entire
unpaid outstanding principal balance or this Note
shall, on demand by the holder of this Note, be
immediately due and payable: (a) nonpayment of any sum
due under this Note; (b) a default under any other
provision of this Note; (c) a breach of any
representation or warranty under this Note; (d) the
making of any assignment for the benefit of creditors
by the undersigned; (e) the filing of a petition under
any bankruptcy, insolvency or similar law against the
undersigned and such petition not being dismissed
within a period of thirty (30) days of the filing, or
(f) the authorization of BORROWER for the dissolution
of BORROWER. Acceptance of payments of arrears or while
BORROWER is in default shall not waive or affect any
prior acceleration of this Note.
ACCELERATION ON In the event BORROWER is separated from employment with
PAYMENT the holder or this note, the outstanding balance shall
be immediately due and owing. The holder of this note
is authorized by BORROWER, upon separation from
employment to deduct from wages, vacation pay or any
other amounts due to BORROWER, the outstanding balance
due and owing on this note, if any.
COLLATERAL In addition, if any outstanding balance is due on this
note and BORROWER desires to exercise vested stock
options, BORROWER agrees to execute a stock pledge
agreement and stock power and deliver to holder in good
transferable form the full number of shares of common
stock which are purchased pursuant to such options
("Collateral"), as continuing collateral security for
the payment of all indebtedness, the BORROWER agrees to
pledge and assign to holder, and grants to the holder a
lien upon and security interest in, the Collateral.
DEFAULT The outstanding balance of any amount owing under this
INTEREST Note which is not paid when due shall bear interest at
the rate of eighteen percent (18%) per annum.
USURY CLAUSE Notwithstanding any other provision of this Note,
interest under this Note shall not exceed the maximum
rate permitted by law; and if any amount is paid under
this Note as interest in excess of such maximum rate,
then the amount so paid will not constitute interest
but will constitute a prepayment on account of the
principal amount of this Note.
TAX All payments under this Note shall be made without
defense, set-off or counterclaim, free and clear of and
without deduction for any taxes of any nature now or
hereafter imposed. Should any such payment be subject
to any tax, the undersigned shall pay to the holder of
this Note such additional amounts as may be necessary
to enable the holder to receive a net amount equal to
the full amount payable hereunder. As used in this
paragraph, the term "tax" means any tax, levy, impost,
duty, charge, fee, deduction, withholding,
turnover tax, stamp tax and any restriction or
condition resulting in a charge imposed in any
jurisdiction upon the payment or receipt of any amount
specified herein, other than taxes on the overall net
income of the holder under the laws of New York.
CONFIDENTIAL & PROPRIETARY
<PAGE> 2
EXPENSES The undersigned agrees to pay on demand all expenses of
collecting and enforcing this Note including, without
limitation, expenses and fees of legal counsel, court
costs and the cost of appellate proceedings.
GOVERNING LAW; This Note and the obligations of the undersigned shall
AGENT FOR SERVICE be governed by and construed in accordance with the
OF PROCESS laws of the State of New York. For purposes of any
proceeding involving this Note or any of the
obligations of the undersigned, the undersigned hereby
submits to the non-exclusive jurisdiction of the courts
of the State of New York and of the United States
having jurisdiction in the County of Erie State of New
York, and agrees not to raise and waives any objection
to or defense based upon the jurisdiction or venue of
any such court based. The undersigned agrees not to
bring any action or other proceeding with respect to
this Note, or with respect to any of its obligations,
in any other court unless such courts of the State of
New York and of the United States determine that they
do not have jurisdiction in the matter.
WAIVER OF The undersigned waives presentment for payment, demand,
PRESENTMENT, ETC. protest and notice of protest and of non-payment and
any or all notices or demands in connection with the
delivery, acceptance, performance or default of
enforcement of this Note.
DELAY; WAIVER The failure or delay by the holder of this Note
exercising any of its rights hereunder in any instance
shall not constitute a waiver thereof in that or any
other instance. The holder of this Note may not waive
any of its rights except by an instrument in writing
signed by the holder.
PREPAYMENT The undersigned may prepay all or any portion of the
principal of this Note at any time and from time to
time without premium or penalty.
AMENDMENT This Note may not be amended without the written
approval of the holder.
