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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934. (Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
-------- Securities Exchange Act of 1934 (Fee Required) for
the fiscal year ended June 30, 1996.
-------- Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
for the transition period from ________________ to
_________________
Commission file number: 0-14315
ATC COMMUNICATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5950 BERKSHIRE LANE, SUITE 1650, DALLAS, TEXAS 75225
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(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (214) 361-9870
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of August 31, 1996 was approximately $224.6 million.
As of August 31, 1996, 15,032,161 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the ATC Communications Group, Inc. 1996
Annual Meeting are incorporated by reference in Part III of this report.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
ATC Communications Group, Inc. (hereinafter referred to as "ATC" or the
"Company") is one of the fastest growing providers of outsourced
telecommunications-based marketing, customer service and call center management
services in the United States. The Company specializes in the execution and/or
management of large volume call handling requirements for major U.S.
corporations in a variety of industries. ATC's operations are technology
driven through its advanced data and communications systems which permit
real-time interface with client's host systems. The Company derives its
competitive advantage from three primary platforms: (i) providing consistent
and superior customer services; (ii) a consistent commitment to quality; and
(iii) rapidly adapting to meet changing clients needs. Management believes
these advantages have contributed to the Company's record of client retention
and its ability to attract new business, both of which have contributed to
growth in revenues of 429% in the last three years.
The Company's headquarters are located at 5950 Berkshire Lane, Suite 1650,
Dallas, Texas 75225, and its telephone number is (214) 361-9870.
SERVICES AND STRATEGY
The Company designs, manages and conducts large-scale
telecommunications-based, inbound and outbound marketing and customer service
programs. These programs feature live, knowledgeable operators provided on an
outsourced basis to large U.S. corporations in a wide variety of industries.
Additionally, the Company manages both inbound and outbound call center
facilities for clients under multi-year contracts. Such call center management
applications usually require the development and licensing of proprietary
software systems. ATC does not engage in any form of outbound calling that
uses computerized voice presentations or requires unsolicited financial
requests nor is ATC engaged in the "900" number business.
ATC seeks long-term relationships with major corporations that utilize the
telephone as an integral, ongoing element in their core marketing and/or
customer service strategies. By offering high quality, customized, flexible
and fully- integrated services designed to improve quality, productivity and
effectiveness, ATC can enhance and add value to its clients' existing marketing
and customer service programs.
ATC's objective is to become the premier high-quality, full service
provider of outsourced call center operations to large corporations.
Management believes that the inbound segment of the industry possesses the
greatest long-term growth potential and thus is concentrating its efforts
primarily on that industry niche. In order to serve all of its clients' needs;
however, ATC offers outbound services as well. For the fiscal year ended June
30, 1996, approximately 59% of ATC's revenues were generated from inbound
services, while the remaining 41% were generated by outbound services.
OPERATIONS
ATC operates and/or manages for its clients 19 fully-automated call centers
in 6 locations comprising approximately 3,275 workstations located around
Dallas, Chicago and San Francisco. Seven Rockwell Galaxy GVS 3000 Automatic
Call Distributions interfaced with multiple Data General System microprocessors
are utilized to operate ATC's call centers. The data system itself is based on
an open architecture UNIX operating protocol supported by a sophisticated
database manager. This advanced data system allows the Company to seemlessly
interface real-time with the client's host systems and provides the flexibility
that enables ATC to rapidly deliver solutions to its client's marketing and
customer service needs. Outbound calling is enhanced through a Rockwell
Predictive Dialing System based on a fault tolerant Tandem Platform. Through
its sophisticated communications system, ATC can process in excess of 200,000
calls per hour. ATC also
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maintains a substantial systems staff that permits customized software
applications for its clients as well as the capability to respond quickly to
changing client needs. ATC's operations are further enhanced by the use of
universal workstations that can automatically handle either inbound or outbound
call activity. Such technology permits ATC to offer productivity enhancements
associated with "call blending". At August 31, 1996, approximately 98% of
ATC's workstations were universal workstations.
The Company also believes a key component of its success is the quality of
its employees. Because its marketing and service representatives deal directly
with the clients' customers and sales prospects, ATC places a heavy emphasis on
the training and quality control processes. System-wide, ATC has dedicated in
excess of 30,000 square feet to these functions in addition to a 14,700 square
foot call center equipped for live role playing by training classes.
Currently, the Company employs a large staff of trainers dedicated to teaching
the details of client programs to ATC's marketing and service representatives.
The training curriculum includes coverage of the sales or service process,
study of the features and benefits of the product and service, intensive role
playing and information about ATC's philosophy and culture. ATC conducts both
primary and recurrent training for all representatives which, depending on the
complexity of the client program, can require up to six weeks to complete. The
Company's training curriculum is developed by professional experts in adult
learning methodologies and includes a "hands-on" PC lab experience. This
attentiveness to training enables the Company to perform an assortment of
duties when handling inbound and outbound calling programs. Quality control is
measured both quantitatively and qualitatively through multiple processes with
different reporting lines in the Company. The Company and its clients monitor
the Company's marketing and service representatives for strict compliance with
the client's standards and to maintain quality and efficiency. In many
instances, quality is evaluated and communicated on a daily basis.
INDUSTRY AND COMPETITION
The telecommunications-based marketing, customer service and call center
management services industry is highly fragmented and is comprised of a large
number of in-house and independent organizations. The industry has experienced
rapid growth over the last ten years and, according to industry sources,
expenditures for these services have doubled during this period to an estimated
$77 billion in 1994. With the proliferation of toll-free "800" and "888"
numbers, the telephone is becoming the principal means of contact between
companies and their customers; however, historically only a small percentage of
these expenditures have been outsourced. The Company believes that large
corporations will increasingly outsource their telecommunications-based
marketing and customer service activities in order to concentrate their
internal resources on their core competencies and to access the quality and
cost effectiveness available from outsourced service providers. The market
includes many non-captive outsourced services providers and is very competitive
and highly fragmented. Competitors range in size from very small firms
offering specialized applications to large, full-service companies with
multiple, high volume call centers. The Company believes the principal
competitive factors differentiating outsourced service providers are: (i) a
reputation for quality results; (ii) price competitiveness; (iii) technological
expertise; and (iv) flexibility in responding rapidly to the client's sales,
marketing and customer service needs.
MARKETING OF SERVICES
ATC seeks to differentiate itself from its competitors through its emphasis
on quality and service to the client, its technological capabilities and its
flexibility to meet and enhance the client's changing requirements. The
Company seeks to develop and maintain long-term relationships with its clients
and targets its marketing efforts towards large corporations in selected
industries that utilize telecommunications as an integral, ongoing element in
their core marketing and/or customer service strategy. The Company believes
such corporations possess the greatest potential for recurring revenue growth
and their call handling requirements demand the sophistication, volume and
quality requirements to capitalize effectively on ATC's technology and client
support infrastructure. The Company seeks new business by responding to
requests for proposals, client and consultant referrals and by targeting
potential new clients. Additionally, new business is obtained by identifying
additional needs of existing customers and cross-selling the Company's services
to meet those needs.
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GOVERNMENTAL REGULATIONS
Telephone sales practices are regulated at both the federal and state
level. The rules of the Federal Communications Commission (the "FCC") under
the Federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibit the
initiation of telephone solicitations to residential subscribers before 8:00
a.m. or after 9:00 p.m., local time, and prohibit the use of automated
telephone dialing equipment to call certain telephone numbers. In addition,
the FCC requires telemarketers to have procedures in place to maintain lists of
residential customers who do not want to receive telephone solicitations and to
avoid making calls to those customers. The FCC also prohibits the use of
pre-recorded or artificial voice calls to consumers (with limited exceptions)
and advertising via telephone facsimile machines.
The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission ("FTC") to
issue regulations prohibiting misrepresentation in telephone sales. In August
1995, the FTC issued numerous rules under the TCFAPA, which set forth
disclosure requirements for telemarketers when placing calls, prohibit
deceptive telemarketing acts or practices during solicitation, provide
guidelines on collecting payments by check and credit cards, provide
restrictions on abusive telephone solicitation practices and promulgate certain
record keeping requirements.
The Company believes that it is in compliance with the TCPA and the FCC
rules thereunder and with the FTC's rules under the TCFAPA. The Company trains
its customer service representatives to comply with the FTC and FCC rules and
programs its call management system to avoid telephone calls during restricted
hours or to individuals maintained on "do-not-call" lists.
A number of states have enacted or are considering legislation to regulate
telephone solicitations. For example, some states require telemarketers to be
licensed by state regulatory agencies prior to soliciting purchasers within the
state. Additionally, telephone sales in certain states cannot be final unless
a written contract is delivered to and signed by the buyer and may be cancelled
within three business days. At least one state also prohibits telemarketers
from requiring credit card payment and several other states require certain
telemarketers to obtain licenses and post bonds.
From time to time, bills are introduced in Congress which, if enacted,
would regulate the use of credit information. The Company cannot predict
whether this legislation will be enacted and what effect, if any, it would have
on the Company or its industry.
The industries served by the Company are also subject to varying degrees of
government regulation. The Company works closely with its clients and their
advisors to develop the scripts to be used by its agents in connection with
making consumer contacts. The Company generally requires its clients to
indemnify it against claims and expenses arising with respect to the Company's
services performed on its clients' behalf. The Company has never been held
responsible for a client's regulatory noncompliance.
REVENUES AND SEASONAL NATURE OF BUSINESS
The Company's revenues are affected by the timing and magnitude of its
clients' marketing programs and the commencement of new programs.
Additionally, expenses incurred to support client programs are affected by such
timing; thus, the Company experiences and expects to continue to experience
quarterly variations in revenues and operating results. Although the business
is not seasonal in nature, historically ATC has generated a slightly larger
percentage of its annual revenues in the second and fourth quarters of its
fiscal year due to client marketing programs which are typically slower in the
post holiday and summer months. The Company's competitive advantages have
enabled it to grow rapidly and diversify its client mix in the last two fiscal
years by attracting a variety of new clients in various industries and by
expanding the services provided to its existing clients. The following
entities accounted for ten percent or more of gross revenues of the Company in
fiscal 1995: AT&T and GTE. In fiscal 1996, ten percent or more of the
Company's gross revenues were generated by: AT&T, American Express, Pacific
Bell and US West.
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EMPLOYEES
As of August 31, 1996, the Company employed approximately 3,590 persons in
the following areas: 139 in management and general administration, 4 in
marketing and sales, 222 in direct supervision of marketing agents and 3,225
marketing agents. To date the Company has not experienced any material
difficulty in attracting and retaining qualified personnel in the geographic
regions where it currently conducts business. The Company believes its
relationship with its employees is good.
HISTORICAL DEVELOPMENTS
The Company was incorporated in Delaware on August 2, 1985 under the name
of Kenneth Resources, Inc. and changed its name to NRP Inc. on July 12, 1988.
The Company's original business plan was to assemble an integrated direct
marketing company comprised of direct mail marketing and mailing list services
in addition to telecommunications-based marketing services. In the year ended
June 30, 1993, management examined the Company's overall business plan and each
operating segment's operating performance and concluded that (i) the integrated
company strategy had not achieved the expected synergies and economies of scale
to management's satisfaction, and (ii) the telecommunications-based marketing
business possessed significantly greater growth potential than the other two
segments. Accordingly, in the year ended June 30, 1994, the Company divested
of its direct mail publishing subsidiary, and in the year ended June 30, 1995,
divested of its mailing list services business, thereby enabling the Company to
concentrate on growing and creating long-term value in its
telecommunications-based subsidiary. Revenues generated by its remaining
operating subsidiary, Advanced Telemarketing Corporation, accounted for 100%,
100% and 68% of the Company's consolidated revenues from both continuing and
discontinued operations for the years ended June 30, 1996, 1995 and 1994
respectively. Management believes this shift in strategy has enabled the
Company to grow revenues and improve operating results, while positioning the
Company to compete effectively as a provider of telecommunications-based
marketing and information services.
In an effort to eliminate confusion concerning the Company's name as it
related to the name of its remaining operating subsidiary, Advanced
Telemarketing Corporation ("Advanced"), and to capitalize on the recognition
and reputation for quality of the ATC name, the Board of Directors of the
Company determined it would be in the best interest of the Company to formally
change the its name. Therefore, on April 24, 1996, the legal name of the
Company was formally changed to ATC Communications Group, Inc.
ITEM 2. PROPERTIES
The Company currently performs its services in nineteen call centers in six
locations with a total capacity of 3,275 workstations (compared to
approximately 2,946 workstations reported in the prior year): (i) 684 positions
located in Las Colinas, Texas in a 52,866 square foot facility, (ii) 225
positions located in Garland, Texas occupying 12,963 square feet, (iii) an
Irving, Texas facility comprised of a 14,069 square foot education center and a
30,959 square foot call center housing 681 positions, (iv) a 90,000 square foot
call center in Dallas, Texas with 1,350 positions, (v) a 60 position call
center in Chicago, Illinois dedicated to a single client and (vi) a 32,616
square foot call center with 275 positions in San Francisco, California which
also serves a single client. All of the Company's facilities are occupied
pursuant to various lease arrangements, except the Chicago facility, which is
owned by the client and is occupied by the Company at the client's expense.
While the Company's current capacity is sufficient to handle its current
production demands, as the Company's growth continues additional call center
facilities may be needed.
The Company's principal executive offices in Dallas, Texas are occupied
pursuant to a lease expiring November 30, 2001 and contain approximately 4,170
square feet.
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ITEM 3. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its businesses,
neither the Company nor its subsidiary are parties to, nor are their properties
the subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, $.01 par value, trades on the NASDAQ-National
Market System ("NASDAQ-NMS") under the symbol "ATCT". As of August 31, 1996
there were approximately 15,032,161 shares of Common Stock outstanding held by
approximately 655 holders of record.
The table below lists the range of high and low bids for the Company's
Common Stock as reported by NASDAQ-NMS for the two-year period ended June 30,
1996 and the subsequent interim period.
<TABLE>
<S> <C> <C>
Fiscal Year 1995 High Low
---------------- ---- ---
First Quarter 2 1/2 1 11/16
Second Quarter 1 13/16 13/16
Third Quarter 1 5/16 17/32
Fourth Quarter 2 5/16 13/16
Fiscal Year 1996 High Low
---------------- ---- ---
First Quarter 3 7/8 2 1/4
Second Quarter 6 2 15/16
Third Quarter 9 5/8 4 3/4
Fourth Quarter 15 3/4 8 3/8
Fiscal Year 1997 High Low
---------------- ---- ---
First Quarter
(through September 20, 1996) 19 1/8 11 3/4
</TABLE>
The above quotations represent prices between dealers and do not include
retail mark-up, mark-down or commissions and may not represent actual
transactions.
DIVIDENDS
The Company has never declared a cash dividend on its Common Stock and does
not anticipate doing so in the foreseeable future. The Company pays an annual
dividend of $.36 per share on its 29,778 outstanding shares of Series B
Preferred Stock and the Company pays an annual dividend of $.11 per share on
its 840,000
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outstanding shares of Series C Preferred Stock. Pursuant to Advanced's working
capital line of credit and equipment term loan credit agreements, Advanced is
restricted in its ability to pay dividends to ATC.
ITEM 6. SELECTED FINANCIAL DATA
The table on the following page sets forth certain selected consolidated
financial data for the Company and its subsidiaries for the last five years.
This information should be read in conjunction with Item 7. - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and related notes included
elsewhere herein.
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SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Revenues (1) $ 94,313,886 $61,353,999 $37,447,381 $17,828,764 $18,430,193
Income (loss) from 9,677,277 2,647,273 1,338,588 (938,686) 277,208
continuing operations
Net income (2) 5,850,128 1,335,383 2,995,604 1,182,219(3) 801,115
Net income (loss) from
continuing operations per 0.25 0.06 0.02 (0.07)(4) (0.05)
weighted common share
Total assets 37,780,182 25,356,630 24,261,190 13,833,669 9,238,453
Long-term obligations
(including capitalized 2,455,022 3,578,584 3,141,558 1,337,534 1,551,719
leases)
Total liabilities 18,338,406 13,119,896 13,249,271 8,883,925 5,414,472
Weighted average number
of common shares
outstanding: 21,177,186 18,441,214 13,685,286 13,294,442 13,294,442
Primary
Fully Diluted 21,305,314 18,616,991 13,728,070 13,294,442 13,294,442
</TABLE>
__________________________________
(1) Includes revenues generated by the telecommunications-based
services subsidiary only; sales of discontinued operations are
omitted.
(2) Includes (i) income from operations of discontinued business
segments, net of applicable taxes, and (ii) in fiscal 1994, the
gain on the disposition of the assets of a discontinued business
segment, net of applicable taxes.
(3) Includes an income tax benefit of $819,166 resulting from a change
in the accounting method used to record deferred income taxes.
(4) Includes an income tax benefit of $420,838 resulting from a change
in the accounting method used to record deferred income taxes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the two fiscal years ended June 30, 1995, the Company consummated
several transactions, including the sale of two operating subsidiaries and the
conversion of approximately $3.1 million of short-term debt into equity, which
(i) strengthened the Company's balance sheet, (ii) increased the Company's
liquidity and (iii) focused the Company's resources and efforts on the
significant growth potential of its call center management and telemarketing
services subsidiary. After completing these transactions, management focused
on creating the infrastructure and securing the working capital financing
necessary to capitalize on this growth potential. During the three year period
ended June 30, 1996, the Company increased its production capacity from
approximately 700 agent positions to approximately 3,200 positions. The
acquisition of this increased capacity was funded with a $1.5 million equipment
term loan from a major commercial bank, various capital and operating leases,
and cash flow generated by operations. In addition, the Company secured a $15
million working capital financing facility with a major bank to meet the
working capital needs created by the Company's growth. During the quarter
ended March 31, 1996, the Company refinanced both the $1.5 million equipment
term loan and the $15 million working capital financing facility with a new
major bank on terms and conditions more favorable to the Company.
The transactions described above have, in management's opinion, provided
the liquidity and access to working capital necessary to meet the Company's
near-term growth. In an effort to meet current client demand, the Company is
reconfiguring certain production and administrative areas in one of its
facilities which will result in the addition of approximately 200-300
workstations. This expansion will, in management's opinion, provide sufficient
capacity to meet current client demand and will be funded primarily with cash
flow generated by operations.
As growth continues, management believes additional call centers will be
needed to accommodate the increased business and that such additional
facilities will require furniture, equipment and technological enhancement
commensurate with the quality standards of its existing facilities. The
Company may have to secure additional financing for these capital needs as its
current commitments and cash flow may be inadequate. Although no assurances
can be made in this regard, management anticipates that, based on the Company's
ability to secure such financing to date, the Company should be able to secure
debt or equity funding for such future capital equipment needs.
The $15 million accounts receivable credit facility and $1.5 million
equipment term loan secured from the new major commercial bank mentioned above
contain various covenants which limit, among other things, the operating
subsidiary's indebtedness, capital expenditures, investments, payments and
dividends to the Company and requires the operating subsidiary to meet certain
financial covenants. Similarly, under the terms of the guaranty arrangement,
the Company is subject to certain covenants limiting, among other things, its
ability to incur indebtedness, enter into guaranties, and acquire other
companies. These credit facilities are secured by liens on the operating
subsidiary's accounts receivables, furniture and equipment, and are guaranteed
by the Company.
RESULTS OF OPERATIONS
As discussed above, prior to June 30, 1995, the Company sold substantially
all of the assets relating to two of its three business segments and as a
result of such dispositions, discontinued the operations of the two business
segments. Accordingly, in order for the financial data to be comparable, the
net financial results of the two discontinued business segments are reflected
as a single line item, "Income (loss) from operations of discontinued business
segments, net of applicable taxes." The following narrative discusses only the
operations of the Company's remaining business segment which provides
outsourced telecommunications-based marketing, customer service and call center
management services.
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Fiscal 1996 vs. Fiscal 1995
The Company earned net income from continuing operations of $5,850,128 or
6.2% of revenues of $94,313,886 for the fiscal year ended June 30, 1996 versus
net income from continuing operations of $1,444,612 or 2.4% of revenues of
$61,353,999 earned in the previous fiscal year.
Revenues increased $32,959,887 (53.7%) to $94,313,886 during the fiscal
year ended June 30, 1996 over revenues generated in fiscal 1995 of $61,353,999.
This revenue growth is the result of both the addition of new clients and
increases in the volume of services provided to the Company's existing clients.
Approximately 43.8% of the revenues earned by the Company during fiscal 1996
emanated from one of the Company's existing clients; however, with the addition
of new clients and increased business volumes with other clients, the
percentage of the Company's revenues generated by this client decreased from
the 53.1% this client represented in fiscal 1995. The Company is continuing
its strategy to secure recurring revenues from long-term relationships with
targeted, large corporate customers which use telecommunications strategies as
an integral, ongoing element in their marketing and/or customer service
programs. The Company continues to perform project-based business for certain
of its clients and there can be no assurance that these clients will continue
existing projects or provide new ones. However, based on the Company's
historical ability to increase revenues generated by existing clients and to
attract new clients, management believes it should be able to continue to build
revenues notwithstanding the lack of long-term contracts with these
project-based customers.
For the fiscal year ended June 30, 1996, gross profit earned on revenues
increased $12,910,919 (70.8%) from the 1995 fiscal year. The increase in gross
profit is due in part to increased revenues; however, the improvement in gross
profit is also attributable to increased operating efficiencies which increased
gross margin as a percentage of revenues. For the 1996 fiscal year, the gross
margin as a percentage of revenues was 33.0% versus 29.7% for fiscal 1995.
This improvement in operating efficiencies also resulted from: (i) the
renegotiation of the Company's telecommunications tariff; (ii) economics of
scale derived from the increased revenue base; and (iii) management's ongoing
efforts to enhance capacity utilization.
Selling, general and administrative expenses, increased $5,181,682 (38.8%)
in fiscal 1996 as compared to fiscal 1995. This increase in expense emanated
primarily from: (i) additional personnel and infrastructure necessary to
support the Company's revenue growth; (ii) increased costs associated with the
recruitment and training of personnel; and (iii) sales commissions associated
with increased revenues. Management is continuing its efforts to improve
operating efficiencies while maintaining the Company's high quality standards
in an atmosphere of revenue and capacity growth. As a result, SG&A expenses
as a percentage of revenues decreased to 19.7% in fiscal 1996 from 21.8% in
fiscal 1995.
The increase in depreciation and amortization expense of $699,233 (23.8%)
for the fiscal year ended June 30, 1996 over the 1995 fiscal year is primarily
the result of the expansion of the Company's operating capacity in fiscal 1995
and fiscal 1996. Despite the increase in whole dollars, the impact of the
expansion on depreciation and amortization expense was mitigated by the
increase in revenues. As a percentage of revenues, the expense for fiscal 1996
was 3.1% versus 3.6% for the 1995 fiscal year.
For the fiscal year ended June 30, 1996, net interest expense decreased
$99,236 (11.6%) as compared to the 1995 fiscal year despite the write-off of
approximately $170,000 in unamortized fees associated with its previous banking
relationship. After securing the new credit facility described above. Several
factors contributed to this decrease in net interest expense:
(a) Diminished utilization of the Company's working capital borrowing
facilities due to management's efforts to improve cash flow by
decreasing the number of days receivables are outstanding and due to
improved profitability by the Company.
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(b) During fiscal 1996, the Company secured a $15 million working capital
line of credit with a new commercial bank which replaced the working
capital borrowing arrangement with the Company's previous bank. The
terms of this new arrangement provide for a lower borrowing rate than
the previous relationship.
(c) During fiscal 1996, the Company paid-off an unsecured note payable
which contained a provision offering a discount if the note was paid
in a timely manner. Thus in fiscal 1996, the Company recognized
approximately $61,000 in interest expense reduction due to the pay-off
of the note payable in a timely fashion.
For the 1996 fiscal year, the Company's effective tax rate was
approximately 34.4%. In the prior year, the Company earned certain tax credits
which significantly reduced the impact of federal income taxes to an effective
tax rate of 19.3%. The federal programs which created these tax credits
expired on December 31, 1994.
Management knows of no trends or uncertainties other than those mentioned
above which are expected to have a material favorable or unfavorable impact on
operating results.
Fiscal 1995 vs. Fiscal 1994
For the fiscal year ended June 30, 1995, the Company earned net income from
continuing operations of $1,444,612 (2.35%) on revenues of $61,353,999 as
compared to net income from continuing operations of $339,901 (.91%) on
revenues of $37,447,381 earned in fiscal 1994.
Revenues generated during fiscal 1995 increased $23,906,618 (63.8%) to
$61,353,999 over revenues earned in fiscal 1994 of $37,447,381. This increase
resulted from both the addition of new clients and additional business from
certain existing customers. The Company has one customer which represented
approximately 53.1% of the revenues generated in the 1995 fiscal year. ATC's
long-term strategy is to capitalize on its quality, technology, capacity, speed
and flexibility to generate recurring revenues by securing long-term
relationships with targeted large corporate clients which use
telecommunications as an integral, ongoing element in their core marketing
and/or customer service strategies.
During the fiscal year ended June 30, 1995, the gross margin earned on
revenues increased 72.3% to $18,238,646 versus the $10,585,565 earned in the
1994 fiscal year due primarily to the increases in revenues mentioned above.
