<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________________
to ______________________
Commission File Number: 0-14315
AEGIS COMMUNICATIONS GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
7880 BENT BRANCH DRIVE, SUITE 150, IRVING, TEXAS 75063
------------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (972) 830-1800
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
------------------- ON NOVEMBER 9, 1998
--------------------
COMMON STOCK $.01 PAR VALUE 52,284,374
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998 (unaudited). . . . 3-4
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1997
and September 30, 1998. . . . . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997
and September 30, 1998. . . . . . . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements. . . . .7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 14-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .21
Item 4. Submission of Matters to a Vote of Security Holders . . . . 21-22
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 22-23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,288 $ 7,020
Accounts receivable, less allowance for doubtful accounts 21,209 54,014
Unbilled accounts receivable, net 4,367 4,590
Notes receivable -- related parties - 2,157
Current deferred tax assets 1,415 1,632
Prepaid expenses and other current assets 2,720 3,145
------------- -------------
Total current assets 34,999 72,558
Property and equipment, net of accumulated depreciation
of $11,813 in 1997 and $17,924 in 1998 21,623 33,770
Cost in excess of net assets acquired, net of accumulated
amortization of $1,647 in 1997 and $3,650 in 1998 43,558 72,310
Deferred tax assets - 6,398
Deferred financing costs, net 1,242 1,987
Other assets 314 2,127
------------- -------------
$ 101,736 $ 189,150
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
3
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portions of long-term obligations $ 1,101 $ 2,313
Due to shareholders 1,908 -
Deferred income 3,262 2,290
Accounts payable and other accrued liabilities 5,535 17,550
Accrued compensation expense 4,543 10,577
Other current liabilities 1,026 571
------------- -------------
Total current liabilities 17,375 33,301
Revolving line of credit 15,000 27,100
Long-term obligations, net of current portions 35,257 36,503
Subordinated indebtedness due to affiliates 1,000 11,885
Other long-term liabilities 2,531 3,043
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; 29,778, $.36 cumulative Series B shares
issued and outstanding in 1998 - 0
Common stock, $.01 par value, 100,000,000 shares
authorized; 29,865,951 and 52,284,374 shares
issued and outstanding at December 31, 1997
and September 30, 1998, respectively 3 523
Treasury stock - (1,421)
Additional paid-in capital 28,321 78,028
Cumulative translation adjustment 13 32
Retained earnings 2,236 156
------------- -------------
Total shareholders' equity 30,573 77,318
------------- -------------
$ 101,736 $ 189,150
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
4
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1998 1997 1998
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $ 39,278 $ 73,337 $ 91,764 $ 162,393
Cost of services, excluding depreciation
and amortization shown below 25,947 49,666 59,880 107,056
-------- -------- -------- ---------
Gross profit 13,331 23,671 31,884 55,337
Selling, general and administrative expenses 10,437 17,063 24,900 40,764
Depreciation 1,174 3,114 2,919 6,894
Acquisition goodwill amortization 600 803 1,036 2,020
Restructuring and other charges - 3,624 - 3,624
-------- -------- -------- ---------
Total operating expenses 12,211 24,604 28,855 53,302
-------- -------- -------- ---------
Operating income (loss) 1,120 (933) 3,029 2,035
Interest expense, net 1,130 1,723 2,307 4,152
-------- -------- -------- ---------
Income (loss) before income taxes (10) (2,656) 722 (2,117)
Income tax expense (benefit) 292 (695) 870 (37)
-------- -------- -------- ---------
Net loss $ (302) $ (1,961) $ (148) $ (2,080)
-------- -------- -------- ---------
-------- -------- -------- ---------
Basic and diluted loss per common share $ (0.01) $ (0.04) $ (0.01) $ (0.06)
-------- -------- -------- ---------
-------- -------- -------- ---------
Basic and diluted weighted average
common shares outstanding 28,797 51,726 26,560 37,154
</TABLE>
See accompanying notes.
5
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (148) $ (2,080)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 3,955 8,914
Assets written-off - 2,503
Other - 42
Changes in operating assets and liabilities (1,964) (8,140)
--------- ---------
Net cash provided by operating activities 1,843 1,239
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,722) (7,403)
Acquisition costs, ATC - (3,943)
Net cash acquired from ATC - 296
Acquisition of InterServ (15,776) -
--------- ---------
Net cash used in investing activities (19,498) (11,050)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net 24,963 3,822
Proceeds from affiliate debt - 10,772
Principal payments on long-term debt (6,200) (1,397)
Payments on capital lease obligations (181) (1,025)
Proceeds from exercise of stock options - 239
Deferred financing costs (650) (888)
--------- ---------
Net cash provided by financing activities 17,932 11,523
Effect of exchange rate on cash - 20
Net increase in cash and cash equivalents 277 1,732
Cash and cash equivalents at beginning of period 2,250 5,288
--------- ---------
Cash and cash equivalents at end of period $ 2,527 $ 7,020
--------- ---------
--------- ---------
Supplemental information on non-cash transactions:
Issuance of stock to effect acquisition of ATC $ - $ 45,320
</TABLE>
See accompanying notes.
6
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
1. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
128. Aegis Communications Group, Inc. ("Aegis" or "the Company") has adopted
SFAS 128, which establishes standards for computing and presenting earnings
per share ("EPS"). This statement requires dual presentation of basic and
diluted EPS on the face of the income statement for entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic and diluted EPS are computed by dividing
net income applicable to common stock by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Basic EPS excludes the effect of potentially dilutive securities
while diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised, converted
into or resulted in the issuance of common stock. Common stock equivalents
consist of common stock issuable under the assumed exercise of stock options
and warrants, computed based on the treasury stock method, and the assumed
conversion of the Company's issued and outstanding preferred stock. Common
stock equivalents are not included in diluted EPS calculations to the extent
their inclusion would have an anti-dilutive effect.
Basic and diluted weighted average shares outstanding for the three and
nine month periods ending September 30, 1997 and 1998 were computed as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC AND DILUTED (1)
Weighted average common shares outstanding:
IQI (2) 28,797 30,126 26,560 29,954
ATC - 21,961 - 7,320
------ ------ ------ ------
28,797 52,087 26,560 37,274
Weighted average treasury shares - (361) - (120)
------ ------ ------ ------
Shares used in EPS calculation 28,797 51,726 26,560 37,154
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- -------------------------------------------------------------------------------
(1) For the three and nine month periods ended September 30, 1997 and 1998,
common stock equivalents are not included in diluted EPS calculations
because their inclusion would have an anti-dilutive effect.
(2) The weighted average shares outstanding for IQI have been adjusted to
reflect the effects of the Merger by multiplying the historical weighted
average shares by the Merger exchange ratio of 9.7513. The weighted
average shares do not include common stock equivalents because their
effect would be anti-dilutive.
7
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
2. THE MERGER
On July 9, 1998, Aegis, formerly known as ATC Communications Group, Inc.
("ATC"), completed the acquisition of IQI, Inc., a New York corporation
("IQI"). The acquisition was effected through the merger (the "Merger") of
ATC Merger Sub, Inc., a New York corporation and wholly-owned subsidiary of
the ATC ("Sub"), with and into IQI pursuant to an Agreement and Plan of
Merger dated as of April 7, 1998 (the "Merger Agreement") by and between ATC,
Sub and IQI.
Pursuant to the Merger Agreement, each former holder of common stock,
$.001 par value, of IQI ("IQI Common Stock") received, in exchange for each
such share, 9.7513 shares of the common stock, par value $0.01 per share, of
the Company ("ATC Common Stock"). As a result of the Merger, ATC issued
approximately 34.2 million shares of ATC Common Stock and Common Stock
equivalents to holders of IQI Common Stock and IQI stock options and warrants
in a tax-free exchange. The acquisition has been accounted for as a reverse
purchase, meaning that for accounting purposes, IQI is the surviving
corporation and is treated as having acquired ATC in a purchase accounting
transaction. Accordingly, the pre-Merger consolidated financial information
reported is that of IQI. Effective upon the Merger, the Company formally
changed its name to Aegis Communications Group, Inc. and its Nasdaq National
Market System symbol to "AGIS".
The following unaudited pro forma financial data (the "Unaudited Pro
Forma Financial Data") of Aegis have been derived by the application of pro
forma adjustments to the historical financial statements of IQI and ATC for
the periods indicated. The pro forma adjustments are described in the
accompanying notes. The "IQI As Adjusted" data reflect IQI's acquisition of
InterServ Services Corporation (the "InterServ Acquisition") as if it had
occurred on January 1, 1997. The historical IQI data for the year ended
December 31, 1997 and the historical InterServ data for the six months and
eleven days ended July 11, 1997 have been derived from the audited financial
statements of such companies. The historical ATC data for the twelve months
ended December 31, 1997 have been derived from the audited financial
statements for the fiscal year ended June 30, 1997, adjusted to a calendar
year basis using the unaudited financial data for the six-month periods ended
December 31, 1997 and 1996. The historical IQI data and historical ATC data
for the nine months ended September 30, 1998 have been derived from the
unaudited financial statements of such companies, which in the opinion of
management of the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the unaudited periods.
