SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-16867
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Outsourcing Solutions Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2197161
- ----------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
390 South Woods Mill Road, Suite 350
Chesterfield, Missouri 63017
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 576-0022
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Outstanding at
Class September 30, 1999
- ------------------------------------------ ----------------------
Voting common stock 3,477,126.01
Class A convertible nonvoting common stock 391,740.58
Class B convertible nonvoting common stock 400,000.00
Class C convertible nonvoting common stock 1,040,000.00
------------
5,308,866.59
============
Transitional Small Disclosure (check one): Yes[ ] No[ X ]
<PAGE>
PAGE 2
OUTSOURCING SOLUTIONS INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998........... 3
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1999 and 1998 (unaudited).. 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (unaudited)........... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 14
Part II. Other Information.............................................. 14
<PAGE>
PAGE 3
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
- ------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
Unaudited Audited
------------- ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,836 $ 8,814
Cash and cash equivalents held for clients 23,771 22,372
Current portion of purchased loans and
accounts receivable portfolios 29,772 35,057
Accounts receivable - trade, less allowance
for doubtful receivables of $706 and $1,309 46,415 40,724
Other current assets 10,754 8,777
--------- ---------
Total current assets 115,548 115,744
PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS 11,115 20,436
PROPERTY AND EQUIPMENT, net 43,279 40,317
INTANGIBLE ASSETS, net 414,388 425,597
DEFERRED FINANCING COSTS, net 11,379 13,573
OTHER ASSETS 5,212 2,824
--------- ---------
TOTAL $ 600,921 $ 618,491
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable - trade $ 6,740 $ 7,355
Collections due to clients 23,771 22,372
Accrued salaries, wages and benefits 13,134 13,274
Other current liabilities 46,416 55,071
Current portion of long-term debt 19,640 16,877
--------- ---------
Total current liabilities 109,701 114,949
LONG-TERM DEBT 510,408 511,271
OTHER LONG-TERM LIABILITIES 21,602 22,303
STOCKHOLDERS' DEFICIT:
8% nonvoting cumulative redeemable exchangeable 13,686 12,167
preferred stock; authorized 1,250,000 and
1,000,000 shares, respectively; 1,094,855.24
and 973,322.32 shares, respectively, issued
and outstanding, at liquidation value of
$12.50 per share
Voting common stock; $.01 par value; authorized 35 35
7,500,000 shares, 3,477,126.01 shares issued
and outstanding
Class A convertible nonvoting common stock; $.01 4 4
par value; authorized 7,500,000 shares,
391,740.58 shares issued and outstanding
Class B convertible nonvoting common stock; $.01 4 4
par value; authorized 500,000 shares, 400,000
shares issued and outstanding
Class C convertible nonvoting common stock; $.01 10 10
par value; authorized 1,500,000 shares,
1,040,000 shares issued and outstanding
Paid-in capital 66,958 66,958
Retained deficit (121,487) (109,210)
--------- ---------
Total stockholders' deficit (40,790) (30,032)
--------- ---------
TOTAL $ 600,921 $ 618,491
========= =========
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
PAGE 4
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES $122,987 $119,903 $380,063 $358,634
EXPENSES:
Salaries and benefits 60,076 58,050 182,238 171,203
Service fees and other operating and administrative expenses 37,440 35,130 117,334 105,100
Amortization of loans and accounts receivable purchased 9,317 12,840 29,794 35,198
Amortization of goodwill and other intangibles 4,112 4,045 12,316 11,588
Depreciation expense 3,735 3,486 10,960 9,963
-------- -------- -------- --------
Total expenses 114,680 113,551 352,642 333,052
-------- -------- -------- --------
OPERATING INCOME 8,307 6,352 27,421 25,582
OTHER EXPENSE - - 76 -
INTEREST EXPENSE - Net 13,005 13,164 38,214 37,554
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (4,698) (6,812) (10,869) (11,972)
PROVISION FOR INCOME TAXES - - 375 -
MINORITY INTEREST - - - 572
-------- -------- -------- --------
NET LOSS (4,698) (6,812) (11,244) (12,544)
PREFERRED STOCK DIVIDEND REQUIREMENTS 527 162 1,033 639
-------- -------- -------- --------
NET LOSS TO COMMON STOCKHOLDERS $ (5,225) $ (6,974) $(12,277) $(13,183)
======== ======== ======== ========
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
PAGE 5
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands except share amounts)
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1999 1998
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(11,244) $(12,544)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 25,645 23,654
Amortization of loans and accounts receivable 29,794 35,198
purchased
Other 76 -
Minority interest - 572
Change in assets and liabilities:
Other current assets (7,783) 5,256
Accounts payable and other liabilities (9,625) (10,122)
-------- --------
Net cash from operating activities 26,863 42,014
-------- --------
INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired (877) (167,305)
Purchase of loans and accounts receivable portfolios (15,188) (38,030)
Acquisition of property and equipment (14,163) (10,794)
Investment in non-consolidated subsidiary (2,500) -
Other 269 -
-------- --------
Net cash from investing activities (32,459) (216,129)
-------- --------
FINANCING ACTIVITIES:
Proceeds from term loans - 225,469
Borrowings under revolving credit agreement 223,150 168,050
Repayments under revolving credit agreement (208,750) (177,900)
Repayments of debt (12,607) (32,327)
Deferred financing fees (175) (3,038)
-------- --------
Net cash from financing activities 1,618 180,254
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,978) 6,139
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,814 3,217
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,836 $ 9,356
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest $ 33,264 $ 28,407
======== ========
Net cash paid (received) during period for taxes $ 158 $ (8,011)
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - During
the nine months ended September 30, 1999 and 1998, the Company paid preferred
stock dividends of $1,519 and $468, respectively, through the issuance of
121,532.92 shares and 37,435.47 shares of preferred stock, respectively.
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share amounts)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. For purposes of comparability, certain prior
year amounts have been reclassified to conform to current quarter presentation.
These Condensed Consolidated Financial Statements should be read in conjunction
with the Consolidated Financial Statements and notes thereto contained in the
Company's Form 10-K for the year ended December 31, 1998.
Comprehensive loss for the periods presented were equal to the Company's net
loss as the Company had no comprehensive income (loss) items.
NOTE 2. ACQUISITION
On January 23, 1998, the Company acquired through a tender offer, approximately
77% of the outstanding shares of The Union Corporation's ("Union") common stock
for $31.50 per share. On March 31, 1998, the Company acquired the remaining
outstanding shares of Union. The aggregate purchase price of the Union
acquisition was approximately $220,000 including transaction costs of $10,900
and assumed liabilities. The Company financed the acquisition primarily with
funds provided by an amended credit agreement. Union, through certain of its
subsidiaries, furnished a broad range of credit and receivables management
outsourcing services as well as management and collection of accounts
receivable. The acquisition was accounted for under the purchase method of
accounting. The Company allocated the total purchase price including additional
liabilities reserves to the fair value of the net assets acquired resulting in
goodwill of approximately $219,000. The goodwill is being amortized over 30
years using the straight-line method. Union's consolidated operating results
have been included in the Company's consolidated results since January 23, 1998,
recognizing the minority interest through the completion date of the
acquisition.
The unaudited proforma consolidated financial data presented below provides
proforma effect of the Union acquisition as if such acquisition had occurred as
of the beginning of each period presented. The unaudited results have been
prepared for comparative purposes only and do not necessarily reflect the
results of operations of the Company that actually would have occurred had the
acquisition been consummated as of the beginning of each period presented, nor
does the data give effect to any transactions other than the acquisition.
For the nine months
ended September 30,
--------------------------------
1999 1998
------ ------
Revenues $ 380,063 $ 365,988
========= =========
Net loss $( 11,244) $ (13,665)
========= =========
NOTE 3. DEBT
In January 1998, the Company finalized the Second Amended and Restated Credit
Agreement for $466,663 (the "Agreement") with a group of banks to fund the Union
acquisition and refinance existing outstanding indebtedness. The Agreement, as
amended, consists of a $408,663 term loan facility and a $58,000 Revolving
Credit Facility (the "Revolving Facility"). The term loan facility consists of a
term loan of $59,187 ("Term Loan A"), a term loan of $124,476 ("Term Loan B")
and a term loan of $225,000 ("Term Loan C"), which mature on October 15, 2001,
2003 and 2004, respectively. The Company is required to make quarterly principal
repayments on each term loan. Term Loan A bears interest, at the Company's
option, (a) at a base rate equal to the greater of the federal funds rate plus
0.5% or the lender's customary base rate plus 1.5% or (b) at the reserve
adjusted Eurodollar rate plus 2.5%. Term Loan B and Term Loan C bear interest,
at the Company's option, (a) at a base rate equal to the greater of the federal
funds rate plus 0.5% or the lender's customary base rate, plus 2.0% or (b) at
the reserve adjusted Eurodollar rate plus 3.0%.
The Revolving Facility originally had a term of five years and is fully
revolving until October 15, 2001. The Revolving Facility bears interest, at the
Company's option, (a) at a base rate equal to the greater of the federal funds
rate plus 0.5% or the lender's customary base rate plus 1.5% or (b) at the
reserve adjusted Eurodollar rate plus 2.5%. Also, outstanding under the
Revolving Facility are letters of credit of $2,025.
The Agreement is guaranteed by all of the Company's present domestic
subsidiaries and is secured by all of the stock of the Company's present
domestic subsidiaries and by substantially all of the Company's domestic
property assets except for OSI Funding Corp. as discussed in Note 6 below. The
Agreement contains certain covenants the more significant of which limit cash
dividends, asset sales, acquisitions and additional indebtedness, as well as
requires the Company to satisfy certain financial performance ratios.
NOTE 4. LITIGATION
From time to time, the Company and certain of its subsidiaries are subject to
various investigations, claims and legal proceedings covering a wide range of
matters that arise in the normal course of business and are routine to the
nature of the Company's businesses. In addition, as a result of the Union
acquisition, certain subsidiaries of the Company are a party to several on-going
environmental remediation investigations by federal and state governmental
agencies and clean-ups and, along with other companies, has been named a
"potentially responsible party" for certain waste disposal sites. While the
results of litigation cannot be predicted with certainty, the Company has
provided for the estimated uninsured amounts and costs to resolve the pending
suits and management, in consultation with legal counsel, believes that reserves
established for the ultimate resolution of pending matters are adequate at
September 30, 1999.
NOTE 5. 8% NONVOTING CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
In January 1999, the Company increased its authorized 8% Nonvoting Cumulative
Redeemable Exchangeable Preferred Stock from 1,000,000 shares to 1,250,000
shares.
NOTE 6. PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING
In October 1998, a qualifying special-purpose finance company, OSI Funding Corp.