However, a portion of the gross margin improvement was attributable to
increased operating efficiency which resulted in an increase in the gross
margin earned as a percentage of revenues to 29.7% in fiscal 1995 from 28.3% in
fiscal 1994. Growth in revenues places pressure on gross margins because the
Company (i) expenses the majority of the start-up costs on its new projects and
(ii) must often expand based on less than 100% absorption of its new capacity.
As the Company's business plan has been and continues to be focused on
obtaining market share, management continues to counter growth driven pressures
on gross margins by innovatively applying its technology and by placing an
emphasis on its recruiting, training and quality control processes to improve
operating efficiencies. Such efforts allowed ATC to achieve an improved gross
margin as a percentage of revenues in fiscal 1995 despite its revenue growth.
The Company's revenue growth in fiscal 1995 and the addition of personnel
necessary to support its growth resulted in an increase in selling, general and
administrative expenses of $5,219,394 (64.2%) to $13,353,518 in the fiscal year
ended June 30, 1995 over the previous fiscal year. During fiscal 1995, the
Company increased its production capacity from approximately 1,470 positions in
fiscal 1994 to approximately 2,950 positions at June 30, 1995. The facilities
necessary to house this growth in positions required substantial investments in
technology, infrastructure and quality personnel to attract and retain the
large corporate users of the Company's services that management has targeted.
Such facilities are often utilized at less than 100% capacity initially which
places pressure on selling, general and administrative expenses as a percentage
of revenues. In light of the pressures created by expansion, management is
focused on this expense area and has
11
<PAGE> 12
managed to maintain such expenses at 21.7% of revenues in both fiscal 1995 and
fiscal 1994 despite the Company's growth.
The increase in production capacity mentioned above also requires
substantial expansion of data processing and telecommunications equipment,
furniture and other capital items to support its facilities. These additional
capital items resulted in an increase in depreciation and amortization expense
in fiscal 1995 of $1,125,002 (101.1%) as compared to the fiscal 1994. As a
percentage of revenue, non-cash charges increased from 3.0% in fiscal 1994 to
3.6% in fiscal 1995.
Net interest expense for the fiscal year ended June 30, 1995 increased
$39,129 (4.78%) versus the previous fiscal year. However, as a percentage of
revenues, net interest expense decreased to 1.4% in fiscal 1995 versus 2.2% in
fiscal 1994 despite the increased working capital demands created by its
revenue growth and the increase in long-term debt and capital lease
arrangements utilized to finance the capacity expansion discussed above. In
May 1994, the Company significantly lowered the rate it paid for working
capital borrowings from an annualized rate of approximately 12% in fiscal 1994
to approximately 10% in fiscal 1995 by securing a $15 million working capital
credit facility with a major commercial bank to replace its previous working
capital financing arrangement. Additionally in June 1994 the Company finalized
the conversion of approximately $3.1 million in 15% short-term debt into shares
of its Series C Convertible Preferred Stock. Interest on this short-term debt,
now converted, was approximately $320,000 in fiscal 1994.
In the fiscal year ended June 30, 1995, the Company's effective income tax
rate was approximately 19.3%. This rate was less than the statutory federal
income tax rate of 34% due to certain targeted jobs tax credits earned during
fiscal 1995. The federal programs that created these tax credits expired on
December 31, 1994.
OUTLOOK AND UNCERTAINTIES
The Company does not generally provide forecasts of potential future
financial performance or operating results. While the Company's management is
optimistic about the Company's future prospects, the following issues and
uncertainties, among others, should be considered in evaluating those
prospects.
RELIANCE ON MAJOR CUSTOMERS. A significant portion of the Company's
revenues is derived from relatively few customers. In fiscal 1996, 44% of the
Company's revenues were attributable to one customer and 77% were attributable
to four top customers; in fiscal 1995, 53% of the Company's revenues were
attributable to the principal customer and 73% were attributable to four top
customers. Most of the Company's contracts are terminable on short notice.
The Company believes its relations with major customers are good; however, the
loss of one or more of these customers could have a materially adverse effect
on the Company.
DEPENDENCE ON OUTSOURCING TREND AND INDUSTRIES SERVED. The Company's
growth is dependent in part on continued demand for the Company's services
prompted by the trend toward outsourcing, as well as continued demand from the
industries served by the Company. If the interest in outsourcing wanes or
there is a significant downturn in the telecommunications, financial services
or other industries, the Company could be adversely affected.
GOVERNMENT REGULATION. The Company's business has become subject to an
increasing amount of state and federal regulation over the past several years.
While the nature of much of the Company's business (inbound telephone calls
placed by the consumer to the Company) does not raise regulatory compliance
issues, no assurance can be given that additional federal or state
consumer-oriented legislation will not limit the business activities of the
Company or its customers or increase the cost of compliance. See
"Business--Governmental Regulations."
12
<PAGE> 13
COMPETITION. The telecommunications-based marketing, customer service and
call center management services industry is highly competitive and highly
fragmented. The Company competes with numerous independent firms as well as
the in- house operations of many of its customers or potential customers. The
Company competes with direct mail, television, radio and other advertising
media, and advances in new forms of direct marketing, such as interactive home
shopping through television, computer networks and other media could also
compete with the Company's services and have an adverse effect on the demand
for the Company's services.
DEPENDENCE ON LABOR FORCE. The Company's business is very labor intensive
and characterized by high personnel turnover. Although by industry standards
the Company believes its employees are highly qualified and well-trained, many
employees receive modest hourly wages and many are part-time employees. Labor
costs may increase, turnover would increase recruiting and training costs, and
the inability to hire sufficient numbers of qualified people would inhibit the
Company's ability to grow. To date, the Company has not experienced material
difficulty in attracting qualified employees, but it may experience such
difficulty in the future.
RELIANCE ON TECHNOLOGY; COMPUTER SYSTEMS. The Company's success is
dependent in part on its continued investment in sophisticated
telecommunications and computer technology, including predictive dialers,
automated call distributors and digital switches. The failure to invest in,
maintain and anticipate technologies key to the Company's business could have a
materially adverse effect on the Company.
TELEPHONE SERVICE DEPENDENCE. The Company's business is materially
dependent upon service provided by various local and long distance telephone
companies. Rate increases that the Company is unable to pass on to its
customers or interruptions in service would adversely affect the Company's
business.
OTHER UNCERTAINTIES. Other operating, financial or legal risks or
uncertainties are discussed in this Form 10-K in specific contexts. The
Company is, of course, also subject to general economic risks, dependence on
key personnel and other risks and uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-18 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 2, 1995 the Audit Committee of the Board of Directors unanimously
approved the dismissal of Grant Thornton LLP as the independent certified
public accountants and auditors for the Company. Grant Thornton LLP performed
the audit for the Company for the fiscal years ended June 30, 1992, 1993 and
1994. Grant Thornton LLP's reports on the financial statements of the Company
for those years did not contain an adverse opinion, nor a disclaimer of
opinion, nor were qualified or modified as to uncertainty, audit scope or
accounting principles. Except as described below, there were no disagreements
with Grant Thornton LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Grant Thornton LLP, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report during the Company's two most recent fiscal years
and any subsequent interim period preceding this dismissal.
With regard to the financial statements of the Company for the year ended
June 30, 1994, there was an initial disagreement as to the accounting treatment
for the recognition of a deferred tax asset for net operating loss
carryforwards acquired in a business combination for which goodwill was
recorded. Both disagreements, however, were resolved to the mutual
satisfaction of Grant Thornton LLP and the Company.
13
<PAGE> 14
Neither the Company's Audit Committee nor its Board of Directors discussed
the subject matter of the above described disagreements with Grant Thornton
LLP. The Company has authorized Grant Thornton LLP to respond fully to the
inquiries of the successor accountant concerning the subject matter of such
disagreements. The Audit Committee's decision to dismiss Grant Thornton LLP
was unrelated to the initial disagreements described above.
Also on June 2, 1995, the Audit Committee of the Board of Directors
unanimously approved the appointment of the firm of Price Waterhouse LLP to
serve as the independent accountants for the Company for the fiscal years
ending June 30, 1995 and 1996.
On June 9, 1995 the Company filed a report on Form 8-K related to the
dismissal of Grant Thornton LLP as independent accountants for the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
This information will be contained in the definitive proxy statement of the
Company for the 1996 Annual Meeting of Stockholders under the captions
"Election of Directors" and "Executive Officers" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the definitive proxy statement of the
Company for the 1996 Annual Meeting of Stockholders under the caption
"Compensation of Directors and Executive Officers" and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the definitive proxy statement of the
Company for the 1996 Annual Meeting of Stockholders under the caption
"Beneficial Ownership of Common Stock" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the definitive proxy statement of the
Company for the 1996 Annual Meeting of Stockholders under the captions "Certain
Relationships and Related Transactions" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
See "Index to Consolidated Financial Statements" included on page F-1 of
this Annual Report on Form 10-K for a listing of the financial statements and
schedules filed as a part of this Annual Report on Form 10-K.
14
<PAGE> 15
EXHIBITS
<TABLE>
<CAPTION>
The following exhibits are filed as a part of this Form 10-K Annual Report:
<S> <C>
3.1 Certificate of Incorporation of Kenneth Resources, Inc. (Incorporated by reference from Company's Amendment No.
1 to Form S-1 Registration Statement - File No. 33-6268).
3.2 Certificate of Amendment of Kenneth Resources, Inc. to reflect change of name to National Reference Publishing,
Inc. (Incorporated by reference from Company's Amendment No. 1 to Form S-1 Registration Statement - File No.
33-6268).
3.3 Certificate of Amendment of National Reference Publishing, Inc. to reflect change of name to ATC Communications
Group, Inc. (Incorporated by reference from Company's Form 10-K Annual Report for the year ended June 30,
1994).
3.4 Bylaws of Kenneth Resources, Inc. (Incorporated by reference from Company's Amendment No. 1 to Form S-1
Registration Statement - File No. 33-6268).
3.5 Amendment to Bylaws of Kenneth Resources, Inc. (Incorporated by reference from Company's Amendment No. 1 to
Form S-1 Registration Statement - File No. 33-6268).
3.6 Certificate of Amendment of NRP Inc. to reflect change of name to ATC Communications Group, Inc. (Incorporated
by reference from the Company's Form 10-Q for the period ended March 31, 1996.)
4.1 Specimen of Share Certificate of Company's Common Stock. (Incorporated by reference from Company's Form 10-K
Annual Report for the year ended June 30, 1994).
4.2 Form of Series B Preferred Stock, as amended. (Incorporated by reference from Company's Form 10-K Annual
Report for the year ended June 30, 1994).
4.3 ATC Communications Group, Inc. Series C Preferred Stock certificate issued to Codinvest Limited with attached
designations. (Incorporated by reference from Company's Form 8-K Current Report dated June 16, 1994).
4.4 1992 NRP Inc. Stock Option Plan as amended (Incorporated by reference from Company's Form S-8 Registration
Statement - File No. 333-01131)
4.5 1995 NRP Inc. Stock Option Plan as amended (Incorporated by reference from Company's Form S-8 Registration
Statement - File No. 333-01131)
10.8 Lease Agreement dated January 1, 1991 by and between Royal Tech Properties, Ltd. and Advanced Telemarketing
Corporation. (Incorporated by reference from Company's Form 10-K Annual Report for the year ended June 30,
1991).
10.9 Settlement Agreement and Promissory Note dated September 18, 1992 by and between Advanced Telemarketing
Corporation and Merrill Lynch Private Capital Inc. (Incorporated by reference from Company's Form 10-K Annual
Report for the year ended June 30, 1992).
10.10 Asset Purchase Agreement by and between Advanced Telemarketing Corporation and GTE Market Resources, Inc. dated
December 31, 1992. (Incorporated by reference from Company's Form 10-Q Quarterly Report for the quarter ended
December 31, 1992).
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
10.11 Asset Purchase Agreement by and among M/B Ltd. Services, Inc., ATC Communications Group, Inc., and United
Communications Group executed July 26, 1993. (Incorporated by reference from Company's Form 8-K Current Report
dated August 13, 1993).
10.12 Non-Competition Agreement by and among M/B Ltd. Services, Inc., ATC Communications Group, Inc., and United
Communications Group executed July 26, 1993. (Incorporated by reference from Company's Form 8-K Current Report
dated August 13, 1993).
10.13 Loan and Security Agreement dated May 17, 1994 among Continental Bank N.A., Advanced Telemarketing Corporation
and American Telesales Corporation. (Incorporated by reference from Company's Form 8-K Current Report dated
June 16, 1994).
10.14 Guaranty dated May 17, 1994 by ATC Communications Group, Inc. in favor of Continental Bank, N.A. (Incorporated
by reference from Company's Form 8-K Current Report dated June 16, 1994).
10.15 Investment Letter dated June 16, 1994 by Codinvest Limited. (Incorporated by reference from Company's Form 8-K
Current Report dated June 16, 1994).
10.16 Asset Purchase Agreement by and among NRL Brokerage, Inc., NRL Management, Inc., S.D. Bogner, Inc., ATC
Communications Group, Inc., and Stephen D. Bogner executed August 30, 1994 (including promissory notes and
guaranties). (Incorporated by reference from Company's Form 8-K Current Report dated August 30, 1994).
10.17 Loan and Security Agreement dated February 8, 1996 among Advanced Telemarketing Corporation and Bank One,
Texas, N.A. (filed herewith).
10.18 Unconditional Guaranty Agreement dated February 8, 1996 among NRP Inc. and Bank One, Texas, Leasing
Corporation (filed herewith).
27.1 Financial Data Schedule (filed herewith)
</TABLE>
ITEM 21. SUBSIDIARY OF COMPANY
The Company, as of June 30, 1996, had the following operating
subsidiary:
<TABLE>
<CAPTION>
Name State of Incorporation Percentage Ownership
---- ---------------------- --------------------
<S> <C> <C>
Advanced Telemarketing Corporation Nevada 97.8%
</TABLE>
During fiscal 1994 the Company conducted its telecommunications-based
operations through two subsidiaries, Advanced and American Telesales
Corporation ("American"). Effective January 1, 1995, the Company merged the
wholly owned American subsidiary into Advanced. As a result of the merger, all
of the Company's telecommunications-based operations are currently conducted by
Advanced.
Copies of the above Exhibits are available to stockholders of record at a
charge of $.50 per page, minimum of $5.00 each. Direct requests to:
ATC Communications Group, Inc.
Attention: Secretary
5950 Berkshire Lane, Suite 1650
Dallas, Texas 75225
16
<PAGE> 17
REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATC COMMUNICATIONS GROUP, INC.
(The Registrant)
Dated: September 27, 1996 By: /s/ Michael G. Santry
----------------------------
Michael G. Santry
Chief Executive Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Dated: September 27, 1996 By: /s/ Michael G. Santry
---------------------------
Michael G. Santry, Director
Dated: September 27, 1996 By: /s/ Patrick V. Stark
---------------------------
Patrick V. Stark, Director
Dated: September 27, 1996 By: /s/ Thomas Bijou
---------------------------
Thomas Bijou, Director
Dated: September 27, 1996 By: /s/ Jerry L. Sims, Jr.
---------------------------
Jerry L. Sims, Jr., Controller
and Director
Dated: September 27, 1996 By: /s/ Darryl D. Pounds
---------------------------
Darryl D. Pounds, Director
17
<PAGE> 18
SIGNATURES (CONTINUED)
Dated: September 27, 1996 By:
----------------------------
J. Michael Allred, Director
Dated: September 27, 1996 By:
----------------------------
David Malcolm, Director
Dated: September 27, 1996 By:
----------------------------
J. Frank Mermoud, Director
18
<PAGE> 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE (ITEM 14(A))
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants F-2
Report of Grant Thornton LLP, Independent Accountants F-3
Consolidated Statements of Income for the Years Ended
June 30, 1996, 1995, and 1994 F-4
Consolidated Balance Sheets at June 30, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Equity for the Years
Ended June 30, 1996, 1995, and 1994 F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts F-18
</TABLE>
All other schedules are omitted since the required information is not
applicable or is not material or because the information required is included
in the consolidated financial statements and notes thereto.
F-1
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of ATC Communications Group, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of ATC Communications Group, Inc. and its subsidiary at June 30, 1996
and 1995, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
September 5, 1996
F-2
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
ATC Communications Group, Inc.
We have audited the accompanying consolidated statement of income,
shareholders' equity and cash flows of ATC Communications Group Inc. for the
year ended June 30, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
ATC Communications Group Inc. for the year ended June 30, 1994, in conformity
with generally accepted accounting principles.
We have also audited Schedule II of ATC Communications Group Inc. for the year
ended June 30, 1994. In our opinion, this schedule presents fairly, in all
material respects, the information required to set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
GRANT THORNTON LLP
Dallas, Texas
September 7, 1994
F-3
<PAGE> 22
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $94,313,886 $61,353,999 $37,447,381
Cost of services 63,164,321 43,115,353 26,861,816
----------- ----------- -----------
Gross margin 31,149,565 18,238,646 10,585,565
Selling, general and administrative expenses 18,535,200 13,353,518 8,134,124
Depreciation and amortization 2,937,088 2,237,855 1,112,853
----------- ----------- -----------
Total expenses 21,472,288 15,591,373 9,246,977
----------- ----------- -----------
Income from continuing operations 9,677,277 2,647,273 1,338,588
Interest expense (Notes 3, 4, and 5) 852,743 945,501 903,048
Interest income (Note 8) 93,926 87,448 84,124
----------- ----------- -----------
Income from continuing operations before income taxes 8,918,460 1,789,220 519,664
Income tax expense (Note 9) 3,068,332 344,608 179,763
----------- ----------- -----------
Income from continuing operations 5,850,128 1,444,612 339,901
Income (loss) from operations of discontinued business segments,
net of applicable taxes (Notes 8 and 14) -- (109,229) 108,854
Gain on disposition of assets of discontinued business segment,
net of applicable taxes (Note 14) -- -- 2,546,849
Net income $ 5,850,128 $1,335,383 $2,995,604
=========== ========== ==========
Earnings per common share and common share
equivalents (Note 7):
Income from continuing operations $0.25 $0.06 $0.02
Income (loss) from discontinued operations -- (0.01) 0.01
Gain on disposition of assets of discontinued operations -- -- 0.18
----------- ----------- -----------
Net income $0.25 $0.05 $0.21
=========== =========== ===========
Weighted average common and common equivalent shares outstanding
(Note 7):
Primary 21,177,186 18,441,214 13,685,286
=========== =========== ===========
Fully-diluted 21,305,314 18,616,991 13,728,070
=========== =========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 23
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,723,702 $2,481,17
Accounts receivable - trade, less allowance for
doubtful accounts of $175,016 in 1996 and
$90,846 in 1995 21,699,793 7,908,40
Notes receivable:
Related parties (Note 8) 680,711 1,007,47
Other 144,717 136,97
Prepaid expenses 292,632 254,36
Deferred tax asset (Note 9) 506,539 390,98
Total current assets 25,048,094 12,179,35
Property and equipment (Note 5):
Equipment 12,578,293 11,107,52
Furniture and fixtures 4,311,663 3,294,34
Purchased software 829,979 879,63
17,719,935 15,281,50
Accumulated depreciation and amortization 6,912,196 4,420,05
10,807,739 10,861,45
Cost in excess of net assets acquired, net of
accumulated amortization of $970,669 in 1996 and
$894,864 in 1995 (Notes 2 and 9) 1,269,740 1,345,54
Other assets 654,609 970,27
$37,780,182 $25,356,63
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY 1996 1995
-------------------- ---------- ------------
<S> <C> <C>
Current liabilities:
Revolving line of credit (Note 3) $2,382,165 $ --
Accounts payable - trade 2,576,068 3,023,716
Unearned revenues and customer deposits 1,072,662 999,969
Other accrued liabilities 5,389,319 2,127,033
Accrued compensation expense 1,958,413 953,217
Accrued telephone expense 1,129,703 653,731
Accrued interest -- 51,027
Current portion of long-term debt 1,156,547 1,732,619
Total current liabilities 15,664,877 9,541,312
Long-term debt (Note 4) 2,455,022 3,578,584
Deferred tax liability (Note 9) 218,507 --
Commitments and contingencies (Notes 5 and 10) -- --
Shareholders' equity (Note 6):
Preferred stock, $.01 par value, 1,000,000
shares authorized; 29,778 convertible,
$.36 cumulative Series B shares
($107,200 aggregate liquidation
preference) and 840,000 convertible,
$.11 cumulative Series C shares
($3,074,400 aggregate liquidation
preference) issued and outstanding in
1996 and 1995 8,698 8,698
Common stock, $.01 par value, 27,500,000
shares authorized; 15,032,161 and
13,563,361 shares issued and
outstanding in 1996 and 1995, 150,322 135,634
respectively
Additional paid-in capital 10,092,956 8,649,610
Retained earnings 9,189,800 3,442,792
Total shareholders' equity 19,441,776 12,236,734
$37,780,182 $25,356,630
</TABLE>
See accompanying notes.
F-5
<PAGE> 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------------------------------- --------------------------
Series B Series C
----------------------- ---------------------- --------------------------
Shares Par Value Shares Par Value Shares Par Value
-------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 156,822 $1,569 -- $ -- 13,294,442 $132,944
Conversion of preferred stock to
common stock (127,044) (1,271) -- -- 254,088 2,542
Issuance of preferred stock
pursuant to debt conversion -- -- 840,000 8,400 -- --
Cash dividend paid on preferred -- -- -- -- -- --
stock
Common shares issued -- -- -- -- 14,831 148
Net Income -- -- -- -- -- --
Balance at June 30, 1994 29,778 298 840,000 8,400 13,563,361 135,634
-------- ------- ------- ---------- ---------- --------
Cash dividend paid on preferred -- -- -- -- -- --
stock
Net Income -- -- -- -- -- --
Treasury stock purchased -- -- -- -- -- --
-------- ------- ------- ---------- ---------- --------
Balance at June 30, 1995 29,778 298 840,000 8,400 13,563,361 135,634
Cash dividend paid on preferred -- -- -- -- -- --
stock
Net Income -- -- -- -- -- --
Exercise of stock options -- -- -- -- 1,468,800 14,688
Tax benefit of stock options -- -- -- -- -- --
exercised
-------- ------- ------- ---------- ---------- --------
Balance at June 30, 1996 29,778 $298 840,000 $8,400 15,032,161 $150,322
======== ======= ======= ========== ========== ========
<CAPTION>
Additional Retained Total
Paid-In Earnings Shareholders'
Capital (Deficit) Equity
----------- ---------- -------------
<S> <C> <C> <C>
Balance at June 30, 1993 $5,589,586 $(774,355) $4,949,744
Conversion of preferred stock to
common stock (1,271) -- --
Issuance of preferred stock
pursuant to debt conversion 3,058,956 -- 3,067,356
Cash dividend paid on preferred -- (10,720) (10,720)
stock
Common shares issued 9,787 -- 9,935
Net Income -- 2,995,604 2,995,604
----------- ---------- -----------
Balance at June 30, 1994 8,657,058 2,210,529 11,011,919
Cash dividend paid on preferred -- (103,120) (103,120)
stock
Net Income -- 1,335,383 1,335,383
Treasury stock purchased (7,448) -- (7,448)
----------- ---------- -----------
Balance at June 30, 1995 8,649,610 3,442,792 12,236,734
Cash dividend paid on preferred -- (103,120) (103,120)
stock
Net Income -- 5,850,128 5,850,128
Exercise of stock options 482,591 -- 482,591
Tax benefit of stock options 960,755 -- 960,755
exercised
----------- ---------- -----------
Balance at June 30, 1996 $10,092,956 $9,189,800 $19,441,776
=========== ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 25
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,850,128 $ 1,335,383 $ 2,995,604
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 2,937,088 2,237,855 1,112,853
Gain on disposition of assets -- -- (3,887,140)
Other (60,174) 46,912 (50,989)
Changes in operating assets and liabilities:
Accounts and notes receivable (13,472,379) 117,307 (3,900,414)
Prepaid expenses (38,269) 84,297 (107,697)
Deferred taxes 190,512 274,342 1,423,986
Assets held for sale -- 27,867 (522,301)
Other assets 150,402 (534,457) (394,096)
Accounts payable (447,648) 994,770 1,185,627
Unearned revenues 72,693 780,314 63,940
Accrued liabilities 5,601,089 (110,755) 1,607,125
Accrued interest (51,027) 25,442 384,747
Other liabilities -- -- (102,892)
------------ ----------- -----------
Net cash provided by (used in) operating activities 732,415 5,279,277 (191,647)
Cash flows from investing activities:
Capital expenditures (2,695,627) (5,201,466) (3,126,194)
Proceeds from sale of assets 175,000 745,618 4,715,421
Proceeds from exercise of stock options 497,279 -- --
------------ ----------- -----------
Net cash provided by (used in) investing activities (2,023,348) (4,455,848) 1,589,227
Cash flows from financing activities:
Proceeds (payments on) from line of credit, net 2,382,165 (3,551,278) 2,274,286
Proceeds from long-term debt -- 841,073 1,049,585
Payments on long-term debt (1,147,862) (150,401) (953,807)
Payments on capital lease obligations (700,838) (647,727) (491,828)
------------ ----------- -----------
Net cash provided by (used in) financing activities 533,465 (3,508,333) 1,878,236
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents (757,468) (2,684,904) 3,275,816
Cash and cash equivalents at beginning of year 2,481,170 5,166,074 1,890,258
------------ ----------- -----------
Cash and cash equivalents at end of year $ 1,723,702 $ 2,481,170 $ 5,166,074
============ =========== ===========
Supplemental information on non-cash transactions
is as follows:
Capital lease obligations entered into $ 210,477 $ 1,586,067 $ 2,466,123
Issuance of preferred stock pursuant to debt conversion -- -- 3,067,356
Tax benefit of stock options exercised 960,755 -- --
Supplemental disclosure of cash paid for federal income taxes 827,471 -- --
</TABLE>
See accompanying notes.