The unaudited pro forma statement of operations data for the nine months
ended September 30, 1998 and the year ended December 31, 1997 give effect to
the Merger and the related transactions described under the heading "Other
Transactions Related to the Merger" as if they had occurred at the beginning
of the periods presented. The unaudited pro forma statement of operations
data for the year ended December 31, 1997 also gives effect to the InterServ
Acquisition as if it had occurred on January 1, 1997. The Unaudited Pro
Forma Financial Data are provided for informational purposes only and do not
purport to represent the results of operations or financial position of Aegis
had such transactions in fact occurred on such dates, nor do they purport to
be indicative of the financial position or results of operations as of any
future date or for any future period.
The Unaudited Pro Forma Financial Data and accompanying notes should be
read in conjunction with the financial statements and accompanying notes
thereto.
8
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IQI
-----------------------------------------------------
Pro Forma Adjustments Merger
--------------------- As ATC Adjust- Aegis
Historical InterServ(1) Other Adjusted Historical ments Pro Forma
---------- ------------ ------ --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $133,832 $25,321 $ - $159,153 $89,610 $ - $248,763
Cost of services 88,190 16,785 - 104,975 65,710 - 170,685
-------- ------- ------ -------- ------- ------- --------
Gross profit 45,642 8,536 - 54,178 23,900 - 78,078
Operating expenses 36,312 8,340 (588)(2) 43,486 25,625 - 69,111
(578)(2)
Depreciation 4,501 772 - 5,273 3,894 - 9,167
Acquisition goodwill amortization 1,592 164 504 (3) 2,260 87 1,143 (6) 3,490
-------- ------- ------ -------- ------- ------- --------
Operating income (loss) 3,237 (740) 662 3,159 (5,706) (1,143) (3,690)
Interest expense, net 3,626 221 665 (4) 4,512 640 633 (7) 5,785
-------- ------- ------ -------- ------- ------- --------
Loss before income taxes (389) (961) (3) (1,353) (6,346) (1,776) (9,475)
Income tax expense (benefit) 595 220 (35)(5) 780 (2,015) (237)(8) (1,472)
-------- ------- ------ -------- ------- ------- --------
Net income (loss) $ (984) $(1,181) $ 32 $ (2,133) $(4,331) $(1,539) $ (8,003)
======== ======= ====== ======== ======= ======= ========
Net loss per share $ (0.04) $ (0.07) $ (0.21) $ (0.16)
======== ======== ======= ========
Weighted average shares
outstanding (9) 27,233 29,259 20,905 50,164
======== ======== ======= ========
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
9
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Aegis
IQI ATC Adjustments Pro Forma
-------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $136,337 $74,000 $ - $210,337
Cost of services 87,955 53,806 - 141,761
-------- ------- -------- --------
Gross profit 48,382 20,194 - 68,576
Operating expenses 35,015 17,702 - 52,717
Depreciation 5,787 3,225 - 9,012
Acquisition goodwill amortization 1,713 62 861 (6) 2,636
Restructuring and other charges - - 3,624 3,624
-------- ------- -------- --------
Operating income (loss) 5,867 (795) (4,485) 587
Interest expense, net 3,835 902 475 (7) 5,212
Litigation settlement - 1,900 - 1,900
-------- ------- -------- --------
Income (loss) before income 2,032 (3,597) (4,960) (6,525)
Income tax expense (benefit) 1,498 (1,270) (1,537)(8) (1,309)
-------- ------- -------- --------
Net income (loss) $ 534 $(2,327) $ (3,423) $ (5,216)
======== ======= ======== ========
Earnings (loss) per share $ 0.02 $ (0.11) $ (0.10)
======== ======= ========
Weighted average shares
outstanding (9) 29,954 21,519 51,473
======== ======= ========
</TABLE>
- -------------------------------------------------------------------------------
(1) The InterServ Acquisition occurred on July 12, 1997. This data
represents the historical results of operations of InterServ for the
period from January 1, 1997 through July 11, 1997.
(2) In connection with the InterServ Acquisition, during the year ended
December 31, 1997, InterServ incurred certain non-recurring expenses.
These expenses have been deducted for purposes of the Unaudited Pro Forma
Financial Data. These expenses include:
(a) Transaction expenses incurred by InterServ in connection with the
InterServ Acquisition totaling approximately $0.6 million.
(b) Expenses relating to the vesting of stock options to purchase
shares of InterServ totaling approximately $0.6 million.
(3) Had the InterServ Acquisition occurred on January 1, 1997, amortization
of goodwill would have increased by approximately $0.5 million for the
year ended December 31, 1997.
10
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
(4) In connection with the InterServ Acquisition, IQI incurred approximately
$22.0 million of debt. Had such debt been incurred as of January 1, 1997,
interest would have increased by approximately $0.7 million for the year
ended December 31, 1997.
(5) Reflects adjustment to income tax provision as a result of the pro forma
adjustments described in items (2) and (4) above.
(6) Had the Merger occurred at the beginning of the periods presented,
amortization of goodwill would have increased as follows:
<TABLE>
<S> <C>
Merger purchase price $ 45,320
ATC book value at Merger closing (22,843)
ATC goodwill balance at Merger closing 2,057
--------
Goodwill resulting from Merger 24,534
Goodwill related to stock options of ATC 2,090
Goodwill related to Merger transaction costs 4,131
--------
Total increase to goodwill $ 30,755
Estimated life 25 years
--------
Annual amortization of additional acquisition goodwill $ 1,230
--------
--------
</TABLE>
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -----------
<S> <C> <C>
Amortization of additional acquisition goodwill $1,230 $923
Actual amortization of goodwill recorded by ATC (87) (62)
------ ----
Net increase in amortization of acquisition $1,143 $861
------ ----
------ ----
</TABLE>
(7) Concurrent with the Merger, IQI entered into a new loan agreement with
its lenders and borrowed an additional $4.6 million. Thayer provided
subordinated financing of $6.8 million to Aegis. Proceeds from these
financing transactions were used to refinance $8.6 million of existing
indebtedness of ATC's operating subsidiary and repay the subsidiary's
term loan of $0.2 million. As a result, pro forma indebtedness increased
by $2.6 million. Had such debt transactions occurred at the beginning of
the periods presented, interest expense would have increased and deferred
financing costs associated with the issuance of the debt would have been
amortized during the period. Additionally, had the Chairman of ATC repaid
borrowings of approximately $2.0 million at the beginning of the periods
presented, interest income would have decreased. Total interest expense,
net, would have increased as follows:
11
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
INTEREST EXPENSE
--------------------------------
AMOUNT YEAR NINE MONTHS
AVERAGE OUTSTANDING ENDED ENDED
INTEREST AT CLOSING DECEMBER 31, SEPTEMBER 30,
RATE OF MERGER 1997 1998
-------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Additional bank loan to IQI 8.25% $ 4,600 $ 379 $ 285
Additional subordinated indebtedness 12.00% 6,827 819 614
Refinance indebtedness of Advanced 8.75% (8,623) (754) (566)
Repay Advanced term loan 9.00% (222) (20) (15)
Additional amortization of deferred
financing costs 99 74
----- -----
Increase in interest expense $ 523 $ 393
Decrease in interest income related to
repayment of borrowings by
Chairman of ATC 110 82
----- -----
Net increase in interest expense $ 633 $ 475
----- -----
----- -----
</TABLE>
(8) As a result of the pro forma adjustments, Aegis would record an income
tax benefit of $0.2 million for the year ended December 31, 1997 and
$1.5 million for the nine months ended September 30, 1998.
(9) The weighted average shares outstanding for IQI have been adjusted to
reflect the effects of the Merger by multiplying the historical weighted
average shares by the Merger exchange ratio of 9.7513. The weighted
average shares do not include common stock equivalents because their
effect would be anti-dilutive.
12
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
3. RESTRUCTURING AND OTHER CHARGES
On July 29, 1998, the Company announced that it would record a pre-tax
restructuring reserve of $13.0 million related to the Merger. Current and
future expenses related to the restructuring decision which meet the specific
generally accepted accounting principles ("GAAP") criterion for accrual have
been referred to herein as "restructuring" charges, and a restructuring
accrual has been recorded to the extent the related amounts have not been
paid. Expenses related to the restructuring decision which do not meet the
specific GAAP criterion for accrual have been referred to herein as "other"
charges. "Other" charges have not been accrued, but are recognized as the
related expenses are incurred. Accordingly, the Company has recorded pre-tax
charges of $3.6 million ($2.3 million, net of taxes) in the quarter ended
September 30, 1998, as a part of the total restructuring. These charges are
primarily attributable to one-time write-offs of redundant software,
severance costs and the consolidation of certain administrative functions
including costs to relocate offices and employees. The Company expects to
recognize additional restructuring and other charges, as previously
announced, through the first quarter of 1999 as restructuring related efforts
continue.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Merger has been accounted for as a reverse purchase, meaning that
for accounting purposes, IQI is the surviving corporation and is treated as
having acquired ATC in a purchase accounting transaction. Reported financial
results reflect the Merger and are those of IQI for the periods ending
September 30, 1997 and of the combined company on a purchase accounting basis
for the periods ending September 30, 1998. See "Notes to Unaudited Consolidated
Financial Statements -- 2. The Merger."