("FINCO"), formed by the Company, entered into a revolving warehouse financing
arrangement (the "Warehouse Facility") for up to $100,000 of funding capacity
for the purchase of loans and accounts receivable portfolios over its five year
term. In connection with the establishment of the Warehouse Facility, FINCO
entered into a servicing agreement with a subsidiary of the Company to provide
certain administrative and collection services on a contingent fee basis (i.e.,
fee is based on a percent of amount collected) at prevailing market rates based
on the nature and age of outstanding balances to be collected. Servicing revenue
from FINCO is recognized by the company as collections are received.
The following summarizes the transactions between the Company and FINCO for the
three and nine months ended September 30, 1999:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1999 1999
--------------- -------------
<S> <C> <C>
Sales of purchased loans and accounts
receivable portfolios by the Company to FINCO $15,161 $44,485
Servicing fees paid by FINCO to the Company $3,913 $9,758
</TABLE>
Sales of purchased loans and accounts receivable portfolios by the Company to
FINCO were in the same amount and occurred shortly after such portfolios were
acquired by the Company from the various unrelated sellers. Accordingly, no gain
or loss was recorded by the Company on the sales to FINCO.
At September 30, 1999, FINCO had outstanding borrowings of $35,287.
NOTE 7. SUBSEQUENT EVENT
The Company, Madison Dearborn Capital Partners III, L.P. ("MDP"), and certain of
the Company's stockholders, optionholders and warrantholders have entered into a
Stock Subscription and Redemption Agreement, dated as of October 8, 1999,
pursuant to which MDP will acquire a controlling interest in OSI for
approximately $790 million and most of the currently outstanding capital stock
of OSI will be redeemed (the "Recapitalization"). The Recapitalization is
expected to be completed by December 31, 1999. The Company is pursuing a consent
solicitation from the holders of its existing $100,000 11% Senior Subordinated
Notes to obtain a waiver of the Change of Control provision of the Indenture in
connection with the transaction.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
- --------------------------------------------------------------------
Revenues for the three months ended September 30, 1999 were $123.0 million
compared to $119.9 million in the same period last year - an increase of 2.6%.
The revenue increase of $3.1 million was due to increased collection and
outsourcing services revenue offset partially by lower portfolio services
revenue, which resulted from the establishment of OSI Funding Corp. ("FINCO"), a
qualifying special-purpose non-recourse financing company, as discussed below.
Revenues from collection services were $88.2 million for the three months ended
September 30, 1999 compared to $87.4 million in the comparable period in 1998.
The increase in collection services revenues was due to an increase in existing
net placements offset by the continued pressure on contingent fee rates in the
highly competitive business. The outsourcing services revenue of $15.1 million
compared favorably to prior year of $12.6 million due to increased revenue from
new and existing business. Revenues from portfolio services decreased from $19.9
million for the three months ended September 30, 1998 to $19.7 million for the
three months ended September 30, 1999. The decreased revenue was due primarily
to the negative revenue effect of FINCO, which was formed in the fourth quarter
of 1998 for the purpose of financing acquired loans and accounts receivable
portfolios. Prior to forming FINCO, the Company would record as revenue the
total collections on purchased portfolios. Currently, for all purchased
portfolios which are sold to and financed by FINCO, the Company records as
revenue a servicing fee on the total collections of FINCO purchased portfolios.
During the quarter ended September 30, 1999, the Company recorded revenue from
FINCO servicing fees of $3.9 million on total collections of $10.7 million. When
compared to the three months ended September 30, 1998, the total collections of
both on and off-balance sheet purchased portfolios, increased from $19.9 million
in 1998 to $26.5 million in 1999, an increase of 33% or $6.6 million. The
increased collections resulted primarily from an increase in the total levels of
purchased portfolios primarily as a result of the increased buying capacity made
available through FINCO. If all portfolios purchased by FINCO were accounted for
on-balance sheet, the Company would have reported revenues, including total
collections of portfolios, of $129.8 million, as compared to $119.9 million in
1998, an 8.3% increase.
Operating expenses, exclusive of amortization and depreciation charges, were
$97.5 million for the three months ended September 30, 1999 and $93.2 million
for the comparable period in 1998 - an increase of 4.7%. The increase in
operating expenses, exclusive of amortization and depreciation charges, resulted
primarily from higher collection-related expenses associated with the increased
revenues of collection and outsourcing services, increased collection-related
expenses associated with the increase in collections of purchased portfolios,
infrastructure costs as the Company aligns collection services by industry and
related increases in advertising and promotional expenses. For the three months
ended September 30, 1999, amortization and depreciation charges of $17.2 million
compared to $20.4 million for the same period last year - a decrease of 15.7%.
The lower amortization charges resulted primarily from lower on-balance sheet
portfolio amortization as the majority of portfolio purchases were sold to
FINCO. On portfolios owned by FINCO, the Company does not record amortization
expense.
As a result of the above, the Company's operating income of $8.3 million for the
three months ended September 30, 1999 compared favorably to $6.4 for the same
period in 1998.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the three months ended September 30, 1999 was $25.5 million compared to
$26.7 million for the same period in 1998. The decrease of $1.2 million was
attributable to the decrease in portfolio services resulting from the manner in
which revenues from off-balance sheet collections are recognized and the higher
operating expenses.
Net interest expense for the three months ended September 30, 1999 was $13.0
million compared to $13.2 million for the comparable period in 1998. The
decrease was due primarily to lower interest rates.
Due to the factors stated above, the net loss for the three months ended
September 30, 1999 of $4.7 million compared to the net loss of $6.8 million for
the three months ended September 30, 1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
- ------------------------------------------------------------------
Revenues for the nine months ended September 30, 1999 were $380.1 million
compared to $358.6 million in the same period last year - an increase of 6.0%.
The revenue increase of $21.5 million was due primarily to increased collection,
outsourcing and portfolio services revenues of $14.2 million - an increase of
3.8% over last year, and $7.3 million from the acquisition of Union. Revenues
from collection services were $275.0 million for the nine months ended September
30, 1999 compared to $265.1 million in the comparable period in 1998. The
increase in collection services revenues was due to a 1.6% increase in existing
business and $5.7 million from the Union acquisition. The outsourcing services
revenue of $43.5 million compared favorably to prior year of $33.7 million due
to increased revenue from new and existing business of 24.3% and $1.6 million
from the Union acquisition. Revenues from purchased portfolio services increased
to $61.6 million for the nine months ended September 30, 1999 compared to $59.8
million in 1998 - up 2.8%. The increased revenue was attributable to the
servicing fee for the off-balance sheet receivable collections of portfolios
which increased due to the formation of FINCO, offset by lower revenues from
on-balance sheet portfolios. Prior to forming FINCO, the Company would record as
revenue the total collections on purchased portfolios. Currently, for all
purchased portfolios which are sold to and financed by FINCO, the Company
records as revenue a servicing fee on the total collections of FINCO purchased
portfolios. During the nine months ended September 30, 1999, the Company
recorded revenue from FINCO servicing fees of $9.8 million on total collections
of $25.9 million. When compared to the nine months ended September 30, 1998, the
total collections of both on and off-balance sheet purchased portfolios
increased from $59.8 million in 1998 to $77.7 million in 1999, an increase of
29.9% or $17.9 million. The increased collections resulted primarily from an
increase in the total levels of purchased portfolios primarily as a result of
the increased buying capacity made available through FINCO. If all portfolios
purchased by FINCO were accounted for on-balance sheet, the Company would have
reported revenues, including total collections of portfolios, of $396.2 million
as compared to $358.6 million, an increase of 10.0%.
Operating expenses, exclusive of amortization and depreciation charges, were
$299.6 million for the nine months ended September 30, 1999 and $276.3 million
for the comparable period in 1998 - an increase of 8.4%. The increase in
operating expenses, exclusive of amortization and depreciation charges, resulted
primarily from the Union acquisition, higher collection-related expenses
associated with the increased revenues of collection and outsourcing services,
increased collection-related expenses associated with the increase in
collections of purchased portfolios, infrastructure costs as the Company aligns
collection services by industry, and related increases in advertising and
promotional expenses and consulting expenses of approximately $2.4 million.
For the nine months ended September 30, 1999, amortization and depreciation
charges of $53.0 compared to $56.8 million for the same period last year - a
decrease of 6.5%. The lower amortization and depreciation charges resulted
primarily from lower on-balance sheet portfolio amortization offset partially
by additional depreciation and amortization of goodwill related to the Union
acquisition and depreciation of current year capital expenditures. On portfolios
owned by FINCO, the Company does not record amortization expense.
As a result of the above, the Company generated operating income of $27.4
million for the nine months ended September 30, 1999 compared to $25.6 million
for the comparable period in 1998.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the nine months ended September 30, 1999 was $80.5 million compared to $82.3
million for the same period in 1998. The decrease was primarily attributable to
the higher branding and industry focused expenses and the decreased portfolio
services revenues resulting from the manner in which revenues from off-balance
sheet collections are recognized.
Net interest expense for the nine months ended September 30, 1999 was $38.2
million compared to $37.6 million for the comparable period in 1998. The
increase was primarily due to the additional indebtedness incurred to finance
the Union acquisition offset partially by lower interest rates.
The provision for income taxes of $0.4 million was provided for state income
taxes as the Company has income tax obligations in various states.
Minority interest in 1998 resulted from the Union acquisition. On January 23,
1998, the Company acquired approximately 77% of the outstanding common stock of
Union through a tender offer. The acquisition of all remaining outstanding
common stock of Union was completed on March 31, 1998. The Company recognized
minority interest in earnings of Union during the period from January 23, 1998
to March 31, 1998.
Due to the factors stated above, the net loss for the nine months ended
September 30, 1999 of $11.2 million compared favorably to the net loss of $12.5
million for the nine months ended September 30, 1998.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
At September 30, 1999, the Company had cash and cash equivalents of $4.8
million. The Company's credit agreement provides for a $58.0 million revolving
credit facility, which allows the Company to borrow for working capital, general
corporate purposes and acquisitions, subject to certain conditions. As of
September 30, 1999, the Company had outstanding $39.9 million under the
revolving credit facility leaving $16.1 million, after outstanding letters of
credit, available under the revolving credit facility.
Since December 31, 1998, cash and cash equivalents decreased $4.0 million
primarily due to cash utilized for the net repayment of debt of $12.6 million,
purchases of loans and accounts receivable portfolios of $15.2 million and
capital expenditures of $14.2 million offset by cash from operations of $26.9
million and increased borrowings under the revolving credit facility of $14.4
million. The Company also held $23.8 million of cash for clients in restricted
trust accounts at September 30, 1999.
For the first nine months in 1999, the Company made capital expenditures of
$14.2 million primarily for the replacement and upgrading of equipment and
expansion of the Company's information services systems. The Company anticipates
spending approximately $18.0 million for capital expenditures in 1999.