F-7
<PAGE> 26
ATC COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
1. ORGANIZATION AND ACQUISITIONS
ATC Communications Group, Inc. ("ATC" or the "Company"), formerly NRP Inc.,
was incorporated in 1985. Through its subsidiary, ATC provides outsourced
telecommunications-based marketing, customer service and call center
management services to large U.S. corporations in a variety of industries.
Prior to the disposition of the assets of its other business segments, ATC
also engaged in the businesses of direct mail marketing (primarily Zip Code
directory packages) and mail list management and brokerage services.
(See Note 14. Disposition of Assets).
At June 30, 1996, ATC has the following operating subsidiary:
<TABLE>
<CAPTION>
Percent Principal
Name Date acquired Owned by Ownership business activity
---- --------------- -------- --------- -----------------
<S> <C> <C> <C> <C>
Advanced Telemarketing April 1988 ATC 97.8% Call center management
Corporation ("Advanced")
</TABLE>
During fiscal 1994 the Company conducted its operations through two
subsidiaries, Advanced and American Telesales Corporation ("American").
Effective January 1, 1995, the Company merged the wholly owned American
subsidiary into Advanced. As a result of the merger, all of the
Company's operations are currently conducted by Advanced.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of ATC and its wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
REVENUES. Revenues are recognized as services are performed. Principally
all customers have the contractual right to, and from time to time do, audit
documentation in support of their respective billings. While management
believes all such billings are proper and accurate, the Company periodically
records reserves against revenues representing management's best estimate
of billing adjustments or concessions that may be made as a result of such
audits.
PROPERTY AND EQUIPMENT. Property and equipment are carried at cost.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the assets. Equipment, furniture and
fixtures, and computer software are depreciated over five-year to eight-year
lives. Maintenance and repairs are charged to operations as incurred while
renewals or improvements to such assets are capitalized.
CAPITALIZATION OF NEW CONTRACT START-UP COSTS. The Company capitalizes
certain up-front costs associated with the start-up of new business which is
to be performed for its clients pursuant to long-term contracts (typically
3-5 years). Such costs are amortized over the life of such long-term
contracts.
F-8
<PAGE> 27
COST IN EXCESS OF NET ASSETS ACQUIRED. The cost in excess of net assets
acquired recognized in the acquisition of Advanced is being amortized using
the straight-line method over 25 years.
INCOME TAXES. ATC joins with its subsidiaries in filing a consolidated
federal income tax return. In 1993, ATC adopted SFAS No. 109 "Accounting
for Income Taxes", which requires an asset and liability approach for
financial accounting and reporting for income taxes. The cumulative effect
of this change was not material to the financial statements.
STATEMENTS OF CASH FLOWS. For the purposes of the statements of cash flows,
the Company considers all highly liquid instruments purchased with
original maturities of three months or less to be cash equivalents.
RECLASSIFICATIONS. Certain prior year balances have been reclassified
to conform with the 1996 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair market value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. The Company believes that the fair
values of financial instruments approximate their recorded values.
CONCENTRATION OF CREDIT RISK. The Company sells to customers in diversified
industries throughout the United States. A large percentage of the
Company's business is currently concentrated in the telecommunications
industry. The Company performs periodic credit evaluations of its
customers' financial conditions and generally does not require collateral.
Receivables are generally due within 30 days. Credit losses from customers
have been within management's expectations. The Company currently
has four major customers (See Note 11).
IMPAIRMENT OF LONG-LIVED ASSETS. In the event that facts and circumstances
indicate that the value of property and equipment, costs in excess of net
assets acquired or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down
to market value or discounted cash flow is required.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock based
Compensation" ("SFAS No. 123") was issued. This statement requires the fair
value of stock options and other stock-based compensation issued to
employees to either be included as compensation expense in the income
statement or the pro-forma effect on net income and earnings per share of
such compensation expense to be disclosed in the footnotes to the Company's
financial statements beginning in fiscal 1997. The Company expects to adopt
SFAS No. 123 on a disclosure basis only. As such, implementation of SFAS
No. 123 is not expected to impact the Company's consolidated balance
sheet or results of operations.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-9
<PAGE> 28
3. REVOLVING LINE OF CREDIT
Revolving line of credit at June 30, 1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Revolving line of credit by Advanced of up to $15,000,000 with
a commercial bank at .50% over the bank's prime rate
(effective rate of 8.75% at June 30, 1996) secured by
Advanced's accounts receivable, furniture and equipment and
expiring in January 1999. $ 2,382,165 --
----------- -----------
$ 2,382,165 --
=========== ===========
4. LONG-TERM DEBT
--------------
Long-term debt at June 30, 1996 and 1995, is summarized below:
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Unsecured note payable to Merrill Lynch Private Capital Inc.
("MLPC"), payable in quarterly installments of $25,000 of
principal and interest (at prime, not to exceed 9%) through
July 1997, paid in full during 1996. $ -- $ 771,504
Note payable to a commercial bank of up to $1,500,000 to
purchase equipment due in monthly payments beginning August
15, 1994 equal to 1/60th of the principal amount
outstanding on such date plus interest at a rate of 1.5%
over the bank's prime rate with the remaining balance due
May 15, 1997; collateralized by Advanced's furniture and
equipment
-- 1,326,658
Note payable to a commercial bank of $1,000,000 due in monthly
payments beginning March 1, 1996 equal to 1/36th of the
principal amount outstanding on such date plus interest at
a rate of .75% over the bank's prime rate (9.0% at June 30,
1996), with a maturity date of January 1999; collateralized
by Advanced's furniture and equipment 888,889 --
Capital equipment lease obligations by Advanced, payable in
installments through October 1999, with interest rates 2,722,680 3,213,041
ranging from 9% to 18% (See Note 5) ----------- -----------
5,311,203
3,611,569
Less current maturities (1,156,547) (1,732,619)
----------- -----------
$ 2,455,022 $ 3,578,584
=========== ===========
</TABLE>
During 1996 Advanced refinanced the $1.5 million equipment term loan with
the $1.0 million equipment term loan from a new commercial bank.
F-10
<PAGE> 29
Both the note payable to the new commercial bank and the revolving line of
credit discussed in Note 3 above contain various covenants which limit
Advanced's indebtedness, capital expenditures, investments and payment and
dividends to ATC. Additionally, Advanced is required to meet certain
financial covenants. At June 30, 1996, the Company had exceeded the capital
expenditure limits contained in these agreements. This event of default was
subsequently waived by the bank. The Company expects to be in compliance
with the covenant requirements at all future measurement dates. The note
payable and the revolving line of credit are guaranteed by ATC. The
guaranty agreement limits ATC's ability to incur indebtedness, enter into
guaranties and to acquire other companies.
Future maturities of long-term debt at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ending June 30
<S> <C>
1997 $1,156,547
1998 1,226,119
1999 1,177,210
2001 and thereafter 51,693
----------
$3,611,569
</TABLE>
The Company paid interest in the amount of $903,770, $920,059, and $518,291
in 1996, 1995 and 1994, respectively.
5. LEASES
Capital leases are included in the accompanying consolidated balance sheet
under the following captions at June 30, 1996:
<TABLE>
<S> <C>
Equipment $ 4,249,765
Less accumulated depreciation (1,843,987)
-----------
$ 2,405,778
</TABLE> ===========
Future minimum lease payments for all noncancelable leases with initial or
remaining terms of one year or more at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending June 30 Leases Leases
------------------- ----------- ------------
<S> <C> <C>
1997 $1,050,558 $4,521,585
1998 1,037,260 3,653,186
1999 1,008,719 2,310,405
2000 52,476 1,476,692
2001 and thereafter -- 3,798,885
---------- -----------
Total minimum future lease payments $3,149,013 $15,760,753
Less: amounts representing interest (426,333) ===========
----------
Present value of future lease payments $2,722,680
==========
</TABLE>
In 1994, the Company renegotiated one of its operating leases and recognized
as a reduction of rent expense approximately $100,000 relating to deferred
rent.
F-11
<PAGE> 30
Rent expense on operating leases for the years ended June 30, 1996, 1995,
and 1994 was $4,413,180, $2,791,550, and $976,745 respectively.
6. PREFERRED STOCK
On June 16, 1994 approximately $3.1 million in short-term debt was converted
into 840,000 shares of a newly created Series C Preferred Stock. The Series
C Preferred Stock entitles the registered owners to the following rights and
preferences: (i) beginning June 30, 1995, preferential cumulative cash
dividends at the annual rate of $0.11 per share, (ii) at any time prior to
June 30, 2014, the right to convert each share into shares of Common Stock,
$.01 par value, at a conversion ratio of one share of Series C Preferred
Stock for five shares of Common Stock, (iii) a liquidation preference of
$3.66 per share, (iv) cash dividends on parity with shareholders of Common
Stock based on the number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible and, (v) the right to a number of
votes for each share of Series C Preferred Stock that is equal to the number
of shares of Common Stock into which shares of Series C Preferred Stock
is convertible.
7. EARNINGS PER SHARE
Primary and fully diluted earnings per common share is computed by dividing
net income applicable to common shareholders by the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during the period. Common stock equivalents consist of common stock
issuable under the assumed exercise of stock options and warrants and the
assumed conversion of the Company's issued and outstanding preferred stock.
A computation of earnings per share follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Primary
Weighted average shares outstanding 13,890,616 13,561,007 13,400,312
Common stock equivalents:
Dilutive stock options and warrants, net of 3,027,014 620,651 64,322
shares assumed repurchased with exercise
proceeds
Common Stock assumed issued on conversion of
dilutive preferred stock 4,259,556 4,259,556 220,652
---------- ---------- ----------
Primary shares 21,177,186 18,441,214 13,685,286
========== ========== ==========
Fully Diluted
Weighted average shares outstanding 13,890,616 13,561,007 13,400,312
Common stock equivalents:
Dilutive stock options and warrants, net of 3,155,142 796,428 107,106
shares assumed repurchased with exercise
proceeds
Common Stock assumed issued on conversion of
dilutive preferred stock 4,259,556 4,259,556 220,652
---------- ---------- ----------
Fully diluted shares 21,305,314 18,616,991 13,728,070
========== ========== ==========
</TABLE>
F-12
<PAGE> 31
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income from continuing operations $5,850,128 $1,444,612 $339,901
Less preferred stock dividends -- -- (10,720)
Less subsidiary income attributable to minority
interest in the subsidiary's stock and stock (600,939) (408,929) --
options (See Note 12)
---------- ---------- ----------
Net income from continuing operations applicable
to common stock 5,249,189 1,035,683 329,181
Net income (loss) from discontinued business
segments -- (109,229) 108,854
Gain on disposition of assets of business
segment -- -- 2,546,849
---------- ---------- ----------
Net income applicable to common shareholders $5,249,189 $926,454 $2,984,884
========== ========== ==========
Primary earnings per share $0.25 $0.05 $0.21
Fully diluted earnings per share $0.25 $0.05 $0.21
</TABLE>
8. OTHER RELATED PARTY TRANSACTIONS
At June 30, 1996 and 1995, an officer of the Company had outstanding
borrowings and accrued interest of approximately $566,045 and $793,773
respectively, pursuant to a line of credit. The borrowing bears 6% annual
interest and is due in full on June 30, 1997. Interest income from the
receivable amounted to approximately $27,200, $19,000, and $21,000 in 1996,
1995 and 1994, respectively.
During each of the three years ended June 30, 1996, the Company held a note
receivable from Freiburghaus & Partners, S.A. ("F&P"), a shareholder of
record. The note bears interest at 11% per annum. At June 30, 1996 the note
receivable was paid in full. At June 30, 1995, unpaid principal and accrued
interest amounted to $73,696. Interest income from this note amounted to
$8,528, $8,853, and $9,462 in 1996, 1995 and 1994, respectively. In 1996,
1995, and 1994, the Company applied $82,225, $21,440, and $56,456
respectively, of accrued preferred stock dividends due to F&P towards the
note receivable due to ATC.
In return for consulting and administrative services, the Company paid FEM,
Inc. ("FEM"), a company controlled by a shareholder of the Company, $165,000
per year in monthly installments of $13,750 through March 1994. ATC paid
FEM consulting fees of $110,000 for the year ended June 30, 1994. At June
30, 1996 and 1995 FEM had outstanding borrowings and accrued interest of
$27,051 and $123,650, respectively, pursuant to a note receivable to the
Company. The note bears 6% annual interest and is due in full on June 30,
1997.
In August 1994 the Company sold certain of the assets of its list services
subsidiaries to an officer of such subsidiaries. See further discussion in
Note 14.
9. INCOME TAXES
As discussed in Note 2, during 1993 the Company adopted Statement of
Financial Accounting Standards No. 109 (the "Statement"). The Statement
changes the method of accounting for deferred income taxes by requiring an
asset and liability approach for financial accounting and reporting
purposes. As a result of the change in accounting, the Company recognized a
deferred tax benefit for the year ended June 30, 1993. During 1994 the
Company corrected its 1993 consolidated net
F-13
<PAGE> 32
operating loss carryforwards by approximately $1,252,000 and corrected its
1993 classification of certain of the net operating loss carryforwards by
reducing costs in excess of net assets acquired by approximately $285,000.
Accordingly, the deferred income tax benefit and net income were reduced
approximately $700,000. There was no cumulative effect on previous years as
a result of the accounting change.
During the years ended June 30, 1995 and 1994, the Company reduced cost in
excess of net assets acquired by approximately $570,000 and $340,000,
respectively by recording such net operating loss carryforwards on the
Company's balance sheet.
The components of the federal income tax expense applicable to continuing
operations for the fiscal years ended June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Current $1,894,206 $ 438,475 $ --
Deferred 213,371 (93,867) 179,763
---------- --------- ---------
2,107,577 344,608 179,763
Direct credits to equity related to compensation
expense for tax purposes in excess of amounts
recognized for financial reporting purposes 960,755 -- --
---------- --------- ---------
Total federal income tax expense per the
statement of operations $3,068,332 $ 344,608 $ 179,763
========== ========= =========
</TABLE>
A reconciliation of the statutory federal income tax rate and the effective
rate as a percentage of pre-tax income for the fiscal years ended June 30
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Goodwill amortization .3% 1.8% 8.9%
Tax credits -- (15.8)% --
Other .1% (0.7)% (8.3)%
---- ------ -----
34.4% 19.3% 34.6%
==== ====== =====
</TABLE>
State franchise tax expense totalling $500,036, $107,355 and $136,701 during
the years ended June 30, 1996, 1995 and 1994, respectively, has been
included in selling, general and administrative expenses in the statements
of income.
The components of deferred taxes included in the accompanying consolidated
balance sheet as of June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 411,493 $ 187,065
Net operating loss carryforwards 665,325 760,371
Tax credits -- 265,590
----------- -----------
Gross deferred tax assets 1,076,818 1,213,026
Deferred tax liabilities:
Fixed assets (788,786) (580,471)
Non-compete agreement -- (154,010)
----------- -----------
Gross deferred tax liabilities (788,786) (734,481)
----------- -----------
Net deferred tax asset (liability) $ 288,032 $ 478,545
=========== ===========
</TABLE>
F-14
<PAGE> 33
At June 30, 1996 the Company had net operating loss carryforwards of
approximately $1,920,000 which are available to be carried forward to future
periods. Due to the ownership changes which have taken place in prior
years, the net operating loss carryforwards are subject to limitations set
forth in regulations under the Internal Revenue Code. Under those
regulations, future utilization is limited to approximately $279,000 per
year. In fiscal 1995, the Company concluded, based on an assessment of all
available evidence, that it is more likely than not that future taxable
income will be sufficient to realize the tax benefits available; therefore,
the Company reduced the valuation allowance of $570,279 to zero. Changes in
the valuation allowance related to the utilization of these net operating
loss carryforwards reduced the costs in excess of net assets acquired.
10. COMMITMENTS AND CONTINGENCIES
Advanced entered into an employment agreement with an officer of the company
through December 1997. The agreement specifies an annual base salary of
$250,000 plus bonuses based on the Company's performance.
The Company is party to certain legal proceedings incidental to its
business. Certain claims arising in the ordinary course of business have
been filed or are pending against the Company. Management believes that the
claims are without merit and that the ultimate resolution of such
contingencies will not have a material adverse effect on the financial
position or results of operations of the Company.
11. MAJOR CUSTOMERS
The Company had sales to major customers comprising the following
percentages of consolidated revenues for the years ended June 30:
<TABLE>
<CAPTION>
Customer 1996 1995 1994
-------- -------- -------- ------
<S> <C> <C> <C>
A 44% 53% 24%
B 12% 2% --
C 11% -- --
D 10% 1% --
E 5% 10% 15%
F 5% 6% 10%
G 2% 4% 27%
</TABLE>
12. STOCK OPTIONS AND WARRANTS
In February 1993 the Company's shareholders approved the NRP Inc. 1992 Stock
Option Plan (the "Plan") which provides for the granting of options to
purchase up to a maximum of 3,000,000 shares of Common Stock to key
employees, officers, and directors of the Company and its subsidiaries.
Options granted pursuant to the Plan are exercisable for 10 years from the
date of grant. The Company may grant additional options at any time prior
to December 11, 2002.
F-15
<PAGE> 34
Information regarding the Plan is summarized below:
<TABLE>
<CAPTION>
Shares Exercise Price
---------- --------------
<S> <C> <C>
Granted 1,140,000 1.25
Exercised --
---------
Outstanding at June 30, 1994 1,140,000 1.25
Granted 225,000 1.00
Exercised --
---------
Outstanding at June 30, 1995 1,365,000 1.00 - 1.25
Granted 1,262,500 6.00 - 12.75
Exercised (215,250) 1.25
---------
Outstanding at June 30, 1996 2,412,250 1.00 - 12.75
</TABLE> =========
Options are exercisable as follows:
<TABLE>
<CAPTION>
Shares Exercise Price
------ --------------
<S> <C> <C>
June 30, 1996 1,122,750 1.00 - 12.75
June 30, 1997 322,167 1.25 - 12.75
June 30, 1998 345,167 1.25 - 12.75
June 30, 1999 318,166 6.00 - 12.75
June 30, 2000 304,000 8.75 - 12.75
</TABLE>
In May 1994 the Company granted warrants, which expire May 30, 1999, to a
financial advisory services firm entitling the firm to purchase 650,000
shares of Common Stock at a purchase price of $1.625 per share, the market
price on the date granted.
In April 1993, Advanced initiated the Advanced Telemarketing Corporation
1993 Stock Option Plan which provides for the granting of options to
Advanced's key employees, officers, and directors to purchase up to a
maximum of 1,117,379 shares of Advanced's common stock. As of June 30, 1996
options to purchase 259,485 shares of Advanced's common stock, with an
average exercise price of $.01, were outstanding pursuant to this plan.
Options to purchase 204,774 shares have vested with 42,979 and 11,732
options vesting in the fiscal years ending June 30, 1997, and 1998,
respectively. Advanced granted such options at management's best estimate
of the common stock's market value at the date of grant.
Pursuant to the Advanced Telemarketing Corporation 1993 Stock Option Plan,
in October 1993, Advanced granted to the president of Advanced options to
purchase 680,908 shares of Advanced's common stock (representing 15% of the
fully diluted common stock of Advanced) at $0.01 per share. In March 1995,
the president of Advanced surrendered such options in exchange for stock
options to
F-16
<PAGE> 35
purchase a total of 2,410,880 shares of ATC Common Stock at $0.8125 per
share, the market price at the date of grant. The ATC options granted
became fully exercisable on August 1, 1995 and are exercisable for 10 years
from the date of grant. During 1996 options to purchase 1,348,701 shares of
ATC Common Stock were exercised pursuant to this grant.
13. EMPLOYEE BENEFIT PLAN
During fiscal 1991 Advanced adopted a defined contribution 401(k) plan
covering all eligible employees, as defined. Eligible employees may elect
to contribute up to 15% of their compensation, not to exceed $9,240 per
year. The Company may, at its discretion, match employee contributions.
There was no employer matching contribution made in 1996, 1995 or 1994.
14. DISPOSITION OF ASSETS
On August 30, 1994, pursuant to an asset purchase agreement, NRL Direct,
Inc., a wholly-owned subsidiary of ATC, sold certain of its assets
consisting primarily of cash, accounts receivable, fixed assets, tradenames,
and other assets for promissory notes aggregating approximately $745,000.
As a result of the asset disposition, effective July 1, 1994, ATC no longer
engages in the list brokerage and list management businesses.
On August 13, 1993 M/B Ltd. Services, Inc., a wholly-owned subsidiary of ATC
("M/B Ltd."), pursuant to an asset purchase agreement, sold substantially
all of the assets related to the marketing, publishing and distribution of
the National Five Digit ZIP Code Directory package (the "Directory"). M/B
Ltd. received net cash consideration of approximately $4.7 million and
recognized a one-time after-tax gain of approximately $2.5 million in the
fiscal year ending June 30, 1994. As a result of the asset disposition, M/B
Ltd. no longer sells the Directory.
Summary financial information related to the discontinued business segments
was as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30:
1995 1994
--------------- ------------
<S> <C> <C>
Revenue $ -- $ 17,559,736
Cost of Sales -- 15,277,072
--------------- ------------
Gross Margin $ -- $ 2,282,664
=============== ============
Income (Loss) From Operations $ (135,285) $ 179,808
Net Interest (Expense) Income -- (11,482)
--------------- ------------
Net Income Before Taxes (135,285) 168,326
Income Tax (Expense) Benefit 26,056 (59,472)
--------------- ------------
Net Income (Loss) $ (109,229) $ 108,854
=============== ============
</TABLE>
The net after-tax income or loss derived from the operation of these
business segments has been classified on the statement of income to
separately identify them as income from operations of discontinued business
segments, net of applicable taxes.
F-18
<PAGE> 36
ATC COMMUNICATIONS GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Charged To
Earnings -
Balance at General And
Beginning Of Administrative Net Balance At End
Description Year Expenses Write-Off Of Year
-------------------------------- ------------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
Year Ended June 30, 1994
Allowance for doubtful accounts $ 62,608 $ 63,000 $ (7,291) $ 118,317
========== ========= ========= ==========
Year Ended June 30, 1995:
Allowance for doubtful accounts $ 118,317 $ (15,000) $ (12,471) $ 90,846
========== ========= ========= ==========
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $ 90,846 $ 125,000 $ (40,830) $ 175,016
========== ========= ========= ==========
</TABLE>
F-14
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- -------- ---------------------- -------------
<S> <C>
3.1 Certificate of Incorporation of Kenneth Resources, Inc. (Incorporated by reference from Company's
Amendment No. 1 to Form S-1 Registration Statement - File No. 33-6268).
3.2 Certificate of Amendment of Kenneth Resources, Inc. to reflect change of name to National Reference
Publishing, Inc. (Incorporated by reference from Company's Amendment No. 1 to Form S-1 Registration
Statement -File No. 33-6268).
3.3 Certificate of Amendment of National Reference Publishing, Inc. to reflect change of name to ATC
Communications Group, Inc. (Incorporated by reference from Company's Form 10-K Annual Report for the
year ended June 30, 1994).
3.4 Bylaws of Kenneth Resources, Inc. (Incorporated by reference from Company's Amendment No. 1 to Form S-1
Registration Statement - File No. 33-6268).
3.5 Amendment to Bylaws of Kenneth Resources, Inc. (Incorporated by reference from Company's Amendment No.
1 to Form S-1 Registration Statement - File No. 33-6268).
3.6 Certificate of Amendment of NRP Inc. to reflect change of name to ATC Communications Group, Inc.
(Incorporated by reference from the Company's Form 10-Q for the period ended March 31, 1996.)
4.1 Specimen of Share Certificate of Company's Common Stock. (Incorporated by reference from Company's
Form 10-K Annual Report for the year ended June 30, 1994).
4.2 Form of Series B Preferred Stock, as amended. (Incorporated by reference from Company's Form 10-K
Annual Report for the year ended June 30, 1994).
4.3 ATC Communications Group, Inc. Series C Preferred Stock certificate issued to Codinvest Limited with
attached designations. (Incorporated by reference from Company's Form 8-K Current Report dated June
16, 1994).
4.4 1992 NRP Inc. Stock Option Plan as amended (Incorporated by reference from Company's Form S-8
Registration Statement - File No. 333-01131)
4.5 1995 NRP Inc. Stock Option Plan as amended (Incorporated by reference from Company's Form S-8
Registration Statement - File No. 333-01131)
</TABLE>
1
<PAGE> 38
<TABLE>
<S> <C>
10.8 Lease Agreement dated January 1, 1991 by and between Royal Tech Properties, Ltd. and Advanced
Telemarketing Corporation. (Incorporated by reference from Company's Form 10-K Annual Report for the
year ended June 30, 1991).
10.9 Settlement Agreement and Promissory Note dated September 18, 1992 by and between Advanced Telemarketing
Corporation and Merrill Lynch Private Capital Inc. (Incorporated by reference from Company's Form 10-K
Annual Report for the year ended June 30, 1992).