The accompanying consolidated financial statements, in the opinion of
the Company's management, contain all material, normal and recurring
adjustments necessary to present accurately the consolidated financial
condition of the Company and the consolidated results of its operations for
the quarter and nine months ended September 30, 1998. The consolidated
results of operations for the periods reported are not necessarily indicative
of the results to be experienced for the entire current year.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services, excluding depreciation
and amortization shown below 66.1% 67.7% 65.3% 65.9%
------ ------ ------ ------
Gross profit 33.9% 32.3% 34.7% 34.1%
Selling, general and administrative expenses 26.6% 23.3% 27.1% 25.1%
Depreciation 3.0% 4.2% 3.2% 4.2%
Acquisition goodwill amortization 1.5% 1.1% 1.1% 1.2%
Restructuring and other charges - 4.9% - 2.2%
------ ------ ------ ------
Total expenses 31.1% 33.5% 31.4% 32.8%
------ ------ ------ ------
Operating income (loss) 2.9% (1.3%) 3.3% 1.3%
Interest expense, net 2.9% 2.3% 2.5% 2.6%
------ ------ ------ ------
Income (loss) before income taxes (0.0%) (3.6%) 0.8% (1.3%)
Income tax expense (benefit) 0.7% (0.9%) 0.9% (0.0%)
------ ------ ------ ------
Net income (loss) (0.8%) (2.7%) (0.2%) (1.3%)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The Company experienced a net loss of approximately $2.0 million, or
2.7% of revenues, for the quarter and a net loss of approximately $2.1
million, or 1.3% of revenues, for the nine months ended September 30, 1998.
Excluding $3.6 million ($2.3 million, net of taxes) in merger-related
restructuring and other charges, the Company experienced net income of
$304,000 in the quarter and
14
<PAGE>
$184,000 during the nine months ended September 30, 1998 as compared to net
losses of $302,000 and $148,000 in the prior year periods.
Revenues generated during the quarter increased approximately 87% to
$73.3 million from $39.3 million in the third quarter a year ago. The
increase in revenues for the quarter was due primarily to the impact of
revenues contributed by ATC subsequent to the merger of IQI and ATC
on July 9, 1998 (the "Merger"). For the nine months ended September 30,
1998, revenues increased $70.6 million, or 77%, to $162.4 million during the
nine months ended September 30, 1998 as compared to revenues of $91.7 million
generated in the prior year period. The increase in revenues for the nine
month period was principally attributable to the impact of revenues
contributed by ATC and by InterServ, which was acquired by IQI on July 12,
1997.
Reported financial results reflect the Merger and are those of IQI for
the periods ending September 30, 1997 and of the combined company on a
purchase accounting basis for the periods ending September 30, 1998. Pro
forma statements of operations are also included for the year ended December
31, 1997, as if the Merger had occurred January 1, 1997, and the nine months
ended September 30, 1998, as if the Merger had occurred January 1, 1998 (See
"Notes to Unaudited Consolidated Financial Statements -- 2. The Merger."). On
a pro forma basis, revenues grew approximately 21% and 15% for the three and
nine month periods ended September 30, 1998, respectively, versus the prior
year periods. The growth in revenues on a pro forma basis was primarily
attributable to growth in volumes from certain existing clients and services
performed for new clients.
Approximately 26% of the Company's revenues during the quarter and the
nine month period ended September 30, 1998 were generated by the Company's
largest client as compared to approximately 25% in the quarter and 37% in the
nine months ended September 30, 1997. On a pro forma basis, approximately
26% of the Company's revenues during the quarter and 27% in the nine months
ended September 30, 1998 were generated by the Company's largest client as
compared to approximately 31% in the quarter and 35% in the nine months ended
September 30, 1997.
Subsequent to the end of the quarter, the Company was notified by its
largest client that volumes under certain of its outbound telemarketing
programs would be curtailed in the Company's fourth quarter. Management
believes this reduction will be mitigated by additional services being
performed for this client in new and existing programs and by additional
volumes from certain of the Company's other clients.
During the quarter, the Company was selected by Sony Computer
Entertainment America ("Sony") as the inbound technical support provider for
its products. Subsequent to the end of the quarter, Aegis began providing
services under the agreement with Sony. In addition, the Company signed an
agreement during the quarter to provide customer acquisition services to
NationsCredit, which provides a full array of consumer finance products to
more than half a million customers nationwide.
The Company was also awarded a three-year renewal of its long-standing
relationship with American Express. Under this agreement, Aegis will continue
to provide a variety of services to American Express and its cardholders
including customer care and customer acquisition.
The Company's objective is to secure recurring revenues from long-term
relationships with targeted, large corporate clients that utilize
telecommunications strategies as an integral, ongoing element in their
marketing and customer service programs. In addition to providing services
on an outsourcing basis, in which the Company provides all or a substantial
portion of a client's telemarketing needs, the Company also continues to
perform project-based services for certain
15
<PAGE>
customers. Project-based services, however, are frequently short-term and
there can be no assurance that these clients will continue existing projects
or provide new ones.
Gross profit earned on revenues increased $10.3 million, or 77.6%, for
the quarter and $23.5 million, or 73.6%, for the nine month period ended
September 30, 1998 versus the prior year periods. The increases in gross
profit are primarily due to the addition of ATC's revenues as a result of the
Merger. Gross profit as a percentage of revenues ("gross margin") for the
quarter and nine months ended September 30, 1998 was 32.3% and 34.1%,
respectively, versus 33.9% and 34.7% in the comparable three and nine month
periods of the prior year, respectively. The decreases in gross margin for
the three and nine months ended September 30, 1998 as compared with the
comparable prior year periods were primarily due to the impact of the
addition of ATC's revenues which are characterized by lower gross margins
than those of IQI.
During the quarter ended September 30, 1998, the Company renegotiated
its tariff with its primary telecommunications carrier and consolidated the
prior contract tariffs of the combined company. The new tariff went into
effect subsequent to the end of the quarter and is expected to reduce the
Company's cost of services as a percentage of revenues.
Selling, general and administrative expenses ("SG&A") increased $6.6
million, or 63.5%, in the quarter and $15.9 million, or 63.7% in the nine
months ended September 30, 1998 versus the prior year periods. The increases
in SG&A are primarily attributable to the Merger with ATC. As a percentage
of revenues, SG&A expenses for the quarter and nine months ended September
30, 1998 were 23.3% and 25.1%, respectively, versus 26.6% and 27.1% in the
comparable three and nine month periods of the prior year, respectively. The
decreases in SG&A as a percentage of revenues were primarily the result of
efficiencies of scale derived from growth in business volumes.
Depreciation expense increased $1.9 million, or 165.2%, in the quarter
and $4.0 million, or 136.2%, in the nine months ended September 30, 1998
versus the comparable prior year periods. As a percentage of revenues,
depreciation expense for the three and nine months ended September 30, 1998
was 4.2% versus 3.0% and 3.2% in the comparable prior year periods. The
increases in depreciation expense as a percentage of revenues were due to
additional depreciation expense resulting from investments in three new
client service centers, information technology and infrastructure.
Amortization expense increased $0.2 million, or 33.8%, in the quarter
and $1.0 million, or 95.0%, in the nine months ended September 30, 1998
versus the comparable prior year periods as a result of the additional
goodwill recorded in the Merger and in the InterServ Acquisition. As a
percentage of revenues, amortization expense for the three and nine months
ended September 30, 1998 was 1.1% and 1.2%, respectively, versus 1.5% and
1.1% in the comparable prior year periods.
In connection with the Merger, the Company recorded restructuring and
other charges of $3.6 million ($2.3 million, net of taxes) in the quarter
ended September 30, 1998. These charges are primarily attributable to
one-time write-offs of redundant software, severance costs and the
consolidation of certain administrative functions including costs to relocate
offices and employees. Management expects the majority of restructuring
efforts to be achieved by December 31, 1998, with completion of the remainder
anticipated by March 31, 1999.
Net interest expense increased for the three and nine month periods
ended September 30, 1998 by $0.6 million, or 52.4%, and $1.8 million, or
80.0%, respectively, versus the same periods in the previous year due to
increased utilization of the Company's revolving line of credit and the
assumption of additional subordinated indebtedness.
16
<PAGE>
The Company's effective state and federal income tax rates for the three
and nine month periods ended September 30, 1998 was approximately 37.5%
versus 49.5% for the three and nine month periods ended September 30, 1997.
Fluctuations in the Company's effective tax rate were primarily due to the
impact of income-based state taxes on periods with a taxable loss versus
periods with taxable income. The Company's expense for acquisition goodwill
amortization is not deductible for income tax purposes, thus the effective
tax rate exceeds the statutory rate for corporations. Fluctuations in the
Company's effective tax rates were primarily due to income-based state taxes.