The Company, Madison Dearborn Capital Partners III, L.P. ("MDP"), and certain of
the Company's stockholders, optionholders and warrantholders have entered into a
Stock Subscription and Redemption Agreement, dated as of October 8, 1999,
pursuant to which MDP will acquire a controlling interest in OSI for
approximately $790 million and most of the currently outstanding capital stock
of OSI will be redeemed (the "Recapitalization"). The Recapitalization is
expected to be completed by December 31, 1999.
The Recapitalization will be funded through an equity contribution of
approximately $211 million from MDP and existing shareholders, $100 million from
issuance of redeemable preferred shares and borrowings under a new senior credit
facility of $475 million to replace the existing senior credit facility.
The Company's existing $100 million 11% Senior Subordinated Notes will remain
outstanding if the requisite consents are obtained from the holders thereof. On
November 10, 1999, the Company began soliciting consents to the waiver of
certain of the Company's obligations under the Indenture, including its
obligation to make a change of control offer in connection with the
Recapitalization and its failure to comply with certain technical requirements
relating to the qualification and operation of FINCO as an unrestricted
subsidiary under the Indenture as discussed below.
Since the formation of FINCO, the Company has treated FINCO as an unrestricted
subsidiary under the Indenture. However, it has recently come to the attention
of the Company that, at the time of formation of FINCO, the Company failed to
take certain ministerial actions to satisfy the technical requirements under the
Indenture for the designation of FINCO as an unrestricted subsidiary, despite
the fact that it could have been designated as such at the time.
Management believes that its failure to properly qualify and operate FINCO as an
unrestricted subsidiary under the Indenture is a technicality and that
substantively FINCO should be treated as qualifying as an unrestricted
subsidiary since its formation. If FINCO were not to be treated as having been
an unrestricted subsidiary since its formation, the Company and FINCO would not
be in compliance with certain restrictive covenants of the Indenture. In order
to remove any doubt as to the status of FINCO, the Company began the consent
solicitation as previously mentioned. Based on preliminary discussions with
certain holders of its 11% Senior Subordinated Notes, management believes the
consents will be obtained.
Year 2000
- ---------
As the Year 2000 approaches, many corporate systems worldwide could malfunction
or produce incorrect results because they cannot process date-related
information properly. Dates play a key role in dependable functioning of the
software applications, software systems, information technology infrastructure,
and embedded technology (i.e., non-technical assets such as time clocks and
building services) the Company relies upon in day-to-day operations for
innumerable tasks. This includes any tasks requiring date-dependent arithmetic
calculations, sorting and sequencing data, and many other functions.
The Company identified this problem as a key focus during 1997 and as part of
any subsequent due-diligence procedures related to acquisitions completed during
1998. The Company has assessed the impact of Year 2000 issues on the processing
date-related information for all of its information systems infrastructure
(e.g., production systems) and significant non-technical assets. As the new
millennium approaches, the Company has developed and implemented a Year 2000
program to deal with this important issue in an effective and timely manner.
This problem has received significant senior management attention and resources.
Management reviews have been held on this topic. During 1998 and 1999, the
Company's Board of Directors received and will continue to receive quarterly
reports at each regular Board meeting regarding the Company's overall Year 2000
compliance status and readiness.
An independent consulting firm has been retained to provide independent
verification and testing of the production systems. Under the direction of the
Company's Senior Vice President and Chief Information Officer, the Company has
established a program management structure, a management process and methodology
and proactive client and vendor management strategies to manage the Year 2000
risk.
Because many of the Company's client relationships are supported through
computer-system interfaces, it is critical that the Company works proactively
with its clients to achieve Year 2000 compliance. The Company has established a
proactive client management strategy focused on enabling the Company to work
together with clients to assure Year 2000 compliance between respective computer
systems.
The implementation of the client management strategy commenced in 1998. Letters
were sent to significant clients, inquiring about their Year 2000 compliance
plans and status. The Company has established a follow-up process with each key
client, taking a proactive, customer-focused approach to achieving Year 2000
compliance with its customers.
The Company has also communicated with its strategic suppliers and equipment
vendors, including suppliers of non-technical assets, seeking assurances that
they and their products will be Year 2000 ready. The Company's goal was to
obtain as much detailed information as possible about its strategic suppliers
and equipment vendors' Year 2000 plans to identify those companies which appear
to pose any significant risk of failure to perform their obligations to the
Company as a result of the Year 2000. The Company has compiled detailed
information regarding all of its strategic suppliers and equipment vendors. This
will be an ongoing process during the Year 2000 project. For those strategic
suppliers and equipment vendors whose response was not satisfactory, the Company
has developed contingency plans to ensure that sufficient alternative resources
are available to continue with business operations.
The target date for completion of all production systems and significant
non-production systems (e.g., predictive dialer systems, phone switches, wide
area network hardware), including non-technical assets, is November 1999.
Testing is substantially complete for all systems with final completion
anticipated to be no later than November 1999.
Spending for modifications and updates are being expensed as incurred and is not
to have a material impact on the results of operations or cash flows. The cost
of the Company's Year 2000 project is being funded from cash flows generated
from operations. The Company estimates that its total Year 2000 expenses will be
in the range of $1.6 to $1.7 million. To date, the Company has expended
approximately $1.6 million, primarily for contract programmers and consulting
costs associated with the evaluation, assessment and remediation of computer
systems.
The Company is dependent upon its own internal computer technology and relies
upon the timely performance of its suppliers and customers and their systems. A
substantial part of the Company's day-to-day operations is dependent on power
and telecommunications services, for which alternative sources of services may
be limited. A large-scale Year 2000 failure could impair the Company's ability
to provide timely performance results required by the Company's customers,
thereby causing potential liability, lost revenues and additional expenses, the
amounts which have not been estimated. The Company's Year 2000 project seeks to
identify and minimize this risk and includes testing of its in-house
applications, purchased software and hardware to ensure that all such systems
will function before and after the Year 2000. The Company is continually
refining its understanding of the risk the Year 2000 poses to its strategic
suppliers and customers based upon information obtained through its surveys.
This refinement will continue through 1999.
The Company's Year 2000 project includes the development of contingency plans
for business critical systems, as well as for strategic suppliers and customers
to attempt to minimize disruption to its operations in the event of a Year 2000
failure. The Company is currently in the process of formulating plans to address
a variety of failure scenarios, including failures of its in-house applications,
as well as failures of strategic suppliers and customers. The Company
anticipates that it will complete Year 2000 contingency planning by November
1999.
Forward-Looking Statements
- --------------------------
The following statements in this document are or may constitute forward-looking
statements made in reliance upon the safe harbor of the Private Securities
Litigation Reform Act of 1995: (1) statements concerning the cost and successful
implementation of the Company's Year 2000 initiatives, (2) statements regarding
the completion of the Recapitalization and obtaining consents to the waiver of
certain of the Company's obligations under the Indenture, including its
obligation to make a change of control offer in connection with the
Recapitalization and its failure to comply with certain technical requirements
relating to the qualification and operation of FINCO, (3) statements concerning
the anticipated costs and outcome of legal proceedings and environmental
liabilities, (4) statements regarding the Company's expected capital
expenditures, (5) any statements preceded by, followed by or that include the
word "believes," "expects," "anticipates," "intends," "should," "may," or
similar expressions; and (6) other statements contained or incorporated by
reference in this document regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to: (1) the demand for the Company's services, (2)
the demand for accounts receivable management generally, (3) general economic
conditions, (4) changes in interest rates, (5) competition, including but not
limited to pricing pressures, (6) changes in governmental regulations including,
but not limited to the federal Fair Debt Collection Practices Act and comparable
state statutes, (7) the status and effectiveness of the Company's Year 2000
efforts, (8) legal proceedings, (9) environmental investigations and clean up
efforts, (10) the Company's ability to rationalize operations of recent
acquisitions, and (11) the Company's ability to generate cash flow or obtain
financing to fund its operations, service its indebtedness and continue its
growth and expand successfully into new markets and services, (12) the failure
of the holders of the Company's 11% Senior Subordinated Notes to consent to the
waiver of certain obligations under the Indenture, and (13) the failure of any
parts to consumate the Recapitalization transactions.
These forward-looking statements speak only as of the date they were made. These
cautionary statements should be considered in connection with any written or
oral forward-looking statements that the Company may issue in the future. The
Company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect later events or circumstances or to
reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. From time to time and as required by the Company's credit
agreement, the Company will employ derivative financial instruments as part of
its risk management program. The Company's objective is to manage risks and
exposures and not to trade such instruments for profit or loss.
Since December 31, 1998 (the most recent completed fiscal year), there have been
no material changes in the reported market risks.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and certain of its subsidiaries are involved in
various investigations, claims and legal proceedings covering a wide range of
matters that arise in the normal course of business and are routine to the
nature of the Company's business. Other information with respect to legal
proceedings appears in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10.1 Amended and Restated Employment Agreement dated as of June 4,
1999 by and between the Company and Timothy G. Beffa.
10.2 Amended and Restated Employment Agreement dated as of June 4,
1999 by and between the Company and Michael A. DiMarco.
10.3 Amended and Restated Employment Agreement dated as of June 4,
1999 by and between the Company and C. Bradford McLeod.
10.4 Form of Non-Qualified Stock Option Award Agreement [E].
Exhibit 27 Financial Data Schedule (Unaudited)
(b). Reports on Form 8-K
There were no reports on Form 8-K filed for the three-month period
ended September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTSOURCING SOLUTIONS INC.
(Registrant)
/s/ Timothy G. Beffa
--------------------------------------------
Timothy G. Beffa
President and Chief Executive Officer
/s/ Gary L. Weller
--------------------------------------------
Gary L. Weller
Executive Vice President and
Chief Financial Officer
/s/ Daniel T. Pijut
--------------------------------------------
Daniel T. Pijut
Vice President, Corporate Controller
and Chief Accounting Officer
Date: November 15, 1999
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, dated as of the 4th day of June, 1999 amends and
restates the Employment Agreement dated as of the 27th day of August, 1996,
as amended on May 14, 1997 and August 27, 1997, between Outsourcing
Solutions Inc. (formerly known as OSI Holdings Corp.), a Delaware corporation,
with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri
63017 (the "Company"), and Timothy G. Beffa, an individual residing in the State
of Missouri (the "Employee").