10.10 Asset Purchase Agreement by and between Advanced Telemarketing Corporation and GTE Market Resources,
Inc. dated December 31, 1992. (Incorporated by reference from Company's Form 10-Q Quarterly Report for
the quarter ended December 31, 1992).
10.11 Asset Purchase Agreement by and among M/B Ltd. Services, Inc., ATC Communications Group, Inc., and
United Group executed July 26, 1993. (Incorporated by reference from Company's Form 8-K Current Report
dated August 13, 1993).
10.12 Non-Competition Agreement by and among M/B Ltd. Services, Inc., ATC Communications Group, Inc., and
United Communications Group executed July 26, 1993. (Incorporated by reference from Company's Form 8-K
Current Report dated August 13, 1993).
10.13 Loan and Security Agreement dated May 17, 1994 among Continental Bank N.A., Advanced Telemarketing
Corporation and American Telesales Corporation. (Incorporated by reference from Company's Form 8-K
Current Report dated June 16, 1994).
10.14 Guaranty dated May 17, 1994 by ATC Communications Group, Inc. in favor of Continental Bank, N.A.
(Incorporated by reference from Company's Form 8-K Current Report dated June 16, 1994).
10.15 Investment Letter dated June 16, 1994 by Codinvest Limited. (Incorporated by reference from Company's
Form 8-K Current Report dated June 16, 1994).
10.16 Asset Purchase Agreement by and among NRL Brokerage, Inc., NRL Management, Inc., S.D. Bogner, Inc., ATC
Communications Group, Inc., and Stephen D. Bogner executed August 30, 1994 (including promissory notes
and guaranties). (Incorporated by reference from Company's Form 8-K Current Report dated August 30,
1994).
10.17 Loan and Security Agreement dated February 8, 1996 among Advanced Telemarketing Corporation and Bank
One, Texas, N.A. (filed herewith).
10.18 Unconditional Guaranty Agreement dated February 8, 1996 among NRP Inc. and Bank One, Texas, Leasing
Corporation (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
2
<PAGE> 1
EXHIBIT 10.17
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") made and entered into as
of the day of acceptance by and between the undersigned Debtor and BANK ONE,
TEXAS, NATIONAL ASSOCIATION:
W I T N E S S E T H
1. DEFINITIONS. The following definitions shall apply:
(a) "Accounts Advance Rate" shall mean the percentage of
Eligible Accounts that may be used in determining the Borrowing Base.
The Accounts Advance Rate for any month shall be the percentage set
forth below opposite the applicable Dilution Percentage as calculated
after the most recent field examination based on the twelve months
ending with the most recent month for which Debtor's books were closed
at the time of such field examination:
<TABLE>
<CAPTION>
Dilution Percentage Accounts Advance Rate
------------------- ---------------------
<S> <C>
0 - 5.0% up to 85%
5.1% - 8.0% up to 80%
8.1% - 10.0% up to 75%
10.1% and higher to be determined in Bank's sole discretion
</TABLE>
(b) "Adjusted Net Income" means, with respect to any period,
net earnings (after reduction for federal income taxes allocated to
Debtor pursuant to the tax sharing agreement with NRP Inc.) of the
Debtor for such period, determined in accordance with GAAP, but
excluding (i) any gain or loss arising from the sale of capital assets,
(ii) any gain arising from any write-up of assets, (iii) earnings of any
other Person, substantially all of the assets of which have been
acquired by Debtor in any manner, to the extent that such earnings were
realized by such other Person prior to the date of such acquisition,
(iv) net earnings of any Person in which the Debtor has an ownership
interest of less than 80%, unless such earnings have actually been
received by Debtor in the form of cash distributions, (v) the earnings
of any Person which was owned by Debtor but was disposed of (by merger,
sale or otherwise) to a third party during such period (except that
earnings actually distributed to Debtor prior to such disposition will
not be excluded) and (vi) any gain arising from the acquisition of any
securities or any indebtedness of Debtor.
(c) "Affiliate" shall mean any individual or entity directly
or indirectly controlling, controlled by, or under common control with,
or otherwise related to Debtor or any Obligated Party and shall include
but not be limited to any partnership, joint venture, joint stock
company, corporation, parent company or subsidiary or other company or
person in which any Obligated Party or any person related to any
Obligated Party by blood, adoption or marriage no more
LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE> 2
remotely than two degrees of relationship shall own, directly or
indirectly, of record or beneficially, or hold, directly or indirectly,
the power to control the vote of, more than 10% of the voting stock of,
or other equity interest in, such entity.
(d) "Bank" shall mean BANK ONE, TEXAS, NATIONAL ASSOCIATION,
of Dallas, Texas, whose mailing address is 1717 Main Street, Dallas,
Texas 75201.
(e) "Borrower" shall mean Debtor and any person or entity
specified in Addendum I attached hereto and incorporated herein by
reference, or any of them.
(f) "Borrowing Base" shall mean, as of any date of
determination, the LESSER of (i) the sum of (1) the product of (A) the
Accounts Advance Rate and (B) Debtor's Eligible Accounts, less (2) the
Reserve, all determined as of such date of determination, or (ii)
$15,000,000.
(g) "Capital Expenditure" means any expenditure or liability
(other than capitalized interest) by or of Debtor for fixed or capital
assets which would be capitalized in accordance with GAAP.
(h) "Code" shall mean the Uniform Commercial Code as in effect
in the State of Texas on the date of this Agreement or as it may
hereafter be amended from time to time.
(i) "Collateral" shall mean all that certain property
described in Addendum II attached hereto and incorporated herein by
reference.
(j) "Contract Rate" shall mean a rate calculated on the basis
of actual days elapsed but computed as if each year consisted of 360
days, equal to the sum of (i) the Base Rate (the "Base Rate") of
interest as established from time to time by the Bank (which may not be
the lowest, best or most favorable rate of interest which Bank may
charge on loans to its customers), plus (ii) one-half of one percent
(0.50%) per annum.
(k) "Debtor" shall mean Advanced Telemarketing Corporation, a
corporation organized and existing under the laws of the State of
Nevada, whose chief executive office is located at 800 1 Bent Branch
Drive Irving, Texas 75063.
(l) "Default" means any of the events specified in Section 16,
regardless of whether there shall have occurred any passage of time or
giving of notice or both that would be necessary in order to constitute
such event an Event of Default.
(m) "Default Rate" shall mean at the time in question a per
annum rate equal to the lesser of (i) the Base Rate then in effect plus
three percent (3.0%) per annum or (ii) the Maximum Rate.
LOAN AND SECURITY AGREEMENT - PAGE 2
<PAGE> 3
(n) "Dilution Percentage" means, as of any date of
determination, the ratio of (i) all non-cash credits given by Debtor to
account debtors or obtained by account debtors during the 12-month
period ending with the most recent month for which Debtor's books were
closed at the date of determination to (ii) the aggregate face amount of
all accounts receivable generated during such 12-month period.
(o) "Dividends" means, in respect of any corporation, cash
distributions or dividends or any other distributions of property on, or
in respect of, any class of capital stock of such corporation, except
for distributions made solely in shares of stock of the same class.
(p) "Eligible Accounts" shall mean, as of any date, all
accounts receivable of Debtor arising from the rendering of services by
Debtor other than the following: (a) each account that is unpaid more
than 90 days after the original invoice date, (b) an account which is
not due and payable within thirty (30) days after its invoice date; (c)
all accounts owing by a single account debtor if twenty-five percent
(25%) or more of the then balance owing by said account debtor is
ineligible pursuant to clause (a) and/or (b) above; (d) accounts with
respect to which the account debtor is a shareholder, director, officer,
employee or agent of the Debtor, Guarantor or any Subsidiary of the
Guarantor or Debtor or is a Parent, a Subsidiary or an Affiliate of the
Guarantor or any Subsidiary of the Guarantor; (e) accounts with respect
to which payment by the account debtor is or may be conditional or
accounts of a similar or like arrangement; (f) accounts with respect to
which the account debtor is not a resident or citizen of or otherwise
located in the continental United States of America, or with respect to
which the account debtor is not subject to service of process in the
continental United States of America, unless such account is backed in
full by an irrevocable letter of credit in the form and substance
satisfactory to the Bank issued by a domestic commercial bank acceptable
to the Bank or backed by acceptable export insurance; (g) accounts in
excess of a total amount of One Hundred Thousand Dollars ($100,000) (for
all government accounts) with respect to which the account debtor is the
United States of America, any state of the United States or any other
governmental body or any department, agency or instrumentality of any of
the foregoing unless such accounts are duly assigned to the Bank in
compliance with all applicable governmental requirements (including,
without limitation, the Federal Assignment of Claims Act of 1940, as
amended, if applicable) so that the Bank is recognized by the account
debtor to have all of the rights of an assignee of such accounts; (h)
accounts with respect to which Debtor is or may become liable to the
account debtor for goods sold or services rendered or deposits received
by such account debtor to Debtor, but only to the extent of Debtor's
then aggregate liability to such account debtor (i.e. the excess of the
aggregate face amount of accounts of such account debtor to the Debtor
over the aggregate liability of Debtor to such account debtor shall
constitute an Eligible Account unless otherwise excepted under the terms
of this section); (i) accounts with respect to which the services
performed giving rise thereto have not been completed and accepted as
satisfactory by the account debtor thereof (notwithstanding the
foregoing, Debtor may include as eligible accounts on the fifteenth of
each month through the last day of the month, amounts representing
services rendered to AT&T but as yet unbilled ("unbilled AT&T
accounts"), reduced by an amount equal to the sum of amounts due by
Debtor to AT&T for services rendered but not yet
LOAN AND SECURITY AGREEMENT - PAGE 3
<PAGE> 4
billed and unpaid amounts billed to Debtor by AT&T (collectively, "AT&T
payable"); (j) accounts which are not invoiced (and dated as of such
date) and sent to the account debtor thereof concurrently with or not
later than forty (40) days after the performance of the services giving
rise thereto; (k) accounts as to which the Bank, at any time or times
hereafter, determines, in good faith, that the prospect of payment or
performance by the account debtor is or will be impaired in any material
respect; (1) accounts of an account debtor to the extent, but only to
the extent, that the same exceed a credit limit determined by the Bank
in its reasonable discretion, at any time or times hereafter; (m)
accounts with respect to which the account debtor is located in the
State of New Jersey, the State of Minnesota or the State of Indiana;
provided, however, that such restriction shall not apply if Debtor (i)
has filed and has effective (A) in respect of account debtors located in
the State of New Jersey, a Notice of Business Activity Report with the
New Jersey division of Taxation for the then current year, (B) in
respect of account debtors located in the State of Minnesota, a
Minnesota Business Activity Report with the Minnesota Department of
Revenue for the then current year or (C) in respect of account debtors
located in the State of Indiana, a Business Activities Report with the
Indiana Department of Revenue for the then current year, as applicable,
or (ii) is otherwise exempt from such reporting requirements under the
laws of such State(s); (n) accounts which are not subject to a first
priority perfected security interest in favor of the Bank; and (o) that
portion of an account balance owed by a single account debtor which
exceeds fifty (50%) of total accounts receivable otherwise deemed
eligible here under, unless waived in writing by Bank.
(q) "Equipment Term Loan" shall have the meaning given to it
in Section 3 hereof
(r) "Debt Service Ratio" means, as of any date of
determination, the ratio of (i) Adjusted Net Income for the three month
period ending on the date of determination (the "Applicable Period"),
plus depreciation and amortization deducted in determining such Adjusted
Net Income, plus taxes deducted in determining such Adjusted Net Income
to (ii) the sum of taxes deducted in determining Adjusted Net Income for
the Applicable Period, plus regularly scheduled, current maturities of
the principal of Funded Debt for the Applicable Period, plus unfinanced
Capital Expenditures; provided, however, that for purposes of the Debt
Service Ratio, all indebtedness outstanding hereunder as Revolving Loans
shall be excluded from Funded Debt.
(s) "Funded Debt" means, as of any date, the sum of the
following (without duplication) for the Debtor: (i) the aggregate of all
indebtedness for borrowed money of the Debtor as of such date, other
than current liabilities, (ii) all indebtedness which would be
classified as "funded indebtedness" or "long-term indebtedness" (or
other similar classification) on a balance sheet of the Debtor prepared
as of such date in accordance with GAAP, (iii) the aggregate of all
indebtedness of the Debtor outstanding under any revolving credit or
similar agreement providing for borrowings (and renewals and extensions
thereof) over a period of more than one year, notwithstanding the fact
that any such indebtedness is created within one
LOAN AND SECURITY AGREEMENT - PAGE 4
<PAGE> 5
year of the expiration of such agreement and (iv) the amount of all
obligations in respect of capital leases of the Debtor booked in
accordance with GAAP.
(t) "GAAP" means generally accepted accounting principles and
practices, consistently applied.
(u) "Interest Coverage Ratio" means, as of any date of
determination, the ratio of (i) Adjusted Net Income for the 12-month
period ending on the date of determination (the "Period"), plus interest
expense deducted in determining such Adjusted Net Income, to (ii) the
sum of interest expense deducted in determining Adjusted Net Income for
the Period.
(v) "Leasing" means Banc One Leasing Corporation.
(w) "Loan Documents" shall mean this Agreement and all other
documents and instruments executed in connection herewith (including
without limitation, all documents, agreements and instruments
evidencing, securing, governing, guaranteeing and/or pertaining to the
indebtedness created or arising hereunder).
(x) "Maturity Date" shall mean January 31, 1999.
(y) "Maximum Rate" shall mean at any particular time in
question the maximum rate of interest which, under applicable law
(including federal laws), may then be charged on the sums advanced
hereunder.
(z) "Obligated Party" shall mean any party other than Borrower
who secures, guarantees and/or is otherwise obligated to pay all or any
portion of the Obligations.
(aa) "Obligations" shall mean (i) all loans or other advances
made by Secured Party to Borrower pursuant to this Agreement or
otherwise; (ii) all future advances or other value, of whatever class or
for whatever purpose, at any time hereafter made or given by Secured
Party to Borrower, whether or not the advances or value are given
pursuant to commitment and whether or not Borrower is indebted to
Secured Party at the time of such advance; (iii) any and all other
debts, liabilities and duties of every kind and character of Borrower to
Secured Party, whether now or hereafter existing, and regardless of
whether such present or future debts, liabilities or duties are direct
or indirect, primary or secondary, joint, several, or joint and several,
fixed or contingent, and regardless of whether such present or future
debts, liabilities or duties may, prior to their acquisition by Secured
Party, be or have been payable to, or be or have been in favor of, some
other person or have been acquired by Secured Party in a transaction
with one other than Borrower (it being contemplated that Secured Party
may make such acquisitions from others), howsoever such indebtedness
shall arise or be incurred or evidenced; (iv) interest on all of the
debts, liabilities and duties set forth in (i), (ii) and (iii) above;
(v) all obligations and liabilities of Borrower to Leasing, now existing
or hereafter incurred (but not including any obligations or liabilities
acquired from third parties); and (vi)
LOAN AND SECURITY AGREEMENT - PAGE 5
<PAGE> 6
any and all renewals and extensions of such debts, liabilities and
duties set forth in (i), (ii), (iii) (iv) and (v) above, or any part
thereof
(bb) "Person" means an individual, corporation, partnership,
joint venture, association, governmental entity, court or any other
entity.
(cc) "Reserve" at any time shall mean an amount from time to
time established in good faith by Secured Party in its discretion as a
reserve in reduction of the Borrowing Base in respect of probable
contingencies or other potential factors which, in the event they should
occur, could adversely affect or otherwise reduce the anticipated amount
of timely collections in payment of Eligible Accounts. The "Reserve," if
any from time to time, does not represent cash funds.
(dd) "Revolving Line" means $15,000,000.
(ee) "Revolving Loans" shall mean all loans and advances made
by Secured Party to Debtor pursuant to Section 2 herein.
(ff) "Secured Party" shall mean the Bank, and its successors
and assigns, including specifically, any party to whom the Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
(gg) "Subordinated Debt" means such indebtedness of Debtor to
NRP Inc. that is subordinated to the Obligations pursuant to a
subordination agreement between Secured Party and NRP Inc. in form and
substance acceptable to Secured Party.
(hh) "Tangible Leverage Ratio" means the ratio of Total
Liabilities to Tangible Net Worth.
(ii) "Tangible Net Worth" means, as of any date, the total
shareholders' equity (including capital stock, additional paid-in
capital and retained earnings after deducting treasury stock) which
would appear on a balance sheet of the Debtor prepared as of such date
in accordance with GAAP, less the aggregate book value of intangible
assets shown on such balance sheet, plus Subordinated Debt as of such
date, plus cash or cash equivalent collateral in which Secured Party has
a first priority, perfected security interest to secure the guarantee of
NRP Inc.
(jj) "Term Contract Rate" shall mean a rate calculated on the
basis of actual days elapsed but computed as if each year consisted of
360 days, equal to the sum of (i) the Base Rate as established from time
to time by the Bank, plus (ii) three-quarters of one percent (0.75%) per
annum.
LOAN AND SECURITY AGREEMENT - PAGE 6
<PAGE> 7
(kk) "Total Liabilities" means, as of any date, Funded Debt,
plus, without duplication, current liabilities, plus all other
liabilities which would be reflected on a balance sheet prepared in
accordance with GAAP, of the Debtor, less Subordinated Debt.
All words and phrases used herein which are expressly defined in Section 1.201
or in Chapter 9 of the Code shall have the meaning provided for therein. Other
such words and phrases defined elsewhere in the Code shall have the meanings
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1.201 or Chapter 9.
2. REVOLVING LOANS. Subject to the terms and provisions hereof and
provided that no Default or Event of Default has occurred and is continuing and
that the aggregate principal outstanding on the Revolving Loans does not then
exceed the Borrowing Base, Secured Party shall, from time to time, make loans
to Debtor secured by the Collateral and evidenced by one or more promissory
notes in the form of Exhibit A hereto. The maximum aggregate principal balance
outstanding at any one time under this Section 2 shall not exceed the Borrowing
Base as then determined by the Bank in its sole reasonable discretion. Unless
accelerated in accordance with the terms hereof, all outstanding principal and
unpaid accrued interest constituting Revolving Loans shall be due and payable
in full on the Maturity Date.
3. EQUIPMENT TERM LOAN. Subject to the terms and conditions hereof,
Secured Party agrees to lend to Debtor in a single advance on the closing the
amount of $1,000,000.00 (the "Equipment Term Loan"). The Equipment Term Loan
shall be secured by the Collateral and evidenced by a promissory note in the
form of Exhibit B hereto. Unless accelerated in accordance with the terms
hereof, the principal of the Equipment Term Loan shall be due and payable in
equal, consecutive monthly payments, based on a 36 month amortization, on the
first business day of each month, commencing on March 1, 1996 and continuing
each month thereafter, and in one final payment of all outstanding principal on
the earlier of (i) the Maturity Date, (ii) the termination of this Agreement
pursuant to Section 19 hereof or (iii) the date that Secured Party demands
payment of the Revolving Loans pursuant to Section 17 hereof.
4. SECURITY INTEREST. As security for all Obligations, Debtor, for
value received, hereby grants to Secured Party for itself and as agent for
Leasing a continuing security interest in the Collateral. Each of Secured Party
and Leasing may hold for security any property, securities, guaranties or
monies of Debtor which may at any time come into the possession of either
Secured Party or Leasing and may apply same or the proceeds thereof to payment
of any Obligations, as the Secured Party shall elect, which at the time of
application are owing to Secured Party and/or Leasing, subject to the
provisions of Section 10 hereof respecting amounts in the Special Account. To
the extent that a security interest
LOAN AND SECURITY AGREEMENT - PAGE 7
<PAGE> 8
Default has occurred and is continuing and no event of default has occurred and
is continuing under any agreement between Debtor and Leasing evidencing or
relating to any of the Obligations of Debtor to Leasing, the security interest
granted herein shall terminate upon the later of (i) the repayment and
satisfaction in full of all Obligations, other than the Obligations of Debtor
to Leasing described in clauses (v) and (vi) of Section 1(aa) and (ii) the
termination of all commitments of Secured Party to lend to Debtor.
5. INTEREST. (a) Revolving Loans. Debtor agrees to pay, in addition
to all other amounts payable hereunder, interest on the principal amount of all
sums now or hereafter loaned or advanced by Secured Party to Debtor hereunder
as Revolving Loans, irrespective of whether such indebtedness of Debtor to
Secured Party be evidenced by promissory notes, drafts, acceptances or
otherwise, at a fluctuating rate per annum from the date any such indebtedness
is created in favor of Secured Party until maturity, which shall from day to
day be equal to the lesser of (a) the Maximum Rate, or (b) the Contract Rate,
each change in the rate to be charged hereunder to be effective without notice
to Debtor on the effective date of each change in the Maximum Rate or the Base
Rate, as the case may be; provided, however, that if at any time the Contract
Rate shall exceed the Maximum Rate, thereby causing the interest on the
Revolving Loans to be limited to the Maximum Rate as provided in (a) preceding,
then any subsequent reduction in the Contract Rate shall not reduce the rate of
interest on the Revolving Loans below the Maximum Rate until the total amount
of interest accrued on the Revolving Loans equals the amount of interest which
would have accrued thereon if the rate specified in (b) preceding had at all
times been in effect.
(b) Equipment Term Loan. Debtor agrees to pay, in addition to all
other amounts payable hereunder, interest on the principal amount of all sums
now or hereafter loaned or advanced by Secured Party to Debtor hereunder as
Equipment Term Loan, irrespective of whether such indebtedness of Debtor to
Secured Party be evidenced by promissory notes, drafts, acceptances or
otherwise, at a fluctuating rate per annum from the date any such indebtedness
is created in favor of Secured Party until maturity, which shall from day to
day be equal to the lesser of (a) the Maximum Rate, or (b) the Term Contract
Rate, each change in the rate to be charged hereunder to be effective without
notice to Debtor on the effective date of each change in the Maximum Rate or
the Base Rate, as the case may be; provided, however, that if at any time the
Term Contract Rate shall exceed the Maximum Rate, thereby causing the interest
on the Equipment Term Loan to be limited to the Maximum Rate as provided in (a)
preceding, then any subsequent reduction in the Term Contract Rate shall not
reduce the rate of interest on the Equipment Term Loan below the Maximum Rate
until the total amount of interest accrued on the Equipment Term Loan equals
the amount of interest which would have accrued thereon if the rate specified
in (b) preceding had at all times been in effect.
(c) General. If applicable law ceases to provide for such a maximum
rate of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum. Interest accrued hereunder shall be payable monthly on the first day of
each calendar month. To the extent that any interest, whether due under the
Revolving Loans or the Equipment Term Loan, is not paid on the first day of
each month, Secured Party may, at its option, add such accrued interest to the
principal indebtedness due by Debtor under the Revolving Loans. After the
occurrence and during the continuance of an Event of Default,
LOAN AND SECURITY AGREEMENT - PAGE 8
<PAGE> 9
the outstanding principal balances of the Revolving Loans and the Equipment
Term Loan shall bear interest from the date of maturity thereof until paid at a
rate of interest equal to the Default Rate. Notwithstanding any provisions
contained in this Agreement or in any of the other Loan Documents, the Secured
Party shall never be entitled to receive, collect or apply, as interest on the
indebtedness arising hereunder, any amount in excess of the Maximum Rate and,
in the event the Secured Party ever receives, collects or applies as interest
any such excess, such amount which could be excessive interest shall be applied
to the reduction of the unpaid principal balance of the indebtedness arising
hereunder, and, if the principal balance of such indebtedness is paid in full,
any remaining excess shall forthwith be paid to Debtor. In determining whether
or not the interest paid or payable under any specific contingency exceeds the
Maximum Rate, Debtor and the Secured Party shall, to the maximum extent
permitted under applicable law, (i) characterize any nonprincipal payment as a
standby fee, commitment fee, prepayment charge, delinquency charge or
reimbursement for a third party expense, (ii) exclude voluntary prepayments and
the effect thereof, and (iii) amortize, prorate, allocate and spread in equal
parts throughout the entire period during which the indebtedness was
outstanding the total amount of interest at any time contracted for, charged or
received.
6. ORIGINATION FEE. In consideration of the financial accommodations
granted by Secured Party to Debtor hereunder, Debtor agrees to pay Secured
Party a fee equal to $88,000.00, $44,000.00 of which shall be paid to Secured
Party upon the execution of this Agreement and the remaining $44,000.00 of
which shall be paid to Secured Party on or before the first anniversary of this
Agreement.
7. UNUSED FACILITY FEE. Debtor agrees to pay to Secured Party an
unused facility fee equal to one-quarter percent (0.25%) per annum of the
average daily unused portion of the Revolving Line in effect from time to time,
payable quarterly in arrears, beginning March 31, 1996 and continuing on each
December 31, March 31, June 30 and September 30 thereafter during the term of
this Agreement and upon the termination hereof.