Management knows of no trends or uncertainties other than those
mentioned above that are expected to have a material favorable or unfavorable
impact on operating results.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information from the Company's
statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 1,843 $ 1,239
Net cash used in investing activities (19,498) (11,050)
Net cash provided by financing activities 17,932 11,523
Effect of exchange rate on cash - 20
-------- --------
Net decrease in cash and cash equivalents $ 277 $ 1,732
-------- --------
</TABLE>
The Company has historically utilized cash flow from operations and
available borrowing capacity under credit facilities to meet its liquidity
needs. Management believes the Company currently has the liquidity and
access to working capital to meet its near-term cash flow demands through
operating income and borrowings under the Credit Agreement.
During the nine months ended September 30, 1998, net cash provided by
operating activities decreased $0.6 million, or 32.8%, versus the nine months
ended September 30, 1997, primarily due to a pre-tax loss of $2.1 million in
the nine months ended September 30, 1998 as compared to a pre-tax profit of
$0.7 million in the nine months ended September 30, 1997. The decline in
pre-tax income was due primarily to a $1.8 million increase in interest
expense.
Cash used in investing activities during the nine months ended September
30, 1998 totaled $11.1 million, representing a 43.3% decrease from the nine
months ended September 30, 1997. These expenditures primarily consisted of
new telecommunications equipment and information technology hardware and
software required in the maintenance, upgrade and expansion of the Company's
operations including the build-out of new client service centers and the
upgrade or replacement of workstations in the Company's existing facilities.
Capital expenditures during the last two years totaled $13.9 million and have
been funded with proceeds from bank borrowings, subordinated indebtedness and
excess cash from operations.
During the nine months ended September 30, 1998, financing activities
included borrowing activity under the Company's credit facilities, bridge
financing guaranteed by Thayer Equity Investors III, L.P. ("Thayer") and the
securing of capital lease obligations.
17
<PAGE>
In connection with the Merger, IQI entered into a Second Amended and
Restated Credit Agreement dated as of July 9, 1998 (the "Credit Agreement")
with The Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston
("CSFB") whereby Scotiabank and CSFB rolled over and continued their loan
commitments to IQI aggregating $53.0 million and Scotiabank committed to
provide IQI an additional $12.0 million in revolving loans, resulting in a
total facility of $65.0 million. The proceeds of the additional loan were
used to refinance the bank indebtedness of Advanced Telemarketing
Corporation, a wholly-owned subsidiary of ATC ("Advanced"), to pay
transaction expenses, and for general corporate and working capital needs of
IQI and Advanced. As part of the amendment of the Credit Agreement, the
Company and Advanced agreed to guarantee the IQI indebtedness and grant
blanket security interests in their assets to secure repayment of the banks'
loans. The Company also pledged its shares of Advanced common stock to the
banks to secure repayment of the banks' loans.
The Credit Agreement contains various covenants that limit, among other
things, the operating subsidiaries' indebtedness, capital expenditures,
investments, payments and dividends to the Company and requires the operating
subsidiaries to meet certain financial covenants. Similarly, under the terms
of the Company's guaranty of its operating subsidiaries' obligations, the
Company is subject to certain covenants limiting, among other things, its
ability to incur indebtedness, enter into guaranties, and acquire other
companies. The Credit Agreement is secured by liens on the operating
subsidiaries' accounts receivable, furniture and equipment, and is guaranteed
by the Company.
In connection with the Merger, Thayer provided $6.8 million in
subordinated indebtedness (the "Subordinated Indebtedness") as well as a
guarantee for $2.0 million in bridge financing to assist in funding the
Company's working capital needs. In connection with the guarantee, and for
additional consideration of $110,000, the Company issued to Thayer warrants
to purchase 1,100,000 shares of the Company's Common Stock at an exercise
price of $1.96 (110% of the average of the high and low prices of ATC Common
Stock on April 7, 1998, the day before the announcement of the proposed
Merger).
On July 6, 1998, the Company received an additional financing commitment
from Thayer and certain other shareholders of IQI. Under the commitment, the
Thayer-led group agreed to lend the Company, at its election, up to an
additional $4.0 million in subordinated indebtedness at any time within 90
days after the Merger. In connection with this commitment and effective upon
the Merger, the Company issued the Thayer-led group additional warrants to
purchase up to 350,000 shares of the Company's Common Stock at an exercise
price of $2.375 per share and provided certain anti-dilution protection. The
Thayer-led group's obligation to fund the debt and the Company's obligation
to issue the warrants are subject to customary conditions. The additional
indebtedness, when and if drawn, is convertible into the Company's Common
Stock at a conversion price of $2.375 per share, the closing price of such
stock on July 2, 1998, the date the Thayer-led group agreed to the
commitment. Such debt would be in addition to, and on the same basic terms
as, the subordinated debt that Thayer had previously committed to lend to the
Company. As of October 23, 1998, the Company had drawn the full commitment
amount of $4.0 million.
The Merger Agreement also contains a provision extending the maturity
date of one-half of the principal amount of the promissory note payable to
the Company by Michael G. Santry, the Company's Co-Chairman, to March 31,
1999. At September 30, 1998, the principal and accrued but unpaid interest
on the note totaled approximately $1.9 million.
The Company operates in a fast-growing, highly competitive industry. As
such, the Company continues to implement its site strategy, which focuses on
smaller call centers in what management
18
<PAGE>
believes are more economically attractive markets than those in which the
Company has traditionally operated. Company growth and continued
implementation of the site strategy will necessitate additional call center
facilities and such facilities will have furniture, equipment and
technological requirements consistent with the Company's existing facilities.
In November 1998, the Company opened a new client service center in Elkins,
West Virginia. Management anticipates opening additional new centers and
expanding existing facilities in calendar 1999.
In addition to traditional growth strategies, management has been
pursuing opportunities for growth through acquisition of other teleservices
companies. The Company believes that the Merger evidences management's
commitment to the Company's strategy of growth through acquisition. From
time to time, Aegis engages in discussions with potential acquisition
candidates. Although there can be no assurances that any proposed
acquisition will be successfully completed, management requires that any
acquisition candidate fit the Company's corporate and operating strategies.
Due to the known risk of computational errors with respect to computer
systems utilizing dates after December 31, 1999, the Company is currently in
the process of assessing its information technology infrastructure to prepare
for any potential Year 2000 impact with its clients and suppliers. The
Company expects to complete its assessment of potential Year 2000 impact in
the fourth quarter of 1998. Although the Company has yet to finalize its
estimate of the total costs needed for Year 2000 compliance, it does not
expect that these costs will have a material impact on its results of
operations and financial position. Although Aegis is committed to making its
information technology infrastructure Year 2000 compliant as soon as
practical, it is uncertain as to the extent its clients and suppliers may be
affected by Year 2000 issues that may cause disruptions in their businesses.
As a part of its program to achieve Year 2000 compliance, the Company is
contacting its clients and suppliers to determine the nature and scope of
their Year 200 issues and their potential impact on the Company, if any. The
Company will seek to work with its clients and suppliers to resolve any such
issues. The success of the Company's efforts will depend, in significant
part, upon factors outside the control of the Company, such as the level of
client or supplier cooperation and the status of the clients' own Year 2000
compliance programs. Thus, there can be no assurance that all such problems
will be resolved. The occurrence of Year 2000 related failures in the
computer and information systems of any of the Company's significant clients
or suppliers could have a materially adverse effect on the business, results
of operations, and financial condition of the Company. The Company has not
yet prepared a contingency plan to handle a most reasonably likely worst case
scenario as its assessment has not progressed sufficiently to identify the
breadth of potential Year 2000 issues.
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 its
future working capital needs, the capital equipment requirements of future
client service center facilities and potential acquisition opportunities.
19
<PAGE>
FORWARD LOOKING STATEMENTS
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Statements contained in this document that are
not based on historical facts are "forward-looking statements". Terms such
as "anticipates", "believes", "estimates", "expects", "plans", "predicts",
"may", "should", "will", the negative thereof and similar expressions are
intended to identify forward-looking statements. Such statements are by
nature subject to uncertainties and risks, including but not limited to: the
Company's reliance on certain major clients; the successful combination of
revenue growth with operating expense reduction to result in improved
profitability and cash flow; realizing anticipated synergies as a result of
the Merger; the Company's ability to complete its restructuring by March 31,
1999; avoiding unexpected accounting charges or other costs that would make
the Merger dilutive to earnings; government regulation and tax policy;
economic conditions; competition and pricing; dependence; and other
operational, financial or legal risks or uncertainties detailed in the
Company's SEC filings from time to time.
20
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, and as
described below, neither the Company nor its operating subsidiary is party to,
nor are their properties the subject of, any material pending legal proceedings.
From time to time, the Company is involved in litigation incidental to its
business. The Company believes that such litigation, individually or in the
aggregate, is not likely to have a material adverse effect on the Company's
results of operations or financial condition.
On April 14, 1998, a complaint was filed in the Court of Chancery in
Delaware by Dore Kreisler against ATC, the directors of ATC and IQI seeking
"injunctive and other appropriate relief" in connection with the proposed
merger between ATC and IQI. The plaintiff alleges that ATC's directors
breached their fiduciary duties to plaintiff and the class of ATC
shareholders by, among other things, not conducting "an auction process or
active market check" and that consequently, the exchange ratio set forth in
the merger agreement between ATC and IQI is unfair to ATC's shareholders.