R E C I T A L S
WHEREAS, the Company desires to secure the services and employment
of the Employee on behalf of the Company, and the Employee desires to enter into
employment with the Company, upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto, each intending to be legally
bound hereby, agree as follows:
1. Employment. The Company hereby employs the Employee as Chief
Executive Officer of the Company, and the Employee accepts such employment for
the term of the employment specified in Section 3 below. During the Employment
Term (as defined below), the Employee shall serve as the Chief Executive Officer
of the Company, performing such duties as shall be reasonably required of such
an employee of the Company, and shall have such other powers and perform such
other additional executive duties as may from time to time be assigned to him by
the Board of Directors of the Company. During the Employment Term, the Employee
shall serve as a member of the Board of Directors of the Company. The Employee's
primary place of employment shall be St. Louis, Missouri. The Company and the
Employee each acknowledge that the Employee shall be required to travel
extensively in connection with the performance of his duties hereunder,
particularly during the first year of employment. The Company and the Employee
further acknowledge that the Company's headquarters shall be relocated to St.
Louis.
2. Performance. The Employee will serve the Company faithfully and
to the best of his ability and will devote substantially all of his time,
energy, experience and talents during regular business hours and as otherwise
reasonably necessary to such employment, to the exclusion of all other business
activities; provided, however, that the Employee may continue to serve on
outside boards of directors of which he is a member as of the date hereof.
3. Employment Term. The employment term shall begin on the date of
this Agreement and continue until December 31, 1999, unless earlier terminated
pursuant to Section 7 below (the "Employment Term"); provided, that on December
31, 1999 and on each anniversary thereafter, the Employment Term shall be
automatically extended for an additional twelve month period unless 30 days
prior to such anniversary date either the Company or the Employee shall give
written notice of termination of the Agreement, in which case the Agreement will
terminate at the end of the then existing Employment Term.
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal semimonthly installments, subject to
withholding and other applicable taxes, at an annual rate of no less than Three
Hundred Seventy Five Thousand Dollars ($375,000.00).
(b) Bonus. Commencing on January 1, 1999, the Employee shall be
eligible for an annual bonus of up to 150% of his base salary. Annual bonuses
shall be based on the satisfaction of performance targets established by the
Board of Directors on or before March 31 of each year for such year.
(c) Medical and Dental Health, Life and Disability Insurance
Benefits. During the Employment Term, the Employee shall be entitled to medical
and dental health, life insurance and disability insurance benefits in
accordance with the Company's established practices with respect to its key
employees.
(d) Vacation; Sick Leave. During the Employment Term, the Employee
shall be entitled to vacation and sick leave in accordance with the Company's
established practices with respect to its key employees.
(e) Automobile. The Company shall assume the Employee's lease
obligations with respect to his current automobile and pay for all gas, oil,
maintenance and insurance for such automobile.
5. Expenses. The Employee shall be reimbursed by the Company for
all reasonable expenses incurred by him in connection with the performance of
his duties hereunder in accordance with policies established by the Board from
time to time and upon receipt of appropriate documentation.
6. Secret Processes and Confidential Information. For the
Employment Term and thereafter, (a) the Employee will not divulge, transmit or
otherwise disclose (except as legally compelled by court order, and then only to
the extent required, after prompt notice to the Company of any such order),
directly or indirectly, other than in the regular and proper course of business
of the Company, any confidential knowledge or information with respect to the
operations or finances of the Company or with respect to confidential or secret
processes, services, techniques, customers or plans with respect to the Company
and (b) the Employee will not use, directly or indirectly, any confidential
information for the benefit of anyone other than the Company; provided, however,
that the Employee has no obligation, express or implied, to refrain from using
or disclosing to others any such knowledge or information which is or hereafter
shall become available to the public other than through disclosure by the
Employee. All new processes, techniques, know-how, inventions, plans, products,
patents and devices developed, made or invented by the Employee, alone or with
others, while an employee of the Company, shall be and become the sole property
of the Company, unless released in writing by the Company, and the Employee
hereby assigns any and all rights therein or thereto to the Company.
During the term of this Agreement and thereafter, Employee shall not
take any action to disparage or criticize to any third parties any of the
services of the Company or to commit any other action that injures or hinders
the business relationships of the Company.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by Employee or otherwise
coming into his possession in the course of the performance of his services
under this Agreement, shall be the exclusive property of Company and shall be
delivered to Company and not retained by Employee upon termination of this
Agreement for any reason whatsoever.
7. Termination. The employment of the Employee hereunder may be
terminated at any time by the Company with or without "cause". For purposes of
this Agreement, "cause" shall mean: (i) embezzlement, theft or other
misappropriation of any property of the Company or any subsidiary, (ii) gross or
willful misconduct resulting in substantial loss to the Company or any
subsidiary or substantial damage to the reputation of the Company or any
subsidiary, (iii) any act involving moral turpitude which results in a
conviction for a felony involving moral turpitude, fraud or misrepresentation,
(iv) gross neglect of his assigned duties to the Company or any subsidiary, (v)
gross breach of his fiduciary obligations to the Company or any subsidiary, or
(vi) any chemical dependence which materially affects the performance of his
duties and responsibilities to the Company or any subsidiary; provided that in
the case of the misconduct set forth in clauses (iv) and (vi) above, such
misconduct shall continue for a period of 30 days following written notice
thereof by the Company to the Employee.
8. Severance.
(a) If (i) Employee's employment is terminated by the Company
without "cause," (ii) the Company does not agree to extend the Employment Term
upon the expiration thereof, (iii) Employee terminates his employment because
the Company reduces his responsibilities or compensation in a manner which is
tantamount to termination of Employee's employment, or (iv) within two years
following a Sale of the Company (as defined in Section 8(c) of this Agreement),
the Employee gives notice to the Company of his resignation for "Good Reason"
(as defined in Section 8(b) hereof) setting forth in reasonable detail the
circumstances claimed to constitute Good Reason and stating that it constitutes
notice pursuant to this Section 8(a), and the stated basis for Good Reason has
not been fully corrected within sixty (60) days from the date of such notice,
the Employee shall be entitled to (x) receive an amount equal to his total cash
compensation (base salary plus bonus) for the year preceding the date of the
Employee's termination or the date on which the Employment Term expires, as the
case may be, such amount to be payable in a lump sum on the date of termination
or the date on which the Employment Term expires, as the case may be, and (y)
continue to receive the benefits referred to in Section 4(c) during the one year
period following the date of termination or expiration (the "Severance Period").
If the Employee's employment is terminated by the Company "for cause", the
Employee shall not be entitled to severance compensation. The Employee covenants
and agrees that he will not, during the one year period following the
termination of the Employee's employment by the Company, within any jurisdiction
or marketing area in which the Company or any of its Affiliates (as defined
below) is doing business or is qualified to do business, directly or indirectly
own, manage, operate, control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner with, any
business of the type and character engaged in and competitive with that
conducted by the Company or any of its Affiliates at the time of such
termination; provided, however, that ownership of securities of 2% or less of
any class of securities of a public company shall not be considered to be
competition with the Company or any of its Affiliates. For the purposes of this
Agreement, the term "Affiliate" shall mean, with respect to the Company, any
person or entity which, directly or indirectly, owns or is owned by, or is under
common ownership with, the Company. The term "own" (including, with correlative
meanings, "owned by" and "under common ownership with") shall mean the ownership
of 50% or more of the voting securities (or their equivalent) of a particular
entity.
(b) For purposes of this Agreement, "Good Reason" shall mean the
occurrence, without the Employee's consent, of any of the following events
during the Employment Term within two years following a Sale of the Company: (A)
a relocation of the principal location of the performance of work by the
Employee beyond a thirty mile radius of such location as of the time of the Sale
of the Company; (B) an assignment to the Employee of duties that result in a
material diminution of the Employee's duties and responsibilities under this
Agreement, (C) a reduction of the Employee's base salary in effect as of the
time of the Sale of the Company, (D) a material breach of the Company's
obligations set forth in this Agreement, or (E) the failure of any acquiror of,
or successor to, all or substantially all of the assets or business of the
Company to expressly assume this Agreement and agree to perform all of the
obligations of the Company hereunder.
(c) For the purposes of this Agreement, "Sale of the Company" shall
mean (i) a stock sale, merger, consolidation, combination, reorganization or
other transaction resulting in less than fifty percent (50%) of the combined
voting power of the surviving or resulting entity being owned by the
shareholders of the Company immediately prior to such transaction or (ii) the
sale or other disposition of all or substantially all of the assets or business
of the Company (other than, in the case of either clause (i) or (ii) above, in
connection with any employee benefit plan of the Company or an Affiliate);
provided, however, that a public offering of the capital stock of the Company
shall not be a "Sale of the Company."
9. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Employee:
Timothy G. Beffa
2015 Kings Pointe Drive
St. Louis, Missouri 63005
If to the Company:
Outsourcing Solutions Inc.
390 South Woods Mill Road, Suite 350
Chesterfield, Missouri 63017
Attention: Vice President and General Counsel
10. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Missouri applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of Missouri or
in the United States District Court for the Eastern District of Missouri, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything else in this
Agreement to the contrary, the Company may assign this Agreement to and all
rights hereunder shall inure to the benefit of any person, firm or corporation
succeeding to all or substantially all of the business or assets of the Company
by purchase, merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term of this
Agreement, or in the event of any dispute or controversy arising out of or
relating to this Agreement, the costs and expenses (including attorney's fees
and disbursements) of the prevailing party shall be paid by the other party,
such party to be deemed to have prevailed if such action or claim is concluded
pursuant to a court order or final judgment which is not subject to appeal, a
settlement agreement or dismissal of the principal claims. Notwithstanding the
foregoing, following a Sale of the Company, all reasonable costs and expenses
(including attorney's fees and disbursements) incurred by the Employee in an
action or claim to enforce any provision or term of this Agreement, and all
costs and expenses of any court proceeding or arbitration in connection with any
dispute or controversy arising out of or relating to this Agreement, shall be
promptly paid or reimbursed by the Company or its successor; provided, however,
that no payment or reimbursement shall be made of such costs or expenses if and
to the extent that the court or arbitrator adjudicating or deciding the matter
determines that any of the Employee's litigation assertions or defenses were in
bad faith or frivolous. Pending the resolution of any court proceeding or
arbitration described in this Section 10(c), the Company or its successor shall
continue payment of all amounts and benefits due the Employee under this
Agreement.
(d) Binding Effect. This Agreement is for the employment of
Employee, personally, and for the services to be rendered by him must be
rendered by him and no other person. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Survival. The covenants set forth in Sections 6 and 8 of this
Agreement shall survive and shall continue to be binding upon Employee
notwithstanding the termination of this Agreement for any reason whatsoever. The
covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and
construed as separate agreements independent of any other provision of this
Agreement. The existence of any claim or cause of action by Employee against
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Company of any or all covenants. It is expressly
agreed that the remedy at law for the breach or any such covenant is inadequate
and that injunctive relief shall be available to prevent the breach or any
threatened breach thereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have hereunto executed this Agreement the day and year first written
above.