8. CONDITIONS TO CLOSING. Prior to or simultaneous with the
execution and delivery hereof and as conditions precedent to the obligation of
Bank to make any loan hereunder, Debtor shall deliver, or cause to be
delivered, to Bank, the following, all in form and substance satisfactory to
Bank and its counsel or the following shall be fulfilled to the satisfaction of
Bank, as the case may be:
(a) A revolving loan note in the form of Exhibit A, executed
by Debtor;
(b) An equipment term note in the form of Exhibit B executed
by Debtor;
(c) An unlimited and unconditional guaranty of all Obligations
executed by NRP Inc.;
(d) A capital maintenance agreement and a subordination
agreement executed by NRP Inc.;
LOAN AND SECURITY AGREEMENT - PAGE 9
<PAGE> 10
(e) Executed copies of all documents representing or executed
in connection with the Subordinated Debt;
(f) Evidence that the Borrowing Base exceeds the aggregate
outstanding balance of Revolving Loans after the effectiveness of this
Agreement by at least $250,000.00;
(g) An opinion of legal counsel for Debtor satisfactorily
addressing such matters as may be required by Bank and its counsel;
(h) A copy of the articles of incorporation, and all
amendments thereto, of Debtor, accompanied by the certificate of the
Secretary of State of the State of Nevada bearing a date no more than
thirty (30) days prior to the date hereof, to the effect that each such
copy is correct and complete and that Debtor is a corporation duly
incorporated and validly existing in such state, and certified by the
corporate secretary of Debtor dated the date hereof, as being correct
and complete as of the date hereof;
(i) Certification by the Comptroller of the State of Texas
bearing a date no more than thirty (30) days prior to the date hereof,
to the effect that Debtor is in good standing with respect to payment of
franchise and similar taxes;
(j) A copy of the bylaws, and all amendments thereto, of
Debtor accompanied by a certificate from Debtor's corporate secretary,
dated the date hereof, to the effect that such copy is correct and
complete as of the date hereof;
(k) A copy of the certificate of merger of American Telesales
Corporation into Debtor, issued by the Nevada Secretary of State;
(l) Certification of incumbency of all officers of Debtor
executed by the president or vice president and by the corporate
secretary of Debtor, as of the date hereof, certifying the name and
signature of each such officer;
(m) A copy of corporate resolutions of Debtor approving this
Agreement, authorizing the transactions contemplated hereby, and
authorizing and directing a named officer or officers of Debtor to sign
and deliver all Loan Documents to be executed by Debtor, duly adopted by
Debtor's board of directors, accompanied by the certificate of the
corporate secretary, dated the date hereof, that such copy is a true and
complete copy of resolutions duly adopted by the board of directors, and
that such resolutions have not been amended, modified, or revoked in any
respect and are in full force and effect as of the date hereof;
(n) All financing statements required by Secured Party in
connection with perfection of Secured Party's and Leasing's security
interest in the Collateral and all termination statements and other
amendments to financing statements required by Secured Party to make
Secured Party's and/or Leasing's security interest in the Collateral a
first priority security interest;
LOAN AND SECURITY AGREEMENT - PAGE 10
<PAGE> 11
(o) Evidence of insurance in compliance with the requirements
of Section 13(g) and such loss payable endorsements as may be required
by Secured Party;
(p) Executed landlord's waivers and consents for each location
leased by Debtor; and
(q) Such other agreements, instruments, certificates and
financing statements as Secured Party may request in order to perfect or
protect its interests and rights in the Collateral and under the Loan
Documents.
9. ASSIGNMENT OF ACCOUNTS. The execution and delivery of this
Agreement, to the extent that a security interest in the accounts of Debtor is
granted to Secured Party, shall constitute, with respect to the accounts hereby
assigned and pledged, an agreement, representation and warranty by Debtor to
Secured Party that, except for the security interest of Secured Party and
Leasing therein:
(a) Debtor is the sole owner of and has full unrestricted
power and right to assign and pledge such accounts free from any lien,
security interest or encumbrance.
(b) Each account is in existence, unconditional and valid, and
arose from a bona fide outright sale of personal property usually sold
by Debtor, or for services usually performed by Debtor, in the ordinary
course of its business, for liquidated amounts and maturing as set forth
on its face and that such personal property has been shipped to
respective account debtors or such services have been performed for
respective account debtors.
(c) No account is subject to any sale, assignment, claim or
security interest of any character and Debtor will not make any sale or
other assignment thereof or create any other security interest therein.
(d) Other than accounts where AT&T is the account debtor, no
account is subject to any claim for credit, deduction, allowance or
adjustment by an account debtor, or to any defense, dispute, setoff or
counterclaim; there is no extension or indulgence with respect to any
account.
10. ESTABLISHMENT OF LOCK BOX. To the extent that a security interest
in the accounts of Debtor is granted to Secured Party and so long as this
Agreement shall be in effect or any Obligations shall be outstanding, Debtor
agrees that, at the request of Secured Party, all sums payable by any account
debtor to Debtor in payment or on account of any of Debtor's accounts shall be
deposited in a special bank account ("Special Account") established pursuant to
Secured Party's standard form of Lock Box Agreement ("Lock Box Agreement") and
maintained with Secured Party in the name of Debtor, marked "Special Account,"
over which Secured Party alone has power of withdrawal. Such sums shall be
deposited in the form received, except for the endorsement of Debtor where
necessary to permit collection of items, which endorsement Debtor agrees to
make, and which Secured Party is also hereby authorized to make on Debtor's
behalf. The funds in the Special Account shall be held by
LOAN AND SECURITY AGREEMENT - PAGE 11
<PAGE> 12
Secured Party as security for payment of the Obligations. Debtor hereby agrees,
at the request of Secured Party, immediately upon receipt of checks, drafts,
cash and other remittances in payment of or on account of any of Debtor's
accounts, to immediately deposit all of the same into the Special Account.
Debtor hereby also agrees, upon request by Secured Party, to notify all of
Debtor's present and future account debtors to send any and all of their sums
payable in payment of or on account of their accounts payable to Debtor to the
address indicated in the Lock Box Agreement. Secured Party is authorized,
empowered and directed to apply any and all funds in the Special Account (i)
toward the payment of the outstanding principal amount of, and accrued interest
on, the Revolving Loans and any other amounts then due and payable to Secured
Party, at any time when no Event of Default has occurred and is continuing, and
(ii), after the occurrence and during the continuance of an Event of Default,
toward, in Secured Party's sole and absolute discretion, the payment of the
outstanding principal amount of, and accrued interest on, any of the
Obligations, with any balance remaining after payment in full of the
Obligations to be held by Secured Party, subject to the written instructions of
Debtor. Any credit balance in the Special Account will not bear interest but
may be withdrawn by Debtor if (i) there is no outstanding principal or accrued
and unpaid interest on the Revolving Loans and no other Obligations are then
due and payable and (ii) no Event of Default has occurred and is continuing.
11. ESTABLISHMENT OF BLOCKED ACCOUNT. To the extent that a security
interest in the accounts of Debtor is granted to Secured Party and so long as
this Agreement shall be in effect or any of the Obligations shall be
outstanding, Debtor agrees that, at the request of Secured Party, all funds
payable by any account debtor to Debtor in payment or on account of any of
Debtor's accounts shall be deposited in a special deposit account ("Blocked
Account") of Debtor set up in a bank(s) acceptable to Secured Party. Such
Blocked Account shall be established pursuant to a tri-party agreement among
Debtor, Secured Party, and such bank ("Blocked Account Agreement"), in form and
substance satisfactory to Secured Party, which Blocked Account Agreement shall
include the following provisions:
(a) Agreement by Debtor that it has no power of withdrawal
over the funds in the Blocked Account;
(b) Agreement by the bank that it shall neither claim nor
exercise any right of offset or banker's lien against the funds in the
Blocked Account;
(c) Waiver and release by the bank to Secured Party of any
right or claim which such bank may have in or to the funds in the
Blocked Account;
(d) Agreement by the bank to forward daily to Secured Party by
wire transfer (or by such other manner of transfer acceptable to Secured
Party) to Debtor's Special Account or such other account in Secured
Party as shall be designated by Secured Party, all collected funds in
the Blocked Account;
LOAN AND SECURITY AGREEMENT - PAGE 12
<PAGE> 13
(e) Assignment and pledge by Debtor to Secured Party, as
additional collateral security for the Obligations, of all funds in the
Blocked Account, and direction by Debtor to the bank (i) to hold such
funds as bailee for Secured Party, and (ii) to distribute the funds
daily to Secured Party in the manner specified above in Subsection
10(d),
(f) Agreement by Debtor to pay directly to bank all costs and
expenses associated with the Blocked Account; and
(g) Agreement by Debtor that it may unilaterally neither
terminate the Blocked Account nor terminate the Blocked Account
Agreement.
All funds forwarded to Secured Party from such Blocked Account pursuant to this
Section shall be applied as set forth above in Section 10. The provisions of
this Section are in addition to and not in limitation of the provisions of
Section 10.
12. OTHER REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor represents
and warrants to Secured Party that:
(a) Debtor is conducting, transacting, and carrying on its
business under the name shown above, or such other names as may be
specified in Addendum III attached hereto and incorporated herein by
reference, and is not engaged in business under any other name: and
Debtor's chief executive office is that set forth in Section 1(k) above,
at which office Debtor keeps, and will continue to keep, its records
concerning accounts. Debtor will promptly notify Secured Party in
writing of any change in (i) the name of Debtor or any of the names
under which it is carrying on its business as specified on Addendum III
attached hereto, (ii) the address of Debtor, (iii) Debtor's primary
place of business, (iv) the location of the office where records
concerning accounts are kept, (v) the opening of any new place of
business, or (vi) the closing of any of its existing places of business.
(b) Debtor is duly organized and validly existing under the
laws of the state set forth in Section 1(k) above, is duly qualified and
is in good standing in each and every state in which it is doing
business, and has all the requisite power and authority to execute this
Agreement and the other Loan Documents to be executed by Debtor.
(c) The execution, delivery and performance of this Agreement
and all of the other Loan Documents by Debtor have been duly authorized
by all necessary corporate action by Debtor, and constitute legal valid
and binding obligations on Debtor, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors'
rights and except to the extent specific remedies may generally be
limited by equitable principles.
(d) The execution, delivery and performance of this Agreement
and the other Loan Documents, and the consummation of the transactions
contemplated hereby and thereby, do not
LOAN AND SECURITY AGREEMENT - PAGE 13
<PAGE> 14
(i) conflict with, result in a violation of, or constitute a default
under any provision of Debtor's Articles of Incorporation or Bylaws, or
any agreement or other instrument binding upon Debtor, or any law,
governmental regulation, court decree, or order applicable to Debtor, or
(ii) require the consent, approval or authorization of any third party.
(e) There are no actions, suits or proceedings, pending or, to
the knowledge of Debtor, threatened against or affecting Debtor or the
properties of Debtor, before any court or governmental department,
commission or board, which, if determined adversely to Debtor, would
have a material adverse effect on the financial condition, properties,
or operations of Debtor.
(f) Debtor has not executed any other security agreement
currently affecting the Collateral or any financing statement regarding
the Collateral (other than those in favor of BankAmerica Business
Credit, Inc.), and no financing statement executed by Debtor regarding
the Collateral is now on file (other than those in favor of BankAmerica
Business Credit, Inc. which are being terminated contemporaneously
herewith).
(g) All Collateral is and will be owned by Debtor, free and
clear of all other liens, encumbrances, security interests or claims,
shall be kept at Debtor's address noted above and such other addresses
as may be listed in Addendum IV attached hereto and incorporated hereby
by reference, and Debtor shall not (without the prior written approval
of Secured Party) remove the Collateral therefrom except for the purpose
of sale or use in the ordinary course of business.
(h) Debtor owns all of the assets reflected on its most recent
balance sheet delivered to Secured Party, free and clear of all liens,
security interests or other encumbrances, except as previously disclosed
in writing to Secured Party.
(i) As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by
Debtor at the time of its execution, (i) Debtor is and will be solvent,
(ii) the fair saleable value of Debtor's assets exceeds and will
continue to exceed Debtor's liabilities (both fixed and contingent),
(iii) Debtor is and will continue to be able to pay its debts as they
mature, and (iv) Debtor has and will have sufficient capital to carry on
its business and all businesses in which it is about to engage.
(j) Debtor has filed all federal, state and local tax reports
and returns required by any law or regulation to be filed by it and has
either duly paid all taxes, duties and charges indicated due on the
basis of such returns and reports, or made adequate provision for the
payment thereof, and the assessment of any material amount of additional
taxes in excess of those paid and reported is not reasonably expected.
There is no tax lien notice against Debtor presently on file, judgment
entered against Debtor or levy on or attachment of its property
outstanding.
LOAN AND SECURITY AGREEMENT - PAGE 14
<PAGE> 15
(k) Debtor (i) does not maintain or contribute to any defined
benefit pension plan ("Plan") under the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA"), or (ii) is
not in violation of any provisions of ERISA, or any other applicable
state or federal law with respect to any Plan that it contributes to or
maintains.
(l) Except as disclosed in writing to Secured Party: (i)
Debtor is conducting Debtor's businesses in material compliance with all
applicable federal, state and local laws, statutes, ordinances, rules,
regulations, orders, determinations and court decisions, including
without limitation, those pertaining to health or environmental matters
such as the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (collectively, together with any subsequent
amendments, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980,
the Solid Waste Disposal Act Amendments of 1980, and the Hazardous
Substance Waste Amendments of 1984 (collectively, together with any
subsequent amendments, hereinafter called "RCRA"), the Texas Water Code
and the Texas Solid Waste Disposal Act; (ii) none of the operations of
Debtor is the subject of a federal, state or local investigation
evaluating whether any material remedial action is needed to respond to
a release or disposal of any toxic or hazardous substance or solid waste
into the environment; (iii) Debtor has not filed any notice under any
federal, state or local law indicating that Debtor is responsible for
the release into the environment, the disposal on any premises in which
Debtor is conducting its businesses or the improper storage, of any
material amount of any toxic or hazardous substance or solid waste or
that any such toxic or hazardous substance or solid waste has been
released, disposed of or is improperly stored, upon any premise on which
Debtor is conducting its businesses; and (iv) Debtor otherwise does not
have any known material contingent liability in connection with the
release into the environment, disposal or the improper storage, of any
such toxic or hazardous substance or solid waste. The terms "hazardous
substance" and "release", as used herein, shall have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal", as used
herein, shall have the meanings specified in RCRA; provided, however,
that to the extent that the laws of the State of Texas establish
meanings for such terms which are broader than that specified in either
CERCLA or RCRA, such broader meanings shall apply.
(m) There is no fact known to Debtor that Debtor has not
disclosed to Secured Party in writing which may result in any material
adverse change in Debtor's business, properties or operations.
(n) No certificate or statement herewith or heretofore
delivered by Debtor to Secured Party in connection herewith, or in
connection with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material fact
necessary to keep the statements contained therein from being
misleading.
(o) Debtor also represents and warrants to Secured Party the
matters set forth in Addendum V attached hereto and incorporated herein
by reference.
LOAN AND SECURITY AGREEMENT - PAGE 15
<PAGE> 16
(p) The representations, warranties, and covenants of Debtor
set forth in this Agreement are true and correct as of the time of the
making of this Agreement, and each request by Debtor for a loan or
advance hereunder shall constitute, without the necessity of a written
certificate or agreement, a representation and warranty by Debtor that,
as of the date of such request and at and as of the time of the making
of each loan or advance hereunder, (i) all of the representations and
warranties of Debtor contained in this Agreement are true and correct,
(ii) no material adverse change in Debtor's financial condition since
the effective date of the most recent financial statements furnished to
Secured Party by Debtor shall have occurred and be continuing, and (iii)
no event has occurred and is continuing, or would result from the
requested advance, which constitutes an Event of Default under this
Agreement.
13. AFFIRMATIVE COVENANTS. So long as this Agreement shall be in
effect or any of the Obligations shall be outstanding, Debtor agrees and
covenants that, unless the Secured Party shall otherwise consent in writing:
(a) Debtor will promptly inform Secured Party of (i) any and
all material adverse changes in Debtor's financial condition, and (ii)
all litigation and claims affecting Debtor which could materially affect
the financial condition of Debtor;
(b) Debtor will maintain its books and records in accordance
with generally accepted accounting principles, applied on a consistent
basis.
(c) Debtor will execute and deliver to Secured Party such
financing statement or statements, in form satisfactory to Secured
Party, which Secured Party may at any time desire to file in order to
perfect and preserve its security interest in the Collateral and will
reimburse Secured Party for the costs of filing the same; and Debtor
will take any action and/or execute and deliver to Secured Party any
instrument, document, assignment or other writing which Secured Party in
its sole discretion may deem necessary or appropriate (i) to carry out
the terms of this Agreement, (ii) to perfect Secured Party's and/or
Leasing's security interest in the Collateral, (iii) to comply with the
Federal Assignment of Claims Act, as amended, and/or (iv) to facilitate
the collection of Debtor's accounts.
(d) Debtor will, at its sole cost and expense, defend any
action which might affect Secured Party's security interest in or
Debtor's title to the Collateral.
(e) If sales of Collateral are made by Debtor in the ordinary
course of its business for cash, Debtor shall immediately deliver to
Secured Party the identical checks, cash or the forms of payment which
Debtor receives.
(f) Debtor Will perform, at its sole cost and expense, any and
all steps requested by Secured Party to protect Secured Party's security
interest in the Collateral, such as leasing warehouses to Secured Party
or its designee, placing and maintaining signs, appointing custodians,
executing and filing financing or continuation statements in form and
substance
LOAN AND SECURITY AGREEMENT - PAGE 16
<PAGE> 17
satisfactory to Secured Party, and maintaining stock records. If any
Collateral is in the possession or control of any of Debtor's agents or
processors, Debtor shall notify such agent or processors of Secured
Party's security interest therein, and upon request instruct them to
hold all such Collateral for the account of Secured Party and subject to
Secured Party's instructions. A physical listing of all Collateral,
wherever located, shall be taken by Debtor whenever requested by Secured
Party, and a copy of each such physical listing shall be supplied to
Secured Party. Secured Party may examine and inspect the Collateral at
any time.
(g) Debtor will keep or cause to be kept adequately insured by
financially sound and reputable insurers all of its property usually
insured by persons or entities engaged in the same or similar
businesses. Without limiting the foregoing, Debtor will insure the
Collateral in Secured Party's name against loss or damage by fire,
theft, burglary, pilferage, loss in transit, and such other hazards as
Secured Party may specify in amounts and under policies by insurers
reasonably acceptable to Secured Party, and all premiums thereon shall
be paid by Debtor and the policies delivered to Secured Party. If Debtor
fails to do so, Secured Party may procure such insurance and charge the
cost to the Debtor's account. Each policy of insurance covering the
Collateral shall provide that at least ten (10) days prior written
notice of cancellation or notice of lapse must be given to Secured Party
by the insurer.
(h) Debtor will keep the Collateral in good order and repair
(reasonable wear and tear and obsolescence excepted) and will not waste
or destroy the Collateral or any part thereof and will not use the
Collateral in violation of any statute or ordinance.
(i) Debtor shall cause each mortgagee of real property owned
by Debtor and each landlord of real property leased by Debtor to execute
and deliver agreements satisfactory in form and substance to Secured
Party by which such mortgagee or landlord waives or subordinates any
rights it may have in the Collateral.
(j) If any account debtor rejects, returns or refuses to
accept or receive property represented by any account, Debtor will
notify Secured Party, and at the request of Secured Party, hold such
property separate and apart from Debtor's property in trust for Secured
Party and subject to its order or immediately deliver such property to
Secured Party. Secured Party may accept a return of property represented
by any account without discharging or affecting Debtor's Obligations.
Secured Party may take and sell such property for such prices and upon
such terms at public or private sale in the manner provided in the Code.
At Secured Party's option, Debtor will forthwith pay Secured Party the
original invoice price of such property for application against the
Obligations in such manner as Secured Party may elect. In the event such
property is resold, any account created thereby shall be deemed assigned
and pledged to Secured Party hereunder.
(k) Debtor will give Secured Party or any persons designated
by it, at any time and from time to time, full access to all records
available to Debtor from any credit reporting
LOAN AND SECURITY AGREEMENT - PAGE 17
<PAGE> 18
service, bureau or other similar agency and Secured Party and any
persons designated by it shall have the right to inspect and make and
take away copies of any such records.
(l) Debtor will furnish such additional information and
statements, lists of assets and liabilities, tax returns, and other
reports with respect to Debtor's financial condition and business
operations as Secured Party may reasonably request from time to time.
Secured Party shall have the right without hindrance or delay to conduct
field examinations, to inspect the Collateral and to inspect, audit and
copy Debtor's books, records, journals, correspondence and other records
and data relating to the Collateral or Debtor's business. Secured Party
is authorized to discuss Debtor's affairs with any Person, including
without limitation employees of Debtor, as Secured Party may deem
necessary in relation to the Collateral, Debtor's financial condition or
Secured Party's rights under the Loan Documents.
(m) Debtor will pay and discharge when due all of its
indebtedness and obligations, including without limitation, all
assessments, taxes, governmental charges and levies, of every kind and
nature, imposed upon Debtor or its properties (including, without
limitation, the Collateral), income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Debtor's properties, income,
or profits; provided, however, Debtor will not be required to pay and
discharge any such assessment, tax charge, levy or claim so long as (i)
the legality of the same shall be contested in good faith by appropriate
proceedings, and (ii) Debtor shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy or claim in accordance with generally accepted accounting
principles. Debtor, upon demand of Secured Party, will furnish to
Secured Party evidence of payment of all assessments, taxes, charges,
levies and claims against Debtor or its properties, income or profits
and will authorize the appropriate governmental official to deliver to
Secured Party at any time a written statement of any assessments, taxes,
charges, levies and claims against Debtor or its properties, income or
profits.
(n) Debtor will conduct its business in an orderly and
efficient manner consistent with good business practices, and perform
and comply with all statutes, rules, regulations and/or ordinances
imposed by any governmental unit upon Debtor and its businesses and
operations, including, without limitation, those pertaining to
environmental matters.
(o) Debtor will execute and deliver, or cause to be executed
and delivered, any and all other agreements, instruments or documents
which Secured Party may reasonably request in order to give effect to
the transactions contemplated under this Agreement and the other Loan
Documents.
(p) Debtor will do and perform all acts required of it under
this Agreement and the other Loan Documents and furnish to Secured Party
such other information respecting the business, properties or condition,
or the operations, financial or otherwise, of Debtor as Secured Party
may from time to time reasonably request.
LOAN AND SECURITY AGREEMENT - PAGE 18
<PAGE> 19
(q) Debtor will also abide by the covenants set forth in
Addendum V attached hereto.
14. NEGATIVE COVENANTS. So long as this Agreement shall be in effect
or any of the Obligations shall be outstanding, Debtor agrees that, without the
prior written consent of Secured Party:
(a) Debtor will not permit any financing statement regarding
the Collateral to be filed other than a financing statement or
statements in favor of Secured Party.
(b) Except for sales of inventory made in the ordinary course
of its business, Debtor will not sell, encumber, grant a security
interest in, or dispose of, or permit the sale, encumbrance or disposal
of any Collateral without the prior written consent of Secured Party.
(c) Debtor will not liquidate, merge or consolidate with or
into any other entity.
(d) Debtor will not hereafter permit (i) any tax lien notice
to be filed except one that is for an amount less than $100,000 and is
removed or released within 30 days after filing, (ii) a judgment to be
entered against it or its property except one that is for an amount less
than $100,000 and is discharged, removed, or bonded within 30 days after
entry, or (iii) a levy on or attachment of its property to be made.
(e) Debtor will not sell, transfer or otherwise dispose of any
of its assets or properties, other than in the ordinary course of its
business.
(f) Debtor will not grant, create, incur or assume any
security interest, lien or encumbrance on any of its assets or
properties, including the Collateral, except for financing statements
filed with respect to presently existing leases of equipment and any
leases entered into by Debtor with Leasing and except for leases and
purchase money liens permitted by Section 14(g)(v).
(g) Debtor will not create, incur or assume any indebtedness
for borrowed money or issue or assume any other note, debenture, bond or
other evidences of indebtedness, or guarantee any such indebtedness or
such evidences of indebtedness of others, other than (i) borrowings from
Secured Party, (ii) borrowings outstanding on the date hereof and
disclosed in writing to Secured Party, (iii) Subordinated Debt, (iv) up
to an aggregate $100,000 in purchase money indebtedness per fiscal year,
(v) up to $1,500,000 of the $2,500,000 permitted for Capital
Expenditures as leases and/or purchase money indebtedness entered into
with third parties, and (vi) other indebtedness that does not at any
time exceed, in the aggregate, $150,000 during calendar year 1996 or
$100,000 during any subsequent calendar year.
(h) Debtor will not do any of the other acts, deeds or matters
set forth on Addendum V attached hereto.
LOAN AND SECURITY AGREEMENT - PAGE 19
<PAGE> 20
(i) There will be no decrease in the ownership of Debtor by
NRP Inc. except such as is caused by the exercise of currently
outstanding stock options.
(j) Debtor will not change its primary line of business.
15. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section at all times during the period of time this Agreement
is effective.
(a) Debtor hereby authorizes Secured Party to file, without
the signature of Debtor, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral. Debtor
further agrees that a carbon, photographic or other reproduction of this
Agreement or any financing statement describing any Collateral is
sufficient as a financing statement and may be filed in any jurisdiction
Secured Party may deem appropriate.