IQI is included as a defendant for allegedly aiding and abetting the ATC
board's alleged breach of fiduciary duties. The Company believes the
case is without merit and intends to defend itself against the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on July 9, 1998, at
which there were 16,601,867 shares present or represented by proxy, which was
equal to approximately 75.9% of the shares entitled to vote. At such
meeting, the following matters were approved by the requisite vote:
1. The Merger of Sub with and into IQI, pursuant to the terms and
subject to the conditions of the Merger Agreement, which resulted in
IQI becoming a wholly-owned subsidiary of ATC, was approved by the
affirmative vote of 5,593,576 shares, with 145,451 shares voting
against, 42,155 shares abstaining and 10,820,685 broker non-votes;
2. An amendment to the ATC Amended and Restated Certificate of
Incorporation (the "ATC Charter") to increase the number of authorized
shares of ATC Common Stock from 27,500,000 to 100,000,000 was approved
by the affirmative vote of 15,916,448 shares, with 587,867 shares
voting against, 97,522 shares abstaining and no broker non-votes;
3. An amendment to the ATC Charter changing the name of the company
from ATC Communications Group, Inc. to "Aegis Communications Group,
Inc." was approved by the affirmative vote of 16,267,433 shares, with
251,827 shares voting against, 82,607 shares abstaining and no broker
non-votes;
4. The ATC 1998 Stock Option Plan was approved by the affirmative vote
of 4,510,023 shares, with 1,106,253 shares voting against, 164,906
shares abstaining and 10,820,685 broker non-votes;
5. The selection of PricewaterhouseCoopers LLP to serve as ATC's
independent auditors for the 1998 fiscal year was ratified by the
affirmative vote of 16,459,883 shares, with 65,256 shares voting
against, 76,728 shares abstaining and no broker non-votes; and
21
<PAGE>
6. The following board of directors of the Company were elected to
serve until each of their respective successors shall have been duly
elected and qualified. The number of votes cast for and withheld for
each director were as follows:
<TABLE>
<CAPTION>
VOTES CAST
---------------------------
NOMINEE FOR WITHHELD
- ---------------------------- ---------- --------
<S> <C> <C>
Michael G. Santry 16,293,071 308,796
Paul G. Stern 16,325,067 276,800
Stephen A. McNeely 16,325,067 276,800
Matthew S. Waller 16,325,067 276,800
Edward Blank 16,325,067 276,800
Daniel H. Chapman 16,325,067 276,800
Drew Lewis 16,325,067 276,800
David L. Malcolm 16,325,067 276,800
Frederic V. Malek 16,325,067 276,800
William G. Moore, Jr. 16,325,067 276,800
Darryl D. Pounds 16,293,071 308,796
Peter V. Ueberroth 16,325,067 276,800
</TABLE>
In addition, at the annual meeting, the proposed amendment to the ATC
Charter to classify the board of directors into three classes of four
directors each failed, with 5,039,983 shares voting for, 785,785 shares
voting against, 113,251 shares abstaining and 10,662,848 broker non-votes.
Such matter required a majority vote of all shares eligible to vote at the
annual meeting rather than a simple majority of votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1998).
Exhibit 3.2 Amended and Restated Bylaws (Incorporated by reference
from the Company's Form 10-K Annual Report for the year
ended June 30, 1998).
Exhibit 4.1 Specimen of Share Certificate of Company's Common Stock
(filed herewith).
Exhibit 4.2 Form of Series B Preferred Stock certificate, as
amended. (Incorporated by reference from the Company's
Form 10-K Annual Report for the year ended June 30,
1994).
22
<PAGE>
Exhibit 4.3 Form of 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).
Exhibit 4.4 1992 Stock Option Plan as amended (Incorporated by
reference from Company's Form S-8 Registration
Statement - File No. 333-01131).
Exhibit 4.5 1996 Stock Option Plan as amended (Incorporated by
reference from Company's Form S-8 Registration
Statement - File No. 333-01131).
Exhibit 4.6 1998 Stock Option Plan (Incorporated by reference from
Company's Form S-4 Registration Statement - File No.
333-53887 - Appendix D to the Joint Proxy/Prospectus).
Exhibit 10.20 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
July 9, 1998 in the original principal amount of
$6.8 million (filed herewith).
Exhibit 10.21 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
July 29, 1998 in the original principal amount of
$1.9 million (substantially identical in all material
respects, except for dates and principal amount, to
the Promissory Note referred to in Exhibit 10.20).
Exhibit 10.22 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
October 23, 1998 in the original principal amount of
$2.1 million (substantially identical in all material
respects, except for dates and principal amount, to
the Promissory Note referred to in Exhibit 10.20).
Exhibit 27.1 Financial Data Schedule (filed herewith).
(B) Reports on Form 8-K
On July 7, 1998, the Company filed a report on Form 8-K reporting, under
"Item 5. - Other Events", that it had received an additional financing
commitment from Thayer Equity Investors III, L.P., a private investment fund
and majority shareholder of ATC's proposed merger partner, IQI, Inc., and
certain other shareholders of IQI. Under the commitment, the Thayer-led
group agreed to lend the combined company, at its election, up to an
additional $4.0 million in subordinated indebtedness at any time within 90
days after the merger.
On July 24, 1998, the Company filed a report on Form 8-K reporting: (i)
under "Item 2. - Acquisition or Disposition of Assets", that on July 9, 1998,
ATC completed the acquisition of IQI; (ii) under "Item 5. - Other Events",
that in connection with the consummation of the Merger, the Company changed
its corporate name to Aegis Communications Group, Inc., which became
effective with the filing of its Amended and Restated Certificate of
Incorporation on July 9, 1998. In addition, the Company changed its Nasdaq
National Market System ticker symbol to "AGIS," effective July 13, 1998; and
(iii) under "Item 5. -- Other Events", that in connection with the Merger,
IQI entered into a Second Amended and Restated Credit Agreement dated as of
July 9, 1998 with The Bank of Nova Scotia and Credit Suisse First Boston.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AEGIS COMMUNICATIONS GROUP, INC.
(The Registrant)
Dated: November 16, 1998 By: /s/ Matthew S. Waller
-------------------------------
Matthew S. Waller
Chief Financial Officer
9/30/98 Quarter
24
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
Exhibit 3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1998).
Exhibit 3.2 Amended and Restated Bylaws (Incorporated by reference from
the Company's Form 10-K Annual Report for the year ended
June 30, 1998).
Exhibit 4.1 Specimen of Share Certificate of Company's Common Stock
(filed herewith).
Exhibit 4.2 Form of Series B Preferred Stock certificate, as amended.
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1994).
Exhibit 4.3 Form of 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).
Exhibit 4.4 1992 Stock Option Plan as amended (Incorporated by reference
from Company's Form S-8 Registration Statement - File No.
333-01131).
Exhibit 4.5 1996 Stock Option Plan as amended (Incorporated by reference
from Company's Form S-8 Registration Statement - File No.
333-01131).
Exhibit 4.6 1998 Stock Option Plan (Incorporated by reference from
Company's Form S-4 Registration Statement - File No.
333-53887 - Appendix D to the Joint Proxy/Prospectus).
Exhibit 10.20 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated July 9, 1998
in the original principal amount of $6.8 million (filed
herewith).
Exhibit 10.21 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated July 29,
1998 in the original principal amount of $1.9 million
(substantially identical in all material respects, except
for dates and principal amount, to the Promissory Note
referred to in Exhibit 10.20).
Exhibit 10.22 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated October 23,
1998 in the original principal amount of $2.1 million
(substantially identical in all material respects, except
for dates and principal amount, to the Promissory Note
referred to in Exhibit 10.20).
Exhibit 27.1 Financial Data Schedule (filed herewith).
</TABLE>
<PAGE>
Exhibit 4.1
<PAGE>
COMMON STOCK COMMON STOCK
Number Shares
C
INCORPORATED UNDER THE LAWS [LOGO] THIS CERTIFICATE IS TRANSFERABLE
OF THE STATE OF DELAWARE IN CHICAGO, IL OR IN NEW YORK, NY
CUSIP 00760B 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
LIMITATIONS AND OTHER PROVISIONS
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER
FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF ONE CENT ($0.01)
EACH OF THE COMMON STOCK OF
AEGIS COMMUNICATIONS GROUP, INC.
transferable on the books of the corporation by the holder hereof in person
or by attorney upon surrender of this certificate properly endorsed. This
certificate, and the shares represented hereby, are issued under and shall be
subject to all of the provisions of the Certificate of Incorporation of the
corporation and any amendments thereto, copies of which are on file with the
corporation and the Transfer Agent, to all of which the holder, by acceptance
hereof, assents. This Certificate is not valid unless countersigned by the
Transfer agent and registered by the Registrar.
IN WITNESS HEREOF, the said corporation has caused the facsimile
signatures of its duly authorized officers to be hereunto affixed.