OUTSOURCING SOLUTIONS INC.
By: /s/ Eric R. Fencl
-----------------------
Name: Eric R. Fencl
Title: Vice President & General Counsel
EMPLOYEE
/s/ Timothy G. Beffa
-------------------------
TIMOTHY G. BEFFA
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, dated as of the 4th day of June, 1999 amends and
restates the Employment Agreement dated as of the 1st day of September, 1998
between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390
South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"),
and Michael A. DiMarco, an individual residing in the State of Missouri (the
"Employee").
RECITALS
WHEREAS, the Company desires to secure the services and employment
of the Employee on behalf of the Company, and the Employee desires to enter into
employment with the Company, upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto, each intending to be legally
bound hereby, agree as follows:
1. Employment. The Company hereby employs the Employee as Executive
Vice President--President of Fee Services of the Company, and the Employee
accepts such employment for the term of the employment specified in Section 3
below. During the Employment Term (as defined below), the Employee shall serve
as the Executive Vice President--President of Fee Services of the Company,
performing such duties as shall be reasonably required of such an employee of
the Company, and shall have such other powers and perform such other additional
executive duties as may from time to time be assigned to him by the Board of
Directors of the Company. The Employee's primary place of employment shall be
St. Louis, Missouri.
2. Performance. The Employee will serve the Company faithfully and
to the best of his ability and will devote substantially all of his time,
energy, experience and talents during regular business hours and as otherwise
reasonably necessary to such employment, to the exclusion of all other business
activities.
3. Employment Term. The employment term shall begin on the date of
this Agreement and continue until December 31, 1999, unless earlier terminated
pursuant to Section 7 below (the "Employment Term"); provided, that on December
31, 1999 and on each anniversary thereafter, the Employment Term shall be
automatically extended for an additional twelve month period unless 30 days
prior to such anniversary date either the Company or the Employee shall give
written notice of termination of the Agreement, in which case the Agreement will
terminate at the end of the then existing Employment Term.
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal semimonthly installments, subject to
withholding and other applicable taxes, at an annual rate of no less than Three
Hundred Twenty Five Thousand Dollars ($325,000.00).
(b) Bonus. Commencing on January 1, 1999, the Employee shall be
eligible for a target annual bonus of 67% of his base salary. Annual bonuses
shall be based on the satisfaction of performance targets established by the
Board of Directors on or before March 31 of each year for such year.
(c) Medical and Dental Health, Life and Disability Insurance
Benefits. During the Employment Term, the Employee shall be entitled to medical
and dental health, life insurance and disability insurance benefits in
accordance with the Company's established practices with respect to its key
employees.
(d) Vacation; Sick Leave. During the Employment Term, the Employee
shall be entitled to vacation and sick leave in accordance with the Company's
established practices with respect to its key employees.
5. Expenses.
(a) The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Board from time
to time and upon receipt of appropriate documentation.
(b) The Employee shall be reimbursed by the Company for normal
moving and relocation expenses incurred by Employee to move his residence to the
St. Louis metropolitan area, including reasonable and customary real estate
commission, closing costs and discount points and reasonable expenses for
temporary living, return home travel and family travel to St. Louis for house
purchasing purposes. If requested by Employee, Company shall provide an advance
of $115,000 to facilitate Employee's relocation, to be repaid to the Company no
later than 48 hours following the closing of the sale of Employee's current
residence in Fairview, Texas.
6. Secret Processes and Confidential Information. For the
Employment Term and thereafter, (a) the Employee will not divulge, transmit or
otherwise disclose (except as legally compelled by court order, and then only to
the extent required, after prompt notice to the Company of any such order),
directly or indirectly, other than in the regular and proper course of business
of the Company, any confidential knowledge or information with respect to the
operations or finances of the Company or with respect to confidential or secret
processes, services, techniques, customers or plans with respect to the Company
and (b) the Employee will not use, directly or indirectly, any confidential
information for the benefit of anyone other than the Company; provided, however,
that the Employee has no obligation, express or implied, to refrain from using
or disclosing to others any such knowledge or information which is or hereafter
shall become available to the public other than through disclosure by the
Employee. All new processes, techniques, know-how, inventions, plans, products,
patents and devices developed, made or invented by the Employee, alone or with
others, while an employee of the Company, shall be and become the sole property
of the Company, unless released in writing by the Company, and the Employee
hereby assigns any and all rights therein or thereto to the Company.
During the term of this Agreement and thereafter, Employee shall not
take any action to disparage or criticize to any third parties any of the
services of the Company or to commit any other action that injures or hinders
the business relationships of the Company.
During the term of this Agreement and for two years thereafter,
Employee shall not employ, solicit for employment or otherwise contract for the
services of any employee of the Company or any of its Affiliates (as defined
below) at the time of this Agreement or who shall subsequently become an
employee of the Company or any of its Affiliates, provided that Employee shall
not be prohibited from such solicitation or employment if such employee (a)
initiated discussions with Employee without any direct or indirect solicitation
from Employee, (b) responded to a general public solicitation, or (c) has
terminated employment with the Company prior to commencement of discussions with
Employee.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by Employee or otherwise
coming into his possession in the course of the performance of his services
under this Agreement, shall be the exclusive property of Company and shall be
delivered to Company and not retained by Employee upon termination of this
Agreement for any reason whatsoever.
7. Termination. The employment of the Employee hereunder may be
terminated at any time by the Company with or without "cause". For purposes of
this Agreement, "cause" shall mean: (i) embezzlement, theft or other
misappropriation of any property of the Company or any subsidiary, (ii) gross or
willful misconduct resulting in substantial loss to the Company or any
subsidiary or substantial damage to the reputation of the Company or any
subsidiary, (iii) any act involving moral turpitude which results in a
conviction for a felony involving moral turpitude, fraud or misrepresentation,
(iv) gross neglect of his assigned duties to the Company or any subsidiary, (v)
gross breach of his fiduciary obligations to the Company or any subsidiary, or
(vi) any chemical dependence which materially affects the performance of his
duties and responsibilities to the Company or any subsidiary; provided that in
the case of the misconduct set forth in clauses (iv) and (vi) above, such
misconduct shall continue for a period of 30 days following written notice
thereof by the Company to the Employee.
8. Severance.
(a) If (i) Employee's employment is terminated by the Company
without "cause," (ii) the Company does not agree to extend the Employment Term
upon the expiration thereof,(iii) Employee terminates his employment because the
Company reduces his responsibilities or compensation in a manner which is
tantamount to termination of Employee's employment, or (iv) within two years
following a Sale of the Company (as defined in Section 9 of this Agreement),
the Employee gives notice to the Company of his resignation for "Good Reason"
(as defined in Section 8(b) hereof) setting forth in reasonable detail the
circumstances claimed to constitute Good Reason and stating that it constitutes
notice pursuant to this Section 8(a), and the stated basis for Good Reason has
not been fully corrected within sixty (60) days from the date of such notice,
the Employee shall be entitled to (x) receive an amount equal to his total cash
compensation (base salary plus bonus, excluding, however, any Change in Control
Bonus paid pursuant to Section 9 hereof) for the year preceding the date of the
Employee's termination or the date on which the Employment Term expires, as the
case may be, such amount to be payable in a lump sum on the date of termination
or the date on which the Employment Term expires, as the case may be, and (y)
continue to receive the benefits referred to in Section 4(c) during the one year
period following the date of termination or expiration (the "Severance Period");
provided, however, if any such event occurs prior to the extension of the
initial Employment Term, the Employee shall be entitled to (A) an amount equal
to his then current salary, payable in a lump sum on the date of termination,
(B) an amount equal to his target annual bonus, payable in a lump sum on the
date of termination, and (C) continue to receive the benefits referred to in
Section 4(c) during the Severance Period. If the Employee's employment is
terminated by the Company "for cause", the Employee shall not be entitled to
severance compensation. The Employee covenants and agrees that he will not,
during the one year period following the termination of the Employee's
employment by the Company, within any jurisdiction or marketing area in which
the Company or any of its Affiliates (as defined below) is doing business or is
qualified to do business, directly or indirectly own, manage, operate, control,
be employed by or participate in the ownership, management, operation or control
of, or be connected in any manner with, any business of the type and character
engaged in and competitive with that conducted by the Company or any of its
Affiliates at the time of such termination; provided, however, that ownership of
securities of 2% or less of any class of securities of a public company shall
not be considered to be competition with the Company or any of its Affiliates.
For the purposes of this Agreement, the term "Affiliate" shall mean, with
respect to the Company, any person or entity which, directly or indirectly, owns
or is owned by, or is under common ownership with, the Company. The term "own"
(including, with correlative meanings, "owned by" and "under common ownership
with") shall mean the ownership of 50% or more of the voting securities (or
their equivalent) of a particular entity.
(b) For purposes of this Agreement, "Good Reason" shall mean the
occurrence, without the Employee's consent, of any of the following events
during the Employment Term within two years following a Sale of the Company: (A)
a relocation of the principal location of the performance of work by the
Employee beyond a thirty mile radius of such location as of the time of the Sale
of the Company; (B) an assignment to the Employee of duties that result in a
material diminution of the Employee's duties and responsibilities under this
Agreement, (C) a reduction of the Employee's base salary in effect as of the
time of the Sale of the Company, (D) a material breach of the Company's
obligations set forth in this Agreement, or (E) the failure of any acquiror of,
or successor to, all or substantially all of the assets or business of the
Company to expressly assume this Agreement and agree to perform all of the
obligations of the Company hereunder.
9. Change in Control Bonus. Upon consummation of a "Sale of the
Company," if the Employee is employed by the Company immediately prior thereto,
he will be entitled to receive a payment from the Company in the amount of 250%
of his (i) then current base salary plus (ii) target annual bonus, reduced by
his "Option Gain" and subject to any applicable withholding or employment taxes.
Such amount (the "Change in Control Bonus") will be paid to the Employee in
immediately available funds in a lump-sum at the time such Sale of the Company
is consummated. The foregoing to the contrary notwithstanding, the Employee will
only be entitled to receive the Change in Control Bonus if the Change in Control
Bonus is previously approved by a vote of more than seventy-five percent (75%)
of the voting power of the Company's outstanding stock immediately before any
Sale of the Company. For purposes of this Agreement, the following terms have
the meanings set forth below:
"Sale of the Company" - a (i) a stock sale, merger, consolidation,
combination, reorganization or other transaction resulting in less than
fifty percent (50%) of the combined voting power of the surviving or
resulting entity being owned by the shareholders of the Company
immediately prior to such transaction or (ii) the sale or other
disposition of all or substantially all of the assets or business of the
Company (other than, in the case of either clause (i) or (ii) above, in
connection with any employee benefit plan of the Company or an Affiliate);
provided, however, that a public offering of the capital stock of the
Company shall not be a "Sale of the Company."