(b) Debtor hereby irrevocably appoints Secured Party as
Debtor's attorney-in-fact and proxy, with full authority in the place
and stead of Debtor and in the name of Debtor or otherwise, from time to
time in Secured Party's discretion, to take any action and to execute
any instrument which Secured Party may deem necessary or appropriate to
accomplish the purposes of this Agreement after the occurrence and
during the continuance of an Event of Default, including without
limitation the following: (i) to obtain and adjust insurance required by
Secured Party hereunder; (ii) to demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of the Collateral; (iii) to receive,
endorse and collect any checks, drafts or other instruments, documents
and chattel paper in connection with clause (i) or (ii) above; and (iv)
to file any claims or take any action or institute any proceedings which
Secured Party may deem necessary or appropriate for the collection
and/or preservation of the Collateral or otherwise to enforce the rights
of Secured Party with respect to the Collateral.
(c) If Debtor fails to perform any agreement or obligation
provided herein (including without limitation, the payment and discharge
of any taxes, liens or encumbrances affecting the Collateral), Secured
Party may itself perform, or cause performance of, such agreement or
obligation, and the expenses of Secured Party incurred in connection
therewith shall be a part of the Obligations, secured by the Collateral
and payable by Debtor on demand.
(d) Secured Party or any persons designated by it shall have
the right to call at Debtor's place or places of business during normal
business hours to inspect, audit, check and make and take away copies or
extracts from Debtor's books, records, journals, orders, receipts and
any correspondence and other data relating to Debtor's business or to
any other transactions between the parties hereto, without hindrance or
delay.
(e) All amounts and proceeds (including instruments and
writings) received by Debtor in respect of Debtor's accounts or general
intangibles shall be received in trust for the benefit of Secured Party
hereunder and, upon request of Secured Party, shall be segregated from
LOAN AND SECURITY AGREEMENT - PAGE 20
<PAGE> 21
other property of Debtor and shall be forthwith delivered to Secured
Party in the same form as so received (with any necessary endorsement)
and applied to the Obligations in such manner as Secured Party deems
appropriate in its sole discretion.
(f) Notwithstanding the existence of any Lock Box Agreement
between Debtor and Secured Party, Secured Party may at its discretion
from time to time notify any or all obligors under any accounts or
general intangibles (i) of Secured Party's security interest in such
accounts or general intangibles and direct such obligors to make payment
of all amounts due or to become due to Debtor thereunder directly to
Secured Party, but only after the occurrence and during the continuance
of an Event of Default, and (ii) to verify the accounts or general
intangibles with such obligors at any and all times. Secured Party
shall have the right, at the expense of Debtor, (i) after the occurrence
and during the continuance of an Event of Default, (a) to enforce
collection of any such accounts or general intangibles, (b) to adjust,
settle or compromise the amount or payment thereof, and (c) to demand,
collect, receive, receipt for, sue for, compound and give acquittances
for any and all amounts due or to become due on the accounts, to take
control of cash and other proceeds of any accounts and (ii) at any and
all times, (a) to endorse the name of Debtor on any notes, acceptances,
checks, drafts, money orders or other evidences of payment or collateral
that may come into possession of Secured Party, (b) to sign the name of
Debtor on any invoice or bill of lading relating to any account, on any
drafts against account debtors, on assignments and verifications of
accounts and on notices to account debtors, and (c) to do all other acts
and things necessary to carry out the purposes of this Agreement.
Subject to the terms and provisions of any Lock Box Agreement or Blocked
Account Agreement, until such time as Secured Party elects to exercise
the rights hereinabove set forth in this Section, Secured Party
authorizes Debtor to collect and enforce all accounts. Costs of
collection and enforcement of accounts, including payment of attorneys'
fees and out-of-pocket expenses, shall be borne solely by Debtor,
whether same are incurred by Secured Party or by Debtor. Debtor agrees
that the collection and enforcement of all accounts by Debtor shall be
for the account of Secured Party, and all collections and proceeds
thereof shall be promptly turned over by Debtor to Secured Party in the
form in which they are received by Debtor, either by mailing or
delivering the same to Secured Party not later than the banking business
day following receipt thereof by Debtor. All checks, drafts and other
instruments shall be endorsed by Debtor to Secured Party, and in the
event of failure of Debtor to make such endorsement, Secured Party is
hereby irrevocably authorized to endorse the same on Debtor's behalf.
Debtor agrees that it will not compromise accounts and will not use or
dispose of proceeds of accounts or commingle collections or proceeds
with any of Debtor's other funds or property or otherwise exercise any
dominion over the same but will hold them separate and apart and upon an
express trust for Secured Party. All payments received by Secured Party
on accounts or other proceeds or on account of cash sales of Collateral
will be credited by Secured Party to Debtor's account.
(g) After the occurrence and during the continuance of an
Event of Default, Secured Party will at all times have the right to take
physical possession in the Collateral and to maintain such possession on
the premises of Debtor or to remove the Collateral or any part thereof
to
LOAN AND SECURITY AGREEMENT - PAGE 21
<PAGE> 22
such other places as Secured Party may desire. If Secured Party
exercises its right to take possession of the Collateral, Debtor shall,
upon demand by Secured Party, assemble the Collateral and make it
available to Secured Party at a place reasonably convenient to Secured
Party. In addition, with respect to all Collateral, as well as all
accounts and other security, Secured Party shall have all the rights and
remedies set forth hereafter in this Agreement.
(h) After the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right of setoff against
Debtor at any and all times and in any and all proceedings and instances
including, but not limited to, bankruptcy, reorganization, receivership
or insolvency of Debtor.
16. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default by Debtor hereunder:
(a) The failure, refusal or neglect of Borrower to make
payment of the Obligations or any portion thereof, as the same shall
become due and payable;
(b) The failure of Borrower or any Obligated Party to timely
and properly observe, keep or perform any covenant, agreement, warranty
or condition required (i) in this Agreement (other than a failure to
comply with the covenants described in Section 16(c) hereof), (ii) in
any of the other Loan Documents, or (iii) in any of the Agreements (as
defined herein below);
(c) The failure of Borrower or any Obligated Party to timely
and properly observe, keep or perform any covenant, agreement, warranty
or condition required by Sections 13(b), (h), (i), (k) and (n) hereof,
and such failure shall not be cured within 15 days after the earlier of
(A) the date when Borrower or such Obligated Party knew or should have
known of such failure and (B) Secured Party's notice to Borrower or such
Obligated Party of such failure;
(d) The occurrence of an event of default under (i) any of the
other Loan Documents or (ii) any of the Agreements;
(e) Any representation made by Borrower or any Obligated Party
contained herein or contained in any of the other Loan Documents or the
Agreements is false or misleading in any material respect when made or
deemed made;
(f) If Borrower or any Obligated Party: (i) becomes insolvent,
or makes a transfer in fraud of creditors, or makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its
debts as they become due; (ii) generally is not paying its debts as such
debts become due; (iii) has a receiver or custodian appointed for, or
take possession of, all or substantially all of the assets of such party
or any of the Collateral, either in a proceeding brought by such party
or in a proceeding brought against such party and such appointment is
not discharged or such possession is not terminated within thirty (30)
days after the effective date thereof or such party consents to or
acquiesces in such appointment or possession; or (iv)
LOAN AND SECURITY AGREEMENT - PAGE 22
<PAGE> 23
files a petition for relief under the United States Bankruptcy Code or
any other present or future federal or state insolvency, bankruptcy or
similar laws (all of the foregoing hereinafter collectively called
"Applicable Bankruptcy Law") or an involuntary petition for relief is
filed against such party under any Applicable Bankruptcy Law and such
involuntary petition is not dismissed within thirty (30) days after the
filing thereof, or an order for relief naming such party is entered
under any Applicable Bankruptcy Law, or any composition, rearrangement,
extension, reorganization or other relief of debtors now or hereafter
existing is requested or consented to by such party; or
(g) The filing of a tax lien notice by the United States, any
state or any governmental subdivision thereof against any of the
property of Borrower except for a tax lien notice for an amount less
than $100,000 that is removed or released within 30 days after filing;
(h) The entry of a judgment against Borrower except one that
is for an amount less than $100,000 and is dismissed or bonded against
within 30 days after entry, or the levy on or attachment of its
property;
(i) The Collateral or any material portion thereof is taken on
execution or other process of law in any action against Debtor;
(j) Debtor abandons the Collateral or any material portion
thereof,
(k) The holder of any lien or security interest on any of the
assets of Debtor, including without limitation, the Collateral (without
hereby implying the consent of Secured Party to the existence or
creation of any such lien or security interest on the Collateral),
declares a default thereunder or institutes foreclosure or other
proceedings for the enforcement of its remedies thereunder; or
(l) If Borrower or any Obligated Party is an entity, the
liquidation, dissolution, merger or consolidation of any such entity.
17. REMEDIES. Upon the occurrence of any Event of Default, and at any
time thereafter, Secured Party shall have, in addition to all other rights and
remedies provided herein, in any other agreement between Secured Party and
Debtor or by law, the remedies of a secured party under the Code, including,
but not limited to, the right to take possession of the Collateral, and for
that purpose, Secured Party may, so far as Debtor can give authority therefor,
enter upon any premises on which the Collateral may be situated and remove the
same therefrom. The rights and remedies referred to in this Agreement are
cumulative, and in addition to the general remedies set forth above, Secured
Party shall have the following specific remedies upon the occurrence of an
Event of Default:
(a) At its option, Secured Party may terminate any further
loans or advances to Debtor hereunder.
LOAN AND SECURITY AGREEMENT - PAGE 23
<PAGE> 24
(b) The entire unpaid balance of the Obligations then owing by
Debtor to Secured Party (including, without limitation, the Revolving
Loans and the Equipment Term Loan) shall, at the option of Secured
Party, become immediately due and payable without further presentation,
demand for payment, notice of intent to accelerate, notice of
acceleration or dishonor, protest or notice of protest of any kind, all
of which are expressly waived by Debtor.
(c) At its option, Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient
to both parties. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party will give Debtor reasonable notice of
the time and place of any public sale thereof or of the time after which
any private sale or any other intended disposition thereof is to be
made. The requirements of reasonable notice shall be met if such notice
is mailed, postage prepaid, to Debtor at least ten (10) days before the
time of sale or other intended disposition of the Collateral.
(d) Secured Party may at any time in its discretion transfer
any other property constituting the Collateral into its own name or that
of its nominee and receive the income thereon and hold the same as
security for the Obligations or apply it to the principal or interest
due on the Obligations, as the Secured Party may elect. Secured Party
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize upon the Collateral as Secured Party may
determine, whether or not any of the Obligations are then due; and for
the purpose of asserting, protecting or enforcing any of Secured Party's
rights therein, Secured Party may receive, open, and dispose of mail
addressed to Debtor and endorse notes, checks, drafts, money orders,
documents of title, or other evidences of payment, shipment, or storage
of any part of the Collateral on behalf of and in the name of Debtor.
(e) Debtor shall pay to Secured Party on demand any and all
expenses, including legal expenses, attorneys' fees, court costs,
collection costs, and traveling expenses, incurred or paid by Secured
Party in protecting or enforcing any of its fights hereunder, including
its right to take possession of the Collateral, to hold, store, prepare
for sale, sell, or otherwise dispose of the Collateral, and in
collecting the proceeds thereof After deducting all of such expenses,
the residue of any proceeds of collection or sale of the Collateral
shall be applied to the payment of the Obligations in such order of
preference as Secured Party may determine, proper allowance for interest
on Obligations not then due being made, and any excess shall be returned
to Debtor, and Debtor shall remain liable for any deficiency. Secured
Party is hereby, authorized to add, from time to time, all such expenses
to the balance of indebtedness due by Debtor to Secured Party, and such
expenses shall become a part of the Obligations.
(f) In the event that Debtor or any other party seeks to
redeem the Collateral, to the extent that any such right of redemption
may exist, Debtor shall pay to Secured Party, in addition to fulfillment
of all the Obligations secured by the Collateral, any and all expenses
incurred or paid by Secured Party in retaking, holding, storing, and
preparing the Collateral for
LOAN AND SECURITY AGREEMENT - PAGE 24
<PAGE> 25
sale or other disposition, including legal expenses, attorneys' fees,
court costs, collection costs, and traveling expenses.
18. OTHER AGREEMENTS. If at any time Debtor and Secured Party are
parties to any other financing agreements (all of such agreements, whether one
or more, being hereinafter referred to as the "Agreements"), and if the
Agreements (or any of them, if more than one) should be breached in whole or in
part by Debtor or should terminate for any reason whatsoever without the
consent of Secured Party, such event shall constitute an Event of Default
hereunder. Any sums due hereunder or under the Agreements, or any one or more
of them may be collected by Secured Party out of sums or credits due Secured
Party under the terms of this Agreement or the Agreements, or any one or more
of them and any collateral or security for the performance of this Agreement or
any of the Agreements may be realized upon by Secured Party for the
satisfaction of any indebtedness arising with respect to this Agreement or any
of the Agreements. Debtor and Secured Party hereby agree that all indebtedness,
securities and remedies available to Secured Party under this Agreement or the
Agreements may be utilized by Secured Party for the enforcement of its rights
and the collection of any indebtedness due it under the terms of this Agreement
or the Agreements, the rights and remedies of Secured Party hereunder being
cumulative of all other rights and remedies of Secured Party, and not in
substitution thereof or as an alternative thereto.
19. TERM.
(a) This Agreement shall become effective upon acceptance by
Secured Party, as of the date hereinafter set forth, and shall continue
in full force and effect until the Maturity Date (the "Initial Term")
unless earlier terminated by Secured Party in connection with the
exercise of its rights and remedies under this Agreement upon the
occurrence of an Event of Default. Unless either party notifies the
other at least ninety (90) days prior to the expiration of the Initial
Term or the expiration of any Extended Term that this Agreement shall
terminate at the end of the Initial Term or such Extended Term, this
Agreement shall continue in full force and effect for a succeeding one
year period (the "Extended Term"). If such notice is given, this
Agreement may not be extended for another year.
(b) If Debtor terminates this Agreement at any time during the
Initial Term (other than (A) at the end of the Initial Term by written
notice to Secured Party given at least ninety (90) days prior to the end
of the Initial Term or (B) during the ninety (90) days preceding the end
of the Initial Term if Secured Party has given notice that this
Agreement shall terminate at the end of the Initial Term), Debtor
acknowledges that (i) such termination would result in the loss to
Secured Party of the benefits of this Agreement and that the damages
incurred by Secured Party as a result of such termination are and would
be difficult of ascertainment and (ii) no such termination shall be
effective until Debtor has paid to Secured Party all of the Obligations
immediately available funds, together with a sum certain as liquidated
damages, being Debtor's and Secured Party's best and fairest estimate of
Secured Party's damages caused by such termination, equal to two percent
(2.0%) of the average loan balance of the Revolving Loans for the twelve
consecutive months ending on the date the Revolving Loans are paid in
LOAN AND SECURITY AGREEMENT - PAGE 25
<PAGE> 26
full if the termination occurs on or before the first anniversary of
this Agreement, one percent (1.0%) of the average loan balance of the
Revolving Loans for the twelve consecutive months ending on the date the
Revolving Loans are paid in full if the termination occurs after the
first anniversary but on or before the second anniversary of this
Agreement and one-half of one percent (0.5%) of the average loan balance
of the Revolving Loans for the twelve consecutive months ending on the
date the Revolving Loans are paid in full if the termination occurs
after the second anniversary but before the third anniversary of this
Agreement. The Equipment Term Loan may be prepaid in whole or in part at
any time without premium or penalty; provided that all interest accrued
on the amount prepaid must be prepaid at the same time as the prepayment
of principal and all principal so prepaid shall be applied to
installments due thereunder in inverse order of maturity.
(c) Notwithstanding anything to the contrary, any proposed
termination of this Agreement, whether or not at the end of the Initial
Term or any Extended Term, shall not be effective, and shall not release
or affect the Collateral already assigned to Secured Party or any
Obligations incurred or rights accrued hereunder, unless and until all
Obligations, whether incurred pursuant to this Agreement or otherwise,
have been paid in full.
20. MISCELLANEOUS.
(a) Waiver of Rights. Debtor waives notice of nonpayment,
presentment, notice of demand, demand, notice of intention to
accelerate, notice of acceleration, protest or notice thereof as to the
Obligations or as to any of the Collateral.
(b) Entire Agreement. This Agreement contains the entire
agreement of Secured Party and Debtor with respect to the Collateral. If
the parties hereto are parties to any prior agreement, either written or
oral, relating to the Collateral, the terms of this Agreement shall
amend and supersede the terms of such prior agreements as to
transactions on or after the effective date of this Agreement but all
security agreements, financing statements, guaranties, other contracts
and notices for the benefit of Secured Party shall continue in full
force and effect to secure all Obligations of Debtor to Secured Party
under the terms hereof or thereof unless Secured Party specifically
releases its rights thereunder by separate release.
(c) Fees and Expenses. Debtor agrees that all fees and
expenses, including, without limitation, legal, accounting, audit and
field examination fees and expenses, incurred by Secured Party in
connection with the preparation of this Agreement and the other Loan
Documents, the closing of any loan secured hereby, and in administering
this Agreement and the matters referenced herein shall be paid and borne
by Debtor, and Secured Party is hereby authorized by Debtor to deduct
all such fees and expenses from the proceeds of any loan secured hereby
or to add, from time to time, all such fees and expenses to the balance
of Revolving Loans due by Debtor to Secured Party hereunder, with such
fees and expenses becoming a part of the Obligations; provided, however,
that, as long as no Default or Event of Default has occurred, Debtor's
obligation to reimburse Secured Party for field examinations
LOAN AND SECURITY AGREEMENT - PAGE 26
<PAGE> 27
shall be limited to four field examinations (not counting the initial
field examination) each twelve month period commencing on the date
hereof and each anniversary of the date hereof, with an aggregate limit
on such reimbursable field examination expenses of $10,000 for each such
twelve month period. Field examination expenses for examinations
conducted after the date hereof will be charged to Debtor as follows:
actual out of pocket expenses for examiner's travel, lodging and meals
plus $500.00 per day per examiner. Actual costs for the initial field
examination conducted prior to the date hereof shall be reimbursed to
Secured Party by Debtor based on a rate of $500 per day per examiner
plus actual out of pocket expenses for each examiner's travel, lodging
and meals.
(d) Account Debtor Notification. Debtor will immediately
notify Secured Party in the event (i) that any account debtor fails to
accept, refuses to accept, returns, offers to return or revokes the
acceptance of any personal property which is the subject of any account,
(ii) of the bankruptcy, insolvency or financial embarrassment of any
account debtor, and (iii) of any claim asserted by any account debtor
(other than AT&T) for credit, allowance, adjustment, dispute, setoff or
counterclaim, which exceeds $10,000, provided that Debtor is required to
account for all such claims, regardless of amount, in determining the
Borrowing Base. Debtor will immediately, upon receipt thereof, endorse
and deliver to Secured Party any and all checks, notes, trade
acceptances, drafts or other instruments with respect to or in payment
of any account or any chattel paper with respect to personal property or
services performed giving rise to any account. All checks and other
items received by Secured Party in payment of the Obligations secured
hereby shall be subject to a clearance period of two (2) business days.
(e) Effectiveness of Agreement. This Agreement shall become
effective only upon acceptance by Secured Party at its offices in
Dallas, Texas. All transactions hereunder shall take place at Secured
Party's offices in Dallas, Texas.
(f) Waiver. Neither the failure nor any delay on the part of
Secured Party to exercise any right, power or privilege herein or under
any of the Loan Documents shall operate as a waiver thereof, nor shall
any single or partial exercise of such right, power or privilege
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No waiver of any provision in this
Agreement or in any of the other Loan Documents and no departure by
Debtor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party, and then shall be effective only in the
specific instance and for the purpose for which given and to the extent
specified in such writing.
(g) Amendment. No modification or amendment to this Agreement
or to any of the other Loan Documents shall be valid or effective unless
the same is signed by the party against whom it is sought to be
enforced.
(h) Parties In Interest. This Agreement shall be binding upon
the parties and their successors or assigns, and shall inure to the
benefit of the parties and the successors or assigns
LOAN AND SECURITY AGREEMENT - PAGE 27
<PAGE> 28
of Secured Party, but shall not inure to the benefit of any heirs,
representatives, successors or assigns of Debtor.
(i) Venue. All warranties and representations of Debtor
contained herein and any payment on any indebtedness secured hereby have
been or shall be made in Dallas County, Texas, and all parties hereto
agree that venue is proper only in such county, that such county is a
convenient forum in which to decide any dispute arising hereunder and to
submit themselves to the personal jurisdiction of the courts located in
such county,
(j) Governing Law. The laws of Texas shall govern the
construction of this Agreement and the rights, remedies, duties and
obligations of the parties hereto with respect to all transactions
hereunder and any and all Collateral, to the extent that federal law is
not applicable.
(k) Cumulative Rights. All rights of Secured Party under the
terms of this Agreement shall be cumulative of, and in addition to, the
rights of Secured Party under any and all other agreements between
Debtor and Secured Party (including, but not limited to, the other Loan
Documents and any other agreements referenced herein), and not in
substitution or diminution of any rights now or hereafter held by
Secured Party under the terms of any other agreement,
(l) Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been
given when personally delivered or when deposited in the United States
mail, registered or certified, postage prepaid, and addressed as
follows:
If to Debtor: Advanced Telemarketing Corporation
8001 Bent Branch Drive
Irving, Texas 75063
Attn: Jerry L. Sims, Jr.
If to Secured Party: BANK ONE, TEXAS, NATIONAL ASSOCIATION
P.O. Box 660094
Dallas, Texas 75266-0094
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Asset Based Lending Group
Each of the parties hereto shall be entitled to specify a different
address by giving written notice to the other party hereto in accordance
with this Subsection.
LOAN AND SECURITY AGREEMENT - PAGE 28
<PAGE> 29
(m) Descriptive Headings. The captions in this Agreement are
for convenience only and shall not define or limit the provisions hereof
(n) Participation of Obligations. Debtor agrees that Secured
Party may, at its option, sell interests in the Obligations and its
rights under this Agreement to a financial institution or institutions
and, in connection with each such sale, Secured Party may disclose any
financial and other information available to Secured Party concerning
Debtor to each prospective purchaser; provided, however, that Secured
Party will retain at least a fifty-one percent interest in the
Obligations.
(o) Invalid Provisions. If any provision of this Agreement or
any of the other Loan Documents is held to be illegal, invalid or
unenforceable under present or future laws, such provision shall be
fully severable and the remaining provisions of this Agreement or any of
the other Loan Documents shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provision or by
its severance.
(p) Counterparts. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one and
the same Agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart.
IN WITNESS THEREOF, this Agreement is executed, to be effective as of
the date of acceptance by Secured Party.
DEBTOR:
Advanced Telemarketing Corporation
By: /s/ JERRY L. SIMS, JR.
-----------------------------------
Name: Jerry L. Sims, Jr.
------------------------------
Title: Secretary
-----------------------------
ACCEPTED at Dallas, Texas,
this 8th day of February, 1996:
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By: /s/ KATHLEEN ROBERTSON
-----------------------------------
Name: Kathleen Robertson
------------------------------
Title: Vice President
-----------------------------
LOAN AND SECURITY AGREEMENT - PAGE 29
<PAGE> 30
ADDENDUM
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
The other persons or entities referenced in Section 1(e) are:
NONE
Initials: LS
KNA
<PAGE> 31
ADDENDUM II
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
The Collateral, as defined and referred to in Section 1(i), shall mean:
See Schedule A attached hereto and incorporated herein by reference.
Initials: LS
KNA
<PAGE> 32
SCHEDULE A
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
1. All present and future accounts, chattel paper, contract rights,
documents, instruments, deposit accounts and general intangibles (including,
without limitation, any right to payment for goods sold or services rendered
arising out of the sale or delivery of personal property or work done or labor
performed by Debtor and any and all income tax refunds), now or hereafter
owned, held, or acquired by Debtor, together with any and all books of account,
customer lists and other records relating in any way to the foregoing, and in
any case where an account arises from the sale of goods, the interest of Debtor
in such goods; together with any and all PROCEEDS of any of the foregoing
property, including insurance payable by reason of loss or damage to such
property.
2. All present and hereafter acquired inventory (including without
limitation, all raw materials, work-in-process and finished goods) held,
possessed, owned, held on consignment, or held for sale or return, in whole or
in part, by Debtor wherever located, and further including all PRODUCTS and all
PROCEEDS of the foregoing, including insurance payable by reason of loss or
damage to such property. The designation of proceeds does not authorize Debtor
to sell, transfer or otherwise convey any of the property described herein
except finished goods intended for sale in the usual course of Debtor's
business.
3. All equipment and fixtures of whatsoever kind and character now or
hereafter possessed, held, acquired, or owned by Debtor and used or usable in
Debtor's business together with all replacements, accessories, additions,
substitutions and accessions to all of the foregoing, and all PROCEEDS thereof,
including insurance payable by reason of loss or damage to such property. The
designation of proceeds does not authorize Debtor to sell, transfer or
otherwise convey any of the property described herein. To the extent that the
foregoing property is located on, attached to, annexed to, related to, or used
in connection with, or otherwise made a part of, and is or shall become
fixtures upon, real property, such real property and the record owner thereof
is described on EXHIBIT C attached hereto.