Dated:
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
BY
SPECIMEN SPECIMEN
PRESIDENT, CEO SENIOR VICE PRESIDENT
<PAGE>
[LOGO]
The Corporation will furnish to the record holder of this certificate
without charge on written request to such corporation at its principal place
of business a full statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof which such corporation is authorized to issue and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT -- as tenants by the entireties -----------------------------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
--------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated,
-----------------------
X
---------------------------------------
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST
CORRESPOND WITH THE ------>
NAME(S) AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY X
PARTICULAR WITHOUT ---------------------------------------
ALTERATION OR EN- (SIGNATURE)
LARGEMENT OR ANY
CHANGE WHATEVER
-----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
-----------------------------------------
SIGNATURE(S) GUARANTEED BY:
-----------------------------------------
<PAGE>
Exhibit 10.20
<PAGE>
FORM OF
CONVERTIBLE PROMISSORY NOTE
US$____________ ___________, 199__
New York, NY
FOR VALUE RECEIVED, on August 31, 2003, AEGIS COMMUNICATIONS GROUP,
INC., a Delaware corporation ("Maker" and also sometimes referred to herein
as the "Company"), promises to pay to the order of _____________________
("Holder"), at __________________________________________, or at such other
place as the Holder may from time to time designate in writing, the principal
sum of ___________________________ ($__________), and to pay interest on the
unpaid principal balance of this Convertible Promissory Note (this "Note") on
March 31, June 30, September 30 and December 31 in each year commencing on
_________________, 199__, at the rate and upon the terms set forth below.
Interest shall be payable by the issuance of additional Notes ("Secondary
Notes"), the principal amount of each of which shall be equal to the interest
due on the applicable interest payment date, PROVIDED, HOWEVER, that no
Secondary Note will be issued on the Maturity Date (as defined herein) and
any interest due on such date shall be payable in cash. Subject to the
proviso of the preceding sentence, any Secondary Notes shall be subject to
the same terms as this Note (except, as the case may be, with respect to
title, issuance date and aggregate principal amount). This Note is one of
the convertible promissory notes issued pursuant to that certain Commitment
Letter dated July 2, 1998 between Maker and Thayer Equity Investors III, L.P.
(the "Commitment Letter").
1. INTEREST. Commencing on the date hereof and continuing until
repayment in full or conversion of this Note, interest shall accrue on the
principal balance outstanding hereunder at a rate equal to twelve percent
(12%) per annum. Interest shall be computed on the basis of a three hundred
sixty (360) day year counting the number of actual days elapsed.
2. PAYMENTS AND MATURITY. Subject to the provisions of Sections 4 and
5 hereof, the unpaid principal sum, together with interest thereon at the
rate provided herein, shall be payable as follows:
(a) Interest only on the unpaid principal sum shall be due and
payable quarterly, on each March 31, June 30, September 30 and December 31
commencing on _________________, 199__; and
<PAGE>
(b) Unless the Company elects to prepay pursuant to Section 3(a)
hereof, or unless the Company is required to prepay pursuant to Section 3(b)
hereof, the unpaid principal sum, together with interest accrued and unpaid
thereon, shall be due and payable at 10:00 a.m., New York time, on August 31,
2003 (the "Maturity Date").
3. PREPAYMENT.
(a) Subject to the provisions of Section 4, this Note may be
prepaid in whole or in part at any time without premium or penalty. The
Maker shall give the Holder of this Note at least thirty days prior written
notice of any prepayment under this Section 3(a). Subject to the provisions
of Section 4 hereof, the amount of any partial prepayment shall first be
applied to accrued but unpaid interest owing on this Note and then to the
unpaid principal balance hereof.
(b) This Note shall automatically become due and payable on the
date of effectiveness of a Company Sale (as defined herein), PROVIDED, that
the maturity date of the Bank Indebtedness (as defined herein) has not (on or
prior to the date of the Company Sale) been accelerated, in which case such
payment of this Note shall be subject to Section 4. A "Company Sale" shall
be defined as any of (A) any sale, assignment, conveyance, transfer, lease or
other disposition, in one or a series of transactions, of all or
substantially all of the assets of the Company to any person, or group of
related persons other than to an Affiliate (as defined herein) of the
Company; (B) any consolidation, merger, recapitalization, or share exchange
of the Company in which the holders of voting stock of the Company
immediately before the merger, consolidation, recapitalization, or share
exchange will not own 50% or more of the voting shares of the continuing or
surviving corporation or other entity (whether or not the Company)
immediately after such consolidation, merger, recapitalization, or share
exchange; or (C) any sale or other disposition of voting stock of the Company
representing 50% or more of the total voting power of the Company's
outstanding capital stock in one or a series of related transactions to any
person, or group of related persons. For purposes of this Note, an
"Affiliate" shall mean, with respect to any person, any other person who
directly or indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with, such person. The term
"control" means the possession, directly or indirectly, of the power to cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise.
4. SUBORDINATION OF NOTE.
(a) The Maker hereof agrees and the Holder by its acceptance of
this Note likewise agrees that the indebtedness represented by this Note (the
"Subordinated Indebtedness"), shall, subject to Section 4(j), be subordinate
pursuant to the terms of this Note to the prior payment in full of all
indebtedness, obligations and liabilities (the "Guaranty
<PAGE>
Obligations") of the Maker, under Article X of that certain Second Amended
and Restated Credit Agreement, dated as of July 9, 1998 (as amended or
otherwise modified from time to time, the "Credit Agreement") among the
Maker, IQI, Inc. (the "Borrower"), the various financial institutions as are
or may from time to time become parties thereto (collectively, the
"Lenders"), The Bank of Nova Scotia as Documentation Agent and Administrative
Agent for the Lenders (in such capacity, the "Administrative Agent") and
Credit Suisse First Boston as Syndication Agent for the Lenders, to the
Lenders, the Issuers and the Agents (as such capitalized terms are defined in
the Credit Agreement). Such Guaranty Obligations relate to the indebtedness,
obligations and liabilities of Borrower arising out of or in connection with
the Credit Agreement (providing for Term Loans in the principal amount of
$33,737,500 and a Revolving Loan Commitment Amount of $30,000,000), the Notes
and/or any of the other Loan Documents, as such capitalized terms are defined
in the Credit Agreement, in each case as the same may be modified, renewed,
extended, refunded, refinanced, replaced (through new loan or security
agreements or otherwise), increased or decreased from time to time,
including, without limitation, as to all indebtedness, obligations and
liabilities of Borrower described in the foregoing, all principal, interest
(including any interest accruing subsequent to the date of, or which would
accrue but for a filing or a petition or other action commencing bankruptcy,
insolvency or similar proceedings with respect to the Borrower, whether or
not permitted as an enforceable claim against the Borrower pursuant to
applicable bankruptcy, insolvency or reorganization laws), and commitment,
agency, facility, structuring, restructuring and other fees payable in
connection therewith, together with any and all other expenses, indemnities
or amounts payable in connection therewith, including all expenses incurred
by the Lender Parties (as defined herein) in collecting all or any of the
above or enforcing any rights under the Credit Agreement, the Notes, each
other Loan Document, or any other agreement contemplated thereby (said
indebtedness, obligations and liabilities of the Borrower referred to above
being hereinafter collectively referred to as the "Bank Indebtedness"; the
Credit Agreement, the Notes and the other Loan Documents being collectively
referred to herein as the "Senior Debt Documents;" and the Lenders, the
Issuers and the Agents being collectively referred to herein as the "Lender
Parties"). As used in this Note, the phrases "payment in full" and "paid in
full" shall mean the payment in full in cash of such amount or obligations.
To the extent any payment in respect of the Guaranty Obligations (whether by
or on behalf of the Maker, as proceeds of security or enforcement of any
right of setoff or otherwise) is declared to be fraudulent or preferential,
set aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar persons under the bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then if such
payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar person, the Guaranty
Obligations or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
To the extent any Guaranty Obligation is declared to be fraudulent, invalid,
or otherwise set aside under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then the obligation so declared
fraudulent, invalid, or otherwise set aside (and all other amounts that would
come due with respect thereto had such obligations not been affected) shall
be deemed to be reinstated and
4
<PAGE>
outstanding as a Guaranty Obligation for all purposes hereof as if such
declaration, invalidity or setting aside had not occurred.
Subject to Section 5 hereof, no payment of principal or interest (other
than the issuance of Secondary Notes) may be made on the Subordinated
Indebtedness so long as any Guaranty Obligations remain in effect.