This Note may not be changed or modified orally, but only by agreement in
writing signed by the party against whom enforcement of such change or
termination is sought.
BORROWER hereby knowingly, voluntarily and intentionally waives any right it
may have to a trial by jury in respect of any litigation based hereon, or
arising out of, under or in connection with this Note or any document
executed in connection herewith, or any course of conduct, course of
dealing, statements (whether written or oral) or actions of the parties.
IN WITNESS WHEREOF, the BORROWER has duly executed this Note the day and
year above written.
/s/ LEE WATERS
-----------------------
By: LEE WATERS
Sworn to and subscribed before me this 12th day
day of October, 1999.
CARLEEN A. DUNNE
/s/ CARLEEN A. DUNNE Notary Public State of New York
-------------------- Qualified in Erie County
Notary Public My Commission Expires July 26, 2001
CONFIDENTIAL & PROPRIETARY
<PAGE> 1
EXHIBIT 10.36
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of
October 12, 1999, is executed by Lee Waters ("Pledgor"), in favor of
ClientLogic Corporation, a Delaware corporation ("Lender").
RECITALS
A. Pledgor has requested that Lender make a loan to Pledgor in the
principal amount of $374,270.57 (the "Loan") pursuant to that certain
Promissory Notes, dated as of even date herewith, made by Pledgor in favor
of Lender (the "Note") in connection with Lender's relocation of Pledgor to
Nashville, Tennessee, and other reasons.
B. It is a condition precedent to the obligations of Lender to make the
Loan under the Note that Pledgor shall have executed and delivered this
Pledge Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Pledgor hereby agrees with Lender as follows:
1. Definitions and Interpretation. All terms defined in the New
York Uniform Commercial Code (the "UCC") shall have the respective meanings
given to those terms in the UCC.
2. The Pledge. To secure the payment when due of all obligations
and liabilities of Pledgor under the Note, including all principal and
interest (the "Obligations"), Pledgor hereby pledges and assigns to Lender,
and grants to Lender a security interest in, all of Pledgor's right, title
and interest, whether now existing or hereafter arising, in the following
property (the "Collateral"):
(a) all right, title and interest of Pledgor in and to
_______ shares (the "Pledged Shares") of common stock, par value $0.01 per
share ("Common Stock"), of ClientLogic Holding Corporation presently owned
or hereafter acquired by Pledgor;
(b) all dividends, other distributions or other property,
securities or instruments in respect of or in exchange for the Pledged
Shares, whether by way of recapitalization, mergers, consolidations,
split-ups, combinations or exchanges of shares or otherwise; and
(c) all proceeds of the foregoing.
3. Delivery of Pledged Shares.
(a) In furtherance of the pledge provided for herein,
concurrent with the execution of this Pledge Agreement, Pledgor has
delivered to Lender each and
<PAGE> 2
every certificate representing Pledged Shares presently owned by Pledgor,
together with any and all documentation of such delivery that Lender may
reasonably request.
(b) With respect to certificates (each an "After-Acquired
Certificate") for any Pledged Shares hereafter acquired by Pledgor from
Lender or any third party, Pledgor shall immediately deliver, or cause to be
delivered, to Lender each and every After-Acquired Certificate, together
with any and all documentation of such delivery that Lender may reasonably
request. ClientLogic Holding Corporation shall not be obligated to deliver
any After Acquired Certificates representing the Pledged Shares to Pledgor
but may instead deliver such Lender.
(c) Notwithstanding anything to the contrary herein or
elsewhere contained, during any such time as Pledgor comes into possession
of any certificates for Pledged Shares, such possession shall be deemed to
be in trust for the benefit of Lender, and Pledgor shall immediately, upon
coming into possession of any certificates for Pledged Shares, submit
written notification to Lender of Pledgor's possession of such certificates
and shall immediately deliver, or cause to be delivered, to Lender such
certificates, together with any and all documentation of such delivery that
Lender may reasonably request.
4. Representations and Warranties. Pledgor hereby represents and
warrants as follows:
(a) The Pledged Shares owned by Pledgor on the date hereof
have been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Pledgor is the legal and beneficial owner of the Pledged
Shares, free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Pledge Agreement.
(c) The pledge of the Pledged Shares hereby does not require
the consent of any person, and no filing or registration with, or notice to
any governmental body is necessary for the validity, enforceability or
perfection of such pledge.