4. All computer programs, software, firmware, routines, systems,
algorithms, codes, printouts and instructions of any kind that contain any
information relating to Debtor's accounts or account debtors, whether now owned
or after-acquired, for use on any variety of computing machinery, whether in
machine or human-readable form, and stored in or on media of any kind,
including, without limitation, tape, disk, card, strip or cartridge (whether
paper, magnetic or optical), and electronic circuitry, together with all
instruction manuals or documentation of any kind, stored in or on media of any
kind, pertaining in any way to the property described herein, and all PROCEEDS
thereof, including insurance payable by reason of loss or damage to such
property. The designation
Initials: LS
KNA
<PAGE> 33
of proceeds does not authorize Debtor to sell, transfer or otherwise convey any
of the property described herein.
Initials: LS
KNA
<PAGE> 34
ADDENDUM III
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
The other names referenced in Section 12(a) are:
ATC
American Telesales Corporation
Initials: LS
KNA
<PAGE> 35
ADDENDUM IV
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
The other addresses referenced in Section 12(g) are;
10935 Estate Lane
Suites 350, 375, and 400
Dallas, Texas 75238
7801 Mesquite Bend Drive
Irving, Texas 75063
7803 Mesquite Bend Drive
Irving, Texas 75063
7805 Mesquite Bend Drive
Irving, Texas 75063
4135 Beltline Road
Addison, Texas 75244
55 Hawthorne Street, 6th and 7th Floors
San Francisco, California 94105
Initials: LS
KNA
<PAGE> 36
ADDENDUM V
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
A. The other representations and warranties referenced in Section 12(o)
are:
(1) Each financial statement of Debtor previously supplied to Secured Party
was prepared in accordance with generally accepted accounting principles
in effect on the date such statements were prepared and truly discloses
and fairly presents Debtor's financial condition as of the date of such
statement, subject to year end audit adjustments, and there has been no
material adverse change in such financial condition or results of
operations of Debtor subsequent to April 30, 1995, which is the date of
the most recent financial statements of Debtor supplied to Secured
Party.
(2) Debtor has no federal patents, patent applications, registered
trademarks, or trademark applications.
B. The other affirmative covenants referenced in Section 13(q) are:
(1) Maintain, as at the end of each fiscal quarter, a Tangible Leverage
Ratio of no more than 7.0 to 1.0. Maintain, as at the end of each fiscal
quarter, an Interest Coverage Ratio of at least 1.5 to 1.0. Maintain, as
at the end of each fiscal quarter, a Debt Service Ratio of at least 1.1
to 1.0.
(2) Debtor will furnish to Secured Party:
(a) As soon as possible and in any event within ten (10) days
after the occurrence of each Default or Event of Default hereunder,
continuing on the date of such statement, the statement of the President
or the Chief Financial Officer of Debtor setting forth the details of
such Default or Event of Default and the action which Debtor proposes to
take with respect thereto.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a consolidated balance sheet
and income statement and statement of cash flow of Debtor as of the end
of such month, all in form and substance and in reasonable detail
satisfactory to Secured Party and duly certified (subject to year-end
review adjustments) by the President or Chief Financial Officer of
Debtor (i) as being true and
Initials: LS
KNA
<PAGE> 37
correct in all material aspects to the best of his or her knowledge and
(ii) as having been prepared in accordance with GAAP.
(c) As soon as available and in any event within one hundred
and twenty (120) days after the end of each fiscal year of NRP Inc., an
audited consolidated and consolidating balance sheet, income statement
and statement of cash flows for NRP Inc. and all of its subsidiaries as
of the end of such fiscal year certified by Price Waterhouse or other
independent public accountants of recognized standing acceptable to
Secured Party as having been prepared in accordance with GAAP and
without material qualification, together with a certificate of such
accountants stating that in the course of their audit of NRP Inc., which
audit was conducted by such accountants in accordance with generally
accepted auditing standards, such accountants obtained no knowledge that
a Default or an Event of Default has occurred and is continuing, or if,
in the opinion of such accountants, a Default or an Event of Default has
occurred and is continuing, a statement as to the nature thereof.
(d) As soon as the same is received by Debtor, a copy of any
management letter delivered to Debtor by its independent accountants;
(e) As soon as available, and in any event at least 30 days
prior to the commencement of each fiscal year of Debtor, the following
financial statements on a one (1) year pro forma basis: (i) balance
sheet and income statement of Debtor, and (ii) cash flow statement, all
in form and substance and in reasonable detail satisfactory to Secured
Party.
(f) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or any governmental
department, commission or board involving Debtor.
(g) Within thirty (30) days after the end of each fiscal
quarter, a certificate from the Chief Financial Officer of Debtor
stating such entity is in full compliance with all of its obligations
under this Agreement and the other Loan Documents, and is not in default
of any term or provision hereof or thereof and demonstrating compliance
with all financial ratios and covenants set forth in this Agreement.
(h) Within fifteen (15) days after the end of each month (i)
an analysis of its accounts showing an aging of accounts as follows:
accounts 30 days old and less; accounts over 30 days and less than 61
days old; accounts over 60 days old and less than 91 days old; accounts
over 90 days old and less than 120 days old; and accounts 120 days old
and older, and (ii) an aging of Debtor's payables.
(i) At least once a week, a borrowing base certificate signed
by the President or Chief Financial Officer of Debtor, along with
supporting documentation, in form and substance satisfactory to Secured
Party.
Initials: LS
KNA
<PAGE> 38
(j) Within 10 days of the statutory due date of each of the
following, copies of all 10-K's, 10-Q's and 8-K's required to be filed
by NRP Inc. or Debtor.
(3) Debtor will deliver to its independent public accountants
contemporaneously with the execution hereof the irrevocable
instructions, in the form provided hereinbelow, that such accountants
are to send to Secured Party copies of all financial statements (whether
preliminary or final) and reports which are prepared as a result of any
audit or other review of the operations, business, finances or internal
controls of Debtor, including, without limitation any management reports
and any reports concerning improper accounting practices, defalcations,
financial reporting errors or misstatements or fraud. Such instructions
shall be in the following form:
[LETTERHEAD OF DEBTOR]
[NAME AND ADDRESS OF
DEBTOR'S OUTSIDE AUDITOR]
Ladies and Gentlemen:
This letter instructs you to send to BANK ONE, TEXAS NATIONAL
ASSOCIATION ("Bank") all financial statements (whether preliminary or
final) and reports which you prepare as a result of any audit or other
review of our operations, business, finances or internal controls,
including without limitation, any management reports and any reports
concerning improper accounting practices, defalcations, financial
reporting errors or misstatements or fraud perpetrated on us or by any
of our employees or agents.
The undersigned further authorizes and instructs you to
communicate and discuss its financial condition and the financial
condition of its subsidiaries, if any, with the Bank and to disclose to
the Bank upon request any information in your possession relating to its
financial condition and the financial condition of its subsidiaries. The
undersigned hereby agrees that such discussions or communications will
be without liability to the Bank or to you.
All of the foregoing which is reduced to writing must be sent to
the Bank at the following address prior to or contemporaneously with the
sending of said written information to us
Initials: LS
KNA
<PAGE> 39
BANK ONE, TEXAS, NATIONAL ASSOCIATION
1717 Main Street
Dallas, Texas 75201
Attn: Secured Lending Group
These instructions may only be revoked by the Bank's delivery to
you of a revocation notice signed by an officer of the Bank.
C. The other negative covenants referenced in Section 14(h) are:
(1) Make Capital Expenditures during any fiscal year which would in the
aggregate exceed $2,500,000, other than those made with insurance
proceeds to repair or replace equipment.
(2) Declare or pay any Dividends on any shares of Debtor's capital stock,
make any other distributions with respect to any payment on account of
the purchase, redemption, or other acquisition or retirement of any
shares of Debtor's capital stock, or make any other distribution, sale,
transfer or lease of any of Debtor's assets (i) that would cause the
Tangible Leverage Ratio to exceed 7.0 to 1.0 or (ii) at any time that
Tangible Leverage Ratio exceeds 7.0 to 1.0.
(3) Make any loans or advances to any Person except for loans to employees
and advances for the purchase of equipment that, at any time, are not
greater than $50,000 per employee and $250,000 in the aggregate for all
employees and for all purchase advances.
(4) Pay or cause to be paid any advance rentals for any leased property,
real or personal, utilized by Debtor in the conduct and operation of its
business except for the payment of one month's rental in advance and the
payment of the last month's rental in advance.
(5) Enter into any transaction with an Affiliate except on arms-length terms
that are as favorable to Debtor as could have been obtained from a
non-Affiliate.
(6) Make any Investments except for Investments in obligations issued or
guaranteed by the United States or certificates of deposit issued by
Bank or loans permitted by clause (3) above. As used herein,
"Investment" in any Person means any investment, whether by means of
share purchase, loan, advance, purchase of debt instrument, extension of
credit (other than accounts receivable arising from the sale of goods or
services in the ordinary course of business or notes payable to Debtor
in settlement of any such accounts receivable), capital contribution or
otherwise, in or to such Person, the guaranty of any indebtedness of
such Person or the subordination of any claim against such Person to
other indebtedness of such Person.
Initials: LS
KNA
<PAGE> 40
DEBTOR:
ADVANCED TELEMARKETING CORPORATION
By: /s/ JERRY L. SIMS, JR.
--------------------------------
Name: Jerry L. Sims, Jr.
------------------------------
Title: Secretary
-----------------------------
SECURED PARTY:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ KATHLEEN ROBERTSON
--------------------------------
Name: Kathleen Robertson
------------------------------
Title: Vice President
-----------------------------
Initials: LS
KNA
<PAGE> 41
EXHIBIT A
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
[Form of Revolving Loan Note]
Initials: LS
KNA
<PAGE> 42
PROMISSORY NOTE
$15,000,000.00 February 8, 1996
FOR VALUE RECEIVED, on or before the earlier of (i) January 31, 1999 and
(ii) the termination of the Loan Agreement pursuant to Section 17 or 19 thereof
("Maturity Date"), the undersigned and if more than one, each of them jointly
and severally (hereinafter referred to as "Borrower"), promises to pay to the
order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank") at its offices in
Dallas County, Texas, at 1717 Main Street, 4th Floor, Dallas, Texas 75201, the
principal amount of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) ("Total
Principal Amount"), or such amount less than the Total Principal Amount which
is outstanding from time to time if the total amount outstanding under this
Promissory Note ("Note") is less than the Total Principal Amount together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fluctuating rate per annum
which shall from day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("Contract Rate"), calculated on the basis
of the actual days elapsed but computed as if each year consisted of 360 days,
equal to the sum of (i) the Base Rate of interest ("Base Rate") as established
from time to time by Bank (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers) plus (ii)
one-half of one percent (0.50%) per annum, each change in the rate to be
charged on this Note to become effective without notice to Borrower on the
effective date of each change in the Maximum Rate or the Base Rate, as the case
may be; provided, however, that if at any time the Contract Rate shall exceed
the Maximum Rate, thereby causing the interest on this Note to be limited to
the Maximum Rate, then any subsequent reduction in the Base Rate shall not
reduce the rate of interest on this Note below the Maximum Rate until the total
amount of interest accrued on this Note equals the amount of interest which
would have accrued on this Note if the Contract Rate had at all times been in
effect. The term "Maximum Rate," as used herein, shall mean at the particular
time in question the maximum rate of interest which, under applicable law, may
then be charged on this Note. If such maximum rate of interest changes after
the date hereof and this Note provides for a fluctuating rate of interest, the
Maximum Rate shall be automatically increased or decreased, as the case may be,
without notice to Borrower from time to time as of the effective date of each
change in such maximum rate. If applicable law ceases to provide for such a
maximum rate of interest, the Maximum Rate shall be equal to eighteen percent
(18%) per annum. All capitalized terms used herein that are not defined herein
shall have the meaning given them in that certain Loan and Security Agreement
of even date herewith by and between Borrower and Bank (as the same may be
amended, restated, renewed, extended, or otherwise modified, the "Loan
Agreement").
The principal of and all accrued but unpaid interest on this Note shall
be due and payable as follows:
PROMISSORY NOTE - PAGE 1
<PAGE> 43
(a) interest shall be due and payable monthly as it accrues,
commencing on the first day of March, 1996, and continuing on the first day of
each successive month thereafter during the term of this Note; and
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
All mandatory prepayments of principal and accrued but unpaid interest
thereon required to be made under the Loan Agreement shall be due and payable
immediately unless otherwise provided in the Loan Agreement.
To the extent that any interest is not paid on or before the first day
of each month, Bank may, at its option, add such accrued interest to the
principal of this Note. Notwithstanding anything herein to the contrary, upon
an Event of Default or at maturity, whether by acceleration or otherwise, all
principal of this Note shall, at the option of Bank, bear interest at the
Default Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement. This Note, the Loan
Agreement, and all other documents evidencing, securing, governing,
guaranteeing and/or pertaining to this Note are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make
payments hereunder from time to time, provided that it is understood and agreed
that the aggregate principal amount outstanding from time to time hereunder
shall not at any time exceed the Total Principal Amount. The unpaid balance of
this Note shall increase and decrease with each new advance or payment
hereunder, as the case may be. This Note shall not be deemed terminated or
canceled prior to the Maturity Date, although the entire principal balance
hereof may from time to time be paid in full. Borrower may borrow, repay and
reborrow hereunder in accordance with the provisions of the Loan Agreement. All
regularly scheduled payments of the indebtedness evidenced by this Note and by
any of the other Loan Documents shall be applied first to any accrued but
unpaid interest then due and payable hereunder or thereunder and then to the
principal amount then due and payable. Prior to the occurrence of an Event of
Default, all non-regularly scheduled payments shall be applied to such
indebtedness in such order as designated by Maker. After the occurrence of an
Event of Default, all non-regularly scheduled payments shall be applied to such
indebtedness in such order and manner as the holder of this Note may from time
to time determine in its sole discretion. All payments and prepayments of
principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of Bank
indicated above, or such other place as the holder of this Note shall designate
in writing to Borrower. If any payment of principal of or interest on this
Note shall become due on a day which is not a Business Day (as hereinafter
defined), such payment shall be made on the next succeeding Business Day and
any such extension of time shall be included in computing interest in
connection with such payment.
PROMISSORY NOTE - PAGE 2
<PAGE> 44
As used herein, the term "Business Day" shall mean any day other than any day
on which commercial banks in the State of Texas are authorized to be closed.
The books and records of Bank shall be prima facie evidence of all outstanding
principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall
be used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more Events of
Default (as defined in the Loan Agreement), the holder of this Note may, at its
option, without further notice or demand, (i) declare the outstanding principal
balance of and accrued but unpaid interest on this Note at once due and
payable, (ii) refuse to advance any additional amounts under this Note, (iii)
foreclose all liens and security interests securing payment hereof, (iv) pursue
any and all other rights, remedies and recourse available to the holder hereof,
including but not limited to any such rights, remedies or recourse under the
Loan Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourse of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof.
The acceptance by the holder hereof of any payment under this Note which is
less than the payment in full of all amounts due and payable at the time of
such payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be
performed in accordance with, and only to the extent permitted by, all
applicable usury laws. If any provision hereof or of any of the other Loan
Documents or the application thereof to any person or circumstance shall, for
any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.
It is expressly stipulated and agreed to be the intent of the holder hereof to
at all times comply with the usury and other applicable laws now or hereafter
governing the interest payable on the indebtedness evidenced by this Note. If
the applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
PROMISSORY NOTE - PAGE 3
<PAGE> 45
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the indebtedness evidenced b this Note, or if Bank's exercise of the
option to accelerate the maturity of this Note, or if any prepayment by
Borrower results in Borrower's having paid any interest in excess of that
permitted by law, then it is the express intent of Borrower and Bank that all
excess amounts theretofore collected by Bank be credited on the principal
balance of this Note (or, if this Note and all other indebtedness arising under
or pursuant to the other Loan Documents have been paid in full, refunded to
Borrower), and the provisions of this Note and the other Loan Documents
immediately be deemed reformed and the amounts thereafter collectable hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder or thereunder.
All sums paid, or agreed to be paid, by Borrower for the use, forbearance,
detention, taking, charging, receiving or reserving of the indebtedness of
Borrower to Bank under this Note or arising under or pursuant to the other Loan
Documents shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the fun term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended, for the
purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Bank may, at its option
and from time to time, implement any other method of computing the Maximum Rate
under such Article 5069-1.04, as amended, or under other applicable law by
giving notice, if required, to Borrower as provided by applicable law now or
hereafter in effect. Notwithstanding anything to the contrary contained herein
or in any of the other Loan Documents, it is not the intention of Bank to
accelerate the maturity of any interest that has not accrued at the time of
such acceleration or to collect unearned interest at the time of such
acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, is applicable to this Note, the "indicated rate ceiling"
specified in such article is the applicable ceiling; provided that, if any
applicable law permits greater interest, the law permitting the greatest
interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and
PROMISSORY NOTE - PAGE 4
<PAGE> 46
without further notice hereby agree to renewals, extensions, exchanges or
releases of collateral, taking of additional collateral, indulgences or partial
payments, either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
ADVANCED TELEMARKETING
CORPORATION
By: /s/ JERRY L. SIMS, JR.
-----------------------------------
Name: Jerry L. Sims, Jr.
------------------------------
Title: Secretary
-----------------------------
PROMISSORY NOTE - PAGE 5
<PAGE> 47
EXHIBIT B
TO
LOAN AND SECURITY AGREEMENT
Dated February 8, 1996
By and Between
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ADVANCED TELEMARKETING CORPORATION
[Form of Equipment Term Loan Note]
<PAGE> 48
PROMISSORY NOTE
$1,000,000.00 February 8, 1996
FOR VALUE RECEIVED, on or before the earlier of (i) January 31, 1999 and
(ii) the termination of the Loan Agreement pursuant to Section 17 or 19 thereof
("Maturity Date"), the undersigned and if more than one, each of them, jointly
and severally (hereinafter referred to as "Borrower"), promises to pay to the
order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("Bank") at its offices in
Dallas County, Texas, at 1717 Main Street, 4th Floor, Dallas, Texas 75201, the
principal amount of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) ("Total
Principal Amount"), or such amount less than the Total Principal Amount which
is outstanding from time to time if the total amount outstanding under this
Promissory Note ("Note") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fluctuating rate per annum
which shall from day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("Contract Rate"), calculated on the basis
of the actual days elapsed but computed as if each year consisted of 360 days,
equal to the sum of (i) the Base Rate of interest ("Base Rate") as established
from time to time by Bank (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers) plus (ii)
three-quarters of one percent (0.75%) per annum, each change in the rate to be
charged on this Note to become effective without notice to Borrower on the
effective date of each change in the Maximum Rate or the Base Rate, as the case
may be; provided, however, that if at any time the Contract Rate shall exceed
the Maximum Rate, thereby causing the interest on this Note to be limited to
the Maximum Rate, then any subsequent reduction in the Base Rate shall not
reduce the rate of interest on this Note below the Maximum Rate until the total
amount of interest accrued on this Note equals the amount of interest which
would have accrued on this Note if the Contract Rate had at all times been in
effect. The term "Maximum Rate," as used herein, shall mean at the particular
time in question the maximum rate of interest which, under applicable law, may
then be charged on this Note. If such maximum rate of interest changes after
the date hereof and this Note provides for a fluctuating rate of interest, the
Maximum Rate shall be automatically increased or decreased, as the case may be,
without notice to Borrower from time to time as of the effective date of each
change in such maximum rate. If applicable law ceases to provide for such a
maximum rate of interest, the Maximum Rate shall be equal to eighteen percent
(1 8%) per annum. All capitalized terms used herein that are not defined herein
shall have the meaning given them in that certain Loan and Security Agreement
of even date herewith by and between Borrower and Bank (as the same may be
amended, restated, renewed, extended, or otherwise modified, the "Loan
Agreement").
The principal of and all accrued but unpaid interest on this Note shall
be due and payable in monthly installments of principal of $27,777.78 PLUS
accrued but unpaid interest, commencing on the first day of March, 1996, and
continuing on the first day of each successive month thereafter during the term
of this Note. The outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
PROMISSORY NOTE - PAGE 1
<PAGE> 49
All mandatory prepayments of principal and accrued but unpaid interest
thereon required to be made under the Loan Agreement shall be due and payable
immediately unless otherwise provided in the Loan Agreement.
To the extent that any principal or interest is not paid on or before
the first day of each month, Bank may, at its option, add such accrued interest
to the principal of the Revolving Loan (as defined in the Loan Agreement).
Notwithstanding anything herein to the contrary, upon an Event of Default or at
maturity, whether by acceleration or otherwise, all principal of this Note
shall, at the option of Bank, bear interest at the Default Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement. This Note, the Loan
Agreement, and all other documents evidencing, securing, governing,
guaranteeing and/or pertaining to this Note are hereinafter collectively
referred to as the "Loan Documents." The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
All regularly scheduled payments of the indebtedness evidenced by this
Note and by any of the other Loan Documents shall be applied first to any
accrued but unpaid interest then due and payable hereunder or thereunder and
then to the principal amount then due and payable. All non-regularly scheduled
payments shall be applied to such indebtedness in such order and manner as the
holder of this Note may from time to time determine in its sole discretion. All
payments and prepayments of principal of or interest on this Note shall be made
in lawful money of the United States of America in immediately available funds,
at the address of Bank indicated above, or such other place as the holder of
this Note shall designate in writing to Borrower. If any payment of principal
of or interest on this Note shall become due on a day which is not a Business
Day (as hereinafter defined), such payment shall be made on the next succeeding
Business Day and any such extension of time shall be included in computing
interest in connection with such payment. As used herein, the term "Business
Day" shall mean any day other than any day on which commercial banks in the
State of Texas are authorized to be closed. The books and records of Bank shall
be prima facie evidence of all outstanding principal of and accrued and unpaid
interest on this Note.
Borrower agrees that the advance under this Note shall not be used for
personal, family or household purposes, and that all advances hereunder shall
be used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more Events of
Default (as defined in the Loan Agreement), the holder of this Note may, at its
option, without further notice or demand, (i) declare the outstanding principal
balance of and accrued but unpaid interest on this Note at once due and
payable, (ii) foreclose all liens securing payment hereof, (iii) pursue any and
all other rights, remedies and recourse available to the holder hereof,
including but not limited to any such rights, remedies or recourse under the
Loan Documents, at law or in equity, or (iv) pursue any combination of the
foregoing.
PROMISSORY NOTE - PAGE 2
<PAGE> 50
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourse of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof.
The acceptance by the holder hereof of any payment under this Note which is
less than the payment in full of all amounts due and payable at the time of
such payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be
performed in accordance with, and only to the extent permitted by, all
applicable usury laws. If any provision hereof or of any of the other Loan
Documents or the application thereof to any person or circumstance shall, for
any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.
It is expressly stipulated and agreed to be the intent of the holder hereof to
at all times comply with the usury and other applicable laws now or hereafter
governing the interest payable on the indebtedness evidenced by this Note. If
the applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the indebtedness evidenced by this Note, or if Bank's exercise of
the option to accelerate the maturity of this Note, or if any prepayment by
Borrower results in Borrower's having paid any interest in excess of that
permitted by law, then it is the express intent of Borrower and Bank that all
excess amounts theretofore collected by Bank be credited on the principal
balance of this Note (or, if this Note and all other indebtedness arising under
or pursuant to the other Loan Documents have been paid in full, refunded to
Borrower), and the provisions of this Note and the other Loan Documents
immediately be deemed reformed and the amounts thereafter collectable hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder or thereunder.
All sums paid, or agreed to be paid, by Borrower for the use, forbearance,
detention, taking, charging, receiving or reserving of the indebtedness of
Borrower to Bank under this Note or arising under or pursuant to the other Loan
Documents shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended, for the
purpose of determining the
PROMISSORY NOTE - PAGE 3
<PAGE> 51
Maximum Rate. Additionally, to the maximum extent permitted by applicable law
now or hereafter in effect, Bank may, at its option and from time to time,
implement any other method of computing the Maximum Rate under such Article
5069-1.04, as amended, or under other applicable law by giving notice, if
required, to Borrower as provided by applicable law now or hereafter in effect.
Notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents, it is not the intention of Bank to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.
To the extent that TEX.REV.CIV.STAT.ANN.art.5069-1.04, as amended, is
applicable to this Note, the "indicated rate ceiling" specified in such article
is the applicable ceiling; provided that, if any applicable law permits greater
interest the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
ADVANCED TELEMARKETING
CORPORATION
By: /s/ JERRY L. SIMS, JR.
-----------------------------------
Name: Jerry L. Sims, Jr.
--------------------------------
Title: Secretary
--------------------------------
PROMISSORY NOTE - PAGE 4
<PAGE> 52
EXHIBIT C
Real Property Descriptions and Owners
8001 Bent Branch
Irving, Texas 75063
Owner: Royal Tech Properties, Ltd.
16051 Addison Rd., Suite 200
Dallas, Texas 75248
10935 Estate Lane
Suites 350, 375 & 400
Dallas, Texas 75238
Owner: Dallas Lyndon Corporation
10925 Estate Lane, Suite 100
Dallas, Texas 75238
7801 Mesquite Bend Drive
7803 Mesquite Bend Drive
7805 Mesquite Bend Drive
Irving, Texas 75063
Owner: Emerson Partners
1760 Noel Rd., Suite 317, LB:2D
Dallas, Texas 75240
4135 Beltline Road
Addison, Texas 75244
Owner: Addition SSBA Joint Venture
16601 Addison Road, Suite 107
Dallas, Texas 75248
55 Hawthorne Street, 6th & 7th Floors
San Francisco, California 94105
Owner: La Conexion
c/o Sprint-United Management-Corporate Real Estate
903 East 104th Street
Kansas City, Missouri 64131
<PAGE> 1
EXHIBIT 10.18
UNCONDITIONAL GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is executed as of February 8, 1996, by NRP Inc.