(b) Upon (i) any acceleration of the maturity of the Bank
Indebtedness, (ii) any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all
or any part of the property, assets or business of the Borrower upon any
dissolution, winding up, liquidation, or reorganization of the Borrower,
whether in bankruptcy, insolvency, receivership, reorganization, or other
similar proceeding or upon an assignment for the benefit of creditors, any
other marshaling of the assets and liabilities of the Borrower or any
proceeding by or against the Borrower for any relief under any bankruptcy,
reorganization or insolvency law or laws relating to the relief of debtors,
readjustment of indebtedness or reorganization, or otherwise (all or any of
the foregoing in this subsection (b)(ii) being referred to as a "Bankruptcy
Event") or (iii) the occurrence of a default in the payment of any principal
or interest due under the Credit Agreement (after the giving of any required
notice and the lapse of any applicable grace period in accordance with the
terms of the Credit Agreement, a "Payment Default") or the "Cash Flow
Coverage Ratio" (as defined in the Credit Agreement, as executed) being less
than 0.35:1 beginning for the Company's fiscal quarter ending December 31,
1998 or 1.00:1 for each fiscal quarter thereafter, which in either case is
not waived by the Lender Parties, and which, in the case of a Payment
Default, entitles the Lender Parties to accelerate the maturity of the Bank
Indebtedness (each such event in (i), (ii) and (iii) being referred to as a
"Subordination Event") and until such Subordination Event is rescinded,
waived or otherwise cured, the Lender Parties shall be entitled to receive
payment in full of the Guaranty Obligations before the Holder is entitled to
receive any payment on account of any principal or interest owing on this
Note (other than the issuance of Secondary Notes); PROVIDED, HOWEVER, that at
such time as an acceleration of maturity or Payment Default described in
clauses (i) or (iii) above is rescinded, cured or waived, or the Cash Flow
Coverage Ratio becomes equal to or greater than 0.35:1 beginning in the
Company's fiscal quarter ending December 31, 1998 or 1.00:1 for each fiscal
quarter thereafter, then the provisions of this subsection (b) shall no
longer be effective with respect to the event or occurrence which gave rise
to such Subordination Event, and subject to subsection (c) below, the Maker
shall resume making any and all payments of interest and principal on this
Note, including any missed payments.
(c) So long as the Guaranty Obligations remain in effect, the
Holder shall not (i) challenge the legality, validity, enforceability or
priority of the Bank Indebtedness or the legality, validity, enforceability,
perfection or priority of the liens granted pursuant to any of the Senior
Debt Documents or the rights of the Lender Parties under any of the Senior
Debt Documents; (ii) except as provided in Section 5 hereof, exercise any
remedy or commence,
5
<PAGE>
prosecute or participate in any action, whether private, judicial, equitable,
administrative or otherwise, including without limitation any bankruptcy
case, against the Maker or any of its assets to enforce any right under and
in respect to the Subordinated Indebtedness; or (iii) except as provided in
Section 5 hereof, have any right to accelerate the maturity of, or institute
any proceedings to enforce, any indebtedness evidenced by this Note or
otherwise take any action to collect or seek enforcement of payment of the
Subordinated Indebtedness or otherwise attempt to recover payment of the
Subordinated Indebtedness.
(d) Should any payment of any part of the Subordinated
Indebtedness be received by Holder in violation of the provisions of this
Section 4, such payment shall be delivered forthwith to the Administrative
Agent on behalf of the Lender Parties by the Holder for application to the
Guaranty Obligations in the form received except for the addition of any
endorsement or assignment necessary to effect the transfer of all rights
therein to the Administrative Agent on behalf of the Lender Parties. The
Administrative Agent is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until such delivery,
any such payment or collateral shall be held by the Holder in trust for the
Administrative Agent on behalf of the Lender Parties and shall not be
commingled with other funds or property of the Holder. The Holder further
agrees not to sell, assign, transfer, or endorse his claim or claims under
the Subordinated Indebtedness, no matter how evidenced, to anyone without
obtaining such transferee's consent to be bound by the provisions, of this
Section 4.
(e) The Holder agrees and consents that the Administrative Agent
and the Lender Parties shall have uncontrolled power and discretion, without
notice to the Holder, to deal in any manner with the Guaranty Obligations and
the Bank Indebtedness and with all principal, interest, late charges, costs,
and expenses payable by, or the liability of the Borrower under the Senior
Debt Documents or any other obligor in respect of the Bank Indebtedness and
the Senior Debt Documents (such obligors, together with the Borrower being
referred to herein individually as an "Obligor", and, collectively, as the
"Obligors") to such Lender Parties arising therefrom, and with any security
and guarantees therefor, including, but not by way of limitation, any
release, surrender, extension, renewal, acceleration, compromise, or
substitution.
(f) This Section 4 shall continue in full force and effect until
the Guaranty Obligations have been terminated or shall have expired pursuant
to its terms. The Lender Parties may continue, without notice to the Holder,
to extend Bank Indebtedness on the faith of this Section 4 until the Guaranty
Obligations have been terminated or shall have expired pursuant to its terms.
(g) The Holder acknowledges and agrees that the Lender Parties
will rely upon the subordination provisions contained herein in continuing to
extend credit to the Borrower and has relied upon such provisions in entering
into the Credit Agreement. In furtherance of the foregoing, the Holder
hereby waives notice of or proof of reliance hereon.
6
<PAGE>
(h) No present or future Lender Parties shall be prejudiced in
their right to enforce the subordination contained herein in accordance with
the terms hereof by any act or failure to act on the part of the Borrower.
(i) Nothing in this Section 4 is intended as between the Maker and
the Holder to impair in any way the obligation of the Maker to pay all
amounts due hereunder in accordance with the other provisions of this Note
and to perform and comply in all respects with all of its other obligations
under this Note in a timely manner.
(j) Notwithstanding any other provision contained herein, the
Subordinated Indebtedness shall be subordinate to the prior payment in full
of the Guaranty Obligations only for so long as the aggregate amount of the
Term Loans and the Commitments (as such terms are defined in the Credit
Agreement, and hereinafter collectively referred to as the "Lenders'
Commitment") do not exceed at any time $70,000,000.
5. HOLDER'S RIGHTS.
(a) If (i) all the Bank Indebtedness shall have become or be
declared to be immediately due and payable, (ii) the Maker shall default in
the payment of any interest payable under this Note when due, and if any
Guaranty Obligations remain in effect, and such default shall continue
unremedied for a period of six months, or (iii) a Sub Event of Default (as
defined herein) shall have occurred then, and in any such event, the holders
of 66-2/3% of the aggregate principal amount of this Note and all other notes
issued pursuant to the Commitment Letter then outstanding may at their
option, by the delivery of written notice to the Maker and the Administrative
Agent, declare this Note to be due and payable, whereupon (subject to the
next two sentences) the unpaid principal amount of and accrued interest on
and all other amounts owing under this Note shall forthwith mature and become
due and payable, all without presentment, demand, protest or other notice,
all of which are hereby expressly waived. If payment of the Note is
accelerated in accordance with the foregoing, the Maker shall promptly notify
the Administrative Agent of the acceleration. If the Guaranty Obligations are
outstanding or remain in effect, (x) neither the Maker nor any other person
may pay this Note until 15 days after the Administrative Agent has received
notice of such acceleration, and (y) in any event, neither Maker nor any
other person may pay this Note so long as any Subordination Event shall have
occurred and shall be continuing in effect.
(b) At any time after this Note is declared due and payable, as
provided above, the holders of 66-2/3% of the aggregate principal amount of
this Note and all other notes issued pursuant to the Commitment Letter then
outstanding, by written notice to the Maker, may rescind and annul any such
declaration in respect of this Note and its consequences if (i) the Maker has
paid all overdue interest on this Note, and (ii) all Sub Debt Events of
Default (as defined herein), other than non-payment of amounts which have
become due solely by reason
7
<PAGE>
of such declaration, have been cured or waived by such holders; PROVIDED,
that no such rescission and annulment shall extend to or affect any
subsequent Sub Debt Event of Default or impair any right consequent thereon.
(c) Upon the occurrence of (i) a Company Sale or (ii) the
Maturity Date, the Maker shall repay in full the principal amount of the
Subordinated Indebtedness, together with all accrued interest thereon, and
notwithstanding that any Guaranty Obligations remain in effect on such
repayment date, and notwithstanding the provisions of Section 4, such
repayment shall be made unless (x) a Bankruptcy Event has occurred or (y) the
maturity of the Bank Indebtedness has been accelerated, in either of which
case, any and all such repayments shall be subject to Section 4.
6. UNSECURED NOTE. This Note is not secured by a security interest in
any assets.
7. DEFAULT RATE. After the occurrence and during the continuance of a
Sub Debt Event of Default (as defined below), in addition to all other rights
and remedies, the outstanding principal balance of this Note (and to the
extent permitted by applicable law, all unpaid interest) shall bear interest
at a rate equal to fifteen percent (15%) per annum, or such lesser rate which
is the maximum rate of interest permitted by law. A "Sub Debt Event of
Default" shall occur if:
(a) default shall be made in the payment of any amount of interest
on this Note when due (without giving effect to any grace period) and such
default shall continue for a period of five days after the Holder shall have
sent the Maker written notice of such default; or
(b) default shall be made in the payment of any amount of
principal due under this Note, when due; or
(c) a Subordination Event shall have occurred and be continuing; or
(d) the Maker shall apply for or consent to the appointment of a
custodian, receiver, trustee or liquidator, or other court-appointed
fiduciary of all or a substantial part of its properties; or such a
custodian, receiver, trustee or liquidator or other court-appointed fiduciary
shall be appointed with or without the consent of the Maker; or the Maker is
generally not paying its debts as they become due by means of available
assets or is insolvent, or makes a general assignment for the benefit of
creditors; or the Maker files a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization or arrangement with creditors or
seeking to take advantage or any insolvency law, or an answer admitting the
material allegations of a petition in any bankruptcy, reorganization or
insolvency proceeding or has taken action for the purpose of effecting any of
the foregoing; or within 60 days after the commencement of any proceeding
against the Maker seeking any reorganization, rehabilitation, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
the U.S. Bankruptcy
8
<PAGE>
Code or any comparable state law or any successor law or the appointment of
any trustee, receiver, custodian, liquidator, or other court-appointed
fiduciary of the Maker or of all or any substantial part of its properties,
such order or appointment shall not have been vacated or stayed on appeal or
otherwise or if, within 60 days after the expiration of any such stay, such
order or appointment shall not have been vacated.