5. Further Assurances. Pledgor agrees that at any time and from
time to time, at Pledgor's expense, Pledgor will promptly execute and
deliver all further instruments and documents, and take all further action,
that Lender may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable
Lender to exercise and enforce its rights and remedies hereunder with
respect to the Collateral.
6. Rights on Default.
(a) Remedies. Upon (i) any failure by Pledgor to pay any of
the Obligations within five (5) days of the date when due, (ii) a sale,
transfer or other conveyance of the Collateral or (iii) a breach of this
Pledge Agreement by the Pledgor (a "Default"), Lender may, subject to any
necessary consent by any governmental body, exercise all rights and remedies
of a secured party under the UCC or otherwise by law.
<PAGE> 3
The proceeds of any sale or other disposition of Collateral shall be applied
in accordance with the provisions of the Note.
(b) Voting. Unless a Default has occurred and is continuing,
Pledgor shall have and retain all right to vote the Pledged Shares which
Pledgor owns at any given time.
7. Miscellaneous.
(a) Notices. All notices and communications under this Pledge
Agreement shall be delivered in accordance with the provisions set forth in
the Note.
(b) Nonwaiver. No failure or delay on Lender's part in
exercising any right hereunder shall operate as a waiver thereof or of any
other right nor shall any single or partial exercise of any such right
preclude any other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Pledgor and Lender. Each waiver or consent under any
provision hereof shall be effective only in the specific instances for the
purpose for which given.
(d) Binding Effect. This Pledge Agreement shall be binding
upon and inure to the benefit of Lender and Pledgor and their respective
successors and assigns.
(c) Cumulative Eights. The rights, powers and remedies of
Lender under this Pledge Agreement shall be in addition to all rights,
powers and remedies given to Lender by law, or in equity, all of which
rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing Lender's rights hereunder.
(f) Partial Invalidity. If any time any provision of this
Pledge Agreement is or becomes illegal, invalid or unenforceable in any
respect under the law or any jurisdiction in any respect, neither the
legality, validity or enforceability of the remaining provisions of this
Pledge Agreement nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any way be
affected or impaired thereby.
(g) Expenses. Pledgor shall pay on demand all reasonable
out-of-pocket fees and expenses, including reasonable attorneys' fees and
expenses, incurred by Lender in connection with custody, preservation or
sale of, or other realization on, any of the Pledged Shares.
(h) APPLICABLE LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF NEW YORK.
(i) Submission to Jurisdiction; Waivers. (i) The Pledgor
hereby irrevocably submits for himself and his property in any legal action
or proceeding
<PAGE> 4
relating to this Pledge Agreement, the Note or any other document
executed in connection herewith or therewith to the exclusive
jurisdiction of the state courts located in the city of Buffalo, State of
New York, the courts of the United States of America for the Western
District of New York, and appellate courts from any thereof. Pledgor
irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Pledge Agreement
or any other instruments executed in connection herewith brought in any
such court, and hereby further irrevocably waives any claims that any
such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
(ii) The Pledgor hereby expressly and unconditionally waives,
in connection with any suit, action or proceeding brought by the Lender on
this Pledge Agreement, the Note or any other document executed in connection
herewith or therewith, any and every right he may have to (i) injunctive
relief, (ii) a trial by jury, (iii) interpose any counterclaim therein and
(iv) have the same consolidated with any other or separate suit, action or
proceeding.
(j) Return of Collateral. Upon satisfaction in full of the
Obligations, Lender shall promptly return to Pledgor the Collateral.
IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be
executed as of the day and year first above written,
------------------------------
Signature of Pledgor
Lee Waters
------------------------------
Name of Pledgor (Please Print)
ACKNOWLEDGED AND ACCEPTED
CLIENTLOGIC CORPORATION
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of [ClientLogic Operating Company]
1293219 Ontario Inc., a corporation organized under the laws of the province of
Ontario, Canada
1293220 Ontario Inc., a corporation organized under the laws of the province of
Ontario, Canada
Catalog Liquidators, Inc., a Delaware corporation
Catalog Resources, Inc., a Delaware corporation
ClientLogic Canada Corporation, a corporation organized under the laws of the
province of Ontario, Canada
ClientLogic Corporation, a Delaware corporation
ClientLogic Holding Corporation, a Delaware corporation
ClientLogic International Holding, Inc., a Delaware corporation
ClientLogic Operating Corporation, a Delaware corporation
Computer Marketing Systems, Inc., a New York corporation
Consulte SA, a corporation organized under the laws of France
Cordena Call Handelsgeselischaft m.b.H., a corporation organized under the laws
of Germany
Cordena Call Management 1. Verwaltungs GmbH, a corporation organized under the
laws of Germany
Cordena Call Management 2 Verwaltungs GmbH, a corporation organized under the
laws of Germany
Cordena Call Management Beteilungsgesellschaft m.g.H., a corporation organized
under the laws of Austria
Cordena Call Management B.V., a corporation organized under the laws of the
Netherlands
Cordena Call Management GmbH & Co. KG, a corporation organized under the laws
of Germany
Cordena Call Management Holding B.V.B.A., a corporation organized under the
laws of Belgium
Cordena Call Management Holdings Limited, a corporation organized under the
laws of the United Kingdom
Cordena Call Management Norway AS, a corporation organized under the laws of
Norway
Cordena Call Management Zwerte Beteiligungs GmbH, a corporation organized under
the laws of Germany
Cordena Management Holding SARL, a corporation organized under the laws of
France
Cordena Telefondienst GmbH, a corporation organized under the laws of France
Groupe Adverbe International SA, a corporation organized under the laws of
France
H2M Hors Media Medical SA, a corporation organized under the laws of France
Hulsink Direct Marketing B.V., a corporation organized under the laws of France
Hulsink Direct Marketing GmbH, a corporation organized under the laws of France
Hulsink Direct Marketing Nordic ApS, a corporation organized under the laws of
Denmark
Hulsink Direct Marketing SARL, a corporation organized under the laws of France
Inslogic.com Corporation, a Delaware corporation
Inslogic.com Holding Corporation, a Delaware corporation
LCS Canada Inc., a Delaware corporation
LCS Industries, Inc., a Delaware corporation
LCS Industries Ltd., a corporation organized under the laws of the United
Kingdom
Phone Communication SA, a corporation organized under the laws of France
Portal 360 Corporation, a Delaware corporation
Professional Support Centre Limited, a corporation organized under the laws of
the United Kingdom
Marketvision, Inc., a Delaware corporation
New ClientLogic Corporation, a Delaware corporation
Salestrac Limited, a corporation organized under the laws of the United Kingdom
Spec Holdings Inc., a New York corporation
Tetel Personlicher Telefonauftragsdienst & Multi-Media Service, a corporation
organized under the laws of Austria
The Ivy Group Limited, a corporation organized under the laws of the United
Kingdom
The SpeciaLISTS, Ltd., a New York corporation
UCA&L Limited, a corporation organized under the laws of Ireland
<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
reports dated January 29, 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
February 1, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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
January 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
February 1, 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
February 1, 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.
Denver, Colorado
<PAGE> 1
EXHIBIT 23.7
Consent of Independent Accountants
We hereby consent to the use in the Registration Statement on Form S-1 of our
reports dated January 29, 2000 relating to the financial statements and
financial statement schedule of North Direct Response, Inc., which appear in
such Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS, LLP
PricewaterhouseCoopers, LLP
Buffalo, New York
February 1, 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> (1,028)
<INVENTORY> 0
<CURRENT-ASSETS> 88,854
<PP&E> 64,914
<DEPRECIATION> (11,932)
<TOTAL-ASSETS> 304,164
<CURRENT-LIABILITIES> (90,789)
<BONDS> 0
0
(5,058)
<COMMON> (1,110)
<OTHER-SE> (110,786)
<TOTAL-LIABILITY-AND-EQUITY> (304,164)
<SALES> 177,791
<TOTAL-REVENUES> 177,791
<CGS> (99,478)
<TOTAL-COSTS> (99,478)
<OTHER-EXPENSES> (113,589)
<LOSS-PROVISION> (855)
<INTEREST-EXPENSE> (6,480)
<INCOME-PRETAX> (42,611)
<INCOME-TAX> (322)
<INCOME-CONTINUING> (42,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,933)
<EPS-BASIC> (0.45)
<EPS-DILUTED> 0
</TABLE>