("Guarantor") for the benefit of Bank One, Texas, National Association ("Bank")
and Banc One Leasing Corporation ("Leasing").
WITNESSETH:
WHEREAS, pursuant to that certain Loan Agreement (as the same may be
amended, restated, renewed, extended, or otherwise modified, the "Loan
Agreement") dated of even date herewith, by and between Bank and Advanced
Telemarketing Corporation ("Borrower"), Borrower may from time to time be
indebted to Bank; and
WHEREAS, pursuant to certain lease agreements (collectively, the "Lease
Agreements") between Leasing and Borrower, Borrower may from time to time be
indebted to Leasing; and
WHEREAS, Bank is not willing to make loans under the Loan Agreement or
otherwise extend credit to Borrower and Leasing is not willing to enter into
the Lease Agreements with Borrower unless Guarantor unconditionally guarantees
payment of all present and future indebtedness and obligations of Borrower to
Bank and Leasing; and
WHEREAS, Guarantor will directly benefit from Bank's making loans to
Borrower and Leasing's leasing equipment to Borrower;
NOW, THEREFORE, as an inducement to Bank to enter into the Loan
Agreement and to make loans to Borrower thereunder and to extend such
additional credit as Bank may from time to time agree to extend, and to Leasing
to enter into the Lease Agreements and lease equipment to Borrower, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Guarantor hereby agrees as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
Section 1.01. Guaranty of Obligation. Guarantor hereby irrevocably and
unconditionally guarantees to Bank, Leasing, and their respective successors
and assigns (i) the due and punctual payment of the "Guaranteed Debt"
(hereinafter defined), and (ii) the performance of all other obligations now or
hereafter owed by Borrower to Bank and/or Leasing, including without limitation
those under the Loan Agreement and the Lease Agreements. Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the
Guaranteed Debt as primary obligor.
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 1
<PAGE> 2
Section 1.02. Definition of Guaranteed Debt. As used herein, the term
"Guaranteed Debt" means:
(a) All principal, interest, attorneys' fees, commitment fees,
liabilities for costs and expenses and other indebtedness, obligations
and liabilities of Borrower to Bank at any time created or arising in
connection with the Loan Agreement, or any amendment thereto or
substitution therefor, including but not limited to all indebtedness,
obligations and liabilities of Borrower to Bank arising under the notes
described in the Loan Agreement, and under any renewals, modifications,
increases and extensions of such notes (collectively, the "Guaranteed
Notes"), and under the Loan Documents (as defined in the Loan
Agreement);
(b) All liabilities of Borrower for future advances,
extensions of credit, sales on account or other value at any time given
or made by Bank to Borrower, whether or not the advances, credit or
value are given pursuant to commitment;
(c) Any and all indebtedness, liabilities, obligations and
duties of every kind and character of Borrower to Bank, whether now or
hereafter existing or arising, regardless of whether such present or
future indebtedness, liabilities, obligations or duties be direct or
indirect, primary or secondary, joint, several, or joint and several,
fixed or contingent, and regardless of whether such present or future
indebtedness, liabilities, obligations or duties may, prior to their
acquisition by Bank, be or have been payable to, or be or have been in
favor of, some other person or have been acquired by Bank in any
transaction with one other than Borrower; together with any and all
renewals, extensions, modifications and increases of such indebtedness,
liabilities, obligations and duties, or any part thereof;
(d) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the
collection of any or all amounts, indebtedness, obligations and
liabilities of Borrower to Bank described in items (a) through (c) of
this Section 1.02;
(e) All lease payments, interest, attorneys' fees, commitment
fees, liabilities for costs and expenses and other indebtedness,
obligations and liabilities of Borrower to Leasing at any time created
or arising in connection with the Lease Agreements, or any amendment
thereto or substitution therefor, and under any renewals, modifications,
increases and extensions of such debt, and under any documents executed
in connection with the Lease Agreements (collectively, the "Lease
Documents");
(f) All liabilities of Borrower for future advances,
extensions of credit, sales on account or other value at any time given
or made by Leasing to Borrower, whether or not the advances, credit or
value are given pursuant to Lease Agreements (but not including any
liabilities acquired from third parties); and
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 2
<PAGE> 3
(g) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the
collection of any or all amounts, indebtedness, obligations and
liabilities of Borrower to Leasing described in items (e) and (f) of
this Section 1.02.
Section 1.03. Indebtedness Not Reduced by Offset. The Guaranteed Notes,
indebtedness, liabilities, obligations and other Guaranteed Debt guaranteed
hereby, and the liabilities and obligations of Guarantor to Bank and Leasing
hereunder, shall not be reduced, discharged or released because or by reason of
any existing or future offset, claim or defense of Borrower, or any other
party, against Bank or Leasing or against payment of the Guaranteed Debt,
whether such offset, claim or defense arises in connection with the Guaranteed
Debt (or the transactions created the Guaranteed Debt) or otherwise. Without
limiting the foregoing or the Guarantor's liability hereunder, to the extent
that either Bank or Leasing advances funds or extends credit to Borrower, and
does not receive payments or benefits thereon in the amounts and at the times
required or provided by applicable agreements or laws, Guarantor is absolutely
liable to make such payments to (and confer such benefits on) Bank or Leasing,
on a timely basis.
Section 1.04. "Borrower" to Include New Partnerships, Corporations. If
Borrower is a partnership or joint venture, the term "Borrower" as used herein
shall include any new partnership or joint venture technically formed as a
result of the dissolution of Borrower, or the admission of new partners or
venturers to, or withdrawal of partners or venturers from, Borrower. If
Borrower is a corporation, the term "Borrower" as used herein shall include any
new or successor corporation technically formed as a result of any merger or
reorganization of Borrower.
Section 1.05. Payment by Guarantor. If all or any part of the Guaranteed
Debt shall not be punctually paid when due, whether at maturity or earlier by
acceleration or otherwise, Guarantor shall, immediately upon demand by Bank or
Leasing, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate or acceleration or any other
notice whatsoever, pay in lawful money of the United States of America, the
amount due on the Guaranteed Debt to Bank at Bank's principal office in Dallas,
Dallas County, Texas, or Leasing, in Leasing's principal office in Fort Worth,
Tarrant County, Texas, as appropriate. Such demand(s) may be made at any time
coincident with or after the time for payment of all or part of the Guaranteed
Debt, and may be made from time to time with respect to the same or different
items of Guaranteed Debt. Such demand shall be deemed made, given and received
in accordance with Section 5.02 hereof.
Section 1.06. No Duty to Pursue Others. It shall not be necessary for
Bank or Leasing (and Guarantor hereby waives any rights which Guarantor may
have to require Bank or Leasing), in order to enforce such payment from
Guarantor, first to (i) institute suit or exhaust its remedies against Borrower
or others liable on the Guaranteed Debt or any other person, (ii) enforce
Bank's or Leasing's rights against any security which shall ever have been
given to secure the Guaranteed Debt, (iii) enforce Bank's or Leasing's rights
against any other guarantors of the Guaranteed Debt, (iv) join Borrower or any
others liable on the Guaranteed Debt in any action
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 3
<PAGE> 4
seeking to enforce this Guaranty Agreement, (v) exhaust any remedies available
to Bank or Leasing against any security which shall ever have been given to
secure the Guaranteed Debt, or (vi) resort to any other means of obtaining
payment of the Guaranteed Debt. Neither Bank nor Leasing shall be required to
mitigate damages or take any other action to reduce, collect or enforce the
Guaranteed Debt.
Section 1.07. Waiver of Notices, etc. Guarantor agrees to the provisions
of the Guaranteed Notes, the Loan Agreement, and the Lease Agreements and
hereby waives notice of (i) any loans or advances made by Bank or Leasing to
Borrower, (ii) acceptance of this Guaranty Agreement, (iii) any amendment or
extension of the Guaranteed Notes, the Loan Agreement, the Lease Agreements, or
of any other Guaranteed Debt, (iv) the execution and delivery by Borrower and
Bank or Leasing of any other loan, credit, or lease agreement or of Borrower's
execution and delivery of any promissory notes or other documents in connection
therewith, (v) the occurrence of any breach by Borrower or Event of Default (as
defined in the Loan Agreement and collateral documents thereto) or default
under any Lease Agreement, (vi) Bank's or Leasing's transfer or disposition of
the Guaranteed Debt, or any part thereof, (vii) sale or foreclosure (or posting
or advertising for sale or foreclosure) of any collateral for the Guaranteed
Debt, (viii) protest, proof of non-payment or default by Borrower, or (ix) any
other action at any time taken or omitted by Bank or Leasing, and, generally,
all demands and notices of every kind in connection with this Guaranty
Agreement, the Loan Agreement, any Lease Agreement, any documents or agreements
evidencing, securing or relating to any of the Guaranteed Debt and the
obligations hereby guaranteed.
Section 1.08. Payment of Expenses. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty Agreement,
Guarantor shall, immediately upon demand by Bank or Leasing, pay Bank and
Leasing all costs and expenses (including court costs and reasonable attorneys'
fees) incurred by Bank and/or Leasing in the enforcement hereof or the
preservation of Bank's and/or Leasing's rights hereunder. The covenant
contained in this Section 1.08 shall survive the payment of the Guaranteed
Debt.
Section 1.09. Effect of Bankruptcy. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership, or other debtor, relief
law, or any judgment, order or decision thereunder, either Bank or Leasing must
rescind or restore any payment, or any part thereof, received by Bank or
Leasing in satisfaction of the Guaranteed Debt, as set forth herein, any prior
release or discharge from the terms of this Guaranty Agreement given to
Guarantor by Bank or Leasing shall be without effect, and this Guaranty
Agreement shall remain in full force and effect. It is the intention of
Borrower and Guarantor that Guarantor's obligations hereunder shall not be
discharged except by Guarantors performance of such obligations and them only
to the extent of such performance.
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 4
<PAGE> 5
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and
agrees that Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following,
and waives any common law, equitable, statutory or other rights (including
without limitation rights to notice) which Guarantor might otherwise have as a
result of or in connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the Guaranteed
Debt, or of the Guaranteed Notes, or any loan agreement, lease agreement,
security agreement, collateral document or other document, instrument, contract
of understanding between Borrower and Bank or Borrower and Leasing, or any
other parties, pertaining to the Guaranteed Debt;
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Bank or Leasing to Borrower or
Guarantor;
Section 2.03. Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation, disability,
dissolution or lack of power of Borrower of any other party at any time liable
for the payment of all or part of the Guaranteed Debt; or any dissolution of
Borrower of Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the shareholders, partners
or members of Borrower or Guarantor; or any reorganization of Borrower or
Guarantor;
Section 2.04. Invalidity of Guaranteed Debt. The invalidity, illegality
or unenforceability of all or any part of the Guaranteed Debt, or any document
or agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including without limitation the fact that (i) the Guaranteed Debt,
or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
officers or representatives executing the Guaranteed Notes or other documents
or otherwise creating the Guaranteed Debt acted in excess of their authority,
(iv) the Guaranteed Debt violates applicable usury laws, (v) Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement) which
render the Guaranteed Debt wholly or partially uncollectible from Borrower,
(vi) the creation, performance or repayment of the Guaranteed Debt (or the
execution, delivery and performance of any document or instrument representing
part of the Guaranteed Debt or executed in connection with the Guaranteed Debt,
or given to secure the repayment of the Guaranteed Debt) is illegal,
uncollectible or unenforceable, or (vii) the Guaranteed Notes, Loan Agreement,
Lease Agreements, or other documents or instruments pertaining to the
Guaranteed Debt have been forged or otherwise are irregular or not genuine or
authentic.
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 5
<PAGE> 6
Section 2.05. Release of Obligors. Any full or partial release of the
liability of Borrower on the Guaranteed Debt or any part thereof, or of any co-
guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Guaranteed Debt or any part
thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Debt in full without assistance
or support of any other party, and Guarantor has not been induced to enter into
this Guaranty on the basis of a contemplation, belief, understanding or
agreement that other parties will be liable to perform the Guaranteed Debt;
Section 2.06. Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Debt;
Section 2.07. Release of Collateral. etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable
impairment) of any collateral, property or security, at any time existing in
connection with, or assuring or securing payment of, all or any part of the
Guaranteed Debt;
Section 2.08. Care and Diligence. The failure of Bank, Leasing, or any
other party to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or any part
of such collateral, property or security;
Section 2.09. Status of Liens. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Guaranteed Debt shall not be
properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that Guarantor is not entering into this Guaranty in
reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the collateral for the
Guaranteed Debt;
Section 2.10. Merger. The reorganization, merger or consolidation of
Borrower into or with any other corporation or entity;
Section 2.11. Preference. Any payment by Borrower to Bank or Leasing is
held to constitute a preference under bankruptcy laws, or for any reason Bank
or Leasing is required to refund such payment or pay such amount to Borrower or
someone else; or
Section 2.12. Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Loan Agreement, the Lease Agreements,
the Guaranteed Debt, or the security and collateral therefore, whether or not
such action or omission prejudices Guarantor or increases the likelihood that
Guarantor will be required to pay the Guaranteed Debt pursuant to the terms
hereof; it is the unambiguous and unequivocal intention of Guarantor that
Guarantor shall be obligated to pay the Guaranteed Debt when due,
notwithstanding any occurrence,
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 6
<PAGE> 7
circumstance, event, action or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described herein,
except for the full and final payment and satisfaction of the Guaranteed Debt.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into the Loan Agreement and extend credit to
Borrower, and to induce Leasing to enter into the Lease Agreements and lease
equipment to Borrower, Guarantor represents and warrants to Bank and Leasing
that:
Section 3.01. Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding, the financial condition
of Borrower and is familiar with the value of any and all collateral intended
to be created as security for the payment of the Guaranteed Debt; however,
Guarantor is not relying on such financial condition or the collateral as an
inducement to enter into this Guaranty.
Section 3.02. No Representation by Bank or Leasing. Neither Bank, nor
Leasing, nor any other party has made any representation, warranty, or
statement to Guarantor in order to induce Guarantor to execute this Guaranty.
Section 3.03. Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will have
assets which, fairly valued, exceed its obligations, liabilities and debts, and
has and will have property and assets in the State of Texas sufficient to
satisfy and repay its obligations and liabilities.
Section 3.04. Benefit. Guarantor is the majority shareholder of Borrower
and has received, or will receive, direct or indirect benefit from the making
of this Guaranty and the Guaranteed Debt and such benefit has a value
reasonably equivalent to the obligations and liabilities incurred hereunder.
Section 3.05. Directors' Determination of Benefit. The Board of
Directors of Guarantor, acting pursuant to a duly called and constituted
meeting, after proper notice, or pursuant to a valid unanimous consent, has
determined that this Guaranty directly or indirectly benefits Guarantor and is
in the interests of Guarantor.
Section 3.06. Legality. The execution, delivery and performance by
Guarantor of this Guaranty Agreement and the consummation of the transactions
contemplated hereunder (i) have been duly authorized by all necessary corporate
and stockholder action of Guarantor, and (ii) do not, and will not, contravene
or conflict with any law, statute or regulation whatsoever to which Guarantor
is subject or constitute a default (or an event which with notice or lapse of
time or both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 7
<PAGE> 8
trust, charge, lien, or any contract, agreement or other instrument to which
Guarantor is a party or which may be applicable to Guarantor or any of its
assets, or violate any provisions of its Certificate of Incorporation, Bylaws
or any other organizational document of Guarantor; this Guaranty Agreement is a
legal and binding obligation of Guarantor and is enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights.
Section 3.07. Organization and Good Standing. Guarantor (i) is, and will
continue to be, a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware, and (ii) possesses all
requisite authority, power, licenses, permits and franchises necessary to own
its assets, to conduct its business and to execute and deliver and comply with
the terms of this Guaranty Agreement.
Section 3.08. Survival. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
ARTICLE IV
COVENANTS
Guarantor hereby covenants and agrees with Bank and Leasing as follows:
Section 4.01. Protection of Assets. Guarantor shall not, so long as its
obligations under this Guaranty continue, transfer or pledge any material
portion of its assets for less than full and adequate consideration.
Section 4.02. Financial Statements. Guarantor shall promptly furnish to
Bank at any time and from time to time such financial statements and other
financial information of Guarantor as the Bank may reasonably require, in form
and substance satisfactory to Bank, including, without limitation, (i) annual
financial statements, statements of cash flow, and statements of contingent
liabilities, all certified by the chief financial officer of Guarantor, within
120 days after the end of Guarantor's fiscal year and (ii) a copy of each 10-K
and 10-Q of Guarantor within 10 days after its statutory due date.
Section 4.03. Compliance with Loan and Lease Documents. Guarantor shall
comply with all terms and provisions of the Loan Agreement, Loan Documents,
Lease Agreements, and Lease Documents that apply to Guarantor.
Section 4.04. Notifications. Guarantor shall promptly inform Bank of (i)
any litigation or governmental investigation against Guarantor or affecting any
security for all or any part of the Guaranteed Debt or this Guaranty which, if
determined adversely, might have a material adverse effect upon the financial
condition of Guarantor or upon such security or might cause a default under the
Loan Agreement, any Lease Agreement, any of the Loan Documents, or any of the
Lease Documents, (ii) any claim or controversy which might become the subject
of such
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 8
<PAGE> 9
litigation or governmental investigation, and (iii) any material adverse change
in the financial condition of Guarantor.
ARTICLE V
MISCELLANEOUS
Section 5.01. Waiver. No failure to exercise, and no delay in
exercising, on the part of Bank or Leasing, any right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right. The
rights of Bank and Leasing hereunder shall be in addition to all other rights
provided by law. No modification or waiver of any provision of this Guaranty
Agreement, nor consent to departure therefrom, shall be effective unless in
writing and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other
instances without such notice or demand.
Section 5.02. Notices. Any notices or other communications required or
permitted to be given by this Guaranty Agreement must be (i) given in writing
and personally delivered or mailed by prepaid certified or registered mail,
return receipt requested, or (ii) made by telecopy, followed by overnight mail
delivery, to the party to whom such notice or communication is directed, to the
address of such party as follows:
Guarantor:
NRP Inc.
5950 Berkshire Lane, Suite 1650
Dallas, Texas 75225
Bank:
Bank One, Texas, National Association
1717 Main Street, 4th Floor
Dallas, Texas 75201
Attn: Judy Davis
Leasing:
Banc One Leasing Corporation
500 Throckmorton
Fort Worth, Texas 76102
Attn: Mark Noriln
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid or, if mailed, on the day it is
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 9
<PAGE> 10
mailed as aforesaid, or, if transmitted by telecopy, on the day that such
notice is transmitted as aforesaid. Any party may change its address for
purposes of this Guaranty Agreement by giving notice of such address to the
other party pursuant to this Section 5.02.
Section 5.03. Governing Law. This Guaranty Agreement has been prepared,
and is intended to be performed in the State of Texas, and the substantive laws
of such state shall govern the validity, construction, enforcement and
interpretation of this Guaranty Agreement. For purposes of this Guaranty
Agreement and the resolution of disputes hereunder, Guarantor hereby
irrevocably submits and consents to, and waives any objection to, the
non-exclusive jurisdiction of the courts of the State of Texas located in the
Northern Judicial District of Texas, Dallas Division.
Section 5.04. Invalid Provisions. If any provision of this Guaranty
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Guaranty Agreement, such
provisions shall be fully severable and this Guaranty Agreement and shall be
constructed and enforced as if such illegal, invalid or unenforceable
provisions had never comprised a part of this Guaranty Agreement, and the
remaining provisions of this Guaranty Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Guaranty Agreement, unless such
continued effectiveness of this Guaranty Agreement, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.
Section 5.05. Entirety and Amendments. This Guaranty Agreement embodies
the entire agreement between the parties and supersedes all prior agreements
and understandings, if any, relating to the subject matter hereof, and this
Guaranty Agreement may be amended only by an instrument in writing executed by
an authorized officer of the party against whom such amendment is sought to be
enforced.
Section 5.06. Parties Bound, Assignment. This Guaranty Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives; provided, however,
that Guarantor may not, without the prior written consent of Bank and Leasing,
assign any of its rights, powers, duties, or obligations hereunder.
Section 5.07. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Guaranty
Agreement.
Section 5.08. Multiple Counterparts. This Guaranty Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may
execute this Guaranty Agreement by signing any such counterpart.
Section 5.09. Rights and Remedies. If Guarantor becomes liable for any
indebtedness owing by Borrower to Bank or Leasing, by endorsement or otherwise,
other than under this
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 10
<PAGE> 11
Guaranty Agreement, such liability shall not be in any manner impaired or
affected hereby and the rights of Bank or Leasing hereunder shall be cumulative
of any and all other rights that Bank or Leasing may ever have against
Guarantor. The exercise by Bank or Leasing of any right or remedy hereunder or
under any other instrument, or at law or in equity, shall not preclude the
concurrent or subsequent exercise of any other right or remedy.
SECTION 5.10. WAIVER OF SUBROGATION. GUARANTOR HEREBY WAIVES ANY RIGHTS
OF SUBROGATION, REIMBURSEMENT OR CONTRIBUTION WHICH GUARANTOR MAY HAVE AS A
RESULT OF PAYMENT BY GUARANTOR OF THE GUARANTEED DEBT UNTIL SUCH TIME AS THE
GUARANTEED DEBT IS IRREVOCABLY PAID IN FULL.
EXECUTED as of the day and year first above written.
GUARANTOR
NRP INC.
By: /s/ JERRY L. SIMS, JR.
-----------------------------------
Name: Jerry L. Sims, Jr.
---------------------------------
Title: Controller
--------------------------------
UNCONDITIONAL GUARANTY AGREEMENT - PAGE 11
<PAGE> 12
CAPITAL MAINTENANCE AGREEMENT
THIS AGREEMENT, dated as of February 8, 1996, between NRP Inc., a
Delaware corporation, ("NRP"), and Bank One, Texas, National Association
("Bank"),
WITNESSETH:
WHEREAS, NRP is the owner of a majority of the outstanding shares of
Advanced Telemarketing Corporation, a Nevada corporation ("ATC"); and
WHEREAS, ATC intends to incur Obligations, as hereinafter defined, to
Bank to enable ATC to carry on its business; and
WHEREAS, "Obligations" shall have the meaning set forth in that certain
Loan and Security Agreement dated as of the date hereof between ATC and the
Bank (the "Loan Agreement"); and
WHEREAS, NRP desires to assist ATC in obtaining financing from Bank;
WHEREAS, Bank has required, as a condition to providing financing to
ATC, that NRP enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Stock Ownership. During the term of this Agreement, NRP shall
own, directly or through one or more of its wholly-owned subsidiaries, a
majority of the outstanding shares of stock of ATC having the right to vote for
the election of members of the Board of Directors of ATC.
2. Maintenance of Leverage Ratio. During the term of this Agreement,
NRP shall, from time to time, either (i) make cash contributions to ATC either
as equity or as debt fully subordinated to the Obligations pursuant to a
Subordination Agreement acceptable in all respects to Bank or (ii) grant to
Bank a first priority perfected security interest in cash or cash equivalent
collateral as security for the Guaranty executed by NRP for the benefit of Bank
relating to the Obligations, in each case in such amounts equal to the lesser
of (a) such amounts as are necessary for ATC to maintain a Tangible Leverage
Ratio (as such term is defined in the Loan Agreement) of not more than 7.0 to
1.0 and (b) all outstanding Obligations. Upon written notice from Bank that the
Tangible Leverage Ratio exceeds 7.0 to 1.0, NRP shall promptly either make such
capital contribution as equity or subordinated debt or pledge such cash or cash
equivalent collateral to Bank.
3. Waivers. NRP hereby waives any failure or delay on the part of
Bank in asserting or enforcing any of its rights or in making any claims or
demands hereunder. NRP acknowledges notice of the terms and conditions of the
Loan Agreement and hereby waives notice of any extension of credit or advance
of funds by Bank to ATC and any extension of time of any payment or any other
action which the Bank or any holder of the Obligations may agree or consent to,
either expressly, by acquiescence or otherwise.
-1-
<PAGE> 13
action which the Bank or any holder of the Obligations may agree or consent to,
either expressly, by acquiescence or otherwise.
4. Amendments and Termination. This Agreement may be amended or
modified at any time by the parties hereto by a written instrument signed by
both NRP and Bank. This Agreement shall not terminate until such time as all
Obligations owing to the Bank have been paid in full.
5. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that NRP may not assign any of its obligations hereunder.
This Agreement is not intended for the benefit of any person other than the
Bank and holders of the Obligations, and shall not confer or be deemed to
confer upon any other such person any benefits, rights or remedies hereunder.
7. Governing Law. This Agreement shall be governed by the laws of
the State of Texas other than its conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the day and year first above written.
NRP Inc.
By: /s/ JERRY L. SIMS, JR.
-----------------------------------
Name: Jerry L. Sims, Jr.
---------------------------------
Title: Controller
--------------------------------
Bank One, Texas, N.A.
By: /s/ KATHLEEN ROBERTSON
-----------------------------------
Name: Kathleen Robertson
---------------------------------
Title: Vice President
--------------------------------
-2-
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
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150,322
0
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