8. CONVERSION.
(a) Until this Note has been paid in full, the unpaid principal
balance of this Note, or any portion thereof, may be converted, at the option
of Holder, into a number of fully paid and nonassessable shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), equal
to (i) that portion of the unpaid principal balance of this Note being
converted, divided by (ii) $2.375, subject to adjustment as provided herein
(the "Conversion Price"); PROVIDED, HOWEVER, that in lieu of any fractional
share of the Company's Common Stock that would otherwise be issued to Holder
pursuant to this Section, Holder shall receive one share of the Company's
Common Stock for such fractional share.
(b) The conversion of this Note into Common Stock may be effected
at any time, on any business day prior to payment, and thereupon the
indebtedness owed under this Note, with respect to the unpaid principal
balance of this Note which has been converted, shall be extinguished.
(c) The Company shall at all times reserve and keep available for
issuance upon the conversion of the unpaid principal balance, or any portion
thereof, of this Note such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the conversion in full of the
principal amount of this Note.
(d) The number of shares of Common Stock, or the type of
securities, receivable upon conversion of this Note shall be adjusted or
amended as follows:
(i) In case of any reorganization of the Company (or any other
corporation, the stock or other securities of which are at the time
receivable on the conversion of this Note) after July 28, 1998 (the "Issue
Date"), or in case, after such date, the Company (or any such other
corporation) shall consolidate with or merge into another corporation
(other than the merger of a wholly owned subsidiary into the Company) or
convey all or substantially all its assets to another corporation, then and
in each such case Holder, upon the conversion hereof at any time after the
consummation of such reorganization, consolidation, merger or conveyance,
shall be entitled to receive, in lieu of the stock receivable upon the
conversion of this Note prior to such consummation, the stock or other
securities or property to which Holder would have been entitled upon such
consummation if Holder had converted this Note immediately prior thereto.
(ii) If the Company at any time or from time to time after the
Issue Date makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive, a dividend payable in additional
shares of Common Stock, then and in each such event the Conversion Price
then in effect shall be decreased as of the time of such issuance
9
<PAGE>
or, in the event such record date is fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date, and (2) the denominator of
which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend; provided, however, that if such
record date is fixed and such dividend is not fully paid on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this subparagraph (ii) as of the time of
actual payment of such dividends.
(iii) If the Company at any time or from time to time after
the Issue Date effects a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision shall
be proportionately decreased and the number of shares of Common Stock
theretofore receivable upon the conversion of this Note shall be
proportionately increased. If the Company at any time or from time to time
after the Issue Date combines the outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price then in effect immediately
before that combination shall be proportionately increased and the number
of shares of Common Stock theretofore receivable upon the conversion of
this Note shall be proportionately decreased. Each adjustment under this
subparagraph (iii) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(iv) In each case of an adjustment in the shares of Common Stock
receivable on the conversion of this Note, the Company at its expense shall
cause independent public accountants of recognized standing selected by the
Company (who may be the independent public accountants then auditing the
books of the Company) to compute such adjustment in accordance with the
terms of this Note and prepare a certificate setting forth such adjustment
and showing the facts upon which such adjustment is based. The Company
will forthwith mail a copy of each such certificate to Holder.
(e) The Company will not, by amendment of its certificate of
incorporation or through reorganization, consolidation, merger, dissolution,
issue or sale of securities, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Note, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Note against
impairment. Without limiting the generality of the foregoing, the Company
will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the conversion of the unpaid principal balance of this
Note at the time outstanding.
(f) In case (A) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon
the conversion of the unpaid principal balance of this Note) for the purpose
of entitling them to receive any dividend or other distribution, or any right
to subscribe for or purchase any shares of stock of any class or any other
securities, or
10
<PAGE>
to receive any other right, or (B) of any Company Sale, or (C) of any
voluntary dissolution, liquidation or winding-up of the Company, then, and in
each such case, the Company will mail or cause to be mailed to Holder a
notice specifying, as the case may be, (i) the date on which a record is to
be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (ii) the
date on which such Company Sale is to take place, and the time, if any is to
be fixed, as of which the holders of record of Common Stock (or such stock or
securities at the time receivable upon the conversion of the unpaid principal
balance of this Note) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such Company Sale, or (ii) the effective date of any such
voluntary dissolution, liquidation or winding-up of the Company. Such notice
shall be mailed at least 30 days prior to the date therein specified.
9. USE OF PROCEEDS. The Company shall use the proceeds of this Note
for working capital and general corporate purposes.
10. COLLECTION COSTS. The Maker shall pay the Holder the reasonable
attorneys' fees and costs incurred to collect the unpaid principal balance
and interest owing on this Note and otherwise to enforce the Holder's rights
and remedies under this Note.
11. MODIFICATIONS; WAIVERS. Subject to subsection (b) below, (a) this
Note may not be amended, modified, extended, discharged or waived orally or
by course of conduct, except by an agreement in writing, signed by the party
against whom enforcement of any amendment, modification, extension,
discharge, or waiver is sought; A waiver of any provision of this Note or of
any breach thereof shall not be deemed or construed as a general waiver of
such provision or any other provision hereof or of any rights hereunder; No
failure or delay in exercising any right or remedy hereunder operates as a
waiver thereof; No single or partial exercise of any right or remedy
hereunder precludes any other or further exercise of any right or remedy
hereunder and the exercise of any right or remedy hereunder does not preclude
the simultaneous or later exercise of any other rights or remedies available
at law or in equity.
(a) Notwithstanding anything to the contrary herein, each of the
parties hereto acknowledges and agrees that certain of the provisions
contained herein (including the subordination provisions of Section 4 hereof)
are solely for the benefit of the Lender Parties and their representatives,
assignees and beneficiaries, and this Note may not be rescinded, cancelled,
amended or modified in any way, and this Note may not be assigned, sold,
pledged as security or otherwise transferred nor may any provision of this
Note be waived or changed, nor may the indebtedness evidenced hereby be
cancelled, compromised or discharged in whole or in part, in each case,
without the prior written consent thereto of, so long as the Guaranty
Obligations shall remain in effect, the Administrative Agent (on behalf of
the Lender Parties), provided that such consent shall not be unreasonably
withheld in connection with an assignment to the Holder's spouse or children
or trusts for the benefit of the Holder's spouse, children or more remote
descendants of such persons.
11
<PAGE>
12. HEADINGS. All headings in this Note are for convenience of reference
only and do not affect the meaning of any provision.
13. PARTIAL INVALIDITY. If any provision of this Note is at any time held
to be invalid by any court of competent jurisdiction, such invalidity shall not
effect the remaining provisions of this Note, which shall continue to be in full
force and effect.
14. NO THIRD PARTIES BENEFITTED. The provisions contained in this Note
are solely for the benefit of Maker, Holder and Lender Parties and their
respective successors and permitted assignees, and no other person or entity,
including, without limitation, any guarantor of the obligations of Maker or a
trustee in bankruptcy, is intended to be a third party beneficiary hereunder, or
to have any right, remedy, claim, benefit, priority or interest under (or
because of the existence of), or shall have any right to enforce, this Note.
15. WAIVERS. The Maker hereby waives presentment, demand for payment,
protest, notice of protest and notice of dishonor of this Note. The Maker
hereby further waives any claim, right or remedy, direct or indirect, that
Maker may now or hereafter have to enforce the subordination provisions
contained herein against Holder, in each case whether any such claim, right
or remedy arises in equity, by contract or statute, under common law or
otherwise and based on any claim, right or remedy whatsoever, including,
without limitation, (a) any right of subrogation, reimbursement or
indemnification that Maker may now or hereafter have against Borrower, (b)
any claim or right to enforce, or participate in, any claim, right or remedy
which the Lender Parties may now or hereafter have against Borrower, and (c)
any benefit of, or any right to participate in, any collateral or security
for the benefit of Lender Parties.
12
<PAGE>
16. GOVERNING LAW. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
MAKER:
AEGIS COMMUNICATIONS GROUP, INC.
By:
-----------------------------------
An Authorized Officer
The terms and conditions set forth in this Convertible
Promissory Note are acknowledged, understood and accepted.
- -----------------------------------
By:
--------------------------------
An Authorized Person
THE BANK OF NOVA SCOTIA,
as Administrative Agent for Lenders under the Credit
Agreement (as such terms are defined in the foregoing
Convertible Promissory Note)
By:
--------------------------------
An Authorized Person
13
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0
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