"Option Gain" - the aggregate amount computed for all of the options to
purchase capital stock of the Company or other equity compensation awards
theretofore granted to the Employee, of the excess of the consideration
received by the holders of the Company's common stock for a share of such
common stock in connection with the applicable Sale of the Company over
the exercise price of the option or other award, if any, multiplied by the
number of shares of the Company's common stock covered by each such option
or award. The amount of the Option Gain shall be finally and conclusively
determined by the Board of Directors of the Company in its good faith.
<PAGE>
10. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Employee:
Michael A. DiMarco
247 Doulton Place
Town and Country, Missouri 63141
If to the Company:
Outsourcing Solutions Inc.
390 South Woods Mill Road, Suite 350
Chesterfield, Missouri 63017
Attn: President
11. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Missouri applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of Missouri or
in the United States District Court for the Eastern District of Missouri, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything else in this
Agreement to the contrary, the Company may assign this Agreement to and all
rights hereunder shall inure to the benefit of any person, firm or corporation
succeeding to all or substantially all of the business or assets of the Company
by purchase, merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term of this
Agreement, or in the event of any dispute or controversy arising out of or
relating to this Agreement, the costs and expenses (including attorney's fees
and disbursements) of the prevailing party shall be paid by the other party,
such party to be deemed to have prevailed if such action or claim is concluded
pursuant to a court order or final judgment which is not subject to appeal, a
settlement agreement or dismissal of the principal claims. Notwithstanding the
foregoing, following a Sale of the Company, all reasonable costs and expenses
(including attorney's fees and disbursements) incurred by the Employee in an
action or claim to enforce any provision or term of this Agreement, and all
costs and expenses of any court proceeding or arbitration in connection with any
dispute or controversy arising out of or relating to this Agreement, shall be
promptly paid or reimbursed by the Company or its successor; provided, however,
that no payment or reimbursement shall be made of such costs or expenses if and
to the extent that the court or arbitrator adjudicating or deciding the matter
determines that any of the Employee's litigation assertions or defenses were in
bad faith or frivolous. Pending the resolution of any court proceeding or
arbitration described in this Section 11(c), the Company or its successor shall
continue payment of all amounts and benefits due the Employee under this
Agreement.
(d) Binding Effect. This Agreement is for the employment of
Employee, personally, and for the services to be rendered by him must be
rendered by him and no other person. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Survival. The covenants set forth in Sections 6 and 8 of this
Agreement shall survive and shall continue to be binding upon Employee
notwithstanding the termination of this Agreement for any reason whatsoever. The
covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and
construed as separate agreements independent of any other provision of this
Agreement. The existence of any claim or cause of action by Employee against
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Company of any or all covenants. It is expressly
agreed that the remedy at law for the breach or any such covenant is inadequate
and that injunctive relief shall be available to prevent the breach or any
threatened breach thereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have hereunto executed this Agreement the day and year first written
above.
OUTSOURCING SOLUTIONS INC.
By/s/ Timothy G. Beffa
-------------------------------------
Timothy G. Beffa, President and
Chief Executive Officer
EMPLOYEE
/s/ Michael A. DiMarco
-------------------------------------
Michael A. DiMarco
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, dated as of the 4th day of June, 1999 amends and
restates the Employment Agreement dated as of the 14th day of September, 1998
between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390
South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"),
and C. Bradford McLeod, an individual residing in the State of Missouri (the
"Employee").
RECITALS
WHEREAS, the Company desires to secure the services and employment
of the Employee on behalf of the Company, and the Employee desires to enter into
employment with the Company, upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto, each intending to be legally
bound hereby, agree as follows:
1. Employment. The Company hereby employs the Employee as Senior
Vice President--Human Resources of the Company, and the Employee accepts such
employment for the term of the employment specified in Section 3 below. During
the Employment Term (as defined below), the Employee shall serve as the Senior
Vice President--Human Resources of the Company, performing such duties as shall
be reasonably required of such an employee of the Company, and shall have such
other powers and perform such other additional executive duties as may from time
to time be assigned to him by the Board of Directors of the Company. The
Employee's primary place of employment shall be St. Louis, Missouri.
2. Performance. The Employee will serve the Company faithfully and
to the best of his ability and will devote substantially all of his time,
energy, experience and talents during regular business hours and as otherwise
reasonably necessary to such employment, to the exclusion of all other business
activities.
3. Employment Term. The employment term shall begin on the date of
this Agreement and continue until December 31, 1999, unless earlier terminated
pursuant to Section 7 below (the "Employment Term"); provided, that on December
31, 1999 and on each anniversary thereafter, the Employment Term shall be
automatically extended for an additional twelve month period unless 30 days
prior to such anniversary date either the Company or the Employee shall give
written notice of termination of the Agreement, in which case the Agreement will
terminate at the end of the then existing Employment Term.
4. Compensation.
(a) Salary. During the Employment Term, the Company shall pay the
Employee a base salary, payable in equal semimonthly installments, subject to
withholding and other applicable taxes, at an annual rate of no less than One
Hundred Ninety Thousand Dollars ($190,000.00).
(b) Bonus. Commencing on January 1, 1999, the Employee shall be
eligible for a target annual bonus of 50% of his base salary. Annual bonuses
shall be based on the satisfaction of performance targets established by the
Board of Directors on or before March 31 of each year for such year.
(c) Medical and Dental Health, Life and Disability Insurance
Benefits. During the Employment Term, the Employee shall be entitled to medical
and dental health, life insurance and disability insurance benefits in
accordance with the Company's established practices with respect to its key
employees.
(d) Vacation; Sick Leave. During the Employment Term, the Employee
shall be entitled to vacation and sick leave in accordance with the Company's
established practices with respect to its key employees.
5. Expenses.
(a) The Employee shall be reimbursed by the Company for all
reasonable expenses incurred by him in connection with the performance of his
duties hereunder in accordance with policies established by the Board from time
to time and upon receipt of appropriate documentation.
(b) The Employee shall be reimbursed by the Company for normal
moving and relocation expenses incurred by Employee to move his residence to the
St. Louis metropolitan area, including reasonable and customary real estate
commission, closing costs and discount points and reasonable expenses for
temporary living, return home travel and family travel to St. Louis for house
purchasing purposes. Company shall reimburse Employee an amount equal to any
loss sustained by him on the sale of his current residence, up to $50,000. If
requested by Employee, Company shall provide an advance of $225,000 to
facilitate Employee's relocation, to be repaid to the Company no later than 48
hours following the closing of the sale of Employee's current residence in Oak
Hill, Virginia. Company shall reimburse Employee for duplicate housing expenses
for up to six months following the closing of the purchase of Employee's
residence in the St. Louis metropolitan area. Employee shall receive a lump sum
payment in an amount sufficient to reimburse him for income taxes payable by him
as a result of such moving and relocation expenses and the payment received
under this Section 5(b).
6. Secret Processes and Confidential Information. For the
Employment Term and thereafter, (a) the Employee will not divulge, transmit or
otherwise disclose (except as legally compelled by court order, and then only to
the extent required, after prompt notice to the Company of any such order),
directly or indirectly, other than in the regular and proper course of business
of the Company, any confidential knowledge or information with respect to the
operations or finances of the Company or with respect to confidential or secret
processes, services, techniques, customers or plans with respect to the Company
and (b) the Employee will not use, directly or indirectly, any confidential
information for the benefit of anyone other than the Company; provided, however,
that the Employee has no obligation, express or implied, to refrain from using
or disclosing to others any such knowledge or information which is or hereafter
shall become available to the public other than through disclosure by the
Employee. All new processes, techniques, know-how, inventions, plans, products,
patents and devices developed, made or invented by the Employee, alone or with
others, while an employee of the Company, shall be and become the sole property
of the Company, unless released in writing by the Company, and the Employee
hereby assigns any and all rights therein or thereto to the Company.
During the term of this Agreement and thereafter, Employee shall not
take any action to disparage or criticize to any third parties any of the
services of the Company or to commit any other action that injures or hinders
the business relationships of the Company.
During the term of this Agreement and for two years thereafter,
Employee shall not employ, solicit for employment or otherwise contract for the
services of any employee of the Company or any of its Affiliates (as defined
below) at the time of this Agreement or who shall subsequently become an
employee of the Company or any of its Affiliates, provided that Employee shall
not be prohibited from such solicitation or employment if such employee (a)
initiated discussions with Employee without any direct or indirect solicitation
from Employee, (b) responded to a general public solicitation, or (c) has
terminated employment with the Company prior to commencement of discussions with
Employee.
All files, records, documents, memorandums, notes or other documents
relating to the business of Company, whether prepared by Employee or otherwise
coming into his possession in the course of the performance of his services
under this Agreement, shall be the exclusive property of Company and shall be
delivered to Company and not retained by Employee upon termination of this
Agreement for any reason whatsoever.
7. Termination. The employment of the Employee hereunder may be
terminated at any time by the Company with or without "cause". For purposes of
this Agreement, "cause" shall mean: (i) embezzlement, theft or other
misappropriation of any property of the Company or any subsidiary, (ii) gross or
willful misconduct resulting in substantial loss to the Company or any
subsidiary or substantial damage to the reputation of the Company or any
subsidiary, (iii) any act involving moral turpitude which results in a
conviction for a felony involving moral turpitude, fraud or misrepresentation,
(iv) gross neglect of his assigned duties to the Company or any subsidiary, (v)
gross breach of his fiduciary obligations to the Company or any subsidiary, or
(vi) any chemical dependence which materially affects the performance of his
duties and responsibilities to the Company or any subsidiary; provided that in
the case of the misconduct set forth in clauses (iv) and (vi) above, such
misconduct shall continue for a period of 30 days following written notice
thereof by the Company to the Employee.
8. Severance.
(a) (1) I (i) Employee's employment is terminated by the Company
without "cause," (ii) the Company does not agree to extend the Employment Term
upon the expiration thereof, (iii) Employee terminates his employment because
the Company reduces his responsibilities or compensation in a manner which is
tantamount to termination of Employee's employment, or (iv) within two years
following a Sale of the Company (as defined in Section 9 of this Agreement),
the Employee gives notice to the Company of his resignation for "Good Reason"
(as defined in Section 8(a)(2) hereof) setting forth in reasonable detail the
circumstances claimed to constitute Good Reason and stating that it constitutes
notice pursuant to this Section 8(a), and the stated basis for Good Reason has
not been fully corrected within sixty (60) days from the date of such notice,
the Employee shall be entitled to (x) receive an amount equal to his total cash
compensation (base salary plus bonus, excluding, however, any Change in Control
Bonus paid pursuant to Section 9 hereof) for the year preceding the date of the
Employee's termination or the date on which the Employment Term expires, as the
case may be, such amount to be payable in a lump sum on the date of termination
or the date on which the Employment Term expires, as the case may be, (y)
continue to receive the benefits referred to in Section 4(c) during the one year
period following the date of termination or expiration (the "Severance Period"),
and (z) reasonable outplacement services during the Severance Period provided by
an outplacement firm designated by the Employee; provided, however, if any such
event occurs prior to the extension of the initial Employment Term, the Employee
shall be entitled to (A) an amount equal to his then current salary, payable in
a lump sum on the date of termination, (B) an amount equal to his target annual
bonus, payable in a lump sum on the date of termination, (C) continue to receive
the benefits referred to in Section 4(c) during the Severance Period, and (D)
reasonable outplacement services during the Severance Period provided by an
outplacement firm designated by Employee.
(2) For purposes of this Agreement, "Good Reason" shall mean the
occurrence, without the Employee's consent, of any of the following events
during the Employment Term within two years following a Sale of the Company: (A)
a relocation of the principal location of the performance of work by the
Employee beyond a thirty mile radius of such location as of the time of the Sale
of the Company; (B) an assignment to the Employee of duties that result in a
material diminution of the Employee's duties and responsibilities under this
Agreement, (C) a reduction of the Employee's base salary in effect as of the
time of the Sale of the Company, (D) a material breach of the Company's
obligations set forth in this Agreement, or (E) the failure of any acquiror of,
or successor to, all or substantially all of the assets or business of the
Company to expressly assume this Agreement and agree to perform all of the
obligations of the Company hereunder.
(b) If, prior to September 14, 2000, there is a Sale of the Company
or Timothy G. Beffa no longer serves as Chief Executive Officer of the Company,
then Employee may elect to terminate his employment with the Company and he
shall be entitled to the severance set forth in Section 8(a) and relocation
assistance to the Washington D.C. metropolitan area, equivalent to the
assistance set forth in Section 5(b); provided, however, Employee may elect to
relocate to an area other than Washington D.C., in which case such assistance
shall be no greater than the assistance that would have been provided to
relocate Employee to Washington D.C.
(c) If the Employee's employment is terminated by the Company "for
cause", the Employee shall not be entitled to severance compensation.
(d) The Employee covenants and agrees that he will not, during the
one year period following the termination of the Employee's employment by the
Company, within any jurisdiction or marketing area in which the Company or any
of its Affiliates (as defined below) is doing business or is qualified to do
business, directly or indirectly own, manage, operate, control, be employed by
or participate in the ownership, management, operation or control of, or be
connected in any manner with, any business of the type and character engaged in
and competitive with that conducted by the Company or any of its Affiliates at
the time of such termination; provided, however, that ownership of securities of
2% or less of any class of securities of a public company shall not be
considered to be competition with the Company or any of its Affiliates. For the
purposes of this Agreement, the term "Affiliate" shall mean, with respect to the
Company, any person or entity which, directly or indirectly, owns or is owned
by, or is under common ownership with, the Company. The term "own" (including,
with correlative meanings, "owned by" and "under common ownership with") shall
mean the ownership of 50% or more of the voting securities (or their equivalent)
of a particular entity.
9. Change in Control Bonus. Upon consummation of a "Sale of the
Company," if the Employee is employed by the Company immediately prior thereto,
he will be entitled to receive a payment from the Company in the amount of 250%
of his (i) then current base salary plus (ii) target annual bonus, reduced by
his "Option Gain" and subject to any applicable withholding or employment taxes.
Such amount (the "Change in Control Bonus") will be paid to the Employee in
immediately available funds in a lump-sum at the time such Sale of the Company
is consummated. The foregoing to the contrary notwithstanding, the Employee will
only be entitled to receive the Change in Control Bonus if the Change in Control
Bonus is previously approved by a vote of more than seventy-five percent (75%)
of the voting power of the Company's outstanding stock immediately before any
Sale of the Company. For purposes of this Agreement, the following terms have
the meanings set forth below:
"Sale of the Company" - a (i) a stock sale, merger, consolidation,
combination, reorganization or other transaction resulting in less than
fifty percent (50%) of the combined voting power of the surviving or
resulting entity being owned by the shareholders of the Company
immediately prior to such transaction or (ii) the sale or other
disposition of all or substantially all of the assets or business of the
Company (other than, in the case of either clause (i) or (ii) above, in
connection with any employee benefit plan of the Company or an Affiliate);
provided, however, that a public offering of the capital stock of the
Company shall not be a "Sale of the Company."
"Option Gain" - the aggregate amount computed for all of the options to
purchase capital stock of the Company or other equity compensation awards
theretofore granted to the Employee, of the excess of the consideration
received by the holders of the Company's common stock for a share of such
common stock in connection with the applicable Sale of the Company over
the exercise price of the option or other award, if any, multiplied by the
number of shares of the Company's common stock covered by each such option
or award. The amount of the Option Gain shall be finally and conclusively
determined by the Board of Directors of the Company in its good faith.
10. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses:
If to the Employee:
C. Bradford McLeod
14256 Manderleigh Woods Drive
Town and Country, Missouri 63017
If to the Company:
Outsourcing Solutions Inc.
390 South Woods Mill Road, Suite 350
Chesterfield, Missouri 63017
Attn: President
11. General.
(a) Governing Law; Jurisdiction. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Missouri applicable to contracts executed and to be performed
entirely within said State. Any judicial proceeding brought against any of the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of the State of Missouri or
in the United States District Court for the Eastern District of Missouri, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. The
foregoing consent to jurisdiction shall not be deemed to confer rights on any
person other than the respective parties to this Agreement.
(b) Assignability. The Employee may not assign his interest in or
delegate his duties under this Agreement. Notwithstanding anything else in this
Agreement to the contrary, the Company may assign this Agreement to and all
rights hereunder shall inure to the benefit of any person, firm or corporation
succeeding to all or substantially all of the business or assets of the Company
by purchase, merger or consolidation.
(c) Enforcement Costs. In the event that either the Company or the
Employee initiates an action or claim to enforce any provision or term of this
Agreement, or in the event of any dispute or controversy arising out of or
relating to this Agreement, the costs and expenses (including attorney's fees
and disbursements) of the prevailing party shall be paid by the other party,
such party to be deemed to have prevailed if such action or claim is concluded
pursuant to a court order or final judgment which is not subject to appeal, a
settlement agreement or dismissal of the principal claims. Notwithstanding the
foregoing, following a Sale of the Company, all reasonable costs and expenses
(including attorney's fees and disbursements) incurred by the Employee in an
action or claim to enforce any provision or term of this Agreement, and all
costs and expenses of any court proceeding or arbitration in connection with any
dispute or controversy arising out of or relating to this Agreement, shall be
promptly paid or reimbursed by the Company or its successor; provided, however,
that no payment or reimbursement shall be made of such costs or expenses if and
to the extent that the court or arbitrator adjudicating or deciding the matter
determines that any of the Employee's litigation assertions or defenses were in
bad faith or frivolous. Pending the resolution of any court proceeding or
arbitration described in this Section 11(c), the Company or its successor shall
continue payment of all amounts and benefits due the Employee under this
Agreement.
(d) Binding Effect. This Agreement is for the employment of
Employee, personally, and for the services to be rendered by him must be
rendered by him and no other person. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns.
<PAGE>
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the term of employment hereunder, this
Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Survival. The covenants set forth in Sections 6 and 8 of this
Agreement shall survive and shall continue to be binding upon Employee
notwithstanding the termination of this Agreement for any reason whatsoever. The
covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and
construed as separate agreements independent of any other provision of this
Agreement. The existence of any claim or cause of action by Employee against
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Company of any or all covenants. It is expressly
agreed that the remedy at law for the breach or any such covenant is inadequate
and that injunctive relief shall be available to prevent the breach or any
threatened breach thereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have hereunto executed this Agreement the day and year first written
above.
OUTSOURCING SOLUTIONS INC.
By /s/ Timothy G. Beffa
------------------------------------
Timothy G. Beffa, President and
Chief Executive Officer
EMPLOYEE
/s/ C. Bradford McLeod
--------------------------------------
C. Bradford McLeod
OUTSOURCING SOLUTIONS INC.
NON-QUALIFIED STOCK OPTION AWARD AGREEMENT [E]
This Non-qualified Stock Option Award Agreement (this "Agreement"),
dated as of _____________, 199x, is made between Outsourcing Solutions Inc. (the
"Company") and ____________ (the "Optionee"). All capitalized terms used herein
that are not defined herein shall have the respective meanings given to such
terms in the Outsourcing Solutions Inc.(formerly OSI Holdings Corp.) 1995 Stock
Option and Stock Award Plan, as amended (the "Plan").
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the Plan, the Company
hereby grants to the Optionee, subject to the terms and conditions of the Plan
and subject further to the terms and conditions herein set forth, the right and
option to purchase from the Company all or any part of an aggregate of __ shares
of the $0.01 par value common stock of the Company (the "Stock"), at a per share
purchase price equal to $_____ (the "Option"), such Option to be exercisable as
hereinafter provided. The Option shall not be treated as an "incentive stock
option," as defined in Section 422 of the Code.
2. Terms and Conditions. It is understood and agreed that the Award
evidenced hereby is subject to the following terms and conditions:
(a) Expiration Date. The Option shall expire ten (10) years after
the date indicated above.
(b) Exercise of Option. (i) Subject to the other terms of this
Agreement and the Plan, the Option may be exercised on or after the dates
indicated below as to that percentage of the total shares of Stock subject to
the Option as set forth below opposite each such date, plus any shares of Stock
as to which the Option could have been exercised previously, but was not so
exercised.
Date Percentage
-------------- 25%
-------------- 25%
-------------- 25%
-------------- 25%
(ii) Notwithstanding the foregoing provisions of Section 2(b)(i)
hereof, but subject to Section 2(a) and 2(d) hereof, immediately prior to a
"Sale of the Business," as defined in and contemplated by Section 2.4 of the
Stockholders Agreement, dated as of September 21, 1995, as amended and restated
on January 10, 1996, and February 16, 1996, and as may be further amended from
time to time, by and among OSI Holdings Corp., the MDC Entities, APT, the
Management Stockholders and the Non-Management Stockholders (all as defined
therein) (the "Stockholders Agreement"), the Option may be exercised with
respect to all or any portion of the total number of shares of Stock covered by
the then unexercised Option.
(iii) Any exercise of all or any part of the Option shall be
accompanied by a written notice to the Company specifying the whole number of
shares of Stock as to which the Option is being exercised. Upon the valid
exercise of all or any part of the Option, a certificate (or certificates) for
the number of shares of Stock with respect to which the Option is exercised
shall be issued in the name of the Optionee, subject to the other terms and
conditions of this Agreement and the Plan. Notation of any partial exercise
shall be made by the Company on Schedule I attached hereto.
(c) Consideration. At the time of any exercise of the Option, the
purchase price of the shares of Stock as to which the Option shall be exercised
shall be paid to the Company (i) in United States dollars by personal check,
bank draft or money order, (ii) if permitted by applicable law and approved by
the Committee in accordance with the Plan, with Stock, duly endorsed for
transfer to the Company, owned by the Optionee (or the Optionee and his spouse
jointly) for at least six (6) months prior to the tender thereof and not used
for another such exercise during such six-month period and having a total fair
market value, as determined in accordance with Paragraph 6(a) of the Plan ("Fair
Market Value"), on the date of such exercise of the Option equal to such
purchase price of such shares of Stock, or (iii) a combination of the
consideration provided for in the foregoing clauses (i) and (ii) of this Section
2(c) having a total Fair Market Value on the date of such exercise equal to the
purchase price of such shares of Stock.
(d) Exercise Upon Death, Disability or Termination of Employment.
The Option shall terminate upon the termination, for any reason, of the
Optionee's employment with the Company or a subsidiary of the Company, and no
shares of Stock may thereafter be purchased under the Option, except as follows:
(i) In the event of the death of the Optionee while an employee of
the Company or a subsidiary of the Company, the Option, to the extent
exercisable in accordance with Section 2(b)(i) or 2(b)(ii) at the time of
his or her death, may be exercised after the Optionee's death by the legal
representative of the Optionee's estate or the legatee of the Optionee
under his last will until the earlier to occur of the second anniversary
of the Optionee's death and the stated expiration date of the Option.
(ii) If the Optionee's employment with the Company or a subsidiary
of the Company shall terminate by reason of permanent disability (as
defined in the last sentence of this Section 2(d)(ii)), the Option, to the
extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon
such termination of employment, may be exercised after such termination
until the earlier to occur of the first anniversary of such termination
and the stated expiration date of the Option. For purposes of this
Agreement, "permanent disability" shall mean an inability (as determined
by the Committee) to perform duties and services as an employee of the
Company or a subsidiary of the Company by reason of a medically
determinable physical or mental impairment, supported by medical evidence,
which can be expected to last for a continuous period of not less than
eight (8) months.
(iii) If (A) the Company or a subsidiary of the Company terminates
the Optionee's employment with the Company or such subsidiary and such
termination is not "for cause" (as defined in Section 2.5(d) of the
Stockholders Agreement), or (B) the Optionee terminates employment with
the Company or such subsidiary for "good reason" (as defined in Section
2.5(c) of the Stockholders Agreement), the Option, to the extent
exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon such
termination of employment, may be exercised after such termination until
the earlier to occur of the first anniversary of such termination and the
stated expiration date of the Option.
(iv) If the Optionee's employment with the Company or a subsidiary
of the Company is terminated by reason of the Optionee's retirement after
attaining both five (5) years of continuous service with the Company or a
subsidiary of the Company and 59 1/2 years of age, the Option, to the
extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon
such retirement, may be exercised after such retirement until the earlier
to occur of the second anniversary of such retirement and the stated
expiration date of the Option.
(v) If the Optionee dies during the one-year or two-year period
following termination of his or her employment specified in Section
2(d)(ii), 2(d)(iii) or 2(d)(iv), the Option, to the extent the Option
would have been exercisable pursuant to Section 2(d)(ii), 2(d)(iii) or
2(d)(iv) as of the date of the Optionee's death, may be exercised after
the Optionee's death by the legal representative of his estate or the
legatee of the Optionee under his last will until the earlier to occur of
the second anniversary of the Optionee's death and the stated expiration
date of the Option.
(vi) If the Optionee's employment is terminated by the Company or a
subsidiary of the Company "for cause" (as defined in Section 2.5(d) of the
Stockholders Agreement) or under circumstances not otherwise described in
this Section 2(d), the Option shall automatically, without any further
action required by the Company, terminate on the date of such termination
of employment and shall cease to thereafter be exercisable with respect to
any shares of Stock.
(e) Nontransferability. The Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and are
exercisable, during the lifetime of the Optionee, only by him.
(f) Withholding Taxes. At the time of receipt of Stock upon the
exercise of all or any part of the Option, the Optionee shall be required to pay
to the Company in cash (or make other arrangements, in accordance with Section
12 of the Plan, for the satisfaction of) any taxes of any kind required by law
to be withheld with respect to such Stock; provided, however, tax withholding
obligations may be met, in whole or in part, by the withholding of shares of
Stock otherwise deliverable to the Optionee upon such exercise pursuant to
procedures approved by the Committee; provided further, however, the amount of
shares so withheld may not exceed the amount necessary to satisfy required
Federal, state, local and foreign withholding obligations using the minimum
statutory rate. In no event shall Stock or other property be delivered to the
Optionee until the Optionee has paid to the Company in cash, or made
arrangements satisfactory to the Company regarding the payment of, the amount of
any taxes of any kind required by law to be withheld with respect to the Stock
subject to the Option, and the Company shall have the right to deduct any such
taxes from any payment of any kind otherwise due to the Optionee.
(g) No Rights as Stockholder. The Optionee shall not become the
beneficial owner of the shares of Stock subject to the Option, nor have any
rights to dividends or other rights as a shareholder with respect to any such
shares, until the Optionee has exercised the Option in accordance with the
provisions hereof and of the Plan.
(h) No Right to Continued Employment. The Option shall not confer
upon the Optionee any right to be retained in the service of the Company or a
subsidiary of the Company, nor restrict in any way the right of the Company or
any subsidiary of the Company, which right is hereby expressly reserved, to
terminate his employment at any time with or without cause.
(i) Inconsistency with Plan. Notwithstanding any provision herein
to the contrary, the Option provides the Optionee with no greater rights or
claims than are specifically provided for under the Plan. If and to the extent
that any provision contained in this Agreement is inconsistent with the Plan,
the Plan shall govern.
(j) Compliance with Laws, Regulations, Stockholders Agreement. The
Option and the obligation of the Company to sell and deliver shares of Stock
hereunder shall be subject in all respects to (i) all applicable Federal and
state laws, rules and regulations, (ii) any registration, qualification,
approvals or other requirements imposed by any government or regulatory agency
or body which the Committee shall, in its sole discretion, determine to be
necessary or applicable and (iii) the terms of the Stockholders Agreement in all
respects. Moreover, the Option may not be exercised if its exercise, or the
receipt of shares of Stock pursuant thereto, would be contrary to applicable
law.
3. Investment Representation. If at the time of exercise of all or part of
the Option the Stock is not registered under the Securities Act of 1933, as
amended (the "Securities Act"), and/or there is no current prospectus in effect
under the Securities Act with respect to the Stock, the Optionee shall execute,
prior to the issuance of any shares of Stock to the Optionee by the Company, an
agreement (in such form as the Committee may specify) in which the Optionee,
among other things, represents, warrants and agrees that the Optionee is
purchasing or acquiring the shares acquired under this Agreement for the
Optionee's own account, for investment only and not with a view to the resale or
distribution thereof, that the Optionee has knowledge and experience in
financial and business matters, that the Optionee is capable of evaluating the
merits and risks of owning any shares of Stock purchased or acquired under this
Agreement, that the Optionee is a person who is able to bear the economic risk
of such ownership and that any subsequent offer for sale or distribution of any
of such shares shall be made only pursuant to (i) a registration statement on an
appropriate form under the Securities Act, which registration statement has
become effective and is current with regard to the shares being offered or sold,
or (ii) a specific exemption from the registration requirements of the
Securities Act, it being understood that to the extent any such exemption is
claimed, the Optionee shall, prior to any offer for sale or sale of such shares,
obtain a prior favorable written opinion, in form and substance satisfactory to
the Committee, from counsel for or approved by the Committee, as to the
applicability of such exemption thereto.
4. Disposition of Stock. In addition to the restrictions set forth in
Section 3, no share of Stock received by the Optionee upon exercise of the
Option (or any interest or right in such shares) can be sold, assigned, pledged
or transferred in any manner except as permitted by the Stockholders Agreement.
5. Optionee Bound by Plan; Stockholders Agreement. The Optionee hereby
acknowledges receipt of a copy of the Plan and the Stockholders Agreement and
agrees to be bound by all of the terms and provisions of each thereof, including
the terms and provisions adopted after the granting of the Option but prior to
the complete exercise hereof, subject to the last paragraph of Section 16 of the
Plan as in effect on the date hereof.
6. Notices. Any notice hereunder to the Company shall be addressed to it
at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017,
Attention: Chief Financial Officer, and any notice hereunder to the Optionee,
shall be addressed to him at, ______________________ Attention: ______________ ,
subject to the right of either party to designate at any time hereafter in
writing some other address.
7. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware applicable to contracts executed and to be performed entirely within
such state, without regard to the conflict of law provisions thereof.
8. Severability. If any of the provisions of this Agreement should be
deemed unenforceable, the remaining provisions shall remain in full force and
effect.
9. Modification. Except as otherwise permitted by the Plan, this
Agreement may not be modified or amended, nor may any provision hereof be
waived, in any way except in writing signed by the party against whom
enforcement thereof is sought.
10. Counterparts. This Agreement has been executed in two counterparts,
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Outsourcing Solutions Inc. has caused this
Agreement to be executed by a duly authorized officer and the Optionee has
executed this Agreement, both as of the day and year first above written.
OUTSOURCING SOLUTIONS INC.
By
-------------------------
Name: Timothy G. Beffa
Title: President & Chief Executive Officer
OPTIONEE
---------------------------
<PAGE>
NOTATIONS AS TO PARTIAL EXERCISE
================================================================================
Date of Number of Shares Balance of Shares Authorized Notation
Exercise of Stock of Stock on Signature Date
Purchased Option
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Note: This schedule contains summary financial information extracted from the
Form 10-Q for the Quarter Ended September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001027574
<NAME> OUTSOURCING SOLUTIONS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 28,607
<SECURITIES> 0
<RECEIVABLES> 47,121
<ALLOWANCES> 706
<INVENTORY> 29,772
<CURRENT-ASSETS> 115,548
<PP&E> 79,098
<DEPRECIATION> 35,819
<TOTAL-ASSETS> 600,921
<CURRENT-LIABILITIES> 109,701
<BONDS> 0
0
13,686
<COMMON> 53
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 600,921
<SALES> 0
<TOTAL-REVENUES> 380,063
<CGS> 0
<TOTAL-COSTS> 352,642
<OTHER-EXPENSES> 76
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,214
<INCOME-PRETAX> (10,869)
<INCOME-TAX> 375
<INCOME-CONTINUING> (11,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,244)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
